t c summary opinion united_states tax_court james david shiley petitioner v commissioner of internal revenue respondent docket no 13418-09s filed date james david shiley pro_se emly b berndt for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure for respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax the sole issue for decision is whether payments petitioner made in to his former wife are deductible as alimony background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by reference when petitioner filed his petition he resided in ohio petitioner was married on date approximately years later he and his former wife separated and on date they entered into a separation agreement agreement the agreement provided that neither party would be entitled to receive spousal support and both parties waived any future claim thereto the agreement also included several provisions regarding the division of property providing in pertinent part as a further division of property husband shall pay to wife the sum of sixty-five thousand dollars dollar_figure plus the marital portion of cola as detailed below as follows five thousand dollars dollar_figure upon the 1the divorce decree signed date fully incorporated the terms of the separation agreement granting of a decree of divorce or date whichever occurs first and the balance as follows a five hundred dollars dollar_figure per month commencing date and due and payable on the 10th day of each month thereafter for months ending date said monthly payments shall be increased by the marital portion of cola compounded commencing date and each july 10th thereafter until the obligation has been satisfied in full b rights of survivorship during the term of this obligation and until this obligation is satisfied in full husband covenants that he shall submit to all physicals and sign all documents required for wife to purchase a life_insurance_policy on his life in the amount of fifty thousand dollars dollar_figure to secure this obligation at wife’s cost c nature of obligation the parties agree that the payments hereunder are a division of property husband agrees that he will pay and save wife harmless from any liability on any and all taxes attributable to this obligation and the payments hereunder except however in the event husband attempts to discharge this obligation through bankruptcy or other means he shall continue all such payments as spousal support increased by wife’s tax obligations thereon husband agrees that his obligation hereunder is binding upon his heirs executors administrators and assigns and shall become an obligation of his estate it is agreed that this agreement shall be binding upon the heirs executors administrators next of kin and assigns of each party thereto with respect to his obligation pursuant to the agreement in petitioner paid his former wife dollar_figure which he deducted on his federal_income_tax return as alimony on date respondent issued to petitioner a statutory_notice_of_deficiency disallowing petitioner’s alimony deduction i burden_of_proof discussion generally the commissioner’s determinations are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a see 503_us_79 290_us_111 ii alimony payments sec_215 allows a deduction for alimony paid during the payor’s taxable_year sec_215 defines alimony or separate_maintenance as any payment as defined in sec_71 which is includible in the gross_income of the recipient under sec_71 sec_71 provides a four-step inquiry for determining whether a cash payment is alimony sec_71 alimony or separate_maintenance payments defined --for purposes of this section-- in general --the term alimony_or_separate_maintenance_payment means any payment in cash if-- 2petitioner has not claimed or shown that he meets the requirements under sec_7491 to shift the burden_of_proof to respondent as to any factual issue relating to his liability for tax a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse payments are deductible as alimony only if all four requirements of sec_71 are met respondent agrees that petitioner satisfies subparagraphs a and c of sec_71 the parties disagree however as to whether petitioner’s payment was designated a payment not includable in gross_income and whether petitioner’s payment obligation would terminate upon the death of his former wife see sec_71 d we first address the requirement of sec_71 which provides that a payment will not be alimony if the governing divorce_or_separation_instrument designates the payment not includable in gross_income under sec_71 and not allowable as an alimony deduction under sec_215 a divorce_or_separation_instrument contains a nonalimony designation if the substance of such a designation is reflected in the instrument 112_tc_317 affd without published opinion sub nom schutter v commissioner 242_f3d_390 10th cir generally the divorce or separation agreement must provide a clear explicit and express direction that the payments are not to be treated as alimony 125_f3d_551 7th cir affg tcmemo_1995_554 but the designation need not mimic the statutory language of sec_71 and sec_215 estate of goldman v commissioner supra pincite a nonalimony designation will be found if the substance of such a designation is reflected in the instrument estate of goldman v commissioner supra petitioner’s separation agreement unambiguously provides that he shall pay his former wife as a further division of property dollar_figure the agreement characterizes petitioner’s obligation as a division of property part and parcel of petitioner’s payment_liability was his further agreement that he will pay and save wife harmless from any liability on any and all taxes attributable to this obligation and the payments hereunder the agreement in addition sets forth as a separate general provision that neither party shall be entitled to receive spousal support from the other while petitioner did not focus on any particular provision in the agreement there is a colorable argument that the payment obligation satisfies sec_71 because of the provision that in the event of an attempt to discharge the obligation in bankruptcy the obligation shall continue as spousal support increased by wife’s tax obligations thereon notwithstanding the foregoing language the court concludes that when the agreement is read as a whole it reflects an intent and agreement of the parties that the payments are pursuant to a division of property as opposed to spousal support and are not to be includable in the gross_income of petitioner’s former wife see fields v commissioner tcmemo_2008_207 see also hoover v commissioner tcmemo_1995_183 where payments of sum certain are made over a definite period regardless of contingencies it is as a matter of law a division of property affd 102_f3d_842 6th cir petitioner’s payments were made to his former wife as part of a division of property his former wife was not liable for 3petitioner has not alleged that the payment obligation was actually converted to spousal support 4ohio rev code ann sec dollar_figure lexisnexis also provides that spousal support does not include any payment made to a spouse that is made as part of a division or distribution_of_property any taxes attributable to those funds and neither party was entitled to spousal support pursuant to the agreement upon consideration of the agreement the court concludes that petitioner’s payments made to his former wife pursuant to a division of property are not deductible as alimony respondent’s determination is sustained the court notes that even if petitioner’s payments satisfied sec_71 they do not satisfy sec_71 because the payments do not terminate upon the death of petitioner’s former wife the court finds that the agreement contains a nonalimony designation within the meaning of sec_71 and a liability for payment that survives the death of the payee spouse as described in subparagraph d of sec_71 thus petitioner’s payment of dollar_figure in to his former wife was not deductible_alimony 5the agreement provides that the obligations of the parties shall be binding upon the heirs executors administrators next of kin and assigns of each party hereto see hoover v commissioner tcmemo_1995_183 affd 102_f3d_842 6th cir cunningham v commissioner tcmemo_1994_474 pursuant to the agreement petitioner is obligated to fulfill his payment_liability an obligation which does not terminate at the death of either party other arguments made by the parties and not discussed herein were considered and rejected as irrelevant without merit or moot to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service washington d c o f f ic e o f c h ief c o u n sel uil number info release date the honorable ralph regula u s house of representatives washington dc attention karen buttaro dear mr regula cc it a cor-111253-00 date this letter is in response to your date request for information to the internal_revenue_service irs office of legislative affairs you asked two questions if a person grants a utility company an easement on his property to lay an electrical line and receives a fee for this easement is the amount taxable and if a person conveys a property but reserves a life_estate with the right to use the property can he still deduct the mortgage interest and property taxes the answer to the first question depends upon the taxpayer’s specific facts an easement is an interest in property gains derived from dealings in property must be included in gross_income thus proceeds received from the granting of an easement must be included in gross_income to the extent they constitute gain ie to the extent the proceeds exceed the allocable basis of the property subject_to the easement sec_61 of the internal_revenue_code the code the answer to your second question is that generally the payment of home mortgage interest is deductible as long as the taxpayer is personally liable for the mortgage and the mortgage is secured_by the taxpayer’s home main home or a second home a life_estate interest will qualify as the life tenant’s home but only if he actually uses the property as his home simply owning the life_estate without using it as a home is not sufficient thus if the other requirements for home mortgage interest are met the interest_paid by the taxpayer is deductible sec_163 of the code similarly property taxes paid_by the owner of a life_estate are deductible as long as the life_tenant has the duty to pay the tax or the payment is made to protect his interest in the property however the person owning the remainder_interest in the property may not claim a deduction for these same expenditures property taxes can be deducted only by the person who pays them sec_164 of the code i hope this information is helpful to you if you have additional questions or we can assist you further please call john m fischer pincite-4950 sincerely heather c maloy associate chief_counsel income_tax and accounting


mark d and jennifer l summitt petitioners v commissioner of internal revenue respondent docket no filed date p-h is a 10-percent_shareholder in s an s_corporation on date s paid premiums to acquire two major foreign_currency options from b and received premiums when it sold two written minor foreign_currency options to b the pur- chased major foreign_currency options were a reciprocal put and call exactly offsetting each other the written minor for- eign currency options also were a reciprocal put and call exactly offsetting each other on date s assigned the major foreign_currency call option and the minor foreign_currency call option to a charity pursuant to an assignment agreement in which the charity was substituted for s with respect to all obligations under the minor foreign_currency call option r filed a motion for partial summary_judgment seeking a determination that s did not recognize loss under sec_1256 i r c upon its assignment of the major for- eign currency call option to charity and that s must recog- nize gain upon its assignment of the minor currency call option to charity ps contend that the major foreign cur- rency call option assigned to the charity is a sec_1256 i r c foreign_currency_contract so that loss if any on the assign- ment of that option was recognized by s in under the marked-to-market rules of sec_1256 and c i r c and that gain if any on the assignment of the minor foreign cur- rency call option to the charity was not recognized by s because the minor foreign_currency option was not a sec_1256 i r c contract and the assignment by s to the charity did not terminate the option held under sec_1256 i r c the major foreign_currency call option is not a foreign cur- rency contract as defined in sec_1256 and g i r c and the marked-to-market provisions of sec_1256 i r c do not apply to enable s to recognize the loss on the assignment of the major foreign_currency option to the charity held fur- ther there are genuine issues of material fact remaining with respect to the income_tax treatment of the assignment of the minor foreign_currency call option to the charity that require trial verdate 0ct date jkt po frm fmt sfmt v files summitt sheila summitt v commissioner john e rogers and colin c laitner for petitioners john comeau and jeffrey dorfman for respondent opinion haines judge this case is before the court on respond- ent’s motion for partial summary_judgment pursuant to rule respondent raises two issues for decision in his motion whether under the marked-to-market rules of sec_1256 j summitt inc summitt an s_corporation recognized loss upon its assignment to charity of a major for- eign currency call option and whether summitt was required to include in its income upon its assignment to charity of a minor foreign_currency call option the premium it received as writer of that option the following facts are based upon the parties’ pleadings affidavits and exhibits in support of and in opposition to the motion for partial summary_judgment they are stated solely for the purpose of deciding the motion and not as findings_of_fact in this case see fed r civ p a background the loss petitioners claim came from summitt’s offsetting foreign_currency option transactions the income_tax effects of which flowed through to petitioners’ joint federal_income_tax return summitt is a california corporation with its principal_place_of_business in san clemente summitt was incorporated on date and elected on date to be treated as an s_corporation under sec_1361 petitioner mark d summitt petitioner is a percent shareholder in summitt petitioners resided in mon- rovia california at the time the petition was filed during summitt engaged multi national strategies llc multi national located in new york city to provide advice with respect to foreign_currency option transactions and to serve as depositary for funds needed for the trans- actions on date summitt entered into agree- ments with beckenham trading co inc beckenham with its principal_place_of_business in fort lee new jersey to unless otherwise indicated all section references are to the internal_revenue_code code as amended and all rule references are to the tax_court rules_of_practice and procedure amounts are rounded to the nearest dollar verdate 0ct date jkt po frm fmt sfmt v files summitt sheila united_states tax_court reports engage in cross-currency transactions the agreements between beckenham and summitt recited that the trans- actions were intended to be exempt from and otherwise not subject_to regulation under the commodity exchange act beckenham was designated the calculation agent for the transactions to determine all amounts due to or from each party in accordance with terms specified in the agreements with summitt on date summitt authorized multi national to purchase two 180-day major foreign_currency option sec_2 and to sell on behalf of summitt two 180-day writ- ten minor foreign_currency options on date summitt purchased from beckenham two major currency options each pegged to the u s dollar usd and the euro- pean union euro eur the major currency options were a reciprocal put and call exactly offsetting each other the purchased major options moved inversely in value to one another over the 180-day period thus ensuring that summitt would hold a loss position in one of the two purchased options the eur call option and the eur put option had a notional value of eur big_number a strike_price of dollar_figure88 usd eur and an expiration date of date the party obligated to perform if the holder exercises the option is the writer of the option beckenham was the writer of the major currency options and obligated itself to perform at the discretion of summitt as the purchaser and holder of the major currency call option summitt by exercising the option could require beckenham to deliver the euro at a price of dollar_figure88 usd eur as the purchaser and holder of the put option summitt by exercising the option could require beckenham to take delivery of the euro at a future date or dates at a price of dollar_figure88 usd eur the price specified in a major foreign_currency is a currency in which positions are traded through regu- lated futures contracts sec_1256 the term regulated_futures_contract as defined in sec_1256 means a contract- a with respect to which the amount required to be de- posited and the amount which may be withdrawn depends on a system of marking to market and b which is traded on or subject_to the rules of a qualified_board_or_exchange major cur- rencies include the u s dollar british pound japanese yen swiss franc and european union euro minor currencies include the danish krone the numbers in parentheses are trade references used to identify the various option trans- actions verdate 0ct date jkt po frm fmt sfmt v files summitt sheila summitt v commissioner the contract at which the euro would be purchased pursuant to exercise of the put or call option is the strike_price on the same day that summitt purchased the major cur- rency options summitt wrote and sold to beckenham two minor currency options each pegged to the usd and the danish krone dkk the written minor currency options were a reciprocal put and call exactly offsetting each other the written minor options moved inversely in value to one another over the 180-day period thus ensuring that summitt would hold a gain position in one of the two minor currency options the dkk call option and the dkk put option had a notional value of dkk big_number with a strike_price of dkk usd and a bonus payout of dkk big_number if the dkk usd strike_price was greater than dkk the expiration date for both minor currency options was date summitt the writer of the minor currency options obli- gated itself to perform at the discretion of beckenham as the purchaser and holder of the minor currency call option beckenham by exercising the option could require summitt to deliver danish kroner at a price of dkk usd as the purchaser and holder of the put option beckenham by exer- cising the option could require summitt to take delivery of kroner at a future date or dates at a price of dkk usd the values of the two foreign_currencies underlying the purchased major and written minor options historically have demonstrated a very high positive correlation with each other as the currencies change in value because of exchange rate fluctuations summitt could reasonably expect to have the following potential gains and losses in substantially off- setting positions a loss in a purchased major option and a gain in a written minor option and a gain in a pur- chased major option and a loss in a written minor option at any time summitt’s loss in the purchased major option that had declined in value might be more or less than summitt’s gain in the offsetting written minor option that had appre- ciated in value similarly summitt’s gain in the remaining purchased major option might be more or less than summitt’s loss in the remaining written minor option the premiums beckenham charged for the major currency options totaled dollar_figure consisting of a dollar_figure pre- mium for the eur call option and a dollar_figure verdate 0ct date jkt po frm fmt sfmt v files summitt sheila united_states tax_court reports premium for the eur put option the premiums charged by summitt for the minor currency options totaled dollar_figure consisting of a dollar_figure premium for the dkk call option and a dollar_figure premium for the dkk put option the net premium paid_by summitt in respect of the two major and two minor options was dollar_figure two days later on date summitt assigned to the foundation for educated america inc charity the eur call option and the dkk call option at the time of the assignment the potential loss on the eur call option was dollar_figure and the potential gain on the dkk call option was dollar_figure on date summitt closed out the eur put option and the dkk put option by agreeing with beckenham to offset those options against each other in summitt filed a form_1120s u s income_tax return for an s_corporation for original return reporting gross_receipts of dollar_figure less dollar_figure cost_of_goods_sold resulting in a gross_profit of dollar_figure summitt also reported the following currency_transactions on statement attached to the return total premiums of dollar_figure charged for the two major currency options less total pre- miums received of dollar_figure for the two minor currency options schedule a to the assignment agreement corporate minutes and correspondence all des- ignate date as the effective date verdate 0ct date jkt po frm fmt sfmt v files summitt sheila summitt v commissioner dollar_figure s s o l n i a g r e h t o r o t s o c s i s a b e c i r p e l a s s s o r g d l o s e t a d e d a r t dollar_figure dollar_figure - - - - - - - - - - - - - - - - - - e t a d d e r i u q c a e d a r t - - - - - - - - - - - - - - - - - - y t r e_p o r p n o i t p i r c s e d d u a d u a r u e r u e d u a d u a r u e r u e k k d n o i t p o l l a c r u e t u p r u e t u p k k d - - - - - - - - - - - - - - - - - - l a t o t h c a e r o f e c i r p e l a s s s o r g e h t s n o i t p o e h t f o r e t i r w t t i m m u s o t m a h n e k c e b y b d i a p m u i m e r p e h t s a w n o i t p o r o n i m h c a e r o f e c i r p y b d e n i m r e t e d s a w n o i t p o r o n i m h c a e r o f t s o c e h t m a h n e k c e b o t t t i m m u s y b d i a p m u i m e r p e h t s a w n o i t p o r o j a m h c a e r o f s i s a b r e h t o r o t s o c e h t s e s o p s n a r t n r u t e r e h t n o i t p o s i d n o c e s e h t d n a n o i t p o s i d e t s i l e d a r t t s_r i f e h t d e t s i l s e d a r t o w t t s_r i f e h t n o s e t a d n i e k a t s i m e h t e t o n d e n i a l p x e n u s i e c n e r e f f i d dollar_figure e h t d n a dollar_figure s a w m u i m e r p e h t dollar_figure s i n r u t e r e h t n o d e t r o p e r t n u o m a e h t t a h t e t o n c e d n o d e s o l c s a w d n a t p e s n o d e r r e f s n a r t s a w d e s o l c d e r r e f s n a r t s e t a d e h t t n e m e t a t s e v o b a o t n r e_p c e d e b d l u o h s e t a d e h t m a h n e k c e b y b d e n i m r e t e d e l a s s s o r g e h t s a w n o i t p o r o j a m m a h n e k c e b verdate 0ct date jkt po frm fmt sfmt v files summitt sheila united_states tax_court reports summitt did not report gain from the disposition of the dkk call option on its original return the dollar_figure loss from statement was subtracted from gross_profit of dollar_figure to arrive at total income of dollar_figure business deductions of dollar_figure were claimed resulting in ordinary_income of dollar_figure as a 10-percent_shareholder of summitt petitioner reported dollar_figure ordinary_income from summitt on his timely filed joint form_1040 u s individual_income_tax_return for summitt filed a first amended form_1120s for first amended_return on date reporting the same gross_receipts cost_of_goods_sold and gross_profit shown on the original return however summitt amended the currency_transactions reported on statement attached to the return by adding the following entry to report the gain on the dkk call option property description trade_date acquired trade_date sold gross sale price cost or other basis gain loss dkk big_number dollar_figure dollar_figure dollar_figure option dkk call by reporting the gain of dollar_figure from the disposition of the dkk call option the dollar_figure loss reported on the original return was reduced to dollar_figure on the first amended_return as a result rather than reducing gross_profit of dollar_figure by dollar_figure gross_profit was reduced by dollar_figure on the first amended_return resulting in total income of dollar_figure subtracting the claimed business deductions of dollar_figure unchanged from the original return resulted in reported ordinary_income of dollar_figure on date petitioners filed a first amended_return for on which they increased their flow-through income from summitt to dollar_figure petitioners’ first amended_return reported an additional tax due of dollar_figure the internal_revenue_service irs assessed this additional tax and on date petitioners paid the tax including interest in the total amount of dollar_figure on date summitt attempted to file a second amended_return for which reinstated its position that the receipt of a premium on the dkk call option was not taxable the second amended_return was a restatement of the original return petitioners also attempted to file a verdate 0ct date jkt po frm fmt sfmt v files summitt sheila summitt v commissioner second amended_return for to be consistent with summitt’s second amended_return neither of the second amended returns was accepted by the irs on date respondent issued a notice of defi- ciency to petitioners for which disallowed a dollar_figure flow- through loss from summitt’s foreign_currency option trans- actions disclosed on the first amended_return on date petitioners mailed a petition to this court in their petition petitioners disavowed portions of first amended_return and asserted that their share of the dollar_figure premium summitt received for the sale of the dkk call option option was not includable in income their on date respondent filed the motion for par- tial summary_judgment seeking determinations that the marked-to-market rules of sec_1256 do not apply to the eur call option and that summitt must include in income in the premium received upon the issuance of the dkk call option because the assignment of the option to charity caused a novation petitioners filed an objection to the motion on date respondent filed a reply on date and a supplemental memorandum on date the court held a hearing on the motion on date posthearing memoranda were received from petitioner and respondent on august and date respectively i procedure discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials fla peach corp v commissioner 90_tc_678 the court may grant summary_judgment when there is no genuine issue of mate- rial fact and a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir 90_tc_753 the moving party petitioners executed a form_872 consent to extend the time to assess tax extending the time to assess for to date the court received the petition on date but the petition was postmarked and deemed filed on date verdate 0ct date jkt po frm fmt sfmt v files summitt sheila united_states tax_court reports bears the burden of proving that there is no genuine issue of material fact 85_tc_812 85_tc_527 the court will view any factual material and inferences in the light most favorable to the nonmoving party dahlstrom v commissioner supra pincite naftel v commissioner supra pincite after reviewing the record we are satisfied that there is no genuine issue of any material fact on the sec_1256 issue and that a decision may be rendered as a matter of law respondent’s motion will be granted denying the purported loss on assignment of the major foreign_currency call option to charity on the second issue with respect to purported gain on the assignment of the minor foreign_currency call option there are issues of material fact that require a trial and respondent’s motion will be denied ii background this is a case of first impression that requires interpreta- tion of the term foreign_currency_contract as defined in sec_1256 the term first appeared in the code in and although the secretary was granted authority in to issue regulations to determine what types of contracts were included or excluded by the term no such regulations have been issued nor has the term been interpreted by the courts as we shall see sec_1256 applies to futures and options contracts that are traded on a qualified exchange a qualified exchange means a national securities exchange which is reg- istered with the securities_and_exchange_commission a domestic board_of trade designated as a contract market by the commodity futures trading commission or any other exchange board_of trade or other market which the sec- retary determines has rules adequate to carry out the pur- poses of sec_1256 sec_1256 sec_1256 also covers contracts that are not traded on a qualified exchange ie foreign_currency contracts that are negotiated with any one of a number of commercial banks which provide an informal market for such trading the issue before us is whether a major foreign_currency call option a non-exchange-traded contract comes within the meaning of foreign_currency_contract so as to qualify for sec_1256 verdate 0ct date jkt po frm fmt sfmt v files summitt sheila summitt v commissioner treatment petitioners argue that the plain meaning of the definition of foreign_currency_contract in sec_1256 should be interpreted broadly to include a major foreign cur- rency option respondent argues that the plain meaning of that definition should be interpreted narrowly to include only a forward_contract not an option the issue arises in the context of what are sometimes known as major minor transactions in the typical major minor transaction the taxpayer assigns to a charity a major foreign_currency call option that has a potential loss the charity also assumes the taxpayer’s obligation under the off- setting minor foreign_currency call option that has a poten- tial gain because the taxpayer takes the position that the major for- eign currency call option assigned to the charity is a sec_1256 foreign_currency_contract the taxpayer relies on sec_1256 and 79_f3d_1348 2d cir to mark to market the major foreign_currency call option when the option is assigned to the charity in order to recognize a loss at that time the taxpayer may argue that the loss is characterized as ordinary if the transaction also qualifies as a sec_988 transaction in contrast because the taxpayer takes the position that the assumed minor foreign_currency call option is not a sec_1256 foreign_currency_contract the taxpayer claims that the charity’s assumption of the written minor obligation does not cause the taxpayer to recognize gain and that the tax- payer also does not recognize gain when the option either expires or terminates iii sec_1256 when congress enacted sec_1256 as part of the eco- nomic recovery tax act of erta publaw_97_34 95_stat_327 the section applied only to regulated_futures_contracts that required physical delivery of personal a charity is an organization defined in sec_170 contributions to which are deductible for income_tax purposes as charitable_contributions unlike the present case 79_f3d_1348 2d cir dealt with transfers of regulated_futures_contracts to charity regulated_futures_contracts as will be shown are sec_1256 contracts sec_1256 g see sec_988 and sec_1_988-3 income_tax regs which override the characteriza- tion of capital losses specified in sec_1256 if sec_988 also applies verdate 0ct date jkt po frm fmt sfmt v files summitt sheila united_states tax_court reports property the pertinent parts of sec_1256 originally pro- vided sec_1256 regulated_futures_contracts marked to market a general_rule -for purposes of this subtitle- each regulated_futures_contract held by the taxpayer at the close of the taxable_year shall be treated as sold for its fair_market_value on the last business_day of such taxable_year and any gain_or_loss shall be taken into account for the taxable_year proper adjustment shall be made in the amount of any gain_or_loss subsequently realized for gain_or_loss taken into account by reason of paragraph any gain_or_loss with respect to a regulated_futures_contract shall be treated as- a short-term_capital_gain or loss to the extent of percent of such gain_or_loss and b long-term_capital_gain or loss to the extent of percent of such gain_or_loss b regulated_futures_contracts defined -for purposes of this section the term regulated_futures_contract means a contract- which requires delivery of personal_property as defined in sec_1092 or interest in such property with respect to which the amount required to be deposited and the amount which may be withdrawn depends on a system of marking to market and which is traded on or subject_to the rules of a domestic board_of trade designated as a contract market by the commodity futures trading commission or of any board_of trade or exchange which the sec- retary determines has rules adequate to carry out the purposes of this section c terminations -the rules of paragraphs and of sub- section a shall also apply to the termination during the taxable_year of the taxpayer’s obligation with respect to a regulated_futures_contract by offsetting by taking or making delivery or otherwise for purposes of the preceding sentence fair_market_value at the time of the termination shall be taken into account stevie d conlon and vincent m aquilino in their treatise principles of financial derivatives u s international tax- ation par adollar_figure citing hull options futures and other derivative securities 2d ed define a futures_contract as an agreement to deliver specified commodities or other_property at a future date at an agreed price futures contracts are standardized agreements verdate 0ct date jkt po frm fmt sfmt v files summitt sheila summitt v commissioner tradable on regulated exchanges a key aspect of regulated_futures_contracts is the margin requirement in enacting sec_1256 congress concluded that the daily receipt of profits and the daily payment of losses employed by commodity futures exchanges in the united_states for determining margin requirements made it appropriate to compute gains and losses for tax purposes under a similar albeit annual marked-to-market system of accounting h rept pincite 1981_2_cb_352 the marked-to-market rule was also applied to futures transactions occurring before december of each year if taxpayers terminated the futures_contract before that date sec_1256 the technical corrections act of act publaw_97_448 96_stat_2385 made four significant changes to sec_1256 that are pertinent to this case first the act removed the requirement of physical delivery for futures contracts so that cash-settled futures contracts newly authorized to trade on futures exchanges by the com- modity futures trading commission would also qualify for sec_1256 treatment id second the act expanded the phrase regulated_futures_contract by adding such term includes any foreign_currency_contract at the end of sec_1256 id as the house ways_and_means_committee explained trading in foreign_currency for future delivery is conducted through regu- lated futures contracts and is also conducted through contracts negotiated with any one of a number of commercial banks which comprise an informal market for such trading bank forward contracts bank forward contracts differ from regulated future contracts in that they are private contracts in which the parties remain entitled to performance from each other they further differ from regulated_futures_contracts in that they do not call for daily variation margin to reflect market changes and in that the inter- bank market has no mechanism for settlement terminating a taxpayer’s position prior to the delivery date prior to erta taxpayers who used both the futures exchanges and the interbank market to conduct short-term trading in foreign_currency were subject_to substantially comparable tax treatment for both types of contract although bank forward contracts differ from regulated_futures_contracts the volume of trading through for- ward contracts in foreign_currency in the interbank market is substantially greater than foreign_currency trading on futures exchanges and prices are readily available such contracts are economically comparable to regulated_futures_contracts in the same currencies and are used interchangeably with regulated_futures_contracts by traders h rept pincite verdate 0ct date jkt po frm fmt sfmt v files summitt sheila united_states tax_court reports a forward_contract is an agreement to deliver a specified commodity or other_property at a future date at an agreed price conlon aquilino supra par a1 a i typically neither party to a forward_contract makes a payment at the time the contract is executed third act sec_105 added subsection g a definitional subsection to flesh out general definitions in sec_1256 the newly enacted sec_1256 defined a foreign_currency_contract to be a contract a which requires delivery of a foreign_currency which is a currency in which positions are also traded through regulated_futures_contracts b which is traded in the interbank market and c which is entered into at arm’s length at a price determined by ref- erence to the price in the interbank market the requirement of delivery of the foreign_currency reflected the fact that the interbank market has no mechanism for settlement terminating a taxpayer’s position prior to the delivery date h rept supra pincite fourth act sec_105 granted the secretary authority to prescribe regulations to determine the types of contracts that could be included in or excluded from the defi- nition of a foreign_currency_contract in sec_1256 regulations --the secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of paragraph including regulations excluding from the application of paragraph any contract or type of contract if its application thereto would be incon- sistent with such purposes as previously stated no such regulations have ever been issued the deficit_reduction_act_of_1984 defra publaw_98_369 98_stat_494 made three significant changes pertinent to this case first defra sec_722 98_stat_972 amended sec_1256 by adding the phrase or the settlement of which depends on the value of to the definition of a foreign_currency_contract the effect of this amendment is in dispute in this case sec_1256 as changed by defra sec_102 defined a foreign_currency_contract to be a con- tract- verdate 0ct date jkt po frm fmt sfmt v files summitt sheila summitt v commissioner i which requires delivery of or the settlement of which depends on the value of a foreign_currency which is a currency in which positions are also traded through regulated_futures_contracts ii which is traded in the interbank market and iii which is entered into at arm’s length at a price determined by ref- erence to the price in the interbank market emphasis added to highlight amendment second defra sec_102 changed the term regulated_futures_contract to the more general term sec_1256 con- tract and reorganized sec_1256 to identify in general terms contracts qualifying as sec_1256 contracts third defra sec_102 and extended sec_1256 to cover any nonequity_option sec_1256 and any dealer_equity_option sec_1256 and added specific definitions for those terms in sec_1256 through inclusive the consolidated appropriations act publaw_106_554 app g sec_401 sec_114 stat 2763a-649 added any dealer_securities_futures_contract and an option on such a contract as sec_1256 after reflecting all amendments sec_1256 now pro- vides sec_1256 sec_1256 contract defined -for purposes of this section the term sec_1256 contract means- any regulated_futures_contract any foreign_currency_contract any nonequity_option any dealer_equity_option and any dealer_securities_futures_contract the term sec_1256 contract shall not include any securities_futures_contract or option on such a contract unless such contract or option is a dealer_securities_futures_contract iv petitioners’ contentions petitioners contend that under the plain meaning of sec_1256 as amended in major foreign cur- rency options are foreign_currency contracts subject_to the marked-to-market rules of sec_1256 to support their position they maintain that sec_1256 refers to any foreign_currency_contract therefore sec_1256 should be construed broadly because contract is an inher- ently broad term and an option by definition is a unilateral contract restatement contract sec_2d sec_25 they verdate 0ct date jkt po frm fmt sfmt v files summitt sheila united_states tax_court reports argue there are no legally significant differences among futures forwards and options second petitioners note that no regulations have been issued by the secretary since which would limit the definition of a foreign_currency_contract and in petitioners’ view the application of sec_1256 to various types of con- tracts has been expanded and broadened over time peti- tioners reason that this constant expansion coupled with the inherently broad original defining term contract suggests that where a close call is to be made on this issue the his- tory favors including major foreign_currency options within the meaning of foreign_currency_contract third petitioners maintain that there are no economically significant differences among foreign_currency forwards futures and options as petitioners state in their posthearing memorandum all of these derivatives accomplish the same economic access to currency risk they reproduce the economic risks and rewards of holding a par- ticular foreign_currency over time these derivatives only differ in their pricing timing and payment structure and thus can be modified or trans- formed into one another by entering into other derivatives for example an option_writer fearing a movement in the underlying_security adverse to his position can purchase a future on that security to effectively offset his risk or he could write a contraindicated option as petitioners did here fourth petitioners contend under the plain meaning of the statute if the court finds that an option is a contract the value of the option depends on the value of the euro the euro is a major foreign_currency traded on the inter- bank market and the option was entered into at arm’s length and with a price coinciding with the interbank market price for such options sec_1256 compels the conclusion that all major foreign_currency derivatives created on the informal interbank market including the major cur- rency options at issue in this case should be marked to market v respondent’s contentions respondent contends that under the plain meaning of sec_1256 a foreign_currency option cannot be a foreign cur- neither party claims that the major foreign_currency options in this case are nonequity op- tions dealer equity options listed options_dealer securities futures contracts or options on such contracts pursuant to sec_1256 through inclusive verdate 0ct date jkt po frm fmt sfmt v files summitt sheila summitt v commissioner rency contract ie a sec_1256 contract respondent notes that as originally enacted in sec_1256 referred to a contract that required delivery of a foreign cur- rency the writer of a forward_contract is required to deliver a foreign_currency at a future date at an agreed price on the other hand respondent points out that at the time an option is signed there is no obligation to deliver an obligation to deliver occurs only if the holder of the option exercises its right to require delivery at some future time after the option has been signed the obligation to deliver may never occur if the option holder allows the option to lapse consequently respondent argues that because sec_1256 as originally enacted referred to a contract that required delivery of the foreign_currency the section as so enacted could be applied only to forward contracts not to options respondent also contends that the addition of the phrase or the settlement of which depends upon the value of in defra was intended to deal with uncertainty as to whether cash-settled forward contracts were included in the definition of foreign_currency contracts in respondent’s view the change was not intended to expand the application of sec_1256 to foreign_currency option contracts because the lim- iting phrase which requires delivery of was left in the statute respondent argues that foreign_currency contracts can be physically settled or cash-settled but they still must require settlement at expiration in support of his position respondent directs us to the house ways and means com- mittee report explaining the provisions of defra which states because certain contracts may call for a cash settlement by reference to the value of the foreign_currency rather than actual delivery of the cur- rency the bill provides that the delivery of a foreign_currency requirement is met where the contract provides for a settlement determined by reference to the value of the foreign_currency h rept part pincite emphasis added vi the court’s holding on sec_1256 each party claims that the plain meaning of sec_1256 supports his position in 108_tc_54 we set out the well-established and well-understood rules for construing a provision of the internal_revenue_code verdate 0ct date jkt po frm fmt sfmt v files summitt sheila united_states tax_court reports in construing a provision of the internal_revenue_code our task is to give effect to the intent of congress and we must begin with the statutory language which is the most persuasive evidence of the statutory purpose 310_us_534 ordinarily the plain meaning of the statutory lan- guage is conclusive 489_us_235 where a statute is silent or ambiguous we may look to legisla- tive history in an effort to ascertain congressional intent 481_us_454 59_f3d_1571 11th cir however where a statute appears to be clear on its face we require unequivocal evidence of legislative purpose before construing the statute so as to override the plain meaning of the words used therein 83_tc_742 see 90_tc_498 and cases there cited we will therefore begin with the statute the plain meaning of the words used will control unless there is unequivocal evi- dence of legislative purpose to override such meaning for convenience we again set out sec_1256 which defines a foreign_currency_contract to be a contract- i which requires delivery of or the settlement of which depends on the value of a foreign_currency which is a currency in which positions are also traded through regulated_futures_contracts ii which is traded in the interbank market and iii which is entered into at arm’s length at a price determined by ref- erence to the price in the interbank market petitioner views the legal distinction between a forward and an option to be insignificant we disagree a forward for- eign currency contract is a bilateral contract between a seller and a buyer that obligates the seller at the time of signing to settle his obligation to perform by either delivering the currency or making cash settlement conlon aquilino supra par a1 a i a foreign_currency option is a uni- lateral contract that does not require delivery or settlement unless and until the option is exercised by the holder an obligation to settle may never arise if the holder does not exercise its rights under the option it is clear that as origi- nally enacted in sec_1256 applied only to for- ward contracts the statute referred to a contract which required delivery of the foreign_currency not to a contract in which delivery was left to the discretion of the holder it is also clear that the amendment or the settle- ment of which depends on the value of was inserted to allow verdate 0ct date jkt po frm fmt sfmt v files summitt sheila summitt v commissioner a cash-settled forward_contract to come within the term for- eign currency contract foreign_currency contracts can be physically settled or cash-settled but they still must require by their terms at inception settlement at expiration the statute’s plain language is dispositive there is no evidence in the legislative_history that a literal reading of the statute will defeat congress’ purpose in enacting it campbell v commissioner supra pincite petitioners argue by negative inference that if the sec- retary had wished to identify a foreign_currency option as a contract or type of contract to be excluded from the application of subparagraph a of sec_1256 the secretary would have exercised the authority expressly dele- gated by subparagraph b to prescribe regulations for that purpose we disagree the secretary has not issued regula- tions bringing a foreign_currency option within the definition of a foreign_currency_contract that determination is within the province of the secretary not within the province of this court moreover the statute as we understand it speaks for itself petitioners’ contention that an option is a contract and that the addition by congress of other option contracts to sec_1256 over the years evidences an intent to include major foreign_currency options also fails granted an option is a contract and congress has added other option contracts that qualify for sec_1256 treatment however congress’ additions have been restricted to nonequity options_dealer equity options and options on dealer_securities futures all of which are traded on a qualified_board_or_exchange sec_1256 - g - interbank markets have not been designated as a qualified_board_or_exchange sec_1256 when congress has specified the types of contracts that come within the definition of a sec_1256 contract exclusion of others from its operation may be inferred there is no evi- the amendment is similar to that proposed by the senate for cash-settlement of regulated_futures_contracts in see s rept pincite 1983_1_cb_475 the maxim expressio unius est exclusio alterius meaning that to express or include one thing implies the exclusion of the other or of the alternative applies black’s law dictionary 9th ed see 499_us_160 ‘where congress ex- plicitly enumerates certain exceptions additional exceptions are not to be implied in the absence of evidence of a contrary legislative intent ’ quoting 446_us_608 verdate 0ct date jkt po frm fmt sfmt v files summitt sheila united_states tax_court reports dence of legislative intent to designate foreign_currency options as sec_1256 contracts petitioners also contend that futures forwards and options accomplish the same economic access to currency risk and should be treated the same way under the tax laws how- ever petitioners admit that futures forwards and options differ in their pricing timing and payment structures it is precisely these economic and legal distinctions that give rise to disparate treatment under the tax laws vii conclusion and holding with respect to the first issue presented to us by respond- ent’s motion for partial summary_judgment we hold that under sec_1256 the major foreign_currency option assigned by summitt to the charity is not a foreign_currency_contract as defined in sec_1256 and g and the marked-to-market provisions of sec_1256 do not apply to the transfer of the eur call option to the charity as a result petitioners did not recognize a loss in on the eur call option pursuant to sec_1256 the second issue raised by respondent’s motion for partial summary_judgment deals with the recognition of gain upon assignment of the minor foreign_currency call option to charity that issue cannot be dealt with isolated from the facts involved in the transaction as a whole and therefore respondent’s motion on the second issue will be denied to reflect the foregoing an appropriate order will be issued f verdate 0ct date jkt po frm fmt sfmt v files summitt sheila


internal_revenue_service number release date index number 468a ----------------------- --------------------------- ----------------------------------------------------- -------------------------------------- ------------------------------------- re revised schedule of ruling amounts department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ---------------- ----------------- telephone number ---------------------- refer reply to cc psi b06 plr-108978-15 date date legend taxpayer parent state industry director ------------------------------------------------------------ ---------------------------------------------------------- ------------ -------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- ---------------------------------------------------- -------------------------------- -------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------------- plant location commission a commission b order independent study ------------------------------------------------------------------ method date date date a b c d e f g h year year year year fund ------------ --------------------------- --------------------------- ------------------------ ------ ---------- -------- ------ ------------------ ------ ------------------ ------------ ------- ------- ------- ------- -------------------------------------------- ------------------------ plr-108978-15 dear -------------- this letter responds to your request dated date for an elective revised schedule of ruling amounts under sec_468a of the internal_revenue_code and sec_1_468a-3 of the income_tax regulations taxpayer was previously granted revised schedules of ruling amounts most recently on date taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows taxpayer a state corporation is an electric utility principally engaged in the generation transmission and distribution of electrical energy in state taxpayer files a consolidated federal_income_tax return with its parent on a calendar-year basis using the accrual_method of accounting taxpayer is under the audit jurisdiction of the industry director taxpayer is the operator and owner of a percent joint and undivided fee simple interest in the plant the plant is situated at location the plant’s operating license was extended by the nuclear regulatory commission and expires on date with respect to the decommissioning costs related to the plant which are included in the taxpayer’s cost of service for ratemaking purposes the taxpayer is subject_to regulation by commission a b percent and commission b c percent commission a in order issued date established the amount of decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes for year through year the order relies upon assumptions provided in the independent study the proposed method of decommissioning the plant is method based on the assumptions adopted by commission a in order it is estimated that fund assets will earn an average after-tax rate of return of d percent for year through year commission approved rates for taxpayer containing a decommissioning cost component based upon an estimated cost of dollar_figuree in year dollars as a base cost for decommissioning taxpayer’s interest in the plant this base cost for decommissioning the taxpayer’s interest in the plant was escalated at the rate of f percent annually to the year that costs are incurred resulting in total estimated future decommissioning costs for taxpayer’s interest in the plant of approximately dollar_figureg in year dollars it is estimated that substantial decommissioning costs will first be incurred in year and that decommissioning will be substantially complete at the end of year plr-108978-15 sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2 provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1_468a-2 does not apply to any special transfer permitted under sec_1_468a-8 sec_1_468a-3 provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will plr-108978-15 result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer the use of other industry standards such as the assumptions underlying the taxpayer's most recent financial assurance filing with the nrc are described by the regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3 further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3 provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates plr-108978-15 sec_1_468a-3 provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3 if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3 provides that if the nuclear plant is not described in sec_1_468a-3 the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3 any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3 sec_1_468a-3 provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3 provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3 provides the rules regarding the manner of requesting a schedule of ruling amounts sec_1_468a-3 provides that the service will not provide or revise a ruling_amount applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment_date as defined in sec_1_468a-2 for such taxable_year sec_1_468a-3 enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 provides that the service may prescribe administrative procedures that supplement the provisions of sec_1_468a-3 and in addition that section provides that the service may in its discretion waive the requirements of sec_1_468a-3 and under appropriate circumstances sec_1_468a-3 describes the circumstances in which a taxpayer must request a revised schedule of ruling amounts sec_1_468a-3 requires that a taxpayer request a revised schedule of ruling amounts for the fund if the operating license of the nuclear plant to which the fund relates is extended the request for the revised schedule of ruling amounts must be submitted on or before the deemed payment deadline for the taxable_year that includes the date on which the license extension is granted sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts may request a revised schedule of ruling amounts such a plr-108978-15 request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions pursuant to sec_1_468a-3 taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations taxpayer as owner of an interest in the plant has calculated its decommissioning costs under sec_1_468a-3 of the regulations the proposed schedule of ruling amounts was derived by following the assumptions contained in an independent study that taxpayer has represented is a standard type study used in the industry in addition the same underlying assumptions were used by commission a in order to calculate the amount of decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes thus taxpayer has demonstrated pursuant to sec_1_468a-3 that the proposed schedule of ruling amounts is based on reasonable assumptions and is consistent with the principles of sec_468a and the regulations thereunder the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts approved schedule of ruling amounts years each year year - year commission dollar_figureh plr-108978-15 if any of the events described in sec_1_468a-3 occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which this schedule of ruling amounts is received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above in particular while we have approved the proposed schedule of ruling amounts based on cost estimates contained in independent study we make no ruling express or implied whether any particular item contained in that study constitutes a nuclear decommissioning cost within the meaning of sec_1_468a-1 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7 a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely yours peter c friedman senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries


t c memo united_states tax_court james edward briggsdaniels petitioner v commissioner of internal revenue respondent docket no filed date james edward briggsdaniels pro_se mathew a mendizabal and james a whitten for respondent memorandum opinion beghe judge respondent determined deficiencies in petitioner’s federal_income_tax of dollar_figure for and dollar_figure for the issues for decision are whether petitioner is entitled to head_of_household filing_status whether petitioner is entitled to deductions for dependency_exemptions - - and whether petitioner is entitled to an earned_income_credit we hold for respondent on all issues background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioner resided in san jose california at the time the petition was filed petitioner has three sons james jr born date jamar born date and jeremy born date on date a complaint against petitioner was filed in the superior court of california in the case of county of santa clara v daniels no dao51877 the suit was instituted by santa clara county to establish that petitioner is the father of james jr jamar and jeremy and to collect reimbursement of child_support payments by the county to the children’s caretakers on date judgment was entered in favor of the county to the effect that petitioner’s fatherhood was established and that he was liable for child_support of dollar_figure for the period date through date jeremy was under a court ordered out-of-home placement for the following periods date to date and date to date during portions of and jeremy was in the custody of the santa clara county juvenile hall and the harold holden ranch for boys a santa clara county juvenile facility during portions of jamar was in the custody of santa clara juvenile hall and the harold holden ranch for boys petitioner introduced no evidence to establish amounts contributed by him as support for james jr jeremy and jamar discussion respondent’s determination is generally presumed to be correct and petitioner bears the burden of proving that it is incorrect rule a 290_us_111 issue head_of_household petitioner claimed head_of_household filing_status for and sec_2 a provides that a person shall be considered a head_of_household if he is not married and provides over half the cost of maintaining as his home a household that ‘a11 rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the years in issue unless otherwise indicated although respondent’s examination of the taxable_year commenced after date sec_7491 does not necessarily shift the burden_of_proof to respondent on any of the issues in the case the stipulation of facts was prepared by respondent using documents that respondent had obtained from sources other than petitioner and petitioner did not introduce any credible_evidence with respect to any of the issues in the case - for more than one-half the year was his child’s or children’s principal_place_of_abode sec_2 petitioner did not submit any evidence to prove that in either or he provided over half the cost of maintaining as his home a household that for more than one-half the year was the principal_place_of_abode of any of his three sons petitioner has not shown that he qualifies for head_of_household filing_status for or respondent’s determination is sustained issue dependency_exemptions petitioner claimed dependency_exemption deductions for his three sons for and sec_151 b allows a dependency_exemption deduction for each child of the taxpayer so long as the child has not attained age if the child is a student at the close of the taxable_year and more than half of the child’s support for the taxable_year was received from the taxpayer sec_152 in order for petitioner to establish that he provided more than half of the support for any of his sons he must show by competent evidence the total support furnished for each of them from all sources during the years at issue 56_tc_512 petitioner introduced no evidence of the total support furnished for each of his sons from all sources for either of the years at issue moreover it appears from the judgment of the superior --- - court of california in county of santa clara v daniels supra that petitioner failed to pay child_support for his three sons from through and that the county provided support payments to the children’s caretakers the payments by the county do not constitute support by petitioner 61_tc_685 affd 514_f2d_1095 7th cir accordingly respondent’s determination that none of petitioner’s three sons is his dependent for sec_151 purposes for the taxable years is sustained issue farned income credit petitioner claimed the earned_income_credit for and sec_32 allows an eligible_individual an earned_income_credit against the individual’s income_tax_liability an eligible_individual is any individual who either has a gualifying child as defined by sec_32 a or has no qualifying_child and meets the requirements of sec_32 a a taxpayer must satisfy the requirements of sec_32 c in order to be entitled to the earned_income_credit for a gualifying child sec_32 a requires that the individual bear the relationship to petitioner prescribed by sec_32 b sec_32 b provides that an individual bears the required relationship to the taxpayer if he or she is among other things a son or daughter of the taxpayer sec_32 a requires that the child share the same principal_place_of_abode as the taxpayer for more than one-half the taxable_year sec_32 a requires that the child meet the age requirements of subparagraph c sec_32 c provides that a child meets the age requirement if he or she has not attained the age of as of the close of the calendar_year in which the taxable_year of the taxpayer begins jeremy and jamar satisfy the age and relationship tests of sec_32 however petitioner has offered no evidence to establish that either jeremy or jamar shared petitioner’s residence for more than one-half of or petitioner has not established that he is entitled to the earned_income_credit for or on the ground of having any qualifying children under sec_32 an individual with no qualifying children is eligible for the earned_income_credit subject_to the phaseout limitations of sec_32 1f the individual’s principal_place_of_abode is in the united_states for more than one-half of the taxable_year the individual has attained the age of but not the age of and is not a dependent for whom a deduction is allowable under sec_151 sec_32 a petitioner meets the residency only two qualifying children need be shown on the taxpayer’s return in order for the taxpayer to be entitled to the maximum credit sec_32 petitioner showed the names of jeremy and jamar on his returns for this purpose - and age requirements of sec_32 a but is subject_to the phaseout limitations of sec_32 for the tax_year the earned_income_credit is completely phased out under sec_32 for an individual with no qualifying children if the taxpayer’s earned_income and adjusted_gross_income is over dollar_figure petitioner’s earned_income and adjusted_gross_income was dollar_figure in petitioner is therefore not entitled to the earned_income_credit for the tax_year for the tax_year the earned_income_credit is completely phased out under sec_32 for an individual with no qualifying children if the taxpayer’s earned_income and adjusted_gross_income exceeds dollar_figure petitioner’s earned_income and adjusted_gross_income in was dollar_figure petitioner is therefore not entitled to the earned_income_credit for the tax_year at trial petitioner made no offer of proof of any relevant facts that would tend to support his claims his brief contains no legal arguments that would have any bearing on the outcome much less tend to support any of his claims in briggsdaniels v commissioner tcmemo_2000_105 affd without published opinion 248_f3d_1169 9th cir we entered decision sustaining respondent’s determinations that petitioner was not entitled to head_of_household filing_status dependency deductions or the earned_income_credit for the taxable years - - and the court_of_appeals for the ninth circuit affirmed our decision sec_6673 a and b allows the tax_court to require a taxpayer to pay to the united_states a penalty of up to dollar_figure when a taxpayer institutes or maintains a proceeding primarily for delay or where the taxpayer’s position in the proceeding is frivolous or groundless the record in this case shows no warning to petitioner from respondent or the court that his conduct in maintaining this proceeding might subject him to a penalty under sec_6673 respondent made no motion for a penalty herein under sec_6673 against petitioner and this case is not such a case that we would impose a sec_6673 a penalty on our own motion we do take this occasion to inform petitioner that courts of appeals have their own sanctioning power to deal with frivolous appeals sec_7482 u s c sec fed r app p the court_of_appeals for the ninth circuit to which this case would be appealable has not hesitated to use its power to order sanctions under these provisions against taxpayer- appellants in appropriate cases see eg 800_f2d_930 9th cir affg tcmemo_1984_661 902_f2d_1462 9th cir 776_f2d_873 9th cir to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ----------------------------- -------------------------------------------------- ------------------------------------------------------- ------------------------------------ ------------------------------------ department of the treasury washington dc third party communication date of communication month dd yyyy person to contact --------------------- id no ----------------- telephone number --------------------- refer reply to cc corp plr-100993-09 date date legend parent ---------------------------------------------------------- --------------------------------------------------- day x date date date x ------------------------------------------------- ----------------- ------------------- ----------------------- year taxable_year -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------- v w x y ---- -- -------- ---- -------------------------------------------------------------------------------- cla sec_1 cps ------------------------------------------------------------------------------------------------------------------- ------------------------------- cla sec_2 cps ------------------------------------------------------------- plr-100993-09 cla sec_3 cps cla sec_4 cps cla sec_5 cps class cps -------------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ ----------------------------------------------------- class ps ------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------- class ps ------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- class ps ----------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- -------------------------------------------------------------------------------- penny warrants --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- investor ---------------------------- stock splits -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ----------------------------------------- reorganization ---------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- dear -------------------- we respond to your letter dated date and subsequent correspondence dated date date date date and date collectively the submissions in which you requested rulings as to certain federal_income_tax consequences of the transactions discussed below the rulings contained in this letter are based on facts and representations submitted by 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 the plr-100993-09 support of the request for rulings verification of the information and other data may be required as part of the audit process facts parent is the common parent of an affiliated_group_of_corporations parent group that join in filing a consolidated_return for federal_income_tax purposes parent has a week taxable_year ending on day x parent was incorporated on date over years ago parent group has been a loss group within the meaning of sec_1_1502-91 of the income_tax regulations since inception parent group the taxpayer is requesting a ruling that it may under the hold constant principle factor out changes in proportionate ownership of taxpayer's stock which are attributable solely to fluctuations in the relative fair market values of different classes of stock under sec_382 to determine the increase in percentage ownership of each of its 5-percent shareholders on each of its testing dates since inception and identify which such testing dates are change dates for purposes of sec_382 the hold constant principle is as follows on any testing_date in determining the ownership percentage of any five_percent_shareholder the value of such shareholder's stock relative to the value of all other stock of the taxpayer shall be considered to remain constant since the date that shareholder acquired the stock and the value of such shareholder's stock relative to the value of all other stock of the taxpayer issued subsequent to such acquisition_date shall also be considered to remain constant since that subsequent date taxpayer has preliminarily indicated subject_to further refinement its belief that- i applying the hold constant principle it has experienced v ownership changes and would have an owner shift of approximately w percent on date and ii applying the methodology set forth at sec_1_382-2 and sec_1_382-2t it has experienced x ownership changes and would have an owner shift of approximately y percent as determined on date taxpayer has provided a listing description of what it currently believes to be every relevant transaction involving parent stock since inception for purposes of determining owner shifts under sec_382 approximately transactions taxpayer’s year taxable_year is a taxable_year for which the statute_of_limitations on assessment and collection has expired closed_year as are all preceding_taxable_years as of the date_of_issuance of this letter taxpayer’s succeeding taxable years are not closed years representations the taxpayer makes the following representations plr-100993-09 parent group has been a loss group within the meaning of sec_1_1502-91 since inception to the best of the taxpayer’s knowledge its amount of tax_liability on any of its federal_income_tax returns filed to date would not be affected by whether or not it takes into account the effect of fluctuations in the relative values of different classes of stock for purposes of determining owner shifts and ownership changes under sec_382 no share of common_stock which includes for this purpose the penny warrants cla sec_1 convertible preferred_stock cps cla sec_2 cps cla sec_3 cps cla sec_4 cps cla sec_5 cps class cps class preferred_stock ps class ps and class ps collectively the equity has been redeemed since taxpayer’s inception with the exception of redemptions triggered by the cashless exercises of penny warrants and the redemption of cla sec_3 cps held by investor on date x no share of the equity meets the description of stock in sec_1504 accordingly each share of the equity constitutes stock for purposes of sec_382 the fair_market_value of the common_stock exchanged in the stock splits was approximately equal to the fair_market_value of the common_stock received in exchange therefor in each of the recapitalizations involving any share of the equity whether involving a conversion or exchange as described in the submissions including the reorganization the fair_market_value of the stock of taxpayer exchanged was approximately equal to the fair_market_value of the stock of taxpayer received in exchange therefor to the best of the knowledge of the taxpayer there have been no distributions to its shareholders or to any of its security holders other than in the normal course of business since taxpayer’s inception taxpayer has had no warrant or option outstanding with an exercise price substantially less than the fair_market_value of the underlying stock on the date of grant other than the penny warrants rulings based solely on the information submitted and representations made we hold as follows for purposes of factoring out changes in proportionate ownership of parent's stock that are attributable solely to fluctuations in the relative fair market values of different classes of stock under sec_382 taxpayer may apply a method employing the hold constant principle to determine the increase in percentage ownership of each of its 5-percent shareholders on each of its testing dates since inception and to identify which such testing dates are change dates for purposes of sec_382 provided that- plr-100993-09 i taxpayer takes a return position consistent therewith on its tax_return for its first taxable_year first taxable_year in which the application of said method would affect the amount of its taxable liability and ii if employment of said method does not result in an ownership_change during said first taxable_year taxpayer continues to apply said method thereafter through the testing_date on which said method first results in an ownership_change thereafter taxpayer may continue to apply the same method under the same terms and conditions in applying the hold constant principle a value-for-value recapitalization or conversion of stock of taxpayer into other stock of taxpayer shall be disregarded and the exchanging shareholder shall be considered to have acquired such newly issued stock as of the date it acquired the stock exchanged therefor caveats except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether or not- i taxpayer had a testing_date on any given date ii taxpayer had an ownership_change on any testing_date iii any exchange of stock pursuant to a recapitalization or a conversion represented a value for value exchange or iv any warrants or options should have been treated as exercised under sec_1_382-4 one or more rulings given in this letter deal with issues that may be addressed in subsequent published guidance see sec_11 of revproc_2009_1 2009_1_irb_1 regarding the circumstances including published guidance which may result in the revocation or modification of a letter_ruling procedural statements this ruling letter is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively any taxpayer filing its return electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of this letter_ruling in accordance with the power_of_attorney on file in this office a copy of this ruling letter will be sent to your authorized representative sincerely mark s jennings branch chief branch office of associate chief_counsel corporate


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division sep uniform issue list tep rats legend taxpayer a roth_ira x ira y amount a amount b company a company b company c agency d date date date date date date dear this is in response to your request dated as supplemented by correspondence dated in which you request a waiver of the 60-day rollover requirements contained in sec_408 and sec_408a of the internal_revenue_code the code’ and the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age represents that on date she received a distribution from roth_ira x totaling amount a from company c taxpayer a also represents that on date she received a distribution from ira y totaling amount b from company c taxpayer a asserts that her failure to accomplish rollovers of amount a and amount b within the 60-day period prescribed by sec_408 was caused by the failure of company a to follow her express instructions regarding the deposit of the funds and the subsequent embezzlement of amounts a and b by company a after receiving amounts a and b taxpayer a forwarded these amounts to company a intending to roll over these amounts into similar accounts to be maintained with company a amounts a and b were not properly transferred to ira rollover accounts and on date taxpayer a requested that the funds be transferred to company b so that rollover individual retirement could be maintained with company b when her original request was not carried out taxpayer a reiterated her request on date both date and date were within the applicable day rollover periods not wishing to violate the day rollover periods applicable to amounts a and b taxpayer a borrowed funds sufficient to return amount a and amount b to company c to roll over into similar individual_retirement_accounts to be maintained with company c on date taxpayer a mailed to company c the rollover_contribution from roth_ira x totaling amount a the rollover_contribution from ira y totaling amount b taxpayer a mailed both amounts a and b within the applicable 60-day rollover periods however these amounts were recorded as received after the expiration of the day period neither taxpayer a nor company c have any written records evidencing when amounts a and b were mailed to company c although taxpayer a has represented to the service that the mailings occurred on date sec_5 and above on date taxpayer a mailed to company c amounts a and b were never returned to taxpayer a by company a a complaint was filed by agency d against company a for fraudulent investment schemes and company a was subsequently placed into receivership based on the facts and representations you request a ruling that the internal_revenue_service waive the day rollover requirement with respect to the distribution of amount a and amount b contained in sec_408 and made applicable to roth iras by sec_408 of the code sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shail be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code code sec_408a provides that except as provided in this section a roth_ira shall be treated for purposes of this title in the same manner as an individual_retirement_plan code sec_408a provides that no rollover_contribution may be made to a roth_ira unless it is a qualified rollover contribution’ revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a rollover of amount a and amount b within the 60-day periods prescribed by sec_408 and sec_408a was caused by the failure of company a to follow her express instructions regarding the deposit of the funds and the subsequent embezzlement of amounts a and b by company a therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount a and amount b from roth_ira x and ira y respectively the rollover of amount a and amount b by taxpayer a into the roth_ira and the traditional_ira maintained with company c will be considered rollover_contributions within the meaning of sec_408 and sec_408a of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this ruling has been sent to your authorized representative in accordance with a power_of_attorney on file in this office if you wish to inquire about this ruling please contact id at phone or fax please address all correspondence to se t ep ra t sincerely yours employee_plans technical group manager enclosures deleted copy of ruling letter notice of intention to disclose