t c memo united_states tax_court barium chemicals inc petitioner v commissioner of internal revenue respondent docket no filed date keith w kern for petitioner linda c grobe and william i miller for respondent memorandum findings_of_fact and opinion cohen judge the petition in this case was filed in response to a notice_of_determination concerning worker classification under sec_7436 notice_of_determination regarding petitioner’s liabilities pursuant to the federal_insurance_contributions_act and the federal_unemployment_tax_act for and the issue for decision is whether virginia exley exley was an employee of petitioner for federal employment_tax purposes during through petitioner concedes that it is not entitled to relief under the revenue act of publaw_95_600 92_stat_2885 as amended the parties stipulated that exley was not an independent_contractor during through the parties agree that if the court determines that exley is classified as an employee of petitioner for purposes of federal employment_taxes for all taxable periods ended date through date as set forth in the notice_of_determination petitioner is liable for the full amount of employment_taxes asserted in the notice_of_determination unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner is an ohio corporation with its principal_place_of_business in steubenville ohio corporate structure petitioner a manufacturer of specialty chemicals was incorporated on date by norbert stern and anna pavlik during through petitioner was owned by two siblings as equal shareholders albert pavlik jr a pavlik and eleanor naylor e naylor petitioner’s board_of directors board consists of e naylor and her husband douglas naylor sr d naylor and a pavlik and his wife eleanor pavlik since the death of a pavlik’s and e naylor’s mother anna pavlik who served as president from until petitioner has had no president a pavlik is petitioner’s treasurer and vice president of sales and is in charge of petitioner’s sales office d naylor is petitioner’s secretary and vice president of purchasing e naylor is petitioner’s assistant treasurer and assistant secretary and is in charge of the administrative functions of petitioner including accounting bookkeeping and record keeping exley’s employment with petitioner the employment_taxes in issue in this case are based upon payments made from through to exley who is a pavlik’s daughter exley worked for petitioner as an employee until during exley’s initial employment she received full benefits and training and was treated by petitioner as an employee exley then married and moved from ohio with her husband exley returned to petitioner in to work in the sales office as an administrative assistant exley’s job included handling paperwork documenting orders creating sales records and reports giving customers sales quotes taking orders and answering the telephone exley also performed personal work for a pavlik about hour a week a pavlik and his son albert daniel pavlik d pavlik assigned work to exley and a pavlik reviewed her work a pavlik set the hours to be worked by exley exley was required to get permission from a pavlik to take time off from work petitioner’s policy regarding rehiring employees petitioner adopted a number of employment policies which are included in petitioner’s employment handbook handbook petitioner’s handbook states an employee that resigns or is terminated will not be rehired it is barium and chemicals inc explicit policy not to rehire because of the split in petitioner’s board between the naylors and the pavliks the board did not officially grant a waiver or exception to the prohibition on rehiring employees when exley rejoined petitioner other employees were rehired over the years some of whom were rehired with board approval exley’s compensation and tax reporting e naylor did not recognize exley as a bona_fide employee and did not include exley in petitioner’s payroll when exley rejoined petitioner a pavlik secured an additional corporate checkbook in order to pay exley her compensation and to pay income_tax_withholding and social_security_taxes attributable to her compensation in petitioner’s books_and_records e naylor treated exley’s compensation payments and the employer’s share of social_security_taxes as increased loans to a pavlik a pavlik withheld federal income taxes and social_security_taxes attributable to exley’s compensation a pavlik also secured federal_tax_deposit coupons under petitioner’s employer_identification_number and petitioner’s corporate name in order to make the employment_tax deposits a pavlik used the address of his personal_residence on the federal_tax_deposit coupons a pavlik provided exley with time cards to record the hours that she worked and he provided her with pay stubs he also provided her with forms w-2 wage and tax statement for through the forms w-2 reported the federal_income_tax the social_security_tax and the medicare_tax withheld for exley the time cards pay stubs and forms w-2 were slightly different than the system maintained by e naylor for petitioner’s other employees because e naylor did not recognize exley as an employee forms employer’s federal unemployment futa_tax return and form sec_941 employer’s quarterly federal tax_return as prepared by e naylor’s administrative office did not reflect exley’s compensation_for through the forms and form sec_941 did not show the employment_tax liability resulting from exley’s compensation or the deposits made by a pavlik no unemployment tax deposits were made for exley’s compensation prior to the quarter ended date petitioner’s form sec_941 were signed by a pavlik in his capacity as treasurer of petitioner the form_941 that was filed for the quarter ended date was originally signed by a pavlik but his name was crossed out deborah a venci’s venci name replaced a pavlik’s on the form_941 venci signed petitioner’s form sec_941 that were filed on and after date in her capacity as safety officer of petitioner because petitioner’s tax deposits exceeded the tax_liabilities that were assessed for the form sec_941 for all quarterly periods that exley received compensation the internal_revenue_service refunded the excess of the deposits over the tax assessed or applied the excess to other tax periods or applied the excess to an excess collections account petitioner’s intrafamily litigation there have been differences between the naylors and the pavliks that have resulted in a series of lawsuits a constant source of friction among petitioner’s directors has been the employment of e naylor’s and a pavlik’s children e naylor’s children venci and linda yanok yanok and a pavlik’s children d pavlik carol walden and exley have worked for petitioner at various times as of date based on a directive by e naylor paychecks for all pavlik and naylor family members ceased in date d pavlik filed a lawsuit in the court of common pleas jefferson county ohio alleging that he was entitled to wages for services rendered from date forward on date the family members and petitioner executed a settlement agreement and release settlement agreement on date the board adopted the settlement agreement without holding a board meeting the settlement agreement provided for payment of back compensation to all of the children including exley one-half of the total amount was paid upon the execution of the settlement agreement and the remainder was paid in two equal installments on date and date under the settlement agreement petitioner paid exley compensation_for the period date through date the settlement agreement specially recited disputes have existed and continue to exist between the directors concerning whether virginia exley could be hired without board approval and regarding her past and present employment status with barium and chemicals inc which disputes are not being addressed by this agreement the settlement agreement further provided that the family members including exley would continue to be paid compensation from the date of the settlement agreement on a going forward basis in addition the settlement agreement restricted the reimbursement of all expenses attributed to a pavlik subjecting his expenses to approval by either e naylor or d naylor from date forward on date family members filed cross-motions in the court of common pleas for jefferson county alleging violations of the settlement agreement one of the issues raised in the cross-motions was the payment of compensation to yanok on date the court ordered in part that a pavlik in his capacity as treasurer of petitioner pay to yanok compensation_for july and date the court also ordered a pavlik to discontinue a unilateral pay increase to exley and to reimburse petitioner for the amounts paid to exley as a result of the pay increase on date additional motions were filed regarding disputes among the family members on date the court of common pleas ordered in part as follows albert pavlik jr is enjoined from writing corporate checks for any payroll purpose the court orders that all of the payroll related bills of the corporation shall be paid through eleanor naylor and those persons under her control with respect to the corporation on date the court of common pleas modified the date order as follows with respect to the naylors being the only ones permitted to write payroll checks as set forth in its last order said order is modified to the extent that albert pavlik jr may write payroll checks to virginia exley in view of the naylors position that she is not a proper employee of the corporation however the said albert pavlik jr shall provide the naylors with the amount of the checks and withholdings immediately upon issuing the same on date the court of common pleas modified the date order as follows with respect to the order of date the same is hereby amended nunc_pro_tunc to include the clarification that the payment of money to virginia exley by albert pavlik jr is not to be interpreted in any way as modifying the settlement agreement as it applies to virginia exley and with respect to whether or not she is an employee of barium and chemicals inc albert pavlik jr has been paying virginia exley over the objection of the naylors because of the naylors’ position that she is not an employee of the corporation the authorization by the court that albert pavlik jr may continue to pay virginia exley is not now nor was it ever intended to modify or change in any way the positions of the respective parties whether an employer-employee relationship exists in a opinion particular situation is a factual question weber v commissioner 103_tc_378 affd per curiam 60_f3d_1104 4th cir for the purposes of employment_taxes the term employee includes any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee sec_3121 sec_3306 sec_31_3121_d_-1 employment_tax regs defines the common_law employer-employee relationship as follows generally such relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished that is an employee is subject_to the will and control of the employer not only as to what shall be done but how it shall be done in this connection it is not necessary that the employer actually direct or control the manner in which the services are performed it is sufficient if he has the right to do so the right to discharge is also an important factor indicating that the person possessing that right is an employer other factors characteristic of an employer but not necessarily present in every case are the furnishing of tools and the furnishing of a place to work to the individual who performs the services in general if an individual is subject_to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result he is an independent_contractor in deciding whether a worker is a common_law_employee or an independent_contractor the following factors are considered the degree of control exercised by the principal which party invests in the work facilities used by the individual the opportunity of the individual for profit or loss whether the principal can discharge the individual whether the work is part of the principal's regular business the permanency of the relationship and the relationship that the parties believed that they were creating 117_tc_263 weber v commissioner supra pincite all of the facts and circumstances of each case are considered and no single factor is dispositive ewens miller inc v commissioner supra pincite weber v commissioner supra pincite petitioner argues that exley was an employee of a pavlik and not of petitioner to support this argument petitioner relies on ohio law addressing the authority of directors of a corporation to act on behalf of the corporation as a result petitioner argues that the factors which are considered when a determination is being made as to whether an individual is an independent_contractor or an employee are not involved petitioner cites campbell v hospitality motor inns inc n e 2d ohio for the proposition that the supreme court of ohio determined that an unauthorized employment contract was not binding upon the corporation unless the employment contract was impliedly ratified by the board_of directors in campbell v hospitality motor inns inc supra pincite the court reaffirmed the rule that an unauthorized contract may be impliedly ratified where the directors have actual knowledge of the facts and accept and retain the benefits of the contract acquiesce in it or fail to repudiate the contract within a reasonable period of time id respondent argues that exley was an employee of petitioner because petitioner had the right to control how exley performed the services petitioner invested in the work facilities used by exley exley had no opportunity for profit or loss petitioner had the power to discharge exley exley’s work was part of petitioner’s regular business exley’s employment relationship was permanent and exley and petitioner believed they were creating an employer-employee relationship in discussing the factors enumerated above and in particular the factor regarding whether petitioner and exley believed they were creating an employer-employee relationship respondent contends that the fact that eleanor naylor did not intend that virginia exley be treated as an employee should not be given effect when common_law factors compel a finding that an employee-employer relationship exists we agree with respondent in its reply brief petitioner admits a pavlik had the right to control how exley performed her services including assigning work to exley reviewing her work approving the hours that she worked and setting her salary the corporation’s facilities were used by a pavlik to provide exley with equipment and supplies exley had no opportunity for profit or loss a pavlik had the right to discharge exley and exley’s employment relationship was permanent petitioner disputes however that exley’s work was a part of petitioner’s regular business and that exley and petitioner believed they were creating an employer-employee relationship with respect to petitioner’s claim that exley’s work was not part of petitioner’s business a pavlik and d pavlik testified without contradiction that exley worked in petitioner’s sales department in particular exley’s work related to the sales department’s activities of recording of sales tracking and confirming orders and answering telephones petitioner retained the benefits of exley’s employment with the corporation petitioner and e naylor were aware that exley was working for the corporation and being paid compensation_for her work petitioner continued to allow exley to be paid compensation even if it was paid indirectly through a pavlik the settlement agreement and subsequent amendments provided exley backpay and continued her compensation in the future while noting the ongoing dispute over her status as an employee with respect to the relationship the parties thought they were creating petitioner focuses on the lack of board approval over exley’s rehiring petitioner also asserts that because exley did not have the same benefits as other employees of petitioner she was not an employee even where parties expressly agree to create an arrangement for compensation outside of the employer-employee relationship the evidence and not characterization of the relationship by the parties determines employment_tax liability see 121_tc_89 ewens miller inc v commissioner supra pincite sec_31_3121_d_-1 employment_tax regs a fortiori an ongoing family dispute cannot dictate federal employment_tax consequences exley was performing services for petitioner and was compensated for those services her compensation was received because of her status as an employee petitioner is thus liable for employment_taxes on her compensation to reflect the foregoing decision will be entered for respondent


t c memo united_states tax_court arlene c ogonoski petitioner v commissioner of internal revenue respondent docket no filed date arlene c ogonoski pro_se john aletta for respondent memorandum opinion beghe judge respondent denied petitioner’s claim for relief under sec_6015 f from her unpaid federal_income_tax liabilities for taxable years through in a timely petition and amended petition petitioner requested this court to 1unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure review respondent’s determination for the through tax years petitioner also requested this court to review whether the period of limitation for collection of her unpaid tax_liability for has expired we sustain respondent’s determination that petitioner is not entitled to relief under sec_6015 we lack jurisdiction to review the limitation issue background some of the facts have been stipulated and are so found petitioner lived in burlington connecticut when she filed her petition in this case from to the present petitioner has been married to arthur ogonoski mr ogonoski and lived with him in the same household since petitioner and mr ogonoski have lived in a house they own pincite george washington turnpike in burlington that they purchased for dollar_figure the house is subject_to a mortgage loan from an individual rather than a lending institution that appears to bear an above-market rate of interest from to date petitioner was employed part time as an office temp since date petitioner has been employed as a secretary clerk at all times relevant mr ogonoski has worked as a self-employed excavator petitioner and mr ogonoski have five children they reported all five children as dependents on their through tax returns four children as dependents on their return three children as dependents on their through returns and two children as dependents on their return for taxable years through petitioner and mr ogonoski filed and executed joint income_tax returns with the exception of the return these returns were timely filed the return was filed on date the handwriting on the returns confirms that petitioner prepared the returns including the schedule c profit or loss from business for mr ogonoski’s excavation business for each of the years in question mr ogonoski’s business had net_income which generated self-employment_tax liability and contributed to the taxable_income shown on the returns throughout the marriage mr ogonoski has kept his business and financial transactions private from petitioner he provided petitioner little or no information about or control_over his finances petitioner’s only involvement with mr ogonoski’s business was to maintain a ledger and prepare their income_tax returns even though petitioner stated she had no control_over mr ogonoski’s business and couldn’t get him to wear a seat belt let alone pay his taxes she described mr ogonoski as a wonderful man there is no record evidence mr ogonoski physically or mentally abused petitioner other than having created a continuing climate of uncertainty about whether and when he would make contributions or payments in respect of the federal_income_tax liabilities shown on the joint returns all the above-mentioned income_tax returns reflected balances due neither petitioner nor mr ogonoski paid the balances due when they filed their returns for the taxable years through a substantial portion of the unpaid balances is attributable to social_security_self-employment_tax on mr ogonoski’s excavation business there is no record evidence mr ogonoski promised petitioner he would pay the tax_liabilities reported on their returns some payments were subsequently made in respect of the amounts shown due on these returns respondent accepted as filed all the returns for the years in issue the balances due petitioner’s wages and income_tax and medicare and social_security payments withheld from petitioner’s wages reflected on petitioner’s and mr ogonoski’s joint income_tax returns were as follows balance petitioner’s income_tax security tax_year due wages withheld withheld medicare social dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure -0- dollar_figure -0- dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure on the following dates respondent assessed income_tax estimated_tax and failure-to-pay penalties and interest against petitioner and mr ogonoski for the taxable years through in the amounts set forth below as to which respondent denied petitioner’s prayer for relief under sec_6015 year assessment_date assessment sec_5 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure since at least through the present petitioner and mr ogonoski have had a joint checking account and used the funds in this account to pay some of their personal expenses mr ogonoski had other checking accounts related to his business that petitioner did not control or have access to on date petitioner and mr ogonoski filed for chapter bankruptcy in the u s bankruptcy court in hartford connecticut on date the bankruptcy court dismissed the case on date petitioner and mr ogonoski filed for chapter bankruptcy in the u s bankruptcy court in hartford connecticut on date the bankruptcy court dismissed the case in petitioner’s house was foreclosed on and sold to pay her and mr ogonoski’s debts for months the ogonoskis lived in the family car before they rented and then purchased the other house in which they now live on date petitioner filed form_8857 request for innocent spouse relief with respondent regarding taxable years through on this form petitioner requested relief under sec_6015 and f claiming that she had an understatement_of_tax and underpayment_of_tax respectively on date when petitioner filed her request for relief under sec_6015 there were no outstanding tax_liabilities due from petitioner for taxable years through petitioner stated that mr ogonoski had paid apparently out of his own separate funds all of the outstanding taxes interest and penalties for taxable years through when petitioner filed her request for relief under sec_6015 with respondent there were outstanding tax_liabilities resulting from balances due on her and mr ogonoski’s joint returns for taxable years through in her request for relief petitioner acknowledged i have been told if i file separately i would not be in this predicament however i believe if you are married you file jointly in workpapers dated date respondent’s examiner proposed to deny petitioner relief under sec_6015 and f for all of petitioner’s outstanding tax years on date petitioner filed a form statement of disagreement in which she appealed the examiner’s proposed determination with respondent’s appeals_office and requested relief under sec_6015 for her through tax years by notice_of_determination dated date respondent denied petitioner relief from joint_and_several_liability under sec_6015 for taxable years through although sec_6015 is not discussed in the notice_of_determination respondent’s appeals_office also denied petitioner relief under sec_6015 because petitioner’s liabilities did not result from an understatement_of_tax on date petitioner filed her original petition for relief from joint_and_several_liability on date petitioner filed her amended petition petitioner’s prayer for relief does not specify the taxable years for which relief is requested or the internal_revenue_code provisions under which relief is requested it concludes i pray that i am found to be not responsible for prior taxes my husband owes petitioner’s brief says she seeks relief under sec_6015 for her through tax years in her petition petitioner says i always believed that my husband would pay his taxes in he paid over dollar_figure in taxes his entire tax plus all penalties late charges in her brief petitioner says it is reasonable for her to believe that at sometime her spouse would pay the taxes the same pattern had existed in the past and the spouse had paid the taxes petitioner says she believes the tax_liabilities for through have been paid on date respondent filed an answer on date the court filed respondent’s certification under interim rule as amplified by 115_tc_118 that respondent had notified mr ogonoski that petitioner had filed a claim for relief from joint_and_several_liability in this case mr ogonoski has not intervened in this case discussion issue relief under sec_6015 generally married taxpayers may elect to file a joint federal_income_tax return sec_6013 after making the election each spouse generally is fully responsible for the accuracy of the return and jointly and severally liable for the entire tax due for that year sec_6013 114_tc_276 petitioner requested relief under sec_6015 from liability for the taxes reported on her through joint returns that were not paid when the returns were filed respondent determined petitioner was not entitled to the requested relief in requesting relief petitioner argues that when she signed the returns it was reasonable for her to believe mr ogonoski would pay the reported tax_liabilities at some future time because there was a similar pattern of nonpayment for prior years followed by his payment of the balances due for those years petitioner also argues she will suffer economic hardship if relief is not granted if a taxpayer’s request for relief under sec_6015 is denied the taxpayer may petition this court under sec_6015 for a review of the commissioner’s determination our jurisdiction in cases brought under sec_6015 encompasses a review of the commissioner’s determination with respect to all relief afforded by sec_6015 118_tc_494 114_tc_324 butler v commissioner supra pincite this type of case is referred to as a stand-alone case in that petitioner’s request for relief is independent of any deficiency proceeding ewing v commissioner supra pincite quoting fernandez v commissioner supra pincite in this case petitioner seeks equitable relief under sec_6015 to prevail petitioner must prove that respondent’s denial of equitable relief from joint liability under sec_6015 was an abuse_of_discretion see rule a 120_tc_137 118_tc_106 affd 353_f3d_1181 10th cir 115_tc_183 affd 282_f3d_326 5th cir demirjian v commissioner tcmemo_2004_22 the commissioner’s exercise of discretion is entitled to due deference in order to prevail the taxpayer must demonstrate that in not granting relief the commissioner exercised his discretion arbitrarily capriciously 2petitioner has not alleged sec_7491 applies or without sound basis in fact or law jonson v commissioner supra pincite butler v commissioner supra pincite we are not limited to the matters contained in the commissioner’s administrative record when deciding this question ewing v commissioner t c ___ ___ slip op pincite sec_6015 provides three ways taxpayers may obtain relief from joint_and_several tax_liability first sec_6015 provides full or apportioned relief for an understatement_of_tax sec_6015 and because petitioner’s liabilities resulted from underpayments of tax shown due on petitioner’s returns not understatements of tax petitioner does not qualify for relief under sec_6015 see washington v commissioner supra pincite second petitioner does not qualify for relief under sec_6015 because there are no deficiencies for petitioner’s tax years at issue and petitioner and mr ogonoski continue to be married and live together see sec_6015 washington v commissioner supra pincite sec_6015 under which petitioner claims relief authorizes the commissioner to grant equitable relief where the taxpayer is not entitled to relief under sec_6015 or c and taking into account all the facts and 3an understatement is the excess of i the amount of the tax required to be shown on the return for the taxable_year over ii the amount of the tax imposed which is shown on the return sec_6015 sec_6662 circumstances it is inequitable to hold the individual liable for any unpaid tax or any deficiency or any portion thereof see ewing v commissioner t c pincite see also fernandez v commissioner supra pincite foor v commissioner tcmemo_2004_54 as directed by sec_6015 the commissioner has prescribed procedures to use in determining whether a requesting spouse qualifies for relief under subsection f when respondent issued his notice_of_determination to petitioner those procedures were found in revproc_2000_15 2000_1_cb_447 this court has upheld the use of these procedures in reviewing a negative determination see eg washington v commissioner supra pincite jonson v commissioner supra pincite seven threshold conditions must be satisfied before the commissioner will consider a request for relief under sec_6015 revproc_2000_15 sec_4 c b pincite respondent agrees petitioner satisfies those threshold conditions revproc_2000_15 sec_4 c b pincite lists three conditions which if met ordinarily will persuade the commissioner to grant relief from unpaid liabilities reported on a joint_return as applicable here these conditions are a at the time relief is requested the requesting spouse is no longer married to the nonrequesting spouse b at the time the return was signed the requesting spouse had no knowledge or reason to know that the tax would not be paid the requesting spouse must establish that it was reasonable for the requesting spouse to believe that the nonrequesting spouse would pay the reported liability and c the requesting spouse will suffer economic hardship if relief is not granted if relief is not available under revproc_2000_15 sec_4 the commissioner may nevertheless grant relief under the general provisions of revproc_2000_15 sec_4 c b pincite which provides a list of factors the commissioner considers when deciding whether to grant relief no single factor will be determinative of whether equitable relief will be granted in any particular case rather all factors will be considered and weighed appropriately the list of factors is not intended to be exhaustive see washington v commissioner supra pincite jonson v commissioner supra pincite revproc_2000_15 sec_4 lists the following four factors whose presence the commissioner weighs in favor of granting relief and whose absence the commissioner weighs against granting relief the requesting spouse would suffer economic hardship if relief is denied the unpaid liability is attributable to the nonrequesting spouse in the case of a liability that was properly reported but not paid the requesting spouse did not know and had no reason to know the reported liability would be unpaid at the time the return was signed the absence of this factor is an extremely strong factor weighing against relief and the nonrequesting spouse has a legal_obligation pursuant to a divorce decree or agreement to pay the unpaid liability this factor weighs against relief only if the requesting spouse has the obligation see demirjian v commissioner supra petitioner’s failure to introduce current evidence of economic hardship weighs against granting relief economic hardship is defined as an inability to meet reasonable basic living_expenses sec_301_6343-1 proced admin regs petitioner did not introduce into evidence her financial records such as her current salary basic living_expenses and amounts of other debts that are necessary to support her claim that she will not be able to pay reasonable basic living_expenses if relief is not granted although petitioner and mr ogonoski have had a history of financial problems throughout their marriage that suggests petitioner may not be able to pay the tax_liabilities if respondent attempts to collect the unpaid taxes from her she has not introduced any evidence of her current financial standing to enable us to conclude she will suffer economic hardship if relief is denied the attribution factor weighs in favor of granting relief the unpaid liabilities are solely attributable to mr ogonoski a substantial portion of the unpaid balances is attributable to social_security_self-employment_tax on mr ogonoski’s excavating business income petitioner timely paid more than her share of the joint tax_liabilities in full through withholdings from her salary petitioner did not own any part of or have any control_over mr ogonoski’s finances or business the legal_obligation factor is neutral or inapplicable in this case because petitioner is not divorced or separated and there is no agreement between petitioner and mr ogonoski regarding responsibility for payment of the unpaid liabilities the primary reason we deny petitioner relief is that petitioner knew or had reason to know mr ogonoski would not pay the reported liabilities when the returns were signed and filed revproc_2000_15 supra characterizes this factor as an extremely strong factor weighing against relief in order for the no-knowledge-or-reason-to-know factor to be present petitioner must establish that at the time she signed the joint returns for each of the years at issue she had no knowledge or reason to know that the tax reported in each of those returns would not be paid and that it was reasonable for her to believe mr ogonoski would pay the tax reported on each return see collier v commissioner tcmemo_2002_144 petitioner admitted several times in her petition and brief that she knew at the times the returns were signed and filed that the tax_liabilities were not being paid on or before the due_date because the same pattern of not paying the tax_liabilities reported on the returns existed in the past see eg feldman v commissioner tcmemo_2003_201 when the return was filed the requesting spouse was aware that no estimated_tax payments had been made on the liabilities and that only a dollar_figure payment was made at the time of filing the requesting spouse thus had actual knowledge of the unpaid liabilities for at the time the return was filed there is no record evidence mr ogonoski promised petitioner he would pay the tax_liabilities reported on their returns or that he deceived her into believing he would do so each return as filed showed a balance due yet petitioner continued to sign and file joint returns with mr ogonoski for the consecutive years for which she originally requested relief it was unreasonable for her to believe mr ogonoski would suddenly change his pattern and pay the reported tax_liabilities just because he had paid the back taxes once before without any knowledge of whether mr ogonoski’s financial circumstances would enable him to pay the liabilities petitioner’s professed belief that he would do so amounts to a triumph of hope over experience in which neither we nor respondent are required to join in continuing to sign and file joint returns with mr ogonoski showing taxes due petitioner assumed the risk that she would be called upon to satisfy the joint liabilities shown on those returns when petitioner realized mr ogonoski was not paying his share of their tax_liabilities she could have protected herself from liability by filing separate returns petitioner claims to believe a married couple should file joint income_tax returns we note however that in exchange for assuming joint_and_several_liability for mr ogonoski’s taxes by filing jointly petitioner became entitled to and received certain tax advantages we explained the reason for the provisions establishing joint_and_several_liability in 57_tc_373 as follows it is important that these provisions be kept in proper perspective the filing of a joint_return is a highly valuable privilege to husband and wife since the resulting tax_liability is generally substantially less than the combined taxes that would be due from both spouses if they had filed separate returns this circumstance gives particular emphasis to the statutory rule that liability with respect to tax is joint_and_several regardless of the source of the income or of the fact that one spouse may be far less informed about the contents of the return than the other for both spouses ordinarily benefit from the reduction in tax that ensues by reason of the joint_return see also 103_tc_111 when petitioner voluntarily signed the returns with the knowledge of mr ogonoski’s pattern of nonpayment petitioner assumed the risk mr ogonoski would not pay the reported liabilities 4petitioner cannot persuasively claim she was unaware she could file separately from mr ogonoski because the instructions to form_1040 u s individual_income_tax_return inform married taxpayers they have the right to file separately and the form_1040 that she signed allows the taxpayer to check a box for married filing separate_return status petitioner’s failure to know or understand the tax laws is not a defense see 115_tc_183 affd 282_f3d_326 5th cir petitioner knew the amount of the reported tax_liability and balance due on each return because she signed and helped prepare the returns petitioner is presumed to have knowledge of the tax consequences of signing the returns with reported tax_liabilities that were unpaid see cheshire v commissioner t c pincite quoting 872_f2d_1499 n 11th cir affg t c memo petitioner claims that excess tax was withheld from her wages in return for the privilege of filing jointly any excess withholdings from petitioner’s wages were credited to petitioner’s and mr ogonoski’s unpaid tax_liabilities which is reflected on the amount you owe line in each of petitioner’s form sec_1040 revproc_2000_15 sec_4 lists the following two factors whose presence the commissioner weighs in favor of granting relief and whose absence the commissioner treats as neutral the requesting spouse is separated or divorced from the nonrequesting spouse and the requesting spouse was abused by the nonrequesting spouse the marriage factor is neutral or inapplicable under revproc_2000_15 sec_4 because at all relevant times petitioner and mr ogonoski were married and lived together as husband and wife the abuse factor is neutral because there was no evidence mr ogonoski physically or mentally abused petitioner in any sense to which the tax law or common experience will accord any recognition revproc_2000_15 sec_4 lists the following two factors whose presence the commissioner weighs against granting relief and whose absence the commissioner treats as neutral the requesting spouse significantly benefited beyond normal support from the unpaid liability and the requesting spouse has not made a good_faith effort to comply with federal_income_tax laws in the tax years following the tax_year to which the request for relief relates although there is no record evidence to establish that mr ogonoski failed to contribute any of his financial resources including any of his separate funds attributable to the unpaid taxes to their household for basic living_expenses or to pay the mortgage on their dollar_figure house such payments are not lavish expenditures beyond what is required for petitioner’s normal support see eg foley v commissioner tcmemo_1995_16 there is no evidence mr ogonoski gave petitioner any money in excess of the amounts petitioner required for normal support because mr ogonoski controlled the finances of his excavation business and had his own checking accounts related to his business that petitioner did not control or have access to petitioner was unable to stop mr ogonoski from using for his own personal purposes the funds made available by his failures to pay the taxes due as stated above revproc_2000_15 supra states that the significant benefit factor can only favor the commissioner in contrast in cases decided under old sec_6013 in which the spouse seeking relief did not significantly benefit from the omitted income or erroneous deductions attributable to the other spouse the fact that the taxpayer did not significantly benefit weighed in favor of granting relief see eg 93_tc_434 foley v commissioner supra we conclude that this factor favors petitioner see ewing v commissioner t c ___ ___ slip op pincite ferrarese v commissioner tcmemo_2002_249 the noncompliance factor weighs against granting relief petitioner failed to make a good_faith effort to comply with federal_income_tax laws in the tax years following though the tax years for which she requests relief petitioner continued to help prepare sign and file tax returns for and without paying the reported liabilities on those returns even though she was painfully aware of the pattern of nonpayment for returns before with respect to the factors under revproc_2000_15 sec_4 two factors weigh in favor of relief three factors weigh against relief and the other factors are neutral petitioner fails to satisfy any of the three conditions required for relief under revproc_2000_15 sec_4 petitioner knew or had reason to know at the time she signed the returns that mr ogonoski would not pay the reported liabilities on time which is an extremely strong factor against relief we find no abuse_of_discretion in respondent’s determination that petitioner and mr ogonoski are jointly liable to pay their substantial joint tax_liabilities estimated_tax and nonpayment penalties and accumulated interest because petitioner knew the taxes were not being paid currently and might not be paid in the future she assumed the risk that she would be called upon to pay the remaining joint liabilities should respondent attempt to collect them from her considering all the facts and circumstances and applying the relevant conditions and factors under revproc_2000_15 supra as a whole we hold respondent did not abuse his discretion ie he did not act arbitrarily capriciously or without sound basis in fact in denying petitioner’s request for equitable relief under sec_6015 we sustain respondent’s determination denying relief under sec_6015 issue period of limitation petitioner asks us to decide whether the period of limitation for collection of her unpaid tax_liability ha sec_5this is not a case like foor v commissioner tcmemo_2004_54 in which the presence of a whole panoply of factors favoring relief overcame the significance of the taxpayer’s reason to know the reported tax_liabilities would not be paid see 120_tc_137 expired respondent contends we do not have jurisdiction under sec_6015 to review this issue we are a court of limited jurisdiction and may exercise our power only to the extent authorized by congress 113_tc_132 85_tc_527 in her stand-alone petition petitioner invoked our jurisdiction under sec_6015 to review respondent’s denial of her request for relief from joint_and_several_liability sec_6015 limits our jurisdiction to reviewing respondent’s denial of the specific relief contemplated under sec_6015 see 120_tc_62 ewing v commissioner t c pincite butler v commissioner t c pincite we do not have jurisdiction to decide whether the period of limitation has expired because petitioner’s request that we review the limitation issue goes beyond the specific relief contemplated by sec_6015 see block v commissioner supra to reflect the foregoing 6although our lack of jurisdiction precludes us from deciding the limitation issue we are satisfied the 10-year period of limitation on petitioner’s tax_liability see sec_6502 has been substantially extended as a result of petitioner’s and mr ogonoski’s filing petitions for bankruptcy in and see sec_6503 and remains extended by the pendency of this proceeding see sec_6015 decision will be entered for respondent


internal_revenue_service number release date index number -------------------- ----------- -------------------------------------------- ------------------------------ ----------------------- --------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ---------------- ----------------- telephone number ---------------------- refer reply to cc corp b01 plr-123948-13 date december legend parent --------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ --------------------------- fsub ----------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------- fsub -------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------- transferor --------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ transferee -------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ ---------------------------------------------------- sub ---------------------------------------------------------------------------------- ------------------------------------------------------------------------------ ---------------------------------- de ------------------------------- plr-123948-13 ------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- de ------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- ------------------------------- business a business b country a state a state b dollar_figureaa dollar_figurebb dollar_figurecc z x dear --------------- ---------------------------------------------- --------------------------- ----------------------- -------------- --------- ----------------- -------------- --------------------------------------------------------------- ---------------- ----- ----- this letter responds to your representative’s date request for rulings on certain federal_income_tax consequences of the proposed transaction described below the proposed transaction the information submitted in that request and in later correspondence is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process summary of facts plr-123948-13 parent is a country a corporation and is the parent of a worldwide group of corporations the parent group engaged in business a parent owns all of the stock of fsub and fsub each a country a private limited_company fsub owns all of the interests in de a state a limited_liability_company de owns all of the interests in de also a state a limited_liability_company de owns all of the single class of stock of sub a state b corporation sub is a holding_company and is the common parent of an affiliated_group_of_corporations that join in the filing of a consolidated federal_income_tax return after a series of taxable sales of non-core businesses sub primarily is engaged through its subsidiaries in business b and related activities fsub owns all of the stock apart from an immaterial number of shares held by a nominee entity of transferor a country a private limited_company transferor owns all of the single class of stock of transferee a state a corporation transferee is the common parent of an affiliated_group_of_corporations that join in the filing of a consolidated federal_income_tax return sub has used the proceeds from the sale of its non-core businesses to make loans to other members of the parent group including transferee additionally sub and members of its affiliated_group and transferee and members of its affiliated_group have entered into a unified cash management system accordingly members of sub 1’s affiliated_group and transferee’s affiliated_group will have outstanding receivables and payables owing to members of the other group in the ordinary course of business collectively the ordinary course accounts the ordinary course accounts are not expected to be settled or paid off in connection with the proposed transaction proposed transaction parent proposes to undertake the following proposed transaction some of the steps of which may be disregarded for federal_income_tax purposes i sub will pay a dividend of approximately dollar_figureaa to fsub ii parent will file a check the box election with respect to fsub and fsub causing fsub and fsub to be treated as disregarded entities and as such a branch or division of parent iii parent will cause de to sell all of the stock of sub to fsub for cash equal to sub 1’s estimated fair_market_value iv parent through fsub now a disregarded_entity for federal_income_tax purposes will contribute all of the sub stock to transferor in exchange for common_stock of transferor plr-123948-13 v transferor will contribute all of the sub stock to transferee the sub contribution with each share of sub stock contributed partially to the capital of transferee and partially in exchange for perpetual non-voting preferred_stock of transferee the preferred_stock the preferred_stock is expected to have an aggregate face_amount of dollar_figurebb and to have an aggregate fair_market_value equal to approximately z of sub 1’s fair_market_value after the dividend described in step i above further the preferred_stock will be redeemable by transferee at par plus the accrued unpaid preferred_return at any time after the x anniversary of issuance the parent group intends that the preferred_stock will not be nonqualified_preferred_stock within the meaning of sec_351 vi transferee will assume and pay all expenses of each step of the proposed transaction including the country a legal and tax expenses_incurred by parent and fsub in effecting the steps described above parent estimates that the total transaction expenses to be assumed by transferee will be approximately dollar_figurecc parent states that the maintenance of two separate consolidated groups creates administrative redundancies and inefficiencies and accordingly the parent group is entering into the proposed transaction in order to combine sub 1’s consolidated_group and transferee’s consolidated_group into one consolidated_group with transferee as its common parent and containing the parent group’s principal u s businesses and assets representations the following representations are made with respect to the proposed transaction a no stock_or_securities will be issued for services rendered to or for the benefit of transferee in connection with the proposed transaction and no stock_or_securities will be issued for indebtedness of transferee b the proposed transaction will not be the result of a solicitation by a promoter broker or investment house c transferor will not retain any rights in the property transferred to transferee d there is no indebtedness between transferor and transferee and there will be no indebtedness created in favor of transferor as a result of the proposed transaction e the proposed transaction will occur under a plan agreed before the proposed transaction in which the rights of the parties are defined and all exchanges in the proposed transaction will occur on approximately the same date plr-123948-13 f there is no plan or intention on the part of transferee to redeem or otherwise reacquire any stock issued in the proposed transaction g taking into account any issuance of additional shares of transferee stock any issuance of stock for services the exercise of any transferee stock_rights warrants or subscriptions a public offering of transferee stock and the sale exchange transfer by gift or other_disposition of any of the stock of transferee to be received in the exchange transferor is now and will be in control of transferee within the meaning of sec_368 h none of the sub stock to be transferred to transferee in the proposed transaction will be sec_306 stock within the meaning of sec_306 i j the adjusted_basis and the fair_market_value of the sub stock to be transferred to transferee by transferor will in each instance exceed the sum of the liabilities to be assumed by transferee plus any liabilities to which the sub stock is subject the fair_market_value of the sub stock transferred to transferee will exceed the fair_market_value of the preferred_stock received by transferor the documents effecting the contribution will make clear that the preferred_stock is being received by transferor in exchange for a portion of each share of sub stock transferred of approximately equal fair_market_value to the fair_market_value of the preferred_stock received k transferee is a holding_company and will remain in existence and will hold the sub stock transferred to it in the ordinary course of its activities as a holding_company l there is no plan or intention by transferee to dispose_of the transferred property other than in the normal course of business operations m transferee will not be an investment_company within the meaning of sec_351 and sec_1_351-1 n transferor is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 o transferee will not be a personal_service_corporation within the meaning of sec_269a rulings plr-123948-13 based solely on the information submitted and the representations made above we rule as follows regarding the proposed transaction transferee may file a statement on its federal_income_tax return that parent and transferor elect to apply sec_362 to the transfer of sub to transferor described in step iv above sec_1_362-4 transferor shall not recognize gain_or_loss on the transfer of the sub stock to transferee sec_351 and sec_357 transferee shall not recognize gain_or_loss on the receipt of the sub stock sec_118 and sec_1032 the aggregate basis attributable to the sub stock contributed to transferee in the sub contribution reduced by the aggregate amount of the liabilities assumed by transferee in connection with the transfer shall be pro-rated between the existing transferee common_stock held by transferor and the preferred_stock based on the respective fair market values of the preferred_stock and the sub stock being contributed to capital and in the case of the sub stock being contributed to capital shall be added to transferor’s existing basis in its transferee common_stock such that each share of transferee common_stock shall have an identical increase in basis as a result of the sub contribution and each share of preferred_stock shall have an identical averaged basis in the event that the preferred_stock is nonqualified_preferred_stock within the meaning of sec_351 the aggregate basis attributable to the sub stock contributed to transferee in the sub contribution reduced by the aggregate amount of the liabilities assumed by transferee in connection with the transfer shall be added to transferor’s existing basis in its transferee common_stock such that each share of transferee common_stock shall have an identical increase in basis as a result of the sub contribution sec_358 and sec_1_358-2 caveats no opinion is expressed about the federal_income_tax consequences of the proposed transaction under other provisions of the code or regulations or the federal_income_tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed regarding whether the preferred_stock is nonqualified_preferred_stock within the meaning of sec_351 plr-123948-13 procedural matters this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely mark s jennings branch chief branch office of associate chief_counsel corporate


internal_revenue_service national_office technical_advice_memorandum date number release date index uil no case mis no tam-136589-03 cc ita b5 taxpayer's name taxpayer's address taxpayer's identification no tax_year s involved date of conference legend partnership a facility a partnership b company c company d partnership l facility l company m company n company r llc g llc h llc k tax_year tax_year date date date date date date date date date states p q r s dollar_figurex dollar_figurey dollar_figurez issues whether partnership a the taxpayer now partnership b must recognize gain in tax_year in the amount of dollar_figurey because it did not purchase property within the meaning of sec_1033 of the internal_revenue_code hereinafter irc when it acquired facility l as its replacement_property following a date involuntary_conversion of certain property facility a whether partnership a the taxpayer now partnership b must recognize gain in tax_year in the amount of dollar_figurey because it acquired facility l from a related_person or persons partnership l and its owners within the meaning of sec_1033 whether partnership a the taxpayer now partnership b must recognize gain in tax_year in the amount of dollar_figurey because its replacement_property facility l is not similar_or_related_in_service_or_use to the property involuntarily converted within the meaning of sec_1033 conclusions and partnership a the taxpayer now partnership b is not required to recognize gain in tax_year in the amount of dollar_figurey because it purchased property as its replacement_property within the meaning of sec_1033 and sec_1033 when it acquired ownership_interest of the l facility within the replacement_period referred to in sec_1033 from a related_party or parties that had purchased facility l from an unrelated party company r within such replacement_period partnership a the taxpayer now partnership b acquired replacement_property reasonably similar_or_related_in_service_or_use to its involuntarily converted property when it acquired ownership_interest of the l facility under the described circumstances facts partnership a the taxpayer herein was a state p limited_partnership organized as an independent power producer for the purpose of generating and selling electrical power from property interests at its facility the a facility in state q partnership a had two partners company c a state r corporation owning in the form of a general_partner interest and in the form of a limited_partner interest and company d a state p corporation owning the other in the form of a general_partner interest company c was owned by llc g a state p limited_liability_company llc g was owned by llc h a state p limited_liability_company which was the common parent of all parties referred to as related parties herein company d was a subsidiary of an unrelated company partnership l was a state p limited_partnership similarly formed for the purpose of generating and selling electric power in state s partnership l had two partners company m a state r corporation owning in the form of a general_partner interest and in the form of a limited_partner interest and company n a state p corporation owning the other in the form of a general_partner interest companies m and n were wholly-owned subsidiaries of llc k a state p limited_liability_company which was wholly owned by llc h referred to earlier herein on date partnership l filed an application with state s regulatory authorities to construct the l facility in state s its application was approved and construction commenced on date continuing through date facility l was built for partnership l by company r a party unrelated to partnerships a and l pursuant to which partnership l incurred substantial construction-costs partnership l met these liabilities with construction loans from related_party llc h on date as a result of certain regulatory and administrative actions suffered an involuntary_conversion of its property interests at the a facility that the taxpayer’s facility a property interests were involuntarily converted is not an issue in dispute in this case the taxpayer received a private_letter_ruling ir letter_ruling dated date in which that issue was resolved and in which this office determined that the taxpayer’s leasehold and other contractual interests relative to the a facility constituted a single property interest or economic unit for purposes of sec_1033 on its tax_year partnership return partnership a reported one-half dollar_figurey and elected to defer recognition under sec_1033 of the other half of approximately dollar_figurex of gain realized on the involuntary_conversion of it’s a facility property interests the replacement_period of sec_1033 which is also not an issue before us began approximately on date when the taxpayer first had notice of the threat of an involuntary_conversion of facility a and terminated following an extension on date in order to complete the replacement of its involuntarily converted property partnership a undertook a plan to acquire the l facility through a plan of internal merger whereby partnership l would merge with and into partnership a with partnership a being the surviving partnership a full discussion of the reorganization and merger transactions is not necessary here in short partnership l merged into partnership a upon the merger partnership l terminated for tax purposes under sec_708 following transfer of the assets including partnership l’s property interests in facility l and liabilities of partnership l through and to partnership a pursuant to an agreement for purchase of membership interests and termination of partnership l partnership a was renamed partnership b included in the assets and liabilities acquired or purchased from partnership l was all of the remaining unpaid construction indebtedness in the amount of dollar_figurez incurred by that partnership in connection with construction of the l facility by company r the indebtedness at that point owed to related_entity llc h numerous other inter-company financial transactions including the offsetting of other unrelated liabilities accompanied the reorganization and merger when on date the taxpayer filed its tax_year partnership return it designated the l facility as its replacement_property under sec_1033 for that involuntarily converted and requested an extension of the regular sec_1033 replacement_period for an additional year which was granted applicable law sec_1033 of the code provides in part that if property as a result of its destruction in whole or in part theft seizure or requisition or condemnation or threat or imminence thereof is compulsorily or involuntarily converted into money and during the period specified in sec_1033 the taxpayer purchases property similar_or_related_in_service_or_use to the converted property at the election of the taxpayer gain will be recognized only to the extent that the amount_realized upon the conversion exceeds the cost of the replacement_property under sec_1033 and sec_1_1033_a_-2 of the income_tax regulations property is not generally treated as purchased unless its unadjusted_basis is its cost to the taxpayer within the meaning of sec_1012 of the code costs incurred in the construction of replacement_property would generally satisfy this requirement see revrul_70_265 1970_1_cb_170 under sec_1_1012-1 of the regulations cost generally includes the amount_paid for property in cash or other_property liabilities incurred in the purchase of property including replacement_property would generally constitute a cost of property see rev_rul 1970_1_cb_170 and rev_rul 1999-1-c b sec_1033 provides that the replacement_period referred to in subparagraph a is the period beginning with the date of the disposition_of_the_converted_property or the earliest date of the threat or imminence of requisition or condemnation of the converted property whichever is earlier and ending two years after the close of the first taxable_year in which any part of the gain upon the conversion is realized or such later date as the secretary may designate upon application of the taxpayer sec_1033 provides a general_rule that the replacement_property must be acquired from an unrelated_person property generally may not be purchased from a party bearing a relationship described in sec_1033 eg in sec_267 or sec_707 however the statute provides an exception to this limitation the limitation does not apply to the extent the related_person acquired the replacement_property or stock from an unrelated_person during the replacement_period described generally above thus property acquired within the replacement_period in a purchase transaction from outside the group of related_persons and retransferred to a taxpayer member of the group within the requisite period will ordinarily qualify as replacement_property in the hands of the taxpayer to the extent that the property’s basis or other net tax consequences to the group do not change as a result of the transfer see the legislative_history to hr p l jcs-12-6 date hr report senate report and the jct’s general explanation of tax legislation enacted in the 104th congress replacement_property must be substantially_similar or related in service or use to the property converted under sec_1033 while there is no requirement that the new property be identical to that converted or destroyed there must nonetheless be a substantially_similar continuation of the taxpayer’s capital commitment and business operations whether or not replacement_property is similar_or_related_in_service_or_use to that converted or destroyed is an inherently factual matter to be determined under the circumstances of each case analysis the present case presents an interesting application of the purchase and acquisition requirements of sec_1033 a a and i although the number of parties involved in the complicated financial and restructuring transactions that occurred herein are numerous and their interrelated ownership interests confusing fortunately no extended analyses of these matters is required since it is agreed by all the parties involved that the taxpayer partnership a acquired its ownership of facility l the replacement_property from a party or parties related to the taxpayer within the contemplation of sec_1033 and eg whether partnership l companies c and d or llc h accordingly resolution of whether or not the taxpayer complied with the replacement rules of sec_1033 generally will be determined principally under sec_1033 area district_counsel hereinafter the field has extensively questioned characterization of partnership a’s acquisition of the l facility property interests from partnership l and or its related entities as a true purchase the offsetting of inter- company liabilities assignments of debt and gain repayment considerations and other factors have caused the field to question whether partnership a truly assumed the benefits_and_burdens_of_ownership or purchased the subject l facility the taxpayer has similarly attempted to demonstrate that the complicated restructuring of partnership l the subsequent mergers terminations and transfers of the assets and liabilities of partnership l into partnership a the taxpayer indeed constituted a true purchase the problemsome issues raised by the field present in any related_party transaction are precisely the considerations that led the congress to amend sec_1033 to preclude purchases from related parties from satisfying the replacement_property requirements of sec_1033 the opportunity for meaningless transfers of property already owned by the related parties basis shifting endless deferral of gains and other tax_avoidance machinations led the congress to legislate that a taxpayer is not entitled to defer gain under sec_1033 if the replacement_property is acquired whether or not characterized by the parties involved as a purchase event from certain related parties as defined in sec_1033 and accordingly whether or not the property interests constituting ownership of the l facility were purchased by partnership a the taxpayer from partnership l or any other related_party is not the salient issue in this case since effectively no purchase can occur between such parties for purposes of satisfying the statute the congress did however provide an exception to this blanket prohibition in a circumstance that satisfies the underlying purpose and intent of sec_1033 that exception consistent with the purpose of the replacement rule generally provided that the described limitation will not apply where to the extent that the related_party acquired by purchase the subject replacement_property from an unrelated party during the applicable replacement_period the congress thus sought to avoid consideration of the endless vagaries of inter-related party transactions by effectively treating the group of related parties as a single_taxpayer for purpose of the replacement rule the legislative_history of the limitation and its exception indicates that property acquired from outside the group of related_persons within the requisite time period and retransferred to the replacing taxpayer member of the group within the subject period will qualify in the hands of such taxpayer to the extent that the property’s basis or other net tax consequences to the group do not change as a result of the inter-group transfer accordingly the purchase that is required in the instant case is a purchase of new property into the group from outside the related group within the replacement_period that purchase occurred when partnership l purchased by construction and the incurring of construction-cost materials supplies and services liabilities the l facility built for it by unrelated company r as long as that property was designated by the taxpayer as the replacement_property and retransferred to it within the requisite period the requirements and purpose of the statute are satisfied there is no requirement in the statute for an additional second purchase within the group eg by partnership a from partnership l for the very reasons that the congress barred consideration of inter-related purchases generally the property’s basis and other net tax consequences to the group do not change as a result of such transfers in the instant case partnership a suffered an involuntary_conversion of its facility a property interests on date the replacement_period commenced generally on date and terminated on an authorized extension on date partnership l a party related to partnership a within the meaning of sec_1033 purchased the l facility by construction and the incurring of construction costs and liabilities between date sec_5 and when that facility was built for it by unrelated company r the taxpayer designated the l facility property as its replacement_property on date the subject l facility property interests including assets and liabilities were largely acquired by partnership a upon partnership l’s reorganization and merger into partnership a thereafter partnership b on date with complete reinvestment construction occurring on date under these circumstances it appears that the purchase and reinvestment requirements of the statute have been satisfied finally we agree with the taxpayer that the replacement_property taxpayer’s interests and operations in facility l is substantially_similar and related in use to the taxpayer’s converted property interests for purposes of sec_1033 in our letter_ruling of december to the taxpayer ir letter_ruling we concluded that the converted interests of the taxpayer at facility a included both its leasehold and power purchase agreement interests and that such property constituted a single economic unit or interest respecting the generation and sale of electrical power for purposes of sec_1033 the taxpayer points out that changes in the energy market and regulatory environment of the late-1990's made an identical reinvestment impossible however an identical reinvestment is not required we conclude that the economic involvement functional use of property and business operations of the taxpayer at prior facility a and new facility l are substantially_similar with the taxpayer continuing in its regulated business of generating and selling electrical power accordingly we conclude that the similar_or_related_in_service_or_use requirement of the statute has been satisfied caveat a copy of this technical_advice_memorandum is to be given to the taxpayer s in accordance with the procedures outlined in sec_22 of revproc_2003_2 sec_6110 of the code provides that it may not be used or cited as precedent


t c memo united_states tax_court david c sylvester petitioner v commissioner of internal revenue respondent docket no filed date david c sylvester pro_se jeremy l mcpherson for respondent memorandum findings_of_fact and opinion goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure - - respondent determined a deficiency in petitioner's federal_income_tax in the amount of dollar_figure and additions to tax pursuant to sec_6651 and sec_6654 in the amounts of dollar_figure and dollar_figure respectively after a concession by respondent ’ the issues for decision are whether petitioner is exempt from federal income_taxation because of his status as a member of the seneca nation whether dollar_figure of income is includable in the tax_year if petitioner is not exempt from federal income_taxation whether petitioner is entitled to claim head-of-household filing_status for whether petitioner is entitled to claim a dependency_exemption deduction under sec_151 for the tax_year with respect to his son and whether petitioner is liable for an addition_to_tax pursuant to sec_6654 for failure to pay estimated income_tax for the tax_year some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time that the petition was filed petitioner resided in sacramento california findings_of_fact petitioner is a member of the seneca nation the seneca nation is a member of the iroquois confederacy of the six respondent has conceded that petitioner is not liable for the addition_to_tax under sec_6651 for failure_to_file a federal_income_tax return for the tax_year - nations other members include the mohawk oneida onondaga cayuga and tuscarora nations in petitioner was employed by schindler elevator corporation schindler and was apparently later in also employed by dover elevator company dover schindler paid petitioner dollar_figure in wages for the tax_year and withheld fica_taxes from petitioner's wages but did not withhold any federal_income_tax dover paid petitioner dollar_figure in wages in dover withheld fica and dollar_figure of federal_income_tax the state of california also paid petitioner unemployment_compensation in the amount of dollar_figure in in petitioner was contacted by the internal_revenue_service irs because he had failed to file a federal_income_tax return in response to the irs letter petitioner mailed a copy of a 4-page affidavit to the irs which he had signed on date in the affidavit petitioner contended that he was exempt from paying federal_income_tax because he was a member of the seneca nation petitioner has apparently mailed a copy of this affidavit to the irs for every tax_year from to petitioner has not filed a federal_income_tax return since on date the irs mailed a letter to petitioner which stated that based on unspecified information provided by petitioner petitioner was not legally required to file a federal q4e- income_tax return for the tax_year the irs mailed similar letters to petitioner for the tax years in a notice_of_deficiency dated date respondent determined a deficiency in petitioner's federal_income_tax in the amount of dollar_figure the deficiency is based on petitioner's failure to report wage income of dollar_figure interest_income of dollar_figure and unemployment income of dollar_figure respondent calculated the deficiency based on single-filing status one personal_exemption allowance and the standard_deduction in date after the filing of the petition in this case petitioner filed his federal_income_tax return with the irs in ogden utah petitioner sought to withdraw his tax_court petition and litigate the issue of the taxability of his income in a united_states district_court ’ opinion federal_income_tax exemption petitioner contends that he is exempt from federal_income_tax based on language contained in the treaty of the six petitioner's oral motion to withdraw his tax_court petition was made at the call of the calendar on date and was denied - - nations the treaty of ghent ’ and the jay treaty petitioner further contends that he is exempt from taxation under the provisions of article sec_2 clause of the u s constitution and sec_2 of the 14th amendment to the constitution in further support of his claim of a federal_income_tax exemption petitioner also apparently contends that he was specifically hired by his employer because he is a member of the seneca nation and that this is an additional reason for exempting his wages from the federal_income_tax petitioner testified that he was hired to work high rise specifically because he was an indian o ne of the reasons why i got the job was the indians back in new york all worked high rise petitioner contends that the federal government and congress intended to exempt indians from taxation by a guarantee of total_tax exemption through several treaties made with them et al in 11_f3d_1180 3d cir affg in part and revg in part on another ground t c memo the treaty is known as the treaty of canadaigua or the treaty of the six nations nov 7_stat_44 ‘ the treaty is known as the treaty of peace and amity or the treaty of ghent dec 8_stat_218 t s the treaty is known as the treaty of amity commerce and navigation or the jay treaty nov 8_stat_116 t s -- - the taxpayer a member of the mohawk nation contended that members of the iroquois confederacy of the six nations were exempt from federal income_taxation on the basis of the same legal sources petitioner now relies on the treaty of the six nations the jay treaty the treaty of ghent and the constitution the united_states court_of_appeals for the third circuit held that neither the treaties nor the cited provisions of the constitution created a federal_income_tax exemption for members of the iroquois confederacy of the six nations this court has also specifically held that members of the seneca nation were not exempt from federal income taxes based on the same legal sources relied on by petitioner ’ nephew v commissioner tcmemo_1989_32 existing case law is clear and specific we find that petitioner is not exempt from taxation because of his status as a member of the seneca nation additionally petitioner's apparent contention that his income is somehow attributable to his status as a member of the seneca nation is vague and unsupported by the record and we find that none of petitioner's income was derived specifically u s const art i sec_2 cl and u s const amend xiv sec_2 these are the same provisions on which petitioner relies it should also be noted that the taxpayer in nephew v commissioner tcmemo_1989_32 submitted essentially the same affidavit as petitioner - directly or indirectly from the use of indian land or from services performed on indian land or related in any way to petitioner's status as a member of the seneca nation respondent is sustained on this issue we hold that petitioner is not exempt from federal income taxes either because of his status as a member of the seneca nation or because of the source of his income in this case furthermore petitioner was required to file an income_tax return for because he meets the requirements of sec_6012 bond interest_income petitioner does not question the inclusion in gross_income of wages and unemployment_compensation if he is found to be subject_to the federal_income_tax however petitioner contests the inclusion of dollar_figure of bond interest_income for the tax_year respondent determined that petitioner received dollar_figure in taxable proceeds in from a g edwards sons inc a g edwards respondent based his determination on a form 1099-b received from a g edwards at trial petitioner admitted that he received dollar_figure of bond interest but argued that the amount is this income was characterized as bond interest by petitioner and as proceeds from broker transactions by respondent --- - not properly includable in the tax_year because he did not purchase any stocks or bonds until ’ in this case petitioner does not contest the amount of income received from bond interest petitioner's sole contention is that the interest_income was not includable in income for the tax_year because he thinks that he did not purchase or own any stocks or bonds until petitioner offered to provide documentation of his contention to this court but failed to do so upon the basis of the record we find that petitioner received dollar_figure in gross_income from a g edwards for the tax_year respondent is sustained on this issue head--of-household status petitioner contends that his correct filing_status is head_of_household petitioner testified that his 13-year-old son lived with him for the entire taxable_year and both parties have stipulated that petitioner was unmarried at all times during sec_2 defines a head_of_household in pertinent part as an individual who is not married as of the end of the tax_year and who maintains as his home a household which constitutes for more than one-half of such taxable_year the principal_place_of_abode of an unmarried son as a member of that household petitioner included the dollar_figure in the dollar_figure amount reported on line as wages salaries tips etc on his income_tax return - upon the basis of the record we find that petitioner satisfied the head_of_household filing_requirements of sec_2 we therefore hold that petitioner is entitled to file as head_of_household for the tax_year dependency_exemption deductions petitioner claimed a dependency_exemption deduction on his federal_income_tax return deductions are a matter of legislative grace and the taxpayer bears the burden of proving that he is entitled to any deductions claimed 503_us_79 sec_151 allows a taxpayer to deduct an exemption_amount for each dependent as defined in sec_152 the term dependent includes a taxpayer's son over half of whose support for the calendar_year is received from the taxpayer sec_152 a petitioner testified that his son lived with him for the entire tax_year and it is clear from the record that petitioner met the support requirement of sec_152 by providing over half of his son's support for the tax_year we find that petitioner satisfied the requirements of sec_151 and therefore hold that petitioner is entitled to a dependency_exemption deduction for his son for the tax_year addition_to_tax sec_6654 imposes an addition_to_tax where prepayments of tax either through withholding or estimated quarterly tax_payments during the year do not equal the percentage of total liability required under the statute however the addition_to_tax is not imposed if the taxpayer can show that one of several statutory exceptions applies sec_6654 petitioner is a cash-method taxpayer whose tax_year is the 12-month calender year it is undisputed that he did not have any federal_income_tax liability for the tax_year additionally petitioner is a united_states citizen sec_6654 states that no addition_to_tax will be imposed for any taxable_year if a the preceding_taxable_year was a taxable_year of months b the taxpayer did not have any liability for tax for the preceding_taxable_year and c the individual was a citizen or resident_of_the_united_states throughout the preceding_taxable_year upon the basis of the record we find that petitioner meets the requirements of sec_6654 and is therefore not liable for an addition_to_tax under sec_6654 for the tax_year to reflect the foregoing decision will be entered under rule


id office uilc cca_2009123008484954 -------------- number release date from -------------------------- sent wednesday date am to ------------------------------------------ cc subject re foreign withholding issue the service can resolve the sec_1446 withholding liability by entering into a settlement agreement with the partnership entity signed by any person with authority under state law to bind the partnership entity the service may collect and process that case for closure if there are no other partnership items to be resolved with the partnership entity then the agreement with the entity is for purposes of section f a complete agreement if the adjustment to sec_1446 withholding liability gives rise to tax consequences to the individual partners then the sec_1446 withholding liability needs to be included in the fpaa and or the service can resolve the issue with the partners through settlement agreements for purposes of section f if the sec_1446 withholding liability is the only partnership_item being adjusted then agreements with the individual partners would be complete settlement agreement otherwise they would be partial


id office uilc cca_2009120712000754 -------------- number release date from -------------------------- sent monday december pm to ------------------- cc ------------------------------------------ subject re signing official for an llc that is tmp to a tefra key case entity if the parties present for the meeting of the tmp llc had under state law authority to designate ---------- as the authorized representative of the tmp llc re execution and filing of federal forms on behalf of the tmp llc and if the minutes of the meeting are under state law a sufficient designation of that authority then yes ---------should have authority under state law to bind the tmp llc in a form 872-p re the tefra key case entity see cc-2009-027 question e2 pincite if ----------authority under state law to bind the tmp llc is uncertain and there is no other individual with certain authority under state law to do so the service should for protective purposes obtain a form_872 addressing partnership and affected items from the ultimate investor subsidiary_corporation and its parent see cc-2009-027 question e4 pincite alternatively the service could obtain a sec_301_6229_b_-1 designation re the tefra key case entity


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp 3-plr-117670-99 date date target state x a b this letter responds to your request dated date for rulings as to the federal_income_tax consequences of a proposed transaction the information submitted is summarized below target a state x corporation is engaged in the a and b businesses for what has been represented to be a valid business_purpose target will enter into the following transaction i ii iii iv target will form with nominal capital a single member state x limited_liability_company acquiring parent this entity will elect to be treated as a corporation for federal_income_tax purposes acquiring parent will form another single member state x limited_liability_company acquiring this entity will elect to be treated as a corporation for federal_income_tax purposes acquiring will acquire all of the assets of target in exchange for voting member interests in acquiring parent and the assumption_of_liabilities target will liquidate and distribute the acquiring parent voting member interests received in the exchange to its shareholders acquiring parent will not elect to file a consolidated_return plr-117670-99 the taxpayers have made the following representations in connection with the transaction a the fair_market_value of the acquiring parent member interest received by each shareholder of target will be approximately equal to the fair_market_value of the target stock surrendered in the exchange b acquiring will acquire at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets held by target immediately prior to the transaction for purposes of this representation amounts paid_by target to dissenters amounts used by target to pay its reorganization expenses amounts paid_by target to shareholders who receive cash or other_property and all redemptions and distributions except for regular normal dividends made by target immediately preceding the transfer will be included as assets of target held immediately prior to the transaction c acquiring has no plan or intention to sell or otherwise dispose_of any of the assets of target acquired in the transaction except for dispositions made in the ordinary course of business or transfers described in sec_368 d target will distribute the member interests securities and other_property it receives in the transaction and its other properties if any in pursuance of the plan_of_reorganization e the liabilities of target assumed by acquiring and the liabilities to which the transferred assets of target are subject were incurred by target in the ordinary course of its business f acquiring parent will not assume any target liabilities in the transaction g following the transaction acquiring will continue the historic_business of target or use a significant portion of target’s historic_business_assets in a business h acquiring parent acquiring target and the shareholders of target will pay their respective expenses if any incurred in connection with the transaction i j there is no intercorporate indebtedness existing between any of acquiring parent acquiring and target that was issued acquired or will be settled at a discount no two parties to the transaction are investment companies as defined in sec_368 and iv k the sum of the fair_market_value of the assets of target transferred to acquiring plr-117670-99 will equal or exceed the sum of the liabilities assumed by acquiring plus the amount of liabilities if any to which the transferred assets are subject l m target is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 the combination of target with and into acquiring is a transaction that does not qualify under sec_368 n acquiring parent and acquiring will both be treated as corporations for federal_income_tax purposes under sec_301_7701-3 o acquiring parent has no plan or intention to either liquidate or otherwise dispose_of acquiring stock p there is no plan or intention for acquiring acquiring parent ie the issuing_corporation as defined in sec_1_368-1 or any person related as defined in sec_1_368-1 to acquiring or acquiring parent to acquire during the five year period beginning on the date of the proposed transaction with consideration other than acquiring parent stock the acquiring parent stock furnished in exchange for a proprietary interest in target in the proposed transaction either directly or through any transaction agreement or arrangement with any other person q during the five year period ending on the date of the proposed transaction none of the following will have acquired target stock with consideration other than acquiring parent stock either directly or through any transaction agreement or arrangement with any other person acquiring acquiring parent or any person related as defined in sec_1_368-1 to acquiring or acquiring parent neither target nor any person related as defined in sec_1_368-1 determined without regard to sec_1_368-1 to target will have acquired target stock with consideration other than acquiring parent stock or target stock either directly or through any transaction agreement or arrangement with any other person and no distributions except for ordinary normal regular dividend distributions made pursuant to target's historic dividend paying practice will have been made with respect to target stock either directly or through any transaction agreement or arrangement with any other person the aggregate value of the acquisitions redemptions and distributions described in or if any will not exceed percent of the value without plr-117670-99 giving effect to the acquisition redemption and distribution of the proprietary interests in target on the effective date of the proposed transaction based solely on the information submitted and representations made we hold as follows the acquisition by acquiring of substantially_all the assets of target solely in exchange for acquiring parent voting member interests and the assumption by acquiring of liabilities of target followed by the distribution by target of the acquiring parent voting member interests to its shareholders in complete_liquidation will be a reorganization under sec_368 for purposes of this ruling substantially_all means at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets of target acquiring parent acquiring and target will each be a_party_to_a_reorganization pursuant to sec_368 no gain_or_loss will be recognized by target on the transfer of substantially_all of its assets to acquiring solely in exchange for acquiring parent voting member interests and the assumption by acquiring of target liabilities sec_357 and sec_361 no gain_or_loss will be recognized by acquiring on receiving the target assets solely in exchange for acquiring parent voting member interests sec_1_1032-2 acquiring parent's basis in its acquiring member interests will be equal to the basis target had in the target assets prior to the transaction decreased but not below zero by the amount of liabilities assumed by acquiring plus the liabilities to which the transferred assets are subject sec_1_358-6 the basis of each target asset in the hands of acquiring will be the same as the basis of that asset in the hands of target immediately before the exchange sec_362 the holding_period of each target asset received by acquiring will include the holding_period during which the asset was held by target sec_1223 no gain_or_loss will be recognized by the shareholders of target on the receipt of acquiring parent voting member interests solely in exchange for target stock sec_354 the basis of the acquiring parent voting member interests received by each shareholder of target will equal the basis of the target stock surrendered by such shareholder in exchange therefor sec_358 plr-117670-99 the holding_period of the acquiring parent voting member interests received by each shareholder of target will include the holding_period of the target stock surrendered by such shareholder in exchange therefor provided the target stock was held as a capital_asset on the date of the exchange sec_1223 no gain_or_loss will be recognized by target on the distribution of acquiring parent voting member interests to its shareholders in pursuance of the plan_of_reorganization sec_361 pursuant to sec_381 and sec_1_381_a_-1 acquiring will succeed to and take into account the items of target described in sec_381 subject_to the provisions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder pursuant to sec_1_381_b_-1 the taxable_year of target will end on the effective date of the reorganization no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings 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 it is important that a copy of this letter be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling letter is consummated sincerely yours ken cohen senior technician reviewer branch assistant chief_counsel corporate