tcmemo_1995_514 united_states tax_court donald ferry and sharon ferry petitioners v commissioner of internal revenue respondent docket no filed date donald ferry and sharon ferry pro sese douglas a fendrick for respondent memorandum findings_of_fact and opinion parr judge respondent determined deficiencies in and additions to petitioners' federal income taxes as follows additions to tax sec sec sec sec year deficiency b b a b b dollar_figure -- dollar_figure dollar_figure big_number dollar_figure -- -- big_number percent of the interest due on the amount of the underpayment attributable solely to fraud all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated the issues for decision are whether petitioners underreported their taxable_income for the year in the amount of dollar_figure whether petitioners underreported their taxable_income for the year in the amount of dollar_figure whether the above-mentioned understatements of income for and were attributable to fraud by donald ferry petitioner and whether petitioners are liable for an addition_to_tax under sec_6661 for and respondent has conceded that sharon ferry is not liable for the fraud addition preliminary matters findings_of_fact the stipulated facts and exhibits are incorporated by this reference when the petition in this case was filed petitioners resided in newark delaware petitioners are husband and wife and filed joint federal_income_tax returns for the years in issue on their joint federal_income_tax return for petitioners reported total income of dollar_figure consisting of wages of dollar_figure interest_income of dollar_figure and unemployment income of dollar_figure they claimed a child_care_credit of dollar_figure and showed a tax_liability of zero they also claimed and apparently received as a refund an earned_income_credit in the amount of dollar_figure petitioners claimed two children as dependents sean d ferry and brent r ferry on line c requesting the children's social_security numbers petitioners stated applied for on their joint federal_income_tax return for petitioners reported wages of dollar_figure interest of dollar_figure and unemployment income of dollar_figure for a total of dollar_figure they claimed and received as a refund an earned_income_credit of dollar_figure again they listed the children as dependents and showed their social_security numbers as applied for forms w-2 were attached to the returns the forms w-2 for donald d ferry showed wages from wayanne south college avenue newark delaware in the amount of dollar_figure in and dollar_figure in these forms were prepared by petitioner himself not by wayanne's normal payroll preparer and petitioner's business_associate wayne wilberding was not aware of them using a combination of the bank_deposits and specific items methods respondent originally determined that petitioners understated their income for by dollar_figure and for in the amount of dollar_figure prior to trial respondent conceded dollar_figure of the adjustment for thus respondent now claims petitioners' income for was understated in the amount of dollar_figure respondent determined that petitioners failed to report the following amounts of bank_deposits as income for the taxable_year i h r-l ltd bank account dollar_figure ferry associates bank account big_number plus dollar_figure personal expenses paid from mit ltd bank account big_number less w-2 reported income from wayanne inc big_number difference big_number understatement big_number respondent determined an understatement based on bank_deposits in as follows i h r-l ltd bank account dollar_figure ferry associates bank account big_number r e_p ltd bank account big_number dollar_figure plus personal expenses paid from mit ltd bank account big_number understatement big_number apparently respondent's concession for described above takes into account the form_w-2 wages reported from wayanne inc petitioner's theory is that it was not his money he posits several possibilities it was wayanne's money already taxed or it was a pass-through among various entities or it was his father's or his children's money which petitioner was holding or investing for them or the money came from gifts or loans from his parents or it was the repayment without his business associate's knowledge of loans petitioner had made to the business or it was the movement of funds left over from the settlement of a lawsuit in family relations sharon ferry attended st joseph's college and duquesne university and has a degree in nursing she took a nursing refresher course in aside from the form_w-2 income of dollar_figure reported in she was employed only as a babysitter for hours per week at dollar_figure per hour during the years in issue since petitioners have lived pincite arbour drive newark delaware sharon ferry's maiden name is rowan she has two brothers william and david neither brother ever mentioned to mrs ferry that he was the owner of the house where petitioners reside during petitioners' sons were ages and they attended holy angels parochial school during the years in issue petitioners had only one telephone line in their house although this number was listed under r e plus it was petitioners' personal and only telephone number petitioner's parents were working-class people his mother did not work outside the home mrs ferry never saw petitioner's parents give petitioners a gift by cash or check petitioner's father died in at time of trial his mother was in a nursing home petitioner has at least one sister in and sharon ferry had the following credit cards visa mastercard strawbridge j c penney macy's and sears although the accounts were in mrs ferry's name petitioner possessed cards with his name on them which he used sharon ferry kept a checkbook which she considered a joint account in the name of ferry associates the couple had no personal joint account in their own names the iron hill restaurant petitioner was involved in a restaurant known as the iron hill restaurant and lounge iron hill as is true of much of this case the nature of petitioner's involvement is unclear the legal form of any entity or entities connected with iron hill is also unclear we do the best we can given the state of the record iron hill opened in or wayne wilberding was then the owner and president of wayanne inc wayanne trading as the iron hill inn restaurant wilberding met petitioner in when petitioner approached him about investing in the restaurant iron hill was in arrears with state and federal taxes it was also facing a balloon payment on a mortgage taken out in petitioner convinced wilberding that he had financial and business expertise and outlined a plan to pay off the taxes and the prime lease petitioner would pay wayanne's debts in return wayanne would be dissolved and petitioner would become a 50-percent partner in everything connected with the restaurant including the 40-year lease and leasehold improvements petitioner paid approximately dollar_figure to the internal_revenue_service irs in august of for wayanne's withholding taxes and dollar_figure to the state of delaware at trial petitioner claimed these amounts were loans to wayanne that he is thus a creditor and therefore any moneys he took out of the business which he denies having done were simply loan repayments and not taxable_income to himself wilberding contends that petitioner was buying a 50-percent partnership share of the business neither a partnership_agreement nor notes evidencing loans are in evidence nor are there any stock agreements or shares or in fact anything showing that any of the entities referred to in this case had any legal existence petitioner claimed that he created or used various entities for various aspects of the business one entity was to buy furniture another to buy the leasehold petitioner told wilberding that these were all flow-throughs and that this was the way to get tax savings petitioner began working at the restaurant in the early 1980's he worked there to hours per day during the years in issue but neither he nor wilberding was on the payroll petitioner kept the books counted the receipts made the deposits at the bank and handled tax and other financial matters petitioner told people he was the business manager or business manager for the creditors wilberding handled the day-to-day operations such as hiring and scheduling employees cooking and waiting tables at various times petitioner held himself out as owner of the building in which the restaurant was located as a creditor as a shareholder of wayanne before the years in issue claiming in testimony that he sold his interest to his father in which he described as the sale of stock as an employee in the irs agent testified that she located corporations partnerships and trusts related to petitioner although petitioner objected that some of them were not his it is obvious from a cursory glance at exhibit al that many were mentioned by petitioner himself during the trial and others seem clearly related by the names such as don ferry family_trust inc ferry family_trust don ferry limited trust restaurant equipment property ltd - d ferry ltd trust gen ptr forms w-2 and as a partner signing a partnership return as general_partner wilberding considered petitioner to be his 50-percent partner wilberding believed that wayanne was dissolved in or at which time he and petitioner became partners in all the various entities petitioner had created at that time some bank accounts were closed and other bank accounts were set up for various aspects of the business for instance a payroll account under the name of wayanne inc was changed to wayanne ltd the name of the restaurant was changed to iron hill restaurant ltd in wilberding and petitioner parted ways and wilberding sued petitioner for an accounting the dispute was precipitated by a letter from the irs saying that wayanne was being audited wilberding discovered his name was on purported returns which he had not signed and he asked petitioner for an petitioner testified in a previous trial that his sons owned an interest in iron hill investments inc but sold their interest in date when the children would have been and years of age it is unclear what years were under audit whether returns had been filed for those years and if so whether they were corporate or partnership returns it is clear that petitioner told the irs agent that he had a power_of_attorney for the business petitioner had removed the records from the restaurant premises and met with the revenue_agent giving her permission to take the records for copying she later returned them to wilberding despite some tangential testimony about the restaurant audit those returns are not in evidence and appear to have little or no relevance to this case accounting on july or when wilberding's wife went in to open the restaurant all the cash registers were gone the phones were gone and the door was padlocked petitioner claimed that other creditors were about to seize the restaurant's assets and he had moved first to protect his father's investment there is no documentary_evidence or credible testimony to what extent if any petitioner's father had an interest in the business based on all the evidence in the record we hold that the amounts paid_by petitioner on behalf of wayanne and its progeny were investments not loans the partnership return petitioner prepared the form_1065 federal partnership income_tax return for the restaurant and signed the return as a general_partner this return was filed for the tax_year ended date the return is filed in the name of iron hill restaurant-lounge ltd employee identification_number ein c o arbour drive newark delaware petitioner's home address it states the business started date it states that there are two partners in the partnership and that it is not a limited_partnership the partnership reported dollar_figure ordinary_income however a schedule k-l partner's share of income credits deductions etc is attached which conflicts with and contradicts the form_1065 the schedule_k-1 lists the partner's name and address as iron hill restaurant-lounge inc s college ave newark delaware the restaurant's location the partner's ein is shown as however the partnership's name and address on the schedule_k-1 is i h_r l ltd c o arbour dr newark delaware with the ein previously given for iron hill restaurant-lounge ltd on the form_1065 the schedule_k-1 indicates that the partner iron hill restaurant-lounge inc is not a general_partner that it is a corporation and that the partner's percentage of profit and loss is the schedule_k-1 thus shows the partner's distrib- utive share of ordinary_income as dollar_figure respondent's records show no returns filed for or for iron hill under either of the two ein's shown on the partnership return or we find that no such returns were filed for or nor were income_tax returns filed from through the years in issue for r e_p ltd real_estate plus or ferry associates mit ltd bank account iron hill funds were deposited in two bank accounts mit ltd and wayanne ltd the wayanne account was used for payroll and is not here relevant the restaurant proceeds not at one point some restaurant proceeds were also deposited in an account in the name of r e_p at first federal but that was closed in or before the r e_p account at issue here was located at second national federal savings bank allocated to payroll went into an account at delaware savings and loan association in the name of d ferry or w wilberding - mit ltd the account was used for food purchases car purchases and other purchases and supplies used in the course of the restaurant's business both petitioner and wilberding signed the card dated date although the address on the signature card is that of the restaurant during the years in issue bank statements were mailed to petitioner's residence the ein shown on the mit account statement is neither petitioner nor wilberding was paid a salary for his work at iron hill however it was petitioner's idea to pay many of his own and wilberding's personal expenses from the mit account and this was done in petitioners' personal expenses in the amount of dollar_figure were paid from the mit account in dollar_figure was paid checks were written from this account for petitioners' personal benefit to holy angels parochial school which petitioners' children attended to macy's j c penney and strawbridge for credit card purchases to wilmington trust for car payments to first federal savings and loan for petitioners' home mortgage mit stands for mortgage investors trust which in a prior lawsuit petitioner admitted was himself payments and for petitioners' residential utilities and telephone bills ferry associates in petitioner opened a bank account at delaware savings and loan association in the name of ferry associates petitioner listed his home address as the business address of ferry associates and monthly bank statements were sent to his home he represented to the bank that he was the owner of ferry associates the account was opened under the social_security_number but not the name of petitioners' son sean ferry in petitioners' sons were and years old petitioners along with petitioner's parents had check- signing authority for this account and in fact used it as their specifically we find that petitioners were the owners of a mercury marquis financed through wilmington trust co petitioner's father was not the owner petitioners bought the car drove it obtained insurance for it and kept it at their house thus payments to wilmington trust in the amount of dollar_figure are income to petitioners we also find that petitioners were the beneficial owners of their residence pincite arbour dr newark del where they have lived since specifically we find that the house was not owned by petitioner's brother-in-law david rowan by investments plus inc or by iron hill investments inc or by any other entity thus mortgage and tax_payments made to first federal savings and loan totaling dollar_figure from checks drawn on the mit account were for petitioners' personal expenses and are income to petitioners as are payments of telephone and utility bills at that address personal checkbook in fact mrs ferry testified under the assumption that this was their personal joint bank account petitioners deposited dollar_figure into the account in and dollar_figure in the account was not supposed to contain any proceeds from the iron hill or wayanne i h r-l bank account in petitioner opened a checking account at second national federal savings bank in the name of i h r-l ltd ihrl although i h r-l is an abbreviation for iron hill restaurant- lounge restaurant funds were not supposed to be deposited in this account but in the mit account wilberding did not have signature_authority on the ihrl account--in fact he did not know it existed petitioners' home telephone number and home address were listed on the ihrl account and monthly bank statements were sent there petitioner made deposits and had sole check-signing authority petitioner deposited dollar_figure into the account in and dollar_figure in no one but petitioner used this account r e_p ltd in date petitioner opened a checking account at second national federal savings bank in the name of r e_p ltd rep petitioner listed his home telephone number and home there is no evidence that petitioner's parents used the account or indeed even knew of it address on the account and monthly bank statements were sent to him there petitioner had sole check-signing authority during petitioners deposited dollar_figure into the account no proceeds from the iron hill or wayanne were supposed to have gone into this account rep may stand for real_estate plus petitioner was the actual and beneficial_owner of r e_p ltd throughout and petitioners' home utility bills were in the name of r e plus this was simply another name for petitioner we find and hold that petitioners had unreported income of dollar_figure for and dollar_figure for petitioner did not cooperate during the audit although requested to do so he did not turn over any personal records to respondent he refused to pick up certified mail from the post office moreover he made false statements to respondent's agent joanne griffin he claimed he had no bank accounts no credit cards and no financial interest in any business during and opinion the theme of this case could well be oh what a tangled web we weave when first we practice to deceive to that end rep may also stand for restaurant equipment properties sir walter scott marmion canto vi st xvii little brown co petitioner created or participated in numerous entities bank accounts transactions among purported partners and shareholders and other purported arrangements such as loans leases flow- throughs many of which were fictitious creating layers of complexity which appear to have served little or no function other than an attempt to deceive respondent indeed the web woven by petitioner is so tangled as to be virtually impenetrable additions for fraud respondent determined in the notice_of_deficiency that petitioner is liable for the additions to tax for fraud under sec_6653 and b for and sec_6653 for respondent bears the burden_of_proof and must establish each element of fraud by clear_and_convincing evidence sec_7454 rule b 767_f2d_618 9th cir affg tcmemo_1983_249 743_f2d_309 5th cir affg tcmemo_1984_25 84_tc_636 respondent must prove fraud in each of the years involved 225_f2d_216 6th cir affg in part and revg in part a memorandum opinion of this court dated date respondent must prove by clear_and_convincing evidence that an underpayment_of_tax exists for each of the years in issue and that some part of the underpayment is due to fraud sec_7454 rule b 92_tc_661 81_tc_640 mosteller v commissioner tcmemo_1986_505 affd without published opinion 841_f2d_1123 4th cir respondent cannot meet her burden of establishing the existence of an underpayment on the basis of petitioner's failure to meet his burden of proving error in the determination of deficiencies drieborg v commissioner supra pincite 94_tc_654 however respondent has amply met her burden where a taxpayer fails to keep books_and_records sufficient to establish the amount of his or her tax_liabilities or if the records maintained do not clearly reflect income then the commissioner is authorized to reconstruct income by any method which in her opinion clearly reflects the taxpayer's income sec_446 40_tc_373 sec_1_446-1 income_tax regs the commissioner may use any reasonable method to compute the income and no particular method is required 287_f2d_878 5th cir the commissioner's method need not be exact but must be reasonable 348_us_121 884_f2d_1085 8th cir affg tcmemo_1988_410 the use of the bank_deposits method for computing income has long been sanctioned by the courts 64_tc_651 affd 566_f2d_2 6th cir bank_deposits are prima facie evidence of income estate of 132_f2d_775 2d cir affg a memorandum opinion of this court the bank_deposits method assumes that all money deposited in a taxpayer's bank account during a given period constitutes taxable_income unless shown to derive from a nontaxable source 335_f2d_671 5th cir although requested petitioner did not supply respondent with books_and_records showing sources of income petitioner told the agent that he and his wife had no bank accounts respondent's agent identified their bank accounts through third party information provided from summonses issued to banks in northern new castle county delaware although the bank accounts included in respondent's analysis were not in petitioners' names there was ample evidence to attribute them to petitioners all three bank accounts examined were opened by petitioner he made the deposits in the accounts on the ihrl and r e_p ltd accounts petitioner had sole check signing authority on the ferry associates account this authority was shared with mrs ferry and allegedly with petitioner's parents although there is no evidence they used the account petitioners' home address was listed on the accounts and monthly bank statements were sent there there is no credible_evidence that the deposits were from nontaxable sources we simply do not believe that the money came from gifts or loans from petitioner's father petitioner failed to call any family members his mother sister or brother-in- law in an effort to verify his stories we thus infer that their testimony would have been unfavorable 6_tc_1158 affd 162_f2d_513 10th cir petitioner did not produce any evidence of so-called flow- throughs neither did he explain away the payment of his personal expenses sometimes disguised in corporate names out of the mit account respondent has met her burden of showing the understatements of income for both years in issue fraud is actual intentional wrongdoing and the intent is the specific purpose to evade a tax believed to be owing 398_f2d_1002 3d cir 394_f2d_366 5th cir affg tcmemo_1966_81 respondent must show that petitioner intended to evade taxes by conduct calculated to conceal mislead or otherwise prevent the collection of the tax stoltzfus v united_states supra pincite webb v commissioner supra pincite fraud is never to be presumed toussaint v commissioner supra pincite webb v commissioner f 2d pincite the existence of fraud is a question of fact to be determined on the basis of the entire record 67_tc_181 affd without published opinion 578_f2d_1383 8th cir fraud however can seldom be proved by direct proof of the taxpayer's intention fraud can be established by circumstantial evidence and by reasonable inferences drawn from the taxpayer's entire course of conduct 317_us_492 toussaint v commissioner f 2d pincite gajewski v commissioner supra pincite courts frequently list various factors or badges_of_fraud from which fraudulent intent may be inferred 91_tc_874 although such lists are nonexclusive some of the factors this court has considered as indicative of fraud are understatement of income inadequate records implausible or inconsistent explanations of behavior concealment of assets and failure to cooperate with the tax authorities 99_tc_202 citing 796_f2d_303 9th cir affg t c memo these indicia are amply present here as set forth in the findings_of_fact the taxpayer's evasiveness on the stand inconsistencies in his testimony and the lack of credibility of such testimony are heavily weighted factors in considering the fraud issue toussaint v commissioner supra pincite petitioner was not credible his testimony was highly inconsistent concerning his interest in the restaurant the purpose of the transfer of funds to or on behalf of wayanne and interests purportedly owned by his sons and parents at one point he denied having created his own forms w-2 but later said he intended thereby to reflect the personal expenses paid on his behalf from the mit account he denied that he had charge accounts but when confronted with evidence admitted that he did have cards with his name on them but said the accounts were in his wife's name he could not give the court a straight answer to a simple question such as why did you not have a personal bank account in your own name moreover petitioner's testimony was flatly contradicted by wilberding an insurance agent who testified that petitioner represented that the house and car were his and a revenue_agent although mrs ferry was evasive clearly trying hard to avoid the twin pitfalls of perjury and contradicting her husband she did not corroborate his testimony she said for instance unbelievably that she did not know who owned her house you'll have to ask don but admitted that she had no reason to believe her brother owned it she also testified that she had never seen any gifts from petitioner's parents it is well settled that we are not required to accept a taxpayer's self-serving testimony in the absence of corroborating evidence particularly where the testimony is unreasonable improbable or questionable 877_f2d_624 7th cir affg tcmemo_1987_295 440_f2d_688 9th cir affg per curiam tcmemo_1969_159 niedringhaus v commissioner supra pincite petitioner's testimony was unreasonable improbable and questionable and we do not accept it the sophistication education and intelligence of the taxpayer are also relevant 175_f2d_500 2d cir affg 7_tc_245 niedringhaus v commissioner supra although petitioner is not highly educated he held himself out as a financial and business expert he kept books and prepared individual corporate and partnership tax returns he purported to set up trusts corporations and partnerships he prepared forms w-2 at least his own and held himself out as the person with whom the revenue_agent should deal in conducting the wayanne audit in testifying he referred more than once to the gift_tax limitation of dollar_figure per year we believe he was informed about taxes and intended to evade them we have no doubt that petitioner intended to conceal his assets the use of multiple entities with names and ein's use of his son's social_security_number on the ferry associates account before stating for two consecutive years in issue that the children's numbers were applied for putting his house automobile and telephone in other names and the various other devices employed by petitioner convince us that he intended to conceal his assets in light of the above we find that petitioner is liable for the additions to tax for fraud for each of the years in issue substantial_understatement under sec_6661 sec_6661 provides that if there is a substantial_understatement_of_income_tax for any taxable_year there shall be added to the tax an amount equal to percent of the amount of any underpayment attributable to such understatement 90_tc_498 the amount of the understatement is equal to the excess of the amount of tax required to be shown on the return for the tax_year over the amount of the tax_shown_on_the_return 91_tc_88 an understatement is substantial if it exceeds the greater of percent of the tax required to be shown on the return for the taxable_year or dollar_figure sec_6661 the amount of the understatement under this section shall be reduced if there was substantial_authority for the tax treatment of the item by the taxpayer or if the relevant facts affecting the item are adequately disclosed on the return neither exception applies here therefore we find that petitioners are liable for the addition_to_tax for substantial_understatement to reflect a concession by respondent decision will be entered under rule


internal_revenue_service number release date index numbers ------------------------------------ ------------------------------------------------------------ ---------------------------------------- ------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc psi b3 plr-101775-19 date date x ------------------------------------------------------------------------------------ legend country ------------------ date -------------------------- dear ---------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representatives requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts the information submitted discloses that x was organized on date under the laws of country x intended to be classified as a disregarded_entity effective date however due to inadvertence form_8832 entity classification election was not timely filed law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a plr-101775-19 partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301 b i a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301 c i will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_9100-1 provides that the commissioner in exercising the commissioner’s discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the standards the commissioner will use to determine whether to grant an automatic_extension of time for making certain elections sec_301_9100-3 provides the guidelines for granting extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301 a provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably plr-101775-19 and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 as a result we grant x an extension of time of one hundred twenty days from the date of this letter to file form_8832 with the appropriate service_center to elect to be classified as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 this ruling is contingent on the owners of x filing within days of this letter all required returns for all open years consistent with the requested relief these returns include the following forms i form_8858 information_return of u s persons with respect to foreign disregarded entities fdes and foreign branches fbs and ii form_8865 return of u s persons with respect to certain foreign_partnerships such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns if applicable this election is disregarded for purposes of determining the amounts of all sec_965 elements of all united_states_shareholders of x if the election otherwise would change the amount of any sec_965 element of any such united_states_shareholder see sec_1_965-4 except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election we express no opinion concerning the assessment of any interest additions to tax additional_amounts or penalties for failure_to_file a timely income_tax or information_return with respect to any taxable_year that may be affected by this ruling for example we express no opinion as to whether a taxpayer is entitled to relief from any penalty on the basis that the taxpayer had reasonable_cause for failure_to_file timely any income_tax or information returns we are directing the ruling only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives plr-101775-19 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by _______________________ caroline e hay assistant to the branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number --------------------------------------------------- ----------------------------------- ------------------------------- ---------------------------- - x y ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-109276-06 date date ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------ state -------------- d1 d2 ----------------------- ------------------- dear ------------------ this letter responds to your letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election to be classified as an association_taxable_as_a_corporation for federal tax purposes the information submitted states that on d1 y organized x a wholly owned state limited_liability_company since d1 y has always treated x as a disregarded_entity for federal tax purposes however x intended to be classified as an association_taxable_as_a_corporation for federal tax purposes but failed to timely file a form_8832 entity classification election the period of limitations on assessments under sec_6501 of the internal_revenue_code has expired for the taxable_year beginning d1 however the period of limitations on assessments under sec_6501 has not expired for the taxable_year beginning d2 and for any subsequent years plr-109276-06 sec_301_7701-3 provides guidance on the classification of a domestic eligible_entity for federal tax purposes under sec_301_7701-3 unless it elects otherwise a domestic eligible_entity is disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election under sec_301_7701-3 will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity of the election or the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides in part that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the plr-109276-06 aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 provides in part that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment x seeks to change its entity classification during a taxable_year closed by the period of limitations on assessment therefore granting relief will prejudice the interests of the government the taxpayer's request for an extension of time to file form_8832 and elect to be classified as an association_taxable_as_a_corporation for federal tax purposes for the taxable_year beginning d1 is denied however based on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied for years in which the period of limitations on assessment has not expired as a result x is granted an extension of time of days form the date of this letter to file form_8832 and elect to be classified as an association_taxable_as_a_corporation for federal tax purposes effective d2 a copy of this letter should be attached to the form_8832 except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the transaction described above under any other provision of the code this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely heather c maloy associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp b03-plr-148862-02 date date distributing controlled a b c d state x e g h date i j crop k crop m n date o p plr-148862-02 dear this is in response to your letter dated date submitted on behalf of the above-indicated taxpayers requesting rulings on the federal_income_tax consequences of a proposed transaction additional information was submitted in letters dated november december and date and letters dated january and march distributing is a state x corporation that owns and operates two farms distributing has been engaged in farming ie raising crop k and crop m since distributing has an e fiscal_year end and utilizes an inventory_method of accounting which is a combination of the cash_method_of_accounting for expense recognition purposes and inclusion of inventories of crop k and crop m for income_recognition purposes distributing has outstanding g shares of one class class a of voting common_stock owned by the estate of a aa was the sole shareholder and sole officer of distributing until his death on date i under the terms of a s last will and testament c and d a s surviving son and daughter respectively are co-executors of a s estate and are due to inherit in equal part h shares each all of a s distributing shares it has been represented that c and d each will receive h shares of distributing stock from the estate of a prior to the consummation of the proposed transaction described below distributing also has outstanding dollar_figurej of p percent debenture bonds all such securities are owned by b the mother of c and d other than the class a voting common_stock and the debenture bonds there are no other outstanding interests in distributing it has been represented that the debenture bonds do not constitute a stock interest in distributing at a special meeting of the distributing board shortly after the death of a c and d named themselves directors as well as vice-president secretary and president treasurer respectively of distributing and had discussions about the future direction of distributing because c and d had significant differences in philosophy with respect to both operating activities and future investments of distributing it was decided at another special meeting that distributing would lease its farm real_estate on a cash rent basis for the n crop year pending the probate of a s estate the distribution of a s distributing shares equally to c and d and the separation of distributing s assets equally between c and d we have received financial information indicating that distributing s farming_business has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years ending on date o the date the farm real_estate was leased for a one-year term following the death of a and pending both the probate of a s estate and the separation of distributing s assets equally between c and d plr-148862-02 c an experienced farm manager believes more risks should be taken in operating the farming_business including leveraging distributing’s nearly debt-free status to purchase additional real_estate d on the other hand is not a risk-taker and believes that distributing should minimize revenue risks by crop revenue insurance she also is against purchasing additional real_estate and believes that distributing should always maintain debt-free status once such status is achieved c and d have referred to their irreconcilable differences as a form of deadlock that is having an adverse effect on the day-to-day operations of distributing this deadlock has already caused distributing to forego the purchase of additional land and caused it to cash lease its farm_land for the n crop year accordingly c and d have decided to divide distributing’s farming_business and to go their separate ways it is proposed that distributing will transfer one of its two farms and one-half of all other business_assets to a newly-formed controlled in exchange for h shares of controlled stock and controlled’s assumption of one-half of its liabilities including one-half of the outstanding debenture bond liability distributing will distribute all of its h shares of controlled stock to d in exchange for all of d s h shares of distributing stock immediately afterwards c will own all of the outstanding_stock of distributing which will own and operate one farm and d will own all of the outstanding_stock of controlled which will own and operate the other farm both c and d will be engaged in the active_conduct of the farming_business of distributing and controlled respectively including but not limited to purchasing all of the crop inputs seed chemicals fertilizer etc assuming all risks and rewards associated with crop input costs crop yields crop prices and government subsidies and marketing and selling the crops produced on their respective farms the taxpayers have made the following representations in connection with the proposed transaction a b c d the fair_market_value of the controlled stock received by d will be approximately equal to the fair_market_value of the distributing stock surrendered by d in the exchange no part of the consideration to be distributed by distributing will be received by d as a creditor employee or in any capacity other than that of a shareholder of the corporation the years of financial information submitted on behalf of distributing is representative of the corporation’s present operations and with regard to such corporation there have been no substantial operational changes since the date of the last financial statement submitted following the transaction distributing and controlled will each continue independently and with its separate employees the active_conduct of its share of all of the integrated activities of the farming_business conducted by distributing prior to the consummation of the transaction plr-148862-02 e f g the distribution of the stock of controlled is carried out for the following corporate business_purpose to allow c and d to go their own way the distribution of the stock of controlled is motivated in whole or substantial part by this corporate business_purpose distributing is not an s_corporation within the meaning of sec_1361 of the internal_revenue_code and there is no plan or intention by distributing or controlled to make an s election pursuant to sec_1362 there is no plan or intention by the shareholders of distributing to sell exchange transfer by gift or otherwise dispose_of any of their stock in either distributing or controlled after the transaction h i there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the transaction except in the ordinary course of business j the total adjusted bases and the fair_market_value of the assets transferred to controlled by distributing each equals or exceeds the sum of the liabilities assumed by controlled plus any liabilities to which the transferred assets are subject k the liabilities assumed in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred l m n no property is being transferred between distributing and controlled upon which any investment_credit determined under sec_46 has been or will be claimed distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution of the controlled stock plr-148862-02 o p q payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length no two parties to the transaction are investment companies as defined in sec_368 and iv the distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock entitled to vote or stock possessing percent or more of the total value of all classes of stock of distributing or controlled based solely on the information submitted and on the representations set forth above we hold as follows the transfer by distributing of one of its two farms and one-half of all other business_assets to controlled in exchange for h shares of controlled stock and controlled’s assumption of one-half of its liabilities including one-half of the outstanding debenture bond liability as described above followed by distributing’s distribution of all of the stock of controlled to d in exchange for all the shares of distributing stock held by d will be a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 distributing will recognize no gain_or_loss upon the transfer of a portion of its assets to controlled solely in exchange for the stock of controlled and the assumption_of_liabilities as described above sec_361 and sec_357 controlled will recognize no gain_or_loss upon the receipt of a portion of distributing’s assets in exchange for controlled stock as described above sec_1032 distributing will recognize no gain_or_loss upon its distribution of all of the controlled stock to d in exchange for all of d’s distributing stock sec_361 controlled’s basis in the assets received in the proposed transaction will equal the basis of such assets in the hands of distributing immediately prior to the proposed transaction sec_362 plr-148862-02 controlled’s holding_period of the assets received in the proposed transaction will include the period during which such assets were held by distributing sec_1223 no gain_or_loss will be recognized by and no amount will be included in the income of d upon receipt of the controlled stock in exchange for d’s distributing stock sec_355 the basis of the controlled stock in the hands of d immediately after the proposed transaction will be the same as the basis of the distributing stock surrendered by d in exchange therefor sec_358 the holding_period of the controlled stock received by d will include the holding_period of the distributing stock surrendered in exchange therefor provided such stock is held as a capital_asset on the date of the transaction sec_1223 as provided in sec_312 proper allocation of earnings_and_profits will be made between distributing and controlled in accordance with sec_1 a of the income_tax regulations we express no opinion 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 the rulings contained in this letter are predicated upon the facts and representations submitted by the taxpayers and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for a ruling verification of the information representations and other data may be required as part of the audit process this ruling 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 letter is consummated sincerely richard e coss senior counsel branch office of associate chief_counsel corporate


t c summary opinion united_states tax_court marcus v and polly a booker petitioners v commissioner of internal revenue respondent docket no 14036-03s filed date marcus v and polly a booker pro_se brenda m fitzgerald for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 in effect when the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority 1unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies of dollar_figure and dollar_figure in federal income taxes respectively for petitioners’ and tax years sec_6662 penalties for the years and of dollar_figure and dollar_figure respectively and a sec_6651 addition_to_tax of dollar_figure for the year after concessions at trial noted hereafter the issues for decision are whether petitioners are entitled to dependency_exemption deductions under sec_151 for the years and whether petitioners are entitled to itemized_deductions of dollar_figure and dollar_figure under sec_170 for charitable_contributions for the years and respectively whether petitioners are entitled to trade_or_business expense deductions of dollar_figure and dollar_figure for the years and respectively for supplies whether petitioners are entitled to trade_or_business expense deductions of dollar_figure and dollar_figure for the years and respectively for wages whether petitioners are liable for sec_6662 penalties for the years and and whether petitioners are liable for a sec_6651 addition_to_tax for the year 2generally the burden_of_proof is on the taxpayer rule a the burden_of_proof may shift to the commissioner under sec_7491 if the taxpayer establishes compliance with the requirements of sec_7491 and b by substantiating items maintaining required records and fully cooperating with the secretary’s reasonable requests prior to trial petitioners did not cooperate with respondent in producing books_and_records to substantiate their expenses the concessions by respondent continued some of the facts were stipulated those facts with the exhibits annexed thereto are so found and made part hereof petitioners’ legal residence at the time the petition was filed was atlanta georgia petitioners lived and worked in atlanta georgia during the years in question mr booker is self-employed as a tax_return_preparer in atlanta and the surrounding areas he has been working in this capacity for years he received his doctor of jurisprudence degree and master of law in taxation degree from the atlanta law school but is not licensed to practice law mrs booker worked as an assembler at a general motors corp facility petitioners untimely filed their federal_income_tax return on date on that return petitioners claimed a dependency_exemption deduction for mrs booker’s mother petitioners also claimed an dollar_figure itemized_deduction for charitable_contributions and dollar_figure in various trade or busine sec_2 continued were based on documentation produced by petitioners at trial the burden_of_proof therefore does not shift to respondent under sec_7491 further respondent has the burden of production with respect to the penalties and addition_to_tax pursuant to sec_7491 but petitioners have the burden of proving that the penalties and addition_to_tax do not apply 116_tc_438 although petitioners filed their return late respondent did not determine the sec_6651 addition_to_tax for that year expense deductions for mr booker’s business respondent disallowed the claimed deductions for lack of substantiation petitioners also untimely filed their federal_income_tax return on date on that return petitioners claimed a dependency_exemption deduction for mrs booker’s mother petitioners also claimed itemized_deductions of dollar_figure for charitable_contributions and dollar_figure for various trade_or_business_expenses deductions in connection with mr booker’s business respondent also disallowed these deductions for lack of substantiation deductions are a matter of legislative grace and the taxpayer bears the burden of proving entitlement to any deductions claimed rule a 503_us_79 the taxpayer is required to identify each deduction available and show that all requirements have been met 292_us_435 it is also the taxpayer’s responsibility to maintain records sufficient to enable the commissioner to determine the correct_tax liability sec_6001 116_tc_438 sec_1_6001-1 income_tax regs the taxpayer must substantiate both the amount and purpose of claimed deductions higbee v commissioner supra as previously discussed the burden has not shifted to respondent in this case with respect to the first issue petitioners claimed sec_151 dependency_exemption deductions for years and for mrs booker’s mother carrie mayfield ms mayfield ms mayfield did not reside with petitioners but lived alone in greenville south carolina during ms mayfield suffered a number of strokes and spent a portion of the year in the hospital petitioners contend they sent ms mayfield money almost every month to help pay her rent and insurance but acknowledged they were not her sole source of support ms mayfield had other children and grandchildren who often contributed to ms mayfield’s support ms mayfield also received social_security_benefits of approximately dollar_figure a month and additionally received medicare assistance petitioners also acknowledged that ms mayfield received her deceased husband’s pension every month the amount of that pension was not disclosed petitioners however were unable to establish the specific amounts they contributed to ms mayfield for the years in question mrs booker testified i would give her money certain times of the year not exactly month per month like this month i might send her dollar_figure or maybe two months from then i will send her another dollar_figure mrs booker also testified 4see supra note that one year she gave her mother approximately dollar_figure to assist in paying her mortgage and electric bill however petitioners could not recall the exact year of the donation or provide any written substantiation for such a payment sec_151 allows for dependency_exemption deductions in certain circumstances the father or mother of a taxpayer may qualify as a dependent of the taxpayer if the taxpayer provides over half of that individual’s support in the calendar_year for which the deduction is sought sec_152 although petitioners testified they provided support to mrs booker’s mother their testimony was vague and they did not establish a definite amount for either year in addition petitioners presented no written evidence to substantiate their contributions mrs booker acknowledged that ms mayfield received at least dollar_figure a month in unrelated support but failed to establish the amount of support ms mayfield received from all sources during the years at issue on this record petitioners failed to establish they contributed over half of ms mayfield’s support for each of the years in question respondent therefore is sustained on this issue the next issue concerns itemized_deductions claimed by petitioners on schedules a itemized_deductions of their and income_tax returns petitioners claimed substantial deductions on their and returns under sec_170 for charitable_contributions of dollar_figure for the year consisting of dollar_figure by cash or check and dollar_figure by other than cash or check and dollar_figure for the year consisting of contributions of dollar_figure by cash or check and dollar_figure by other than cash or check respondent disallowed the deductions for both years for lack of substantiation sec_170 allows a deduction for charitable_contributions during the taxable_year if verified as provided in the regulations sec_170 the term charitable_contribution includes a contribution or gift to a corporation trust or community chest fund or foundation with certain provisos sec_170 for example the recipient organization must have been created or organized in the united_states or in any possession thereof or under the law of the united_states any state the district of columbia or any possession_of_the_united_states sec_170 furthermore no part of the net_earnings of a qualified_organization may inure to the benefit of any private_shareholder_or_individual sec_170 the charitable_contributions deduction is subject_to certain substantiation requirements sec_170 no deduction is allowed for any contribution of dollar_figure or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the qualified donee organization sec_170 this written acknowledgment must state the amount of cash or description of property the taxpayer donated and a statement confirming that no consideration was given to the taxpayer sec_1_170a-13 income_tax regs the taxpayer is required to include in the records a good_faith estimate as to the value of goods or property contributed in_kind sec_170 petitioners did not establish at trial that they were entitled to any deduction for charitable_contributions they presented as evidence receipts that were furnished blank by charitable organizations and admittedly filled in by petitioners this evidence purports to establish that during petitioners donated among other things at least bags of clothing humidifiers dehumidifiers vacuum cleaners chairs and wall fixtures the values claimed on the returns are in the court’s view inflated and do not amount to good_faith estimates of the value of the donated items nor do they add up to the dollar_figure petitioners claimed as donations other than by cash or check petitioners offered little explanation as to how they arrived at the fair_market_value of the items donated and no explanation as to how the final amount of dollar_figure claimed on their return was calculated the court is not satisfied that petitioners made any donations therefore the deduction of dollar_figure petitioners claimed as charitable_contributions other than cash for is disallowed petitioners also claimed on their return a deduction of dollar_figure for cash donations under sec_170 petitioners claimed this consisted of cash donations made to various churches mrs booker’s mother and street beggars when questioned about written substantiation mr booker responded i just made a rough estimate any money petitioners gave to street beggars sometimes referred to as pan handlers or to relatives for their support is not deductible under sec_170 as charitable_contributions sec_170 petitioners did not substantiate the amount of their other contributions nor did they establish that the organizations they contributed to were qualified organizations the deduction of dollar_figure in cash contributions claimed by petitioners is therefore disallowed with respect to the year petitioners also presented filled-in receipts from various charitable organizations listing donations received at trial however mrs booker testified that the lists did not represent items actually donated in but was not just--that was a list--he mr booker has the forms for the year i just made that list up i just made a list of items in which we have replaced over a period of time mrs booker then testified she was sure she had donated a copier and computer during but offered no proof of such donations in addition petitioners offered no evidence as to the cash donations claimed on their return due to the lack of clear convincing testimony and written substantiation respondent is sustained on this issue and the entire dollar_figure claimed as a deduction for charitable_contributions on petitioners’ federal tax_return is disallowed the third issue relates to mr booker’s trade_or_business as a tax_return_preparer and consultant mr booker did not maintain an office he merely visited his clients at their business locations he referred to his activity as a traveling tax service on schedules c profit or loss from trade_or_business of petitioners’ income_tax returns for and petitioners reported the following income and expenses from this activity gross_income expenses car and truck commissions and fees office expenses rent supplies taxes licenses travel meals and entertainment utilities wages other expenses total expenses dollar_figure dollar_figure big_number big_number big_number -0- -0- -0- big_number -0- dollar_figure big_number big_number big_number big_number big_number dollar_figure net_loss dollar_figure dollar_figure in the notices of deficiency respondent disallowed deductions for the following expenses car and truck dollar_figure -0- -0- -0- big_number -0- -0- big_number total adjustments dollar_figure commissions and fees office expenses rent supplies taxes licenses utilities wages dollar_figure big_number big_number big_number big_number dollar_figure sec_162 allows a deduction for ordinary and necessary expenses that are paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business sec_162 308_us_488 taxpayers carrying supplies on hand can deduct the costs of those supplies in the amount that they are actually consumed and used in operation during the taxable_year for which the return is made if the cost of the supplies was not deducted for any previous year if the supplies are incidental and are carried on hand with no record of consumption kept the taxpayer may deduct the total cost of such supplies purchased during the taxable_year for which the return is made sec_1_162-3 income_tax regs at trial respondent conceded the following disallowed expenses car and truck supplies taxes licenses utilities wages total concessions dollar_figure dollar_figure -0- -0- dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure 1in addition to the dollar_figure claimed by petitioners as a wage expense on their income_tax return respondent also conceded an additional dollar_figure claimed by petitioners at trial see infra note with respect to supplies petitioners contended at trial that they were entitled to amounts in addition to those respondent conceded petitioners however presented no documenting information to support their arguments moreover some of the purchases claimed but not substantiated included computers and a copier which would be capital assets subject_to depreciation they also presented receipts and copies of checks purportedly for supplies however those records do not satisfy the court that the amount claimed is in excess of what respondent has conceded additionally some of the other documentation presented appeared to be for personal expenses which are not deductible under sec_262 petitioners therefore have not established their entitlement to a deduction for supplies in excess of the amounts conceded by respondent 5petitioners offered into evidence two manila envelopes containing receipts purportedly for supplies the envelopes included however receipts for beer milk underclothes and nail polish remover which without explanation from petitioners appear to be personal expenses with respect to petitioners’ deductions for wages respondent as shown above conceded the entire amount petitioners claimed on their tax_return and dollar_figure of the dollar_figure claimed by petitioners on their tax_return petitioners claimed at trial that they were entitled to deduct an additional dollar_figure for wages not claimed on their tax_return and the remaining dollar_figure wage expense claimed on their tax_return that was not conceded by respondent mr booker claims that he employed several people to pass out brochures promoting his tax_return preparation business also he claims he paid his workers an incentive bonus for every referral that resulted in additional business the amount of the bonus depended on the type of tax_return the client needed prepared a long-form return earned the worker a larger bonus than a short_form return and so on petitioners paid all of the workers in cash and kept no records of the payments however at the end of each taxable_year mr booker claims he issued a form_1099 miscellaneous income to each person and filed a form_1096 annual summary and transmittal of u s information returns with the social_security administration the additional wage deduction for and the remaining wage deduction for claimed by petitioners consist of amounts paid to one worker roy c bell mr booker testified that mr 6mr booker testified at trial that the dollar_figure claimed as a wage expense on petitioners’ tax_return included the dollar_figure he allegedly paid mr bell during the dollar_figure he claimed he continued bell worked for him part time passing out brochures and bringing in referrals throughout and petitioners offered into evidence copies of a completed form_1096 for both and that listed nonemployee compensation to mr bell of dollar_figure for and dollar_figure for respondent disallowed deductions for the amounts mr booker claimed to have paid mr bell because the social_security administration with which forms would have been filed has no information on record of such payments to mr bell for the years and moreover respondent averred that the records of the social_security administration show that the social_security_number listed as belonging to mr bell does not exist also although the social_security administration had a record of all other employees for whose wages petitioners claimed deductions for and it had no record of a form_1099 being issued by petitioners to roy c bell or to a person of another name with the social_security_number petitioners listed continued was entitled to as an additional wage expense deduction actually pertained to another employee eric s williams mr booker stated that he forgot to deduct wages paid to mr williams during on his income_tax return the copy of the form_1096 for petitioner admitted into evidence listed both mr bell and mr williams as wage earners during in conceding the entire dollar_figure wage deduction for respondent stated the intention to allow a deduction for wages paid to mr williams while disallowing any wage expense deduction pertaining to mr bell therefore respondent also conceded at trial an additional dollar_figure deduction as a wage expense leaving only dollar_figure of the additional dollar_figure petitioners sought to deduct for in dispute as belonging to mr bell if the copies of the forms for both and petitioners admitted into evidence were authentic it seems highly unlikely that the social_security administration would mistakenly omit mr bell’s information for both years respondent questioned the authenticity of the copies of forms for and petitioners admitted into evidence and petitioners presented no proof the forms were actually filed for years and in light of petitioners’ dubious record keeping and lack of clear and credible testimony the court agrees with respondent’s conclusion that the copies of forms for and were not authentic petitioners presented no additional evidence such as canceled checks establishing the payments to mr bell during these years consequently the court sustains respondent on this issue petitioners are not entitled to any deduction for wages for and in excess of the amounts conceded by respondent respondent determined sec_6662 penalties against petitioners in the amounts of dollar_figure for and dollar_figure for sec_6662 provides for the imposition of a 20-percent penalty for the portion of any underpayment to which the section applies sec_6662 respondent determined that sec_6662 applied to petitioners because petitioners were negligent or disregarded rules or regulations negligence is defined as any failure to make a reasonable attempt to comply with the provisions of this title disregard includes careless reckless or intentional disregard sec_6662 the majority of petitioners’ itemized_deductions for and have been disallowed by the court petitioners presented very little evidence as to how they arrived at many of the amounts listed on their returns in addition the majority of their receipts admitted into evidence appear to be either irrelevant or fabricated the court holds that petitioners disregarded rules and regulations in preparing their returns for and and sustains the sec_6662 penalties respondent also determined a sec_6651 addition_to_tax for the year a taxpayer is liable for an addition_to_tax for failure_to_file a timely return unless such failure is due to reasonable_cause and not willful neglect sec_6651 willful neglect is defined as a conscious intentional failure or reckless indifference 469_us_241 petitioners were required to file a timely federal_income_tax return for sec_6012 petitioners filed their federal_income_tax return late on date when asked at trial why he did not file timely mr booker claimed he had filed for an extension however he had no evidence substantiating his claim due to the lack of any written evidence of an extension the court holds petitioners are liable for the sec_6651 addition_to_tax for reviewed and adopted as the report of the small_tax_case division decision will be entered under rule


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-131840-01 date date legend x a d1 state dear this letter responds to a letter dated date submitted by your authorized representative on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 and it was subsequently decided that x would be an s_corporation a x's sole shareholder intended to file x's form_2553 election by a small_business_corporation with an effective date of d1 the form_2553 however was not filed timely x requests a ruling that it will be recognized as an s_corporation effective for the short taxable_year beginning d1 under sec_1362 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the plr-131840-01 election is made if an s election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year conclusion based solely on the facts submitted and representations made we conclude that x has established reasonable_cause for not making a timely election and is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 containing an effective date of d1 for the election within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is an s_corporation for federal tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to the taxpayer sincerely christine ellison chief branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


cca_2015042415060710 id uilc number release date from sent friday date to cc bcc subject ein updating penalties --- you asked whether the requirement in sec_301_6109-1 that persons issued eins provide any updated application information as required by forms instructions or other guidance carries penalties for non-compliance there are currently no directly-applicable penalties for failure to update this information thanks ------- ------------------------------------------------ ------------------------------------ ----------------------------------- -------------------------------------------------


internal_revenue_service number release date index no department of the treasury washington dc telephone number person to contact refer reply to plr-121419-02 cc intl b01 date date a date b date c country d date e year f dear this is in response to a letter dated b by a’s authorized representative requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of long-term_resident status did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination a a long-term_resident of the united_states within the meaning of sec_877 relinquished his u s lawful permanent resident status expatriated on date c by surrendering his green card to a u s consulate in country d and executing a form i-407 abandonment of lawful permanent resident status a is a citizen of country d by reason of his birth on date e in country d a became a permanent resident_of_the_united_states in year f on the date of a’s expatriation his net_worth exceeded the net_worth required under sec_877 sec_877 generally provides that a citizen who loses u s citizenship or a u s long- term resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be taxed under sec_877 and the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes plr-121419-02 page sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long term-resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former u s citizen or former long term-resident whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_2_cb_29 modifying notice_97_19 1997_1_cb_394 a former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_98_34 because on the date of expatriation a became a resident fully liable to income_tax in country d the country where a was born a submitted all the information required by notice_98_34 including any additional information requested by the service after review of the submission based solely on the information submitted and the representations made we conclude that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 it is further concluded that a will not be treated under sec_877 as having as one of his principal purposes of expatriating the avoidance of u s taxes except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a’s u s tax_liability for taxable periods prior to his loss of permanent residence status or for taxable periods after his loss of permanent residence status under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a’s u s income_tax return for the year in which plr-121419-02 page a obtained the ruling 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a’s representative sincerely yours ____________________ elizabeth u karzon chief branch office of the associate chief_counsel international cc