internal_revenue_service number release date index number ----------------------------------- ------------------------ ---------------------------------- in re ---------------------------- legend legend decedent wife revocable_trust 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 b04 plr-119719-07 date date ------------------- -------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ -------------------------------------------------------- ------------------- ------------------ ----------- date date x dear ---- this is in response to the letter dated date from your representative and subsequent correspondence requesting an extension of time under ' of the procedure and administration regulations to make an election to treat a marital trust as two separate trusts under ' c of the generation-skipping_transfer gst tax regulations the facts and representations submitted are summarized as follows decedent died on date survived by wife and two children date is a date that is prior to date pursuant to the terms of his will decedent’s residuary_estate was distributed to revocable_trust article third of revocable_trust provides for the creation of marital trust a qtip_trust with gst tax potential sec_4 of article third paragraph a provides that marital trust is to be severed into two trusts a gst exempt marital trust and a gst non- exempt marital trust the gst exempt marital trust is to be funded with assets equal to the fair_market_value of all of marital trust’s assets multiplied by a fraction the numerator of which is dollar_figurex decedent’s available gst_exemption and the denominator of which is the fair_market_value of all of marital trust’s assets as finally determined for plr-119719-07 federal estate_tax purposes the executor of decedent's_estate retained a qualified_tax professional to prepare the estate’s form_706 united_states estate and generation-skipping_transfer_tax return the form_706 was timely filed on schedule m of form_706 the executor elected to treat the assets of the marital trust as qualified_terminable_interest_property qtip on schedule r of form_706 the executor made a special election under ' a to treat the marital trust’s assets for gst tax purposes as if the election under ' b had not been made a reverse_qtip_election also schedule r reflects that the balance of decedent’s gst_exemption dollar_figurex was allocated to the marital trust the qualified_tax professional however failed to split or advise the executor to split the marital trust into a gst exempt and gst non-exempt marital trust wife died on date at which point the failure to split the marital trust was discovered subsequent to the filing of decedent's form_706 ' c was issued this regulation provides a transitional rule that allows certain trusts subject_to a reverse_qtip_election to which gst tax exemption had been allocated to be treated as two separate trusts as a result of this rule only a portion of the trust would be treated as subject_to the reverse_qtip_election and that portion would be treated as having a zero inclusion_ratio the deadline for making the election set forth in the transitional rule was date the trustees of the marital trust are requesting an extension of time to elect to treat the marital trust as two separate trusts pursuant to the terms of revocable_trust and ' c such that one trust has an inclusion_ratio of zero due to the previous allocation of decedent's gst_exemption to the marital trust and the other trust has an inclusion_ratio of one for gst tax purposes the reverse_qtip_election would be treated as applying only to the trust with the zero inclusion_ratio law and analysis sec_2601 imposes a tax on every gst a gst is defined under ' a as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 as in effect for the year at issue provided that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that plr-119719-07 any allocation under ' a once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under ' a may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2652 provides that with respect to any trust for which a deduction is allowed under ' b regarding qualified_terminable_interest_property the estate of the decedent may elect to treat all of the property in such trust for purposes of the gst tax provisions as if the qtip_election had not been made this election is referred to as the reverse_qtip_election the consequence of a reverse_qtip_election is that the decedent remains for gst tax purposes the transferor of the qtip_trust for which the election is made as a result the decedent's gst tax exemption may be allocated to that qtip_trust sec_26_2652-2 provides that a reverse_qtip_election is not effective unless it is made with respect to all of the property in the trust to which the qtip_election applies sec_26_2652-2 provides that if a reverse_qtip_election is made with respect to a_trust prior to date and the gst_exemption has been allocated to that trust the transferor or the transferor's executor may elect to treat the trust as two separate trusts one of which has a zero inclusion_ratio by reason of the transferor's gst_exemption previously allocated to the trust the separate trust with the zero inclusion_ratio consists of that fractional share of the value of the entire trust equal to the value of the nontax_portion of the trust under ' a the reverse_qtip_election is treated as applying only to the trust with the zero inclusion_ratio an election under this section is made by attaching a statement to a copy of the return on which the reverse_qtip_election was made under ' a the statement is to be filed before date sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in and to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute requests for relief under ' will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government plr-119719-07 sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of ' have been satisfied therefore decedent's executor is granted an extension of time of days from the date of this letter to make the election under ' c to treat the marital trust as two separate trusts one of which has a zero inclusion_ratio by reason of decedent's gst_exemption previously allocated to the marital trust the election should be made by completing the statement required in ' c and submitting the election a copy of the return on which the reverse_qtip_election was made under ' a and a copy of this letter to and filed with the internal_revenue_service center cincinnati ohio 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 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely william p o’shea william p o'shea associate chief_counsel passthroughs special industries enclosures copy for ' purposes cc


t c summary opinion united_states tax_court benson b berry and melissa wells-berry petitioners v commissioner of internal revenue respondent docket no 21475-03s filed date benson b berry pro_se amy dyar seals for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in petitioners’ federal_income_tax of dollar_figure for the taxable_year after concessions the issues for decision are whether petitioners are entitled to claim a dependency_exemption deduction for petitioner benson b berry’s son bb from a previous marriage and whether petitioners are entitled to a child_tax_credit for taxable_year with respect to bb background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioners resided in rock hill south carolina on the date the petition was filed in this case benson b berry petitioner appeared before the court and presented petitioners’ case petitioner wife melissa wells-berry did not appear on date petitioner and ernestine berry ernestine were married during the marriage petitioner and ernestine had four children only one child of the marriage bb is at issue in the case at bar 1petitioners claimed exemptions for bb and ww the court uses only the minor children’s initials on their federal_income_tax return both of which were disallowed in the notice_of_deficiency at trial respondent conceded that petitioners were allowed to claim the dependency_exemption deduction with respect to ww and that they were entitled to the child_tax_credit for taxable_year with respect to ww as a result of respondent’s concessions the deficiency for taxable_year now in controversy is dollar_figure petitioner and ernestine were divorced on date by a final divorce decree entered by the family court of the third judicial circuit of sumter county south carolina the divorce decree states in pertinent part before proceeding counsel advised the court that the parties had entered into an agreement which resolved all of the issues before the court except the issue of divorce and the issue of attorneys fees the agreement was recited as follows mrs berry would retain the sole care custody and control of the parties’ four children mr berry would have reasonable and liberal visitation with them including one week at the beginning and end of each summer provided such was acceptable to the children mr berry would pay child_support in the amount of dollar_figure per month to mrs berry by direct military allotment beginning date and monthly thereafter on or about date the family court of the third judicial circuit of sumter county south carolina entered a qualified_domestic_relations_order qdro with respect to petitioner and ernestine’s divorce the qdro states in pertinent part this matter was before the court pursuant to a complaint filed by the plaintiff requesting a reduction in child_support the defendant ernestine filed an answer seeking an increase in child_support alimony interest in the plaintiff’s petitioner’s military retirement and attorney’s fees based upon the testimony presented the court makes the following findings_of_fact child_support the court finds that the plaintiff petitioner is entitled to reduction in his child_support payments there are two minor children remaining in the home the parties also have an year old daughter who is now pregnant and she has completed high school the court finds that the year old is emancipated and should not be considered for purposes of determining child_support the plaintiff petitioner has a gross monthly income of dollar_figure per month the defendant ernestine earns dollar_figure per month from a part-time job at target she recently became employed at harris teeter and works approximately hours per week at the rate of dollar_figure per hour the defendant’s ernestine’s gross monthly income is dollar_figure the parties have a combined gross monthly income of dollar_figure according to the south carolina child_support guidelines the monthly child_support obligation for two children when the parties have a combined gross monthly income of dollar_figure is dollar_figure per month the plaintiff petitioner will be given credit for dollar_figure per month he pays for health insurance on the minor children the total monthly combined child_support obligation is dollar_figure per month the plaintiff’s petitioner’s proportional share of the combined monthly child_support obligation i sec_64 or dollar_figure less dollar_figure for health insurance for a total of dollar_figure per month the reduction in child_support will begin on date and continue each month thereafter until further order of the court the qdro did not modify the custody provision of the final divorce decree during taxable_year petitioner was retired from military service and was employed as a store manager for bi-lo petitioner paid child_support to ernestine in the amount of dollar_figure per month during taxable_year petitioner also paid for health insurance for bb during taxable_year ernestine was employed full-time by harris teeter as a cashier during tax_year she reported on her federal_income_tax return gross_income of dollar_figure according to the final divorce decree ernestine had both physical and legal custody of bb during taxable_year on or about date petitioners filed their form_1040 u s individual_income_tax_return for the taxable_year in their return petitioners claimed bb as their dependent and claimed the resulting dependency_exemption deduction as well as the resulting child_tax_credit there was no attachment regarding any waiver or declaration such as a form_8332 release of claim to exemption for child of divorced or separated parents executed by ernestine stating that she was releasing her claim to the exemption deduction for bb in fact ernestine at no time gave petitioner verbal or written permission to claim bb as his dependent for the taxable_year discussion in general the commissioner’s determination set forth in a notice_of_deficiency is presumed correct and the taxpayer bears the burden of showing that the determination is in error rule a 290_us_111 as one exception to this rule sec_7491 places upon the commissioner the burden_of_proof with respect to any factual issue relating to liability for tax if the taxpayer maintained adequate_records satisfied the substantiation requirements cooperated with the commissioner and introduced during the court_proceeding credible_evidence with respect to the factual issue although neither party alleges the applicability of sec_7491 we conclude that the burden_of_proof has not shifted to respondent with respect to either the claimed dependency_exemption deduction or the claimed child_tax_credit therefore petitioner bears the burden of showing that he correctly claimed both the dependency_exemption deduction for bb along with the child_tax_credit with respect to bb deduction for dependency_exemption a taxpayer may claim a dependency_exemption for a child as long as the child meets the statutory definition of dependent sec_151 sec_152 ordinarily a taxpayer may claim a child as a dependent for a particular calendar_year only if the taxpayer provides over half of the child’s support during that calendar_year see sec_152 however special rules determine which parent may claim a minor child as a dependent where the parents are divorced or separated see sec_152 prior to the definition of dependent led to substantial controversy in cases involving divorced or separated taxpayers because determining which parent provided over one-half of a child’s support presented difficult issues of proof and substantiation see h rept part pincite in congress amended sec_152 to simplify the rules for determining which parent properly may claim the dependency_exemption for federal_income_tax purposes see deficit_reduction_act_of_1984 publaw_98_369 98_stat_799 the pertinent parts of sec_152 as amended provide sec_152 support_test in case of child of divorced parents etc -- custodial_parent gets exemption --except as otherwise provided in this subsection if-- a a child as defined in sec_151 receives over half of his support during the calendar_year from his parents-- i who are divorced or legally_separated under a decree of divorce or separate_maintenance ii who are separated under a written_separation_agreement or iii who live apart at all times during the last months of the calendar_year and b such child is in the custody of one or both of his parents for more than one-half of the calendar_year such child shall be treated for purposes of subsection a as receiving over half of his support during the calendar_year from the parent having custody for a greater portion of the calendar_year hereinafter in this subsection referred to as the custodial_parent exception where custodial_parent releases claim to exemption for the year --a child of parents described in paragraph shall be treated as having received over half of his support during a calendar_year from the noncustodial_parent if-- a the custodial_parent signs a written declaration in such manner and form as the secretary may by regulations prescribe that such custodial_parent will not claim such child as a dependent for any taxable_year beginning in such calendar_year and b the noncustodial_parent attaches such written declaration to the noncustodial parent’s return for the taxable_year beginning during such calendar_year for purposes of this subsection the term noncustodial_parent means the parent who is not the custodial_parent under sec_152 as amended the custodial parent2 is entitled to claim the dependency_exemption with respect to his or her child unless one of three exceptions applies none of which are at issue in the case at bar see sec_152 hughes v commissioner tcmemo_2000_143 brignac v commissioner tcmemo_1999_387 sec_1_152-4t a q a-2 temporary income_tax regs fed reg date custody is determined by the terms of the most recent decree of divorce or subsequent custody decree and will be deemed to be with the parent who as between both parents has the physical custody of the child for the greater portion of the calendar_year sec_1_152-4 income_tax regs petitioner testified at trial that during taxable_year bb resided with him during the entire summer of and on weekends and holidays during the school year petitioner did not present any documentation to substantiate such a claim 2in this opinion we refer to the parent having physical custody for the greater part of the year as the custodial_parent and to the parent who is not the custodial_parent as the noncustodial_parent see sec_152 flush language petitioner further testified that he supplied percent of the entire amount of support which bb received during taxable_year petitioner paid ernestine dollar_figure per month in child_support for bb during taxable_year and he paid for bb’s health insurance petitioner also testified that he bought all of bb’s clothes and school supplies however ernestine testified that bb did not reside with petitioner for the entire summer of and that bb only resided with petitioner during the year in issue on occasional weekends and during a week-long vacation over the summer upon the basis of the record and the final divorce decree we conclude that ernestine had both legal custody and physical custody for more than one-half of the calendar_year of bb during taxable_year therefore she was the custodial_parent in and petitioner was the noncustodial_parent thus the general_rule of sec_152 applies and ernestine as the custodial_parent is treated as supplying over one-half of bb’s support during the taxable_year even if the noncustodial_parent actually provided over half of the child’s support during the year respondent’s determination on this issue is sustained child_tax_credit sec_24 authorizes a child_tax_credit with respect to each qualifying_child of the taxpayer the term qualifying_child is defined in sec_24 as relevant here a qualifying_child means an individual with respect to whom the taxpayer is allowed a deduction under sec_151 sec_24 we have already held that petitioners are not entitled to the dependency_exemption deduction under sec_151 for bb accordingly bb is not considered a qualifying_child within the meaning of sec_24 it follows therefore that petitioners are not entitled to a child_tax_credit under sec_24 with respect to bb in view of the foregoing we sustain respondent’s determination on this issue furthermore we have considered all of the other arguments made by petitioners and to the extent that we have not specifically addressed them we conclude they are without merit reviewed and adopted as the report of the small_tax_case division decision will be entered under rule


t c no united_states tax_court sealy corporation and subsidiaries f k a the ohio mattress company and subsidiaries et al petitioners v commissioner of internal revenue respondent docket nos filed date ps had net operating losses for tax years to from deductible expenses they incurred to comply with various requirements of federal_law ie the internal_revenue_code the securities and exchange act and the employee_retirement_income_security_act_of_1974 cases of the following petitioners are consolidated herewith sealy corp subsidiaries f k a the ohio mattress co subsidiaries docket nos and the ohio mattress co licensing and components group subsidiaries f k a sealy inc subsidiaries docket nos and and sealy mattress co subsidiaries f k a ohio- sealy mattress manufacturing co subsidiaries docket nos and net operating losses generally may be carried back years sec_172 i r c however specified liability losses may be carried back years sec_172 f b i r c ps treated their losses as specified liability losses and carried them back to their tax_year ending date held ps' regulatory compliance costs are not specified liability losses stephen p kresnye and joseph a castrodale for petitioners elsie hall for respondent opinion colvin judge this case is before the court on petitioners’ motions for partial summary_judgment respondent determined the following deficiencies in petitioners' federal_income_tax petitioner year ending deficiency sealy corp sealy corp ohio mattress co sealy corp ohio mattress co sealy corp ohio mattress co sealy corp date date date date date date date date dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure petitioners seek a partial summary_judgment relating to their net_operating_loss carrybacks they contend that dollar_figure of expenses they incurred from to is specified liability losses under sec_172 and thus may be carried back years this is the first case in which we or to the best of our knowledge any court has decided the scope of sec_172 as discussed below we hold that petitioners’ compliance expenses at issue here are not specified liability losses and we deny petitioners' motion for partial summary_judgment a motion for summary_judgment or partial summary_judgment may be granted if there is no genuine issue of material fact and the decision can be rendered as a matter of law rule 61_tc_861 the parties agree that there is no material fact in dispute relating to the motion the parties have settled all of the other issues in this case unless otherwise indicated section references are to the internal_revenue_code in effect for the years at issue rule references are to the tax_court rules_of_practice and procedure a petitioners background petitioners are corporations the principal places of business of which were in seattle washington when the petitions were filed petitioners used the accrual_method of accounting and reported their income on fiscal years ending november b the public offering petitioners were privately owned before and thus were not subject_to the reporting requirements of the securities and exchange act of the act ch 48_stat_881 current version pincite u s c sec_78a-78lll the ohio mattress co first offered its stock for public sale in date the reporting requirements of the act have applied to petitioners since the act requires petitioners to file quarterly and annual financial reports with the securities_and_exchange_commission sec petitioners incurred expenses of dollar_figure in taxable years to for professional services to comply with reporting filing and disclosure requirements imposed by the act petitioners paid auditing and professional fees to kpmg peat marwick ernst whinney and ernst young to represent petitioners before the sec’s chief accountant’s office and to prepare sec registration statements s-1 and s-4 relating to public securities offerings petitioners incurred these expenses to comply with section a of the act u s c sec_78m which requires petitioners to file quarterly and annual reports with the sec and to have the annual reports audited by an independent public auditor c petitioners’ employee_benefits plans before petitioners adopted various employee benefit plans for their employees as employee_benefit_plan administrators petitioners are subject_to the employee_retirement_income_security_act_of_1974 erisa publaw_93_406 88_stat_841 u s c sec_1023 erisa requires administrators of employee benefit plans to use independent qualified public accountants to publish various reports relating to the plan id as a result petitioners paid auditing and professional fees of dollar_figure to kpmg peat marwick ernst whinney and ernst young from to to examine and prepare financial statements for petitioners and their employee benefit plans d the acquisitions and sec_338 elections in date sealy mattress co formerly known as ohio-sealy mattress manufacturing co a subsidiary of the ohio mattress co bought the stock of slumber products corp sealy mattress co of albany inc sealy mattress co of illinois inc sealy of minnesota inc sealy of connecticut inc the maryland bedding co sealy of maryland and virginia inc the metcalfe brothers inc and sealy mattress co of kansas city inc sealy mattress co bought sealy of michigan inc in date each of these companies the acquired companies had license agreements with sealy inc which is now known as the ohio mattress co licensing components group all but two of the acquired companies owned voting_stock in sealy inc after the acquisitions the ohio mattress co indirectly owned dollar_figure percent of sealy inc in date sealy mattress co bought dollar_figure percent of sealy inc from individual shareholders thereafter the ohio mattress co indirectly owned dollar_figure percent of sealy inc ’s voting_stock on date petitioners timely elected to treat the stock purchases except sealy inc and sealy of michigan as asset acquisitions under sec_338 e petitioners’ irs audits the internal_revenue_service irs audited petitioners’ tax returns for the years ending date date date date date date and date the irs examined petitioners’ books records and tax filings relating to the acquisitions petitioners paid ernst young american appraisal associates and other accounting and law firms for services relating to the and irs audits of petitioners’ and tax years most of petitioners’ irs examination expenses related to the irs audit of the acquisitions the sec_338 elections and petitioners’ return for the tax_year ending date petitioners paid dollar_figure in and for accounting and legal services relating to irs audits of petitioners’ tax_year petitioners incurred the expenses to comply with sec_7602 which allows the irs to examine taxpayers’ books_and_records to ascertain whether a return is correct petitioners reported that they had losses of dollar_figure for dollar_figure for dollar_figure for and dollar_figure for before taking into account net_operating_loss carrybacks or carryforwards on date petitioners filed amended returns for their tax years ending date and petitioners filed an amended_return for their tax_year ending date on date on it petitioners claimed a carryback of dollar_figure for specified liability losses under sec_172 specified liability losses reported on petitioners’ and amended returns do not exceed the amount of net operating losses reported on those returns respondent determined that petitioners may deduct dollar_figure as specified liability losses and dollar_figure as a loss subject_to the general 3-year carryback and 15-year carryforward under sec_172 petitioners concede that they may not deduct dollar_figure of this amount thus the amount in dispute is dollar_figure the following losses are in dispute tax_year ending acctg fees re audited financial statements and sec regis statements dollar_figure big_number big_number big_number acctg fees re prof employee_benefits fees financial re irs statements audit dollar_figure big_number big_number big_number -- -- dollar_figure dollar_figure petitioners reported that they had losses on their and returns part of which petitioners carried back as specified liability losses under sec_172 to the year ending date petitioners reported taxable_income of more than dollar_figure on the returns they originally filed for petitioners' specified liability losses included payments to their public auditors and to the sec in connection with petitioners’ compliance with the act and erisa and payments for legal and accounting services in connection with the irs audits the parties agree that the sec and erisa professional fees and the irs examination expenses described above are deductible under chapter discussion the parties have stipulated the amount of petitioners’ net operating losses the only issue for us to decide is whether petitioners may carry those losses back years or years a ten-year net_operating_loss_carryback for specified liability losse sec_1 ten-year net_operating_loss_carryback generally a taxpayer may carry a net_operating_loss back years before the loss_year and forward years after the loss_year sec_172 however a taxpayer that has a specified_liability_loss under sec_172 may carry that loss back to each of the tax years preceding the loss_year sec_172 this 10-year carryback includes product_liability and tort losses and nuclear decommissioning expenses sec_172 the 10-year carryback was enacted for product_liability losses in sec_172 revenue act of publaw_95_ sec_371 92_stat_2859 it was extended to specified liability and tort liability losses and costs of decommissioning nuclear power plants sec_172 in deficit_reduction_act_of_1984 defra publaw_98_369 98_stat_606 3the revenue reconciliation act of publaw_101_508 sec b stat combined sec_172 relating to product_liability losses and sec_172 relating to deferred statutory or tort liability losses and nuclear decommissioning costs and redesignated them as sec_172 providing rules relating to specified liability losses effective for net operating losses for tax years beginning after specified liability losses sec_172 defines a specified_liability_loss in pertinent part as follows in general --the term specified_liability_loss means the sum of the following amounts to the extent taken into account in computing the net_operating_loss for the taxable_year b any amount not described in subparagraph a allowable as a deduction under this chapter with respect to a liability which arises under a federal or state law if-- i the act or failure to act giving rise to such liability occurs at least years before the beginning of the taxable_year a liability shall not be taken into account under subparagraph b unless the taxpayer used an accrual_method of accounting throughout the period or periods during which the acts or failures to act giving rise to such liability occurred limitation --the amount of the specified_liability_loss for any taxable_year shall not exceed the amount of the net_operating_loss for such taxable_year the 10-year carryback for specified liability losses described in sec_172 applies if the taxpayer took the specified_liability_loss into account in computing its net_operating_loss for the taxable_year the expense resulting in the specified_liability_loss is deductible under chapter of the internal_revenue_code the liability with respect to which the taxpayer incurred the expense arose under a federal or state law the act or failure to act which gave rise to the liability occurred at least years before the taxable_year at issue the taxpayer used the accrual_method of accounting throughout the period in which the acts or failures to act giving rise to the liability occurred and the specified_liability_loss for any taxable_year does not exceed the net_operating_loss for that year sec_172 and the parties agree that petitioners meet requirements and to prevail petitioners must also meet requirements and deductions are a matter of legislative grace and petitioners bear the burden of proving that they are entitled to any deductions they claimed on their returns rule a 308_us_488 292_us_435 290_us_111 b whether the liability for which petitioners incurred the expense arose under a federal or state law petitioner’s liability to pay for professional services to be a specified_liability_loss the liability with respect to which petitioners incurred the expense must have arisen under a federal or state law sec_172 petitioners argue that their liability to pay accounting and professional fees and irs examination expenses arose under federal_law we disagree it is true that the act erisa and the internal_revenue_code require petitioners to file financial reports and disclosure statements maintain and provide books_and_records and cooperate with irs audits however those provisions do not establish petitioners’ liability to pay the amounts at issue petitioners’ liability to pay those amounts did not arise until petitioners contracted for and received the services petitioners' choice of the means of compliance and not the regulatory provisions determined the nature and amount of their costs if on the other hand petitioners had failed to comply with the auditing and reporting requirements or had not obtained the particular services in issue here their liability would have been in amounts not measured by the value of services thus petitioners' liability did not arise under federal_law enactment of the specific liability loss rule with the economic_performance rules our interpretation is entirely consistent with the legislative_history which accompanied enactment of the predecessor of the specified_liability_loss provision before_1984 an accrual basis taxpayer generally could deduct an expense for the tax_year in which a all events had occurred which determined the fact of the liability and b the amount of the liability could be determined with reasonable accuracy 269_us_422 defra sec_91 98_stat_606 provided that the all_events_test is not met before economic_performance occurs sec_461 in the case of liability to pay a person who provides goods or services to the taxpayer economic_performance occurs as that person provides the goods or services to the taxpayer sec_461 in the legislative_history accompanying enactment of the economic_performance rules congress described the pre-defra law gave an overview of the house bill discussed the economic_performance rules added by defra and described the predecessor of the specified_liability_loss rule the conference_report for defra states in pertinent part g accounting change sec_1 premature accruals economic_performance net_operating_loss carrybacks the house bill provides a 10-year carryback for net operating losses attributable to certain liabilities deferred under these provisions the bill also provides a special carryback rule for losses_incurred in connection with the decommissioning of a nuclear power plant such losses may be carried back to each of the taxable years during the period beginning with the taxable_year in which the plant was placed_in_service no loss however may be carried back to a taxable_year beginning before date unless it may be carried back without regard to these rules the provisions of the bill apply generally to expenses_incurred without regard to the economic_performance requirement after the date of enactment conference agreement the conference agreement generally follows the house bill with modifications h conf rept pincite 1984_3_cb_1 the conference_report states that the 10-year carryback of specified liability losses applies to net operating losses attributable to certain liabilities deferred under these provisions these provisions are the limits on premature accruals ie the economic_performance rules of sec_461 this suggests that congress intended the 10-year carryback to apply only to liabilities for which deduction is deferred by the economic_performance rules petitioners' accrual of the deduction for the expenses at issue was not deferred by the economic_performance rules since the economic_performance rules do not limit petitioners' accrual of the deduction for the compliance expenses at issue we conclude that congress did not intend those expenses to qualify as specified liability losses categories of property eligible for a 10-year carryback sec_172 provides a 10-year carryback for product_liability expenses tort losses and nuclear_power_plant_decommissioning_costs among other specified liability losses we think congress intended the 10-year carryback for liability losses under sec_172 to apply to a relatively narrow class of liabilities similar to the others identified by the statute under the ejusdem_generis_rule of statutory construction general words that follow the enumeration of specific classes are construed as applying only to things of the same general class as those enumerated 817_f2d_368 5th cir 76_tc_580 applying the rule_of ejusdem generis to interpret other_casualty 68_tc_184 we think that the costs at issue here are routine costs and are not of the same general type as those other categories petitioners argue that according to the plain language of sec_172 petitioners’ costs of compliance with the act erisa and the internal_revenue_code are specified liability losses we disagree there is nothing in the statute that plainly or at all for that matter establishes that petitioners may carry their compliance costs back for years we conclude that petitioners' compliance costs and other accounting expenses were not liabilities that arose under federal or state law c whether the act or failure to act which gave rise to the liability occurred at least years before the taxable years at issue to be a specified_liability_loss under sec_172 the act giving rise to the liability under a federal or state law must have occurred at least years before the start of the taxable_year sec_172 petitioners’ contention that they meet this requirement follows from their contention that their liability to pay those costs arose under federal_law to which they were made subject more than years before the years at issue we disagree for the reasons stated above at par b petitioners make no other argument that the liability at issue arose more than years before the years at issue thus we conclude that petitioners do not meet this requirement d conclusion we hold that petitioners’ professional fees and irs examination expenses are not specified liability losses under sec_172 and thus are not eligible for the 10-year carryback under sec_172 to reflect the foregoing and concessions orders will be issued denying petitioners' motions for partial summary_judgment


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 tege eoeg teb presp-143401-06 date date dear ------------ pursuant to sec_54 of the internal_revenue_code the code and notice_2005_98 2005_52_irb_1211 and after review of your application submitted on date including supplements thereto we have determined that the project described in appendix a attached hereto is qualified for purposes of sec_54 and will be owned by one or more qualified borrowers we allocate authority to ----------------------------------- ------------ the issuer a qualified issuer under sec_54 to issue up to dollar_figure------------of clean renewable energy bonds crebs bonds issued pursuant to this allocation must be designated by the issuer as bonds for purposes of sec_54 for the project described in appendix a up to the amount allocated for each project described in appendix a bonds so designated must be issued on or before date please be aware that in order for bonds to be crebs the applicable_requirements of the code including without limitation sec_54 notice_2005_98 and notice_2006_7 2006_10_irb_559 must be met please note that creb proceeds may be used to reimburse capital expenditures paid_by qualified borrowers for qualified projects only if the provisions of sec_54 are met if you have any questions with respect to this allocation please contact --------------------- ---------or -----------------------------of the office of division counsel associate chief_counsel tax-exempt and government entities on --------------------- not a toll-free call 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 for purposes of the renewable_electricity_production_credit under sec_45 of the code no inference may be drawn from this allocation that any project listed in appendix presp-143401-06 a is a qualified_facility or that electricity to be produced at such project s is electricity from a qualified_energy resource at a qualified_facility within the meaning of sec_45 this determination is directed only to the applicant named above 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 form 8038-g information_return for tax- exempt governmental obligations filed for bonds issued pursuant to this allocation the allocation contained in this letter is based upon information and representations submitted by the applicant for the creb allocation 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 application_for an allocation it is subject_to verification on examination sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-143401-06 borrower name appendix a project type project location ------------------------------- wind facility ------------ -------------------------------- -------------------------------- ------------ amount allocated dollar_figure-----------


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 fip b03 plr-109785-06 date date legend fund ------------------------------------------------------------------------ accounting firm -------------------------- date ------------------ date -------------------------- date -------------------------- date ----------------------- date ---------------- date ------------------ date ---------------------- dear ---- ------ this responds to a letter dated date submitted on behalf of fund fund requests that its election under sec_855 of the internal_revenue_code to treat dividends distributed after the close of a tax_year as having been paid during that taxable_year be considered timely filed pursuant to sec_301_9100-3 of the procedure and administration regulations plr-109785-06 facts fund requests an extension of time to make an election under sec_855 to treat dividends distributed after the close of its taxable_year that ended on date as having been made during that year fund represents that in prior years it has consistently made sec_855 elections on federal_income_tax returns the due_date for which had been extended by the filing of form_7004 for the taxable_year that ended on date accounting firm assigned staff to prepare the tax_return under the direction of a senior tax manager consistent with past years’ filings fund intended to request an automatic_extension of time in which to file and include the sec_855 election with fund’s federal_income_tax return to be filed on or before the extended due_date on date the senior tax manager discovered that the form_7004 had inadvertently not been filed the senior tax manager immediately proceeded to finalize the return and forwarded it to fund on date the return was then filed by fund on date fund declared the dividend to which the election under sec_855 of the code was intended to relate on date to the shareholders of record on date and paid the dividend on date fund makes the following additional representations the request for relief was filed by fund before the failure to make the regulatory election was discovered by the service granting the relief requested will not result in fund having a lower tax_liability in the aggregate for all years to which the regulatory election applies than that fund would have had if the election had been timely made taking into account the time_value_of_money fund did not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 of the code at the time fund requested relief and the new position requires or permits a regulatory election for which relief is requested being fully informed of the required regulatory election and related tax consequences fund did not choose to not file the election law and analysis sec_855 of the code provides that if a ric declares a dividend prior to the time prescribed by law for the filing of its return for a taxable_year including the period for any extension of time granted for filing such return and plr-109785-06 distributes the amount of such dividend to shareholders in the 12-month_period following the close of such taxable_year and not later than the date of the first regular dividend payment made after such declaration the amount so declared and distributed shall to the extent the company elects in such return in accordance with regulations prescribed by the secretary be considered as having been paid during such taxable_year except as provided in subsections b c and d sec_1_855-1 of the income_tax regulations sets forth the method of making the election and provides that the election must be made in the return filed by the ric for the taxable_year sec_301_9100-1 of the procedure and administration regulations provides in part that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i set forth rules that the internal_revenue_service generally will use to determine whether under the facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money holding based upon the facts presented and representations made by fund we hold that fund has demonstrated good cause for the granting relief under sec_301_9100-3 accordingly fund will be treated as having made a timely election under sec_855 of the code on its federal_income_tax return filed on date for the taxable_year that ended on date aggregate for the year to which the election applies than fund’s tax_liability would have no opinion is expressed as to whether fund’s tax_liability is not lower in the plr-109785-06 been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director will determine fund’s tax_liabilities for the year involved if the director determines that fund’s liability is lower that office will determine the federal_income_tax effect this ruling is limited to the timeliness of fund’s election under sec_855 of the code this ruling does not relieve fund from any penalty that it may owe as a result of its failure_to_file its federal_income_tax returns on time except as specifically ruled upon above no opinion is expressed or implied as to any federal excise or income_tax consequences regarding fund in particular no opinion is expressed or implied whether fund qualifies as a ric that is taxable under subchapter_m part of the code this ruling is directed only to the taxpayer who requested it sec_6110 ___________________________ alice bennett chief branch office of associate chief_counsel financial_institution products sincerely yours of the code provides that it may not be used or cited as precedent enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c number info release date uil dear this responds to your letter of date asking for a ruling regarding whether your home and acres would qualify as your residence for purposes of the exclusion available under sec_121 of the internal_revenue_code in your letter you state that the acres consist of untillable land and you have had no income from using this acreage when a determination regarding the tax effects of a proposed transaction cannot be made based on clearly established tax law generally a taxpayer may request a private_letter_ruling pursuant to revproc_2000_1 2000_1_irb_4 which interprets and applies the tax laws to the taxpayer’s specific set of facts once a private_letter_ruling is issued a taxpayer ordinarily may rely on its conclusions regarding the tax effects of the taxpayer’s transactions however the issue of whether property qualifies as the taxpayer’s principal_residence under sec_121 is an area in which rulings will not be issued by the internal_revenue_service because of the factual nature of the problem involved see sec_3 of revproc_2000_3 2000_1_irb_103 therefore we cannot provide a ruling determining whether your home and acres may be considered your residence for purposes of the exclusion provided under sec_121 the following is a discussion of the well-established tax law concerning the treatment of gain from the sale of a taxpayer’s principal_residence that may be of use to you under the general rules of sec_121 a taxpayer may exclude up to dollar_figure of gain on the sale_or_exchange of property if that property was owned and used as the taxpayer's principal_residence for an aggregate period of years or more during the 5-year period ending on the date of the sale_or_exchange the full exclusion is available only once every years sec_121 provides a special rule for joint returns under this special rule a husband and wife who make a joint_return for the taxable_year of the sale_or_exchange of the property may exclude up to dollar_figure of gain if either spouse owned the property for at least years during the 5-year period both spouses used the property as their principal_residence for at least years during the 5-year period and neither spouse used the sec_121 exclusion during the last years sec_121 does not prescribe how many acres can qualify as a taxpayer’s residence_generally whether or not any property is used by a taxpayer as the taxpayer’s residence depends upon all the facts and circumstances in each individual case including the good_faith of the taxpayer see sec_1_121-3 of the income_tax regulations this means that the amount of acreage that may constitute part of your residence depends upon how you actually used your home and acres during the year period ending on the date of the sale_or_exchange if part of the property was used as your residence and part was used for business purposes or the production_of_income only the portion of the gain allocable to the residential use is entitled to the sec_121 exclusion i hope this information has been helpful for more information on the sec_121 exclusion see publication selling your home this publication may be obtained on the internet at www irs ustreas gov or by calling 1-800-tax-form if you have additional questions please contact sara p shepherd badge number at sincerely __________________________ david b auclair senior technician reviewer branch administrative provisions judicial practice


department of the treasury internal_revenue_service washington d c date number release date cc dom fs proc uilc internal_revenue_service national_office field_service_advice memorandum for deborah a butler assistant chief_counsel field service cc dom fs from subject this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend x year year year year year year year year date date date date date amount amount amount amount amount amount issue whether the internal_revenue_service through the mitigation provisions may correct a supposedly erroneous assessment against the taxpayer conclusion the service can not fashion a remedy based upon the mitigation provisions facts x is the parent company of a number of banks that filed consolidated_returns for tax purposes the affiliated banks use the accrual_method of accounting historically x had claimed as ordinary expenses and deducted on its returns certain loan origination costs referred to as prepaid finders’ fees these fees were payments made by an affiliated bank to automobile boat and other dealers for referring customers the service audited x’s returns for year sec_1 and during the course of the audit the service did not raise loan origination costs as an issue even though x had deducted these costs on date after the close of the audit cycle for year sec_1 and x submitted to the national_office forms application_for change in accounting_method proposing to change from deducting loan origination costs when incurred to capitalizing them over time at the same time x sent forms to the local district_director proposing to change its accounting for loan origination costs for year and subsequent years in date the national_office returned the forms that had been submitted to it informing x that in accordance with announcement 1993_16_irb_9 the service was temporarily suspending its rulings on requests by taxpayers to change their method_of_accounting for loan origination costs on date the service aware that x had submitted forms began an examination of x’s returns for year sec_3 and for those years x had deducted prepaid finders fees in the following amounts year amount year amount and year amount the service determined that the prepaid finders fees were capital expenditures which should not have been treated as ordinary expenses the service accordingly proposed and the taxpayer agreed to capitalize the costs and amortize them over a five-year period for year the service assessed and collected a deficiency of amount for year a deficiency of amount and for year a deficiency of amount these amounts were paid on date the amounts assessed and paid reflect adjustments in addition to those that are the subject of this memorandum in date x claimed that it had audit protection from the finders fee issue for year sec_3 and and asserted that the adjustments for those periods should never have been made x has now filed refund claims for those years however the period of limitations for refund claims for year sec_3 and has run except to the extent payments were made on date again with the exception of these recent payments the period of limitations for making assessments for year sec_3 and has run as well if it assumed that x is correct in asserting that the adjustments for year sec_3 and were improper x is barred from receiving a refund for year and the service is barred from asserting and collecting a deficiency for year your office accepts x’s argument that the adjustments proposed by the service and agreed to by x were improper and has proposed correcting the error as follows first x will file refund claims for year sec_3 and claiming that it was entitled to take ordinary_expense deductions for those years to the extent the periods of limitations remain open the service will allow the claims taking into account the amount of the finders fee deductions previously amortized second the service under the authority of the mitigation provisions sec_1311 - will make an adjustment for year corresponding to the allowed refund claims for year sec_3 and third x will pay the resulting deficiency for year and then file a refund claim this will trigger the service’s right to apply a setoff and result in a collectible deficiency in the amount now barred fourth and finally x in claims for refund for years and will claim the amortization deductions attributable to the finders fees capitalized in year the service will deny the claims on the basis these costs should have been treated as ordinary expenses and deducted in year you assert that this will open_year to the extent that it is now barred law and analysis in limited circumstances the mitigation provisions allow an adjustment to be made in a barred year these provisions are intended to provide a fair and workable formula under which taxpayers and the government would be given relief from the unfair and unjust results occasioned by corrections by final determinations of errors of either the taxpayer or the commissioner of internal revenue or both in connection with proper treatment of items affecting taxable_income and tax_liability in more than one year 78_fsupp_94 ct_cl the mitigation provisions however are not intended to correct all inequities occasioned by the statute_of_limitations 291_f2d_508 9th cir accordingly if the bar of the statute_of_limitations is to be lifted in this case the fair and workable formula of the statute must be followed one limitation on mitigation is stated in sec_1311 this section of the internal_revenue_code limits the errors described in sec_1312 that can be corrected only those errors for which an adjustment is not barred at the time the taxpayer first maintained that it was entitled to a deduction or credit for the tax_year to which a determination under sec_1313 such as the final disposition of a claim_for_refund relates can be corrected under sec_1311 turning to the facts of this case specifically to the fourth part of your proposal x has yet to claim a refund for years and so at this time there is no determination for those years if x claims a refund for amortization deductions in years and and the service rejects x’s claims there will be a determination for those years a determination that for the sake of discussion we will presume is described in sec_1312 as we have noted correction of the error described in that code section is permissible if and only if the limitation stated in sec_1311 is satisfied that limitation cannot be satisfied here because year the year in which the supposed error was made is now barred and no claim has been made for years and in other words sec_1311 prevents the service from refunding a barred but otherwise allowable deduction for year we understand that by this you do not mean the correct_tax treatment of the finders fees is ordinary rather because of announcement x’s treatment should not have been altered it is thus not possible to unravel completely the adjustments proposed and agreed to for year the mitigation provisions which make the statute_of_limitations somewhat pliable cannot do so for year we will not separately consider the effect of the mitigation provisions on year sec_3 and because your office has proposed an integrated solution for year sec_3 and not a partial solution for some but not all of those years if you have further questions please call


internal_revenue_service number release date index number ----------------------------------------------- -------------------------------------- ------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc psi b02 plr-117024-13 date date legend -------------------------------------- -------------------------------- -------------------------- --------------------------- -------------------------- ---------------------- ------------------------ trust date date date date date beneficiary beneficiary ----------------------------------- -------------------------- ---------------------------------- -------------------------- beneficiary ------------------------------------- -------------------------- beneficiary ------------------------------------------------------------------- ------------------------ beneficiary ------------------------------------------------------------------ ------------------------ a ------------------ plr-117024-13 b c ------------------ ------------------ dear --------------------- this letter responds to a letter dated date submitted on behalf of trust by its authorized representative requesting that the service grant trust an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_663 of the internal_revenue_code code the information submitted states that trust improperly filed its federal_income_tax return on fiscal_year basis with its final taxable_year ending date its proper taxable_year the calendar_year should have ended date the taxpayer represents that on date which is within the calendar_year ending date trust’s accountant prepared accountings crediting both beneficiary 1’s and beneficiary 2’s accounts with final distributions of a in cash these accountings related only to one portion of trust portion trust’s accountant mailed the accountings relating to portion to beneficiary and beneficiary on date which is within sixty- five days following the close of the calendar_year ending date on date trust’s accountant prepared the final accountings for the remaining assets in trust portion crediting the beneficiaries in the following amounts settlement agreement o beneficiary was credited b in cash o beneficiary was credited b in cash real_property and as satisfaction of a o beneficiary was credited b in cash o beneficiary was credited c in cash o beneficiary was credited c in cash trust’s accountant mailed the accountings relating to portion to the beneficiaries on date which is within sixty-five days following the close of the calendar_year ending date the trustee of trust intended to file a sec_663 election with regard to these distributions but due to inadvertence the election was not timely filed sec_663 provides that in general if within the first days of any taxable_year of an estate or a_trust an amount is properly paid or credited such amount shall be considered paid or credited on the last day of the preceding_taxable_year sec_663 provides that sec_663 shall apply with respect to any taxable_year of an estate or a_trust only if the executor of such estate or the fiduciary of such trust as plr-117024-13 the case may be elects in such manner and at such time as the secretary prescribes by regulations to have sec_663 apply for such taxable_year section sec_1_663_b_-2 of the income_tax regulations provides that if a_trust return is required to be filed for the taxable_year of the trust for which the election is made the election shall be made in the appropriate place on such return the election under sec_1_663_b_-2 shall be made not later than the time prescribed by law for filing such return including extensions thereof such election shall become irrevocable after the last day prescribed for making it sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that trust has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 as a result trust is granted an extension of time of days from the date of this letter to file an election under sec_663 the election should be made by filing an income_tax return for its taxable_year ending date amended to include the election with the appropriate service_center a copy of this letter should be attached to the amended_return except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above 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 finally we express or imply no opinion concerning whether the distributions were properly paid or credited and in the proper amounts plr-117024-13 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 will be sent to trust’s authorized representative sincerely associate chief_counsel passthroughs special industries by _______________________________ bradford poston senior counsel branch office of the associate chief_counsel passthroughs special industries cc


a internal_revenue_service appeals release number release date date date department of the treasury address any reply to office of appeals one cleveland center-suite east ninth street cleveland oh employer_identification_number c person to contact identification_number contact telephone number fax number uil last day to file a petition with the united_states tax_court now dear’ certified mail this is our final adverse determination as to your exempt status under sec_501 of the internal_revenue_code code your tax-exempt status is revoked effective july it has been determined that the organization is not operated exclusively for exempt purposes as required by sec_501 and sec_1_501_c_3_-1 more than an insubstantial part of your activities are in furtherance of non-exempt purposes and benefit private interests contributions to your organization are not deductible under sec_170 of the code you are required to file federal_income_tax returns on form_1041 for any years in which you have taxable_income including those years which are still open under the statute_of_limitations processing of income_tax returns and assessment of any taxes due will not be delayed because you have filed a petition for a declaratory_judgment under sec_7428 of the code you are also required to file form_990-pf for all years until private_foundation_status is properly terminated under sec_507 if you decide to contend this determination under the declaratory_judgment provisions of sec_7428 a petition to the united_states tax_court the united_states court of claims or the district_court of the united_states for the district of columbia must be filed within days from the date this determination_letter was mailed to you contact the clerk of the appropriate court for rules for filing petitions for declaratory_judgment we will notify the appropriate state officials of this action as required by sec_6104 of the code if you have questions about this letter you may write to or call the contact person whose name if you write please telephone number and irs address are shown on the first page of this letter include your telephone number the best time for us to call you if we need more information and a copy of this letter to help us identify your account keep the original letter for your records if you prefer to call and the telephone number is outside your local calling area there will be a long distance charge to you the contact person identified on the front of this letter can access your tax information and help you get answers you also have the right to contact the office_of_the_taxpayer_advocate you can call and ask for taxpayer_advocate assistance or you can contact the taxpayer or writing advocate for the irs office that issued this notice_of_deficiency by calling ’ taxpayer_advocate assistance is not a to __ substitute for established irs procedures such as the formal appeals process the taxpayer_advocate is not able to reverse legally correct_tax determinations nor extend the time fixed by law that you have to file a petition in the u s tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling sincerely yours douglas h shulman commissioner by charles f fisher appeals team manager enclosures notice helpful contacts for your deficiency_notice cc issue explanation of proposed revocation of exemption under sec_501 facts the above-named organization was granted exemption as a private non-operating foundation descnbed in sec_501 in may form_1023 application_for recognition of exemption which was filed in march providing grants to chanties states that the organization’s activities would include while reviewing the organization’s books_and_records we found that a substantial percentage of the organization’s expenditures were loans and payments to disqualified persons during years ended december and december applicable law sec_501 provides tax exemption for corporations and foundations that are operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 states that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 states that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 c an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 states an organization is not operated exclusively for one or more exempt purposes if its net earings inure in whole or in part to the benefit or private shareholders or individuals sec_1 c -1 d ii states that an organization is not organized or operated exclusively for one or more of the purposes specified in sec_501 unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it 1s necessary for an organization to establish that it private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests is not organized or operated for the benefit of government’s position form acrev department of the treasury - internal_revenue_service page -1- the organization has failed to meet the operational_test described in sec_1_501_c_3_-1 a substantial percentage of the organization’s expenditures were personal in nature the majority of these personal expenditures were loans to a disqualified_person other expenditures include payments for repairs on a home owned by a private individual and payments for traning courses nearly all of the organization’s duning years ended december expenditures were for personal purposes and december as stated in sec_1_501_c_3_-1 an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages pnmanily in activities which accomplish one or more of such exempt purposes specified in sec_501 since a substantial percentage of the organization’s expenditures were for personal purposes the organization is clearly not engaging primanily in activities that accomplish exempt purposes under sec_501 further as indicated in sec_1_501_c_3_-1 the organization is not operated exclusively for exempt purposes because a substantial percentage of its net_earnings are inuning to disqualified persons the organization is also being operated for private rather than public interests due to the large amount of expenditures_for personal purposes as stated in sec_1_501_c_3_-1 an organization is not operated for exempt purposes it is being operated for private interests based on the above precedent the organization’s exemption under sec_501 should be revoked taxpayer’s position on date the taxpayer submitted a written protest letter stating that she disagrees with our position on date her poa submitted a written protest letter also stating that he disagrees with our position in the letter from her poa he stated that since there was no intent to make a gift to the foundation the taxpayer never actually donated any funds into the organization consequently he claims that the organization was never active conclusion since the organization does not meet the operational_test under sec_501 we are proposing that its tax exemption be revoked form a rev department of the treasury - intemal revenue service page -2- tax_exempt_and_government_entities_division department of the treasury internal_revenue_service michigan ave 10th fi detroit mi attn date taxpayer_identification_number form_990-pf tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincerely marsha a ramirez director eo examinations enclosures publication publication report of examination letter catalog number 34809f