internal_revenue_service number release date index number ------------------------------- ----------------------------- ----------------------------- in re --------------------------------------------------- --------------------------- 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-101772-15 date date legend taxpayer taxpayer taxpayer son trust date date date date year year year year year year year year year year year year year year v w x y ------------------------ ------------------------ ------------------------- ---------------------------- ------------------------------------------------ --------------------------- ------------------- -------------------- ---------------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------------- ---------------- -------------- -------------- plr-101772-15 dear ---------------- this letter responds to your authorized representative's letter of date and subsequent correspondence requesting an extension of time pursuant to sec_2642 of the internal_revenue_code code and sec_301 of the procedure and administration regulations to allocate generation-skipping_transfer gst_exemption to transfers to a_trust the facts submitted and the representations made are summarized as follows on date taxpayer and taxpayer established an irrevocable_trust trust for the benefit of taxpayer and the descendants of taxpayer and son trust is a gst_trust within the meaning of sec_2632 in year sec_1 through year except year taxpayer gifted assets that were his separate_property to trust in each of these years taxpayer and taxpayer filed a federal gift_tax_return reporting each transfer on which both taxpayers elected under sec_2513 to treat gifts made by each as made by both in that year neither taxpayer allocated gst_exemption to the transfers on their respective federal gift_tax returns article iii paragraph b of trust provides that taxpayer has a right for a period of days following any contribution to trust to withdraw an amount equal to the portion of the contribution constituting an exclusion from gifts within the meaning of sec_2503 article iii paragraph e provides that each power_of_withdrawal granted to taxpayer is noncumulative and lapses if not exercised the trust document does not limit taxpayer 3’s withdrawal right by the amounts set forth in sec_2514 it has been represented that taxpayer never exercised her withdrawal rights it has been further represented that with respect to the transfers to trust in year sec_1 through taxpayer had the right to withdraw amounts from these transfers that exceeded the amounts in sec_2514 year sec_1 through year are prior to date a few months after the transfer to trust in year taxpayer died on date the following has been represented taxpayer 3’s estate did not file a federal estate_tax_return because it was not required to as the value of her estate was below the basic exclusion amount under sec_2010 for year see sec_6018 the beneficiaries of her estate were her children during life taxpayer did not make transfers other than the transfers to trust that were direct or indirect skips within the meaning of sec_2612 and sec_2632 as a result taxpayer had available gst_exemption of dollar_figurev on date the total value of trust on date is represented to have been dollar_figurew which is less than dollar_figurev taxpayer died three years later on date the following has been represented as a result of her death a transfer to a testamentary_trust with gst tax plr-101772-15 potential occurred that was valued on her federal estate_tax_return in the amount of dollar_figurex this amount exceeded her available gst_exemption of dollar_figurey on date no schedule r was attached to the federal estate_tax_return filed for her estate taxpayer died several years later on date as a result of his death the failure to allocate gst_exemption to trust by all three taxpayers was discovered it has been represented that taxpayer has sufficient available gst_exemption to allocate to the transfers to trust he made in year sec_1 through the executrix of the estates of taxpayer and taxpayer has requested an extension of time to allocate each taxpayer’s available gst_exemption to his or her respective transfers to trust for year sec_1 through and year under sec_2642 and sec_301_9100-3 effective as of the date of each transfer law and analysis sec_2513 provides in part that a gift made by one spouse to any person other than his spouse is considered as made one-half by him and one-half by his spouse sec_2514 provides that the exercise or release of a general_power_of_appointment created after date is deemed a transfer of property by the individual possessing such power sec_2514 provides that the lapse of a power_of_appointment created after date during the life of the individual possessing the power is considered a release of such power the rule_of the preceding sentence applies with respect to the lapse of powers during any calendar_year only to the extent that the property which could have been appointed by exercise of such lapsed powers exceeds in value the greater of the following amounts dollar_figure or percent of the aggregate value of the assets out of which or the proceeds of which the exercise of the lapsed powers could be satisfied sec_2601 imposes a tax on every gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2612 defines the term direct_skip as a transfer subject_to a tax imposed by chapter or of an interest in property to a skip_person sec_2631 in effect for year sec_1 through year provided that for purposes of determining the inclusion_ratio every individual is 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 plr-101772-15 sec_2631 in effect for year sec_12 through year provides that for purposes of determining the inclusion_ratio every individual is allowed a gst_exemption amount 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 any allocation under sec_2631 once made is irrevocable sec_2632 provides that if any individual makes an indirect_skip during such individual’s lifetime any unused portion of such individual’s gst_exemption is allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero this section is effective for transfers made after date sec_2632 defines the term indirect_skip to be a transfer of property other than a direct_skip subject_to the tax imposed by chapter made to a gst_trust defined in sec_2632 sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor's lifetime other than in a direct_skip is made on form_709 a federal gift_tax_return sec_2632 provides that any portion of an individual's gst_exemption which has not been allocated within the time prescribed by sec_2632 is deemed to be allocated as follows-- a first to property which is the subject of a direct_skip occurring at such individual's death and b second to trusts with respect to which such individual is the transferor and from which a taxable_distribution or a taxable_termination might occur at or after such individual's death sec_2632 provides that the allocation under sec_2632 is made among the properties described in sec_2632 and the trusts described in sec_2632 as the case may be in proportion to the respective amounts at the time of allocation of the nonexempt portions of such properties or trusts sec_2632 provides that for purposes of sec_2632 the term nonexempt_portion means the value at the time of allocation of the property or trust multiplied by the inclusion_ratio with respect to such property or trust sec_26_2632-1 provides in part that a decedent's unused gst_exemption is automatically allocated on the due_date for filing form_706 federal estate_tax_return to the extent not otherwise allocated by the decedent's executor on or before that date the automatic allocation occurs whether or not a return is actually required to be filed unused gst_exemption is allocated pro_rata subject_to the rules of plr-101772-15 sec_26_2642-2 on the basis of the value of the property as finally determined for purposes of chapter chapter value first to direct skips treated as occurring at the transferor's death the balance if any of unused gst_exemption is allocated pro_rata subject_to the rules of sec_26_2642-2 on the basis of the chapter value of the nonexempt_portion of the trust property or in the case of trusts that are not included in the gross_estate on the basis of the date of death value of the trust to trusts with respect to which a taxable_termination may occur or from which a taxable_distribution may be made the automatic allocation of gst_exemption is irrevocable and an allocation made by the executor after the automatic allocation is made is ineffective sec_26_2642-4 provides that the applicable_fraction for a_trust is redetermined whenever additional exemption is allocated to the trust or when certain changes occur with respect to the principal of the trust except as otherwise provided in this paragraph a the numerator of the redetermined applicable_fraction is the sum of the amount of gst_exemption currently being allocated to the trust if any plus the value of the nontax_portion of the trust and the denominator of the redetermined applicable_fraction is the value of the trust principal immediately after the event occurs the nontax_portion of a_trust is determined by multiplying the value of the trust assets determined immediately prior to the event by the then applicable_fraction sec_26_2642-4 provides that if property is added to an existing trust the denominator of the redetermined applicable_fraction is the value of the trust immediately after the addition reduced as provided in sec_26_2642-1 sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute sec_2652 provides that the term transferor means the donor in the case of any property subject_to the tax imposed by chapter sec_2652 provides that if under sec_2513 one-half of a gift is treated as made by an individual and one-half of such gift is treated as made by the spouse of such individual such gift is so treated for purposes chapter plr-101772-15 sec_26_2652-1 provides that in the case of a transfer with respect to which the donor's spouse makes an election under sec_2513 to treat the gift as made one- half by the spouse the electing spouse is treated as the transferor of one-half of the entire value of the property transferred by the donor regardless of the interest the electing spouse is actually deemed to have transferred under sec_2513 the donor is treated as the transferor of one-half of the value of the entire property sec_2654 provides that the portions of a_trust attributable to transfers from different transferors shall be treated as separate trusts except as provided in the preceding sentence nothing in this chapter shall be construed as authorizing a single trust to be treated a sec_2 or more trusts sec_26_2654-1 provides that if there is more than one transferor with respect to a_trust the portions of the trust attributable to the different transferors are treated as separate trusts for purposes of chapter treatment of a single trust as separate trusts under this paragraph a does not permit treatment of those portions as separate trusts for purposes of filing returns and payment of tax or for purposes of computing any other tax imposed under the code also additions to and distributions from such trusts are allocated pro_rata among the separate trusts unless otherwise expressly provided in the governing instrument sec_26_2654-1 provides that if an individual makes an addition to a_trust of which the individual is not the sole transferor the portion of the single trust attributable to each separate trust is determined by multiplying the fair_market_value of the single trust immediately after the contribution by a fraction the numerator of the fraction is the value of the separate trust immediately after the contribution the denominator of the fraction is the fair_market_value of all the property in the single trust immediately_after_the_transfer notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating gst_exemption to lifetime transfers is to be treated as if not expressly prescribed by statute and taxpayers may seek an extension of time to make an allocation described in sec_2642 or b under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government in this case taxpayer and taxpayer were transferors for gst tax purposes of one-half of each transfer taxpayer made to trust in year sec_1 through except year when no transfer was made because taxpayer made gifts to trust and taxpayer and taxpayer elected on their respective federal gift_tax returns filed for plr-101772-15 year sec_1 through year except year under sec_2513 to treat any gift made by either in that year as made by both see sec_2652 sec_2652 and sec_26_2652-1 further upon the lapse of each withdrawal right in year sec_1 through year taxpayer became the transferor for gst tax purposes of the portion of each contribution over which taxpayer had a right to withdrawal an amount that was in excess of the amounts set forth in sec_2514 see sec_2514 and sec_2652 accordingly beginning in year trust had three transferors for gst tax purposes of three separate trusts within trust see sec_2654 and sec_26_2654-1 sec_26 a ii indicates how to determine the value of each taxpayer’s separate trust within trust each time a transfer was made to trust taxpayer and taxpayer did not allocate gst_exemption to the transfers to trust in year sec_1 through year except year on their respective federal gift_tax returns and taxpayer did not file any federal gift_tax returns beginning in year however sec_2632 deemed the respective gst exemptions of taxpayer and taxpayer to be allocated in an amount equal to the fair_market_value of each gift they made to trust in years through year except year see sec_2632 since all of taxpayer 3’s transfers to trust occurred in years prior to date none of taxpayer 3’s gst_exemption was deemed allocated to her separate trust within trust by sec_2632 sec_26_2642-4 and a indicate how to calculate the inclusion ration of a_trust each time a transfer is made when taxpayer died on date taxpayer 3’s available gst_exemption of dollar_figurev was deemed allocated to the separate trust within trust of which she was the transferor based upon the value of the nonexempt_portion of that separate trust on date see sec_2632 sec_2632 and b and sec_26_2632-1 as previously noted the total value of trust on date is represented to be dollar_figurew which is less than dollar_figurev therefore taxpayer had sufficient available gst_exemption to allocate to this separate trust as of date such that this separate trust had a zero inclusion_ratio as of date finally when taxpayer died on date taxpayer 2’s available gst_exemption of dollar_figurey was deemed allocated in proportion to the nonexempt_portion of the separate trust within trust of which she was the transferor and the value of the assets transferred to the testamentary_trust as of date see sec_2632 sec_2632 and b and sec_26_2632-1 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore the executrix of taxpayer 1’s estate is granted an extension of time of days from the date of this letter to allocate taxpayer 1's available gst_exemption to the transfers he made to trust in year sec_1 through year chronologically the allocations will be effective as of the date of each transfer and the fair_market_value of each transfer as determined for plr-101772-15 federal gift_tax purposes will be used to determine the amount of taxpayer 1's gst_exemption to be allocated to each of his transfers to trust the executrix of taxpayer 2’s estate is granted an extension of time of days from the date of this letter to allocate the gst_exemption deemed allocated to the nonexempt_portion of taxpayer 2’s separate trust within trust on date to the transfers she made to trust in year sec_1 through year chronologically the allocations will be effective as of the date of each transfer and the fair_market_value of each transfer to trust as determined for federal gift_tax purposes will be used to determine the amount of the gst_exemption deemed allocated to taxpayer 2's separate trust within trust to be allocated to each of her transfers to trust the allocations made for taxpayer and taxpayer should be made on supplemental form sec_709 united_states gift and generation-skipping_transfer_tax return for year sec_1 through year and filed with the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh a copy of this letter should be attached to each supplemental form_709 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 specifically we are not ruling on whether trust will have a zero inclusion_ratio as a result of the allocations of taxpayer 1’s and taxpayer 2’s exemption as described herein this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations submitted by the taxpayers 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 melissa c liquerman melissa c liquerman chief branch passthroughs special industries enclosures copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------- --------------------- ----------------------------------------- re --------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------- id no ----------------- telephone number -------------------- refer reply to cc psi plr-102752-18 date date legend date grantor grantor trust son state child child daughter bank bank date court statute statute statute date dear ------------- -------------------------- --------------------------- ----------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------- ----------------------------------------------------------------- ------------ ------------------------- ---------------- -------------------------------------------------- ------------------------------------------- ---------------------- ------------------- --------------------------------------------------------- ----------------------------------------------- --------------------------------------- ------------------------------------------- --------------------- this letter responds to your authorized representative’s letter dated date and subsequent correspondence requesting estate gift and generation-skipping_transfer gst tax rulings with respect to the proposed modification of trust facts plr-102752-18 the facts and representations submitted are summarized as follows on date a date after date grantor and grantor collectively grantors established an irrevocable_trust trust for the primary benefit of son trust is administered under the laws of state under article ii of trust during son’s lifetime the trustee shall pay or expend and apply for the benefit of son such sums from the principal and income of trust as the trustee considers necessary or desirable from time to time for son’s medical_care education support or maintenance in its sole and absolute discretion sec_2 of article ii provides as follows any part or all of the then remaining principal of the trust estate together with any accrued and undistributed_income therefrom shall be paid over conveyed and distributed to son’s creditors or the creditors of his estate or such appointee or appointees among those of son’s lineal_descendants who are living at the death of son in such manner and in such proportions as he may appoint in and by his last will and testament under sec_2 in the event son does not effectively appoint the remaining trust estate under sec_2 then the trustee shall divide the remainder into equal but separate shares to existing trusts for son’s two children child and child article iii section dollar_figure provides the trustee other than any beneficiary with certain powers including but not limited to the following sec_3 to create in a lineal descendant of the grantor a testamentary general_power_of_appointment within the meaning of sec_2041 including the power the exercise of which requires the consent of the trustee other than any beneficiary sec_3 to limit a general_power_of_appointment of a lineal descendant of the grantor as to all or part of such principal at any time prior to the death of such lineal descendant by narrowing the class to whom the powerholder may appoint the property subject_to such appointment so as to convert such power into a special_power_of_appointment sec_3 to eliminate such power for all or any part of such principal as to which such power was previously created plr-102752-18 son and daughter were named in the trust agreement as the initial co-trustees however daughter declined to serve as co-trustee never having signed the trust agreement and never having accepted such appointment article viii section dollar_figure provides that in the event son or daughter is removed dies or for any reason is unwilling or unable to serve as trustee then child shall serve as successor trustee with the surviving co-trustee if child is removed dies or for any reason is unwilling or unable to serve as successor trustee then bank or its successors in interest shall serve as co-trustee with the remaining trustee or as sole trustee after a series of acquisitions bank is currently the successor_in_interest of bank although grantors contemplated that daughter would serve as a non-beneficiary trustee of trust at the time trust was created daughter declined to accept such appointment as a result son and child who are both beneficiaries of trust are the current co-trustees of trust accordingly there are no non-beneficiaries serving as a trustee of trust the trust agreement does not specifically provide a method for the appointment of a non-beneficiary trustee ie special trustee for purposes of section dollar_figure in the event both son and child are serving despite the fact that the provision expressly states that the powers set forth therein shall be exercised only by a non-beneficiary trustee grantor and grantor predeceased son it is represented that upon the death of grantor and grantor a portion of each grantor’s estate was distributed to trust it is also represented that each grantor allocated his or her remaining gst_exemption to trust so that trust has an inclusion_ratio of between one and zero on date son and child as the co-trustees of trust petitioned court seeking modification of trust to add new section dollar_figure of trust to provide a method for appointing an independent special trustee who may exercise the powers set forth in section dollar_figure of trust and to appoint bank as the independent special trustee under new section trust as modified provides as follows section dollar_figure for any trust created herein the person listed below shall serve as special trustee the special trustee’s duties shall be limited to the exercise of discretion given to a trustee who is not a beneficiary under this trust included but not limited to those powers set forth in section dollar_figure herein the special trustee may receive reasonable_compensation any special trustee may resign in the same manner set forth in article viii for other trustees the initial special trustee shall plr-102752-18 be bank or its successor if there is no successor special trustee appointed pursuant to the provisions hereof a majority in number of the income beneficiaries or during any period that such a beneficiary lacks legal capacity the guardian of such beneficiary’s estate shall appoint as the successor special trustee any bank or trust company that shall have been licensed to engage in trust business for at least five years immediately prior to such appointments and which shall then have capital and surplus of at least twenty million dollars dollar_figure it is represented that bank is not related or subordinate to grantor grantor son or child statute provides that a noncharitable irrevocable_trust may be modified upon consent of all the beneficiaries if a court concludes that modification is not inconsistent with a material purpose of the trust statute provides that a court may modify the terms of a_trust in a manner that is not contrary to the settlor’s probable intention in order to achieve the settlor’s tax objectives the court may provide that the modification has retroactive effect statute provides that a court may appoint an additional trustee or special fiduciary whenever the court considers the appointment necessary for the administration of the trust on date pursuant to state law court issued an order granting the modification of section as described in the petition contingent upon the receipt of a favorable letter_ruling from the internal_revenue_service the trustee requests the following rulings the proposed modification of trust as set forth in the order will not adversely affect the gst inclusion_ratio of trust bank 2’s acceptance and appointment to the office of special trustee of trust pursuant to the order will not constitute the exercise or release of a general_power_of_appointment under sec_2514 so as to constitute a gift by son for federal gift_tax purposes the exercise of trustee powers including those delineated in sec_3 and of trust by bank or a successor special trustee to limit or eliminate son’s testamentary general_power_of_appointment granted under sec_2 of trust will not constitute the exercise or release of a general_power_of_appointment under sec_2041 and as a result the trust assets will not be included in son’s gross_estate under sec_2041 plr-102752-18 law and analysis ruling sec_2601 imposes a tax on every generation-skipping_transfer the term generation-skipping_transfer is defined in sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_26_2601-1 of the generation skipping transfer_tax regulations provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status unless specifically provided otherwise the rules contained in this paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes thus the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy sec_26_2601-1 b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 provides that for purposes of sec_26_2601-1 a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred for plr-102752-18 example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust no guidance has been issued concerning the modification of a_trust that may affect the status of a_trust that is exempt from gst tax because sufficient gst_exemption was allocated to the trust to result in an inclusion_ratio of zero at a minimum a modification that would not affect the gst status of a grandfathered trust should similarly not affect the exempt status of such a_trust in the instant case it is represented that grantor and grantor allocated gst_exemption to trust upon the distribution of their respective estates upon each respective death accordingly trust has an inclusion_ratio between one and zero pursuant to the court’s order under new section bank is named as special trustee for the limited purpose of exercising the powers given to a non- beneficiary trustee including but not limited to powers set forth in section dollar_figure of trust the proposed modification of trust will not result in a shift of any beneficial_interest in the trust to any beneficiary who occupies a generation lower than the persons holding the beneficial interests further the proposed modification of trust will not extend the time for vesting of any beneficial_interest in the modified trust beyond the period provided for in trust accordingly based on the facts submitted and the representations made we conclude that the proposed modification of trust will not adversely affect trust’s gst inclusion_ratio ruling sec_2 and sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent the property would be includible in the decedent's gross_estate under sec_2035 to inclusive sec_2041 defines the term general_power_of_appointment as a power that is exercisable in favor of the decedent the decedent's_estate the decedent's creditors or the creditors of the decedent's_estate sec_20_2041-1 provides in part if under the terms of the instrument the trustee or his successor has the power to appoint the principal of trust for the benefit of individuals including himself and the decedent has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself the decedent is considered as having a power_of_appointment a power to amend only the administrative provisions of a_trust instrument which cannot substantially affect the plr-102752-18 beneficial_enjoyment of the trust property or income is not a power_of_appointment however the mere power of management investment custody of assets or the power to allocate receipts and disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has no power to enlarge or shift any of the beneficial interests therein except as an incidental consequence of the discharge of the fiduciary duties is not a power_of_appointment sec_2501 imposes a tax for each calendar_year on the transfer of property by gift by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2514 provides that the exercise or release of a general_power_of_appointment created after date is deemed the transfer of property by the individual possessing such power under sec_2514 the term general_power_of_appointment is defined as a power which is exercisable in favor of the individual possessing the power the possessor his estate his creditors or creditors of his estate in this case son and child have beneficial interests in trust and are the current co-trustees section dollar_figure grants to a non-beneficiary trustee certain trustee powers including the power to limit or eliminate son’s testamentary general_power_of_appointment under sec_2 prior to the modification the terms of trust did not provide a method for appointing a non-beneficiary trustee who may exercise the powers in section dollar_figure granted to only non-beneficiary trustees the modification of trust to add section dollar_figure to provide a method for appointing an independent special trustee who may exercise the powers set forth in sec_3 and to appoint bank as an independent special trustee with the authority to exercise the powers set forth in section dollar_figure of trust does not change or transfer the interests of son during his lifetime nor does it confer any new rights to any beneficiaries rather the modification provides a process for the powers set forth in section dollar_figure to be administered by a non-beneficiary trustee ie special trustee the testamentary_power_of_appointment granted to son in sec_2 occurs upon the death of son and is not currently exercisable by son son retains the same interest in trust both before and after the modification accordingly based on the facts submitted and the representations made we conclude that bank 2’s acceptance and appointment to the office of special trustee of trust pursuant to the order will not constitute the exercise or release of a general_power_of_appointment under sec_2514 so as to constitute a gift by son for federal gift_tax purposes further we conclude that the exercise of trustee powers including those plr-102752-18 delineated in sec_3 and of trust by bank or a successor special trustee to limit or eliminate son’s testamentary general_power_of_appointment granted under sec_2 of trust will not constitute the exercise or release of a general_power_of_appointment under sec_2041 and as a result the trust assets will not be included in son’s gross_estate under sec_2041 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 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 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 leslie h finlow leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of letter cc


t c no united_states tax_court dean matthew vigon petitioner v commissioner of internal revenue respondent docket no 28788-14l filed date p submitted to r nine form sec_1041 u s income_tax return for estates and trusts and r assessed against p nine dollar_figure penalties under sec_6702 for frivolous tax submissions which are not subject_to deficiency procedures and for which r asserts there is no statute_of_limitations r issued to p a notice_of_federal_tax_lien under sec_6320 and p requested a cdp hearing during which under sec_6330 he challenged his underlying liability for the penalties the irs’s office of appeals issued a determination sustaining the penalty liabilities and the notice of lien and p filed a tax_court petition pursuant to sec_6330 thereafter r abated the penalties released the lien and filed a motion to dismiss the petition on grounds of mootness but r did not concede p’s liability for the penalties on the nine form sec_1041 and r reserved the right to reassess later sec_6702 penalties for the nine form sec_1041 held despite r’s abatement of the penalties and release of the lien the cdp case is not moot in light of p’s liability challenge under sec_6330 and r’s non-concession as to liability and r’s reserving the right to reassess the penalties dean matthew vigon for himself scott a hovey for respondent opinion gustafson judge this is a collection_due_process cdp appeal pursuant to sec_6330 in which petitioner dean matthew vigon asks us to review a determination by the office of appeals appeals of the internal_revenue_service irs to sustain the filing of a notice_of_federal_tax_lien with a view toward collection of dollar_figure plus interest in penalties that the irs assessed against mr vigon pursuant to sec_6702 for frivolous tax submissions the commissioner has abated the penalties released the lien and moved to dismiss the case on grounds of mootness and the issue now before us is whether this case is moot in view of the commissioner’s retaining the right to reassess the 1unless otherwise indicated all section references are to the internal_revenue_code code of as in effect at all relevant times codified in u s c penalties and declining to concede that mr vigon is not liable we hold that the case is not moot and we will deny the commissioner’s motion mr vigon’s form sec_1041 background from date through date mr vigon submitted a total of nine form sec_1041 u s income_tax return for estates and trusts on behalf of the dean m vigon trust --two for tax_year three for tax_year and four for tax_year three of the form sec_1041 one for each year are marked as amended returns three others are unsigned incomplete photocopies of others of the nine forms and they were sent to the irs via telefacsimile and were not mailed penalty assessments and notice of lien the irs treated these as nine separate returns and determined that the positions reflected on the form sec_1041 were frivolous the irs therefore assessed against mr vigon nine dollar_figure penalties for the supposed filing of nine frivolous form sec_1041 in date the commissioner issued to mr vigon a letter notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 the letter stated that the commissioner had filed a notice_of_federal_tax_lien nftl on date for the amounts of dollar_figure for tax_year dollar_figure for tax_year and dollar_figure for tax_year 2009--ie for the penalties plus interest cdp hearing in date the commissioner received from mr vigon a completed form request for a collection_due_process or equivalent_hearing by which he challenged the nftl during the cdp hearing mr vigon disputed his liability for the penalties on date irs appeals issued a notice_of_determination concerning collection action s under sec_6320 and or of the internal_revenue_code which sustained the filing of the notice_of_federal_tax_lien the explanatory attachment stated issues you raised collection alternatives requested no collection alternatives were specified on the form for the lien cdp an attachment indicated that you are a canadian citizen born and raised and you do not owe any of these taxes penalties or interest you requested that any and all past forms held by irs bearing your name or number assigned to your name be revoked from any record including any applications assigned numbers ssn iten ein or any returns forms or other paperwork no additional documentation was submitted in order to continue with a collection alternative determination challenges to the liability you indicated a challenge to the liability for the penalties assessed for filing frivolous form_1041 us income_tax returns for estates and trusts for the years ended and you informed the settlement officer that the returns being filed were an attempt to purchase property in the us and you were told by a man named peter that this was what needed to be done to facilitate the purchase the information received did not reasonably purport sic your request to revoke all the paperwork filed and be granted full relief or abatement of the penalties assessed you raised no other issues mr vigon timely filed a petition with the tax_court appealing the determination of irs appeals at that time he was a resident of canada tax_court proceedings as the scheduled trial date approached a motion for continuance was filed on behalf of mr vigon explaining that he was incarcerated in canada the commissioner objected to the continuance but stated that respondent believes this case is susceptible of resolution by summary_judgment the court granted the continuance and ordered the commissioner to file a motion for summary_judgment however the commissioner discovered that during the cdp hearing irs appeals’ settlement officer did not verify whether written managerial approval as set forth in sec_6751 was obtained before the sec_6702 penalties were assessed or whether an exception to obtaining managerial approval otherwise applies the commissioner therefore moved to remand the case to irs appeals for a supplemental hearing during which verification of compliance with sec_6751 would be obtained the court granted the commissioner’s motion and ordered the remand after the supplemental hearing irs appeals issued a supplemental notice_of_determination once again sustaining the filing of the notice_of_federal_tax_lien and the explanatory attachment to the supplemental notice stated for each of the sec_6702 penalties assessed an immediate supervisor of the individual making the determination to assess the penalty approved that determination in writing the administrative file was reviewed and verified that written approval was secured in writing as set forth in sec_6751 and was obtained before the sec_6702 penalties were assessed on date the commissioner filed a motion for summary_judgment by our order of date we denied the motion identifying genuine disputes of fact about the number of returns filed and about the supervisory approval of them under sec_6751 we ordered the parties to state their availability for a trial in date no trial has taken place instead the commissioner moved for a continuance explaining that the irs would abate the penalties at issue that the process of abating those liabilities is almost complete that the process of releasing the liens at issue has been initiated and that once those processes have been completed the irs intends to file a motion to dismiss the case on grounds of mootness we granted the motion for continuance on date but we stated we understand how collection issues under sec_6330 become moot if collection activity ceases it is less clear how a liability challenge under sec_6330 becomes moot merely upon an announced concession which would not seem to have any res_judicata or collateral_estoppel effect perhaps a cdp petitioner who makes a liability challenge that the irs concedes is entitled to decision in his favor on the liability issues we therefore ordered that if the commissioner files a motion to dismiss on grounds of mootness then the irs shall explain how such a motion gives adequate relief to the petitioner the commissioner’s motion to dismiss the commissioner then filed a motion to dismiss the case on grounds of mootness on date which he supplemented on date the motion stated that the frivolous_return penalties for taxable years and have all been abated and the federal tax_liens for all three years have been released emphasis added that is the commissioner does not allege merely that the notice of lien has been withdrawn the effect of which would be that the relevant code provisions are applied as if the withdrawn notice had not been filed see sec_6323 emphasis added but states that the liens themselves have been released see sec_6325 which would seem to mean the lien referred to in such certificate ie the nftl is extinguished see sec_6323 see drilling v commissioner tcmemo_2016_103 at however the filing by which this ostensible release was made states with respect to each assessment below unless notice of lien is refiled by the date in column e ie dates in and this notice shall constitute the certificate_of_release_of_lien as defined in sec_6325 thus the purported release indicates that release will occur if at all at a date years away and that there may be a refiling of an nftl moreover the commissioner’s motion does not state that the irs concedes that mr vigon is not liable for the penalties rather the motion states emphasis added respondent agrees with the court that a dismissal on the grounds of mootness would not have any res_judicata or collateral_estoppel effect while respondent notes that there is no statute_of_limitations in the internal_revenue_code for sec_6702 penalties it is respondent’s general practice to proce sec_6702 penalties within three years after a frivolous submission if respondent decides to assess a penalty outside of this time period he is directed to seek review of counsel id since an order of dismissal would not have res_judicata effect respondent could hypothetically seek to reassess a penalty against petitioner if this occurred however petitioner would be entitled to a new cdp hearing concerning the new assessment since petitioner will have an opportunity to seek judicial review of any further collection action if this were to occur petitioner's interest are adequately protected notwithstanding the lack of res_judicata or collateral_estoppel effect of an order dismissing this case on grounds of mootness the fact remains that there is no current case or controversy for the court to adjudicate thus the commissioner explicitly declines to concede that mr vigon is not liable for the penalties to the same effect the commissioner states in a supplement to his motion that respondent may in theory reassess those penalties and elaborates i t is not clear whether respondent will reassess respondent’s personnel would have to review the returns again and if they are judged to satisfy the requirement of sec_6702 and more than three years have passed since they were received respondent’s personnel would be required to obtain an opinion of counsel prior to assessment that is the commissioner expressly reserves his right to reassess the same penalties and to force mr vigon to go through the cdp process again if he wants to obtain judicial review of his liability but the commissioner asserts that the case is moot nonetheless mr vigon apparently still incarcerated has not filed a response to the motion to dismiss on grounds of mootness discussion i general legal principles a sec_6702 penalties sec_6702 imposes a dollar_figure penalty for frivolous tax submissions this is one of the assessable_penalties of subtitle f chapter subchapter_b of the code which are to be paid upon notice_and_demand sec_6671 and are not subject_to deficiency procedures see sec_6703 because we are not yet called on to adjudicate mr vigon’s liabilities under sec_6702 we do not now discuss further the principles and standards for applying this penalty b collection_due_process nftl and letter at issue here is the irs’s determination to sustain the filing of a notice_of_federal_tax_lien for mr vigon’s sec_6702 penalty liabilities notwithstanding his challenge to those liabilities sec_6320 and b provides that no more than five business days after the irs files an nftl the irs must notify the taxpayer of the filing and of the taxpayer’s right to a cdp hearing before the irs office of appeals thus the letter giving notice of the nftl is the trigger or occasion for a cdp hearing however the scope of the hearing is broader than the lien per se issues in the cdp hearing pursuant to sec_6330 titled issues at hearing the taxpayer may raise two kinds of issues the first of which is any relevant issue relating to the unpaid tax or the lien sec_6330 such relevant issue s specifically include appropriate spousal defenses ie under sec_6015 the appropriateness of collection actions here the lien and offers of collection alternatives which may include the posting of a bond the substitution of other assets an installment_agreement or an offer-in-compromise sec_6330 mr vigon raised none of this kind of issue the second kind of issues that the taxpayer may raise is challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability sec_6330 the sec_6702 penalties at issue here are not determined in a statutory notice of sec_6330 is the provision as to cdp hearings for notices of proposed levy but it also governs cdp hearings as to liens by the operation of sec_6320 which provides for purposes of this section subsections c d other than paragraph b thereof e and g of sec_6330 shall apply after the petition in this case was filed sec_6330 was designated sec_6330 deficiency issued pursuant to sec_6212 and the irs acknowledges that mr vigon was entitled to challenge the penalty liabilities at the cdp hearing the agency-level process concludes with irs appeals’ issuance of a determination sec_6330 in issuing that determination the appeals officer must consider the two kinds of issues outlined in sec_6330 and b must verify that the requirements of applicable law and administrative procedure have been met and must consider whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the person involved that any collection action be no more intrusive than necessary sec_6330 irs appeals’ determination resolving those issues id is reflected in a document called a notice_of_determination that irs appeals issues to the taxpayer tax_court jurisdiction sec_6330 defines the tax court’s jurisdiction to review such a determination judicial review of determination --the person may within days of a determination under this section appeal such determination to the tax_court and the tax_court shall have jurisdiction with respect to such matter that is it is not the nftl that a taxpayer may appeal but rather irs appeals’ determination made under sec_6330 and when he does the tax_court acquires jurisdiction not simply over the lien but over such matter see first rock baptist church child dev ctr v commissioner t c ___ ___ slip op pincite date o nce a petitioner invokes the jurisdiction of the court jurisdiction lies with the court and remains unimpaired until the court has decided the controversy 85_tc_527 citing 57_tc_720 aff’d 507_f2d_406 2d cir see also 425_f3d_1203 9th cir a s a general matter a federal court’s subject-matter jurisdiction is determined at the time it is invoked aff’g 121_tc_89 3when we grant a taxpayer’s motion to dismiss a cdp case see 118_tc_330 we do so not for a supposed lack of jurisdiction and not as a matter of the taxpayer’s right but only after giving the commissioner an opportunity to oppose the motion and show any prejudice that granting the motion might cause thus the change in the taxpayer’s position does not affect our jurisdiction in a cdp case in 57_tc_720 a deficiency case aff’d 507_f2d_406 2d cir we stated that a taxpayer may not unilaterally oust the tax_court from jurisdiction which once invoked remains unimpaired until it decides the controversy it is equally true that the commissioner may not unilaterally oust the tax_court from jurisdiction --neither in a deficiency case nor in a cdp case mootness even where we have jurisdiction a case might become moot and if so it should be dismissed ordinarily once the commissioner concedes that there is no unpaid liability for a disputed year upon which a collection action could be based a proceeding filed in this court pursuant to sec_6330 is moot macdonald v commissioner tcmemo_2009_240 slip op pincite citing 126_tc_1 gerakios v commissioner tcmemo_2004_203 and chocallo v commissioner t c memo however as we noted above a cdp hearing may involve not only collection issues such as the appropriateness of collection actions like the notice of lien at issue here and offers of collection alternatives sec_6330 but also challenges to the existence or amount of the underlying tax_liability sec_6330 if a cdp hearing includes a valid liability challenge then t o the extent respondent contends that withdrawal of the nftl by itself moots the entire case we reject that contention first rock baptist church child dev 4unlike this case 126_tc_1 involved a liability that had been satisfied not merely abated as here and the commissioner had represented that there would be no further collection action rather than reserving the possibility of future collection as here leaving only the question not present here and not present in greene-thapedi when the petition was first filed whether the taxpayer should get a refund--a question already then pending in district_court as to which we held the tax_court lacked jurisdiction ctr v commissioner t c at ___ slip op pincite the liability issue may remain even after the collection issues have been resolved or become moot the question now before us is whether the liability issue may remain even after the assessment has been abated ii analysis a jurisdiction the commissioner contends that we lack jurisdiction over mr vigon’s liability challenge because the irs has released the lien underlying the petition we disagree admittedly unless a taxpayer has received from the irs a collection notice ie a notice of the filing of federal_tax_lien or a notice of a proposed levy has requested a cdp hearing before irs appeals and has received from irs appeals a notice_of_determination then the taxpayer has no basis for filing a cdp petition in the tax_court pursuant to sec_6330 from that truism the commissioner derives the position that if collection has ceased and the collection notice has become moot then the basis for maintaining the suit has evaporated and the court loses jurisdiction he insists that sec_6330 does not constitute a specific grant of jurisdiction to conclusively determine petitioner’s liability irrespective of the collection action the commissioner lays great stress on the valid distinction between a liability on the one hand and on the other the separate concept of its assessment and collection which separate concept is in the commissioner’s view the necessary subject of a cdp hearing the commissioner argues in order for the court to determine a liability in a cdp case notwithstanding the lack of a proposed collection action the court must find a specific jurisdictional grant under sec_6330 however sec_6330 only gives the tax_court jurisdiction to review the determination referred to in sec_6330 sec_6330 directs appeals to determine inter alia whether the proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary without an assessment there can be no collection action and accordingly no valid determination for the tax_court to review under sec_6330 this does not constitute a specific grant of jurisdiction to conclusively determine petitioner's liability irrespective of the collection action this argument reflects an imprecise reading of the statute sec_6330 providing for appeal to the tax_court does grant the right to appeal a determination which as the commissioner notes is a determination under sec_6330 however the inter alia in the commissioner’s quotation is quite apt and sec_6330 --not in fact confined to the balancing of collection issues--actually reads as follows emphasis added basis for the determination --the determination by an appeals officer under this subsection shall take into consideration-- a the verification presented under paragraph b the issues raised under paragraph and c whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary p aragraph includes-- b underlying liability --the person may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period sec_6330 thus in a case in which a liability challenge is duly raised irs appeals’ determination is clearly required to take into consideration that liability issue tax_court jurisdiction does depend on a notice_of_determination issued pursuant to sec_6330 for which the prior collection notice a notice of proposed levy under sec_6330 or as here a notice of lien under sec_6320 is indeed a necessary predicate buffano v commissioner tcmemo_2007_32 slip op pincite but the tax court’s jurisdiction is not restricted to the collection notice rather that jurisdiction extends to every issue properly within the cdp hearing sec_6330 allows a taxpayer to appeal such determination to the tax_court emphasis added --ie to appeal to the tax_court irs appeals’ notice_of_determination which may include a rejection of a liability challenge--and the statute goes on to provide that the tax_court shall have jurisdiction with respect to such matter emphasis added our jurisdiction is not limited to the notice of lien that triggered this collection proceeding but rather comprehends all the issues that congress allowed to be included in such matter having obtained jurisdiction of a liability challenge when the petition was filed the tax_court does not lose jurisdiction over it if the irs releases a lien and ceases collection b mootness even if we have jurisdiction over a matter we should dismiss it if it has become moot as a fair number of cdp cases do become we turn now to the issue of mootness typical cases dismissed on grounds of mootness in cdp cases involving no liability challenge but only collection issues the full payment of the liability makes further collection unnecessary and does render the case moot where there is a liability challenge in a typical cdp case involving income_tax by the time we address the case enough time has elapsed since the filing of the tax_return at issue that the statute_of_limitations would bar any future assessment of tax or any suit to collect the tax without assessment see sec_6501 consequently the commissioner’s abatement of the existing assessment constitutes his surrender as to that liability and in our experience a motion to dismiss on grounds of mootness that is based on the commissioner’s abatement of an income_tax assessment also usually states in some fashion that the commissioner concedes the liability that he has abated in that typical circumstance the petitioner’s liability challenge has indeed become moot the commissioner has abated the liability the statute_of_limitations would bar any future attempt to reassess or collect the liability and the commissioner explicitly disclaims any intention to pursue collection of that liability we dismiss such a case on grounds of mootness the distinctive circumstances of this case the commissioner asserts however that the sec_6702 penalty for frivolous tax submissions unlike the income_tax cf sec_6501 has no statute_of_limitations in the code for purposes of the commissioner’s motion to dismiss we so assume the commissioner has abated the previous penalty assessments against mr vigon but as the commissioner observes if this case is dismissed the irs claims the right to reassess against and collect from mr vigon identical sec_6702 penalties for the same nine alleged frivolous submissions here abatement is a tactical retreat but not a surrender moreover the commissioner does not concede the liability issue5 and does not disclaim his intention to exercise his right to reassess the penalties he calls that right hypothetical and theor etical and he describes the decisions that would need to be made and the actions that would have to occur within the irs before such a reassessment could be made--evidently with the intention of persuading us that reassessment is unlikely--but he stops short of disclaiming an intention to reassess the penalties he could easily state that he will not do it but he does not so state instead he reserves the right and he would have us dismiss this case and leave the threat hanging over mr vigon--evidently forever the commissioner urges that this does not leave mr vigon without a remedy because the commissioner volunteers mr vigon would be entitled to a new cdp hearing with judicial review if the irs assessed the penalties and proceeded to collect them we assume this is true but we see in the 5we are unable to reconcile the commissioner’s position in this case with chief counsel’s advice in subject collection_due_process cases irs ccn cc-2003-016 wl date a motion to dismiss for mootness is inappropriate if petitioner is disputing the existence or amount of the liability and in his motion and supplement the commissioner did not offer a reconciliation sec_6330 provides that a taxpayer shall be entitled to only one hearing with respect to the taxable_period to which the unpaid tax relates emphasis added the sec_6702 penalty pertains not to a period continued commissioner’s position no reason that he could not do it again--abate the second set of assessments moot the second cdp case and lie in wait mr vigon’s supposed remedy depends on his recognizing the second lien notice timely requesting a cdp hearing before irs appeals challenging the liability in that hearing and then timely filing a tax_court suit when irs appeals issues an adverse determination--all while he is incarcerated our cdp jurisdiction is littered with the sad tales of taxpayers who even when not in prison stumble on one or more of those requirements but if mr vigon did succeed in putting his reassessed liabilities before this court in a future second cdp case the commissioner has in his view the unilateral power to render the second case moot by abating the penalties while retaining the prospect of reassessing yet again at any future time continued but to a submission but the commissioner takes the reasonable position that a reassessed sec_6702 penalty would be a new assessment and a new liability so that if a new collection notice is issued the taxpayer would be entitled to a new cdp hearing as we understand his position the commissioner acknowledges that in the new cdp hearing the taxpayer could make a liability challenge under sec_6330 since the taxpayer would have had no prior opportunity for such a challenge as to the newly assessed liability applicable principles by our order of date we ordered the commissioner-- to supplement his motion to address and distinguish the following holding from a tax_refund suit 597_f2d_1348 ct_cl i n midst of briefing of the summary_judgment motion defendant filed checks totaling dollar_figure with our clerk together with a motion to dismiss the motion asserted that defendant had tendered refund of the full amount due with interest therefore there was no money claim before the court therefore by the doctrine_of 424_us_392 96_sct_948 47_led_114 we lacked jurisdiction by order dated date we held that we had jurisdiction citing 485_f2d_313 9th cir that testan did not apply but that plaintiff's expectation of a res_judicata or collateral_estoppel effect from the anticipated decision was not a sufficient reason for trying a case when no money was at stake we ordered suspension by order of date however we lifted the suspension plaintiff having pointed out that by sec_7405 if plaintiff took the check defendant could sue in a u s district_court for recovery_of a refund erroneously paid defendant later denied it had any such strategy in mind and we are sure it did not however we believe a party who has sued the united_states in this court in a tax case is entitled to a trial or as here a decision on dispositive motion in this forum unless the united_states is willing to have judgment entered against it we hypothesize that the reasoning of hotel conquistador is applicable in this cdp case because a full refund there is arguably like release of the liens here and the possibility of an unanticipated erroneous refund_suit there is arguably like the possibility of an unanticipated reassessment here if we are correct then the appropriate motion in the circumstances respondent alleges would be for entry of decision not sustaining the collection on the ground that there is no liability in response to our order the commissioner argues8 that the reasoning of hotel conquistador should not defeat a holding of mootness here the commissioner asserts that hotel conquistador did not discuss the applicable standard for deciding to proceed with the case notwithstanding the government's proffer to refund the taxes paid hotel conquistador relied upon the decision of the u s court_of_appeals for the ninth circuit in 485_f2d_313 9th cir which held citing 393_us_199 that m ere voluntary cessation of allegedly illegal conduct does not moot a case rather f or a defendant to successfully establish mootness by reason of its voluntary cessation of the controversial conduct the defendant must show that 7our order referred to reassessment of the sec_6702 penalties as unanticipated here but that characterization is evidently incorrect since the commissioner’s supplement to his motion goes only so far as to say that it is not clear whether respondent will reassess 8the commissioner also argues that hotel conquistador does not apply because after the lien was released and the penalties were abated we lack jurisdiction over the liability challenge we have addressed jurisdiction in part ii a above ‘ there is no reasonable expectation that the conduct will recur and interim relief or events have completely and irrevocably eradicated the effects of the alleged violation ’ 831_f3d_551 d c cir quoting 466_f3d_1073 d c cir the commissioner fails as to both of these prongs as to no reasonable expectation he might succeed in making such a showing by asserting unequivocally in his motion that he will not reassess the penalties and we assume that the burden would then be on mr vigon to counter that showing with some evidence or indication that the penalty would be reassessed but the commissioner fails to make that initial showing the defect is not simply that he fails to persuade us that in fact he will not really reassess rather he does not even assert that he will not reassess he asserts instead that it is not clear whether respondent will reassess he evidently feels it is his prerogative to shut down the lawsuit while deliberately leaving the matter in solution the caselaw does not at all vindicate that prerogative as to the second prong-- interim relief or events have completely and irrevocably eradicated the effects of the alleged violation --the commissioner contends that abatement of the sec_6702 penalty assessments has ‘eradicated the effects of the alleged violation’ omitting as it does the word irrevocably from its quotation of this prong his milder statement is more nearly defensible but the thing he must actually show is that the abatement has irrevocably eradicated the effects of his penalty liability determination in fact his abatement of the sec_6702 penalty is thoroughly revocable in his view since he claims the power to assess once again the very same penalties on the very same submissions t here is a difference between the controversy having gone away and simply being in a restive stage true the vote f 3d pincite the commissioner could have made this controversy about mr vigon’s penalty liabilities go away instead he has chosen to leave it in a restive stage it is therefore not moot conclusion in view of the commissioner’s non-concession of the liability issue this case is not moot and his motion to dismiss on grounds of mootness will be denied an appropriate order will be issued


department of the treasury internal_revenue_service washington d c o f f ic e o f c h ief c o u n sel date number info release date uil cor-124516-01 the honorable gary a condit member u s house of representatives 16th street suite c modesto ca attention ruth daleth dear congressman condit this letter is in response to your correspondence dated date forwarding concern about medicare_tax and his social_security_benefits i hope the following general information is helpful federal_insurance_contributions_act fica_taxes provide a federal system of old-age survivors disability and hospital insurance the hospital insurance hi portion of fica imposed under sec_3101 and sec_3111 of the internal_revenue_code commonly referred to as medicare_tax i sec_1 the hi tax is a percentage of wages paid_by an employer and received by an employee for employment medicare_tax has no maximum wage limit which means all wages are subject_to the tax all wages an individual earns are subject_to medicare_tax and the tax is properly withheld from an employee’s earnings even if the individual receives social_security_benefits the taxability of an individual’s wages is not affected when he or she receives social_security_benefits therefore any wages medicare_tax whether or not he receives social_security_benefits earns are subject_to medicare consists of two parts hospital insurance part a - generally it is paid_by the hi tax an individual pays during years of employment the individual usually pays no additional costs when requesting this coverage and medical insurance part b - it is not paid for by the dollar_figure hi tax if the individual elects coverage he or she must pay a premium if the individual elects to receive the medical insurance the premium may be deducted from social_security_benefits received by the individual the amount deducted from premium he is paying for the medical insurance portion of medicare however we do not have enough information to be certain the social_security administration handles this matter it should confirm if the premium deductions are for medical insurance if they confirm this social_security_benefits may be the did not pay the hi tax twice the social_security administration’s toll free number is the mailing address is social_security administration office of public inquirie sec_6401 security blvd room 4-c-5 annex baltimore md we will make this letter available for public inspection after we delete identifying information including names and addresses under the freedom_of_information_act i hope this information is helpful if you need further assistance please contact me or kyle orsini of my staff at sincerely michael a swim chief employment_tax branch office of division counsel associate chief_counsel tax exempt and government entities