department of the treasury internal_revenue_service washington d c aug uniform issue list tep rats tax_exempt_and_government_entities_division legend taxpayer a ira x taxable account q financial tnstitution a amount m physician s institution n dear this is in response to your letter dated date submitted on your behalf by your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code ‘the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a maintained an individual_retirement_account ira ira x with financial_institution a taxpayer a asserts that on date taxpayer a received a distribution of amount m from ira x taxpayer a asserts that her - failure to accomplish a rollover of amount m within the 60-day period prescribed by sec_408 of the code was due to her temporary use of the distributed funds to finance her move to a nursing home and the inability to replace amount m from the sale of taxpayer a’s residence within the 60-day period page the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a a widow living alone fell and broke her shoulder in and also in according to her doctor physician s began showing signs of mental impairment physician s recommended that taxpayer a move to an assisted living institution institution n only one time sensitive opportunity existed to secure a contract for care at institution n due to the high cost of care and taxpayer a’s available financial resources taxpayer a’s family put taxpayer a's house on the market in order to finance the contract with institution n on date amount m was withdrawn from ira x to expedite taxpayer a's move into institution n on date as represented by taxpayer a’s authorized representative during the conference of right held on july due to taxpayer a's mental condition the papers for the withdrawal were executed by taxpayer a’s son under a durable_power_of_attorney and amount m was transferred directly to institution n taxpayer a’s family used these funds temporarily to secure a contract with institution n and intended to return the funds to ira x following the sale of taxpayer a’s residence the sale of taxpayer a's residence occurred on date after the day period had expired on or about the same date the amount m distribution from ira x was returned to taxpayer a’s account q a taxable account at financial_institution a based on the facts and representations you request a ruling that the internal_revenue_service waive the 60-day rollover requirement with respect to the distribution of amount m contained in sec_408 of the code sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the page day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the internal_revenue_service service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred taxpayer a has not presented any evidence to the service as to how any of the factors outlined in revproc_2003_16 affected her ability to timely roll over amount m of ira x or any portion thereof to an ra taxpayer a has stated that page the amount m distribution from ira x was used to secure an assisted living apartment and could not be returned to ira x within 60-days because the sale of taxpayer a's home took longer than the 60-day rollover period causing the failure of taxpayer a to complete a rollover in essence taxpayer a made a short term_loan when she withdrew amount m from ira x and while she had the intent at the time of withdrawal to redeposit amount m into ira x prior to the expiration of the 60-day rollover period she assumed the risk that amount m might not be returned to her timely therefore pursuant to sec_408 of the code the internal_revenue_service hereby declines to waive the 60-day rollover requirement with respect to the date distribution to taxpayer a of amount m _ this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you have any questions please contact sincerely yours lea les laura b warshawsky manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc


id uilc cca-0624511-14 number release date third party communication none date of communication not applicable from --------------------- sent to --------------------- cc --------------------------------------------------------------------- bcc subject re ---- case hi ----------- thanks for calling me earlier this afternoon as promised below are some authorities to consider on the issues of whether sec_905 applies to a refund of a sec_901 tax and of whether the statute_of_limitations under sec_6501 has expired and therefore no assessment can be made sec_905 provides rules for adjustments to foreign_income_taxes but the provisions of sec_905 are not limited to accrued foreign taxes claimed as a deemed paid credit under sec_902 or sec_960 although sec_905 and b specifically address accrued taxes sec_905 states that if any_tax is refunded in whole or in part the taxpayer must notify the secretary who shall redetermine the amount of the tax for the year or years affected thus if there is a refund of a foreign tax that has been claimed as a credit under sec_901 sec_905 applies to redetermine the taxpayer’s u s tax_liability also under sec_905 if accrued taxes are paid after the date years after the close of the taxable_year to which such taxes relate how those taxes are taken into account depends on whether the taxes are claimed as a credit under sec_902 or sec_960 sec_905 or under sec_901 sec_905 in the latter case a foreign_tax_redetermination of a tax claimed as a credit under sec_901 is taken into account in the taxable_year to which such taxes relate in addition the regulations under sec_905 provide rules for adjustments to united_states tax and to the pools of post-1986_undistributed_earnings and post-1986_foreign_income_taxes as a result of a foreign_tax_redetermination sec_1_905-3t addresses the redetermination of united_states tax_liability with sec_1_905-3t specifically addressing foreign taxes paid directly by a united_states_person as provided in that section if a foreign_tax_redetermination occurs with respect to foreign tax paid_or_accrued by or on behalf of a united_states taxpayer then a redetermination of united_states tax_liability is required for the taxable_year for which the foreign tax was claimed as a credit sec_1_905-3t provides rules for redeterminations of foreign taxes deemed paid under sec_902 or sec_960 whether pooling adjustments or if an exception applies a redetermination of u s tax_liability is required thus different rules apply to a foreign_tax_redetermination depending on whether the foreign_income_tax liability which is redetermined is claimed as a credit under sec_901 or under either sec_902 or sec_960 you are correct that sec_6511a only applies to extend the statute_of_limitations for claiming a refund_or_credit however there is also an exception on the assessment side sec_6501 provides an exception to the three year statute_of_limitations on assessment under sec_6501 by cross reference to sec_905 below are several different authorities which state that there is the unlimited statute_of_limitations under the authority of sec_905 and sec_6501 in 1_tc_1028 the tax_court held that the predecessor of sec_905 indefinitely postponed the period of limitations on assessment during the time that the taxpayer had not ascertained the correct amount of the foreign tax owed and had not informed the service of the correct amount in 12_tc_925 acq 1949_2_cb_3 the tax_court noted that public policy generally requires a fixed period of limitations on assessment of tax and held that the service's power to recompute tax_liability under the predecessor of sec_905 of the code should be limited to the two general situations covered by the statute when the amount of foreign tax paid differs from the amount claimed as a credit and when the taxpayer receives a refund of foreign tax that the taxpayer previously claimed as a credit thus the service may assess an additional united_states income_tax_liability after the expiration of the normal 3-year period of limitations in sec_6501 with respect to substantive foreign tax adjustments but not with respect to computational errors associated with the taxpayer's united_states income_tax return note the amendments to sec_905 and the regulations under that section expand the types of adjustments to foreign taxes that fall within sec_905 revrul_71_454 1971_2_cb_294 states sec_905 of the code provides in effect that there is no statute_of_limitations for the redetermination of the amount of federal income taxes due upon adjustment of foreign_income_taxes by foreign tax authorities if the taxpayer overpaid the foreign tax and as a consequence received a refund but there is a 10-year period of limitations for such redetermination if the taxpayer has underpaid the foreign tax and desires to increase the amount of the foreign_tax_credit in revrul_72_525 1972_2_cb_443 clarified by revrul_83_80 c b a domestic parent_corporation had claimed a credit on its return under sec_901 and sec_902 of the code for foreign_income_taxes deemed paid_by it with respect to its foreign_subsidiary in ascertaining the correct amount of the credit the taxpayer made a computational error that went unchallenged by the service throughout the normal period of limitations on assessment in after the normal period of limitations under sec_6501 had expired the subsidiary received a refund of a portion of the foreign_income_taxes it had paid in this foreign tax_refund resulted from a loss carryback to in discussing the holding in texas co caribbean revrul_72_525 at page states thus additional assessments permitted under sec_905 of the code are limited to adjustments of foreign tax_credits caused by factors which are not ascertainable either at the time of the computation of the credit originally claimed or within the period of limitations provided by sec_6501 of the code therefore revrul_72_525 holds in part that the service was prohibited in from assessing additional united_states income taxes as the result of the computational error by a domestic parent_corporation on its return although the service was allowed to assess additional united_states income taxes as the result of the foreign tax_refund i am happy to discuss these code sections and authorities with you if you would like to give me a call tomorrow at the number below -------------------- ------------------------------------------------------ ------------------ ----------------------


internal_revenue_service number release date index number -------------- ----------------------------- -------------------------------- ------------------------------------- ------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------- id no ------------ telephone number -------------------- refer reply to cc intl plr-138003-04 date november taxpayer legend legend --------------------------------------------------------------------------------------- ---------------------- ------------------------ --------------- --------------------- ------------------------------------- de -------------------------- tax_year one -------------------------- tax_year two tax_year three -------------------------- individual a cpa firm foreign_country x dear -------------- this replies to your representative’s letter dated date in which your representative requests on behalf of taxpayer an extension of time under sec_301_9100-3 to file with taxpayer’s consolidated federal_income_tax return for tax_year two the election and agreement described in sec_1_1503-2 the g i election with respect to the dual_consolidated_loss dcl incurred by de in tax_year two together with the annual certification described in sec_1_1503-2 with respect to the dcl incurred by de in tax_year one additional information was submitted in a letter dated date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process plr-138003-04 de elected to be treated as a disregarded_entity under sec_301_7701-3 accordingly de is a hybrid_entity_separate_unit under sec_1_1503-2 de incurred dcls as defined in sec_1_1503-2 in tax years one and two which taxpayer used to offset its income on its consolidated federal_income_tax return for tax years one and two individual a is a partner in cpa firm cpa firm prepared the consolidated_return of taxpayer for tax_year two during the process of gathering_tax return_information and preparing taxpayer’s consolidated federal income return for tax_year three individual a discovered that the g i election for the dcl incurred in tax_year two was inadvertently not attached to that year’s consolidated_return additionally the annual certification of the tax_year one dcl was likewise inadvertently not attached to the consolidated_return for tax_year two do not deny taxpayer represents that the income_tax laws of foreign_country x the use of losses expenses or deductions of de to offset income of another person because the dual_resident_corporation or separate_unit is also subject_to income_taxation by another country on their worldwide income or on a residence basis taxpayer represents that it filed this application_for relief before the internal_revenue_service discovered the failure_to_file the election and agreement with respect to the dcl of de for tax_year two and the annual certification with respect to the dcl of de for tax_year one sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides 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 within the meaning of sec_301_9100-3 subject_to the plr-138003-04 conditions set forth in sec_301_9100-3 and the grant of relief will not prejudice the interests of the government within the meaning of sec_301_9100-3 in the present situation the election and agreement and the annual certification described in sec_1_1503-2 and vi b respectively are regulatory elections as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards for relief as set forth in sec_301_9100-3 based on the facts and information submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file with its consolidated federal_income_tax return for tax_year two the election and agreement described in sec_1_1503-2 with respect to the dcl incurred by de in tax_year two together with the annual certification described in sec_1_1503-2 with respect to the dcl incurred by de in tax_year one the granting of this extension of time is not a determination that taxpayer is otherwise eligible to file the g i election and the annual certification sec_301 a for example a taxpayer that is subject_to mirror legislation enacted by a foreign_country may be ineligible to file an election agreement pursuant to sec_1_1503-2 a copy of this ruling letter should be associated with the g i election and the annual certification this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to your authorized representative sincerely associate chief_counsel international by s richard l chewning richard l chewning senior counsel office of associate chief_counsel international enclosure copy for purposes plr-138003-04 cc


t c memo united_states tax_court ten twenty six investors douglas oliver tax_matters_partner petitioner v commissioner of internal revenue respondent docket no filed date kathleen m pakenham clint e massengill and adriana l wirtz for petitioner michael d wilder for respondent memorandum opinion thornton judge this case is before us on respondent’s motion for partial summary_judgment which asserts that ten twenty six investors is not entitled to a section deduction for for the donation of a facade easement background ten twenty six investors is a new york state limited_partnership subject_to the uniform partnership audit and litigation rules enacted as part of the tax equity and fiscal responsibility act of throughout it owned a 10-story warehouse in new york city warehouse the warehouse built in was designed by cass gilbert who also designed the woolworth building and the united_states supreme court building on date the partnership executed an easement deed deed granting a facade easement easement on the warehouse to national architectural trust inc nat the deed is titled conservation deed of easement and references itself as such repeatedly throughout the document a representative of nat accepted and signed the deed on date not until december 1all section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated 2at several points we refer to the donation of the easement at issue in this case when we discuss the donation of the easement we mean delivery of the deed to the national architectural trust inc nat and do not mean to suggest that the easement was legally effective on the date of delivery or that donation of the easement was a qualified_conservation_contribution under sec_170 for however did nat cause the deed to be recorded in the office of the city register of the city of new york on its form_1065 u s return of partnership income the partnership claimed deductions under sec_170 of dollar_figure for a noncash charitable_contribution of the easement consistent with an appraisal the partnership had obtained and of dollar_figure for a cash charitable_contribution to nat the commissioner issued a timely notice of final_partnership_administrative_adjustment for the partnership’s taxable_year disallowing the noncash charitable_contribution_deduction and dollar_figure of the cash charitable_contribution_deduction and determining a gross_valuation_misstatement penalty under sec_6662 and h or alternatively a penalty under sec_6662 and b or petitioner douglas oliver filed a timely petition on behalf of the partnership and respondent moved for partial summary_judgment as to the noncash charitable_contribution_deduction petitioner cross-moved for partial 3the deed does not mention the cash contribution and the record does not reveal any further details about it summary_judgment regarding the gross_valuation_misstatement penalty under sec_6662 and h discussion the court may grant summary_judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law rule b 98_tc_518 aff’d 17_f3d_965 7th cir in deciding whether to grant summary_judgment we view the factual materials and inferences drawn from them in the light most favorable to the nonmoving party see sundstrand v commissioner t c pincite the moving party bears the burden of showing that there is no genuine dispute of material fact id where the moving party properly makes and supports a motion for summary_judgment an adverse_party may not rest upon the mere allegations or denials of such party’s pleading but must set forth specific facts by affidavit or otherwise showing that there is a genuine dispute for trial rule d 4petitioner’s cross-motion for summary_judgment will be held in abeyance i deductions for qualified conservation contributions a taxpayer is generally allowed a deduction for any charitable_contribution made during the taxable_year sec_170 although a taxpayer is generally not allowed a charitable_contribution_deduction for a gift of property consisting of less than an entire_interest in that property there is an exception for donation of a qualified_conservation_contribution see sec_170 b iii a qualified_conservation_contribution is a contribution of a qualified_real_property_interest to a qualified_organization exclusively for conservation purposes sec_170 sec_170 defines qualified_real_property_interest as any of the following interests_in_real_property a the entire_interest of the donor other than a qualified_mineral_interest b a remainder_interest and c a restriction granted in perpetuity on the use which may be made of the real_property the easement at issue in this case is not a sec_170 or b interest therefore to be a qualified_real_property_interest the easement must be granted in perpetuity under sec_170 sec_170 provides a separate and distinct perpetuity requirement see 140_tc_1 aff’d f 3d 4th cir it provides that a contribution shall not be treated as exclusively for conservation purposes unless the conservation_purpose is protected in perpetuity additionally sec_1_170a-14 income_tax regs provides in the case of any donation under this section any interest in the property retained by the donor and the donor’s successors in interest must be subject_to legally enforceable restrictions for example by recordation in the land records of the jurisdiction in which the property is located that will prevent uses of the retained_interest inconsistent with the conservation purposes of the donation in a federal tax controversy state law controls the determination of a taxpayer’s interest in property while the tax consequences are determined under federal_law 472_us_713 in the application of a f ederal revenue act s tate law controls in determining the nature of the legal_interest which the taxpayer had in the property quoting 363_us_509 403_us_190 s tate law creates legal interests but federal_law determines when and how they shall be taxed quoting 287_us_103 137_tc_159 therefore new york state law determines whatever interest may have been conveyed pursuant to the agreement between the partnership and nat and federal_law determines the tax consequences ii the parties’ arguments respondent contends that the easement is a conservation_easement under new york state law a conservation_easement is defined under n y envtl conserv law nyecl sec mckinney supp as an easement covenant restriction or other interest_in_real_property created under and subject_to the provisions of this title which limits or restricts development management or use of such real_property for the purpose of preserving or maintaining the scenic open historic archaeological architectural or natural condition character significance or amenities of the real_property respondent also argues that a conservation_easement has no legal effect until it is recorded respondent points to nyecl sec mckinney supp which provides an instrument for the purpose of creating conveying modifying or terminating a conservation_easement shall not be effective unless recorded on this basis respondent argues that the warehouse was not subject_to legally enforceable restrictions as required by sec_1 170a- g income_tax regs at any time in and that therefore the 5n y envtl conserv law nyecl tit mckinney governs conservation easements we will refer to these statutes collectively as title of the nyecl partnership is not entitled to a deduction for attributable to donation of the easement in response petitioner argues that the easement is not a conservation_easement because the definition of conservation_easement requires that the restriction be created under the provisions of this title nyecl sec and the deed did not reference title of the nyecl nor did the partnership intend to create the easement under that title more fundamentally petitioner points to nyecl sec mckinney which provides this title shall not affect any interests or rights in real_property which are not conservation easements and shall not affect the rights of owners to convey any interests_in_real_property which they could now create under existing law without reference to the terms of this title petitioner argues that--whether or not the easement is also a conservation easement--the just-quoted language of nyecl sec allows owners of property to convey any interest that could have been conveyed before title was enacted petitioner contends that by delivery of the deed of easement to nat one such common_law interest was created--namely a restrictive covenant restrictive covenants are generally effective in new york upon delivery of a valid deed n y real prop law sec_244 mckinney iii zarlengo rothman and mecox this court addressed substantially identical facts and arguments in zarlengo v commissioner tcmemo_2014_161 just as in the present case in the taxpayer in zarlengo delivered a deed of easement to nat which was intended to grant an easement on a building in new york nat failed to record the deed until a later year the deed in zarlengo and the deed in this case are nearly identical in all relevant respects in zarlengo we found that the deed was effective on the date it was recorded not the date it was delivered see also rothman v commissioner tcmemo_2012_163 reaching the same result supplemented by tcmemo_2012_218 moreover petitioner’s arguments have recently been addressed at length in mecox partners lp v united_states a f t r 2d ria wl at s d n y which also involves facts nearly identical to those in this case in the plaintiff in mecox delivered to nat a deed of easement which was nearly identical to the deed in this case intended to grant a facade easement on a building in new york nat failed to record the deed until a later year the district_court found that the deed was not effective until it was recorded and denied the deduction claimed by the plaintiff petitioner contends that zarlengo rothman and mecox were all wrongly decided in particular petitioner believes that these cases all misconstrued title of the nyecl and failed to consider relevant law which according to petitioner would treat the conservation_easement as being protected in perpetuity from the date of the transfer of the easement deed even though it was not recorded until a later year we disagree zarlengo rothman and mecox were not wrongly decided to the contrary we believe that these closely analogous cases compel the conclusion that the partnership is not entitled to a deduction for for contributing the easement nevertheless for the sake of completeness we address below in greater detail petitioner’s key arguments against these earlier cases in particular as the arguments relate to whether the deed was legally effective so as to convey a property interest in and whether the failure to record the deed in caused the easement to fail the perpetuity requirements of sec_170 and a iv effectiveness of the deed in a recording requirement for conservation easements under n y law as previously noted nyecl sec provides an instrument for the purpose of creating conveying modifying or terminating a conservation easement shall not be effective unless recorded under a plain reading of this statute if an instrument is intended to create a conservation_easement it has no effect until and unless it is recorded as held in zarlengo rothman and mecox petitioner relies on 485_f3d_693 2d cir for the proposition that conservation easements are effective against the grantor upon delivery and against successors in interest only after the deed is recorded the taxpayer made the same argument in mecox wl at rejecting this argument the district_court in mecox explained why the taxpayer’s reliance on o’mara was misplaced the second circuit in o’mara was merely observing that other new york statutes in other land use contexts do require restrictions to be recorded in order to be enforceable against subsequent purchasers thus not only is the language cited by mecox dicta but it fails to indicate that recordation is unnecessary for a conservation_easement to be effective--all it says is that recordation is necessary for 6in 485_f3d_693 2d cir the legal issue--which had nothing to do with conservation easements--was whether zoning restrictions imposed through a subdivision plat were enforceable against subsequent purchasers the statutory sections governing the zoning restrictions at issue in o’mara were silent regarding enforceability against successors in interest as part of its decision to certify the question to the new york court_of_appeals the court in o’mara noted this silence is particularly notable when contrasted with new york law in other land use contexts that requires restrictions to be recorded in order to be enforceable against subsequent purchasers the court then cited three new york state statutes including nyecl sec mckinney supp a conservation_easement to be effective against subsequent purchasers citations and fn ref omitted id consequently under the plain terms of nyecl sec if the deed was intended to convey a conservation_easement it was not effective until it was recorded zarlengo rothman and mecox all reach this same conclusion and petitioner has not persuaded us that there is any reason for us to part ways with their holdings petitioner argues that the deed was not intended to convey a conservation_easement because the definition of conservation_easement requires that the restriction be created under the provisions of this title nyecl sec and the partnership did not reference title of the nyecl nor did petitioner intend to create the easement under that title petitioner argues that the deed instead created a common_law property interest we disagree for the reasons explained below as new york’s highest court has stated at the outset we note that the policy of new york state law is to favor the free and unobstructed use of realty and that covenants restricting the use of property will be strictly construed against those seeking to enforce them the burden_of_proof is on the party endeavoring to enforce a restrictive covenant and must be met by more than a doubtful right only where it has been established by clear_and_convincing proof will our court impose such a restriction huggins v castle estates inc n e 2d n y citations omitted under new york state law e very instrument creating or transferring an estate or interest_in_real_property must be construed according to the intent of the parties so far as such intent can be gathered from the whole instrument and is consistent with the rules of law n y real prop law sec mckinney see also mecox wl at mau v schusler n y s 3d app div the ‘intent’ to which the statute refers is the objective intent of the parties as manifested by the language of the deed unless the deed is ambiguous evidence of unexpressed subjective intentions of the parties is irrelevant mecox wl at mau n y s 3d pincite citation omitted consequently petitioner’s arguments regarding the partnership’s lack of a subjective intent to create a conservation_easement are unavailing unless the deed is ambiguous the deed is not ambiguous 7for example petitioner argues that because the words conservation_easement were used by nat in similar deeds in states other than new york it is clear that the partnership’s intent was not to create the deed at issue in this case under the provisions of title of the nyecl but we cannot consider these other deeds because as we shall discuss the partnership’s deed is not ambiguous continued the deed that the partnership delivered to nat is titled conservation deed of easement and references itself as such repeatedly throughout the document for example it states the grantor does hereby grant and convey to the grantee to have and to hold an easement in gross in perpetuity in on and to the property the building and the facades being an open space and architectural facade conservation_easement on the property emphasis added the deed continues by listing rights and conditions t he grantor will not undertake nor suffer nor permit to be undertaken with respect to the protected facades any alteration construction or remodeling of existing exterior improvements on the protected facades or the placement thereon or on the building of signs or markers that would materially alter or change the appearances of the facades the deed also explains the purpose of the conveyance it is the intent of the parties that the facades of the warehouse that are visible from the street level on the opposite sides of tenth continued and even if we were to consider these other deeds it is unclear why they would indicate the partnership’s or nat’s intent in this case many of these documents list the name of a state or group of states in small print at the bottom showing that specific form documents were used for specific states the only reason for having different form documents for different states would be to comply with differing provisions of law in those states which would suggest that the document used in the present case was drafted with new york state law in mind and not as petitioner suggests that these other documents show some sort of generalized usage avenue west 25th street and west 26th street are protected by this easement so that they remain essentially unchanged and in full public view in perpetuity the term facades as used herein consists of all exterior surfaces of the improvements on the warehouse including all walls roofs and chimneys the portions of the deed listed above like the deed read as a whole manifest clear objective intent to create an easement or other_property interest which limits or restricts development of the warehouse facades for the purpose of preserving or maintaining the scenic historic architectural character or significance of the warehouse within the meaning of nyecl sec whatever the partnership’s subjective intent might have been the deed--viewed objectively--shows the parties’ intent to create an easement or other_property interest that fits squarely within the definition of a conservation_easement under new york state law see mecox wl at additionally and contrary to petitioner’s suggestion the deed defies a simple characterization at common_law it grants an easement to enter the property for inspection and to repair violations of covenants in the deed it sets out a restrictive covenant prohibiting changes to the external facades the deed also requires that the partnership and its successors in interest maintain the property--an affirmative covenant at common_law this mix of traditional common_law devices is precisely what nyecl sec contemplates when it defines a conservation_easement as an easement covenant restriction or other interest_in_real_property see john c partigan new york’s conservation_easement statute the property interest and its real_property and federal_income_tax consequences alb l rev the significance of this definition is that all three common_law concepts --easements covenants and deed restrictions-- may be integrated into a single grant in sum the partnership’s deed repeatedly references itself as a conservation deed of easement it purports to do what a conservation_easement would do and it grants exactly the mix of easements restrictions and affirmative responsibilities that a conservation_easement would consequently we conclude that the deed is not ambiguous and is best read as intending to convey a 8petitioner argues that the deed does not objectively describe a conservation_easement because it states that nat has the rights to enter and inspect to sue for enforcement to collect costs and attorney’s fees in any enforcement action and to enter and correct violations of the deed petitioner’s argument appears to be that because the deed provides for enforcement on its face it does not rely on the enforcement mechanism provided by title of the nyecl and therefore it conveys something other than a conservation_easement we disagree nothing about the deed’s recitation of these rights suggests that the deed was intended to convey anything other than a conservation_easement furthermore the right to enter and inspect is guaranteed for conservation easements under nyecl sec mckinney supp and if anything the presence of this right in the deed supports the conclusion that this is a conservation_easement under title of the nyecl conservation_easement under title of the nyecl accord mecox wl zarlengo v commissioner tcmemo_2014_161 b enforceability of easement as common_law interest petitioner also argues that even if we find that the intent behind the deed was to convey a conservation_easement the deed was also simultaneously enforceable as a common_law interest from the time of delivery under new york state law c onservation easements are of a character wholly distinct from the easements traditionally recognized at common_law and are excepted from many of the defenses that would defeat a common-law easement including that it be appurtenant to an interest_in_real_property argyle farm props llc v watershed agric council n y s 3d app div quoting stonegate family holdings inc v revolutionary trails inc n y s 2d app div see nyecl sec friends of shawangunks inc v knowlton n e 2d n y these cases support the conclusion that a conservation_easement created under title of the nyecl is separate and distinct from anything created at common_law furthermore petitioner’s argument that the deed created or attempted to create two different but entirely coextensive interests--a conservation_easement and a separate restrictive covenant at common law--fails to take into account the recording requirement in nyecl sec an instrument for the purpose of creating conveying modifying or terminating a conservation_easement shall not be effective unless recorded emphasis added if petitioner’s argument were correct every deed intending to create a conservation_easement under title of the nyecl would also simultaneously create other interests at common_law which would all be enforceable between the parties and their successors in interest at common_law assuming that no superior interest should arise consequently all conservation easements would be effective between the parties and their successors at common_law from the date of delivery and the just- quoted recording requirement would have no meaningful effect since we must construe statutes to have some effect we must reject petitioner’s argument that the deed created common_law property interests moreover petitioner’s argument ignores a fundamental aspect of new york state law restrictive covenants are construed strictly against those who formulate or seek to enforce them and doubts and ambiguities are resolved in favor of free use of the property so that the restrictions are narrowed rather than broadened in their application silverstein v shell oil co n y s 2d app div citing single v whitmore n e 2d n y buffalo acad of sacred heart v boehm bros n e n y and clark v devoe n e n y i t is established that where a restrictive agreement is reasonably capable of two constructions the construction which limits the restriction rather than the one which extends it should be adopted single n e 2d pincite schoonmaker v heckscher n y s app div but if the language used is reasonably capable of two constructions the one that limits rather than the one that extends the restriction should be adopted for the reason that the law will always favor the free and unrestricted use of property and therefore all doubts and ambiguities must be resolved in favor of the natural right to the free use and enjoyment of property and against restrictions having carefully reviewed the deed we conclude that while it clearly manifests an intention to create a conservation_easement it is ambiguous as to whether there was any intent--from an objective viewpoint--to create a common_law restrictive covenant alongside the conservation_easement because new york state law requires that ambiguity be construed against enforcement we conclude that this deed did not create a common_law restrictive covenant consequently no property interest was conveyed in there was no qualified_real_property_interest in and the partnership is not entitled to a sec_170 deduction for for donation of a qualified_conservation_contribution v perpetuity requirements even if we were to assume for the sake of argument that the deed effectively created an easement or as petitioner argues a restrictive covenant at common_law we would nevertheless conclude that the perpetuity requirements of sec_170 and a are not met because the deed was not recorded in this provides another independently sufficient reason why the partnership is not entitled to a deduction for donation of the easement in petitioner argues--with the benefit of hindsight--that it was unlikely that the deed would not be enforceable or would become unenforceable at common_law by nat and its successors in interest against the partnership and its successors in interest however sec_1_170a-14 income_tax regs provides a deduction shall not be disallowed under sec_170 and this section merely because the interest which passes to or is vested in the donee organization may be defeated by the performance of some act or the happening of some event if on the date of the gift it appears that the possibility that such act or event will occur is so remote as to be negligible see paragraph e of sec_1_170a-1 emphasis added this regulation makes clear that the relevant date for the purpose of testing the perpetuity requirement is the date of the alleged transfer see eg 140_tc_377 and the regulations do not ask whether it is likely that a particular event would defeat the transfer rather the regulations ask whether it appears that the possibility that such act or event will occur is so remote as to be negligible sec_1_170a-14 income_tax regs in graev v commissioner t c pincite we said in prior cases we have defined so remote as to be negligible as ‘a chance which persons generally would disregard as so highly improbable that it might be ignored with reasonable safety in undertaking a serious business transaction ’ stated differently it is a chance which every dictate of reason would justify an intelligent person in disregarding as so highly improbable and remote as to be lacking in reason and substance citations omitted therefore donation of the easement is a qualified_conservation_contribution only if the restriction on the warehouse was legally enforceable in perpetuity by nat and its successors in interest see sec_1_170a-14 income_tax regs against the partnership and its successors in interest and the risk of any event which would prevent such enforcement must be so highly improbable that it might be ignored with reasonable safety in undertaking a serious business transaction graev v commissioner t c pincite--all as of the date of donation as of the date of the donation at least two future events were possible either of which under certain circumstances could have prevented enforcement of the restrictions on the warehouse transfer by nat of the benefits of the deed to a successor_in_interest and sale or mortgage of the warehouse by the partnership a transfer by nat legal entities are often dissolved and their rights and affairs transferred to other entities see eg urgent care nurses registry inc v commissioner tcmemo_2016_198 at and the possibility that the donee’s rights might be transferred is specifically addressed at sec_1_170a-14 income_tax regs which provides restrictions governing the type of entity to which the donee’s rights may be transferred in fact the partnership’s deed allows for such a transfer subject_to certain conditions we do not believe that the possibility that nat might someday transfer assign or otherwise convey its rights in the deed to another entity was so remote as to be negligible petitioner argues that although the deed was not effective as a conservation_easement under title of the nyecl it was effective at common_law as a restrictive covenant but for petitioner’s argument to succeed any such common_law interest whether an easement a covenant or something else would have to be enforceable in perpetuity by successors to nat as a matter of law easements in gross--ie easements the benefit of which is held personally rather than as an incident to ownership of a particular parcel of land--are not enforceable in new york by successors to the holder of the benefit nat here because they are not assignable or inheritable see eg gross v cizauskas n y s 2d app div this easement must be in gross and therefore is neither assignable nor inheritable sturges v tetlow n y s 2d app div aff’d without published opinion n e 2d n y banach v home gas co n y s 2d sup ct aff’d n y s 2d app div see also philip weinberg et al 9a n y practice series - environmental law and regulation in new york sec_12_3 update to the 2d ed restricting property through the use of deed covenants has several limitations both legal and practical as discussed above if the grantor retains no land or disposes of the remaining land the right to enforce the restrictions assuming the grantor has any interest in doing so is neither inheritable nor assignable and will terminate with the grantor’s death 9banach v home gas co n y s 2d sup ct lists two possible exceptions to this general_rule a profit a prendre which is a right to take a part of the soil or product thereof from the land of another and easements in gross of a commercial character which the court defined as an easement where the use authorized by it results primarily in economic benefit rather than personal satisfaction the property interest at issue in this case is clearly not a profit a prendre and we have found no authority to suggest that a conservation_easement is commercial in character in fact the use authorized by a conservation_easement seems clearly noneconomic we have not found nor has petitioner cited any case where a new york court held a covenant in gross enforceable at common_law by a successor to the original benefited partydollar_figure in fact new york’s court_of_appeals has said that no right to enforce even a restrictive covenant has been sustained in this state where the plaintiff did not own property which would benefit by such enforcement neponsit prop owners’ ass’n v emigrant indus sav bank n e 2d n y see also place v cummiskey n y s 2d app div new york v turnpike dev corp n y s 2d sup ct consequently we conclude that the partnership’s deed would not be enforceable by nat’s successors at common_law because nat’s easement is not appurtenant to any interest in property there is one case and as far as we can tell only one where a new york court enforced the terms of a covenant in gross using its equitable power see bill 10the sole possible exception involves a class of cases--not at issue here-- where there was a common plan or scheme to subdivide an original property into residential plots and a homeowner’s association sued for enforcement of reciprocal interests sometimes referred to as implied reciprocal servitudes but even in those cases the benefit of the covenants is an incident to property ownership that is new york courts have held not that a covenant in gross is enforceable by successors to the original benefit holder but that a homeowner’s association has standing to sue for owners of homes in subdivisions see eg neponsit prop owners’ ass’n v emigrant indus sav bank n e 2d n y such cases have little relevance to the matter presently before us wolf petroleum corp v chock full of power gasoline corp n y s 2d app div rev’g n y s 2d sup ct in that case a gasoline distributor sold land on which the buyer intended to build a gas station the sale was conditioned on a requirements agreement that the buyer and ‘any subsequent owner tenant subtenant or occupant ’ would purchase all gasoline products from the seller for years id pincite the requirements agreement was recorded and provided for termination after years ‘or sooner in accordance with any written_agreement between the parties ’ id a gas station was built leased and operated under the terms of the requirements agreement id six years later the property was sold once more to the bill wolf defendant who purchased the property despite having negotiated unsuccessfully for modification or termination of the requirements contract id the defendant also refused to assume the requirements agreement as a contract obligation id the plaintiff a successor_in_interest to the gasoline distributor sued to enforce the requirements agreement as an affirmative covenant id the new york supreme court held that the covenant was not enforceable at law because a requirements agreement does not touch and concern the land but over a dissent the appellate division held that the requirements agreement was enforceable in equity since this requirements agreement which is of reasonable duration constitutes an equitable obligation which is enforceable against the defendant as a taker with actual notice id at dollar_figure in short the one covenant in gross we have found that was enforced at equity in new york had only four years left to run and was enforced against a defendant who had purchased with actual notice of the obligation given new york’s policy of favor ing the free and unobstructed use of realty which requires courts to strictly construe property restrictions against those seeking to enforce them and considering that t he burden of clear_and_convincing proof is on the party endeavoring to enforce a restrictive covenant and must be met by more than a doubtful right huggins v castle estates inc n e 2d n y we think it is highly unlikely as a matter of law that new york’s courts would enforce the partnership’s deed at equity in perpetuity as required by sec_170 and sec_1_170a-14 income_tax regs 11the dissent criticized the majority’s application of equity noting i n every case in this jurisdiction in which the doctrine_of equitable servitudes has been applied the equitable incorporeal interest in the burdened land has been appurtenant to a dominant parcel of benefited land no authority exists for enforcement of equitable servitudes where the reciprocal benefit is in gross bill wolf petroleum corp v chock full of power gasoline corp n y s 2d n app div brennan and bejamin jj dissenting citations omitted rev’g n y s 2d sup ct finally there is further support for our conclusion in the fact that title of the nyecl was enacted to overcome this barrier to enforcement among others see nyecl sec it is not a defense in any_action to enforce a conservation_easement that the conservation_easement is not appurtenant to an interest_in_real_property philip weinberg editor’s notes to nyecl sec mckinney this title of the nyecl of major significance was adopted in to enable not-for-profit conservation groups to obtain easements to protect scenic and historic areas open space and other environmental resources at common_law easements did not run with the land and therefore were not binding on subsequent owners unless appurtenant --benefitting contiguous property owned by the holder of the easement this statute abolished that anachronistic vestige of ancient english landholding doctrine see generally john c partigan new york’s conservation_easement statute the property interest and its real_property and federal_income_tax consequences alb l rev discussing the various impediments to enforcement of property interests before enactment of title of the nyecl for all these reasons therefore we hold that as of the date of the easement donation the risk that the deed would be unenforceable by successors in interest to nat was not so remote as to be negligible b sale by petitioner similarly we do not think that as of the date of the donation the risk that nat’s interest in any easement could have been defeated by a subsequent purchaser was so remote as to be negligible under n y real prop law sec_291 mckinney a purchaser of real_property who pays value for the property and does not have notice of an unrecorded interest in the property when the property is purchased will take the property free of that unrecorded interest provided that the purchaser’s interest is recorded before the unrecorded interest is recorded see eg vanderbilt brookland llc v vanderbilt myrtle inc n y s 3d app div therefore the relevant question is whether--as of the date of donation-- there was a nonnegligible possibility that a recorded sale might have occurred without notice of the easement deed and before it was recorded if so then the perpetuity requirements are not met petitioner has not argued or set forth facts to show that the partnership was under any obligation not to sell the warehouse or that nat was under any obligation to record the easement deed therefore it was quite possible that a sale could have occurred at some point after donation of the easement but before the easement deed was recordeddollar_figure and given that property sales are almost always recorded the possibility of a recorded sale before the easement deed was recorded was not so remote as to be negligibledollar_figure petitioner contends that if the partnership had sold the property it would have been obliged to inform the buyer that the easement had been conveyed petitioner argues that if the partnership had not met this obligation to the buyer it would have been subject_to liability for fraud consequently petitioner claims that the likelihood of a sale without notice was so remote as to be negligible to begin with we are unaware of any reason a seller could not contract around any duty to disclose by contracting to convey the warehouse via a bargain 12petitioner argues that zarlengo v commissioner tcmemo_2014_161 is factually distinguishable because the taxpayer in that case was actively marketing the property at issue before the deed in that case was recorded whereas in the present case petitioner represents that the warehouse has never been offered for sale but as we noted earlier under sec_1_170a-14 income_tax regs we are to test the possibility--as of the date of the gift --that the donee’s rights might be defeated that is the question we must consider is whether the property was prospectively marketable in not whether it happens to have been subsequently marketed the fact that the warehouse has not been marketed since does not mean that in the likelihood of a sale was so remote as to be negligible 13for one example of a similar sequence of events see park place llc v granado serv inc n y s 3d table sup ct where a sale was recorded before a tax_lien that predated the sale was recorded and sale deed without covenants against grantor or via a quitclaim_deed in a sale contract containing a merger clause disclaiming representations and promising only insurable titledollar_figure but assuming for the sake of argument that an effectively inalienable duty to disclose the easement deed did fall on the partnership it still cannot prevail the possibility of inadvertent failure to disclose is still not so remote as to be negligible sec_170 requires restrictions that are legally enforceable by nat and its successors in perpetuity as time passes memories fade partnerships change hands documents are lost petitioner’s argument requires not only that the partnership remember to inform a purchaser about the easement deed but also that such a purchaser remember to inform its successor and so on for so long as the warehouse should stand or at least until nat recorded the easement deed which might never happen title insurance and the recording act n y real prop law 14see n y real prop law sec schedules c d g mckinney warren’s weed new york real_property sec dollar_figure 15new york state law allows parties to contract around a buyer’s default entitlement to marketable title by contracting for delivery of insurable title rather than marketable title see eg o’mara v town of wappinger n e 2d n y donerail corp n v v park llc n y s 2d table sup ct aff’d n y s 2d app div creative living inc v steinhauser n y s 2d sup ct sec_291 protect buyers against such failures to disclose indicating that the possibility of such failures is not so remote as to be negligible for all of these reasons therefore we conclude--consistent with our holding in zarlengo--that the risk that the partnership would fail to inform a purchaser about the easement deed and that such a purchaser would record the sale before the easement deed was recorded was not so remote as to be negligible c conclusion in sum as of the date of the easement donation in there was a possibility--which was not so remote as to be negligible--that either the benefits of the easement deed would be unenforceable by nat’s successors or that someone might purchase the warehouse without notice of the easement and record that conveyance before the easement was recorded therefore the perpetuity requirements of sec_170 and a were not met for because neither the use restriction nor the conservation_purpose of the conservation_easement was protected in perpetuity as of the date of donationdollar_figure 16petitioner also argues that the conservation_purpose is protected in perpetuity because the deed provides that the partnership or its successors must pay to nat or its successors a portion of the proceeds of any sale following extinguishment of the conservation_easement by judicial decree see sec_1 170a- g income_tax regs judicial extinguishment follows an unexpected change in the conditions surrounding the property which makes impossible or continued the partnership is not entitled to a deduction for for contribution of the easement consequently we will grant respondent’s motion for partial summary_judgment to reflect the foregoing an appropriate order will be issued continued impractical the continued use of the property for conservation purposes see id but if the deed conveying the easement is ineffective or unenforceable there is nothing to extinguish our reasons for holding against the partnership are all related to the ineffectiveness or potential for unenforceability of its deed therefore petitioner’s proceeds argument fails because the proceeds clause of the deed applies only in the event of judicial extinguishment furthermore if the interest is ineffective or unenforceable the proceeds clause would also be ineffective or unenforceable


t c no united_states tax_court churchill downs inc and subsidiaries petitioners v commissioner of internal revenue respondent docket no filed september p conducts horse races including the kentucky derby at its facilities the races produce revenues through pari-mutuel wagering including simulcast pari- mutuel wagering admissions and seating concession commissions sponsorship revenues licensing rights and broadcast fees p’s largest source of revenues is wagers placed on horse races p incurred entertainment_expenses that were ordinary and necessary expenses under sec_162 i r c the expenses at issue included p’s cost of holding the sport of kings gala a brunch following the post position drawing for the derby race a week-long hospitality tent for the press kentucky derby winner’s party breeders’ cup press-reception cocktail party and dinner and the breeders’ cup press breakfast p deducted the full amount of expenses_incurred in holding the above events r determined the expenses were only partially deductible pursuant to sec_274 i r c held p’s claimed deductions are limited by sec_274 i r c as determined by r held further in incurring the expenses at issue p neither provided goods and services to the general_public nor received adequate_and_full_consideration for the goods and services provided therefore p’s expenses are not excluded from the operation of sec_274 by sec_274 or e or i r c paul j cox for petitioners andrew m winkler for respondent opinion laro judge this case is before the court fully stipulated see rule ' respondent determined deficiencies in petitioners’ and federal_income_tax of dollar_figure and dollar_figure respectively the sole issue we must decide’ is whether petitioners’ claimed deductions for expenses for parties and other entertainment are limited by sec_274 we hold they are the stipulation of facts and the attached exhibits are incorporated herein the stipulated facts are hereby found background petitioners are corporations which file a consolidated rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated section references are to the internal_revenue_code in effect for the years in issue the parties had settled all other outstanding issues before the case was submitted federal corporate_income_tax return when the petition was filed petitioners’ principal_place_of_business was located in louisville kentucky petitioners own the churchill downs racetrack in louisville kentucky and three other race tracks petitioners conduct live horse races including the kentucky derby at their facilities the races produce revenues through pari-mutuel wagering including simulcast pari-mutuel wagering admissions and seating concession commissions sponsorship revenues licensing rights and broadcast fees the main source of petitioners’ revenues is wagers placed on horse races petitioners do not directly compete with other racetracks for local patrons because of the separation of facilities and the differences in the seasonal timing of meets however petitioners operate in a highly competitive industry they compete for patrons with other sports entertainment and gaming operations including land-based riverboat and cruise_ship casinos and state lotteries petitioners’ biggest race is the kentucky derby the kentucky derby is held each year on the first saturday in may petitioners’ kentucky derby events include the sport of kings gala a brunch following the post position drawing for the derby race a week long hospitality tent with coffee orange juice and donuts for the press open from a m to a m the derby race and the kentucky derby winner’s party q4e- the sport of kings gala includes a press-reception cocktail party followed by a dinner and entertainment on the thursday evening of derby week the costs of the sport of kings gala including those for food beverages and entertainment are borne by petitioners petitioners’ employees were in attendance at the sport of kings gala in and in in the sport of kings gala was held at the sports spectrum an off-track betting facility located in louisville kentucky and owned by petitioners in the sport of kings gala was held at the kentucky state fair and exposition center in louisville kentucky the breeders’ cup race rotates among several racetracks in petitioners hosted the breeders’ cup race the breeders’ cup press-reception cocktail party and dinner and the breeders’ cup press breakfast under petitioners’ contract with breeders’ cup limited bcl they were obligated to conduct certain promotional activities designed to enhance the significance of the breeders’ cup day of races as a national and international championship event for the sport of racing included in these required promotional activities are the breeders’ cup press-- reception cocktail party and dinner and the breeders’ cup press breakfast the breeders’ cup press-reception cocktail party and dinner were held at the galt house hotel in louisville kentucky - - and sponsored by petitioners attendance at the breeders’ cup press-reception cocktail party and dinner is by invitation only and the expenses for food beverages and entertainment were borne by petitioners employees of petitioners were in attendance at the dinner attendance at the breeders’ cup press breakfast is by invitation only and the expenses for food beverages and entertainment were borne by petitioners employees of petitioners were also in attendance at the breakfast petitioners have found that the key to their success is their ability to present guality races critical to the ability to present quality races is the ability to offer high purse levels to attract the best available horses trainers and jockeys petitioners allocated blocks of tickets to the sport of kings parties to horsemen sponsors staff city county vip’s racing vip’s racing officials media representatives and others more tickets were allocated to the media than to any other category the kentucky derby items and amounts in issue are amounts in issue item sport of kings gala dollar_figure dollar_figure press hospitality tent -q- big_number derby winner’s party big_number -q- total big_number big_number collectively referred to as derby expenses the breeders’ cup items and amounts in issue are item amounts in issue breeders’ cup party dollar_figure post-draw brunch big_number press breakfast big_number total big_number collectively referred to as breeders’ cup expenses the miscellaneous items and amounts in issue are amounts in issue item kentucky thoroughbred owners’ trainers’ dinner dollar_figure dollar_figure cummings reception big_number --q- farewell party big_number -q- stakes day buffet -q- big_number music theatre -- derby eve gala table -q- big_number u s senate restaurant -q- dinner for twenty-five at dollar_figure per person -o- dinner for fifty-five at dollar_figure per person -o- big_number louisville chamber of commerce dinner -q- green herb cocktail party --0- big_number total big_number big_number collectively referred to as miscellaneous expenses discussion respondent concedes that all of the expenses at issue meet the requirements for deductions as ordinary and necessary business_expenses of petitioner under sec_162 for the years in issue however respondent argues that these deduction are limited by sec_274 petitioners argue they are in the entertainment business - and accordingly they should not be subject_to the restrictions of sec_274 with respect to expenses they incur in the course of providing that entertainment alternatively petitioners argue the expenses at issue are excluded from the provisions of sec_274 by application of sec_274 paragraphs and and sec_274 a sec_162 allows a deduction for all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business sec_274 disallows a deduction in certain instances for expenses which would otherwise be deductible under sec_162 sec_274 provides in part sec_274 entertainment amusement or recreation ---- in general --no deduction otherwise allowable under this chapter shall be allowed for any item-- a activity --with respect to an activity which is of a type generally considered to constitute entertainment amusement or recreation unless the taxpayer establishes that the item was directly related to or in the case of an item directly preceding or following a substantial_and_bona_fide_business_discussion sec_274 provides exceptions ---paragraph shall not apply to any expense if-- a such expense is described in paragraph or of subsection e --- - including business meetings at a convention or otherwise that such item was associated with the active_conduct of the taxpayer’s trade_or_business respondent does not dispute that the expenses at issue are directly related to the active_conduct of petitioners’ business there is also no dispute that the events were critical to the success of the kentucky derby and the breeders’ cup some of the expenses at issue were required to be provided under the contract between petitioners and bcl respondent argues that the deductions of the expenses at issue are limited by sec_274 sec_274 allows only a portion of entertainment expense to be deducted that section provides sec_274 only percent of meal and entertainment_expenses allowed as deduction --- in general --the amount allowable as a deduction under this chapter for-- a any expense for food or beverages and b any item with respect to an activity which is of a type generally considered to constitute entertainment amusement or recreation or with respect to a facility used in connection with such activity shall not exceed percent of the amount of such expense or item which would but for this paragraph be allowable as a deduction under this chapter the secretary was granted authority to promulgate regulations to carry out the purposes of sec_274 see sec_274 0o regulations were promulgated to clarify what type of --- - activity would be considered entertainment in pertinent part they provide objective test an objective test shall be used to determine whether an activity is of a type generally considered to constitute entertainment thus if an activity is generally considered to be entertainment it will constitute entertainment for purposes of this section and sec_274 regardless of whether the expenditure can also be described otherwise and even though the expenditure relates to the taxpayer alone this objective test precludes arguments such as that entertainment means only entertainment of others or that an expenditure for entertainment should be characterized as an expenditure for advertising or public relations however in applying this test the taxpayer’s trade_or_business shall be considered thus although attending a theatrical performance would generally be considered entertainment it would not be so considered in the case of a professional theater critic attending in his professional capacity similarly if a manufacturer of dresses conducts a fashion show to introduce his products to a group of store buyers the show would not be generally considered to constitute entertainment however if an appliance distributor conducts a fashion show for the wives of his retailers the fashion show would be generally considered to constitute entertainment sec_1_274-2 b income_tax regs petitioners argue that they are in the entertainment business and that the derby expenses breeders’ cup expenses and miscellaneous expenses are all part of their entertainment product and therefore should be fully deductible petitioners conduct live horse races including the kentucky derby at their facilities the races produce revenues through pari-mutuel wagering including simulcast pari-mutuel wagering admissions and seating concession commissions sponsorship revenues licensing rights and broadcast fees petitioners’ main source -- - of revenues is wagers placed on horse races in determining whether the expenses in question are entertainment_expenses petitioners’ trade_or_business must be considered we would agree petitioners are in the entertainment business however applying the objective test mandated by sec_1_274-2 income_tax regs the derby breeders’ cup and miscellaneous expenses all constitute entertainment_expenses and cannot be properly categorized as part of the entertainment product thus the derby breeders’ cup and miscellaneous expenses are subject_to the restrictions imposed by sec_274 unless they fall within one of the exceptions set out in sec_274 petitioners alternatively argue that the derby breeders’ cup and miscellaneous expenses are excluded from the operation of sec_274 by paragraphs and of sec_274 those paragraphs provide as follows items available to public --expenses for goods services and facilities made available by the taxpayer to the general_public entertainment sold to customers --expenses for goods or services including the use of facilities which are sold by the taxpayer ina bona_fide transaction for an adequate_and_full_consideration in money or money’s worth petitioners provide entertainment to all of the public through their different events the kentucky derby and the breeders’ cup championship are open to the general_public as are other races during derby week and breeders’ cup week in contrast the events that give rise to the derby breeders’ cup and miscellaneous expenses are invitation-only events that are attended by selected horsemen petitioners’ employees media officials and local dignitaries they may be entertainment events designed to make the derby and breeders’ cup more prestigious events and to heighten public awareness of the upcoming events as petitioners claim however we can see no meaningful difference between the expenses at issue here and normal entertainment of selected clients and suppliers which is limited by sec_274 the expenses at issue are not expenses for goods services and facilities made available by petitioners to the general_public the events at issue provide goods and services to persons petitioner selects to entertain ’ sec_1_274-2 viii income_tax regs provides useful guidance on the difference between providing goods and services to the general_public and providing them to a selected clientele those regulations provide viii items available to the public any expenditure by a taxpayer for entertainment or for a facility in connection therewith to the extent the entertainment is made available to the general_public is not subject_to the limitations on allowability of deductions provided for in paragraphs a through e of this section expenditures_for entertainment of the general_public by means of television radio newspapers and the like will come within this exception as will expenditures_for distributing samples to the general_public similarly expenditures_for maintaining private parks golf courses and similar facilities to the extent that they are available for public use will come within this exception for example if a corporation maintains a swimming pool continued we therefore hold that the derby breeders’ cup and miscellaneous expenses are not excluded by sec_274 and n we find no evidence in the record that the derby breeders’ cup and miscellaneous expenses for goods and services were sold by petitioners ina bona_fide transaction for an adequate_and_full_consideration in money or money’s worth indeed the record indicates that the expenses were borne by petitioner and goods and services were given without cost to the parties that were entertained we therefore hold that the derby breeders’ cup and miscellaneous expenses are not excluded by sec_274 e and n we hold that petitioners’ claimed deductions for derby breeders’ cup and miscellaneous expenses are limited by sec_274 as determined by respondent in reaching the continued which it makes available for a period of time each week to children participating in a local public recreational program the portion of the expense relating to such public use of the pool will come within this exception petitioners place reliance on the treatment afforded a casino that provided comps to selected members of the general_public in priv ltr rul date based on the letter_ruling petitioners argue that the derby breeders’ cup and miscellaneous expenses should be deductible in full we are unpersuaded that the reasoning used therein is applicable to the present situation we also note that the precedential value of letter rulings is specified in sec_6110 which provides in pertinent part a written_determination may not be used or cited as precedent holdings in this opinion we have considered all arguments for contrary holdings and have rejected all arguments not discussed as without merit or irrelevant to reflect the foregoing decision will be entered under rule