department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uil no mar legend taxpayer a cccccccsesceeccceeceeneueeeeeeeeeeeceeeeeaneeeeeseees - ee roth_ira h cc cccceeeeeeeneeeeeeeeneeeeeeeneeaeaes roth_ira joo ee cecee sec ee eee eceeceeeeeeeeeeereeeeaetereeees roth_ira k cc ec ecee eee eeeceee ee eeeeneseseeeseeeeaees roth fra l e cece eee eee eee ececec ee ee ese eeeaeeesenees roth_ira m cece ces ece eee ceeeece reese eeeeeeeeeeees company n cececcccccnceeeeeeeeececeeeeeeaeeeeeeeeseesseeasa company o cccccccec cece ee ececeeee eee eeeaeeaeeenees dear this is in response to a letter dated date as supplemented by correspondence dated january and date in which your authorized representative requests relief under sec_301_9100-3 of the procedure and administration regulations the regulations on your behalf you submitted the following facts and representations in connection with your request taxpayer a maintained traditional individual_retirement_arrangements iras ira c and ira d described in sec_408 of the internal_revenue_code the code’ with company n and company o respectively taxpayer b taxpayer a’s spouse maintained ira f and ira g with company n and company o respectively in taxpayer a converted ira c into roth_ira j and ira d into roth_ira k with the same custodians as previously for each ira in taxpayer b converted ira f into roth_ira l with company n and ira g into roth_ira m with company o taxpayer a and taxpayer b requested two extensions of their hj federal_income_tax return ‘ iifreturn’ with the second extension due_date date however due to extenuating circumstances experienced by taxpayer a’s and taxpayer b’s accountant the taxpayers’ in preparing taxpayer a’s and taxpayer b’siii return it became clear that the taxpayers’ modified_adjusted_gross_income exceeded the dollar_figure limitation in code sec_408a for the illyear on realizing their mistake taxpayer a and taxpayer b requested that their roth iras be recharacterized back to traditional iras one institution company n attempted to recharacterize roth_ira j and roth_ira l back into traditional iras ira e and ira h roth iras e and h since the time for recharacterization had passed j return was not completed until february iras e and h will be referred to as taxpayer a’s and taxpayer b’s accountant was researching the issue of ineligibility for the roth conversions when the taxpayers received a notice of proposed examination changes in june from the internal_revenue_service the service the examination officer found that the taxpayers had improperly converted their iras to roth iras in and that the recharacterization of roth_ira k and roth_ira m back to traditional iras was ineffective as it was past the date due_date for a timely recharacterization taxpayer a and taxpayer b filed a tax_court petition in response to a statutory_notice_of_deficiency on this issue based on the above facts and representations you request a ruling that pursuant to sec_301_9100-3 of the regulations taxpayer a and taxpayer b be granted an extension to recharacterize their roth_ira conversions including roth iras e and h back to traditional iras with respect to your request for relief under sec_301_9100-3 of the regulations code sec_408a and sec_1_408a-5 of the federal_income_tax regulations the i t regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having originally been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira ina recharacterization the ira contribution is treated as having been made to the transferee ira and not the transferor ira under sec_408a and sec_1_408a-5 this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer's federal_income_tax returns for the year of contributions sec_1_408a-5 question answer of the i t regulations describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer’s intent to rechdracterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer code sec_408a provides that an individual with an adjusted_gross_income as modified within the meaning of subparagraph c c in excess of dollar_figure for a taxable_year is not permitted to make a qualified_rollover_contribution to a roth_ira from an individual_retirement_plan other than a roth_ira during that taxable_year sec_1_408a-4 q a-2 of the t regulations provides that an individual with modified_adjusted_gross_income in excess of dollar_figure big_number for a taxable_year is not permitted to convert an amount to a roth_ira during that taxable_year sec_1_408a-4 q a-2 further provides that an individual and his spouse must file a joint federal tax_return to convert a traditional_ira to a roth_ira and that the modified_adjusted_gross_income agi subject_to the dollar_figure limit for a taxable_year is the modified agi derived from the joint_return using the couple's combined income sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the regulations provide guidance concerning requests for relief submitted to the internal_revenue_service the service on or after date sec_301_9100-1 provides that the commissioner of internal revenue in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 of the regulations lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if its request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer’s control iii if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 of the regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute_of_limitations before the taxpayer’s receipt of a ruling granting relief under this section in this case taxpayer a and taxpayer b were not eligible to convert their traditional iras into roth iras since their combined modified_adjusted_gross_income exceeded dollar_figure for the year of the conversions taxpayer a and taxpayer b failed to recharacterize their roth iras back to traditional iras by the time permitted by law therefore it is necessary to determine whether they are eligible for relief under the provisions of sec_301_9100-3 of the regulations although taxpayer a and taxpayer b were ineligible for the roth_ira conversions they were unaware that they were ineligible until the preparation of the bb return taxpayer a and taxpayer b had timely requested an extension until date but their accountant was unable to file thelj return by the extended due_date because of extenuating circumstances as a result the mistake was not discovered until the filing of the return on date at which time the due_date for recharacterizing date had passed thus taxpayer a and taxpayer b satisfy clauses ii and iv of sec_301_9100-3 because they inadvertently failed to make the election due to intervening events professional beyond their control and they reasonably relied on a qualified_tax addition because the statute_of_limitations on the taxpayers return is still open the interests of the government would not be prejudiced by providing relief accordingly we rule that pursuant to sec_301_9100-3 of the regulations taxpayer a and taxpayer b are granted a period of days from the date of this ruling letter to recharacterize roth_ira e roth_ira k roth_ira h and roth_ira m back to traditional iras this letter is directed only to the taxpayer who requested it code sec_6110 provides that it may not be used or cited as precedent this letter assumes that the above iras qualify under code sec_408 at all relevant times the original of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file with this office in should you have any concerns regarding this ruling please contact sincerely yours co bte a cote carlton a watkins manager employee_plans technical group enclosures deleted copy of letter notice


t c memo united_states tax_court jeffrey michael steingold petitioner v commissioner of internal revenue respondent docket no filed date jeffrey michael steingold pro_se dustin m starbuck for respondent memorandum findings_of_fact and opinion foley judge by notice dated date respondent determined deficiencies of dollar_figure and dollar_figure and additions to tax pursuant to sec_6651 of dollar_figure and dollar_figure relating to petitioner’s and federal income taxes respectively unless otherwise indicated all section references are to the - - internal_revenue_code code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure the issues for decision are whether the notice_of_deficiency relating to petitioner’s return was timely petitioner is liable for tax relating to undistributed trust income and petitioner is liable for additions to tax for failing to file his and returns in a timely manner findings_of_fact petitioner resided in ashland virginia at the time the petition was filed petitioner filed his and returns on date and date respectively the notice_of_deficiency was sent to petitioner on date petitioner was a beneficiary of a_trust which provided that he receive the entire net_income of his respective share in convenient installments the trustee had the discretion to distribute principal no distributions were made from the trust in or an order of the virginia beach chancery court state court dated date required the trustee to retain all trust income subsequently the state court terminated the trust and distributed petitioner’s share to satisfy his obligations -- - opinion timeliness of notice_of_deficiency petitioner filed his return on date and respondent mailed the notice_of_deficiency on date generally a tax must be assessed within years after the date on which the return was filed unless the period is extended by agreement see sec_6501 respondent contends that on date petitioner signed a form_872 ie consent to extend the time to assess tax extending the limitations_period relating to petitioner’s return respondent further contends that he lost the original form_872 respondent however offered a copy of a form_872 that was undated and allegedly signed by petitioner an individual’s name signed on a document creates a rebuttable_presumption that such individual signed the document see 35_tc_747 petitioner however contends he did not sign any document extending the limitations_period and we find his testimony credible in addition the testimony of respondent’s witnesses an internal_revenue_service agent and a handwriting expert was not convincing we conclude that petitioner did not extend the limitations_period and accordingly the notice_of_deficiency relating to was not timely trust income the terms of the governing instrument and applicable local law determine whether trust income is required to be distributed currently ie whether the beneficiary has a present right to receive income see sec_1_651_a_-2 income_tax regs if trust income is currently distributable and no other distributions are made ina taxable_year the trust is a simple_trust tax treatment of a simple_trust is governed by sec_651 and sec_652 sec_651 allows the trust a deduction for income required to be distributed currently sec_652 subjects the beneficiary to taxation on amounts required to be distributed whether distributed or not a_trust not governed by the simple_trust provisions is subject_to the complex_trust provisions a_trust may be a simple_trust for one year and a complex_trust for another year sec_1_651_a_-1 income_tax regs pursuant to sec_661 and sec_662 only that part of the trust income which is paid or credited to the beneficiary during the year may be deducted by the trust and taxed to the beneficiary the trustee of a complex_trust may have discretion to accumulate or distribute all or part of the income to the beneficiary thus the code assures that income distributions will appear in the fiduciary’s return if they are still his in the beneficiary’s only in case he has become presently entitled to them or received them - - 65_f2d_371 2d cir in essence the code is designed to impose tax on the owner of trust income and a present right to receive income is equivalent to current ownership of such income see 291_us_35 respondent contends that petitioner had a present right to receive income petitioner contends he had no such right respondent relies on a line of cases which hold that income is taxable to the current income_beneficiary even though the trustee withheld distributions to such beneficiary during the course of state legal proceedings see 238_f2d_439 lst cir 53_tc_403 34_bta_951 affd 90_f2d_433 2d cir in each of these cases however the trustee exercised discretion and was not required to accumulate trust income because of the state court order petitioner did not have a present right to receive income distributions in see 300_us_5 holding that state law determines the right of the beneficiary to trust income the state court order represented petitioner’s rights under virginia law see young v commissioner 110_tc_297 stating that federal authorities must give proper regard to relevant state court rulings quoting commissioner v estate of bosch - - u s although the trust was a simple_trust in prior years in it was a complex_trust accordingly petitioner was not required to report the undistributed trust income addition_to_tax sec_6651 imposes an addition_to_tax for failure_to_file a required return on the date prescribed unless such failure is due to reasonable_cause and not willful neglect petitioner failed to present any evidence relating to this issue accordingly respondent’s addition_to_tax for is sustained contentions we have not addressed are irrelevant moot or meritless to reflect the foregoing decision will be entered under rule


department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date cc intl b1 genin-121738-10 o f f i c e o f t h e c h i e f c o u n s e l number release date uil ----------------- ------------------------- ------------------------------ dear ---------------- this letter responds to your inquiry to john harrington dated date in which you note that you hold interests in several canadian trusts through your u s individual_retirement_account ira the trusts make distributions to your ira from which they withhold and remit to canada a percent tax you question canada’s right to tax these distributions u s tax law provides that an individual does not pay u s taxes on amounts in an ira until distributed generally an individual is not liable for u s taxes on amounts earned through an ira until distributed however u s tax law only defers u s tax and does not affect the ability of a foreign_country to impose tax on income of the ira that is sourced in that country distributions from canadian income and royalty_trusts are canadian-source income and may be subject_to tax in canada depending on canadian tax law and the terms of the u s -canada income_tax treaty the treaty the treaty determines whether canada can tax the canadian-source income of a u s resident certain u s entities that are generally exempt from taxation in a taxable_year in the united_states such as iras are exempt from taxation on dividend income arising in canada in that same taxable_year article xxi exempt_organizations of the treaty based on a change in canadian tax law canada began imposing a percent withholding_tax on distributions from income and royalty_trusts to u s residents canadian tax law did not initially treat these distributions as dividends however and thus they were not exempt from canadian tax under article xxi of the treaty genin-121738-10 in canada amended its domestic law again and began taxing certain of these trusts as corporations and treating distributions from these trusts as dividends canada and the united_states signed an exchange of diplomatic notes in that confirms among other things that distributions from income and royalty_trusts that are treated as dividends under canadian law will be treated as dividends for purposes of the treaty however canadian law provides that canada will not tax income and royalty_trusts in existence on date as corporations until date until then canadian tax law will not treat distributions from such trusts as dividends and consequently the treaty will not treat them as dividends thus such income will not be exempt from canadian tax under the treaty until and canada can impose it sec_15 percent tax on such distributions until we do not have sufficient information to determine whether the trust interests held in your ira account are interests in trusts that canada is already taxing as corporations or whether those trusts are still making non-dividend trust distributions that canada may tax pincite percent if you do not have this information we suggest that you contact the trustees or managers of the trusts to resolve your concerns foreign taxes paid_by canadian income and royalty_trusts are not creditable against the u s taxes owed by ira owners we recognize that you may not claim a foreign_tax_credit for the canadian taxes withheld on the income paid to your ira by the canadian trusts this is consistent with the general_rule that foreign tax_credits may not be credited against an individual’s tax_liability unless the individual himself is liable for the tax nor can the ira make use of a foreign_tax_credit because it is exempt from tax in the united_states ultimately this may result in some double_taxation but not until the ira distributes this income to you the change to canadian tax law when fully implemented in conjunction with the treaty will generally eliminate the percent canadian withholding_tax on amounts that income and royalty_trusts pay to iras this letter has called your attention to certain general principles of the current law it is intended for informational purposes only and does not constitute a ruling see revproc_2010_1 sec_2 2010_1_irb_7 date you may wish to contact the canada revenue agency at for more information about the canadian tax law discussed in this letter if you have any additional questions please contact ----- ---------------------- identification_number ------------- at --------------------- sincerely m grace fleeman senior technical reviewer branch international


internal_revenue_service number release date index number ------------------------------- ----------------- ---------------------------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no -------------- ----------------- telephone number -------------------- refer reply to cc psi plr-103997-14 date may --------------------------------------------------------------------------------------------------- legend p --------------------------- country ----------- year ------- dear ------------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of p requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for p to make an election under sec_754 of the internal_revenue_code the information submitted states that p is a country entity classified as a partnership for federal tax purposes in year interests in p were transferred however at that time p represents that it was not aware of the availability of an election under sec_754 accordingly p inadvertently failed to timely file a sec_754 election for year sec_754 provides that if a partnership files an election in accordance with the regulations prescribed by the secretary the basis of the partnership property is adjusted in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the plr-103997-14 taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions therefore for filing the return for the taxable_year sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the item regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant and extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-3 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result p is granted an extension of time of days from the date of this letter to make an election under sec_754 effective for the year taxable_year and thereafter the election should be made in a written_statement filed with the appropriate service_center for association with p’s year return a copy of this letter should be attached to the election plr-103997-14 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code and the regulations thereunder 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 copy of this letter is being sent to p’s authorized representatives sincerely bradford r poston senior counsel branch passthroughs special industries enclosures copy of this letter copy for purposes cc


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person telephone number identification_number employer_identification_number release number release date date date uil legend m p q r x dear under sec_4942 and sec_4945 of the internal_revenue_code concerning grants and other expenditures awarded under the proposed procedures facts private_foundation under sec_509 p is a limited_liability_company that is wholly-owned and controlled by m and is treated as a disregarded_entity for federal tax purposes p’s purpose is to manage operate and administer the q program on behalf of m that have developed or are otherwise involved with innovative r educational initiatives funded desired programming under the q program grants of up to dollar_figurex will be awarded to grant recipients additional grants of up to dollar_figurex will be awarded to organizations organization recipient with which each grant recipient is associated with to be used as directed by the grant recipient to promote the development improvement and implementation of and provide financial support for the educational initiatives for which the grant is being awarded the grant amounts may be adjusted upwards or downwards as p determines to be in the best interest of the q under the program the organization grant funds may be remitted to the organization recipient in one or more installments over a period not longer than months m is a tax-exempt_organization under sec_501 of the code and is classified as a q is a grant program designed to award funding to support individuals and organizations we have considered your ruling_request dated date requesting rulings initial screening of all application materials submitted will be conducted by two the application process requires individuals interested in being selected for q to submit to m anticipates awarding grants to synagogues colleges universities r community centers nursing homes assisted living facilities and senior centers m states that some recipients may also be private_foundations and other non tax-exempt organizations in addition m states that individual and organization grants may be awarded for educational initiatives operating outside of the united_states and grant recipients are eligible to apply for multi-year follow-up grants to fund operations and or expansion of the programs p the following application materials a detailed current resume setting forth work experience education and past and present involved with such desired programming a detailed description of the program for which the applicant seeks a grant and at least one letter of recommendation in support of the applicant’s application preferably from a person or persons familiar with the applicant’s involvement with such programming coordinators of q the program coordinator will review the materials for eligibility and may also interview the applicant application materials are then forwarded to a selection committee for further review the selection committee will valuate each applicant’s eligibility based on the following criteria a whether the applicant had previously established and or been involved with such desired programming as well as applicant’s history with such programming and the innovate nature and success of such programming prior programming criteria b whether the applicant has a strong work history and has demonstrated a strong interest in and or familiarity or involvement with the r religion and or r culture and heritage and or issues and concerns of particular interest to senior citizens will make further inquiries to become reasonably assured that the organization grant will be used for the purposes for which such grant is awarded given q’s primary purpose more weight will be given to prior programming criteria however q is open to all races faiths and religions the selection committee will make its recommendation to p as to whether an applicant and its programming should be awarded grants under q q will be advertised principally on p’s website and any website that may be created for q as well as by word-of-mouth and recommendations of persons involved with family education or senior programming any applicant who is related to by blood or marriage to any individual or organization that is directly or indirectly affiliated with any director officer_or_employee of m or p or any member of the selection committee is ineligible to receive any grant under q each grant and organization recipient is required to enter into a grant letter with p the grant letter sets forth that the individual and organization grants are being awarded under the express condition of full compliance by the grant recipient the obligations terms conditions rules and requirements of the program including that organization grants may only be used for or in connection with the development improvement implementation and the financial support of the funded desired programming in turn each recipient must furnish to p at least annually written reports setting forth a for organization recipients requiring expenditure_responsibility the selection committee whether and to what extent the goals of the funded desired programming are being met b how the grant monies are being spent in connection with such funded desired programming c significant events occurrences successes and failures arising in connection with such funded desired programming d the short-term and long-term goals of the funded desired programming e his her formal evaluation of q and f such other information that a program coordinator or other representative of p requests in connection with q and the funded desired programming in addition the grant letter provides that each recipient shall keep and maintain financial records to adequately reflect and account for_the_use_of the grant funds maintain its qualification as a tax-exempt_organization under sec_501 of the code and the regulations thereunder in the case where the organization recipient is a private_foundation or non-tax-exempt organization expenditure_responsibility recipient p will require that the grant letter be signed by an appropriate officer director or trustee of the organization recipient and that the organization repay any portion of the organization grant which is not used for the purpose for which such grant was awarded submit full and complete annual or if requested by p more frequent reports on the matter in which the funds are spent and the progress made in accomplishing the purposes of the grant maintain records of receipts and expenditures and to make its books_and_records available to p at reasonable times and not use any of the funds to carry on propaganda or otherwise to attempt to influence legislation within the meaning of sec_4945 of the code influence the outcome of any specific public election or to carry on directly or indirectly any voter registration drive within the meaning of sec_4945 of the code make any grant which does not comply with the requirements of sec_4945 or of the code or undertake any activity for non-charitable purposes confirm that the grant monies are being properly used in support of the funded desired programming and otherwise ensure that all of the terms and requirements of the grant letter are being satisfied as well as to receive feedback on the funded desired programming the grant letter provides that p may in its sole discretion take any and all such reasonable and appropriate steps including legal action to compel such compliance including requiring the return of all or any portion of the grant funds previously remitted to the grant recipient or withholding of payment of any portion of the grant no previously remitted also such non- compliance shall render the grant recipient ineligible for any follow-up grant or other future funding or grants under q recipients may also be eligible for an additional grant to continue or expand operations of funded desired programming p indicates that if a follow-up grant is awarded it will exercise expenditure_responsibility where required rulings requested each applicable program coordinator or other representative of p will maintain records to you have requested the following rulings any amount to be awarded or expended under q including without limitation an individual grant organization grant and follow-up grant or other_amounts remitted to an organization recipient that is either a i non-operating foundation to the extent that the distribution requirement and adequate_records requirements are satisfied and ii foreign recipient to the extent that p in accordance with sec_53 a - a of the regulations and revproc_92_94 1992_2_cb_507 receives either a determination_letter from the service that the foreign recipient is a public charity or a private_operating_foundation or an affidavit from the foreign recipient that it is an organization described in sec_509 or or j of the code will constitute qualifying distributions within the meaning of sec_4942 any amount to be awarded or expended under q including without limitation an individual grant organization grant and follow-up grant which will not otherwise constitute an individual travel study grant will not constitute a taxable_expenditure within the meaning of sec_4945 of the code including any organization grant follow-up grant or other_amounts remitted to an organization recipient that is a i foreign recipient to the extent that p in accordance with sec_53_4945-5 of the regulations and revproc_92_94 1992_2_cb_507 receives either a determination_letter from the service that the foreign recipient is an organization described in sec_509 or of the code or an affidavit from the foreign recipient that it is an organization described in sec_509 or and ii a foreign recipient that is not so described and that is according to good_faith determination an organization described in sec_501 c to the extent p exercises expenditure_responsibility as prescribed by sec_4945 and the regulations thereunder with respect to such organization law sec_170 of the code defines the term charitable_contribution to include a contribution to or for_the_use_of a corporation trust or any community chest fund or foundation organized and operated exclusively for charitable educational or other specified purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_501 of the code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for religious charitable educational or other specified exempt purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual and which does not engage in proscribed legislative or political activities sec_1_501_c_3_-1 of the income_tax regulations provides that the term charitable is used in code sec_501 in its generally accepted legal sense and includes the advancement of education sec_1_501_c_3_-1 of the regulations provides that the term educational includes the instruction or training of the individual for the purpose of improving or developing his capabilities or the instruction of the public on subjects useful to the individual and beneficial to the community sec_4942 of the code defines a qualifying_distribution as a any amount_paid to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled by the foundation or one or more disqualified persons or ii a private_foundation which is not an operating_foundation except as otherwise provided or b any amount_paid to acquire an asset used directly in carrying out one or more purposes described in sec_170 sec_4942 of the code requires that the transferor private_foundation in order to have a qualifying_distribution for its grant to another private_foundation must have adequate_records to show that the transferee private_foundation in fact makes a qualifying_distribution that is equal to the amount of the transfer received and that is paid out of the transferee's own corpus within the meaning of sec_4942 sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations defines the term qualifying_distribution in relevant part to mean any amount including program related investments and reasonable and necessary administrative expenses paid to accomplish one or more purposes described in code sec_170 or sec_170 other than any contribution to a private_foundation which is not an operating_foundation or to an organization controlled directly or indirectly by the contributing private_foundation or one or more disqualified persons with respect to such foundation sec_53_4942_a_-3 of the regulations allows a foundation to treat a grant to a foreign organization as a grant to a public charity if the foundation makes a good_faith determination that the organization would satisfy the requirements of sec_509 or of the code sec_4945 and sec_4945 of the code impose excise_taxes to be paid_by a private_foundation that makes a taxable_expenditure as defined in sec_4945 sec_4945 of the code provides that a taxable_expenditures includes any amount_paid or incurred by a private_foundation to carry on propaganda or otherwise to attempt to influence legislation within the meaning of sec_4945 except as provided in sec_4945 to influence the outcome of any specific public election or to carry on directly or indirectly any voter registration drive a grant to an individual for travel study or similar purposes by such individual unless such grant satisfies the requirements of sec_4945 a grant to an organization unless a the grantee is described in paragraph or of sec_509 of the code or is an exempt_operating_foundation as defined in sec_4940 or b the foundation exercises expenditure_responsibility over the grant in accordance with sec_4945 or for any purpose other than one specified in sec_170 sec_4945 of the code provides that sec_4945 shall not apply to an individual grant awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the secretary if it is demonstrated to the satisfaction of the secretary that the purpose of the grant is to achieve a specific objective produce a report or other similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-5 of the regulations provides that for purposes of section sec_4945 of the code provides that a private_foundation will be considered to sec_53_4945-5 of the regulations provides that the term taxable_expenditure exercise expenditure_responsibility if it exerts all reasonable efforts and establishes adequate procedures to see that the grant is spent solely for the purpose for which it was made to obtain full and complete reports from the grantee on how the funds are spent and to make full and detailed reports with respect to such expenditures to the commissioner includes any amount_paid or incurred by a private_foundation as a grant to an organization other than an organization described in sec_509 or unless the private_foundation exercises expenditure_responsibility with respect to such grant in accordance with sec_4945 of the code d of the code an organization will be treated as a sec_509 organization if it is an organization described in sec_170 however a grant to such an organization must be make exclusively for charitable purposes described in sec_170 considered to be exercising expenditure_responsibility under sec_4945 as long as it exerts all reasonable efforts and establishes adequate procedures to see that the grant is spent solely for the purpose for which made to obtain full and complete reports from the grantee on how the funds are spent and to obtain full and detailed reports with respect to such expenditures to the commissioner sec_53_4945-5 of the regulations requires that the private_foundation conduct a pre- grant limited inquiry concerning the potential grantee such inquiry should be complete enough to give a reasonable man assurance that the grantee will use the grant for the proper purposes the inquiry should concern itself with matters such as a the identity prior history and experience if any of the grantee organization and its managers and b any knowledge which the private_foundation has based on prior experience or otherwise of or other information which is readily available concerning the management activities and practices of the grantee organization responsibility requirements of sec_4945 a private_foundation must require that each grant to an organization with respect to which expenditure_responsibility must be exercised under this section be made subject_to a written commitment signed by an appropriate officer director or trustee of the grantee organization such commitment must include an agreement by the grantee sec_53_4945-5 of the regulations provides that in order to meet the expenditure sec_53_4945-5 of the regulations provides that a private_foundation will be i ii iii iv to repay any portion of the amount granted which is not used for the purposes of the grant to submit full and complete annual reports on the manner in which the funds are spent and the progress made in accomplishing the purposes of the grant except as provided in paragraph c of this section to maintain records of receipts and expenditures and to make its books_and_records available to the grantor at reasonable times and not to use any of the funds-- a to carry on propaganda or otherwise to attempt to influence legislation within the meaning of sec_4945 b to influence the outcome of any specific public election or to carry on directly or indirectly any voter registration drive within the meaning of sec_4945 c to make any grant which does not comply with the requirements of sec_4945 or or d to undertake any activity for any purpose other than one specified in sec_170 a private foundation’s expenditures will be treated as qualifying distributions under sec_52 b v of the regulations provides in relevant part that any payment the agreement must also clearly specify the purposes of the grant such purposes may include contributing for capital endowment for the purchase of capital equipment or for general support provided that neither the grants nor the income therefrom may be used for purposes other than those described in sec_170 which constitutes a qualifying_distribution under sec_4942 of the code will not be treated as a taxable_expenditure under sec_4945 analysis sec_4942 of the code only if they are made to further religious charitable educational or other purposes stated in sec_170 m’s amended and restated certificate of incorporation provides that m is organized and operated exclusively for charitable religious scientific literary and educational_purposes in addition the q program provides individuals or organizations with funds to develop and pursue educational initiatives the q programs advance education and therefore further a charitable purpose within the meaning of sec_170 and sec_501 see sec_1_501_c_3_-1 of the regulations revproc_92_94 c b would constitute qualifying distributions under sec_4942 in addition such grants would not be taxable_expenditures under sec_4945 and would not require expenditure_responsibility by virtue of sec_4945 of the code with respect to any organization grants or other_amounts remitted under q to an organization recipient that is a non-operating foundation such grant or other_amounts would constitute qualifying distributions of m for purposes of sec_4942 to the extent that the requirements of sec_4942 are satisfied in addition the grants will not be considered taxable_expenditures under sec_4945 of the code and sec_53_4945-6 of the regulations because the grants further charitable purposes under sec_170 and do not otherwise constitute an individual travel study grant with respect to grants to foreign organizations and u s organizations that are not public_charities p will exercise expenditure_responsibility within the meaning of sec_4945 and sec_4945 of the code accordingly such distributions and expenditures will not constitute taxable_expenditures for purposes of sec_4945 of the code rulings generally grants made to united_states public_charities and foreign equivalents see based on the facts and circumstances as described above we rule that any amount to be awarded or expended under q including without limitation an individual grant organization grant and follow-up grant or other_amounts remitted to an organization recipient that is either a i non-operating foundation to the extent that the distribution requirement and adequate_records requirements are satisfied and ii foreign recipient to the extent that p in accordance with sec_53 a - a of the regulations and revproc_92_94 1992_2_cb_507 receives either a determination_letter from the service that the foreign recipient is a public charity or a private_operating_foundation or an affidavit from the foreign recipient that it is an organization described in sec_509 or or j of the code will constitute qualifying distributions within the meaning of sec_4942 any amount to be awarded or expended under q including without limitation an individual grant organization grant and follow-up grant which will not otherwise constitute an individual travel study grant will not constitute a taxable_expenditure within the meaning of sec_4945 of the code including any organization grant follow-up grant or other_amounts remitted to an organization recipient that is a i foreign recipient to the extent that p in accordance with sec_53_4945-5 of the regulations and revproc_92_94 1992_2_cb_507 receives either a determination_letter from the service that the foreign recipient is an organization described in sec_509 or of the code or an affidavit from the foreign recipient that it is an organization described in sec_509 or and ii a foreign recipient that is not so described and that is according to good_faith determination an organization described in sec_501 to the extent p exercises expenditure_responsibility as prescribed by sec_4945 and the regulations thereunder with respect to such organization your request for advanced approval under sec_4945 of the code of the proposed this ruling will be made available for public inspection under sec_6110 of the code procedures for awarding such grants by p will be issued under separate cover after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice code provides that it may not be used or cited by others as precedent there will be no material changes in these facts because it could help resolved questions concerning your federal_income_tax status this ruling should be kept in your permanent records this ruling is directed only to the organization that requested it sec_6110 of the this ruling is based on the facts as they were presented and on the understanding that if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter enclosure notice debra j kawecki manager exempt_organizations technical group sincerely s


internal_revenue_service department of the treasury washington dc index number number release date person to contact telephone number refer reply to cc psi - plr-111270-00 date date x a d1 d2 year dear this letter responds to a letter dated date and subsequent correspondence written on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 x had no assets or shareholders and did not begin doing business until d2 of year a is the sole shareholder of x a who is also the president of x represents that it was intended for x to be an s_corporation beginning in its first taxable_year year x’s attorney timely prepared a form_2553 election by a small_business_corporation however x’s secretary failed to forward the form_2553 to a for a to sign therefore a form_2553 was not filed for x for year sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year mr steven yarn based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s representative sincerely yours branch h grace kim assistant to the chief office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------------------- ----------------------------------------------- -------------------------------------- --------------------------- -------------------------------------- --------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------- id no ------------- telephone number -------------------- refer reply to cc psi b01 plr-152127-05 date date ------------------ --------------------- -------------------------------------- legend legend x -------------------------------------------------- country d dear --------------- correspondence written on behalf of x requesting an extension of time under ' and ' of the procedure and administration regulations to elect to be treated as a partnership for federal tax purposes this letter responds to the letter dated date and related facts the information submitted states that x was incorporated under the laws of country on d x intended to file a form_8832 entity classification election to be treated as a partnership for federal tax purposes effective d however the election was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can elect its classification for federal tax purposes elections are necessary only when an plr-152127-05 eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that except for certain existing entities described in sec_301_7701-3 unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single member that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under ' b by filing form_8832 with the appropriate service_center under ' c iii this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the federal_register commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of and and therefore it is granted an extension of time of sixty days from the date of this letter to file a form_8832 to elect to be treated as a partnership for federal tax purposes effective d a copy of this letter should be attached to the election a copy is enclosed for that purpose plr-152127-05 except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code 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 mailed to your authorized representative sincerely enclosures heather c maloy associate chief_counsel passthroughs and special industries copy of this letter copy for ' purposes cc


internal_revenue_service index number number release date cc ebeo plr-111399-99 taxpayer date dear this responds to your letter of date requesting a ruling that your military retirement pay is excludable from your gross_income under sec_104 of the internal_revenue_code the code the facts as we understand them are as follows you retired from the armed_forces and received military retirement pay based on years_of_service from the department of defense dod you also elected a survivor benefit you subsequently applied to the veterans administration va for disability benefits the va determined that you have an overall combined disability rating of percent you have elected to waive your dod years_of_service retirement benefits to the extent of your va benefits so that you could receive the va benefits tax free since your retirement in you have received annual forms 1099r from the dod reporting a portion of your retirement pay as taxable_income however it is your position that you were retired for permanent disability with a percent disability rating from dod and not for years_of_service and therefore your entire retirement benefit should be fully nontaxable sec_104 of the code excludes from gross_income amounts received as a pension annuity or similar allowance for personal injuries or sickness resulting from active_service in the armed_forces of any country sec_104 of the code provides that sec_104 will apply to an individual if on or before date he was entitled to receive an amount described in sec_104 u s c b provides that military retirement pay will be the greater of the amount computed on the basis of years_of_service or percentage of disability sec_1_104-1 of the income_tax regulations states that for purposes of sec_104 that part of the retired pay of a member of an armed force computed under formula no or of u s c or under u s c d on the basis of years of services which exceeds the retired pay that he would receive if it were computed on the basis of percentage of disability is not considered as a pension annuity or similar allowance for personal_injury_or_sickness resulting from active_service in the armed_forces sec_1_122-1 of the regulations provides that in computing the amount of net taxable retirement pay gross retired pay is reduced in the following order the cost of the survivor benefit election the amount of any va compensation award for which retired pay is waived and the amount by which retired pay computed on the basis of any dod disability rating percentage exceeds the amount waived for va compensation accordingly the portion of your retirement benefit that exceeds the sum of your survivor benefit cost and the greater of the amount of your va compensation or the amount of any dod retirement pay based on percentage of disability is taxable thus even if you were retired for permanent disability with a percent disability rating a portion of your retirement pay may nevertheless be includable in income the information provided is not adequate for us to determine whether the computation of the taxable_amount made by dod in your case is correct except as specifically ruled upon above no opinion is expressed or implied with respect to the application of any other provisions of the code or the regulations to the benefits described specifically no ruling is intended or implied with respect to whether the computation of your taxable retirement pay made by dod is correct this ruling 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 sincerely harry beker chief branch office of the associate chief_counsel employee_benefits and exempt_organizations enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to cc dom p si br 1-plr-113864-99 ate sep i999 legend d1 state this responds to your letter dated date written on behalf of x requesting a ruling that x's s_corporation status will be effective as of d1 facts x incorporated under state law x's shareholders intended that x be a subchapter_s_corporation for its tax_year beginning d1 however the s_corporation_election under sec_1362 of the internal_revenue_code was not filed timely x requests a ruling that it will be recognized as a subchapter_s_corporation effective d1 pursuant to sec_1362 law and analysis sec_1362 provides that a small_business_corporation may elect to be a subchapter_s_corporation o7 plr-113864-99 sec_1362 provides the rule on when a subchapter_s_election will be if a subchapter_s_election is made within the first two and one-half months of effective a corporation's taxable_year then that corporation will be treated as a subchapter_s_corporation for the year in which the election is made if a subchapter dollar_figure election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as a subchapter_s_corporation until the taxable_year after the year in which the subchapter_s_election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that taxable_year x's subchapter_s_corporation election was not filed timely for the election to be effective as of its taxable_year beginning on d1 nevertheless x has established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusions based solely on the facts submitted and representations made and assuming that x otherwise qualifies as a subchapter_s_corporation as of d1 and x's shareholders make any adjustments to their federal_income_tax returns necessary to comply with this ruling we conclude that x will be recognized as a subchapter_s_corporation effective for the period beginning on d1 please file a completed form_2553 with a copy of this tuling attached reflecting x's election of subchapter_s_corporation status as of d1 with the applicable service_center within days from the date of this letter except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x otherwisé satisfies the subchapter_s_corporation eligibility requirements 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 plr-113864-99 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely daniel j cdburn assistant to the branch chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes ol ok


t c memo united_states tax_court james r and carol k mccormack petitioners v commissioner of internal revenue respondent docket no filed date keith wolak for petitioners justin d scheid for respondent memorandum findings_of_fact and opinion thornton judge respondent determined deficiencies of dollar_figure and dollar_figure in petitioners’ federal income taxes for and respectively respondent also determined that carol k mccormack petitioner is liable for fraud penalties under 1all dollar amounts are rounded to the nearest dollar sec_6663 of dollar_figure and dollar_figure for and respectively the issues for decision are whether petitioner is liable for fraud penalties under sec_6663 and whether respondent is time barred from assessing petitioners’ tax_liabilities for the subject years findings_of_fact when they filed their petition petitioners resided in indiana the parties have stipulated some facts which we so find a petitioner’s educational and professional experience in petitioner graduated from purdue university calumet campus with a concentration in general management accounting which included a semester course in tax_accounting since then she has held various accounting and auditing jobs for instance beginning about she was controller for petrolink inc a fuel oil marketing and trading operation with sales of dollar_figure million per year in this position she supervised staff accountants prepared financial statements on both the accrual and cash_basis methods and filed state and federal fuel oil tax and payroll reports 2unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure in petitioner went to work for the united food and commercial workers local 100-a health and welfare fund the fund as administrative assistant to the managing director and president she was second in command of the fund and responsible for managing it when the managing director and president were absent she was also controller and director of personnel with responsibilities that included managing the entire financial and accounting function for the fund supervising the accounting staff preparing and filing the fund’s quarterly and annual payroll_taxes and federal unemployment tax returns and ensuring the accuracy of forms w-2 wage and tax statement for all fund employees b petitioner’s embezzlement activities between and date petitioner embezzled over dollar_figure from the fund she used the embezzled funds for personal purposes to pay her mortgage and vehicle loans monthly bills and everyday expenses she maintained no records of the cash she embezzled or the manner in which she spent it she reported none of these embezzled funds on her tax returns as described in more detail below the funds that petitioner embezzled came from union members’ health insurance premium payments and copayments embezzlement of premium payments as required by the consolidated omnibus budget reconciliation act cobra the fund offered continued health_insurance_coverage to union members who lost their jobs or had their work hours reduced most of these union members made monthly cobra premium payments to the fund in cash petitioner was responsible for depositing these cash payments into the fund’s bank account she was also responsible for recording and depositing certain reimbursement checks the fund received from health insurance_companies each month one of the fund’s accounting clerks or occasionally petitioner herself would prepare an original and a carbon copy deposit slip for the cobra payments and record the deposit in the fund’s journal petitioner would remove some of the cobra-payment cash and substitute reimbursement checks in the same amount she would destroy the original deposit slip and prepare a new one showing the deposit of the checks she had substituted for the cash she had taken she would retain the carbon copy of the original deposit slip and attach it to the bank deposit receipt she would destroy the vouchers for the substituted checks so that they were never recorded on the accounting_records of the fund in this manner petitioner embezzled dollar_figure in and dollar_figure in embezzlement of mammogram copayments the fund operated the union medical center which provided health care services to union members who contributed to the fund fund plan participants were required to make dollar_figure cash copayments for mammograms performed at the union medical center petitioner was responsible for accounting for the copayments and depositing them into the fund petitioner embezzled mammogram copayments totaling dollar_figure in and dollar_figure in c criminal conviction in petitioner pleaded guilty to embezzling approximately dollar_figure from her employer she was convicted sentenced to months and day of imprisonment and ordered to pay dollar_figure in restitution d petitioners’ tax returns and the notice_of_deficiency petitioner prepared and timely filed petitioners’ joint form sec_1040 u s individual_income_tax_return for and they did not report the embezzled funds as income by notice_of_deficiency dated date respondent determined that petitioners had failed to report embezzled funds of dollar_figure and dollar_figure in and respectively respondent also determined that petitioner was liable for the sec_6663 fraud_penalty 3the record does not indicate the exact dates petitioners filed their returns opinion petitioners do not dispute the deficiencies resulting from their failure to report the embezzled funds as income they dispute the fraud_penalty imposed against petitioner and contend that respondent is time barred from assessing their and tax_liabilities a fraud sec_6663 imposes a penalty on the taxpayer if any part of a tax underpayment is due to fraud the burden_of_proof is upon the commissioner to show by clear_and_convincing evidence that the fraud_penalty applies sec_7454 rule b to satisfy his burden_of_proof the commissioner must establish both that an underpayment exists for each year and some part of the underpayment is due to fraud see 96_tc_858 affd 959_f2d_16 2d cir it is well settled that embezzled funds are taxable_income see eg 366_us_213 583_f2d_298 7th cir petitioners have stipulated that they failed to report dollar_figure and dollar_figure of embezzled funds on their and federal_income_tax returns respectively and that these omissions gave rise to understatements of their taxes as respondent determined accordingly there is no question as to the existence of underpayments the question is whether the underpayments are due to fraud because fraudulent intent can seldom be established by direct proof of the taxpayer’s intention fraud may be proved by circumstantial evidence see 223_f3d_642 7th cir affg tcmemo_1999_171 100_f3d_1308 7th cir affg tcmemo_1995_243 badges_of_fraud include but are not limited to making a substantial and consistent understatement of income dealing in cash failing to maintain adequate_records giving implausible or inconsistent explanations of behavior participating in an illegal activity and attempting to conceal such activity 92_tc_661 while no single factor is necessarily conclusive the existence of several indicia is persuasive circumstantial evidence of fraud id the evidence convincingly establishes that the underpayments for and were due to petitioner’s fraud petitioner is an intelligent and educated woman with nearly two decades of accounting experience as part of her professional duties she prepared and filed payroll and unemployment tax returns and verified the accuracy of employees’ forms w-2 she also prepared her family’s income_tax returns petitioner pleaded guilty to embezzling approximately dollar_figure from to her multistep embezzlement scheme evinces a high level of sophistication and a profound breach of fiduciary responsibilities she successfully concealed her embezzlement scheme for a number of years before getting caught her failure to report any of the embezzled funds as income resulted in recurring and substantial understatements of income petitioner testified that she just kept thinking she would be able to put the money back somehow this testimony is difficult to square however with her admission that she kept no records of the amounts of cash she embezzled and the fact that it was only during her criminal trial that for the first time she saw some figures as to the amount of her embezzlement these implausible or inconsistent explanations of her behavior as well as her failure to keep records are indicia of fraud petitioner’s primary defense is that her failure to report the embezzled cash was not due to fraud because she did not know she was required to report it she claims she never thought about it when a claim of ignorance or honest mistake i sec_4although the distinction does not affect the result in this case we note that respondent is not required to show that petitioner knew tax to be owing on the embezzled funds but rather that she believed tax to be owing see 61_tc_249 affd 519_f2d_1121 5th cir see also 223_f3d_642 7th cir to establish fraud the irs must demonstrate by clear_and_convincing evidence that the taxpayer intended to evade taxes that he knew or believed he owed affg tcmemo_1999_171 asserted we consider the taxpayer’s intelligence education and tax expertise in determining whether the requisite fraudulent intent has been established 86_tc_1326 in the final analysis we cannot accept that a person of petitioner’s intelligence training and experience could have systematically embezzled more than dollar_figure over years and never have thought about the tax consequences on the basis of all the evidence we conclude and hold that respondent has met his burden of proving by clear_and_convincing evidence that the fraud_penalty applies to petitioner b statute_of_limitations generally the commissioner must assess tax within years after a return is filed sec_6501 as an exception to this general_rule in the case of a false_or_fraudulent_return with the intent to evade tax the tax may be assessed at any time sec_6501 we have held that petitioner committed fraud accordingly the period of limitations on assessment of petitioners’ and taxes is lifted with respect to both petitioners see 105_tc_370 to reflect the foregoing decision will be entered for respondent


tcmemo_2007_334 united_states tax_court michael l medkiff petitioner v commissioner of internal revenue respondent docket no filed date michael l medkiff pro_se jonathan h sloat for respondent memorandum opinion marvel judge this matter is before the court on respondent’s motion for entry of decision as supplemented under rule 1all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code as amended background petitioner resided in los angeles california when his petition was filed during and apparently in as well petitioner owned a 90-percent interest in great american poolcare llc great american great american filed a form_1065 u s return of partnership income for which reported a loss of dollar_figure great american attached to it sec_2002 return a form_4562 depreciation and amortization that reported a tentative sec_179 deduction of dollar_figure however because of the applicable business income limitation the deduction was not claimed on great american’ sec_2002 return or utilized in the calculation of great american’ sec_2002 loss instead great american carried over its tentative sec_179 deduction to sometime before date respondent examined petitioner’ sec_2002 and returns including petitioner’s distributive_share of great american’ sec_2002 net_loss on 2respondent ultimately conceded the audit adjustments to great american’s return consequently the record does not include the details of great american’s return for 3under sec_179 the amount allowed as a deduction is limited to the taxpayer’s aggregate taxable_income derived from the active_conduct_of_a_trade_or_business since great american reported a loss it could not claim the deduction under sec_179 sec_179 allows a taxpayer to carry over an unused deduction to future years in which the taxpayer reports taxable business income date respondent issued to petitioner a notice_of_deficiency that among other things adjusted petitioner’s distributive_share of great american’s net_loss for on date petitioner’s petition for a redetermination of deficiencies for and was filed petitioner alleged that respondent improperly denied auto truck amortization and bad_debt expenses claimed for and all other expenses claimed in the petition did not raise great american’ sec_2002 tentative sec_179 deduction that great american had carried over to on date respondent’s answer was filed this case was calendared for trial on date in los angeles california on date counsel for respondent appeared at the calendar call announced that the parties had reached a settlement and lodged a copy of a fully executed stipulation of agreed issues stipulation neither petitioner nor a representative for petitioner appeared at the calendar call as pertinent to the issue before us the stipulation states as follows the parties agree that the adjustments set forth in the notice_of_deficiency are settled as follows sch e inc loss-partnership s-corp adjustment of dollar_figure for the year - petitioner concedes dollar_figure respondent concedes dollar_figure sch e inc loss-partnership s-corp adjustment of dollar_figure for the year - respondent concedes in full self-employment_tax and se agi adjustments for the and years - these are computational adjustments and will be imposed on the adjustments to sch e inc loss-partnership s-corp the stipulation also states that there are no additional issues for trial the stipulation is signed by both petitioner and counsel for respondent when we received the stipulation we directed the parties to submit a stipulated decision to the court by date on date respondent mailed to petitioner a decision document reflecting the deficiency and penalty that respondent maintains results from the stipulation on date petitioner’s power_of_attorney jackson behar informed respondent for the first time that petitioner wanted to utilize great american’ sec_2002 tentative sec_179 deduction in calculating petitioner’ sec_2002 deficiency 4petitioner conceded the tax imposed on qualified_plans for and the accuracy-related_penalty under sec_6662 neither of which affect our decision in this case 5respondent noted that on date the holder of petitioner’s power_of_attorney jackson behar stated that petitioner claimed not to have signed anything however respondent was not able to contact petitioner to confirm such claim and petitioner has not raised the issue before the court on date respondent filed the motion for entry of decision we ordered petitioner to file a response on or before date to date petitioner has not submitted any response to the court on or about date petitioner mailed to respondent a document titled limited opposition to motion to confirm decision declaration of jackson behar in support thereof limited opposition but he did not file the limited opposition with this court on date respondent filed a supplement to his motion for entry of decision and included petitioner’s limited opposition as an exhibit in his limited opposition petitioner objects to respondent’s failure to include great american’s tentative sec_179 expense deduction in calculating great american’ sec_2002 profit loss and asserts that respondent’s failure adversely affects the calculation of petitioner’s income_tax deficiency for however petitioner does not dispute that he entered into the stipulation or that the stipulation reflects the settlement reached by the parties neither party has requested an evidentiary hearing on respondent’s motion and we conclude that a hearing is not necessary to decide respondent’s motion 6the limited opposition was filed in the names of both petitioner and don ticinovich another partner of great american but only lists petitioner’s docket number discussion a controversy before this court may be settled by agreement of the parties 108_tc_320 affd without published opinion 208_f3d_205 3d cir a settlement is a contract and general principles of contract law apply in interpreting the settlement id pincite citing 52_tc_420 supplemented by 53_tc_275 a settlement may be reflected in a formal written_agreement or more informally such as in an offer and acceptance made by an exchange of letters id citing lamborn v commissioner t c memo written settlement agreements are enforced as binding agreements id citing haiduk v commissioner t c memo ordinarily once a settlement has been reached it cannot be repudiated by either party id however we may relieve a party of an otherwise binding settlement agreement if the party can show a lack of formal consent fraud mutual mistake or other similar ground id pincite revell v commissioner tcmemo_2007_37 see also 90_tc_315 both parties signed the stipulation in this case creating an enforceable binding settlement agreement between them counsel for respondent notified the court on the day of trial that a settlement had been reached between the parties and he lodged the stipulation on behalf of both parties based on the parties’ representation that a settlement of all outstanding issues had been reached we canceled the trial and set a deadline for the submission of a signed decision document petitioner did not file a response to respondent’s motion with this court on that ground alone we could conclude that petitioner has failed to demonstrate any proper basis to relieve him of the consequences of the stipulation however petitioner belatedly submitted to respondent a document described as a limited opposition and that document has been furnished to the court by respondent for the sake of clarity and completeness we address it here in petitioner’s limited opposition petitioner argues only that he believed the stipulation included the sec_179 deduction however petitioner fails to indicate whether he made any attempt to verify the relevant calculation or to ascertain how great american’ sec_2002 sec_179 deduction was actually utilized by great american at best petitioner’s response outlines an oversight and at worst petitioner’s response suggests a decision not to verify timely the correctness of respondent’s calculation under either scenario petitioner made a mistake and it appears that the mistake was unilateral a unilateral mistake is an insufficient ground for disregarding a stipulation revell v commissioner supra see also dorchester indus inc v commissioner supra pincite stamm intl corp v commissioner supra pincite petitioner did not raise any issue regarding great american’ sec_2002 tentative sec_179 deduction in his petition and he apparently did not raise it during settlement negotiations petitioner asserted that he was entitled to the benefit of the tentative sec_179 deduction only after the stipulation had already been executed and lodged with this court and after respondent had prepared a decision document in accordance with the stipulation petitioner simply waited too long to raise an issue regarding great american’ sec_2002 tentative sec_179 deduction and its effect if any on the calculation of great american’ sec_2002 net profit loss petitioner has failed to demonstrate any proper basis for relieving him of the stipulation petitioner has not shown that there was any lack of formal consent fraud mutual mistake or other similar ground for disregarding the stipulation see 7the stipulation contains a concession by respondent that petitioner does not address but should in the stipulation respondent concedes in full the sch e inc loss-partnership s- corp adjustment of dollar_figure for the year the record does not disclose whether that adjustment involves great american but in all likelihood it does great american elected to carry over its tentative sec_179 deduction to petitioner does not trace the use of the sec_179 deduction by great american and does not explain how the deduction was handled on great american’s return dorchester indus inc v commissioner t c pincite consequently we shall grant respondent’s motion as supplemented and enter a decision consistent with the settlement reached between the parties to reflect the foregoing an appropriate order and decision will be entered


t c summary opinion united_states tax_court frank franklin petitioner v commissioner of internal revenue respondent docket no 15383-99s filed date frank franklin pro_se matthew a mendizabal for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 in effect at the time the petition was filed ' the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency of dollar_figure in petitioner's federal_income_tax for and an accuracy-related_penalty under sec_6662 of dollar_figure at trial respondent conceded an addition_to_tax under sec_6651 following concessions by petitioner ’ the issues remaining for decision are whether petitioner is entitled to trade_or_business expense deductions under sec_162 in excess of amounts allowed by respondent whether dollar_figure of a dollar_figure distribution received by petitioner from metropolitan life_insurance co during constituted gross_income and whether petitioner is liable for the accuracy-related_penalty under sec_6662 at trial petitioner conceded unreported income amounts of dollar_figure and dollar_figure consisting respectively of a state_income_tax refund and unemployment_compensation benefits the internal_revenue_service restructuring reform act of publaw_105_206 sec 112_stat_726 added sec_7491 which under certain circumstances places the burden_of_proof on the secretary with respect to any factual issue relevant to a taxpayer's liability for taxes in court proceedings arising in connection with examinations commencing after date respondent stated in the pretrial memorandum that the audit of petitioner's joint income_tax return for commenced with a letter dated date addressed to petitioner and his wife scheduling an appointment with them with respect to the audit of their return an appointment that neither petitioner nor his spouse honored thereafter however petitioner's spouse met with a representative for respondent and presented documentation that respondent accepted as substantiation for the expenses described hereafter in the opinion the burden_of_proof therefore has not shifted to respondent under sec_7491 since the examination commenced prior to date nor has continued some of the facts were stipulated those facts and the accompanying exhibits are so found and are incorporated herein by reference petitioner's legal residence at the time the petition was filed was taft california petitioner was engaged in a loan brokerage business wherein he arranged mortgage loan refinancing between customers and various lending institutions he conducted this activity for approximately years petitioner received commissions for his services based on varying percentages of the amount of the loans involved at the time of trial petitioner was no longer engaged in this activity petitioner and his wife freddie t franklin filed a joint federal_income_tax return for the income and expenses related to petitioner's loan brokerage business were reported on a schedule c profit or loss from business for petitioner and his spouse reported on schedule c gross_income of dollar_figure expenses of dollar_figure and a net_loss of dollar_figure in the notice_of_deficiency respondent adjusted some of the expenses as follows continued petitioner contended otherwise claimed amount amount expense on return allowed disallowed outside services s big_number s big_number dollar_figure appraisal fees big_number big_number telephone big_number big_number postage rent big_number big_number car truck expenses big_number big_number big_number totals dollar_figure dollar_figure dollar_figure no adjustments were made as to the reported gross_income or the other schedule c expenses the adjustments shown above were disallowed for lack of substantiation ’ sec_162 allows a deduction for the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business an expense must be ordinary and necessary within the meaning of sec_162 308_us_488 a taxpayer is required to maintain records to establish the amount of income and deductions claimed on a return sec_6001 sec_1_6001-1 income_tax regs petitioner did not participate in the audit process due to his incarceration for a criminal infraction associated with his loan brokerage business freddie t franklin petitioner's wife presented substantiating information to respondent during the audit process that resulted in the expenses allowed shown above prior to issuance of the notice_of_deficiency mrs franklin applied for and was administratively granted relief from joint liability for the tax_year presumably under sec_6015 none of the documentation surrounding mrs franklin's relief was offered into evidence and petitioner raised no objection in this case toward the granting of relief to his spouse respondent did not issue a notice_of_deficiency to mrs franklin at trial petitioner presented no documentary_evidence to support his claim for deductions in excess of the amounts allowed by respondent petitioner argued he had records to substantiate amounts that would exceed those allowed by respondent however his records were scattered in several places and with sufficient time he could produce such records that would establish his entitlement to additional deductions the court notes that trial of this case was continued once because of petitioner's incarceration however he had been released from incarceration approximately months prior to trial of this case the court is not convinced that petitioner did not have sufficient time to prepare his case moreover as noted earlier petitioner's wife presented their business records to respondent in the audit process and based on the documentation she presented respondent allowed the expenses shown above there are circumstances however where the court is allowed to estimate the amount of an allowable deduction under what has been referred to as the cohan_rule 39_f2d_540 2d cir to apply that rule the court must find that the taxpayer is entitled to a deduction but is unable to establish the amount of the deduction on this record petitioner failed to present any evidence that would satisfy the court that the expenses he incurred were in excess of the amounts allowed by respondent moreover travel meals and entertainment_expenses as well as expenses relating to listed properties are subject_to strict substantiation requirements under sec_274 and this court is precluded from applying the cohan_rule to such expenses some of the expenses at issue in this case are subject_to the sec_274 restriction on this record the court holds that petitioner is not entitled to deductions for his schedule c expenses in amounts exceeding those allowed by respondent respondent therefore 1s sustained on this issue the second issue relates to respondent's determination that petitioner failed to include in gross_income on his return dollar_figure in payments or distributions petitioner received from metropolitan life_insurance co respondent offered into evidence an information returns master_file transcript with respect to petitioner for that transcript identifies information returns filed by payors of payments or distributions to taxpayers during a taxable_year respondent's transcript lists an information_return by metropolitan life_insurance co of new york ny and the issuance to petitioner of an irs form 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc reflecting a gross distribution to petitioner during of dollar_figure of which dollar_figure was a taxable_amount and from which dollar_figure was withheld in taxes the transcript does not indicate the type of plan involved petitioner did not include the dollar_figure in gross_income on his income_tax return at trial petitioner acknowledged receiving moneys from metropolitan life_insurance co and testified that he had a life_insurance_policy with that insurer petitioner contends the distribution he received was a policy loan and therefore was not gross_income petitioner presented no documentary_evidence to establish that he had received such a loan petitioner agreed that loan proceeds from an insurance_policy generally do not constitute gross_income yet was unable to answer why his insurance_company considered dollar_figure of the distribution as a taxable_amount the court concludes that petitioner has not established that the proceeds he received from metropolitan life_insurance co during were the proceeds of a loan or that such distributions did not constitute gross_income respondent therefore is sustained on this issue in the notice_of_deficiency respondent determined that petitioner was liable for the accuracy-related_penalty under sec_6662 for negligence or intentional disregard of rules or regulations with respect to the following adjustments state_income_tax refund dollar_figure unemployment_compensation form 1099-r metropolitan life ins co big_number tax withheld by metropolitan life ins co under sec_6662 there shall be added to the tax an accuracy-related_penalty of percent of the portion of any underpayment to which sec_6662 is applicable sec_6662 provides that sec_6662 shall apply to any underpayment attributable to negligence or disregard of rules or regulations negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws and the term disregard includes any careless reckless or intentional disregard of rules or regulations sec_6662 negligence also includes any failure by the taxpayer to keep adeguate books_and_records or to substantiate items properly see sec_1_6662-3 income_tax regs however under sec_6664 the penalty is not applicable if there was reasonable_cause for the underpayment and the taxpayer acted in good_faith with respect thereto with respect to the two unreported income items the state_income_tax refund and the unemployment_compensation benefits petitioner readily admitted at trial that he knew those two items constituted income and offered no explanation why these income payments were not reported on his return respondent is even if sec_7491 were applicable in this case and the burden_of_proof would be on respondent under 116_tc_438 with respect to penalties the burden_of_proof is on the taxpayer under sec_7491 with respect to reasonable_cause substantial_authority or similar provisions sustained on the sec_6662 penalty with respect to these two items respondent did not determine that the sec_6662 a penalty was applicable to petitioner's schedule c disallowed expenses however as noted above respondent determined that the penalty was applicable to the payments petitioner received from metropolitan life_insurance co with respect to this adjustment the court notes that the payor metropolitan life_insurance co withheld dollar_figure in taxes on the taxable_portion of the distribution on petitioner's income_tax return on page of form_1040 line federal_income_tax withheld from forms w-2 and petitioner claimed a credit of dollar_figure for prepaid taxes however on the information returns master_file transcript that respondent offered into evidence the transcript reveals that petitioner's prepayments of tax through withholdings totaled dollar_figure the difference between the transcript amount and the amount petitioner claimed as a prepayment credit on his return is dollar_figure since both the tax_return and the transcript used rounded numbers it is evident to the court that while petitioner and his wife failed to report the metropolitan life_insurance co income they likewise failed to claim as a credit the taxes that had been withheld by metropolitan life_insurance co on the distributions made to petitioner therefore the court is not convinced that petitioner negligently or -- - intentionally disregarded rules or regulations in failing to report the dollar_figure in metropolitan life_insurance co payments moreover there was no underpayment_of_tax with respect to this item because the tax thereon was withheld at the source and presumably remitted by the payor to respondent sec_6664 the court therefore sustains petitioner on the sec_6662 a penalty with respect to the dollar_figure income item reviewed and adopted as the report of the small_tax_case division decision will be entered under rule