tcmemo_2013_32 united_states tax_court george schussel transferee petitioner v commissioner of internal revenue respondent docket no filed date francis j dimento for petitioner carina j campobasso for respondent memorandum findings_of_fact and opinion cohen judge respondent determined that petitioner is liable as a transferee to the extent of dollar_figure dollar_figure and dollar_figure for and respectively for the federal_income_tax liabilities and fraud penalties assessed against driftwood massachusetts business_trust formerly known as digital consulting inc dci or corporation the issues for decision are whether he is so liable and if so to what extent whether certain funds transferred to him were payment for his intellectual_property and not income of dci and whether he is entitled to credits for retransfers to dci a statute_of_limitations defense previously asserted by petitioner has been deemed abandoned because of his failure to address it in his brief 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 findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner resided in florida when he filed the petition our findings_of_fact include only a summary of those material to the transferee_liability issues in this case additional details appear in the opinion of the court_of_appeals that affirmed petitioner’s conviction for tax_evasion and conspiracy to defraud the united_states see 291_fedappx_336 1st cir those details however need not be repeated here our findings simply explain respondent’s determination and dci’s activities as background for petitioner’s attempt to recharacterize the transfers from dci to the dcil bermuda account as payments for petitioner’s intellectual_property the facts found are also those relevant to petitioner’s claims that he retransferred funds to dci and is entitled to credit for those retransfers against his liability petitioner incorporated dci in as a massachusetts for profit corporation ronald gomes joined dci in during and petitioner owned of dci and gomes owned diane reed was hired as dci’s accountant in and later was promoted to be dci’s controller dci conducted trade shows and educational seminars for software companies and other corporations dci earned revenue from three sources attendee sales which were fees paid_by individuals to attend conferences and events put on by dci exhibit sales also called vendor sales which were fees paid_by companies to exhibit their products and services at dci-sponsored conferences and user group accounts which were accounts set up for deposits of fees made by attendees of events and conferences run by dci for other companies such as sybase microsoft or ibm sponsoring companies for each user group event there was a separate contract between dci and the sponsoring company each contract provided that profit would be split between the sponsoring company and dci and did not provide for profits to be distributed to petitioner dci staff coordinated the events prepared brochures made hotel and travel arrangements and kept track of the participants sometimes petitioner contacted speakers but other speakers were contacted by dci staff the revenue from the events was deposited in accounts referred to as user group accounts which used dci’s andover massachusetts address and dci’s federal tax identification_number dci paid the expenses of the events from either the user group accounts or from dci’s general account petitioner is married to sandra schussel he is the father of stacey griffin and another daughter and the father-in-law of michael griffin in date petitioner his wife and stacey griffin established an account at fidelity investments in the name of digital consulting international petitioner also maintained other accounts with fidelity investments the various accounts will be referred to in this opinion as the fidelity accounts without differentiating the specific name on each account because petitioner used the funds in all of the accounts as his personal funds in date petitioner his wife and stacy griffin incorporated digital consulting international limited dcil in bermuda the same month they established an account at the bank of bermuda in the name of dcil dcil was a shell company that never conducted any business and never filed any federal_income_tax returns starting in petitioner caused the following amounts to be transferred to the dcil bermuda bank account year total dollar_figure big_number big_number big_number big_number big_number big_number big_number most of the funds were thereafter transferred to petitioner’s fidelity accounts and used by petitioner as his own the funds so transferred in included dollar_figure of dollar_figure reported as salary on petitioner’s form_1040 u s individual_income_tax_return for otherwise the funds transferred to bermuda were not reported on dci’s income_tax returns or on petitioner’s individual income_tax returns the amounts transferred from dci to the bermuda dcil account included checks from user group accounts made out to dci or dcil or checks from third parties made out to dci the amounts so transferred were determined to be the amounts not needed for dci’s expenses they were not based on the value of any services or intellectual_property provided by petitioner in petitioner was interested in selling dci in order to do so he wanted dci’s income to reflect the amounts that had previously been transferred to the bermuda account and had not been recorded on dci’s books or reported on its federal_income_tax returns as a result petitioner discontinued the practice of transferring dci receipts to the dcil bermuda account from through dci was a c_corporation and filed forms u s_corporation income_tax return the transfer of dci receipts to bermuda was not discovered during audits of dci’s returns for through and however in early date while auditing dci’s return for a revenue_agent began questioning checks payable to dci deposited in dcil’s account petitioner prepared a bogus contract between dci and dcil allegedly for a term of two years beginning date to be presented to the revenue_agent by the lawyer he had hired to represent dci in the audit petitioner picked the dates of the contract to coincide with termination of the practice of sending money to bermuda which was supposed to stop on date while he was preparing the contract he looked out the window of his home and observed his gardener mowing the lawn petitioner signed the name of his gardener as the managing director executing the contract on behalf of dcil petitioner gomes reed and michael griffin devised a scheme referred to as project phoenix to conceal dci’s true income from the internal_revenue_service irs this scheme involved discarding copies of checks and deleting information from dci’s computer database however the revised computer records were not provided to the irs on date petitioner gomes and reed were indicted on tax_evasion charges gomes and reed pleaded guilty petitioner was tried and on date he was convicted of two counts of tax_evasion under sec_7201 with respect to his individual return and dci’s corporate return he was also found guilty of conspiracy to defraud the united_states he was sentenced to five years in prison and completed his sentence in date beginning with tax_year dci elected s_corporation status in petitioner converted dci to a massachusetts business_trust in the trust’s name was changed to driftwood massachusetts business_trust driftwood driftwood filed federal_income_tax returns as an s_corporation from through dci ceased operations in and became insolvent as a result of the criminal investigation of petitioner the last gross_receipts reported by dci or driftwood were dollar_figure for the dci and driftwood returns reported loans from petitioner totaling dollar_figure from through and deducted legal and consulting expenses that related to defense of the criminal proceedings against petitioner the amounts deducted from through totaled dollar_figure payments to petitioner’s two daughters for their assistance in case preparation processing payments to the government and subsequent state investigations of petitioner’s state tax_liability were deducted on the corporation’s tax returns as consulting expenses with the resulting losses claimed by petitioner as the owner of the s_corporation payments to a clemency attorney after petitioner’s conviction were also claimed as corporate legal fees for on date respondent issued a notice_of_deficiency for dci’s and tax years dci did not contest the notice and on date the following amounts were assessed against dci tax_fraud penalty total dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure because of dci’s insolvency efforts to collect the assessed liabilities from its assets would be futile in the notice of transferee_liability respondent determined that the value of property transferred to petitioner was as follows value of property dollar_figure dollar_figure dollar_figure transferred to you the above named transferee is liable for the lesser_of the value of the property transferred plus interest as provided by law or the balance of the liability plus accrued interest accordingly the transferee’s liability for the and assessed liability of the transferor is limited to the above stated_value of property transferred to him for the three years the value was determined to be the amounts transferred from the bermuda dcil account back to petitioner’s fidelity accounts opinion sec_6901 provides that the liability at law or in equity of a transferee of property shall be assessed paid and collected in the same manner and subject_to the same provisions and limitations as in the case of the taxes with respect to which the liabilities were incurred sec_6901 does not independently impose tax_liability upon a transferee but provides a procedure through which the irs may collect unpaid taxes owed by the transferor of the assets from a transferee if an independent basis exists under applicable state law or state equity principles for holding the transferee liable for the transferor’s debts 357_us_39 100_tc_180 thus state law determines the elements of liability and sec_6901 provides the remedy or procedure to be employed by the commissioner as the means of enforcing that liability 305_f2d_664 2d cir aff’g 35_tc_1148 the irs bears the burden of proving that the transferee is liable as a transferee of property of a taxpayer but does not have the burden of proving that the taxpayer was liable for the tax sec_6902 rule d the existence and extent of transferee_liability are determined according to the law of the state where the transfer occurred--in this case massachusetts before date the applicable law was the massachusetts uniform fraudulent conveyance law mufcl mass gen laws ch 109a repealed on date massachusetts enacted the uniform fraudulent transfer act mufta striking out the mufcl in its entirety uniform fraudulent transfer act mass acts mufta was made effective date id although the transfers in issue from dci to dcil occurred before the effective date of mufta some of the transfers from dcil to the fidelity account occurred after the effective date under either law transferee_liability may result from actual fraud the mufcl provided for liability where either actual fraud or constructive fraud is present mass gen laws ch 109a sec_4 - repealed specifically with respect to actual fraud mufcl sec provided that a debtor’s conveyance made with actual intent to hinder delay or defraud either present or future creditors is fraudulent as to both present and future creditors under mufta transferee_liability arises where there is either actual or constructive fraud mass ann laws ch 109a sec_4 - lexisnexis with respect to actual fraud mufta sec_5 provides that a transfer made by a debtor is fraudulent as to a creditor whether the creditor’s claim arose before or after the transfer was made if the debtor made the transfer with actual intent to hinder delay or defraud any creditor of the debtor petitioner does not give us any reason to doubt that the transfers from dci to dcil to avoid tax on dci’s income and to enable transfers of unreported income to petitioner’s fidelity accounts were fraudulent as to respondent as a creditor the evidence of fraud is compelling the evidence shows transfers of funds to avoid payment of federal_income_tax concealment of income fabrication of records false representations to irs personnel and other indicia of actual fraud thus we need not discuss principles of constructive fraud petitioner does not argue that respondent’s proof is lacking as to any element of transferee_liability under massachusetts law and we conclude that respondent’s burden_of_proof as to liability has been satisfied petitioner asserts that his liability is limited to dollar_figure plus interest as provided by law which is the amount respondent determined to be dividend income in a separate audit in relation to petitioner’s individual income_tax liabilities for the years in issue alternatively petitioner agrees that his maximum liability is dollar_figure as determined in the notice of transferee_liability but disagrees with his interest liability the dividends determination of petitioner’s individual tax_liability in a separate proceeding is not material here the stipulated evidence in this case establishes the larger amounts transferred to petitioner’s fidelity accounts during the three years in issue the real difference between the parties however relates to the interest for which petitioner is liable as a transferee petitioner argues that he is liable for interest under massachusetts law only from the time of the notice of liability he cites only massachusetts law relating to prejudgment_interest in tort cases respondent argues that under applicable federal_law petitioner is liable for the interest accruing on dci’s liabilities because fraudulently transferred assets were in his hands before dci’s liabilities for each year accrued on date and moreover the value of the fraudulently transferred assets petitioner received each year exceeded the tax and penalty owed by dci for and as of march of the following year thus according to respondent sec_6901 applies and interest on dci’s deficiencies runs from the date the tax was due until paid and sec_6601 provides the same period for interest on the fraud penalties due from dci see 37_tc_945 35_tc_393 butler v commissioner tcmemo_2002_314 respondent concedes in his reply brief that the notice of liability would have been clearer if it had omitted in the statement of dci’s assessed liabilities the amount of interest that respondent assessed as a routine matter at the same time he assessed the tax and penalties however the inclusion of this extraneous information does not invalidate the notice or prohibit respondent from taking the position fully supported by the law and not dependent on any new facts causing surprise to petitioner that interest runs on the deficiencies from the due dates of dci’s returns because the amounts transferred to petitioner even under petitioner’s own reckoning exceed the amount of assessed tax and penalties in other words respondent is not claiming that petitioner is liable for all of the interest that has accrued on dci’s assessed deficiencies and penalties the interest for which petitioner is liable is separate and is accruing on the transferee liability determined in the notice that interest is the amount due under federal_law and accrues from the time dci’s payments were due see lowy v commissioner t c pincite petitioner attempts to distinguish lowy and butler by arguing that the values of the transferred assets in those cases exceeded the transferors’ liabilities but that is the same situation as exists here when the interest assessed against dci is disregarded we agree with respondent’s arguments that interest on the deficiencies and penalties runs against petitioner as of the time that dci’s returns were due nature of the diverted receipts petitioner next argues that the funds transferred to him from user accounts were payments for his intellectual_property and not income of dci respondent argues that this explanation is not credible because petitioner was not paid for his intellectual_property after when according to petitioner the only change in dci’s operation was that the income was retained by dci during the earlier years dci received only reimbursement for expenses of the events involved in the user accounts although dci employees performed organizational promotional operational and accounting services in relation to those events petitioner was paid a substantial salary from dci including dollar_figure in the argument that all profit from the user group events was additional compensation to petitioner is not reasonable or credible petitioner asserts that forming dci as a c_corporation was a mistake because tax at the corporate level could have been avoided if s_corporation status had been elected earlier he testified w e’d gotten into this whole mess any way because it was like well why should i be paying double taxes we didn’t want to pay double taxes why should you have basically a family business and you are paying double taxes if his present contention is correct there would have been no double_taxation issue because the profits earned on dci’s operations would have been deducted as compensation to him petitioner argues in his brief that reed confirmed that the diverted funds were payments for petitioner’s intellectual_property reed’s testimony to that effect was only in response to leading questions from petitioner’s counsel she also testified that from her standpoint petitioner and dci were the same she followed his instructions about transferring funds to bermuda and knew that the funds were not being reported on dci’s tax returns the scheme by which dci gross_receipts were diverted to bermuda was terminated so that prospective purchasers of dci’s business could be shown dci’s true earnings all of these explanations and all contemporaneous evidence concerning dci’s operations are inconsistent with the current claim that the funds were not dci’s income in several other respects we believe that petitioner’s testimony is improbable and unreliable he claims for example that he had no clue that his attorney was going to give the bogus contract between dci and dcil to the irs he claims naivete about the tax reporting of dci and the audit of dci asserting that reed and the accountants were responsible for it but this scenario is unconvincing in view of his intelligence and education his concern with double_taxation and the deliberate and omitted evasion of personal income_tax on millions of dollars of income if the transfers from dci’s user accounts were for bona_fide corporate expenses they would have been deductible to the corporation and there would not have been a concern about double_taxation or about concealing dci’s unreported income because the amounts transferred were taxable to petitioner in either event and he has been punished for failing to report the income on his personal tax returns he sees no downside in attempting to rewrite history the claim that petitioner was receiving payments for his intellectual_property is improbable and belated and we do not accept it nature of loans to dci or driftwood finally petitioner claims that his liabilities should be reduced by the amounts of certain transfers back to dci accounts from through that were originally recorded as loans to dci he asserts that the amounts used to pay attorney’s fees and consulting expenses were properly regarded as expenses of the corporation because defending the prosecution defended the business of dci he testified that after dci assets were sold he loaned personal funds to the corporation to pay his legal bills because he was advised by his criminal defense attorney his counsel of record in this case that the legal bills were properly chargeable to and deducted by the s_corporation as legal expenses petitioner has not however presented any invoices or other evidence of a proper apportionment of fees for his personal defense defense of the count for evasion of corporate taxes or work on determining civil tax_liabilities he has cited neither evidence that the corporation was responsible for the legal and consulting fees nor authority for the claimed credits to the extent that there is testimony about the services performed that testimony indicates that they were for petitioner personally the corporation was out of business when the loans were made and had nothing to gain or lose by defending or not defending the charges the corporation did not contest the civil tax_liabilities in response to the notice of deficiency that was the basis of the tax assessed for and the amounts loaned to the corporation were never available to pay its tax_liabilities we need not decide whether any of the claimed expenses would be properly apportioned between petitioner and the corporation or between deductible or nondeductible because we decide only whether loans by petitioner to the corporation should reduce the transferee liabilities in issue it appears that recording loans to a defunct entity paying expenses and deducting them on an s_corporation return and passing through the resulting losses to petitioner’s personal income_tax returns was simply a way to create the appearance that personal expenses were business_expenses in any event the amounts that petitioner transferred to dci accounts were recorded as loans not as repayment of income diverted from it in and and he is not entitled to disregard the contemporaneous characterization see 726_f2d_876 n 1st cir citing 319_us_436 in sum he contends that his liability as a transferee for corporate income taxes that he caused to be evaded should be reduced by the costs of defending himself from the consequences of his fraud we are not persuaded that law or reason justifies that result we have considered the other arguments of petitioner they are contrary to the evidence legally erroneous or irrelevant they do not affect our conclusions to reflect the foregoing decision will be entered for respondent


internal_revenue_service number info release date index number ---------------------- ------------------------------- --------------------------- department of the treasury washington dc person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 - genin-128848-05 date date this letter responds to your letter dated date requesting information on your letter stated that you are the owner of series ee and i savings bonds your dear - ---------------- the federal_income_tax consequences of the transfer of united_states series ee and i savings bonds to a revocable_trust letter also stated that you have created a revocable_living_trust of which you are the trustee and owner you intend to contribute the series ee and i bonds to the trust the information in this letter is based solely upon the facts and representations made in your letter we have not examined the savings bonds or the trust therefore while we are unable to issue a letter_ruling at this time we are furnishing the following general information in response to your request in general the owner of ee and i series bonds may defer reporting the accrued interest on the bonds on the owner’s federal_income_tax return until the earlier of when the bonds are cashed mature or are disposed of if the owner of savings bonds transfers them to a_trust and the transferor is considered the owner of the trust ie a grantor_trust for federal_income_tax purposes the transferor may continue to defer reporting interest accrued each year for example a transferor is treated as the owner of the trust if the transferor can revoke the trust the transferor must include the total interest accrued in his or her income when the bonds are cashed or finally mature whichever is earlier connection with the transfer of savings bonds into the trust or any other federal tax issues with exist regarding the trust we appreciate this opportunity to provide you with assistance please keep a copy of this letter for your records we have included a copy of pages of irs this letter implies no opinion concerning any other federal tax issues in publication federal_income_tax of individuals providing tax information on your u s savings bonds if you have further questions concerning any matter addressed in this letter please contact us at ----- ------------- not a toll free number sincerely audrey ellis senior counsel branch office of the associate chief_counsel passthroughs and special industries --------------------- encl -------------------------------------------- cc


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 4-plr-117072-99 date date beneficiary trustee trust agreement third amendment court city state county statute dear we received a letter dated date and subsequent correspondence from your authorized representative requesting rulings concerning the possible estate_tax consequences resulting from the proposed modifications to twelve trusts according to the facts submitted beneficiary is the current sole income_beneficiary of twelve trusts created prior to date this ruling_request addresses one of these trusts trust trust was fully funded at the time it was established and no additions have been made to trust under article i of trust all trust income is to be paid to beneficiary after beneficiary attains age on the death of beneficiary the trust corpus is to be held in further trust for the benefit of beneficiary’s issue trustee is currently acting as the trustee of all twelve trusts under article ii the powers of the trustee are at all times subject_to the continued direction and plr-117072-99 control of an investment committee under article iii a trustee may resign by giving written notice to all adult beneficiaries in such event a majority in interest of those to whom notice is given may designated a successor trustee any successor trustee must be a corporation doing business in county and authorized under the laws of state to execute trusts such successor trustee must also have been in existence not less than ten years and have a net_worth in excess of two million dollars the resigning trustee is to transfer to its successor the entire estate then remaining and the successor trustee shall assume all the obligations of the resigning trustee taxpayer represents that the investment committee no longer functions certain disputes have arisen between beneficiary and trustee regarding the management of trust in order to resolve these disputes trustee and beneficiary entered into the agreement with respect to the twelve trusts paragraph a of the agreement provides that at any time during the term of any trust upon the written request of the current income_beneficiary and the adult remainder beneficiary a new trustee designated by the current income_beneficiary and the adult remainder beneficiary is to be substituted as the trustee of the trust provided that any such new trustee is a corporation that has been or its parent company has been in existence at least ten years is a bank or trust company then doing business in city state and that is authorized under the laws of state to execute trusts has a net_worth including the net_worth of any parent company in excess of two hundred million dollars and is not related or subordinate to any beneficiary within the meaning of sec_672 of the internal_revenue_code upon any resignation by any existing trustee of a_trust or any removal thereof other than pursuant to the immediately preceding sentence a new trustee designated by the current income_beneficiary and the adult remainder beneficiary shall be substituted as the new trustee of such trust provided that such new trustee meets the requirements set forth in items and above paragraph a of the agreement provides that the current income_beneficiary shall have the right from time to time to have one or more investment managers or submanagers manage the investment of a portion of the assets the current income_beneficiary shall also have the right from time to time to transfer investment and management of certain assets from any submanager or investment manager then investing or managing such assets directly to another submanager or investment manager or to return such assets to the trustee for investment or management paragraph b provides that all assets managed invested or administered by the trustee shall be managed invested and administered in accordance with certain investment policies all assets managed invested or administered by an investment manager or submanager shall be managed invested and administered in accordance with certain investment guidelines the current income_beneficiary may from time to time propose modifications to the investment guidelines by written notice to the trustee plr-117072-99 and any investment manager or submanager each trustee investment manager or submanager shall have the right to approve such modification such approval not to be unreasonably withheld paragraph c provides that a submanager is an agent of the trustee that has been designated and selected by the current income_beneficiary and to which investment functions have been delegated pursuant to state statute the current income_beneficiary shall have the right to propose potential submanagers from time to time for approval by the trustee such approval not to be unreasonably withheld paragraph d provides that an investment manager is a third party fiduciary not an agent of the trustee that has been designated and selected by the current income_beneficiary and to which investment administration and fiduciary responsibilities for certain trust assets are transferred with the trustee merely remaining as custodian of such assets with no fiduciary duties except to the extent provided by the provisions of state statute any investment manager must meet the requirements to become a trustee that is an investment manager must be a corporation that has been or its parent company has been in existence at least ten years a bank or trust company then doing business in city state and that is authorized under the laws of state to execute trusts have a net_worth including the net_worth of any parent company in excess of two hundred million dollars and not be related or subordinate to any beneficiary within the meaning of sec_672 of the internal_revenue_code paragraph a of third amendment to agreement provides that notwithstanding any other provision of the agreement the trust instrument or applicable law to the contrary in exercising its rights and powers under paragraph sec_4 c and d of the agreement with respect to the selection removal and replacement of investment managers and submanagers the current income_beneficiary shall be deemed to be acting in the role of a fiduciary as to all beneficiaries of trust with respect to which any such rights or powers are exercised and shall be subject_to the uniform prudent investor act of state and each investment manager and submanager shall at all times be deemed to be a fiduciary of a_trust for which it administers assets shall be subject_to the uniform prudent investor act of state and shall not be a_related_or_subordinate_party to the current income_beneficiary as defined in sec_672 determined as if the current income_beneficiary was a grantor of the trust you represent that no additions of assets actual or constructive have been made to trust subsequent to date in addition no modifications or amendments other than the proposed modifications have been made to any of the trusts in addition all trusts were irrevocable as of the date of creation prior to date the agreement has been approved by court and you propose to have the third amendment approved by court you have requested the following rulings plr-117072-99 modification of trust in accordance with the agreement and the court order will not affect the exempt status of trust for generation-skipping_transfer_tax purposes the power to remove and replace the trustee and to institute investment guidelines and policies in accordance with the agreement and the court order will not cause inclusion of trust in the gross_estate of beneficiary issue sec_2601 provides that a tax is imposed on every generation-skipping_transfer under a of the tax_reform_act_of_1986 the act the tax generally applies to any generation-skipping_transfer made after date the date of enactment of the act however b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations provide that the gst tax shall not apply to any gst under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of any addition actual or constructive to the trust after date or out of income attributable to corpus so added a modification of a generation-skipping_trust that is otherwise exempt under the act and the regulations will generally result in a loss of its exempt or grandfathered status if the modification changes the quality value or timing of any powers beneficial_interest rights or expectancies originally provided for under the terms of the trust based on the facts presented and representations made we conclude that the proposed modifications to trust are administrative in nature and will not result in any change in the quality value or timing of any beneficial_interest in trust consequently trust will continue to be exempt from the gst tax therefore provided there are no additions constructive or otherwise to trust neither distributions from nor the termination of trust will be subject_to the gst tax under sec_2601 issue sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive sec_2041 provides that a general_power_of_appointment is a power that is exercisable in favor of the decedent the decedent’s creditors or the creditors of the decedent’s estate however a power to consume invade or appropriate property for the benefit of the decedent that is limited by an ascertainable_standard relating to plr-117072-99 the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment sec_20_2041-1 of the estate_tax regulations provides that a power in a decedent to remove or discharge a trustee and appoint himself may be a power_of_appointment for example if under the terms of a_trust instrument the trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself and the decedent has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself the decedent is considered as having a power_of_appointment revrul_95_58 1995_2_cb_191 revoking revrul_79_353 1979_2_cb_325 holds that a decedent-settlor’s reservation of an unqualified power to remove a trustee and appoint an individual or corporate successor trustee that is not related or subordinate to the decedent within the meaning of sec_672 is not considered a reservation of the trustee’s discretionary powers of distribution over the property transferred by the decedent-settlor to the trust for purposes of sec_2036 and sec_2038 sec_672 defines the term related_or_subordinate_party to mean any nonadverse_party who is the grantor’s spouse if living with the grantor or any one of the following the grantor’s father mother issue brother or sister an employee of the grantor a corporation or any employee of a corporation in which the stock holdings of the grantor and the trust are significant from the viewpoint of voting control a subordinate employee of a corporation in which the grantor is an executive in the present case the agreement gives beneficiary of trust the power to remove and replace the trustee to propose investment guidelines and policies and to recommend investment managers and submanagers the powers of the beneficiary the investment managers and the submanagers are exercisable in a fiduciary capacity any trustee investment manager or submanager may not be related or subordinate to any beneficiary of trust within the meaning of sec_672 further the trustee has no discretionary power with respect to distributions of trust income and corpus we conclude that beneficiary will not be treated as holding a general_power_of_appointment solely as a result of retaining the removal and replacement power see revrul_95_58 therefore the possession of the power will not cause trust to be included in beneficiary’s gross_estate except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under the cited provisions or any other provisions of the code this ruling is based on the facts and applicable law in effect on the date of this letter if there is a change in material fact or law local or federal before the transactions considered in the ruling take effect the ruling will have no force or effect if the taxpayer is in doubt whether there has been a change in material fact or law a request for reconsideration of this ruling should be submitted to plr-117072-99 this office 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 in accordance with a power_of_attorney on file with this office a copy of this ruling is being sent to your authorized representative sincerely assistant chief_counsel passthroughs and special industries by george masnik chief branch enclosure copy for sec_6110 purposes


cca_2019042914360852 id uilc number release date from sent monday date pm to cc bcc subject re equitable subrogation -sec coordination on the surface the requirements for equitable subrogation may appear to have been satisfied but the facts in your case are distinguishable from the facts in han which you cited and is often cited as it generally sets out the equitable subrogation requirements generally equitable subrogation is potentially at issue where a claimant with a lien junior to the ftl has satisfied the debt owed a lien interest that is senior to the ftl here the person has paid off the taxpayer’s tax_lien liabilities and now seeks not subrogation having paid off a lien senior to the ftl but rather a refund but the non-taxpayer ex-wife does not have a refund claim she should have made a request for discharge under sec_6325 that is the provision that allows people non-taxpayers who own property encumbered with a ftl to pay the amount of the lien as determined by the service then file a refund_suit under sec_7426 if they disagree with the amount required by the service that is the only remedy available to people in this situation this ex-wife is in a position very similar to lori williams in 514_us_527 the government lost in part because the court found that williams did not have a viable remedy so the court provided her one-a refund action sec_6324 and sec_7426 was enacted now people in that situation have a remedy but it is the exclusive remedy in response to the outcome in that case the statutory scheme set out in


number release date id office uilc cca_2009012608344141 ----------------------------- from ---------------- sent monday date am to --------------- cc subject fw question on set appeals cases ----- - when the request comes from the worker it is an income_tax matter to them b c seca is income_tax matter it is simultaneously an et issue to them if we say they are an ee and owe fica it is also an et issue to firm so it' sec_2 sides of same coin i think not ruling is the best view whether the ss-8 comes from worker or firm


internal_revenue_service number release date index number ---------------------------------------- -------------- ----------------------------- ---------------------------- department of the treasury washington dc person to contact ------------------------------- -------- ------------- ----------------------------------------------------- telephone number --------------------- refer reply to cc psi - plr-151740-03 date date ---------------- ----------------- ---------------------- --------------------------- legend x --------------------------------------------------- a ----------------------------------------------------- d1 d2 dear -------------------- its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code and sole shareholder represents that a intended that x elect to be an s_corporation effective d2 the minutes of combined meeting of stockholders and directors indicates this intent however x’s cpa did not file the form_2553 election by a small_business_corporation 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 sec_1362 provides that if -- a an election under sec_1362 is made for the information submitted states that x was incorporated on d1 a x’s president this letter responds to a letter dated date submitted on behalf of x by except as specifically set forth above no opinion is expressed concerning the this ruling is directed only to the taxpayer who requested it sec_6110 based solely on the facts and the representations submitted we conclude that x year has established reasonable_cause for failing to make a timely election to be an s_corporation effective d2 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 effective d2 along with a copy of this letter with the appropriate service_center within days from the date of this letter then such election will be treated as timely made for d2 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 provides that it may not be used or cited as precedent being forwarded to x's authorized representative enclosures j thomas hines chief branch associate chief_counsel passthroughs and special industries pursuant to a power_of_attorney on file with this office a copy of this letter is copy of this letter copy for sec_6110 purposes sincerely yours


internal_revenue_service number release date index no legend department of the treasury person to contact badge number telephone number refer reply to plr-113138-01 cc psi b5 date july taxpayer project a state b city c agency d agency e a b c d e f g h i j dear this letter responds to your letter of date and subsequently submitted correspondence taxpayer is requesting a ruling that the redemption of tax- exempt bonds at any time on or after the date on which project a is placed_in_service for purposes of sec_42 of the internal_revenue_code will not preclude a determination that project a was financed with the proceeds of tax-exempt_bonds under sec_42 taxpayer has made the following representations facts plr-113138-01 taxpayer a state b limited_liability corporation was formed for the purpose of acquiring rehabilitating owning and operating a multi-family rental housing development located in city c the project is known as project a and it contains a low-income dwelling units on b agency d issued tax-exempt_bonds in the amount of c bearing an interest rate at a maximum rate of d percent the bonds were issued to finance a mortgage loan to pay for a portion of the costs of rehabilitating project a whose aggregate basis will be e project a is expected to be placed_in_service by f the bonds will be repaid primarily from the proceeds of permanent financing provided by agency d in the approximate amount of g with an interest rate of h percent and agency e in the approximate amount of i with an interest rate of j percent fifty percent or more of the aggregate basis of each building in project a and the land on which each is located will be financed by the tax-exempt_bonds measured at the end of the first year of the building’s credit_period the tax-exempt_bonds will be redeemed on or after the date project a is placed_in_service further all of the tax- exempt bond proceeds will be expended on project a by the placed-in-service date law and analysis sec_42 provides a tax_credit for investment in low-income_housing buildings placed_in_service after date sec_42 provides that the amount of credit determined under sec_42 for any taxable_year with respect to any building shall not exceed the housing_credit_dollar_amount allocated to such building under sec_42 sec_42 provides that an allocation generally shall be taken into account under sec_42 only if it is made not later than the close of the calendar_year in which the building is placed_in_service sec_42 provides that the aggregate housing_credit_dollar_amount which a housing_credit_agency may allocate for any calendar_year is the portion of the state housing_credit ceiling allocated under sec_42 for such calendar_year to such agency sec_42 provides that sec_42 does not apply to any portion of the credit otherwise allowable under sec_42 which is attributable to eligible_basis financed by any obligation the interest on which is exempt from tax under sec_103 if - i such obligation is taken into account under sec_146 and ii principal payments on such financing are applied within a plr-113138-01 reasonable period to redeem obligations on the proceeds of which were used to provide such financing for purposes of sec_42 sec_42 provides that if percent or more of the aggregate basis of any building and the land on which the building is located is financed with such tax-exempt obligations sec_42 does not apply to any portion of the low-income_housing_credit allowable under sec_42 with respect to such building in the present case the taxpayer represents that percent or more of the aggregate basis of each building in project a and the land on which each building is located will be financed by tax-exempt_bonds measured at the end of the first year of the building’s credit_period the tax-exempt_bonds will be redeemed on or after the date project a is placed_in_service further all of the tax-exempt_bond proceeds will be expended on project a by the placed-in-service date accordingly based solely on the representations and relevant law as set forth above we conclude that the redemption of the tax-exempt_bonds at any time on or after the date when project a is placed_in_service under sec_42 will not in and of itself result in a determination that project a was not financed with tax-exempt_bonds under sec_42 no opinion is expressed or implied regarding the application of any other provisions of the code or income_tax regulations specifically we express no opinion on whether project a qualifies for the low-income_housing tax_credit under sec_42 the validity of costs included in the project’s eligible_basis or whether the 50-percent aggregate basis requirement in sec_42 is met under the power_of_attorney on file we are sending a copy of this letter_ruling to the taxpayer’s authorized representatives 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 harold e burghart assistant to the chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index nos washington dc person to contact telephone number reter reply to cc dom it a plr-113747-98 date oct w998 ein attn dear this is in reference to a form_1128 application to adopt change or retain a tax_year submitted on behalf of the above- named taxpayer requesting permission to change its accounting_period for federal_income_tax purposes from a fiscal_year ending october effective for the tax_year beginning november december be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations to a calendar_year ending december the taxpayer has requested that the form_1128 and ending the taxpayer’s form_1128 requesting a change in accounting information furnished indicates that the period to a tax_year ending december was due on or before march taxpayer intended to make the change in a proper manner however due to an error or misunderstanding the change was not correctly made the subsequent late filing of the application was not due to any lack of due diligence or prompt action on the part of the taxpayer sec_1_442-1 of the income_tax regulations provides that in order to secure the commissioner’s consent to a change in accounting_period the taxpayer must file an application on form_1128 with the commissioner on or before a the 15th day of the second calendar month following the close of the short_period or b the instant case on or before the due_date including extensions of the return of tax required for the short_period if revproc_92_13 c is applicable as in b sec_301_9100-3 of the regulations provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government the due_date for filing form_1128 will be approved only in unusual and compelling circumstances requests for relief filed more than days beyond requests for relief subject_to sec_301_9100-3 will based on the facts and information submitted and the representations made we have determined that the taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case and taxpayer’s late filed form_1128 requesting permission to change to a calendar tax_year is considered timely filed except as specifically addressed herein no the ruling contained in this letter is based upon facts and representations submitted by the taxpayer and is limited to the filing of form_1128 opinion is expressed regarding the tax treatment of the subject transaction under the provisions of any other sections of the code or regulations that may be applicable thereto this office has not verified any of the material submitted in support of the requested ruling verification of factual information representations and other data is within the examination jurisdiction of the taxpayer’s local district_director a copy of this letter_ruling and taxpayer’s form_1128 are being forwarded to the service_center where the taxpayer files its federal_income_tax returns with instructions that the form_1128 be considered timely filed and processed in accordance with established procedures under revproc_92_13 this ruling is directed only to the taxpayer that requested sec_6110 of the internal_revenue_code provides it that it may not be used or cited as precedent sincerely yours assistant chief_counsel income_tax and accounting by ipurn a lit irwin a leib deputy assistant chief_counsel enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court felton h hyche and lynn hyche petitioners v commissioner of internal revenue respondent docket no 5183-10s filed date felton h hyche and lynn hyche pro sese paulmikell a fabian for respondent summary opinion wherry judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined a federal_income_tax deficiency for petitioners’ tax_year of dollar_figure and a sec_6662 accuracy-related_penalty of dollar_figure after concessions by the parties the issues for decision are whether petitioners are entitled to certain deductions claimed on schedule a whether petitioners are entitled to certain deductions claimed on schedule c profit or loss from business and whether petitioners are liable for the sec_6662 accuracy-related_penalty 1unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure 2petitioners in the stipulation of settled issues incorporated herein by this reference concede that they received and failed to report dollar_figure of taxable interest_income and that they are not entitled to dollar_figure of charitable cash contribution deductions claimed on schedule a itemized_deductions respondent concedes that petitioners are entitled to deduct dollar_figure claimed on schedule a for points not reported on form_1098 mortgage interest statement 3respondent also determined petitioners should have included dollar_figure in state tax refunds received from the state of california franchise tax board ftb in gross_income the ftb issued a form 1099-g certain government payments showing receipt of this amount by petitioners petitioners did not include the state tax_refund in income but have not disputed receiving this amount or provided evidence that the amount is not taxable therefore we deem this issue conceded see rule b 87_tc_698 citing continued background some of the facts have been stipulated and the stipulations with the accompanying exhibits are incorporated herein by this reference at the time their petition was filed petitioners resided in california during the tax_year petitioner husband organized events aboard the queen mary rms inc queen mary a famous decommissioned cruise_ship now used as a hotel restaurant tourist attraction and meeting and convention center in long beach california he did this through two different companies for the first months of the tax_year he was an employee of the rms foundation rms inc the queen mary management company when rms dissolved early in date he began consulting for see touring productions inc see touring while mr hyche continued to organize events aboard the queen mary while working as a consultant for see touring it is unclear from the record whether he worked exclusively with the queen mary during this time continued rule a for the proposition that because petitioners have made no argument with respect to deductions claimed they are deemed to have conceded their nondeductibility aff’d 832_f2d_403 7th cir events constitute over of the queen mary’s business and bring in revenue of dollar_figure to dollar_figure million per year in mr hyche’s words a ship that was brought in almost years ago that people who have seen one time do not choose to want to come back and see it again and that’s why you produce events to bring people to rediscover the ship an example of an event planned in that mr hyche helped produce and bring to the queen mary in date was star trek the tour in order to create events mr hyche had to travel and use a cell phone he kept a calendar to document the places he went at the end of each week using the odometer on his car mr hyche would determine the mileage he had driven that week for work and write this on the calendar the documented mileage included miles driven from mr hyche’s home to various locations mr hyche provided this court with the calendar but did not identify which trips were from his home and which ones were from the queen mary or another location although he testified that he had provided this information to respondent orally all of mr hyche’s trips were day trips with the exception of an overnight trip to buffalo new york where he worked in collaboration with templeton’s landing a restaurant in buffalo and looked at a potential location for the star trek tour petitioners timely filed form_1040 u s individual_income_tax_return for their tax_year the form_1040 showed adjusted_gross_income of dollar_figure taxable_income of dollar_figure and total_tax owed of dollar_figure on schedule a petitioners reported inter alia unreimbursed employee_expenses of dollar_figure the dollar_figure comprised dollar_figure in cell phone expenses dollar_figure in mileage expenses and dollar_figure in travel_expenses on schedule c petitioners reported dollar_figure in gross_receipts or sales from consulting and deductions of dollar_figure for mileage expenses and dollar_figure for depreciation and sec_179 expenses leading to a loss of dollar_figure the court concludes from the record that the unreimbursed employee expense deductions claimed on schedule a related to mr hyche’s employment with rms for the first months of the tax_year the gross_income reported and deductions claimed on schedule c related to mr hyche’s work as a consultant for see touring for the last two months of the tax_year 4on form_2106 employee business_expenses petitioners reported that they arrived at dollar_figure by multiplying business miles driven in of big_number times the standard mileage rate of cents 5on form_8829 expenses for business use of your home petitioners reported that mr hyche drove big_number miles for business investment purposes in as big_number time sec_48 cents rounds to dollar_figure presumably this is how they arrived at the deduction for mileage expenses claimed on schedule c on form_4562 depreciation and amortization petitioners reported that mr hyche placed_in_service year office equipm which had an initial cost of dollar_figure they claimed a sec_179 expense deduction of dollar_figure respondent issued a notice_of_deficiency dated date for petitioners’ tax_year showing a deficiency in income_tax of dollar_figure and a sec_6662 accuracy-related_penalty of dollar_figure respondent inter alia disallowed all deductions claimed on schedule c and dollar_figure claimed on schedule a petitioners timely petitioned this court on date a trial was held on date in los angeles california discussion i burden_of_proof as a general_rule the commissioner’s determination of a taxpayer’s liability in the notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving that the determination is improper see rule a 290_us_111 pursuant to sec_7491 the burden_of_proof as to factual matters shifts to the commissioner in certain circumstances petitioners have neither alleged that sec_7491 applies nor established their compliance with the substantiation and recordkeeping requirements see sec_7491 and b petitioners therefore bear the burden_of_proof this case revolves around certain deductions claimed on schedules a and c of petitioners’ tax_return deductions are a matter of legislative grace and taxpayers bear the burden of proving entitlement to any claimed deduction rule a 503_us_79 taxpayers are required to identify each deduction and show that they have met all requirements as well as to keep books_or_records to substantiate all claimed deductions sec_6001 62_tc_834 sec_1_6001-1 income_tax regs the deductions in dispute here are allowable if at all under sec_162 which allows deductions for ordinary and necessary business_expenses a business_expense is ordinary for purposes of sec_162 if it is normal or customary within a particular trade business or industry and is necessary if it is appropriate and helpful for the development of the business see 320_us_467 308_us_488 the term trade_or_business as used in sec_162 includes the trade_or_business of being an employee 54_tc_374 ii whether petitioners are entitled to deductions claimed on schedule a after concessions the remaining issues relating to deductions claimed on schedule a are whether petitioners are entitled to deduct dollar_figure in unreimbursed employee_expenses specifically dollar_figure in cell phone expenses dollar_figure in mileage expenses and dollar_figure in travel_expenses all three claimed deductions are subject_to the strict substantiation requirements of sec_274 first we consider the claimed cell phone expense deduction mr hyche admitted that he did not have documentation for the cell phone because he has no documentation petitioners have failed to substantiate the claimed deduction and accordingly we sustain respondent’s disallowance of the dollar_figure in cell phone expenses this leaves dollar_figure in mileage expenses and dollar_figure in travel_expenses at most petitioners substantiated dollar_figure in mileage expenses and dollar_figure in travel_expenses for the reasons set forth below we hold the issue of whether sec_274 provides that no deduction shall be allowed for among other things traveling expenses entertainment_expenses gifts and expenses with respect to listed_property as defined in sec_280f and including passenger automobiles computer equipment and cellular telephones unless the taxpayer substantiates by adequate_records or by sufficient evidence corroborating the taxpayer’s own statement the amount of the expenditure or use the time and place of the expenditure or use or date and description of the gift the business_purpose of the expenditure or other item and in the case of entertainment or gifts the business relationship to the taxpayer of the recipients or persons entertained sec_274 7mr hyche credibly testified as to the business trip he took to buffalo new york and provided this court with a statement showing dollar_figure was paid for his airfare and dollar_figure for lodging this was the only evidence petitioners provided regarding the claimed dollar_figure in travel_expenses on form_2106 petitioners reported that mr hyche drove big_number miles and this is how they arrived at the claimed deduction of dollar_figure in addition to his calendar mr hyche also provided this court with a mileage log where he continued petitioners are entitled to the claimed deductions for mileage and travel_expenses is moot the deductions claimed on schedule a at issue here are what are commonly known as miscellaneous_itemized_deductions miscellaneous_itemized_deductions are subject_to a floor meaning taxpayers are entitled to a deduction only to the extent the total amount of claimed miscellaneous_itemized_deductions exceed sec_2 of adjusted_gross_income agi sec_67 alexander v commissioner tcmemo_1995_51 aff’d 72_f3d_938 1st cir petitioners reported agi of dollar_figure for the tax_year of which is dollar_figure in addition to claimed cell phone mileage and travel_expenses petitioners had one claimed miscellaneous itemized_deduction dollar_figure in tax preparation fees continued summarized the information on the calendar the mileage log shows big_number miles driven during the time mr hyche was an employee of rms the calendar shows less because a portion of it is missing on account of photocopying if the standard mileage rate is multiplied by big_number the result is dollar_figure this is the only documented evidence petitioners provided regarding the claimed dollar_figure in mileage expenses we note that we are not deciding whether the evidence petitioners provided was enough to meet the sec_274 heightened substantiation requirements we also note that employee_expenses are not deductible if an employee is entitled to reimbursement from his or her employer for expenditures related to his or her status as an employee 79_tc_1 petitioners did not provide respondent or this court with a copy of rms’ reimbursement policy which respondent allowed the maximum amount of mileage expenses petitioners substantiated was dollar_figure and the maximum amount of travel_expenses petitioners substantiated was dollar_figure therefore after adding in the dollar_figure of tax preparation fees at most petitioners are entitled to a total of dollar_figure in miscellaneous_itemized_deductions which is less than of their reported agi accordingly we deem the issue of whether petitioners are entitled to the claimed deductions for mileage and travel_expenses moot iii whether petitioners are entitled to deductions claimed on schedule c the issues relating to deductions claimed on schedule c are whether petitioners are entitled to deduct dollar_figure in claimed mileage expenses and whether petitioners are entitled to deduct dollar_figure in claimed sec_179 expenses both claimed deductions relate to mr hyche’s consulting work performed in november and date a mileage expenses petitioners deducted dollar_figure in mileage expenses on schedule c if properly substantiated transportation_expenses between places of business are deductible 8we acknowledge that computational adjustments made pursuant to this opinion will change petitioners’ agi however the adjustments will increase agi and consequently this does not change our conclusion but transportation to and from work is a nondeductible personal commuting expense see 326_us_465 439_f2d_296 9th cir aff’g 52_tc_964 sec_1_162-2 sec_1_262-1 income_tax regs pursuant to sec_274 and sec_280f mileage expense deductions are subject_to heightened substantiation requirements 80_tc_1165 see supra note the taxpayer must substantiate by adequate_records or sufficient evidence to corroborate the taxpayer’s own statement the amount of such expense the time and place of the travel and the business_purpose sec_274 to satisfy the adequate_records requirement of sec_274 a taxpayer must maintain records and documentary_evidence that in combination are sufficient to establish each element of an expenditure or use sec_1_274-5t and temporary income_tax regs fed reg date although a contemporaneous log is not required corroborative evidence required to support a taxpayer’s reconstruction of the elements of the expenditure or use must have a high degree of probative value to elevate such reconstruction to the level of credibility of a contemporaneous record sec_1_274-5t temporary income_tax regs supra mr hyche kept track of the miles he drove with a calendar on which he documented the miles driven weekly there are several problems with this first mr hyche admitted that he sometimes included commuting miles in the total second he did not document the purpose of each trip he took or the business relationship to the persons visited although he testified generally as to places he visited we have no doubt mr hyche used his car for business in november and december but we have no choice but to deny his deduction for mileage expenses we appreciate mr hyche’s truthfully testifying that he documented both commuting miles and business miles unfortunately we have no way to ascertain which of the documented miles were driven for business purposes and which for commuting generally the court may allow for the deduction of a claimed expense even where the taxpayer is unable to fully substantiate it provided the court has an evidentiary basis for doing so 39_f2d_540 2d cir 85_tc_731 in these instances the court is permitted to approximate the allowable expense bearing heavily if it so chooses against the taxpayer whose inexactitude is of his or her own making cohan v commissioner f 2d pincite however here we are not permitted to estimate mr hyche’s mileage because sec_274 supersedes the cohan_rule see sec_1_274-5t temporary income_tax regs fed reg date accordingly we must sustain respondent’s disallowance of petitioners’ claimed mileage expense deduction b sec_179 expenses sec_179 generally allows a taxpayer to elect to treat the cost of sec_179 property as a current_expense in the year the property is placed_in_service within certain dollar limitations see sec_179 the election must specify the items to which the election applies and the portion of the cost of each item which is to be taken into account under sec_179 see sec_179 sec_1 a and income_tax regs on form_4562 petitioners claimed a sec_179 deduction of dollar_figure for office equipment with a five-year life expectancy in the notice_of_deficiency respondent disallowed the entire amount on the grounds that petitioners did not establish the cost or other basis of the asset or that it was depreciable mr hyche did not testify about the claimed deduction at trial and other than form_1040 and the attached schedule c and form_4562 the record contains no evidence regarding the claimed sec_179 expense deduction we do not know in what the year office equipment was acquired how its useful_life was determined or what it was used for while petitioners reported that it had an initial cost of dollar_figure there is also no documentation in the record to support this accordingly we sustain respondent’s disallowance of the claimed sec_179 deduction see 71_tc_633 iv sec_6662 accuracy-related_penalty under sec_7491 respondent bears the burden of production with respect to petitioners’ liability for the sec_6662 penalty this means that respondent must come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty see 116_tc_438 sec_6662 imposes an accuracy-related_penalty of on any underpayment that is attributable to causes specified in subsection b respondent’s notice_of_deficiency states three causes justifying the imposition of the penalty_negligence a substantial_understatement_of_income_tax and a substantial_valuation_misstatement sec_6662 and and n egligence includes any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code sec_6662 under caselaw ‘negligence is a lack of due care or the failure to do what a reasonable and ordinarily prudent person would do under the circumstances ’ freytag v 9the court is perplexed as to the grounds if any for application of the sec_6662 penalty in this case because of a substantial_valuation_misstatement the matter is however moot given the other two grounds for the penalty commissioner 89_tc_849 quoting marcello v commissioner 380_f2d_499 5th cir aff’g on this issue 43_tc_168 and t c memo aff’d 904_f2d_1011 5th cir aff’d 501_us_868 negligence may also include any failure by the taxpayer to keep adequate_records and to substantiate items properly sec_1_6662-3 income_tax regs a substantial_understatement_of_income_tax in the case of an individual is an understatement that exceeds the greater of dollar_figure or of the tax required to be shown on the return sec_6662 a substantial_valuation_misstatement occurs when the value of any property claimed on a tax_return i sec_150 or more of the amount determined to be correct sec_6662 respondent has met his burden of production with regards to the sec_6662 accuracy-related_penalty there is an exception to the sec_6662 penalty when a taxpayer can demonstrate reasonable_cause for the underpayment and that the taxpayer acted in good_faith with respect to the underpayment sec_6664 regulations promulgated under sec_6664 provide that the determination of reasonable_cause and good_faith is made on a case-by-case basis taking into account all pertinent facts and circumstances sec_1_6664-4 income_tax regs deciding whether an exception to the sec_6662 accuracy-related_penalty applies is a fact-specific inquiry after reviewing the facts and circumstances it appears petitioners are relieved from liability for the penalty on portions of the underpayment relating to certain deductions see eg 136_tc_294 breaking up the discussion of the penalty as it pertains to each issue sec_1_6664-3 income_tax regs rules and examples for determining the total amount of penalties imposed when penalties apply to different adjustments see also owen v commissioner tcmemo_2012_21 at the time petitioners’ tax_return was filed we conclude petitioners had a reasonable basis for claiming the dollar_figure in unreimbursed employee_expenses reported on schedule a and the dollar_figure for mileage expenses reported on schedule c and that they claimed these deductions in good_faith mr hyche provided a calendar and mileage log to help support the claimed mileage deductions albeit he did not exclude his commuting expenses he provided airline and hotel receipts for his trip to buffalo new york his testimony was credible and forthright and we judge it honest he was unable to find certain documents because rms had dissolved and he contacted his cell phone carrier but was unable to get the documents he requested in time for trial we do not believe petitioners have met the reasonable_cause and good_faith exception for any other adjustment in conclusion petitioners’ liability for the sec_6662 accuracy-related_penalty is sustained in part and relieved in part by reasonable_cause the court has considered all of petitioners’ and respondent’s contentions arguments requests and statements to the extent not discussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-164224-01 date date legend company a b state d1 d2 dear this letter responds to your letter dated date and subsequent correspondence requesting a ruling on behalf of company under sec_1362 facts company was incorporated in state on d1 company’s shareholders a and b represent that on d1 and at all times thereafter they intended that company elect to be treated as an s_corporation since d1 a and b have treated company as an s_corporation including filing forms 1120s for the tax_year ending d2 and each subsequent tax_year however the form_2553 was not timely filed with the appropriate service_center law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election plr-164224-01 is made after the first two and one half months of a corporation’s taxable_year that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply conclusions based on facts submitted and representations made we conclude that company has established reasonable_cause for its failure to make a timely election and that company is eligible for relief under sec_1362 accordingly if company makes an election to be an s_corporation by filing a form_2553 with an effective date of d1 with the appropriate service_center within days from the date of this ruling company’s sec_1362 election will be treated as timely made for its taxable_year that begins on d1 a copy of this letter should be attached to the form_2553 except as expressly provided herein we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we neither express nor imply any opinion as to whether company qualifies as an s_corporation this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your representative sincerely christine e ellison chief branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc