t c summary opinion united_states tax_court jose luis hernandez and nelsy hernandez petitioners v commissioner of internal revenue respondent docket no 12052-10s l filed date jose luis hernandez and nelsy hernandez pro sese william r brown jr for respondent summary opinion goeke judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect when the petition was filed pursuant 1unless otherwise indicated all section references are to the internal_revenue_code in effect at all relevant times 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 the petition in this case was filed in response to a notice_of_determination concerning collection action s under sec_6320 and or with respect to an income_tax_liability for the issues for decision are whether petitioners are entitled to dispute the underlying tax_liability in this proceeding we hold they are not and whether the settlement officer so abused her discretion in rejecting petitioners’ proposed collection alternatives and sustaining the proposed collection action we hold the so did not background at the time the petition was filed petitioners resided in florida during mrs hernandez received dollar_figure from hartford life_insurance co in settlement of a long-term disability claim of this dollar_figure dollar_figure in social_security and medicare_tax was withheld but only dollar_figure in federal_income_tax was withheld petitioners were unaware that they owed additional tax on the money and in used it toward the purchase of a new home petitioners’ tax_return was prepared by amscot tax service and included the dollar_figure in petitioners’ taxable_income as a result petitioners were left owing dollar_figure to the internal_revenue_service irs which they did not have the funds to pay in response to a final notice_of_intent_to_levy and notice of your right to a hearing petitioners timely filed a form request for collection_due_process cdp or equivalent_hearing dated date on the form petitioners requested that respondent consider an installment_agreement and an offer-in-compromise as collection alternatives petitioners submitted a form_656 offer_in_compromise in which they offered to compromise their income_tax_liability for dollar_figure in the offer-in-compromise petitioners stated that they are experiencing a lot of difficulties due to extensive house and medical_expenses and are also having payment problems for our bills petitioners’ offer-in-compromise was assigned for determination to the irs’ centralized offer_in_compromise unit a preliminary decision rejecting petitioners’ proposed offer-in-compromise was mailed to them on date this decision stated that the offer-in-compromise was being rejected because petitioners had the ability to fully pay the liability and that no special circumstances warranted a decision to accept the offer the decision further stated that a final_determination on the offer will be issued by the office of appeals in conjunction with the cdp case the so assigned to petitioners’ cdp case reviewed the proposed offer-in- compromise and determined that petitioners’ monthly disposable income was dollar_figure on the basis of this monthly disposable income the so found that petitioners had the ability to pay dollar_figure which was above the then-current outstanding liability of 2the so determined that petitioners’ combined monthly gross_income was dollar_figure comprising dollar_figure paid to ms hernandez in social_security_benefits and dollar_figure in wages earned by mr hernandez in his job as a truck driver petitioners claimed that ms hernandez was paid dollar_figure per month in social_security_benefits but also that mr hernandez’s monthly income was only dollar_figure the primary difference between the figures petitioners and the so reached on mr hernandez’s income is attributable to the so’s inclusion of overtime wages in mr hernandez’s income whereas petitioners did not include any overtime wages in addition petitioners based their monthly figures on only days worked per month weeks as opposed to taking into account the fact that there are more than workdays in most months the so noted that a review of the weekly pay_period statements available showed that mr hernandez’s monthly income was dollar_figure when overtime wages were included however the so used a smaller figure of dollar_figure apparently based on the most recent weekly pay periods this figure was smaller because the number of overtime hours mr hernandez worked fluctuated from week to week using national and local expense allowances for items such as housing utilities healthcare and transportation as well as accounting for expenses specific to petitioners such as union fees the so allowed them dollar_figure in monthly expenses petitioners claimed only dollar_figure in total monthly expenses while petitioners claimed significantly less than the amounts allowed for transportation taxes and per-person expenses such as food compiled by the irs into a national standard they claimed significantly more than the amounts allowed for healthcare as well as housing and utilities dollar_figure as a result the so sustained the preliminary decision rejecting the offer- in-compromise petitioners’ cdp hearing was held on date during the hearing the so informed petitioners that she sustained the rejection of the offer-in-compromise using the financial information received from petitioners the so offered petitioners an installment_agreement requiring payment of dollar_figure per month that was based on petitioners’ monthly disposable income petitioners rejected this offer and made a counteroffer of dollar_figure per month stating that was the most they could pay the so refused to accept petitioners’ counteroffer the underlying tax_liability was not raised at the cdp hearing after determining that the requirements of applicable law and administrative procedure were met and considering the issues raised by petitioners as well as whether the proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concerns of petitioners that any 3petitioners’ current_liability has been reduced to less than dollar_figure as a result of application of tax refunds for later years to the amount owed 4petitioners filed an amended tax_return with the irs on date which would have eliminated all taxes remaining due had it been accepted as filed however because of a purported lack of substantiation of an additional dollar_figure in expenses claimed as deductions on schedule c profit or loss from business the irs refused to accept the amended_return collection be no more intrusive than necessary the so sustained the proposed levy on date respondent issued a notice_of_determination to petitioners petitioners timely filed a petition contesting respondent’s determination discussion i whether petitioners are entitled to raise the underlying tax_liability in a cdp hearing a taxpayer may challenge the existence or amount of the underlying tax_liability for any_tax period if he did not receive a notice_of_deficiency for such liability or otherwise have an opportunity to dispute such tax_liability sec_6330 however we do not have authority to consider sec_6330 issues that were not raised during the cdp hearing 129_tc_107 akonji v commissioner tcmemo_2012_56 petitioners stated in their pretrial brief that ever since the beginning of this nightmare we had been telling the agents that our taxes were filed wrong however respondent’s case activity print which contains a summary completed by the so of the issues discussed during the cdp hearing reflects that petitioners did not raise the underlying tax_liability with the so in addition petitioners made no offer of documentation of their effort to raise the underlying liability with the so therefore we may not consider petitioners’ underlying tax_liabilities ii whether the so abused her discretion in rejecting petitioners’ proposed collection alternatives and sustaining the proposed collection action where a taxpayer’s underlying tax_liability is not in dispute the court reviews the commissioner’s determination for abuse_of_discretion see 114_tc_604 114_tc_176 to establish an abuse_of_discretion the taxpayer must prove that the decision of the commissioner was arbitrary capricious or without sound basis in fact or in law giamelli v commissioner t c pincite citing sego v commissioner t c pincite and 112_tc_19 tinnerman v commissioner tcmemo_2010_150 aff’d 448_fedappx_73 d c cir in reviewing for abuse_of_discretion we generally consider only the arguments issues and other matters that were raised at the hearing or otherwise brought to the attention of the appeals_office giamelli v 5petitioners appear to have raised their underlying tax_liabilities with other irs agents outside of the appeals_office 6even if we were able to consider the underlying tax_liabilities petitioners have not presented evidence that their tax_liability was incorrect commissioner t c pincite tinnerman v commissioner tcmemo_2010_150 the only issues raised at the cdp hearing related to petitioners’ claims that they did not have sufficient funds to pay their remaining tax_liability or sufficient income to pay the dollar_figure per month installment amount the so proposed petitioners proposed both a dollar_figure lump-sum_offer-in-compromise and an installment_agreement for payment of dollar_figure per month each of these offers was rejected by the so on the basis of her calculation of petitioners’ income which showed that petitioners had dollar_figure per month in disposable income although petitioners claimed their monthly expenses exceeded their monthly income this claim was based on a calculation of mr hernandez’s monthly income that included no overtime hours and considered only working days per month regarding petitioners’ expenses although some of the individual expenses they claimed exceeded the amounts the so allowed such as healthcare as well as housing and utilities petitioners’ total expenses claimed were actually less than those the so allowed we note that the so calculated petitioners’ allowable monthly expenses by using national and local expense allowances as well as accounting for expenses specific to petitioners we review an so’s determinations for an abuse_of_discretion and we do not substitute our judgment for that of the so we must uphold the so’s determination unless it is arbitrary capricious or without sound basis in fact or law see 125_tc_301 aff’d 469_f3d_27 1st cir considering the facts of this case we find the so’s determination was not arbitrary capricious or without sound basis in fact or law we therefore find the so did not abuse her discretion in denying petitioners’ proposed collection alternatives and sustaining the proposed collection action iii conclusion we hold that petitioners are not entitled to raise the underlying tax_liability in this proceeding we further hold that the so did not abuse her discretion in rejecting petitioners’ proposed collection alternatives and sustaining the proposed collection action we therefore sustain the determinations of the so in reaching our holdings herein we have considered all arguments made and to the extent not mentioned above we conclude they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


id office uilc cca_2008082010485236 ------------ ------ number release date from --------------------- sent wednesday date am to ------------------------------------------------------------------- cc ------------------- subject re venezuelan treaty business_assets tax i think the language is conclusive--although the venezuelan business_assets tax is covered it is not creditable under the treaty the language of article makes this clear as it only allows venezuelan income taxes to be creditable


internal_revenue_service department of the treasury number release date index number 468a washington dc person to contact telephone number refer reply to cc psi plr-128611-02 date date legend buyer seller1 seller2 seller3 seller4 seller5 seller6 seller7 seller8 plant state committee a b c d e f g h i j plr-128611-02 k l m dear this letter responds to your request dated date and subsequent correspondence on behalf of seller4 taxpayer that we rule on certain tax consequences of the sale of plant and related assets and liabilities from the sellers to buyer specifically taxpayer has requested rulings regarding the tax consequences under sec_468a of the internal_revenue_code to the sellers’ qualified nuclear decommissioning funds and buyer’s qualified nuclear decommissioning funds as well as rulings regarding the proper realization and recognition of gain and loss on the sale of plant and related assets and liabilities the sellers and buyer in a jointly-filed ruling_request have represented the following facts and information relating to the ruling_request the sellers except seller1 and seller2 which are exempt wholesale generators are utilities regulated by various state public_utility commissions and the federal energy regulatory commission ferc as a result of deregulation and under the encouragement of the state public_utility commissions and ferc the sellers are in the process of withdrawing from the electric power generation business except seller1 and seller2 and intend to sell plant and related assets to buyer each seller except seller5 owns as tenant-in-common a fee simple ownership_interest in plant and certain facilities and assets associated with the plant seller5 owns a portion of interest in fee simple and operates the rest of its interest under the terms of a lease seller1 and seller2 are members of the same consolidated_group seller3 and seller4 are members of a different consolidated_group seller1 seller2 seller3 seller4 seller5 seller6 seller7 and seller8 own respectively a b c d e f g and h percent of plant for a total of i percent the remaining ownership_interest in plant is owned by j other entities who are not a part of this ruling letter each of the sellers except seller1 and seller6 maintains qualified nuclear decommissioning funds for plant pursuant to sec_468a and the regulations thereunder all of the qualified nuclear decommissioning funds are trusts under the laws of state in addition each of the sellers maintains nonqualified nuclear decommissioning funds for plant which are trusts under the laws of state and which are considered grantor trusts under sections of the internal_revenue_code all of the qualified and nonqualified nuclear decommissioning funds are held by the sellers solely for the purpose of decommissioning plant plr-128611-02 according to the terms of the purchase and sale agreement for plant between the sellers and buyer dated k the sellers will sell assign convey transfer and deliver to buyer the sellers’ ownership shares of the assets held for use in the operation of plant including the assets comprising both the qualified and nonqualified nuclear decommissioning trust funds maintained by the sellers along with all income_interest and earnings accrued thereon together with all related tax_accounting decommissioning studies and cost estimates and all other books_and_records related thereto buyer will assume certain liabilities associated with plant including decommissioning liabilities certain environmental liabilities and encumbrances of acquired assets buyer will pay l as cash consideration for plant subject_to certain adjustments at closing and will pay sellers m for nuclear fuel attributable to plant the sellers will transfer the assets in each of the qualified nuclear decommissioning funds to a corresponding decommissioning fund that buyer will establish for plant and which buyer intends to qualify as a qualified nuclear decommissioning fund pursuant to sec_468a additionally the sellers will transfer the assets in each of the nonqualified nuclear decommissioning funds to a corresponding nonqualified decommissioning fund that buyer will establish for plant the buyer will hold both the qualified and nonqualified nuclear decommissioning funds solely for the purpose of decommissioning plant the funds will be under the general supervision of committee ferc and the nuclear regulatory commission nrc nrc approval is required to remove the nuclear decommissioning funds from the trusts buyer will not make additional contributions to the qualified nuclear decommissioning funds unless permitted by future legislative changes to sec_468a any funds that exceed the amount necessary to satisfy all decommissioning liabilities will be distributed to buyer or customers in accordance with the purchase and sale agreement moreover the sellers will contribute an additional_amount if needed to buyer’s nonqualified nuclear decommissioning fund so that the total amount in the qualified and nonqualified nuclear decommissioning funds will equal the amount required to be on deposit to fully decommission plant based on the calculation methodology and assumptions formulated by committee requested ruling the sellers’ qualified nuclear decommissioning funds will not be disqualified on the date of closing when the assets in the funds are transferred to buyer’s qualified nuclear decommissioning fund sec_468a provides that a taxpayer may elect to deduct payments made to a nuclear decommissioning reserve fund the qualified_fund sec_468a limits the annual deduction of the electing taxpayer to the lesser_of the ruling_amount or the amount of decommissioning costs included in the electing taxpayer’s cost of service for ratemaking purposes for the taxable_year sec_468a provides that the ruling_amount means the amount determined plr-128611-02 by the service to be necessary to a fund that portion of the nuclear decommissioning cost with respect to the nuclear power plant that bears the same ratio to the total nuclear decommissioning costs with respect to such nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the nuclear power plant and b prevent any excessive funding of such costs or the funding of such costs at a rate more rapid than level_funding sec_468a provides that the rate_of_tax on the income of a qualified nuclear decommissioning fund is percent sec_468a provides in pertinent part that the assets in a qualified nuclear decommissioning fund shall be used exclusively for satisfying the liability of any taxpayer contributing to the qualified_fund sec_1_468a-1 of the federal_income_tax regulations provides that an eligible_taxpayer is a taxpayer that possesses a qualifying interest in a nuclear power plant sec_1_468a-1 provides that a qualifying interest is a direct ownership_interest or a leasehold interest meeting certain additional requirements sec_1_468a-1 provides in part that a nuclear power plant is any nuclear power reactor that is used predominantly in the trade_or_business of the furnishing or sale of electric energy if the rates for such furnishing or sale have been established or approved by a public_utility commission sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law an electing taxpayer can establish and maintain only one qualified nuclear decommissioning fund for each nuclear power plant sec_1 468a- c i provides that if at any time during the taxable_year a nuclear decommissioning fund does not satisfy the requirements of sec_1_468a-5 the service may disqualify all or a portion of the fund as of the date that the fund does not satisfy the requirements sec_1_468a-5 provides that if a qualified_fund is disqualified the fair_market_value with certain adjustments of the assets in the fund is deemed to be distributed to the electing taxpayer and included in that taxpayer’s gross_income for the taxable_year sec_1_468a-6 generally provides rules for the transfer of an interest in a nuclear power plant and transfer of the qualified_fund where after the transfer the transferee is an eligible_taxpayer under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a under the specific facts herein the service will exercise its discretion to treat this sale under sec_1_468a-6 as a disposition qualifying under the general provisions of sec_1_468a-6 this exercise of discretion is specifically based on the continued plr-128611-02 general supervision of the qualified nuclear decommissioning fund by committee ferc and the nrc this exercise of discretion however applies to the provisions of sec_1 except those outlined in sec_1_468a-6 with respect to the calculation of a schedule of ruling amounts subsequent to a sale thus under sec_1_468a-6 the sellers’ qualified nuclear decommissioning funds will not be disqualified upon the sale when the assets are transferred to buyer’s corresponding qualified nuclear decommissioning fund and that fund will be treated as a qualified nuclear decommissioning fund of buyer requested ruling the sellers’ qualified nuclear decommissioning funds will not recognize gain_or_loss upon the transfer of their assets on the date of closing to buyer’s qualified nuclear decommissioning fund requested ruling the sellers will not recognize income attributable to the assets in the qualified nuclear decommissioning funds upon the transfer of the assets on the date of closing to buyer’s qualified nuclear decommissioning fund sec_1_468a-6 provides that neither a transferor nor its fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets from a transferor’s qualified nuclear decommissioning fund to a transferee’s qualified nuclear decommissioning fund thus neither the sellers nor the sellers’ qualified nuclear decommissioning funds will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of the sellers’ qualified nuclear decommissioning funds assets to buyer’s qualified nuclear decommissioning funds requested ruling each seller’s gain_or_loss on the sale of plant and its associated assets other than the qualified nuclear decommissioning funds will be the difference between such seller’s basis in such assets and its amount_realized sec_1001 provides that a taxpayer’s gain from the sale of property is the excess of the amount_realized over the taxpayer’s adjusted_basis provided in sec_1011 for determining gain and that the taxpayer’s loss from the sale of property is the excess of the taxpayer’s adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1060 provides that in the case of an applicable_asset_acquisition the consideration received shall be allocated among the acquired assets in the same manner as amounts are allocated to assets under sec_338 sec_1 a provides that in the case of an applicable_asset_acquisition the seller and the purchaser each must allocate the consideration paid or received in the transaction under the residual_method as described in sec_1_338-6 and sec_1_338-7 in order to determine respectively the amount_realized from and the basis in each of the transferred assets plr-128611-02 sec_1060 defines the term applicable_asset_acquisition as the transfer of assets constituting a trade_or_business if the acquirer’s basis in the transferred assets is determined wholly by reference to the consideration paid for such assets sec_1_1060-1 defines a purchaser’s consideration as the amount in the aggregate of its cost of purchasing the assets in the applicable_asset_acquisition that is properly taken into account in basis sec_1060 provides no independent basis for determining a taxpayer’s cost of acquired assets cost is determined solely under generally applicable tax_accounting principles sec_1_1060-1 defines a seller’s consideration as the amount in the aggregate realized from selling the assets in the applicable_asset_acquisition under sec_1001 sec_1060 also provides no independent basis for determining the amount a taxpayer realizes on the sale of assets or the time such amount may be taken into account the amount_realized and the time such amount is taken into account are determined solely under generally applicable tax_accounting principles see sec_1001 the residual_method is based on a division of assets into seven classes class i generally consisting of cash and general deposit accounts held in banks savings and loan associations and other depository institutions class ii generally consisting of actively_traded personal_property like u s government securities and publicly traded stock but also including certificates of deposit and foreign_currency even if they are not actively_traded personal_property class iii accounts_receivable mortgages and credit card receivables from customers which arise in the ordinary course of business class iv stock_in_trade of the taxpayer or other_property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable_year or property held by the taxpayer primarily_for_sale_to_customers in the ordinary course of its trade_or_business class v all assets other than class i ii iii iv vi and vii assets class vi all sec_197 intangibles as defined in that section except goodwill and going_concern_value and class vii goodwill and going_concern_value whether or not it qualifies as a sec_197 intangible sec_1_338-6 consideration is first reduced by the amount of class_i_assets transferred by the seller the remaining consideration is then allocated to the class_ii_assets pro_rata to the extent of their fair_market_value then to the class_iii_assets pro_rata to the extent of their fair_market_value then to the class_iv_assets pro_rata to the extent of their fair_market_value then to the class_v_assets pro_rata to the extent of their fair_market_value then to the class_vi_assets pro_rata to the extent of their fair_market_value and finally any remaining consideration is allocated to the class_vii_assets sec_1_338-6 and and c the following examples illustrate the operation of sec_1060 from a seller's and a buyer's perspective respectively plr-128611-02 on date1 an applicable_asset_acquisition is made the consideration consists of dollar_figure cash and an assumed liability of dollar_figure that under applicable tax_accounting principles is taken into account at the time of the applicable_asset_acquisition the assets sold consist of class_i_assets in the amount of dollar_figure class_ii_assets with a fair_market_value of dollar_figure and a basis in the hands of the seller of dollar_figure class_iii_assets with a fair_market_value of dollar_figure and a basis of dollar_figure class_iv_assets with a fair_market_value of dollar_figure and a basis of dollar_figure class_v_assets with fair_market_value of dollar_figure and a basis of dollar_figure and class_vi_assets with a fair_market_value of dollar_figure and a basis of dollar_figure the consideration first will be reduced by dollar_figure the amount of class_i_assets the remaining consideration will be allocated as follows dollar_figure to class_ii_assets pro_rata according to fair_market_value resulting in a dollar_figure gain dollar_figure to the class_iii_assets pro_rata according to fair_market_value resulting in no gain_or_loss dollar_figure to the class_iv_assets pro_rata according to the fair_market_value resulting in a dollar_figure gain dollar_figure to the class_v_assets pro_rata according to the fair_market_value resulting in no gain_or_loss dollar_figure to the class_vi_assets pro_rata according to the fair_market_value resulting in a dollar_figure gain and the remaining dollar_figure to the class_vii_assets pro_rata according to the fair_market_value resulting in a dollar_figure gain the character of the amounts of gain_or_loss recognized by the seller as well as any applicable holding periods is determined by the nature of the underlying assets sec_1_338-6 sec_1_1060-1 and sec_1_1060-1 on date1 an applicable_asset_acquisition is made the consideration consists of dollar_figure cash and an assumed liability for which economic_performance has not occurred the assets acquired consist of class_i_assets in the amount of dollar_figure class_ii_assets with a fair_market_value of dollar_figure class_iii_assets with a fair_market_value of dollar_figure class_iv_assets with a fair_market_value of dollar_figure and class_v_assets with a fair_market_value of dollar_figure there are no class vi or vii assets on date1 the purchaser has provided dollar_figure of consideration that may be allocated as basis it first will be reduced by dollar_figure the amount of class_i_assets the remaining dollar_figure will be allocated to class_ii_assets pro_rata according to fair_market_value nothing is allocated to class iii or below on date2 economic_performance occurs with respect to the liability to the extent of dollar_figure at that time the purchaser has an additional dollar_figure of basis that may be taken into account of that amount dollar_figure is allocated to class_ii_assets which will then have been allocated their full dollar_figure fair_market_value - as determined on the acquisition_date and the remaining dollar_figure is allocated to the class_iii_assets pro_rata according to fair_market_value - as determined on the acquisition_date on date3 economic_performance occurs to the extent of an additional dollar_figure which is then taken into account as basis of that amount dollar_figure will be allocated to the class_iii_assets which will then have been allocated their full dollar_figure fair_market_value - as determined on the acquisition_date dollar_figure will be allocated to the class_iv_assets which will then have been allocated their full dollar_figure fair_market_value - as determined on the acquisition_date dollar_figure will be allocated to plr-128611-02 the class_v_assets which will then have been allocated their full dollar_figure fair_market_value - as determined on the acquisition_date and the remaining dollar_figure will be allocated to the class vii as goodwill the last amount is allocated to goodwill even though goodwill was not identified as a separate asset having value on date1 if on date3 instead of an addition to purchaser’s consideration there is a dollar_figure decrease in consideration the consideration previously allocated to the class_iii_assets dollar_figure would be reduced to zero and the consideration previously allocated to the class_ii_assets would be reduced by the remaining dollar_figure pro_rata according to fair_market_value if under general tax principles there is a subsequent adjustment to the consideration that amount is allocated in a manner that produces the same allocation that would have been made at the time of the acquisition had such amount been paid_or_incurred on the acquisition_date sec_1_338-7 sec_1_1060-1 and sec_1 c the federal tax treatment of the qualified nuclear decommissioning funds is determined exclusively under sec_468a and the regulations thereunder with respect however to the plant including equipment and operating_assets and the assets of the nonqualified nuclear decommissioning funds these assets comprise a trade_or_business in the sellers’ hands and the basis buyer takes in these assets will be determined wholly by reference to buyer’s consideration thus the sellers transfer of plant including equipment and operating_assets and assets of the nonqualified nuclear decommissioning funds to buyer in exchange for cash and the assumption of the decommissioning liability except to the extent funded by the qualified nuclear decommissioning funds is an applicable_asset_acquisition as defined in sec_1060 as such its federal tax treatment is determined under sec_1060 and the regulations thereunder accordingly sellers must allocate the consideration in the applicable assets in accordance with the provisions of sec_1060 and the regulations thereunder specifically sellers will first reduce the consideration received by the amount of class_i_assets it transfers in the transaction including any class_i_assets held in the nonqualified nuclear decommissioning funds to the extent seller’s consideration exceeds the class_i_assets it transfers such excess will be allocated to the class_ii_assets then to the class_iii_assets then to the class_iv_assets then to the class_v_assets then to the class_vi_assets and finally to the class_vii_assets such consideration is allocated to each class of assets pro_rata according to the fair_market_value of those assets up to their total fair_market_value the character and other attributes of the amounts of gain and loss are determined by that of the underlying assets accordingly on the sale of plant and each seller’s interests in the assets in the nuclear decommissioning trust funds other than the assets in the qualified nuclear plr-128611-02 decommissioning funds each seller’s gain_or_loss on each transferred asset is the difference between the basis of the asset and the amount_realized with respect to that asset taking into account the allocation of consideration pursuant to sec_1060 and the corresponding regulations requested ruling each seller’s amount_realized on the sale of plant and its associated assets will include the cash consideration received from buyer and the amount of its liabilities assumed by buyer including its liability to decommission plant but reduced by the amount of such liability to be funded by such seller’s qualified nuclear decommissioning funds sec_1001 provides that a seller’s amount_realized from the sale of property is the sum of any money received plus the fair_market_value of the property other than money received sec_1_1001-2 of the regulations provides that a seller’s amount_realized from the sale of property includes the amount of liabilities from which the seller is discharged as a result of the sale this may include debt and non-debt liabilities see 84_tc_1319 assumption of lessee’s repair liability was part of amount_realized on sale of leasehold as set forth with respect to requested ruling the decommissioning liability from which sellers will be relieved is fixed and determinable as owners and operators of a nuclear plant sellers are required_by_law to provide for eventual decommissioning see cfr sec_50 the amount in the decommissioning funds represents the present_value of that liability as established by decommissioning cost studies and confirmed by regulatory approval and the terms of the sellers’ transaction under which the decommissioning funds will be transferred to buyer in connection with buyer’s assumption of the liability cf 370_us_65 amount_realized as result of relief from liability presumed equal to value of property given up in arm’s-length exchange accordingly each seller's amount_realized on the sale of plant and the assets in the decommissioning trust funds includes the cash received from buyer and the assumed_liabilities to the extent these liabilities are taken into account for federal_income_tax purposes the liabilities taken into account would include the amount of the decommissioning liability assumed by buyer not including the portion of the liability to decommission plant attributable to the qualified nuclear decommissioning fund on the date of closing requested ruling buyer’s qualified nuclear decommissioning fund established to hold the assets transferred from the sellers’ qualified nuclear decommissioning funds will be treated as a qualified nuclear decommissioning fund under sec_468a sec_468a provides that a taxpayer may elect to deduct payments made to a nuclear decommissioning reserve fund the qualified_fund sec_468a limits the plr-128611-02 annual deduction of the electing taxpayer to the lesser_of the ruling_amount or the amount of decommissioning costs included in the electing taxpayer’s cost of service for ratemaking purposes for the taxable_year sec_468a provides that the ruling_amount means the amount determined by the service to be necessary to a fund that portion of the nuclear decommissioning cost with respect to the nuclear power plant that bears the same ratio to the total nuclear decommissioning costs with respect to such nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the nuclear power plant and b prevent any excessive funding of such costs or the funding of such costs at a rate more rapid than level_funding sec_468a provides in pertinent part that the assets in a qualified nuclear decommissioning fund shall be used exclusively for satisfying the liability of any taxpayer contributing to the qualified_fund sec_1_468a-1 provides that an eligible_taxpayer is a taxpayer that possesses a qualifying interest in a nuclear power plant sec_1_468a-1 provides that a qualifying interest is a direct ownership_interest or a leasehold interest meeting certain additional requirements sec_1_468a-1 provides in part that a nuclear power plant is any nuclear power reactor that is used predominantly in the trade_or_business of the furnishing or sale of electric energy if the rates for such furnishing or sale have been established or approved by a public_utility commission sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law an electing taxpayer can establish and maintain only one qualified nuclear decommissioning fund for each nuclear power plant sec_1 468a- c i provides that if at any time during the taxable_year a nuclear decommissioning fund does not satisfy the requirements of sec_1_468a-5 the service may disqualify all or a portion of the fund as of the date that the fund does not satisfy the requirements sec_1_468a-5 provides that if a qualified_fund is disqualified the fair_market_value with certain adjustments of the assets in the fund is deemed to be distributed to the electing taxpayer and included in that taxpayer’s gross_income for the taxable_year sec_1_468a-6 generally provides rules for the transfer of an interest in a nuclear power plant and transfer of the qualified_fund where after the transfer the transferee is an eligible_taxpayer under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a plr-128611-02 as indicated with respect to requested ruling above the service will exercise its discretion to treat the sale under sec_1_468a-6 as a disposition qualifying under the general provisions of sec_1_468a-6 this exercise of discretion applies to the provisions of sec_1 including the requirement under sec_1_468a-6 that the transferee continues to satisfy the requirements of sec_1_468a-5 which permits an electing taxpayer to maintain only one qualified nuclear decommissioning fund for each plant except those outlined in sec_1 468a- e with respect to the calculation of a schedule of ruling amounts subsequent to a sale thus so long as buyer establishes only one qualified nuclear decommissioning fund buyer’s qualified nuclear decommissioning fund established to hold the assets transferred from the sellers’ qualified nuclear decommissioning funds will be treated as a qualified nuclear decommissioning fund of buyer when buyer obtains a qualifying interest upon the transfer of plant to buyer requested ruling neither buyer nor buyer’s qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets from the sellers’ qualified nuclear decommissioning funds to buyer’s qualified nuclear decommissioning fund and after the date of closing buyer’s qualified nuclear decommissioning fund will retain the same basis in the assets received as the sellers’ qualified nuclear decommissioning funds had prior to the date of closing sec_1_468a-6 provides that neither a transferee nor its fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets from a transferor’s qualified_fund to a transferee’s qualified_fund additionally sec_1_468a-6 provides that transfers of assets of a qualified_fund to which sec_1_468a-6 applies do not affect basis thus buyer will not recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets from the sellers’ qualified nuclear decommissioning funds to buyer’s qualified nuclear decommissioning fund also buyer’s qualified nuclear decommissioning fund will have a basis in the assets that is the same as the basis of those assets in the qualified nuclear decommissioning funds of the sellers immediately prior to the transfer requested ruling each seller will be entitled to a deduction equal to the amount of its liability to decommission plant expressly assumed by buyer and included in the seller’s income in the year the liability is assumed reduced by the amount of the liability to be funded by such seller’s qualified nuclear decommissioning funds sec_1_446-1 of the income_tax regulations provides that under an accrual_method of accounting a liability is incurred and generally taken into account for federal_income_tax purposes in the year in which all the events have occurred that plr-128611-02 establish the fact of the liability the amount of the liability can be determined with reasonable accuracy and economic_performance has occurred with respect to the liability sec_461 makes clear that generally the all_events_test is not treated as having been met any earlier than the taxable_year in which economic_performance has occurred with respect to the liability see also sec_1_461-4 sec_461 provides that in the case of a liability that requires the taxpayer to provide services economic_performance occurs as the taxpayer provides the services sec_1_461-4 provides that economic_performance occurs with respect to such service liabilities as the taxpayer incurs costs in connection with the satisfaction of the liability sec_1_461-4 provides an exception to the general economic_performance rule for services where the taxpayer sells a trade_or_business where the purchaser expressly assumes a liability arising out of the taxpayer’s trade_or_business that the taxpayer but for the economic_performance requirement would have been entitled to incur as of the date of the sale economic_performance with respect to the liability occurs as the amount of the liability is properly included in the amount_realized on the sale by the taxpayer the first prong of the all_events_test requires that the fact of the liability be established at the time of the deduction this prong of the test is satisfied in this case here the sellers have the obligation to decommission the plant the fact of the obligation arose many years ago at the time the sellers obtained their license to operate the plant see c f_r sections dollar_figure and requiring the operator of a nuclear power plant to decommission it moreover congress recognized the existence of the decommissioning liability when in it enacted sec_461 and sec_468a noting that g enerally under federal and state laws utilities that operate nuclear power plants are obligated to decommission the plants at the end of their useful lives h_r conf_rep no see also s prt no vol 98th cong 2d sess the second prong of the all_events_test requires the amount of the liability to be determined with reasonable accuracy sec_1_461-1 this prong is also satisfied in this case the amount of the sellers’ decommissioning liability has been determined by experts in the nuclear decommissioning industry their calculations have been reviewed and accepted by both the ferc or the state public_utility having jurisdiction in this case the committee and the nrc which is charged with ensuring that sufficient funds are available to decommission the plant in addition there is also support in the code for finding that the amount of the decommissioning liability is reasonably determinable at the time of sale sec_468a generally permits a current deduction for a ruling_amount based on estimated future decommissioning liabilities plr-128611-02 to the extent decommissioning costs are sufficiently determinable to entitle the utility to a deduction under sec_468a it is reasonable to conclude that the cost must also be sufficiently determinable to satisfy the second prong of the all_events_test given that the first two prongs of the all_events_test are satisfied economic_performance with respect to the decommissioning liability occurs as of the date of the sale to the extent the liability is included in each sellers’ amount_realized at that time each seller will be entitled to a deduction for the amount of its decommissioning liability associated with the plant expressly assumed by the buyers and included in that sellers’ amount_realized requested ruling the buyer will not recognize any gain or otherwise take any income into account by reason of the purchase of plant and its associated assets including without limitation the transfer of the assets of the sellers’ nonqualified nuclear decommissioning funds to buyer’s corresponding nonqualified nuclear decommissioning fund except to the extent that the aggregate amount of cash and other class_i_assets received from all sellers exceeds the aggregate amount of consideration provided by buyer to all sellers with respect to the acquisition of plant including its equipment and operating_assets and the nonqualified nuclear decommissioning funds’ assets buyer will not recognize income except to the extent the class_i_assets as defined in sec_1 b it receives exceed its total cost determined under sec_1012 which will be the sum of its cash consideration and the fair_market_value of any other consideration it provides to the sellers that is under applicable tax principles taken into account on the date of the applicable_asset_acquisition if buyer is thus required to take an amount into account as income then when under general principles of tax law buyer is permitted to take additional consideration into account eg when it satisfies the economic_performance requirement with respect to the decommissioning liability assumed buyer will be entitled to deduct currently and will not be required to capitalize such amount 344_us_6 additionally on the date of closing buyer’s basis in the assets acquired must be determined by allocating its cost ie the consideration provided by buyer on the acquisition_date which includes the cash but not the assumption of the decommissioning liability among the acquired assets in accordance with the provisions of sec_1060 and the regulations thereunder specifically buyer will first reduce its consideration by the amount of the class_i_assets it receives in the transaction including any class_i_assets held in the nqfs to the extent the class_i_assets received exceed the consideration buyer provides buyer will recognize income to the extent buyer’s consideration exceeds the class_i_assets it receives such excess will be allocated in accordance with the provisions of sec_1060 and the regulations thereunder as described above when and to the extent additional_amounts are paid_or_incurred for the assets acquired in the applicable_asset_acquisition eg when and to plr-128611-02 the extent the nonqualified nuclear decommissioning funds pay or incur decommissioning expenses such amounts will be taken into account as increases to buyer’s consideration and allocated in the same manner and subject_to the same conditions as though they were paid_or_incurred on the acquisition_date sec_1_338-6 sec_1_338-7 sec_1_1060-1 and sec_1_1060-1 this letter_ruling is directed only to taxpayer who requested it sec_6110 provides that this ruling may not be used or cited as precedent except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above in accordance with the powers of attorney the original of this letter is being sent to taxpayer’s authorized representative also in accordance with the powers of attorney a copy is being sent to taxpayer as well as taxpayer’s other authorized representative we are also sending a copy of this letter to the appropriate industry director lmsb sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number ------------------------- ------------------------------------ ----------------------------------- in re ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------ id no ---------------- telephone number -------------------- refer reply to cc psi b04 plr-140535-10 date date legend legend settlor trust child’s trust date child state court state law date date dear ------------------- ------------------------------ ---------------------------------------------- ------------------------------------------------------- -------------------------- -------------------- ---------- ------------------------------------------------------------- ---------------------------------------------- ------------------- ------------------ this letter responds to your authorized representative’s letter of date requesting a generation-skipping_transfer gst tax ruling with respect to the proposed modification of a_trust on date a date prior to date settlor executed an irrevocable_trust trust article i paragraph a of trust provides for the creation of child’s trust article i paragraph provides that the trustees of child’s trust have the discretion to distribute net_income and corpus for the benefit of child and child’s issue under the terms of trust there is no requirement to equalize payments between beneficiaries income not distributed in any year is to be retained as accumulated income article i paragraph provides that the trustees have the discretion to distribute one-half of the corpus of child’s trust to child when child attains age article i paragraph provides that the trustees have the discretion to distribute the remaining corpus of child’s trust to child when child attains age article i paragraph provides that child has a testamentary limited power to appoint the corpus of child’s trust corpus not appointed is to be distributed to child’s then living issue if plr-140535-10 any per stirpes but if none to settlor’s then living issue per stirpes article ii provides that in the event that under the provisions of trust there is no taker for any share or portion of a share of any trust created thereunder or any other_property held hereunder then such share portion of a share or other_property shall be paid to such person or persons as would have been entitled to receive settlor’s estate and in the same proportions as they would have taken had settlor died immediately following the time as of which there is no taker intestate unmarried domiciled in state pursuant to the requirements of article i paragraph the trustees have retained undistributed_income in child’s trust as accumulated income in reviewing the trust agreement for purposes of estate_planning for child the trustees realized that child did not have a power_of_appointment over the accumulated income in child’s trust and that the trust agreement did not expressly specify what was to happen to the accumulated income at child’s death upon reviewing the files from the law firm that drafted the trust agreement the trustees concluded that settlor intended that the beneficiaries of the corpus and the accumulated income be the same that child’s power_of_appointment was to apply to both corpus and accumulated income and that at child’s death the corpus and accumulated income that was not appointed by child’s will was to pass to child’s then living issue on date the trustees petitioned court pursuant to state law to modify the provisions of article i paragraph to provide that income not distributed in any year is to be added to corpus instead of being retained as accumulated income settlor is alive and has attested that the proposed modification reflects his intent on date court issued an order approving the proposed modification subject_to the issuance of a private_letter_ruling from the internal_revenue_service that the proposed modification will not cause child’s trust to lose its status as a_trust that is exempt from the gst tax it has been represented that there have not been any additions actual or constructive to child’s trust after date the trustees request a ruling that the proposed modification to article paragraph of the trust agreement will not cause child’s trust to lose its status as a_trust that is exempt from the gst tax law and analysis sec_2601 of the internal_revenue_code code imposes a tax on every generation-skipping_transfer made after date under of the tax_reform_act_of_1986 act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the gst tax does not apply to any generation-skipping_transfer under a_trust that was irrevocable on date plr-140535-10 except to the extent the transfer is made from corpus added to the trust by an actual or constructive_addition after date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in this paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes thus the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a judicial construction of a governing instrument to resolve an ambiguity in the terms of the instrument or to correct a scrivener’s error will not cause an exempt trust to become subject_to the provisions of chapter if the judicial action involves a bona_fide issue and the construction is consistent with applicable state law that would be applied by the highest court of the state state law provides that the court may reform the terms of a_trust even if unambiguous to conform the terms to the settlor's intention if it is proved by clear_and_convincing evidence that both the settlor's intent and the terms of the trust were affected by a mistake of fact or law whether in expression or inducement in this case the trust agreement does not give child a power_of_appointment over the accumulated income in child’s trust and does not expressly specify what happens to accumulated income at child’s death the trust agreement does contain a no takers clause under article ii which provides that if there is no taker for any property at the death of child then the property such as the accumulated income of child’s trust will be distributed to settlor’s heirs determined as if settlor died intestate and unmarried in state thus the trust agreement could be interpreted to require that the accumulated income of child’s trust be distributed to settlor’s heirs which would include child’s issue and child’s then living siblings and the issue of any deceased sibling by contrast the corpus of child’s trust would be distributed pursuant to child’s limited_power_of_appointment or to child’s then living issue these possible constructions of the trust agreement created bona_fide issues ie how should accumulated income be disposed of at child’s death and whether or not the accumulated income is subject_to child’s limited_power_of_appointment the trustees petitioned court to resolve these issues court applied state law and construed the trust agreement in a manner that is consistent with state law that would plr-140535-10 be applied by the highest court of the state accordingly based on the facts submitted and the representations made we conclude that the proposed modification of child’s trust will not cause child’s trust to lose its status as a_trust that is exempt from the gst tax under sec_2601 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely lorraine e gardner lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc fip plr-116835-00 date date legend fund state a accountant treasurer date date date date date date date date date date date dollar dollar plr-116835-00 dollar dear this is in reply to a letter dated date requesting a ruling on behalf of fund you have requested a ruling that fund be granted an extension of time under sec_301 of the procedure and administration regulations to make an election under sec_855 of the internal_revenue_code for fund’s tax_year ended date facts fund is registered under the investment_company act of u s c sec_80a-1 et seq as amended and is organized as a state a business_trust fund has elected to be taxed as a regulated_investment_company ric under subchapter_m part i of chapter of the internal_revenue_code fund has a taxable_year ending october fund intended to timely file by date a form_7004 application_for automatic_extension of time to file a corporation income_tax return for its tax_year ending date the tax department of accountant prepared the form_7004 and sent it to treasurer for signature and filing the form_7004 was signed on date and put aside for mailing at a later date on date the form_7004 was brought to the mail room with instructions that the form was required to be sent via certified mail that day however the certified mail was not brought to the post office until date during date fund was notified that the internal_revenue_service had denied fund’s request for an extension of time to file at that time accountant began preparing fund’s form 1120-ric the form 1120-ric was due on date but was not filed until date on date the board_of trustees of fund adopted a resolution authorizing fund’s treasurer to pay to the shareholders an income dividend in such amount as necessary to pay the income from current and accumulated undistributed_income on date fund paid to the shareholders dollar an amount intended to include all of fund’s undistributed_income for the tax_year ended date during date accountant informed fund that fund had recognized income exceeding dollar on date fund paid to the shareholders dollar fund represents that it made no distributions from income or gains attributable to the fiscal_year ending date prior to date fund’s form 1120-ric contains a sec_855 election with respect to dollar which is equal to dollar plus dollar law and analysis sec_855 provides in part that if a ric declares a dividend prior to the time plr-116835-00 prescribed by law for the filing of its return for a tax_year including the period of any extension of time granted for filing such return and distributes the amount of the dividend to shareholders in the 12-month_period following the close of such tax_year and not later than the date of the first regular dividend payment made after the declaration the amount so declared and distributed shall to the extent the ric elects in such return in accordance with regulations prescribed by the secretary be considered as having been paid during such tax_year except as provided otherwise by sec_855 any distribution made from income and gains of the previous year made no later than the first distribution from income and gains of the current tax_year is not considered the first regular dividend payment under sec_855 revrul_69_445 1969_2_cb_148 in addition revrul_76_328 1976_2_cb_216 holds that the first regular dividend payment under sec_858 is the first dividend payment which exceeds the remaining undistributed_earnings and profits of the previous year or for which no election under sec_858 was made the language of sec_858 applying to real_estate_investment_trusts parallels the language of sec_855 sec_1_855-1 of the income_tax regulations provides that a sec_855 election must be made in the return filed by the ric for the tax_year sec_301_9100-1 provides in part that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i set forth rules that the internal_revenue_service generally will use to determine whether under the facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based on the facts and representations submitted we conclude that fund has satisfied the requirements for our granting a reasonable extension of time to allow it to make the election under sec_855 accordingly fund is granted an extension until date plr-116835-00 to make an election under sec_855 on its federal_income_tax return filed for its tax_year ended date this ruling is limited to providing an extension of time for filing a sec_855 election and does not provide relief from any liability incurred as a result of filing a late return except as specifically ruled upon herein we express no opinion concerning any federal excise or income_tax consequences relating to the facts herein under any other section of the code for example we express no opinion as to whether fund in fact has satisfied all of the requirements of sec_855 and the regulations thereunder we also express no opinion as to whether fund qualifies as a ric under subchapter_m part i of chapter of the code further no opinion is expressed as to whether fund’s tax_liability is not lower in the aggregate for the year to which the regulatory election applies than fund’s tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax return involved the district director's office will determine fund’s tax_liability for the year involved if the district director's office determines fund’s liability is lower that office will determine the federal_income_tax effect 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 yours lon b smith acting associate chief_counsel financial institutions products enclosures copy of this letter sec_6110 copy


t c memo united_states tax_court tricon metals services inc petitioner v commissioner of internal revenue respondent docket no filed date joseph g stewart abbot brand walton jr and david a elliott for petitioner robert w west for respondent memorandum findings_of_fact and opinion körner judge respondent determined the following deficiencies in petitioner's federal income taxes - -2 fye aug deficiency dollar_figure big_number big_number the issue for decision is whether the compensation paid to petitioner's majority shareholder in its fiscal years ending and is deductible by petitioner as reasonable_compensation under sec_162 we hold that it is to the extent stated herein 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 unless otherwise indicated findings_of_fact we incorporate by reference the stipulation of facts and attached exhibits tricon metals services inc petitioner is an alabama corporation whose principal_place_of_business was jefferson county alabama when the petition was filed petitioner operates on a fiscal_year ending august petitioner petitioner buys warehouses and sells high-strength steel products petitioner's founders james l bell bell walter h ferguson ferguson and w warren wood wood worked as salesmen for other companies in the steel business prior to organizing petitioner - -3 bell ferguson and wood organized petitioner in date and they each owned one-third of petitioner's outstanding shares of stock initially bell ferguson and wood served as petitioner's entire sales force and each one was responsible for a particular sales territory in its first full year of operation petitioner employed six people which included the three founders had gross_sales of dollar_figure and had net_income after taxes of dollar_figure petitioner prospered in the 1970's it soon outgrew the rented warehouse where its operations began and moved to a warehouse and office facility in irondale alabama a suburb of birmingham by the end of petitioner employed people and had gross_sales of dollar_figure in bell and ferguson discovered that wood had organized a corporation in jacksonville florida to compete with petitioner at the time wood was still an officer director and employee of petitioner bell and ferguson as a majority of petitioner's board_of directors fired wood and sued him for breach of fiduciary duty wood counterclaimed against petitioner and they eventually settled the litigation although wood's employment with petitioner was terminated he remained a shareholder from through date wood owned approximately percent of petitioner's outstanding shares of stock - -4 after bell and ferguson discovered that wood had organized a competitor they established a salary structure for themselves based on a percentage of petitioner's net sales bell who was serving as petitioner's president at the time was to receive percent of petitioner's net sales ferguson who was serving as petitioner's vice president was to receive percent of petitioner's net sales petitioner's operations during most of the 1980's bell and ferguson were officers of petitioner sharing administrative duties and acting as commissioned salesmen bell had served as petitioner's president since in bell became ill with cancer and he died in date petitioner redeemed bell's stock pursuant to a buy-sell_agreement executed by the founders in date after bell's death ferguson became president of petitioner ferguson's salary as president was set pincite percent of net sales in wood filed a lawsuit against petitioner and ferguson in an unsuccessful attempt to gain control of petitioner at the time wood owned just over percent of petitioner's outstanding shares of stock and ferguson owned just over percent of petitioner's outstanding shares of stock in response to wood's lawsuit petitioner and ferguson entered into a 5-year employment agreement employment agreement to protect ferguson in the event that wood gained control of petitioner - -5 pursuant to the employment agreement ferguson's salary was set pincite percent of net sales the same percentage of net sales that bell had received prior to his death wood's attempt to gain control of petitioner proved unsuccessful and after his defeat wood agreed to sell his stock to petitioner on date wood sold his stock to petitioner for dollar_figure after petitioner purchased wood's stock ferguson remained petitioner's majority shareholder owning approximately percent of petitioner's outstanding_stock petitioner's financial condition petitioner's financial statements reflect the following fye net gross net retained aug sales profit income earnings dollar_figure dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number due to an accounting adjustment the retained earnings figure was restated from dollar_figure to dollar_figure this figure is set forth in the financial statements for the period date through date subsequent financial statements show this figure as dollar_figure this discrepancy does not affect our analysis petitioner's shareholders' equity is as follows - -6 fye shareholders' aug equity dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number petitioner has never paid dividends in the 1970's petitioner and its shareholders borrowed funds to expand petitioner's facilities the terms of the financing_arrangement prohibited petitioner from paying dividends to its shareholders in and again in petitioner entered into a bond guaranty agreement guaranty agreement with amsouth bank n a in connection with another expansion of petitioner's facilities the guaranty agreement was operative through and it prohibited petitioner from paying dividends to its shareholders while the bonds were outstanding ferguson's executive duties ferguson became petitioner's president and chief_executive_officer ceo in after bell's death after becoming ceo ferguson continued to serve as petitioner's treasurer in date petitioner created two additional vice president positions for a total of three vice presidents and the three - -7 vice presidents assisted ferguson in managing petitioner's operations ferguson supervised the vice presidents ferguson was a hands-on chief executive he played a role in purchasing and personnel decisions although petitioner had other employees that also worked in these areas ferguson played a major role in selecting elko nevada as the site for petitioner's western operations petitioner opened the elko nevada site in date ferguson also oversaw petitioner's expansion into foreign markets such as mexico south america canada and indonesia ferguson's sales duties during the years in issue petitioner employed between and salesmen petitioner had two regional sales managers one that covered the western united_states and one that covered the northeastern united_states after becoming ceo ferguson continued to serve petitioner as a salesman ferguson's sales territory included southern alabama mississippi and much of louisiana ferguson personally made sales calls to existing customers in his sales territory as well as any new customers within his territory like all of petitioner's salesmen ferguson's sales duties forced him to travel at times up to days a week ferguson like the other salesmen received a commission on the sales he generated - -8 one crucial role that ferguson filled was keeping petitioner's super salesmen together these were petitioner's top performing salesmen and they were extremely valuable employees ferguson personally supervised of petitioner's top performers the top performers could call ferguson with a problem any time days a week ferguson in his capacity as sales manager received a commission on the sales generated by the salesmen that he supervised ferguson's compensation petitioner's management team set salaries and bonuses after consulting with louis paul kassouf kassouf kassouf has been a certified_public_accountant since and he served as petitioner's accountant from through the years in issue kassouf consulted with petitioner on audit issues corporate tax planning compensation and tax_return preparation when ferguson took over as petitioner's president after bell's death initially his salary wa sec_2 percent of net sales ferguson then entered into the employment agreement with petitioner which set ferguson's salary pincite percent of net sales kassouf had recommended a salary for ferguson in excess of percent of net sales kassouf reasoned that ferguson in addition to his existing duties would be adding the duties previously handled by bell however ferguson did not perform all of the duties previously handled by bell - -9 in addition to salaries petitioner paid bonuses to its executives petitioner had no formal program for awarding bonuses petitioner's management team would meet with kassouf in august the month that petitioner's fiscal_year closed to determine the bonuses to be paid after considering petitioner's performance and the effort put forth by the various employees kassouf would recommend what he felt were reasonable bonuses for the various employees in and kassouf recommended a bonus for ferguson slightly larger than the bonus that petitioner paid ferguson the bonus that ferguson received during the fiscal_year ending was for services rendered during that year ferguson received the following fringe_benefits item contributions to profit sharing plan dollar_figure dollar_figure dollar_figure medical insurance big_number life_insurance big_number disability insurance big_number automobile big_number club_dues big_number total big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number ferguson's compensation salary sales commission and bonus was as follows for purposes of this opinion we use the term compensation to refer to ferguson's salary sales commission and bonus we take the fringe_benefits into account as a factor in determining whether that compensation was reasonable fye aug salary commissions bonus sales total compensation conceded by respondent dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number opinion sec_162 allows a corporation to deduct a reasonable allowance for salaries or other compensation_for_personal_services actually rendered as a business_expense to come within the ambit of sec_162 the compensation must be both reasonable in amount and in fact paid purely for services sec_1_162-7 income_tax regs although framed as a two-prong test the inquiry under sec_162 generally has turned on whether the amounts of the purported compensation payments were reasonable 716_f2d_1241 9th cir revg and remanding tcmemo_1980_282 what constitutes reasonable_compensation to a corporate officer is a question of fact to be determined from all the facts and circumstances of a case 500_f2d_148 8th cir affg tcmemo_1973_130 95_tc_525 affd 965_f2d_1038 11th cir petitioner has the burden of proving that the payments to ferguson were reasonable rule a respondent has conceded that petitioner is entitled to a deduction for compensation paid to ferguson in the amounts of dollar_figure dollar_figure and dollar_figure for the fiscal years ending and respectively many factors are relevant in determining the reasonableness of compensation and no single factor is decisive charles schneider co v commissioner supra pincite 178_f2d_115 6th cir revg a memorandum opinion of this court the courts have used numerous factors to determine what constitutes reasonable_compensation we address those factors below roles in company the first category of factors concerns the employee's role in the company relevant considerations include ferguson's qualifications hours worked and duties performed as well as his general importance to petitioner's success 536_f2d_289 9th cir affg in part and revg in part 59_tc_231 ferguson served as petitioner's ceo and as a salesman as ceo ferguson selected the site for petitioner's operations in the western united_states and he also oversaw petitioner's international sales there is no evidence however that petitioner's international operations were profitable ferguson supervised three vice presidents that assisted in petitioner's operations petitioner has not shown that it engaged in highly technical or complex operations or that ferguson possessed managerial skills unique to petitioner' sec_12 industry see 488_f2d_695 5th cir indeed the record supports the finding that sales remained ferguson's focus during the years in issue ferguson's customer contacts and his familiarity with the steel industry made him a valuable salesman and sales manager ferguson traveled met with clients and supervised of petitioner's super salesmen although the salesmen that ferguson supervised could contact him in the evenings as well as on weekends petitioner presented no evidence that ferguson worked an inordinate number of hours external comparison we also compare the employee's salary with the salaries paid_by similar companies for similar services sec_1_162-7 income_tax regs both parties offered expert testimony as to what a like company would pay for like services both experts considered surveys of financial data on numerous companies a petitioner's expert petitioner presented the testimony of james m otto otto otto compared the compensation paid to the chief executive officers of publicly traded companies to the salary and bonus paid to ferguson otto did not include ferguson's commissions from sales when determining the reasonableness of ferguson's compensation as ceo otto reasoned that since ferguson was paid sales commissions on the same commission structure as petitioner's other salesmen and since ferguson's duties as salesman were separate and distinct from his duties as ceo the inclusion of ferguson's sales commissions in the analysis of ferguson's compensation as ceo would be inappropriate within these parameters otto concluded that ferguson's compensation as ceo was reasonable b respondent's expert respondent presented expert testimony from david neil fuller fuller fuller reviewed surveys of financial data of other companies and he also reviewed the compensation paid to executives at nine companies that he considered comparable to petitioner the nine companies selected by fuller had revenues that were to times larger than petitioner's revenues and those companies were not necessarily in a line_of_business comparable to that of petitioner when discussing petitioner's performance fuller acknowledged that the u s economy was in a recession during the years in issue fuller stated that the slow economy had a negative impact on the steel industry in general yet petitioner suffered less from the recession than did the nine companies that fuller selected for comparison fuller also acknowledged that ferguson served as petitioner's ceo and as a salesman yet in the compensation analysis fuller grouped ferguson's duties together under the title of ceo fuller opined that a range of reasonable_compensation for fuller would be dollar_figure-dollar_figure dollar_figure- dollar_figure and dollar_figure-dollar_figure for the fiscal years ending and respectively c discussion we have not found the opinion of either expert convincing it is not at all clear that the comparable companies used in their analyses are comparable to petitioner in addition neither expert focused on the duties that ferguson actually performed the appropriate comparison is to the duties the employee actually rendered rather than the titles held see 679_f2d_205 11th cir thus the usefulness of their analyses to determine the amount as would ordinarily be paid for like services by like enterprises under like circumstances is doubtful sec_1 b income_tax regs otto testified that he considered the companies he selected to be comparable regarding return on equity and return on assets but he did not consider the companies necessarily comparable with regard to overall sales or net asset value furthermore several of the companies that petitioner's expert considered comparable to petitioner were conglomerates with several lines of business only one of which was similar to the business operated by petitioner we note also that in ferguson's total compensation sales commissions salary and bonus exceeded the compensation paid to each of the ceo's of the companies that petitioner's expert selected as comparable companies in both and ferguson's total compensation sales commissions salary and bonus exceeded the compensation paid to all but one of the ceo's of the companies that petitioner's expert selected as comparable companies we also do not agree with otto's analysis regarding the division of ferguson's duties between ceo and salesman otto limited his analysis to ferguson's duties and compensation as ceo otto testified that the amount of time ferguson spent as a ceo versus the time he spent as a salesman was irrelevant as long as ferguson performed the duties required by petitioner we are not convinced that ferguson effectively filled the role of a full-time ceo ferguson spent much of his time serving petitioner as a salesman as for respondent's expert we again question whether the companies selected as comparable companies are indeed comparable the companies selected by fuller were not necessarily in petitioner's line_of_business and they were not comparable to petitioner in terms of size the net sales for the comparable companies selected by fuller ranged from dollar_figure to dollar_figure for dollar_figure to dollar_figure for and dollar_figure to dollar_figure for petitioner's net sales during the years in issue ranged from a low of dollar_figure in to a high of dollar_figure in fuller viewed ferguson's compensation as a single package without considering ferguson's sales duties the focus should have been on the duties that ferguson actually performed and some weight should have been given to ferguson's sales ability and his skill in motivating petitioner's super salesmen character and condition of company this category of factors requires us to focus on petitioner's size as indicated by its sales or capital value the complexities of the business and the general economic conditions elliotts inc v commissioner f 2d pincite 528_f2d_176 10th cir affg 61_tc_564 petitioner performed well in a competitive business respondent's expert indicated that petitioner had done well in terms of growth and profitability during the years in issue indeed fuller indicated that petitioner's growth and profitability numbers were better than the numbers produced by the companies that fuller considered comparable to petitioner courts also compare the compensation paid with the gross_profit and net_income of the corporation pepsi-cola bottling co v commissioner supra pincite ferguson's compensation as a percentage of gross_profit before deducting his compensation is approximately percent percent and percent for the fiscal years ending and respectively ferguson's compensation as a percentage of net_income before deducting his compensation is approximately percent percent and percent for the fiscal years ending and respectively these percentages are reasonable given ferguson's contribution to petitioner's success during the years in issue courts have considered whether the corporation provides fringe_benefits such as pensions or profit sharing plans 853_f2d_1267 5th cir affg tcmemo_1986_407 ferguson participated in petitioner's profit- sharing plan and received other fringe_benefits as well this factor favors respondent conflict of interest the primary issue in considering factors indicating a conflict of interest is whether some relationship exists between the company and the employees which might permit the former to disguise nondeductible corporate_distributions of income as salary expenditures deductible under sec_162 trinity quarries inc v united_states supra pincite the relationship in this case where ferguson was petitioner's majority shareholder warrants scrutiny 67_tc_694 the corporation's dividend history is a relevant factor to consider petitioner paid no dividends yet the absence of dividend payments does not necessarily lead to the conclusion that the amount of compensation is unreasonably high elliotts inc v commissioner f 2d pincite we shall not presume a disguised_dividend from the bare fact that a profitable corporation does not pay dividends 819_f2d_1315 5th cir affg tcmemo_1985_267 this is especially true in this case where petitioner's financing arrangements prohibited the payment of dividends furthermore from through date wood owned a large block of petitioner's stock and also owned and operated a competitor this may have had some impact on petitioner's dividend policy courts also evaluate the compensation payments from the perspective of a hypothetical independent investor the prime indicator is the return on investors' equity id pincite7 if the company's earnings on equity after payment of the compensation remain at a level that would satisfy an independent investor there is a strong indication that management is providing compensable services and that profits are not being siphoned out of the company disguised as salary elliotts inc v commissioner supra pincite respondent's expert calculated returns on equity of percent percent and percent for the fiscal years ending and respectively we conclude that an independent investor would have been satisfied with petitioner's earnings on equity during the years in issue courts also consider when bonuses were paid payment of bonuses at the end of the fiscal_year when a corporation knows its revenue for the year may enable it to disguise dividends as compensation owensby kritikos inc v commissioner supra pincite estate of wallace v commissioner t c pincite petitioner's management team met with kassouf at the end of petitioner's fiscal_year to determine the annual bonuses to be paid to petitioner's executives this factor casts some doubt on whether such payments were compensation trinity quarries inc v united_states f 2d pincite internal consistency internal inconsistency in petitioner's treatment of payments to employees may indicate that the payments to ferguson were not reasonable elliotts inc v commissioner f 2d pincite petitioner had no formal program for awarding bonuses bonuses that have not been awarded under a formal and consistently applied program are suspect 503_f2d_359 9th cir affg tcmemo_1971_200 however it is permissible to pay and deduct compensation_for services performed in prior years 281_us_115 a compensation_for services in prior years kassouf petitioner's accountant testified that approximately dollar_figure of the dollar_figure bonus payment in consisted of shortage amounts due to ferguson from the prior years the record does not support kassouf's testimony the bonus that ferguson received during the fiscal_year ending was for services rendered during that year b compensation paid to other employees petitioner paid ferguson at the high end of the compensation range petitioner presented no evidence that its other employees were compensated at or near the high end of the compensation range cf 73_tc_1142 this factor favors respondent based on the factors outlined above we conclude that dollar_figure dollar_figure and dollar_figure represent a reasonable amount of compensation to ferguson for petitioner's fiscal years ending and respectively to reflect the foregoing decision will be entered under rule


t c memo united_states tax_court paul r peete petitioner v commissioner of internal revenue respondent docket no filed date paul r peete pro_se jean song for respondent memorandum findings_of_fact and opinion goeke judge respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure and an accuracy- related penalty under sec_6662 a of dollar_figure after 1unless otherwise indicated all section references are to the internal_revenue_code in effect during the year in issue and all rule references are to the tax_court rules_of_practice and procedure concessions the sole issue for decision is whether petitioner is liable for the penalty we hold that he is liable findings_of_fact some of the facts have been stipulated the stipulation of facts the stipulation of settled issues and the attached exhibits are incorporated herein by this reference petitioner resided in gardena california at the time his petition was filed on schedule c profit or loss from business of his form_1040 u s individual_income_tax_return petitioner claimed a business loss of dollar_figure for a principal business or profession listed as marketing sales the loss comprised the following claimed expenses dollar_figure for advertising dollar_figure for car and truck expenses dollar_figure for depreciation and sec_179 expense deduction dollar_figure for mortgage expenses dollar_figure for travel dollar_figure for meals and entertainment and dollar_figure for other expenses the other claimed expenses included dollar_figure for donations at bible college dollar_figure for repairs service dollar_figure for tax preparation fees dollar_figure for 2in a stipulation of settled issues petitioner conceded that he is liable for interest_income of dollar_figure and a taxable_distribution of dollar_figure and that he is not entitled to schedule c profit or loss from business_expenses of dollar_figure on brief respondent concedes that petitioner is not subject_to the percent additional tax of dollar_figure for early distribution under sec_72 the remaining adjustments contained in the notice_of_deficiency are computational in nature and will be resolved by the parties in the rule computation financial planning dollar_figure for cell phone dollar_figure for parking dollar_figure for professional business_expenses dollar_figure for prospecting green fees and dollar_figure for teaching expenses petitioner reported tax_liability of dollar_figure on his return petitioner’s occupation is listed on the return as serv tech and the majority of his reported wage salaries tips etc income for the year was from lucent technologies elray wise of e w holding co is listed as the paid preparer of the tax_return respondent issued to petitioner a notice_of_deficiency dated date for the taxable_year respondent determined that petitioner’s corrected tax_liability was dollar_figure and that he was liable for additional tax of dollar_figure under sec_72 one of respondent’s determinations was that petitioner was not entitled to the claimed schedule c expenses respondent calculated that the underpayment_of_tax attributable to the disallowed schedule c expenses was dollar_figure finally respondent determined that petitioner was liable for an accuracy-related_penalty under sec_6662 of percent of the underpayment attributable to the disallowed schedule c expenses petitioner timely filed a petition to this court seeking a redetermination 3the evidence in the record indicates that robin manasseh who worked for e w holding co actually prepared petitioner’s tax_return the trial in this case was held on date at the conclusion of the trial the court ordered respondent to file a brief and then allowed petitioner until date to file an answering brief respondent timely filed a brief however petitioner failed to file an answering brief opinion the issue for decision is whether petitioner is liable for the accuracy-related_penalty on the underpayment_of_tax attributable to the disallowed schedule c loss petitioner’s position is that he is not liable for the penalty because he relied on the advice of his tax_return_preparer sec_6662 imposes a penalty of percent of the portion of the underpayment_of_tax attributable to the taxpayer’s negligence disregard of rules or regulations or substantial_understatement_of_income_tax sec_6662 b and an understatement is substantial if it exceeds the greater of percent of the tax required to be shown on the return for the taxable_year or dollar_figure sec_6662 and the accuracy-related_penalty does not apply to any part of an underpayment_of_tax if it is shown that there was reasonable_cause for and that the taxpayer acted in good_faith with respect to that part sec_6664 the determination of whether a taxpayer acted in good_faith is made on a case-by-case basis taking into account all the pertinent facts and circumstances sec_1_6664-4 income_tax regs under sec_7491 the commissioner must come forward with sufficient evidence to show that a penalty is appropriate 116_tc_438 however the commissioner does not bear the burden_of_proof as to a penalty and once the initial burden of production is met the taxpayer must come forward with sufficient evidence to establish that the addition_to_tax does not apply id pincite petitioner reported a tax_liability of dollar_figure on his tax_return respondent determined that petitioner’s corrected tax_liability including additional tax under sec_72 was dollar_figure respondent calculated that dollar_figure of the corrected tax_liability was attributable to the schedule c loss which petitioner has conceded he is not entitled to deduct thus respondent has satisfied the burden of showing that the accuracy- related penalty is appropriate because the understatement_of_tax exceeds the greater of percent of the tax required to be shown on the return or dollar_figure in order to avoid imposition of the sec_7491 is effective with respect to court proceedings arising in connection with examinations commencing after date internal_revenue_service restructuring and reform act of publaw_105_206 sec c 112_stat_727 the evidence in the record indicates that the examination in this case commenced after date 5the computational adjustments to petitioner’s return continued penalty petitioner must establish that he had reasonable_cause and acted in good_faith with respect to the claimed schedule c loss the general_rule is that taxpayers have a duty to file complete and accurate tax returns and cannot avoid the duty by placing responsibility with an agent 469_us_241 88_tc_654 however in limited situations the good_faith reliance on the advice of an independent competent professional in the preparation of the tax_return can satisfy the reasonable_cause and good_faith exception united_states v boyle supra pincite 94_tc_473 the reliance must be reasonable in good_faith and based on full disclosure united_states v boyle supra pincite- weis v commissioner supra petitioner testified that the activity reported on schedule c was related to a pyramid scheme run by the tax people petitioner testified that he was recruited by participants in the scheme and attended a seminar describing the activity petitioner initially invested dollar_figure and then paid dollar_figure per month to participate in the activity the only way for petitioner to accumulate money was if he recruited other people to join the continued are relatively minor in amount and do not impact the finding that there was a substantial_understatement_of_income_tax activity petitioner’s business activities consisted of meeting with people and trying to recruit them into the activity petitioner testified that his tax_return_preparer robin manasseh ms manasseh introduced him to the scheme and told him that he could deduct expenses related to recruiting other individuals after getting involved petitioner testified that he discovered that ms manasseh was being investigated and that she informed petitioner to stop trying to recruit people until the investigation was finished petitioner had difficulty explaining how the various items constituting the schedule c loss related to a business activity he testified that he did not know of any advertising expenses that he had absolutely no idea what the dollar_figure reported as depreciation related to that he did not know what the dollar_figure in repair service expenses related to and that he did not make any gifts to charities other than those listed on other parts of his tax_return he testified that he claimed expenses related to playing golf and meals on the basis of the advice of ms manasseh petitioner acknowledged that it occurred to him that this may have been too good to be true and that he did not take steps to investigate what he was told other than trusting the judgment of ms manasseh petitioner also acknowledged a large part of food expenses were for meals that he had by himself and that the hospital visits were in connection with his position as a reverend petitioner was open and candid at trial regarding his involvement in the pyramid scheme unfortunately for petitioner his own testimony clearly establishes that he did not have reasonable_cause and did not act in good_faith in claiming the schedule c loss petitioner was unaware of certain items claimed as expenses on the return he knew that some of the claimed deductions were too good to be true and he failed to investigate the appropriateness of the claimed deductions after learning that his tax_return_preparer was being investigated in connection with the same activity petitioner failed to call ms manasseh or any other witnesses at trial to corroborate his claim of good_faith reliance and his testimony indicates that he did not rely on the advice of an independent competent tax professional accordingly we hold that petitioner is liable for the accuracy- related penalty decision will be entered under rule