t c memo united_states tax_court michael j fitzpatrick petitioner v commissioner of internal revenue respondent docket no date during and p was a loan officer at bank of new york p accepted money from the bank's clients in order to approve or modify loans in fitzpatrick v commissioner tcmemo_1995_548 the court decided that p because he had been convicted of tax_evasion under sec_7201 i r c for the years and was collaterally estopped from denying his participation in a bribery scheme and from denying that some part of the underpayment of his income_tax was due to fraud for purposes of sec_6653 i r c for each of those taxable years held p's and gross_income includes the payments he received from clients in those years held further p is liable for the additions to tax under sec_6653 i r c for and and for purposes of sec_6653 as in effect for the addition_to_tax applies to the entire amount of unreported income he received in michael j fitzpatrick pro_se patrick e whelan and daniel k o'brien for respondent memorandum findings_of_fact and opinion laro judge michael j fitzpatrick petitioned the court to redetermine the following determinations of deficiencies and additions to tax_year deficiency 1dollar_figure big_number additions to tax sec_6653 sec_6653 sec_6653 dollar_figure --- --- dollar_figure --- of the interest due on dollar_figure 1the parties stipulated that the deficiency for should be reduced by dollar_figure following our decision in fitzpatrick v commissioner tcmemo_1995_548 the issues before the court are as follows in fitzpatrick v commissioner tcmemo_1995_548 the court decided that respondent was not collaterally or equitably estopped from issuing a notice_of_deficiency due to the earlier issuance of the no-change letter to petitioner for the same tax years the notice_of_deficiency was not in violation of the double_jeopardy clause of the fifth_amendment petitioner is collaterally estopped from denying his participation in the bribery scheme and petitioner is collaterally estopped from denying that there is an underpayment of his income_tax and that some part of the underpayment is due to fraud for purposes of sec_6653 for each of the years and sec_6653 requires respondent to establish the specific_portion of the underpayment_of_tax which is attributable to fraud for purposes of applying the percent of the interest payable provision cooney v commissioner tcmemo_1994_50 since we decided in fitzpatrick v commissioner supra that continued whether respondent correctly determined that petitioner received unreported income from bribes in the years and in the amounts of dollar_figure and dollar_figure respectively we hold that respondent's determinations are correct whether respondent correctly determined that the entire amount of the deficiency for was attributable to fraud for purposes of sec_6653 we hold that she did unless otherwise stated section references are to the internal_revenue_code applicable to the years in issue rule references are to the tax_court rules_of_practice and procedure dollar amounts are rounded to the nearest dollar findings_of_fact some of the facts have been stipulated and are so found the stipulations of fact and the exhibits submitted therewith are incorporated herein by this reference petitioner resided in taos ski valley new mexico when he filed his petition from through petitioner was a loan officer in the real_estate and construction lending department of the bank of new york the bank he initially served as assistant treasurer and in late he was promoted to assistant vice president of the bank continued petitioner cannot deny that a part of the underpayment was due to fraud for purposes of sec_6653 and sec_6653 for and respectively it is left to decide the amount of the addition_to_tax under sec_6653 for on date brenton's cove development co brenton's closed on a dollar_figure million construction loan with the bank petitioner worked on this loan as a loan officer for the bank herbert l finley finley and radcliffe romeyn romeyn were the general partners of brenton's on date the bank approved a construction loan advance of dollar_figure for brenton's the proceeds of which were wired to petitioner's brother on date on date petitioner recommended that the bank credit committee approve a dollar_figure million construction loan to landing development co landing and long wharf development co long wharf for the purpose of financing the construction of two condominium hotels inn on the harbor and inn on long wharf the inns the bank conditionally approved this loan on date landing closed on a construction loan of dollar_figure from the bank finley romeyn and william r wing wing were general partners of landing and long wharf timothy m dwyer dwyer was a general_partner of long wharf only in the summer of r perry harris a representative of a real_estate investment group expressed an interest in possibly purchasing the inns and later selling each completed unit as a time share promotion the original bank commitment to landing and long wharf did not permit the borrowers to market the condominiums as time shares in order for the sale of the inns to be accomplished a change in the bank loan agreement had to be effected on date inn group associates inn group a limited_partnership was formed for the purpose of acquiring the inns the general_partner of inn group was r perry harris and the limited partners were r perry harris finley romeyn wing dwyer tremont street corp and western atlantic investment inc in date the partners of landing and long wharf entered into purchase and sale agreements with inn group whereby the inns were sold to inn group for dollar_figure million pursuant to these agreements inn group assumed landing's and long wharf's obligations as to the bank's construction loan and landing received a dollar_figure million nonrefundable deposit petitioner acting on behalf of the bank was a signatory to the assumption_agreement on date landing used the dollar_figure million deposit to make dollar_figure payments to finley romeyn and wing the remainder of the deposit was utilized to pay dollar_figure in construction bills and dollar_figure to petitioner the dollar_figure payment was made to petitioner so that he would approve the modification of the loan agreement petitioner directed that landing make the payment by two checks one for dollar_figure the other for dollar_figure which were deposited in a panamanian bank in the checking account of rain shine r s a panamanian corporation the memo blank on each check reflected that it was for furniture fixtures and equipment these notations were fabrications designed to permit landing to deduct these expenditures as business_expenses the distribution of the dollar_figure million deposit of which dollar_figure went to the general partners of landing and the rest to petitioner violated the terms of landing's construction loan from the bank under the loan agreement the first income earned by landing was to have been applied toward paying off the construction loan to the bank petitioner endorsed the dollar_figure and dollar_figure checks in and respectively petitioner directed the panamanian bank to mail r s's account records to him in the united_states a small quantity of temporary checks for r s was mailed to petitioner at his home all checks on the r s account were drawn by petitioner using either his name or the fictitious name of daniel dunn in a check was drawn on the r s account payable to petitioner for dollar_figure this check was signed by petitioner as an authorized signatory and was ultimately deposited to his new york city checking account during disbursements totaling dollar_figure were made from the r s account to the hill winery associates checking account hill account at the citizens first national bank of new jersey ridgewood new jersey citizens bank all deposits to the hill account were transferred from the r s checking account with the exception of loan proceeds in the amount of dollar_figure deposited to the hill account on date in the below-listed disbursements which inured to the personal benefit of petitioner were made from the hill account date disbursed amount payee purpose dollar_figure fbf winery big_number mary fusco big_number elaine m fitzpatrick winery partnership with petitioner's brother in california petitioner's purchase of residence located in city island new york repayment of loan to petitioner's mother during february and march of the hill account had a mailing address of columbus avenue new york new york the monthly statements for february and march were undeliverable at that address and the statements were thereafter picked up by petitioner's father who was an employee of citizens bank on date petitioner acting on behalf of the bank was a signatory to a building loan agreement with long wharf the agreement authorized the release of dollar_figure in construction loan proceeds to long wharf on date landing made a dollar_figure payment to pares y nones s a a panamanian corporation because petitioner had enabled the long wharf loan closing to take place in spite of the fact that long wharf did not have any coastal zone management approvals petitioner was instrumental in opening an account for pares y nones s a into which the dollar_figure was deposited in connection with the purchase of a 71-foot bermuda ketch by banba associates on date petitioner directed a panamanian attorney to wire dollar_figure from the pares y nones s a account approximately month prior to directing this disbursement petitioner had obtained a survey report on the ketch petitioner was the signatory on behalf of the seller during dwyer construction co made repairs and renovations to petitioner's residence the renovations were first discussed by finley romeyn and petitioner at the long wharf loan closing petitioner requested that a jacuzzi be installed in his house and that landing send some of its construction workers to his house to do renovations landing made payments of dollar_figure to dwyer and dwyer construction co in connection with the renovations on november and romeyn wrote to petitioner and demanded payment from him initially in the amount of dollar_figure and thereafter in the amount of dollar_figure these demands were made by romeyn under the threat that if the money was not forthcoming the internal_revenue_service would be advised of petitioner's involvement in the r s account and the pares y nones s a account petitioner never complied with either of romeyn's demands in and finley romeyn and petitioner were each convicted of related crimes involving dishonesty and false statements in the federal district_court for the district of rhode island finley and romeyn each pled guilty in to two counts of making false statements on documents submitted to the federally insured old colony co-operative bank requesting construction loan advances in violation of u s c sec_1014 romeyn also pled guilty in to one count of making material false statements on the landing federal_income_tax return in violation of sec_7206 these material false statements consisted in part of falsely deducting payments made to r s as business_expenses on date petitioner was convicted of willful attempted evasion of his and income_tax liabilities under sec_7201 this conviction was affirmed by the court_of_appeals for the first circuit see 892_f2d_162 1st cir petitioner was also convicted of two counts of conspiracy to travel and use of the mails and interstate commerce between rhode island new york and the republic of panama to facilitate bribery and the distribution of the proceeds of bribery in violation of u s c sections and a unreported income opinion respondent asserts that the transfers from landing into the r s and pares y nones s a accounts and the repairs by landing to petitioner's home constituted income in the respective amounts of dollar_figure and dollar_figure for and petitioner argues that the deposits were loans rather than income we agree with respondent sec_61 defines gross_income as all income from whatever source derived this definition includes all accessions to wealth clearly realized and over which the taxpayers have complete dominion including bribes sec_61 348_us_426 30_f3d_1077 9th cir 994_f2d_1542 11th cir affg tcmemo_1991_636 239_f2d_658 7th cir sec_1_61-14 income_tax regs respondent's determinations are presumed correct and petitioner has the burden to establish that they are erroneous rule a 290_us_111 some courts have recognized a limited exception to this general_rule where the commissioner alleges that the taxpayer has unreported illegal income 92_tc_661 in such cases the deficiency determination must be supported by some evidentiary foundation linking the taxpayer to the alleged income-producing activity blohm v commissioner supra pincite 937_f2d_1548 10th cir once this minimal evidentiary showing has been made the deficiency determination is presumed correct and it becomes the taxpayer's burden to prove it erroneous blohm v commissioner supra pincite testimony of a taxpayer which is unsupported by documentary_evidence may be insufficient to satisfy the taxpayer's burden see ghadiri v commissioner tcmemo_1996_528 alvarez v commissioner tcmemo_1995_414 in fitzpatrick v commissioner tcmemo_1995_548 the court held that petitioner was collaterally estopped from denying his participation in the bribery scheme remaining in issue is the amount of unreported income he received in and we find that petitioner has not met his burden of proving that the amounts he directed landing to deposit in the r s and pares y nones s a accounts are not includable in his gross_income further petitioner has not proven that the repairs to his home which landing paid for did not constitute income to him respondent argues that petitioner should include in income the deposits into the r s and pares y nones s a accounts and that he exercised dominion and control_over those accounts we agree with respondent all of the deposits to the r s account came from the bank's construction loan clients to whom petitioner rendered services and all of the disbursements from the account were made by checks drawn on the account that were signed either by petitioner personally or by petitioner with the alias daniel dunn some of the disbursements from the account were channeled to a new jersey bank account in the name of hill winery associates which had no business_purpose other than to pay major personal expenditures of petitioner and for which petitioner's father picked up all the bank statements during the sole check disbursed from this account was for dollar_figure and was signed by petitioner was made payable to petitioner and was ultimately deposited by petitioner in his new york city checking account accordingly we hold that petitioner must include dollar_figure and dollar_figure in his and income respectively petitioner similarly has failed to prove that he did not exercise dominion and control_over the pares y nones s a account the evidence has shown that petitioner was involved in opening and operating the account petitioner had obtained a survey on a ketch then approximately month later he directed a panamanian attorney to wire dollar_figure from the account petitioner was signatory on behalf of the seller of the bermuda ketch accordingly we find that petitioner must include the dollar_figure deposited by landing into the pares y nones s a account in his income additionally respondent contended that petitioner should include in income the amount of renovations on his home paid for by landing the renovations were first discussed by finley romeyn and petitioner at the long wharf closing petitioner requested that a jacuzzi be installed in his home along with other alterations and that landing send some of its construction workers to do the work landing made dollar_figure in payments to fund the renovations petitioner admitted that he never expected that he would have to pay for the repairs accordingly we find that petitioner should include the amount landing paid for the renovations on his home in his gross_income fraud addition under sec_6653 respondent determined that petitioner was liable for additions to tax for fraud in each year in issue respondent must prove her determinations of fraud by clear_and_convincing evidence sec_7454 rule b 80_tc_1111 fraud requires a showing that the taxpayer intended to evade a tax known or believed to be owing 398_f2d_1002 3d cir as discussed above respondent must prove the amount of the underpayment that is attributable to fraud for purposes of sec_6653 see supra note in fitzpatrick v commissioner supra the court decided that petitioner's conviction under sec_7201 collaterally estops him from denying that there is an underpayment of his income_tax and that some part of the underpayment is due to fraud for purposes of sec_6653 for each of the taxable years and consequently petitioner is liable for the addition_to_tax under sec_6653 for and he is liable for the addition_to_tax under sec_6653 for the only remaining issue that we must decide is the amount of the understatement_of_tax in which is attributable to fraud for purposes of sec_6653 we recognize that respondent has the burden of proving fraud by clear_and_convincing evidence whereas petitioner as explained above has the burden of showing that he did not receive unreported income to overcome respondent's determination of deficiencies we find that respondent has met her burden the evidence clearly and convincingly shows that petitioner had dominion and control_over the r s and pares y nones s a accounts that the amounts deposited in those accounts by landing constituted unreported income to him and that he received additional unreported income as a result of the repairs on his home which landing paid for the unreported income consisted of the bank deposit proceeds and the renovations on petitioner's house consequently the entire amount of petitioner's unreported income for is attributable to fraud and is subject_to the provisions of sec_6653 we have considered all arguments made by petitioner for contrary holdings and to the extent not discussed above find them to be without merit to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 3-plr-123983-02 date date company trust a_trust b a b c date date year year year legend plr-123983-02 year dear this letter responds to a letter dated date submitted on behalf of company requesting inadvertent termination relief under sec_1362 of the internal_revenue_code facts company elected to be an s_corporation effective date year on date year trust a and trust b became shareholders of company it is represented that both trust a and trust b satisfy the requirements of a qualified_subchapter_s_trust qsst under sec_1361 and that they timely filed qsst elections a is the income_beneficiary of trust a and b is the income_beneficiary of trust b under each trust's governing instrument the trustees are not required to distribute annually all of the trust's income within the meaning of sec_643 to each trust's current income_beneficiary when preparing company’s year tax returns company’s new accountants discovered that the trustees had not distributed trust a’s or trust b’s income to a and b respectively for the taxable years ending year year year and year the trustees were unaware that the failure to distribute all the income of a qsst would result in a termination of company's s election upon discovery of the requirement the trustees immediately took corrective action by making the required distributions for year and reporting the distributions on the relevant parties’ year tax returns company and its shareholders trust a_trust b and c represent that they have filed their returns for year sec_1 through consistent with the treatment of company as an s_corporation it is further represented that a and b’s individual income_tax returns for year sec_1 through properly included all of their share of the s_corporation income that they should have received from trust a and trust b respectively because the trusts did not distribute their income in year sec_1 through some of the other income of the trusts was not reported by the income beneficiaries in those years however it is represented that this income was taxed at the higher trust rate for those tax years company and its shareholders agree to make any adjustments consistent with the treatment of company as an s_corporation as may be required by the secretary company requests that inadvertent termination relief be granted under sec_1362 law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 provides that an s_corporation cannot have as a shareholder a person other than an estate a_trust described in sec_1361 or an plr-123983-02 organization described in sec_1361 who is not an individual sec_1361 provides that a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder for purposes of sec_1361 sec_1361 provides that a qsst whose beneficiary makes an election under sec_1361 will be treated as a_trust described in sec_1361 sec_1361 defines a qsst as a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current beneficiary in the trust shall terminate on the earlier of the beneficiary's death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to that beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states sec_1361 provides that if any qsst ceases to meet any requirement of sec_1361 but continues to meet the requirements of sec_1361 the provisions of sec_1361 shall not apply to the trust as of the first day of the first taxable_year beginning after the first taxable_year for which the trust failed to meet the requirements of sec_1361 sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect to be an s_corporation sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which a corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that if an election under sec_1362 by any corporation was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such termination the corporation shall be treated as an s_corporation during the period specified by the secretary plr-123983-02 conclusion based on the facts submitted and the representations made we conclude that company's s_corporation_election terminated on date year because the trustees of trust a and trust b failed to distribute all of the trusts’ income for the taxable_year ending year we also conclude that the termination was inadvertent under sec_1362 therefore under sec_1362 company will be treated as continuing to be an s_corporation from date year and thereafter provided that company's s_corporation_election is valid and is not otherwise terminated under sec_1362 if company trust a_trust b or c fail to treat company as described above this ruling will be null and void moreover this ruling is contingent on company and all of its shareholders treating company as having been an s_corporation for the period date year and thereafter and on company and its shareholders making any adjustments necessary for the consistent treatment of company as an s_corporation except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion regarding whether company is otherwise qualified to be an s_corporation or whether trust a or trust b is a valid qsst in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to company’s authorized representative this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent enclosures copy of this letter copy for sec_6110 purposes sincerely s christine ellison chief branch office of the associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index numbers ---------------------------------------------------- ----------------------------------------------- ---------------------- ------------------------------- 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 b03 plr-137533-17 date date x --------------------------------------------------------------------------------------------------- --------------------------- legend country ------ date ------------------------ date ----------------- dear ------------------------ this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to treat x as a partnership for federal tax purposes facts x was formed under the laws of country on date the ownership interests in x are held by foreign persons but x became relevant for u s tax purposes on date x represents that it is a foreign_entity eligible to elect to be classified as a partnership for federal tax purposes however x failed to timely file form_8832 entity classification election to be treated as a partnership for federal tax purposes effective date plr-113273-17 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that unless it elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections plr-137533-17 sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the information submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 as a result x is granted an extension of time of days from the date of this letter to file a properly executed form_8832 with the appropriate service_center electing to be treated as a partnership effective date a copy of this letter should be attached to the form_8832 this ruling is contingent on x and its owners filing within days from the date of this letter all required federal_income_tax and information returns including amended returns for all years consistent with the requested relief these returns must include but are not limited to form_8865 return of u s persons with respect to certain foreign_partnerships such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns we express no opinion concerning the assessment of any interest additions to tax additional_amounts or penalties for failure_to_file a timely income_tax or information_return with respect to any taxable_year that may be affected by this ruling for example we express no opinion as to whether a taxpayer is entitled to relief from any penalty on the basis that the taxpayer had reasonable_cause for failure_to_file timely any income_tax or information returns except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives plr-137533-17 the ruling contained in this letter is 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 ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by ___________________________________ caroline e hay assistant to the branch chief branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c summary opinion united_states tax_court scott white petitioner v commissioner of internal revenue respondent docket no 27663-10s filed date scott white pro_se peter t mccary for respondent summary opinion wells judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant 1unless otherwise indicated section references are to the internal_revenue_code_of_1986 code as amended and rule references are to the tax_court rules_of_practice and procedure to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency of dollar_figure with respect to petitioner’s tax_year we must decide whether we have jurisdiction to consider the instant case background at the time he filed his petition petitioner resided in savannah georgia during petitioner and respondent exchanged extensive correspondence regarding petitioner’s federal_income_tax liability for his tax_year on date respondent prepared a notice_of_deficiency regarding petitioner’s tax_year notice_of_deficiency the notice_of_deficiency stated that the last day for petitioner to file his petition with the tax_court was date petitioner never received the notice_of_deficiency in a letter from an internal_revenue_service irs employee dated date petitioner was advised our records indicate that the last date for you to petition the u s tax_court is please respond back to us by this date on date petitioner mailed his petition to the tax_court and his petition was filed by the court on date instead of attaching a copy of the notice_of_deficiency to his petition petitioner attached a copy of the irs letter dated date before trial respondent filed a motion to dismiss the instant case for lack of jurisdiction on the grounds that petitioner did not file his petition within days of the date the notice_of_deficiency was mailed a u s postal service postal service form_3877 offered by respondent at trial and with his motion stated that the notice_of_deficiency was mailed on date to petitioner at his last_known_address which was also the address he used throughout his correspondence with the irs and this court however at trial because the form_3877 respondent offered was not signed by a postal service employee and because it did not state the number of items the postal service received respondent moved to withdraw his motion to dismiss for lack of jurisdiction after trial respondent filed a motion to reopen the record to which he attached printouts from the postal service’s track confirm system tracking printouts stating that an item with a tracking number matching the tracking number associated with the notice_of_deficiency was entered into the postal service’s electronic tracking system on date and that a postal service notice was left on date at an address within petitioner’s zip code in savannah georgia the tracking printouts also state that because the item was never claimed 2at trial we took under advisement respondent’s motion to withdraw his motion to dismiss for lack of jurisdiction we will grant respondent’s motion to withdraw his motion to dismiss for lack of jurisdiction it was returned to respondent on date with his motion to reopen the record respondent submitted a certification from the custodian of electronic delivery records at the postal service stating that the tracking printouts are true and correct copies of electronic records maintained in the ordinary course of the postal service’s business that it is the postal service’s regular practice to maintain such records that they were made at or near the time the notice_of_deficiency was mailed and that they were made by persons with knowledge discussion respondent contends that we should reopen the record and admit the tracking printouts to prove that respondent mailed the notice_of_deficiency because respondent offers the tracking printouts to prove the truth of the matter asserted in the tracking printouts ie that respondent mailed the notice_of_deficiency the tracking printouts constitute hearsay which is generally inadmissible under the federal rules of evidence unless an exception applies see fed r evid c 93_tc_529 respondent contends that 3on date respondent filed a status report informing the court on date respondent issued a second notice_of_deficiency for petitioner’s tax_year this notice_of_deficiency is substantially identical to the notice_of_deficiency respondent contends was prepared on date the tracking printouts are admissible pursuant to the exception contained in rule of the federal rules of evidence pursuant to rule records of regularly conducted activity are not excluded as hearsay if the following conditions are satisfied a the record was made at or near the time by--or from information transmitted by--someone with knowledge b the record was kept in the course of a regularly conducted activity of a business organization occupation or calling whether or not for profit c making the record was a regular practice of that activity d all these conditions are shown by the testimony of the custodian or another qualified witness or by a certification that complies with rule or or with a statute permitting certification and e neither the source of information nor the method or circumstances of preparation indicate a lack of trustworthiness fed r evid respondent contends that the conditions are satisfied by the certification of the custodian pursuant to rule of the federal rules of evidence which provides that certified domestic records of regularly conducted activity are self-authenticating if they meet the requirements of rule a - c as shown by a certification of the custodian or another qualified_person that complies with a federal statute or a rule prescribed by the supreme court however rule of the federal rules of evidence contains a notice requirement a party intending to offer a record into evidence b efore the trial or hearing must give an adverse_party reasonable written notice of the intent to offer the record--and must make the record and certification available for inspection--so that the party has a fair opportunity to challenge them the advisory committee notes accompanying the amendments to the federal rules of evidence which added paragraphs and to rule state the notice requirement in rule sec_902 and is intended to give the opponent of the evidence a full opportunity to test the adequacy of the foundation set forth in the declaration although the rule does not establish what notice is sufficient to provide a fair opportunity the time must be of such duration that the evidence can be vetted for objection or impeachment in advance 553_f3d_768 5th cir failure to provide before trial notice that a party intends to introduce documents as self-authenticating violates both the letter and the spirit of rule and provides the party opposing admission with substantially no opportunity to verify the authenticity of either the records or any foundational testimony or affidavits 420_f3d_1062 9th cir rule of the federal rules of evidence does not contain an exception to the notice requirement id pincite n in the instant case respondent failed to provide notice before trial that he intended to seek the admission of the tracking printouts as self-authenticating documents pursuant to rule of the federal rules of evidence because respondent failed to provide such notice had he attempted to introduce the tracking printouts at trial they would have been inadmissible see fed r evid brown f 3d pincite weiland f 3d pincite but respondent failed to introduce the tracking printouts at trial and instead seeks to reopen the record after trial to introduce evidence that would have been inadmissible even had he sought to introduce it at trial we will deny respondent’s motion to reopen the record sec_6212 provides that if the commissioner determines that there is a deficiency in income_tax he is authorized to send notice of such deficiency to the taxpayer by certified mail or registered mail the notice_of_deficiency is sufficient if mailed to the taxpayer at his last_known_address unless the commissioner has been properly notified under sec_6903 of the existence of a 4reopening the record to receive additional evidence is a matter within the discretion of the trial_court 401_us_321 114_tc_276 we will not grant a motion to reopen the record unless among other requirements the evidence relied on is not merely cumulative or impeaching the evidence is material to the issues involved and the evidence probably would change some aspect of the outcome of the case butler v commissioner t c pincite because respondent seeks to reopen the record to submit evidence that would have been inadmissible at trial reopening the record would be pointless fiduciary relationship sec_6212 81_tc_42 if the notice_of_deficiency is mailed to the taxpayer at the taxpayer’s last_known_address actual receipt of the notice is immaterial 857_f2d_676 9th cir aff’g 88_tc_1042 frieling v commissioner t c pincite if the notice is addressed to a person in the united_states the taxpayer ha sec_90 days after the mailing of the notice to file a petition in this court to redetermine the deficiency sec_6213 this court has jurisdiction to redetermine tax deficiencies only when the commissioner issues a notice_of_deficiency and the taxpayer files a timely petition for redetermination of that deficiency rule a c 93_tc_22 the commissioner bears the burden of proving by competent and persuasive evidence that the notice_of_deficiency was properly mailed 94_tc_82 the act of mailing may be proved by documentary_evidence of mailing or by evidence of the commissioner’s mailing practices corroborated by direct testimony id pincite 89_tc_321 a form_3877 reflecting postal receipt represents direct documentary_evidence of the date and the fact of mailing magazine v commissioner t c pincite a properly completed form_3877 also reflects compliance with irs established procedures for mailing deficiency notices coleman v commissioner t c pincite exact compliance with the form_3877 mailing procedures raises a presumption of official regularity in favor of the commissioner 724_f2d_808 9th cir coleman v commissioner t c pincite where a form_3877 does not indicate the number of items received by the postal service or does not bear the signature or initials of a postal service employee it is insufficient to provide the commissioner with the presumption of mailing massie v commissioner tcmemo_1995_173 aff’d without published opinion 82_f3d_423 9th cir wheat v commissioner tcmemo_1992_268 a failure to have the postal service clerk initial the form_3877 and indicate how many pieces of mail were received is an inexactitude which is significant enough to render the presumption inapplicable wheat v commissioner tcmemo_1992_268 however such oversights will not be fatal if the commissioner can produce other evidence sufficient to prove mailing 853_f2d_1209 5th cir coleman v commissioner t c pincite in the instant case the form_3877 respondent submitted is incomplete because there is no indication of the number of items received by the postal service and because it does not bear the signature or initials of a postal service employee accordingly the form_3877 is insufficient to provide respondent with the presumption of mailing see massie v commissioner tcmemo_1995_173 wheat v commissioner tcmemo_1992_268 because respondent failed to produce any other admissible evidence to prove that the notice_of_deficiency was mailed he has failed to carry his burden of proving that the notice was properly mailed accordingly we lack jurisdiction because the record does not establish that a notice_of_deficiency was mailed to petitioner in accordance with sec_6212 consequently we will dismiss the instant case for lack of jurisdiction in reaching these holdings we have considered all the parties’ arguments and to the extent not addressed herein we conclude that they are moot irrelevant or without merit to reflect the foregoing an appropriate order and order of dismissal will be entered


office_of_chief_counsel internal_revenue_service memorandum date cc pa apjp b01 gl-105140-04 uilc date to r craig schneider number release date general attorney small_business self-employed from pamela w fuller subject senior technician reviewer cc pa apjp b01 --------------------------- --------------- this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent legend x year year --------------------------------------- ------- ------- issue sec_1 when an income_tax return reflecting an overpayment_of_tax is postmarked on the extended due_date for filing the return but the service receives the return two days later when does the sec_6611 45-day interest-free period start does irm section reflect the service’s position in revenue_ruling when is an overpayment refunded to a taxpayer for purposes of sec_6611 of the code gl-105140-04 conclusion sec_1 when an income_tax return reflecting an overpayment_of_tax is postmarked on the extended due_date for filing the return but the service receives the return two days later the sec_6611 45-day interest-free period starts on the date of the united_states postmark irm section does not reflect the service’s position in revrul_74_236 an overpayment is refunded to a taxpayer for purposes of sec_6611 when the refund check is issued facts x mailed its year corporate_income_tax return form_1120 to the service on september year pursuant to an approved extension of time to file the service received the return on september year in an envelope bearing a september year postmark date the service scheduled x’s overpayment on october year days after the postmark date and days after the date of receipt the refund check was dated and mailed to x on november year days after the postmark date and days after the date of receipt the refund check did not include overpayment interest the service calculated the starting date of the 45-day period in accordance with the internal_revenue_manual irm irm section provides that forty-five days should be added to the later of the normal return_due_date the return received date without regard to extensions the return processible date rpd if present also known as the correspondence received date or the received date of a formal or informal claim when determining whether the 45-day period has been met if the refund is not made on or before that date interest must be allowed on the refund the service calculated the ending date of the 45-day period by using the date on which the overpayment was scheduled when the service schedules a taxpayer’s overpayment it sends a report to financial management service fms showing that the taxpayer is entitled to a refund check fms processes the information and mails the refund check to the taxpayer in a typical sec_7502 of the code extends the united_states postmark requirement to dates recorded or marked by private designated delivery services gl-105140-04 case the date on the refund check is the date the check is mailed to the taxpayer x argues that the scheduling date was not the date the overpayment was refunded x maintains that an overpayment is not refunded within the meaning of sec_6611 until the refund check is issued ie the date set forth on the check law analysi sec_1 when an income_tax return reflecting an overpayment_of_tax is postmarked on the extended due_date for filing the return but is received by the service two days later when does the sec_6611 45-day interest-free period start sec_6611 provides that no interest will be paid if a refund is made within days after the last date prescribed for filing the return determined without regard to an extension of time for filing or if the return is filed after such last date the refund is made within days after the return is filed sec_7502 provides in relevant part that if any return required to be filed within a prescribed period or on or before a prescribed date is after that period or date delivered by united_states mail to the place at which the return is required to be filed the date of the united_states postmark stamped on the cover in which the return is mailed is deemed to be the date of delivery of the return sec_7502 provides in relevant part that subsection a will apply only if the postmark date falls on or before the prescribed date for filing the return including extensions and the return was deposited in the mail in the united_states postage pre- paid and properly addressed under sec_7502 a return filed on or before the extended due_date but received by the service after the extended due_date is deemed filed on the postmark date therefore in that situation for purposes of sec_6611 the 45-day interest-free period begins on the date that the return was postmarked this analysis is consistent with revrul_74_236 1974_1_cb_348 the facts of which are nearly identical to this case in revrul_74_236 the taxpayer timely mailed its return that reflected an overpayment to the service by registered mail on date pursuant to an approved extension of time the service received the return on date at issue was whether the sec_6611 45-day interest free period began on the date the return was timely mailed pursuant to an extension of time to file or from the date the return was actually received by the service the revenue_ruling held that the return was deemed filed as of the postmark date and accordingly the 45-day interest- free period began on the postmark date in this case x timely mailed its year income_tax return on september year pursuant to an extension of time to file the envelope reflected a postmark date of gl-105140-04 september year the service received x’s return on september year under sec_7502 x’s return was deemed filed on the postmark date september year therefore the starting date for calculating x’s 45-day period under sec_6611 is september year whether irm section must be revised to reflect the service’s position in revenue_ruling the irm is inconsistent with revrul_74_236 chief_counsel will contact the appropriate program analyst to discuss whether changes should be made to irm section when is an overpayment refunded to a taxpayer for purposes of sec_6611 of the code sec_6611 provides that interest shall be allowed and paid upon any overpayment in respect of any internal revenue tax at the overpayment rate established under sec_6621 sec_6611 however provides that no interest will be paid if the overpayment is refunded within days after the last day prescribed for filing the return determined without regard to any extension of time for filing the return or if the return is filed after such last date the refund is made within days after the date the return is filed this rule is often referred to as an interest-free period neither sec_6611 nor the regulations thereunder define refunded for purposes of sec_6611 it is a well-settled principle of statutory interpretation that the plain meaning of a statute should control unless ambiguity exists see 503_us_249 thus we look to the ordinary meaning of the term refunded for guidance black’s law dictionary defines the word refund as the return of money to a person who overpaid such as a taxpayer who overestimated tax_liability or whose employer withheld too much tax from earnings the money returned to a person who overpaid see black’s law dictionary 7th ed the plain meaning of the word refund indicates that an overpayment is refunded on the day that the service_returns or repays the overpayment in this case the date of the check reflects the date on which the service returned the overpaid funds to x accordingly we conclude that the service refunded x’s overpayment on november year our interpretation is consistent with the legislative_history of sec_6611 prior to the enactment of sec_6611 there was no interest-free period as we know it today sec_6611 required the service to calculate overpayment interest to a date no more than days preceding the date of the refund check the 30-day back-off gl-105140-04 period was burdensome to the service during peak filing season as it required the service to interrupt the refund process in order to compute small amounts of additional interest if it was unable to issue the refund within days for example if a return was due and filed on march and the service issued a refund check dated april the service would have to calculate overpayment interest from march to march because interest would be payable starting the day after the due_date of the return and days preceding the date of the refund check would be march to alleviate this burden the service asked that the 30-day back-off period be replaced with a 60-day period congress agreed that the 30-day period was not long enough however instead of enacting a 60-day back-off period it enacted sec_6611 giving the service a 45-day interest-free period for overpayments of income_tax refunded within days after the due_date of the return without regard to extensions see memorandum of material changes in existing law incorporated in the draft of administrative provisions code advisory group chapter page internal_revenue_code of a bill to revise the internal revenue laws of the united_states h_r rep no at a418 internal_revenue_code of a bill to revise the internal revenue laws of the united_states s rep no pincite the definition of refunded was not discussed by the drafters of sec_6611 however the legislative_history suggests that congress expected the service to calculate the 45-day interest-free period by using the same date that was used to calculate the back-off period in sec_6611 ie the date of the refund check first the date of the check was the only date congress mentioned when contemplating this provision second the provision was essentially an extension of sec_6611 and third the date of the check though not as favorable to the service as the date of scheduling was harmonious with the purpose of sec_6611 finally our interpretation of refunded is also consistent with the one case that defined refunded for purposes of sec_6611 unfortunately that case united_states v weyerhaeuser no w d wash is unreported and has no precedential value nevertheless it illustrates how a court is likely to construe the term refunded in weyerhaeuser the service certified the taxpayer’s overpayment for refund and forwarded the schedule to the disbursing center for preparation of the check days after receiving taxpayer’s return the refund check was issued to the taxpayer days later in its opinion the court stated refund means you get the money and held that the word certification does not mean refunded for purposes of sec_6611 transcript at page the service issued an action on decision aod recommending that the case not be appealed united_states v weyerhaeuser aod cc-1971-419 date despite having reservations about the correctness of the decision the aod acknowledged that the service’s position was not easily supportable and would not likely have been reversed on appeal we agree the 45-day interest-free period was subsequently extended to cover additional types of taxes amended returns claims for refund and service initiated adjustments see the revenue reconciliation act of pub_l_no 107_stat_66 gl-105140-04 based on the plain meaning of the term refunded we conclude that an overpayment is refunded for purposes of sec_6611 when the refund check is issued we further conclude that the date of the refund check generally provides the best evidence of when the refund check has been issued therefore x is entitled to interest on its year overpayment because the date of the refund check indicates that the service did not refund x’s overpayment within the applicable 45-day period this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views please call if you have any further questions


internal_revenue_service number release date index number -------------------------- --------------------------------------- ---------------------------------------------- --------------------- ----------- ------------------------ in re ---------------------------------------------- department of the treasury washington dc third party communication government agency date of communication date person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc corp bo1 plr-162174-05 date date ------- ----------------------- ------------------------- ---------------------------- legend parent ---------------------- ---------------------------------------------------------- sub business b date year a year b x trust ---------------------------------------------------------------- trust --------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- trust -------------------------------------------------------------------------------------- trust ------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ---------- ------- -------------- ----------------- plr-162174-05 a b c dear parent requesting rulings as to certain federal_income_tax consequences of a proposed transaction the information submitted is summarized below this letter replies to your letter of date submitted on behalf of -------------- summary of facts on date parent sub and certain other subsidiaries filed petitions for parent is a holding_company that files a consolidated federal_income_tax return with sub and other subsidiaries sub is engaged in business b reorganization under chapter of the bankruptcy code parent and its subsidiaries expect to emerge from bankruptcy in year a at the end of year b parent and its subsidiaries had a net_operating_loss of approximately x dollars since that time parent and its subsidiaries have incurred significant additional losses before the commencement of the bankruptcy proceeding sub established four defined benefit pension plans for four specific groups of its employees each plan was qualified within the meaning of sec_401 of the internal_revenue_code and had a separate trust trust trust trust and trust or the trusts which held the assets of such plan the trusts deposited all of their investment_assets in a group investment_trust group trust as permitted by revrul_81_100 1981_1_cb_326 for the purpose of diversifying their investments certain basic benefits under such plans were guaranteed by the pension_benefit_guaranty_corporation pbgc an agency of the united_states government during the bankruptcy proceedings and consistent with an agreement the agreement entered into between pbgc and parent and its subsidiaries all four defined benefit pension plans were terminated as a result of such terminations pbgc assumed the obligation to pay benefits to the beneficiaries of the terminated plans within certain statutory limits many of the assets from the trusts were transferred from the group trust to pbgc trust trust and trust held claims against parent subsidiary and certain of their affiliates related to subsidiary’s failure to make required minimum_funding contributions to the plans the minimum_funding contribution claims plr-162174-05 at the time of plan termination the estimated amounts of the minimum_funding contribution claims are a dollars for trust b dollars for trust and c dollars for trust the agreement provides that pbgc will receive upon debtors’ emergence from bankruptcy parent notes parent convertible preferred_stock preferred_stock and a pre-petition unsecured claim in an amount determined by the unfunded benefit liability of each terminated pension_plan under the plan_of_reorganization all unsecured creditors including pbgc with respect to such unsecured claim will receive parent common_stock the agreement also provided that i pbgc would become the statutory trustee of the terminated pension plans and ii pbgc would release the minimum_funding contribution claims held by the trusts and certain other claims against the debtors parent and pbgc propose to take the following actions i on or soon after the effective date of the debtors’ plan_of_reorganization parent will transfer a portion of the preferred_stock directly to trust trust and trust the trusts that hold minimum_funding contribution claims each of those three trusts will receive preferred_stock with a liquidation value equal to or less than the amount of the minimum_funding contribution claims held by that trust each of those three trusts is expected to receive less than percent of the stock of parent as determined for purposes of code sec_382 ii pbgc will receive the parent common_stock and other consideration under the agreement including any preferred_stock not transferred to the three trusts as described above iii as provided by the agreement pbgc will remain the statutory trustee for all four trusts iv trust trust and trust will each continue to hold its preferred_stock until such stock has been sold v pursuant to pbgc policies the preferred_stock held in each of trust trust and trust will be valued at a future time probably three to six months after such stock has been contributed to the trusts the valuation of such stock may affect the determination of the non-guaranteed benefits to be received by the pension plans’ participants based solely on the information submitted we rule as follows rulings trust trust and trust will each be treated as an individual who is plr-162174-05 unrelated to any other owner direct or indirect of the loss_corporation for purposes of sec_382 of the internal_revenue_code provided that the aggregate liquidation value of the parent preferred_stock received by each of those three trusts does not exceed the minimum_funding contribution claim of that trust pbgc will be treated as an individual who is unrelated to any other owner direct or indirect of the loss_corporation for purposes of sec_382 sec_1_382-2t trust trust and trust separately and together with pbgc do not constitute a group of persons acting in concert to acquire parent stock and therefore are not aggregated as a single entity for purposes of sec_382 sec_1_382-2t-3 a provided that trust trust or trust is not a separate 5-percent_shareholder within the meaning of sec_382 the sale of preferred_stock or parent common_stock that is received on conversion of the preferred_stock by trust trust or trust to persons that are not 5-percent shareholders and who do not become percent shareholders by reason of such sales will not be treated as owner shifts involving a 5-percent_shareholder within the meaning of sec_382 the distribution of parent common_stock and preferred_stock to pbgc will be treated as having been made to a qualified_creditor within the meaning of sec_1 d the distribution of preferred_stock to trust trust and trust will be treated as having been made to qualified creditors within the meaning of sec_1_382-9 provided that the aggregate liquidation value of the preferred_stock received by each trust does not exceed the minimum_funding contribution claim of that trust caveats no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed as to whether or not any of trust trust trust or pbgc is a 5-percent_shareholder within the meaning of sec_382 procedural statements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer involved in the transaction should attach a copy of this ruling letter to the taxpayer's federal_income_tax return for the taxable_year in which the transaction covered by this letter is completed alternatively taxpayers filing their returns plr-162174-05 electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of this ruling letter under a power_of_attorney on file in this office a copy of this letter is being sent to one of your authorized representatives sincerely cc _______________________________ gerald b fleming senior technician reviewer branch office of associate chief_counsel corporate


internal_revenue_service number release date index numbers ---------------------------------------------- -------------------------------------------------------- ------------------------------- --------------------------------- 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 b3 plr-104487-15 date date legend x ---------------------------------------------------------- -------------------------------------- ---------------------------------------------- a ---------------------------------------- state ---------- date ------------------ dear --------------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code code facts the information submitted states that x was incorporated under the laws of state on date a is the sole shareholder of x x represents that it timely filed an election to be treated as an s_corporation effective date however a failed to consent properly to x’s s_corporation_election accordingly x’s s_corporation_election was ineffective x represents that there was no tax_avoidance or retroactive tax planning involved in the failure of a to properly execute x’s form_2553 election by a small_business_corporation x and a represent that they have treated x as an s_corporation since date plr-104487-15 in addition x and a agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not among other requirements have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 shall be valid only if all persons who are shareholders in such corporation on the day on which such election is made consent to such election sec_1362 provides that if an election under sec_1362 or sec_1361 by any corporation i was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or ii was terminated under sec_1362 or or sec_1361 the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken so that the corporation for which the election was made or the termination occurred is a small_business_corporation or a qsub as the case may be or to acquire the required shareholder consents and the corporation for which the election was made or the termination occurred and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation or a qsub as the case may be as may be required by the secretary with respect to this period then notwithstanding the circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation or a qsub as the case may be during the period specified by the secretary plr-104487-15 conclusion based solely on the facts submitted and representations made we conclude that x’s s_corporation_election was ineffective due to the failure to obtain a’s consent to the s_corporation_election and that the ineffectiveness was inadvertent within the meaning of sec_1362 consequently under sec_1362 x will be treated as an s_corporation from date and thereafter provided that x’s s_corporation_election was otherwise valid and not otherwise terminated under sec_1362 as a condition of the ruling within one hundred twenty days from the date of this letter x must file a completed form_2553 with the proper consent of a with the appropriate service_center a copy of this letter should be attached to the form_2553 except as specifically ruled above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was otherwise a valid s_corporation this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited for precedent pursuant to a power_of_attorney on file we are sending a copy of this letter to x’s 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 rulings requested it is subject_to verification on examination sincerely holly porter chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service index numbers 280g number release date refer reply to cc tege eb ec-plr-103053-00 date date employee corporation a corporation b stock_option plan date date date date year x year y this is in response to your letter of date submitted by your authorized representative requesting rulings under sec_280g of the internal_revenue_code specifically a ruling was requested under the facts outlined below whether employee is a disqualified_individual within the meaning of sec_280g of the code due to the value of stock ownership in corporation a the facts as submitted are as follows employee was employed by corporation a in year y employee was not an officer of corporation nor a member of the group consisting of the highest paid percent of the employees of the corporation during year y corporation a adopted the stock_option plan the stock_option plan provided for both incentive stock_options designed to meet the requirements of sec_422 of the code and nonstatutory_options options issued under the stock_option plan were governed by the stock_option plan and the stock_option agreement plr-103053-00 as amended under the stock_option agreement if options are outstanding at the time of a change in control as defined in the stock_option agreement but are not fully exercisable the options will generally accelerate so that the options will become exercisable immediately before the change in control the options will not become exercisable on an accelerated basis if the options are assumed by the successor_corporation in that case the options would be converted to options of the successor_corporation and would continue to become exercisable in accordance with the terms of the stock_option agreement however the stock_option agreement provides that if there is an involuntary termination as defined in the stock_option agreement of the employee’s services within months of a change in control the options that are outstanding at the time of the involuntary termination but are not fully exercisable would accelerate and become fully vested on date employee received incentive stock_options and nonstatutory stock_options under the stock_option plan options the options issued to employee generally became exercisable on a four-year vesting schedule on date corporation a underwent a change in control when it was acquired by corporation b employee became an employee of corporation b corporation b assumed corporation a’s stock_option plan and employee’s corporation a options were converted to corporation b options of equivalent value the vesting schedule remained the same following the change in control employee terminated employment with corporation b on date the termination constituted an involuntary termination under the stock_option agreement and employee’s options were accelerated and became exercisable on date the disqualified_individual determination_period is from date to date during the disqualified_individual determination_period employee’s ownership_interest in corporation a other than the options described above consisted of stock_options received under the year x corporation stock incentive plan shares purchased and held for a short time in year y and shares purchased under the corporation a employee_stock_purchase_plan with respect to the options granted under the year x corporation a stock incentive plan percent of the options were vested as of the change in control employee lost the rights to the remaining unvested options when employee’s employment was terminated no corporation a stock was owned by employee’s spouse children grandparents or parents at any time during the disqualified_individual determination_period in addition employee was not a partner in any partnership that owned corporation a stock a beneficiary in any trust or a grantor in any trust that owned plr-103053-00 corporation a stock or a direct or indirect owner of percent of the value of any corporation that owned corporation a stock sec_280g of the code provides that no deduction will be allowed for any excess_parachute_payment sec_280g defines the term excess_parachute_payment as an amount equal to the excess of any parachute_payment over the portion of the base_amount allocated to such payment sec_280g of the code defines the term parachute_payment as any payment in the nature of compensation to or for the benefit of a disqualified_individual if i such payment is contingent on a change i in the ownership or effective_control of the corporation or ii in the ownership of a substantial portion of the assets of the corporation and ii the aggregate present_value of the payments in the nature of compensation to or for the benefit of such individual which are contingent on such change equals or exceeds an amount equal to three times the base_amount sec_4999 of the code imposes on any person who receives an excess_parachute_payment a tax equal to percent of the amount of the payment sec_280g defines a disqualified_individual as an individual who is an employee independent_contractor or other person specified in the regulations who performs personal service for any corporation and is an officer shareholder or other highly_compensated_individual sec_1_280g-1 of the proposed income_tax regulations q a published in the federal_register on date fed reg big_number provides that an individual is a disqualified_individual with respect to a corporation if at any time during the disqualified_individual determination_period the individual is an employee or independent_contractor of the corporation and is with respect to the corporation a shareholder an officer or a highly-compensated_individual q a provides that shareholders are disqualified individuals if they own stock of a corporation having a fair_market_value that exceeds the lesser_of dollar_figure million dollars or percent of the total fair_market_value of the outstanding shares of all classes of the corporation’s stock for purposes of determining the amount of stock owned by an individual the constructive_ownership rules of sec_318 shall apply sec_318 states that if a person has an option to acquire stock such stock shall be considered as owned by such person sec_1_280g-1 q a provides that the disqualified_individual determination_period is the portion of the year of the corporation ending on the date of the change in ownership or control of the corporation the change in ownership period and the twelve month period immediately preceding such change in ownership period plr-103053-00 for purposes of q a a corporation may elect to use its taxable_year or the calendar_year it has been represented that employee was not an officer or a highly- compensated individual during the disqualified_individual determination_period thus in order to be a disqualified_individual employee must have owned corporation a stock having a fair_market_value that exceeded the lesser_of dollar_figure million or percent of the total fair_market_value of the outstanding shares of all classes of the corporation’s stock it has been represented that in this case the dollar_figure million was the lesser amount and that other than the stock_options under the year x and the year y grants the fair_market_value of employee’s corporation a stock was less than dollar_figure million if employee constructively owns the stock under the year x and year y option grants employee will be a disqualified_individual in determining which of the outstanding_stock options are considered to be stock during the disqualified_individual determination_period for purposes of q a options which are exercisable or are exercisable upon the occurrence of an insubstantial condition_precedent are considered outstanding_stock see revrul_89_64 1989_1_cb_91 conversely options which are not currently exercisable and are only exercisable upon the occurrence of a substantial condition_precedent are not outstanding_stock for this purpose here the facts indicate that only the options under the year x and year y grants that were exercisable at the time of the change in control cause employee to constructively own the stock for purposes of q a options that were not exercisable at the time of the change in control did not cause such constructive_ownership accordingly based strictly on the information submitted and employee’s representations set forth above we rule as follows employee is not a disqualified_individual with respect to corporation a within the meaning of sec_280g of the code the provisions of sec_280g of the code do not apply to any payments including the vesting of options under the stock_option plan that are received by employee in connection with corporation a’s date change in control the provisions of sec_4999 of the code do not apply to any payments including the vesting of options under the stock_option plan that are received by employee in connection with corporation a’s date change in control plr-103053-00 except as specifically ruled on above no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent the taxpayer should attach a copy of this ruling to any income_tax return to which it is relevant temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not been adopted therefore this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent that the regulations are inconsistent with any conclusion in the ruling however when the criteria in section dollar_figure of revproc_2000_1 2000_1_irb_4 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours robert b misner assistant chief executive compensation branch office of the division counsel associate chief_counsel tax exempt and government entities enclosure copy for purposes


internal_revenue_service number release date index number ---------------------------- ------------------------------------ --------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-120736-10 date november re ---------------------------------------------------------------------- legend husband wife date date trust x w cpa firm ---------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ---------------------------------------------------------------------------------------- ------------------------------------------------------- ------------------------------ ----------------------------------------------------------------------------- dear ------------------------------------ this letter responds to a letter dated date from your authorized representative requesting extensions of time under sec_2642 of the internal_revenue_code and sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to allocate your generation-skipping_transfer gst_exemption to a_trust facts taxpayers are husband and wife on date prior to date husband created an irrevocable_trust trust to benefit taxpayers’ children and more remote issue husband and wife each transferred a w percent interest in a limited_partnership x to trust plr-120736-10 on date husband and wife each filed a form_709 united_states gift and generation-skipping_transfer_tax return reporting his her transfer to trust however their tax advisor cpa firm who prepared the form sec_709 failed to allocate husband’s gst_exemption and wife’s gst_exemption to the transfers husband and wife request extensions of time to allocate his gst_exemption and her gst_exemption to the date transfers to trust it is represented that to date no taxable_distributions taxable terminations or any other events have occurred with respect to trust that would give rise to a gst tax_liability law and analysis sec_2601 imposes a tax on every generation-skipping_transfer within the meaning of subchapter_b made by a transferor to a skip_person under sec_2611 the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any gst transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under a the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is generally defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of gst_exemption allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip sec_2631 as in effect for decedents dying and generation-skipping transfers before date provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime is made on form_709 sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 plr-120736-10 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under sec_2642 the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-2 provides that an automatic_extension of months from the due_date of a return excluding extensions is granted to make regulatory or statutory elections whose due dates are the due_date of the return or the due_date of the return including extensions provided the taxpayer timely filed its return for the year the election should have been made and the taxpayer takes corrective action as defined in sec_301_9100-2 within that 6-month extension period requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government plr-120736-10 sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 based on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 are satisfied therefore husband is granted an extension of time of days from the date of this letter to allocate his available gst_exemption to the date transfer to trust in addition wife is granted an extension of time of days from the date of this letter to allocate her available gst_exemption to the date transfer to trust the allocations will be effective as of the date of the transfers and will be based on the value of the contributions on the date husband and wife made the transfers the allocation of taxpayers’ gst_exemption should be made on supplemental form sec_709 and filed with the internal_revenue_service center in cincinnati a copy of this letter should be forwarded to the internal_revenue_service cincinnati service_center - stop cincinnati oh for association with the form sec_709 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 except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue plr-120736-10 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 associate chief_counsel passthroughs and special industries by _____________________________ lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes copy of this letter cc


internal_revenue_service number release date index number ------------------- --------------------------------- ------------------------------------------------------------ ---------------------------------- --------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number --------------------- refer reply to cc tege eoeg eo plr-105481-12 date date -------------------------------------------------------------------------------------------- legend trust ----------------- city state trustee administrator ---------------------------------------- ------------------------ ------------------------ ------------------------------------------ dear ------------- this letter responds to a letter from your authorized representative dated date and subsequent correspondence your representative submitted on behalf of the trust requesting a ruling that the trust’s income is excludable from gross_income under internal_revenue_code irc sec_115 the trust represents the facts as follows facts the city is a state political_subdivision the city established the trust to hold and invest contributions to fund the city’s obligations to provide health care benefits for eligible retirees of the city and their dependents in accordance with the terms of certain plans between the city and its employees or bargaining groups the plans under the terms of the trust agreement the city designated the trustee and the administrator to serve in their respective positions as trustee and administrator of the trust the city may remove the trustee or the administrator and designate respective successors upon days prior written notice to the trustee or the administrator except for investment_income the income of the trust consists solely of contributions from the city no private interests participate in or benefit from the operation of the plr-105481-12 trust other than for reasonable payment as providers of goods or services the trust assets are only available to pay for the insurance premiums to fund the post- employment health care benefits of the employees of the city and their dependents the trust agreement provides that the trustee shall receive and accept all contributions and shall hold reinvest and distribute cash cash equivalents and securities and their increments proceeds earnings and income solely to provide health and welfare benefits to retirees and their dependents the city shall direct the trustee to disburse amounts from the trust directly to pay the insurance premiums to fund the health care benefits of the participants in the plans or to reimburse the city for amounts it advances to fund such benefits the administrator shall have authority and responsibility for the management disposition and investment of the trust assets the trustee may invest and reinvest the contributions and trust assets in cash cash equivalents or securities pursuant to the instructions of the administrator the trust agreement provides that upon any termination of the trust the assets of the trust then held by trustee except such assets as may needed to pay expenses or liabilities of the trust shall first be distributed pursuant to the terms of the plans to provide for the medical benefits of the retirees and their dependents none of the assets of the trust will be distributed to any entity that is not the state a political_subdivision of the state or an entity the income of which is excluded from gross_income under sec_115 law and analysis sec_115 provides that gross_income does not include income derived from any public_utility or the exercise of any essential_governmental_function and accruing to a state or any political_subdivision thereof revrul_77_261 1977_2_cb_45 holds that income generated by an investment fund that is established by a state to hold revenues in excess of the amounts needed to meet current expenses is excludable from gross_income under sec_115 because such investment constitutes an essential_governmental_function the ruling explains that the statutory exclusion is intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of an entity engaged in the operation of a public_utility or the performance of some governmental function that accrues to either a state or political_subdivision of a state the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and that are within the ambit of a sovereign to conduct revrul_90_74 1990_2_cb_34 holds that the income of an organization formed funded and operated by political subdivisions to pool various risks eg casualty public plr-105481-12 liability workers’ compensation and employees’ health is excludable from gross_income under sec_115 because the organization is performing an essential_governmental_function in revrul_90_74 private interests neither materially participate in the organization nor benefit more than incidentally from the organization the trust funds the city’s obligations to provide for the health benefits of retired employees of the city and their dependents providing health benefits to former public employees constitutes the performance of an essential_governmental_function within the meaning of sec_115 see revrul_77_261 and revrul_90_74 in addition the income of the trust accrues to the city no private interests participate in or benefit from the operation of the trust other than as providers of goods or services the trust’s dedication of its corpus or income exclusively for the benefit of the retirees and their dependents satisfies an obligation the city has assumed or been assigned with respect to providing for the health benefits of its former employees the benefit to the city’s participating employees and their dependents is incidental to the public benefit all of the trust’s assets that remain upon dissolution of the trust after providing for all outstanding obligations will be distributed to a state a political_subdivision of a state or an entity the income of which is excludable from gross_income under sec_115 see revrul_90_74 based on the information and representations submitted on behalf of the trust we conclude that because the income of the trust derives from the exercise of an essential_governmental_function and will accrue to a state or a political_subdivision thereof the trust’s income is excludable from gross_income under sec_115 no opinion is expressed concerning the federal tax consequences under any irc provision other than the one specifically cited above in particular no representation is made whether or not contributions or premiums_paid on behalf of or benefits received by employees former employees retirees spouses dependents or others will be taxable to such recipients this ruling concerns only the federal tax treatment of the trust's income and may not be cited or relied upon as to any matter relating to the taxation of accident or health contributions or benefits 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 plr-105481-12 in accordance with the power_of_attorney on file with this office your authorized representative will receive a copy of this letter the ruling contained in this letter is 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_ruling it is subject_to verification on examination sincerely kenneth m griffin chief exempt_organizations branch_tax exempt government entities