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 corp b05 plr-135005-11 date date legend membera memberb memberc llc corp ------------------------------------ ------------------------------------------- ---------------------- ----------------------- --------------------------- ----------------------- ---------------------------- --------------------------- ----------------------- ------------------------ ------------------------------------------- ----------------------- -------------------------------------------- ------------------------------- ----------------------- company ---------------------------------- ------------------------------- ----------------------- merger sub --------------------------------------- ------------------------------- plr-135005-11 newco merger documents rights ------------ -------------------------- ------------------------------- ----------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- ----------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- ----------------------------------------- exchange -------------------------------- corp official engaged entities -------------------------------------------------------------------------------------------- ---------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- --------- a b c d e f g h i -------- -------- -------- ---- ---- ------------- ----------------- ------------------ -- plr-135005-11 j k l m n ----------------- ---- ---- ---- ---- dear -------------- this letter responds to your date letter requesting rulings on certain federal_income_tax consequences of the proposed transactions defined below the information provided in that letter and in subsequent correspondence is summarized below 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 the appropriate parties this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process summary of facts llc has only one class of membership interest outstanding the membership interests and is owned by membera memberb and memberc the members llc is classified as a partnership for federal_income_tax purposes under sec_301_7701-3 membera owns a percent of the membership interests and has a receivable from llc that arose independently of the transactions described in step vii a b c and d the combination memberb owns b percent of the membership interests and has a receivable from llc that arose independently of the combination memberc owns c percent of the membership interests and has a receivable from llc that arose independently of the combination pursuant to an agreement with llc certain individuals the holders have existing rights with respect to llc that were received as compensation_for services provided in addition certain other individuals the employees have existing rights with respect plr-135005-11 to llc to receive compensation_for services provided including for services rendered in conjunction with the proposed transactions the deferred_compensation corp has only one class of common_stock outstanding the corp common_stock that is widely held and traded on exchange corp has authorized preferred_stock but no shares of preferred_stock are outstanding or expected to be issued in connection with the proposed transactions no other classes of stock are authorized the company has been newly formed in connection with the proposed transactions and will have only one class of common_stock outstanding at the time of the proposed transactions the company common_stock which is expected to be traded on exchange proposed transactions the following steps have occurred or will occur in the following order together the proposed transactions i ii iii iv v vi corp and llc formed the company with a nominal contribution with each receiving d and e percent respectively of the initial outstanding common_stock of the company the initial shares llc will satisfy each receivable held by the members with cash to the extent permitted by the merger documents and to the extent not paid in cash will pay the receivable with a note of llc the receivables are estimated to have a value of dollar_figuref at the time of the proposed transactions llc will distribute to each of the members an amount of cash that will not exceed the equity_tax basis that each such member has in its respective membership interests at such time the amount of cash to be so distributed will not exceed dollar_figureg the company will form a wholly-owned subsidiary merger sub llc may borrow as much as dollar_figureh to finance llc’s operations prior to step vii below memberb will incorporate newco as a new wholly- owned corporate subsidiary and contribute to newco i percent of the total membership interests the i percent membership interest in exchange for all of the outstanding shares of newco common_stock the first contribution vii simultaneously and pursuant to a single integrated_plan on the closing date to the transaction plr-135005-11 a membera will contribute all of its membership interests to the company in exchange for shares of company common_stock as well as cash and or a note of the company a company note b memberb will contribute all of its directly held membership interests and the stock it holds in newco to the company in exchange for shares of company common_stock as well as cash and or a company note c memberc will contribute all of its membership interests to the company in exchange for shares of company common_stock as well as cash and or a company note the aggregate amount of cash and company notes to be distributed in sub-steps a b and c is anticipated to equal dollar_figurej minus the amount of any cash distribution to the members in step iii d merger sub will merge with and into corp the merger and each share of corp common_stock will be converted into the right to receive a specified number or shares of company common_stock e the holders will exchange all of the rights with the company for cash f to the extent not previously satisfied by llc in cash the company will issue notes to the employees in satisfaction of the deferred_compensation the deferred_compensation notes viii immediately after the effective time of the combination each of corp and llc will sell to the company and the company will purchase from each of corp and llc all of the initial shares held by corp and llc for an amount in cash equal to the aggregate par_value of all initial shares the same nominal amount contributed for such shares in step i following the proposed transactions the percentages of ownership_interest held by membera memberb and memberc and the former corp shareholders in the company will be approximately k l m and n percent respectively to the extent that llc has not made tax distributions to the members prior to the closing of the combination in an amount equal to llc’s aggregate net_income or gain for the periods prior to the combination multiplied by the highest marginal tax_rate during such periods llc will issue a note and or the company would cause llc to make a distribution directly to the members in the aggregate in an amount equal to such deficiency collectively the delayed distribution corp official provided a statement that to the knowledge of corp other than through regular public trading of company stock no corp shareholder has any plan or intention to dispose_of any of the shares of company common_stock received in the proposed transaction plr-135005-11 representations the members make the following representations with respect to the first contribution and the combination a b c d e f g h the receivables satisfied by llc in step ii were created in the ordinary course of business and not in anticipation of the proposed transactions no stock_or_securities will be issued for services rendered to or for the benefit of newco in connection with the first contribution and no stock_or_securities will be issued for indebtedness of newco that is not evidenced by a security or for interest on indebtedness of newco which accrued on or after the beginning of the holding_period of the transferor s for the debt the first contribution is not the result of the solicitation by a promoter broker or investment house memberb will not retain any rights in the property transferred to newco in the first contribution immediately before the first contribution the total fair_market_value of the assets to be transferred by memberb to newco will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by newco in connection with the first contribution ii the amount of any liabilities owed by memberb to newco that is discharged or extinguished in connection with the first contribution and iii the amount of any money and the fair_market_value of any other_property other than stock permitted to be received under sec_351 without the recognition of gain received by memberb in connection with the first contribution immediately after the first contribution the fair_market_value of the assets of newco will exceed the amount of its liabilities the aggregate fair_market_value of the assets transferred by memberb to newco will equal or exceed the aggregate adjusted_basis of those assets the liabilities of memberb to be assumed by newco within the meaning of sec_357 were in each instance incurred in the ordinary course of business and are associated with the assets to be transferred except for indebtedness arising in the ordinary course of business there is no indebtedness between newco and memberb and there will be no indebtedness created in favor of memberb from newco as a result of the first contribution plr-135005-11 i j k l the transfers and exchanges in the first contribution will occur under a plan agreed upon before the first contribution in which the rights of the parties are defined all transfers and exchanges with respect to the first contribution will occur on the same date there is no plan or intention on the part of newco to redeem or otherwise reacquire any stock to be issued in the first contribution taking into account i any issuance of additional shares of newco stock ii any issuance of stock for services iii the exercise of any newco stock_rights warrants or subscriptions a public offering of newco stock and the sale exchange transfer by gift and iv other_disposition of any of the stock of newco to be received in the exchange memberb will be in control of newco within the meaning of sec_368 after the first contribution and prior to the combination m memberb will receive stock approximately equal to the fair_market_value of the property transferred by memberb to newco in the first contribution n o p q r s t newco will remain in existence and retain the j percent membership interest there is no plan or intention by newco to dispose_of the transferred property other than in the normal course of business operations each party in the first contribution will pay its own expenses if any incurred in connection with the first contribution newco will not be an investment_company within the meaning of sec_351 and sec_1_351-1 memberb is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock received in the exchange will not be used to satisfy the indebtedness of such debtor newco will not be a personal_service_corporation within the meaning of sec_269a no stock_or_securities will be issued for services rendered to or for the benefit of the company in connection with the combination and no stock_or_securities will be issued for indebtedness of the company that is not evidenced by a security or for interest on indebtedness of the company which accrued on or after the beginning of the holding_period of the transferor s for the debt plr-135005-11 u v w x y z excluding the engagement of the engaged entities to seek a merger partner for llc and to assist in the solicitation of corp shareholder votes for the merger the transfer is not the result of the solicitation by a promoter broker or investment house no corp or newco stock being transferred is being transferred subject_to any liability and no liability of any corp shareholder or of memberb will be assumed in connection with any transfer of stock in the combination other than the assumption by the company of memberb’s share of the liabilities of llc pursuant to sec_752 the adjusted_basis and the fair_market_value of the assets transferred by each corp shareholder to the company will exceed the sum of the liabilities of each such corp shareholder to be assumed by the company within the meaning of sec_357 immediately before the combination the total fair_market_value of the assets to be transferred by each of the corp shareholders and the members together the transferors to the company will exceed the sum of i the amount of any liabilities of each such transferor assumed as determined under sec_357 by the company in connection with the combination ii the amount of any liabilities owed by each such transferor to the company that is discharged or extinguished in connection with the combination and iii the amount of any money and the fair_market_value of any other_property other than stock permitted to be received under sec_351 without the recognition of gain received by each such transferor in connection with the combination immediately after the combination the fair_market_value of the assets of the company will exceed the amount of its liabilities the aggregate fair_market_value of the assets transferred by each of the members to the company will equal or exceed the aggregate adjusted_basis of those assets the liabilities of any of the transferors to be assumed by the company as determined under sec_357 were incurred in the ordinary course of business and are associated with the assets to be transferred aa except for indebtedness arising in the ordinary course of business and the possible company notes there is no indebtedness between the company and the transferors and there will be no indebtedness created in favor of any of the transferors as a result of the combination bb except for the possible delayed distribution or the possible pledge of the membership interests to secure the company notes no transferor will retain any rights in the property transferred to the company in the combination plr-135005-11 cc the transfers and exchanges in the combination will occur under a plan agreed upon before the combination in which the rights of the parties are defined dd all transfers and exchanges with respect to the combination will occur on approximately the same date ee there is no plan or intention on the part of the company to redeem or otherwise reacquire any stock or indebtedness to be issued in the combination ff gg to the knowledge of the company and corp no corp shareholder has any plan or intention to dispose_of any shares of company common_stock received in the merger taking into account any shares of stock of the company received by the transferors in the combination and sold exchanged transferred by gift or otherwise_disposed_of by such transferors to any party other than any of the other transferors as part of the plan including the combination the shareholders of corp and the members will be in control of company within the meaning of sec_368 immediately after the combination hh each transferor will receive stock securities or other_property approximately equal to the fair_market_value of the property transferred by such transferor to the company in the combination ii jj kk the company will remain in existence and retain the contributed stock of newco and corp and the membership interests there is no plan or intention by the company to dispose_of the membership interests or the newco or corp stock other than in the normal course of business operations except for the costs expenses and filing fees incurred in connection with borrowing if any by the company to fund cash distributions in step vii of the proposed transactions each party in the combination will pay its own expenses if any incurred in connection with the proposed transactions ll the company will not be an investment_company within the meaning of sec_351 and sec_1_351-1 mm membera memberb and memberc are not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and to the knowledge of corp and the company no corp shareholder is under the jurisdiction of a court in a title_11_or_similar_case within the meaning of plr-135005-11 sec_368 and the stock_or_securities received in the exchange will not be used to satisfy the indebtedness of any such shareholder nn the company will not be a personal_service_corporation within the meaning of sec_269a oo there is no plan or intention to liquidate newco or to merge newco with llc or company after the combination pp there is no plan or intention for newco to distribute its membership interest in llc to company or to contribute its membership interest in llc to llc after the combination qq rr there is no plan or intention for the company to contribute its membership interest in llc to newco or any other transferee amounts used to satisfy notes of llc and other obligations of llc to the members arising prior to the combination will come solely and exclusively from the earnings or assets of llc and not from a capital_contribution from the company rulings based solely on the information submitted and the representations set forth above we rule as follows regarding the first contribution and the combination the first contribution no gain_or_loss will be recognized by memberb on the transfer of property in the first contribution to newco solely in exchange for newco stock except that gain will be recognized to the extent that liabilities of memberb assumed by newco exceed memberb’s basis in the property transferred sec_351 sec_357 and c revrul_80_323 c b the basis of the newco stock received by memberb in the first contribution will be the same as the basis of the property exchanged by memberb reduced by the amount of liabilities assumed by newco and increased by the amount of gain if any recognized by memberb in the first contribution sec_358 and d the holding_period of newco stock received by memberb in the first contribution includes memberb’s holding_period for the membership interest transferred to newco provided that the assets transferred are capital assets or property described in sec_1231 at the time of the exchange except that to the extent the newco stock is received by member b in exchange for interests in sec_751 assets of llc that are neither capital assets nor plr-135005-11 sec_1231 assets the holding_period of such stock begins on the day following the date of the exchange sec_1223 revrul_84_111 c b newco will not recognize any gain_or_loss upon the receipt of memberb’s assets solely in exchange for newco stock sec_1032 newco’s basis in property received from memberb in the first contribution will equal the basis of such property in the hands of memberb immediately before its transfer in the first contribution sec_362 newco’s holding_period in the property received from memberb in the first contribution will include the holding_period during which memberb held such property sec_1223 the combination for federal_income_tax purposes the formation of merger sub followed by the merger will be treated as transfers by the shareholders of corp of their corp common_stock to the company in exchange for company common_stock see revrul_67_448 c b the transfer by the shareholders of corp of their corp common_stock in the merger and the transfer by the members of the membership interests and the stock of newco in exchange for company common_stock will be considered an exchange for purposes of sec_351 see revrul_76_123 1976_1_cb_94 and revrul_68_357 c b except as provided by sec_351 and sec_357 the transferors will not recognize gain on the transfer of property to the company in the combination sec_351 the members will recognize gain but not loss on cash or company notes received in step vii of the proposed transaction sec_351 the excess of a transferor’s liabilities assumed by the company in the combination over such transferor’s adjusted_basis in property transferred to the company in the combination will be considered gain from the sale_or_exchange of property sec_357 revrul_80_323 c b the basis of the company common_stock received by each transferor will be the same as that of the property exchanged by such transferor reduced by the amount of cash received including the amount of any liabilities assumed by the company and the fair_market_value of any company notes received increased by the amount of gain if any recognized by such transferor in the combination sec_358 and d the holding_period of company common_stock received by a transferor in the combination includes such transferor’s holding_period of the property plr-135005-11 transferred to the company provided that the assets transferred are capital assets or property described in sec_1231 at the time of the exchange except that to the extent the company common_stock is received by such transferor in exchange for interests in sec_751 assets of llc that are neither capital assets nor sec_1231 assets the holding_period of such stock begins on the day following the date of the exchange sec_1223 revrul_84_111 c b the company will not recognize any gain_or_loss upon receipt of property from the transferors in exchange for company common_stock sec_1032 the company’s basis in the property received from each of the members in the combination will equal the basis of such property in the hands of such member before its transfer in the combination increased by the amount of gain if any recognized by such member in the combination sec_362 except as otherwise provided in sec_362 the company’s basis in the property received from each shareholder of corp in the combination will equal the basis of such property in the hands of such shareholder before its transfer in the combination increased by the amount of gain if any recognized by such shareholder in the combination sec_362 the company’s holding_period in the property received from the transferors in the combination will include the holding_period during which the transferors held such property sec_1223 caveats 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 in addition as to the items listed below no rulings were requested and as such i ii iii no opinion is expressed or implied concerning whether the merger also qualifies as a reorganization under sec_368 no opinion is expressed or implied regarding the treatment of the delayed distribution the deferred_compensation or the deferred_compensation notes no opinion is expressed or implied concerning the tax consequences under subchapter_k of any aspect of the first contribution which include but are not limited to the application of sec_751 and sec_752 see revrul_84_53 1984_1_cb_159 plr-135005-11 iv v vi no opinion is expressed or implied concerning the tax consequences under subchapter_k of any aspect of the members’ contribution of the membership interests to the company which include but are not limited to the application of sec_751 and sec_752 see revrul_84_53 1984_1_cb_159 no opinion is expressed or implied concerning whether the holders’ interests represent current equity interests in llc and whether the delayed distribution is governed by sec_736 as well as the application of sec_731 sec_732 and sec_751 and no opinion is expressed or implied regarding the application of the following code sections e h c b 613a and procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely _isaac w zimbalist_________________ isaac w zimbalist senior technical reviewer branch office of associate chief_counsel corporate cc


t c no united_states tax_court john r and patricia g okerson petitioners v commissioner of internal revenue respondent docket no filed date in a state court court decreed that p pay to o in connection with their divorce monthly payments of alimony totaling dollar_figure the decree stated that this alimony would terminate if o died before the dollar_figure was paid in full but that p would then be required to continue making the monthly payments towards the education of p and o’s children until the children completed years of college in the court decreed that p make additional monthly payments totaling dollar_figure to o’s attorney as additional alimony to o and that this additional alimony was deductible by p and taxable_income to o the decree also stated that this additional alimony would terminate if o died before the dollar_figure was paid in full but that p would then be required to continue making the monthly payments to o’s attorney until the dollar_figure was paid in full during p paid dollar_figure pursuant to the decree and dollar_figure pursuant to the decree and claimed on his federal_income_tax return that the total of dollar_figure was deductible as alimony in after p commenced this proceeding challenging r’s disallowance of that deduction the court restated in an order that it intended for federal_income_tax purposes that all of the dollar_figure and the dollar_figure be alimony deductible by p and includable in o’s income the court also stated in this order that p had as of then paid both of these amounts to o who was still alive held an alimony deduction for federal_income_tax purposes rests on fulfilling the requirements set forth in sec_71 sec_71 i r c provides that payments may qualify as alimony only if there is no liability to make any such payment as a substitute for such payments after the death of the payee spouse held further in accordance with sec_1_71-1t q a-14 temporary income_tax regs fed reg date the payments which p was liable to make upon o’s death are substitute_payments under sec_71 i r c in that those post death payments would begin as a result of o’s death and would substitute for a continuation of the payments which terminated on o’s death and which otherwise qualified as alimony held further in accordance with sec_1_71-1t q a-13 temporary income_tax regs supra the fact that p was liable to make the substitute_payments means that p may not deduct any of the dollar_figure as alimony for federal_income_tax purposes even though the dollar_figure would have otherwise been deductible as such michael j stengel for petitioners james l may jr for respondent opinion laro judge this case is before the court for decision without trial see rule petitioners petitioned the court to redetermine a dollar_figure deficiency in their federal_income_tax we decide as to that year whether petitioners may deduct as alimony dollar_figure that john r okerson petitioner paid pursuant to his divorce from his former wife barbara buhr okerson okerson we hold that petitioners may not deduct any of that amount background the facts in this background section are obtained from the parties’ stipulation of facts and the exhibits submitted therewith petitioners resided in memphis tennessee when their petition was filed petitioner and his former wife okerson have two children who were born on date and date respectively on date a tennessee state court state court issued an order awarding okerson a divorce from petitioner on date the state court entered a supplemental final decree of divorce decree that in relevant part ordered adjudged and decreed as follows rule references are to the tax_court rules_of_practice and procedure unless otherwise stated section references are to the applicable versions of the internal_revenue_code john russell okerson shall pay to barbara buhr okerson one hundred seventeen thousand dollar_figure dollars as alimony necessary for her support as follows six hundred fifty dollar_figure dollars per month for twenty-one months beginning september through may one thousand two hundred fifty dollar_figure dollars per month for three months beginning june through august one thousand six hundred dollar_figure dollars per month for a period of thirty-six months beginning september through august one thousand fifty dollar_figure dollars per month for a period of thirty- six months beginning september through august and two hundred fifty dollar_figure dollars per month for a period of sixteen months beginning september through december and the final payment of two hundred dollar_figure dollars to be made in january said payments shall be payable in two equal monthly payments on the 16th and 30th day of each month said alimony shall terminate upon the death but not the remarriage of either john russell okerson or barbara buhr okerson and shall be modifiable only upon the showing of a substantial change_in_circumstances which was not contemplated by this court at the time of the trial as set forth in the premises hereinabove in the event that barbara buhr okerson should die before john russell okerson has satisfied his alimony obligation under this agreement john russell okerson agrees to make payments in an amount equal to his remaining alimony obligation for or on behalf of the education of the parties’ two children for a period no longer than the period originally scheduled for the alimony payments or until the children have completed four years of undergraduate collegiate work whichever occurs first in the event that a child does not pursue her college education after barbara buhr okerson’s demise then john russell okerson’s agreement for continuing support payments to that child equal to half of the remaining alimony payments shall cease john russell okerson shall pay to larry rice attorney as alimony necessary for barbara buhr okerson’s support the sum of twelve thousand four hundred forty dollar_figure dollars five thousand dollar_figure dollars of said funds shall be paid to larry rice within sixty days of date and the remaining seven thousand four hundred forty dollar_figure dollars shall be paid to larry rice within ninety days from date on date the state court upon remand of the case from a state appellate court see okerson v okerson no 02a01-9507-cv-00147 tenn ct app date entered an order decree that decreed as follows john russell okerson shall pay to larry rice attorney for the defendant barbara buhr okerson for the benefit of barbara buhr okerson thirty three thousand five hundred dollar_figure dollars as alimony necessary for her support as follows immediate payment of seven thousand five hundred dollar_figure dollars seven hundred fifty dollar_figure dollars per month for forty-one months beginning date with the final payment_date said alimony is taxable to the defendant and deductible by the plaintiff petitioner and shall terminate upon the death but not the remarriage of barbara buhr okerson in the event that barbara buhr okerson should die before john russell okerson has satisfied his alimony obligation under this agreement john russell okerson agrees and is hereby ordered to make payments in an amount equal to his remaining alimony obligation to larry rice attorney for the defendant for a period no longer than the period originally scheduled for the alimony payments or until an amount equal to his remaining alimony obligation appellate attorney fees and expenses has been satisfied during petitioner paid dollar_figure pursuant to the decree and dollar_figure pursuant to the decree on their joint federal_income_tax return petitioners claimed an alimony deduction for the total amount of dollar_figure respondent disallowed that deduction in a notice_of_deficiency issued to petitioners on date on date petitioners petitioned this court to redetermine that disallowance on date petitioner moved the state court to modify its final decree of divorce for alimony and attorney’s fees on date the state court issued with respect to that motion an order stating as follows this cause came on to be heard on date upon petition to modify final decree of divorce for alimony and attorney’s fees filed february by john russell okerson through his attorney charles a sevier upon answer of barbara buhr okerson to said petition to modify final decree of divorce for alimony and attorney’s fees personal service upon barbara buhr okerson by certified mail return receipt requested argument of counsel for john russell okerson charles a sevier argument of counsel for barbara buhr okerson laura d rogers upon memorandum of law in opposition to petition to modify final decree of divorce for alimony and attorney fees from all of which it appears to the court as follows that on date judge wyeth chandler judge of division i of the circuit_court of shelby county tennessee entered a supplemental final decree of divorce in this cause in which john russell okerson was ordered to pay certain sums of alimony to barbara buhr okerson including attorney fees to larry rice as her attorney as alimony necessary for barbara buhr okerson’s support said sums totaling one hundred twenty nine thousand four hundred forty dollar_figure dollars payable in installments that it was announced to the court by counsels for john russell okerson and barbara buhr okerson that said amounts have been paid in full that john russell okerson by his attorney states that in the trial transcript of this cause held before the honorable wyeth chandler the court clearly stated more than one time that the court intended all ordered alimony to be tax deductible to john russell okerson and taxable_income to barbara buhr okerson it was announced to the court that despite said intention of the court paragraph five of the supplemental final decree of divorce entered date contained language as follows in the event barbara buhr okerson should die before john russell okerson has satisfied his alimony obligation under this agreement john russell okerson agrees to make payments in an amount equal to his remaining alimony obligation for or on behalf of the education of the parties’ two children for a period no longer than the period originally scheduled for the alimony payments or until the children have completed four years of undergraduate collegiate work whichever occurs first in the event that a child does not pursue her college education after barbara buhr okerson s demise then john russell okerson s agreement for continuing support payments to that child equal to half of the remaining alimony payments shall cease it was announced to the court that said paragraph quoted above has been construed by the internal_revenue_service to question the intent of the court in the entry of the supplemental final decree of divorce entered date that all alimony and attorney fees paid to larry rice esq be tax deductible to john russell okerson and taxable_income to barbara buhr okerson it further appeared to the court that said paragraph five quoted above contains language of contingency that did not occur and that therefore this court should find as fact in this cause that all of such alimony paid under the supplemental final decree of divorce in this cause should be tax deductible to john russell okerson and taxable_income to barbara buhr okerson it further appeared to the court that in the order on motion for appellate attorney s fees entered october in which john russell okerson was ordered to pay larry rice then attorney for barbara buhr okerson thirty-three thousand five hundred dollar_figure dollars in installments for appellate attorney fees that said order stated said alimony is taxable to the defendant and deductible by the plaintiff and shall terminate upon the death but not remarriage of barbara buhr okerson it further appeared to the court that in paragraph in the motion on order for appellate attorney fees the following appears in the event barbara buhr okerson should die before john russell okerson has satisfied his alimony obligation under this agreement john russell okerson agrees and is hereby ordered to make payments in an amount equal to his remaining alimony obligation to larry rice attorney for the defendant for a period no longer than the period originally scheduled for the alimony payments or until an amount equal to his remaining alimony obligation appellate attorney fees and expenses have been satisfied it has been announced to the court that said paragraph appearing in the order on motion for appellate attorney fees has been the basis of the internal_revenue_service questioning the tax deductibility of said fees paid_by john russell okerson it is therefore held by this honorable court in regard to the order of motion for appellate attorney fees that it was the stated intention of this court to make said alimony payments which have been paid in full by stipulation of the parties taxable_income to barbara buhr okerson and tax deductible to john russell okerson as alimony it further appeared to the court that the paragraph quote above contained a contingency that did not occur and therefore should not be the basis of confusion as to the court’s intention in this cause it further appeared to the court that notwithstanding barbara buhr okerson’s opposition to the court’s decision in this cause that the findings and holdings of this order are hereby adjudged ordered and decreed discussion we decide whether petitioners may deduct the dollar_figure as alimony respondent determined they could not petitioners concede in brief that they must prove this determination wrong in order to prevail the fact that this case was submitted to the court on the basis of a fully stipulated record neither alters petitioners’ burden_of_proof nor changes the requirements otherwise applicable with respect to adducing proof or the effect of a failure of proof see rule b 104_tc_1 affd 103_f3d_104 10th cir an individual such as petitioner may generally deduct payments made during the taxable_year to a spouse2 to the extent that the payments are alimony that is includable in the spouse’s gross_income see sec_215 and b payments are alimony that is includable in a spouse’s gross_income when each of the following requirements is met the payments are made in cash the payments are received by or on behalf of the spouse under_a_divorce_or_separation_instrument the divorce_or_separation_instrument does not provide that the payments are not reportable as alimony the spouses reside in separate households at the time the payments are made the spouses do not file a joint_return and the payor spouse’s liability for we use the term spouse to refer to a present or former spouse the payments or for making other_payments in substitute of those payments does not continue for any period after the payee spouse’s death sec_71 e see also sec_71 a payee spouse’s gross_income does not include any part of a payment that a divorce or settlement agreement fixes as payable for the support of children of the payor spouse we concern ourselves only with the requirement in dispute ie the payor spouse’s liability for the payments and for any substitute_payments must cease as of the payee spouse’s death see sec_71 whether a payor spouse is liable to make an alimony or substitute payment after a payee spouse’s death is determined by looking first to the terms of the applicable divorce documents which if they speak unambiguously as to this matter are dispositive of the matter see 102_f3d_842 6th cir affg tcmemo_1995_183 in construing these documents the mere fact that the documents may characterize a payment as alimony has no effect on the consequences of that payment for federal_income_tax purposes id pincite sec_71 provides that payments in cash qualify as alimony if there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse here petitioners acknowledge that the applicable divorce documents are the decree and the decree collectively the decrees and that the decrees conflict with sec_71 in that they state that upon okerson’s death petitioner must continue to make payments in the same amount as the payments which he must pay before her death petitioners argue however that the intent of the state court was to allow petitioner to deduct the dollar_figure and dollar_figure as alimony petitioners consider relevant the fact that petitioner paid both of these amounts during okerson’s lifetime and that he never had to pay any of the post death payments described in the decrees petitioners focus erroneously on the intent of the state court as support for their argument that they are entitled for federal_income_tax purposes to deduct the disputed payments as alimony while state law establishes the property interests of divorcing parties federal_law controls the federal_income_tax treatment of those interests hoover v commissioner supra pincite here the applicable federal_law is set forth in sec_71 which in its present form provides the exclusive means by which a taxpayer may deduct a payment as alimony for federal_income_tax purposes id pincite through that section congress eliminated any consideration of intent in determining the deductibility of a payment as alimony in favor of a more straightforward objective test that rests entirely on the fulfillment of explicit requirements set forth in sec_71 id see also rosenthal v commissioner tcmemo_1995_603 whether or not the parties intended for the payments to be deductible to petitioner we must focus on the legal effect of the agreement in determining whether the payments meet the criteria under sec_71 as the house_committee_on_ways_and_means articulated in its report on sec_71 in discussing the need for such an objective test the committee believes that a uniform federal standard should be set forth to determine what constitutes alimony for federal tax purposes this will make it easier for the internal_revenue_service the parties to a divorce and the courts to apply the rules to the facts in any particular case and should lead to less litigation the committee bill attempts to define alimony in a way that would conform to general notions of what type of payments constitute alimony as distinguished from property_settlements and to prevent the deduction of large one-time lump-sum property_settlements h rept pt pincite5 although the parties to a divorce proceeding may intend that certain payments be considered alimony for federal_income_tax purposes and a court overseeing that proceeding may intend the same congress has mandated through sec_71 that payments qualify as alimony for federal_income_tax purposes only when the payor’s liability for those payments or for any payments which may be made in substitute thereof terminates upon the payee spouse’s death petitioners fail this requirement in that both of the decrees state specifically and unequivocally that petitioner’s obligation to pay alimony will terminate upon the death of okerson but that petitioner will then be liable to start making corresponding payments in substitute of the alimony payments the complete termination upon the death of the payee spouse of all payments made as alimony or in substitute thereof is an indispensable part of congress’s scheme for deducting a payment as alimony for federal_income_tax purposes and it is something that may not be overcome simply because the payor may establish an intent that the payments be deductible by the payor spouse as alimony as the house_committee_on_ways_and_means stated sweepingly in its report on sec_71 in order to prevent the deduction of amounts which are in effect transfers of property unrelated to the support needs of the recipient the bill provides that a payment qualifies as alimony only if the payor has no liability to make any such payment for any period following the death of the payee spouse h rept supra pincite having decided that the definition of alimony for federal_income_tax purposes turns on a fulfillment of the statutory test and not on the intent of the parties to a divorce proceeding or of the court overseeing that proceeding we now turn to deciding whether the post death payments described in the decrees are substitute_payments within the context of sec_71 under sec_1_71-1t q a-14 temporary income_tax regs fed reg date payments are treated as substitute_payments for purposes of sec_71 to the extent that they would begin as a result of the payee spouse’s death and would substitute for a continuation of payments which would otherwise qualify as alimony but which would terminate on account of the payee spouse’s death see also h rept supra pincite such is the case here all of the post death payments described in the decrees would be made after okerson’s death and they would be made only if okerson died before petitioner satisfied his alimony obligations under the decrees the post death payments also would be made in substitute of the alimony payments under the decrees which would terminate on account of okerson’s death petitioners rely erroneously upon the fact that petitioner never actually made one of these post death payments this fact is unimportant the standard established by congress for substitute_payments is not as petitioners would have it whether a payor spouse actually makes a substitute payment the standard as gleaned from sec_71 as well as from the regulations interpreting that section and from the legislative_history is whether the payor spouse could have to make a substitute payment upon the death of the payee spouse sec_71 provides that payments qualify as alimony for federal_income_tax purposes if the payments are made in cash and there is no liability to make any such payment in cash or property as a substitute for such payments after the death of the payee spouse the applicable regulations specifically sec_1_71-1t q a-14 temporary income_tax regs supra state to the extent that one or more payments are to begin to be made increase in amount or become accelerated in time as a result of the death of the payee spouse such payments may be treated as a substitute for the continuation of payments terminating on the death of the payee spouse which would otherwise qualify as alimony or separate_maintenance payments the legislative_history states the bill provides that a payment qualifies as alimony only if the payor has no liability to make any such payment for any period following the death of the payee spouse a provision for a substitute payment such as an additional_amount to be paid as child_support after the death of the payee spouse will prevent a corresponding amount of the payment to the payee spouse from qualifying as alimony h rept supra pincite we conclude that all of the post death payments described in the decrees are substitute_payments for purposes of sec_71 and turn to decide the tax consequences that result from this characterization pursuant to sec_1_71-1t q a- temporary income_tax regs supra the fact that a payor spouse is required to make substitute_payments means that none of while these temporary regulations were superseded in part by the technical correction provisions of the tax_reform_act_of_1986 publaw_99_514 sec b 100_stat_2853 the portions of these temporary regulations that we rely upon herein were not affected by those provisions and continue to be effective the corresponding payments which otherwise qualified as alimony under sec_71 are deductible as alimony see h rept supra pincite see also cunningham v commissioner tcmemo_1994_474 if a payor spouse continues to be liable to make even one otherwise qualifying payment after the death of the payee spouse none of the related payments required before the payee spouse’s death will be alimony sec_1_71-1t examples and temporary income_tax regs supra illustrates this point under example the divorce decree states that a must pay alimony to b in the form of six annual payments of dollar_figure the decree also states that this obligation will terminate upon the death of b but if any of the children of a and b are minors at that time a must then make annual payments of dollar_figure to a_trust benefiting those children the example states that a’s liability to make the dollar_figure payments is a substitute for dollar_figure of each of the dollar_figure payments and that dollar_figure of each dollar_figure payment fails to qualify as alimony under example the divorce decree states that a must pay alimony to b in the form of annual payments of dollar_figure the decree also states that this obligation will terminate upon the death of b but that a must then pay any unpaid amount to b’s estate in a lump sum example states that a’s liability to pay the lump sum is a substitute for the full amount of each of the dollar_figure payments and that none of the dollar_figure payments qualifies as alimony example also states that the result would be the same even if the lump sum was required to be discounted to reflect the prepayment here petitioner was required by the decree to pay okerson monthly alimony totaling dollar_figure this obligation would have terminated upon okerson’s death but petitioner would then have been required to pay the unpaid alimony towards the education of his and okerson’s children until the children completed years of college petitioner also was required by the decree to make additional monthly alimony payments totaling dollar_figure to okerson’s attorney this obligation also would have terminated upon the death of okerson but petitioner would then have been required to continue paying the unpaid amount to okerson’s attorney because under both decrees the substitute_payments would have been the same amount as the amounts payable as alimony under the decrees we conclude consistently with the temporary regulations and the examples set forth therein and discussed above that petitioner is not entitled to deduct any of the dollar_figure as alimony for federal_income_tax purposes in sum when the terms of the applicable divorce documents state as here that the payor spouse upon the death of the payee spouse must continue to make payments in substitute of payments which are required to be paid as alimony the post death payments fail to qualify as alimony for federal_income_tax purposes in addition a corresponding amount of any payment which is to be made before the payee spouse’s death and which otherwise would be deductible as alimony fails to qualify as well because respondent determined as much with respect to the payments in dispute we sustain that determination all arguments for a contrary result have been considered and we have concluded that those arguments not discussed herein are without merit accordingly decision will be entered for respondent


t c memo united_states tax_court william t hough and norma hough petitioners v commissioner of internal revenue respondent docket no filed date william t hough pro_se anthony ammirato for respondent memorandum findings_of_fact and opinion swift judge respondent determined deficiencies in petitioners' joint federal income taxes and accuracy-related_penalties as follows accuracy-related_penalty year deficiency sec_6662 a dollar_figure dollar_figure big_number big_number big_number big_number unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure petitioners failed to participate in the stipulation process and petitioners failed to appear at trial due however to concern over placement on respondent of the burden_of_proof with regard to a statute_of_limitations issue respondent did not move for dismissal and respondent offered evidence regarding petitioners’ extension of the period of limitations the primary issue for decision is whether petitioners executed a valid consent to extend the time to assess tax with regard to findings_of_fact at the time the petition was filed petitioners resided in basking ridge new jersey petitioners filed their and joint federal_income_tax returns respectively on date and on or after date in early august of because respondent’s audit of petitioners had not been completed respondent requested petitioners to sign a form_872 consent to extend the time to assess tax that would extend the period for assessment of tax for to date respondent mailed the form_872 to - - petitioners for petitioners’ signature and respondent received the form_872 back from petitioners on which petitioners’ names were signed on the signature lines on date respondent’s representative signed the form_872 on date respondent mailed by certified mail the notice_of_deficiency to petitioners for and in which the tax deficiencies and accuracy-related_penalties at issue in this case were determined opinion income taxes generally must be assessed within years after the return was filed sec_6501 taxpayers and respondent however may consent in writing to extend the 3-year period of limitations on assessment see sec_6501 petitioners allege that respondent’s notice_of_deficiency mailed on date was not timely as to the tax deficiencies determined by respondent against petitioners for and generally where taxpayers plead the defense of a lapse of the period of limitations and where prima facie evidence supports the taxpayers’ defense respondent has the burden of introducing evidence to show that the notice_of_deficiency was timely mailed to the taxpayers see 85_tc_535 leatherman v commissioner tcmemo_1989_650 - in determining the validity of a consent to an extension of the period of limitations contract principles are important and we look to objective manifestations of mutual assent to determine the existence of such an agreement see sec_6501 c 93_tc_623 80_tc_1035 in this case respondent has adequately demonstrated that the assessment periods of limitations for both and were open at the time respondent mailed the notice_of_deficiency to petitioners for the credible_evidence indicates that petitioners signed the form_872 on which the period of limitation for was extended to date this form_872 was mailed to petitioners and returned to respondent signed with petitioners’ names petitioners do not deny that the signatures thereon constitute their signatures for respondent’s notice_of_deficiency was obviously timely having been mailed to petitioners on date a number of days before expiration of the period of limitations for we conclude that respondent’s notice_of_deficiency to petitioners was timely as to both and with regard to the underlying tax deficiencies and the accuracy-related_penalties determined by respondent against petitioners for and we find for respondent and we sustain respondent’s determinations against petitioners for lack of evidence see rule to reflect the foregoing and due to a concession of one issue by respondent decision will be entered under rule


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 plr-109653-14 date date legend x ---------------------------------------------------- -------------------------------- d country ------------------ ------- dear --------------- this is in response to a letter dated date and subsequent correspondence submitted on behalf of x 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 be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed on d under the laws of country x intended to be treated as a disregarded_entity for federal tax purposes effective d however x inadvertently failed to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes 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 an eligible_entity with a single owner can plr-109653-14 elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i section b defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a disregarded_entity for federal tax purposes effective d x must make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form this ruling is contingent on x filing within days of the date of this letter all required returns and amended returns for all open years consistent with the requested relief these returns may include but are not limited to the following forms i form_5471 information_return of u s persons with respect to certain foreign_corporations and plr-109653-14 ii form_8858 information_return of u s persons with respect to disregarded entities 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 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely joy c spies joy c spies senior technician reviewer branch associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date uil department of the treasury constitution avenue nw washington dc person to contact telephone number refer reply to cc ita b6 cam-101022-00 date date subject request concerning method_of_accounting for transportation and material handling costs related to coal and oil used to produce electricity we sent the following letter to ein hereinafter the taxpayer detailing our reasons for refusing to grant it permission to make an accounting_method change facts the taxpayer is the parent_corporation of an affiliated_group that files a consolidated_income_tax_return on a calendar_year basis the taxpayer is an electric utility in the business of generation transmission distribution and sale of electricity in connection with this business the taxpayer utilizes coal and oil as fuel sources no other member of the affiliated_group uses these items in their businesses thus the taxpayer is seeking permission to change only its method_of_accounting the taxpayer uses an overall accrual_method of accounting to produce electricity for sale the taxpayer burns coal and oil at power generation plants the taxpayer seeks permission to change how it accounts for the costs of transporting coal and oil between the point where title to these products is obtained and the power plant where the coal and oil will be used in the production of electricity modes for this transportation include rail car barge truck and conveyor belt the taxpayer also seeks permission to change how it accounts for the costs associated with the handling of the coal and oil after they are delivered to the power plant for example payroll_taxes and salaries and benefits paid to personnel alternatively the taxpayer requests approval for it to use a particular facts and circumstances allocation method as referenced by sec_1_263a-1 the particular method proposed is as follows inventoriable costs x ending inventory costs allocated to inventory kilowatt-hours produced inventoriable costs includes the cost of the coal and oil consumed and all coal and oil transportation and material handling costs incurred in the year kilowatt-hours produced is the actual amount of kilowatt-hours of electricity produced in the year ending inventory is the amount of kilowatt-hours of electricity produced in the year that have yet to be sold and remain on hand at year end page under the present accounting_method the taxpayer capitalizes coal and oil transportation and material handling costs as part of the cost of the coal and oil thus these costs do not enter into the taxpayer’s computation of taxable_income until the tax_year in which the coal and oil are actually burned to generate electricity because of the nature of electricity the burning of coal and oil is almost simultaneous with the sale of the electricity produced under the proposed accounting_method the taxpayer would deduct under sec_162 and sec_461 coal and oil transportation and material handling costs in the tax_year in which the costs are incurred none of these costs would be capitalized at the time the taxpayer filed the form_3115 the taxpayer was under examination for tax years through the form_3115 was filed with the consent of the director as specified in section of revproc_97_27 1997_1_cb_680 furthermore the taxpayer was before an appeals_office when it filed the form_3115 an appeals_office representative agreed that the change in accounting_method requested is not an issue under consideration see section dollar_figure of revproc_97_27 denial of consent the cost of transporting coal and oil from the place where title is obtained to a power plant where they can be used in the production of electricity is a cost of acquisition that is properly treated as part of the cost of the coal and oil see generally revrul_72_113 1972_1_cb_99 maier brewing company v commissioner tcmemo_1987_385 aff’d 916_f2d_716 9th cir sears oil co inc v commissioner tcmemo_1965_39 34_tc_776 aff’296_f2d_732 6th cir cert denie369_us_860 accordingly the taxpayer’s present method of capitalizing coal and oil transportation costs is a correct method_of_accounting and not an incorrect method as asserted by the taxpayer as part of the cost of coal and oil these transportation costs would not enter into the computation of taxable_income until the coal and oil are consumed when electricity is produced and sold this would be the case regardless of whether the cost including acquisition costs of coal and oil used to produce electricity is deemed to be a direct or indirect material cost subject_to sec_263a or materials_and_supplies subject_to sec_1_162-3 in contrast the cost of handling coal and oil at a power plant is not a cost of acquisition see sec_1_162-3 however the taxpayer's present method of capitalizing these costs is also a correct method_of_accounting under sec_263a costs associated with this coal and oil do not enter into the computation of taxable_income until the coal and oil are consumed when electricity is produced and sold handling costs as a cost associated with property that is held for future production must be capitalized in accordance with the requirements of sec_263a application of sec_263a sec_263a applies to the cost of transporting and handling coal and oil used in the production of electricity for sale to customers as follows page producers of electricity are subject_to sec_263a generation of electricity constitutes production of tangible_personal_property see helvey v wabash county remc n e 2d ind app minnesota power light company v taxing district n w 2d minn curry v alabama power co so 2d ala state tax commission v marcus j lawrence mem hosp p 2d ariz thus all direct and indirect_costs attributable to the production of electricity for sale to customers are subject_to capitalization in accordance with the requirements of sec_263a and the regulations thereunder see sec_263a and sec_263a sec_1_263a-1 the cost of coal and oil becomes a cost of electricity produced when the coal and oil are consumed in the ordinary course of production sec_1_263a-1 provides that producers must capitalize direct_material_costs which include the cost of those materials that become an integral part of specific property produced and those materials that are consumed in the ordinary course of production and that can be identified or associated with particular units or groups of units of property produced arguably coal and oil used to produce electricity constitute direct_material_costs because they are consumed in the production of electricity and can be directly associated with particular units of property produced that is there is a direct connection between tons of coal and gallons of oil consumed and kilowatt-hours of electricity thereby produced however even if the cost of coal and oil were deemed to not qualify as a direct material cost under sec_1_263a-1 coal and oil would still be subject_to sec_263a as indirect material_costs sec_1_263a-1 provides that taxpayers subject_to sec_263a must capitalize all indirect_costs properly allocable to property produced or property acquired for resale including indirect material_costs which include the cost of materials that are not an integral part of specific property produced and the cost of materials consumed in the ordinary course of performing production or resale activities that cannot be identified or associated with particular units or groups of units of property note a cost described in sec_1_162-3 relating to the cost of a material or supply specifically is listed as an indirect material cost for purposes of sec_263a sec_263a requires capitalization of coal and oil transportation and handling costs sec_263a requires accumulation of costs associated with the production of property until those costs can be attributed to property produced and matched with income from the sale of that property see preamble to sec_263a s rep no 99th cong 2d sess coal and oil transportation costs that is those costs not already accounted for as an acquisition_cost that is part of the cost of coal and oil and material handling costs must be accumulated until the taxpayer is able to allocate those costs as a cost of the electricity produced when the associated coal and oil are consumed accumulating coal and oil transportation and material handling costs until the coal and oil is consumed is consistent with the rule for pre-production costs that appears in sec_1_263a-2 which provides that if property is held for future production taxpayers must capitalize direct and indirect page costs allocable to that property for example purchasing storage handling and other costs even though production has not begun application of sec_1_162-3 the cost of transporting coal and oil from the place where title is obtained to a power plant where they can be used in the production of electricity cannot be deducted until the coal and oil are consumed even if coal and oil are deemed to be materials_and_supplies subject_to sec_1_162-3 sec_1_162-3 provides that taxpayers carrying materials_and_supplies on hand should include in expenses the charges for materials_and_supplies only in the amount that they are actually consumed and used in operation during the taxable_year for which the return is made these charges include acquisition transportation costs conclusion coal and oil transportation and material handling costs are subject_to capitalization requirements and cannot be deducted until the associated coal and oil are consumed and electricity is produced sec_1_446-1 provides that no method_of_accounting is acceptable unless in the opinion of the commissioner it clearly reflects income see also sec_446 sec_446 and sec_1 e i provide that a taxpayer must secure consent of the commissioner before changing a method_of_accounting in order to clearly reflect income the taxpayer must continue to capitalize coal and oil transportation and material handling costs and not include those costs in the computation of taxable_income until the associated coal and oil are consumed in the actual production of electricity accordingly permission to change to the proposed method_of_accounting for coal and oil transportation and material handling costs which would not clearly reflect income is denied similarly permission for the taxpayer to change to its alternative facts and circumstances allocation method is denied the alternative method would not clearly reflect income because it improperly accelerates the deduction of coal and oil transportation and material handling costs that are associated with electricity that will not be produced until a subsequent tax_year this letter is directed only to the taxpayer and may not be used or cited as precedent sincerely office of associate chief_counsel income_tax and accounting thomas a luxner chief branch 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 psi plr-130539-09 date date legend company ---------------------- -------------------------------------------------- state date1 date2 -------- -------------------------- ---------------------- dear ---------- this responds to a letter dated date submitted on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code facts company incorporated in state on date1 company intended to file form_2553 election by a small_business_corporation effective date2 due to inadvertence company never filed the election law and analysis sec_1362 provides in general that a small_business_corporation may elect to be an s_corporation sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year a at any time during the preceding plr-130539-09 taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for that taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat such an election as timely made for that taxable_year conclusion based solely on the facts submitted and representations made we conclude that company has established reasonable_cause for failing to make a timely s_corporation_election thus we conclude that company is eligible for relief under sec_1362 accordingly if company makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 effective date2 within days following the date of this letter the election shall be treated as timely made a copy of this letter should be attached to form_2553 except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether company is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent 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 a ruling it is subject_to verification on examination sincerely s tara p volungis senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number info release date index no washington dc person to contact telephone number refer reply to cc it a cor-137066-01 date date dear this letter is in response to your inquiry dated date in which you ask for guidance regarding losses by taxpayers you represent an elderly client with alzheimer’s disease who has sent cashier checks to telemarketers after being told he had won certain sweepstakes the federal tax treatment of losses is addressed in sec_165 of the internal_revenue_code sec_165 generally allows a deduction for any loss sustained during the taxable_year and not compensated by insurance or otherwise in the case of an individual the deduction is limited to losses_incurred in a trade_or_business losses_incurred in any transaction entered into for profit though not connected with a trade_or_business and losses of property not connected with a trade_or_business if the losses arise from fire storm shipwreck or other_casualty or from theft pursuant to sec_165 a theft_loss is allowable in the year in which the taxpayer discovers the loss sec_1_165-8 of the income_tax regulations provides that the term theft includes but is not necessarily limited to larceny embezzlement and robbery in order for a loss to be a theft the taking of the property must be illegal under the law of the state where it occurred and the taking must have been done with criminal intent in addition for a theft_loss the taxpayer should be able to show when the property was discovered missing that the property was stolen not mislaid and that the taxpayer is the owner of the property for your information we are enclosing internal_revenue_service publication casualties disasters and thefts business and nonbusiness the publication describes types of losses and provides information on proving losses and related expenses computing losses and reporting losses we hope that this information_letter is helpful an information_letter is advisory only and has no binding effect on the internal_revenue_service section dollar_figure of revproc_2001_1 2001_1_irb_1 for more specific guidance your client may request a private_letter_ruling from the national_office of the internal_revenue_service we have enclosed a copy of revproc_2000_1 which contains the procedures for a taxpayer to request a private_letter_ruling if you have any additional questions please contact beverly baughman at sincerely associate chief_counsel income_tax accounting kimberly koch assistant to chief branch enclosures publication revproc_2001_1


significant index no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division jun h in re -- company r this letter constitutes notice that your request of date for a waiver of the minimum_funding_standard for the above-named plan for the plan_year ending date has been granted subject_to the following conditions within days of the date of this letter an agreement is reached with the pension_benefit_guaranty_corporation pbgc concerning collateral that is to be provided to the plan to secure the amount of the waived_funding_deficiency the company will make contributions to the plan in amounts sufficient to meet the minimum_funding requirements for the plan for the plan_year ending this conditional waiver has been granted in accordance with sec_412 of the internal_revenue_code code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the amount for which this waiver has been granted is the contribution that would otherwise be required to reduce the balance in the funding_standard_account to zero as of date the company is a privately-held corporation engaged in the manufacture and distribution of for end uses involving applications in lines include and requiring superior performance product as well as the company’s principal markets are in the and related the company’s sales volume and margins continued to worsen in economic recession worsened management reorganization expenses expenses related to the catastrophic failure of a significant piece of manufacturing equipment and a write-off of unamortized debt issuance costs resulted in a net_loss of dollar_figure as the for the company's largest net_loss since its inception in _ continued to deteriorate in unaudited financial statements as of and the company had a loss of the financial situation based on as a result of the losses noted above the company's cash balance has been reduced fomdollar_figure and the company's revolving debt has increased from dollar_figure to dollar_figure financial statements as of ‘asol based on unaudited financial statements as of as of based on unaudited and dollar_figure as of as of todollar_figure i _ in _ the company negotiated a new revolving credit facility that expires in advances under the facility are secured_by eligible receivables r inventories and property plant and equipment the company must maintain minimum net_worth and fixed charge coverage ratios under the credit agreement in an amendment to the credit agreement had to be negotiated because of the company's violation of the minimum net_worth covenant in which was caused by the significant decline in the discount rate in calculating the minimum pension liability adjustment as of ' the amendment requires the company to maintain a loan availability of dollar_figure pricing at all times as well as increased interest rate the company believes that its economic hardship is due to normal business cycles in the industry although this downturn has been particularly severe to strengthen the company's financial position the company completed another corporate_reorganization in personnel and the suspension of benefit accruals and participation in the plan which is underfunded for current_liability effective - that resulted in the temporary layoff of _ of salaried however the company feels that the improved economic climate in as wellas its corporate restructuring and the freezing of benefit accruals and participation in the plan will stem its cash_flow problems and improve its sales volume year-to-date results show that the company's sales have greatly improved and are on track to increase on an annualized basis losses have also been significantly reduced the company has made the quarterly payment to the plan on time and has indicated that the other required quarterly payments for the as well plan_year will be made on time the prospects for the company's recovery appear solid but the plan has unfunded ' has current_liability hence the waiver for the plan_year ending been granted subject_to the conditions that the waiver be secured in a manner acceptable to the pbgc and that the minimum_funding requirement be met for the plan_year ending you agreed to these conditions in a letter dated which was transmitted by facsimile if these conditions are not satisfied the waiver is retroactively null and void your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits to change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that the establishment of another retirement_plan or any amendment to other retirement plans maintained by the company to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa - r this ruling ts directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent the date of this when filing form_5500 for the plan_year ending letter should be entered on schedule b actuarial information for this reason we suggest that you furnish a copy of this letter to the individual who is responsible for the completion of the schedule b we have sent a copy of this letter to the manager ep classification in and to your authorized representative pursuant to a power_of_attorney on file in this office a copy of this letter should be furnished to the enrolled_actuary for the plan if you require further assistance in this matter please contact sincerely yours carol d gold director employee_plans


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-115895-99 date date legend x y z a b d1 d2 d3 d4 this letter responds to your letter dated date written on behalf of x requesting rulings under sec_1362 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations facts according to the information submitted x was incorporated on d1 with a and b as its sole shareholders x elected subchapter_s status effective d2 y and z were incorporated on d3 and d4 respectively all of y’s stock was issued to z y and z have not had any operations or taxable_income since their incorporation on d4 pursuant to a plan_of_reorganization a and b exchanged their stock in x for all of the stock in z and as a result z became a holding corporation with x and y as its wholly-owned subsidiaries and with a and b as its sole shareholders plr-115895-99 it was intended that z would elect subchapter_s status and qualified_subchapter_s_subsidiary qsub status for x and y effective d4 however the elections were never filed law sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides when an s election will be effective if an s election is made within the first two and one half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation beginning the year in which the election is made if an s election is made after the first two and one half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year sec_1361 provides that the term qualified_subchapter_s_subsidiary means any domestic_corporation which is not an ineligible_corporation if percent of the stock of such corporation is held by the s_corporation and the s_corporation elects to treat such corporation as a qualified_subchapter_s_subsidiary on date the service published notice_97_4 1997_1_cb_351 providing a temporary procedure for making a qsub election under notice_97_4 a taxpayer makes a qsub election with respect to a subsidiary by filing a form_966 subject_to certain modifications with the appropriate service_center the preamble to the final qsub regulations provides that taxpayers should continue to follow notice_97_4 when making a qsub election until the new qsub election form is published preamble to t d f_r date sec_1_1361-3 of the income_tax regulations provides that a qsub election will be effective on the date specified on the election form or on the date the election form is filed if no date is specified the effective date specified on the form cannot be more than two months and days prior to the date of filing and cannot be more than months after the date of the filing sec_1_1361-3 provides that an extension of time to make a qsub plr-115895-99 election may be available under the procedures applicable under sec_301_9100-1 and sec_301_9100-3 of this chapter under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting the relief will not prejudice the interests of the government sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a notice published in the internal_revenue_bulletin sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion after applying the law to the facts submitted and the representations made we conclude that z has established reasonable_cause for not making a timely s election and is eligible for relief under sec_1362 accordingly if z makes an election to be an s_corporation by filing with the appropriate service_center within days following the date of this letter a completed form_2553 containing an effective date of d4 for the election then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center we also conclude that good cause has been shown and the other requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result z is granted an extension of time to make qsub elections for x and y until sixty days following the date of this letter a copy of this letter should be attached to the form_966 filed with the service_center for each election except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether z is an s_corporation or whether x and y are qsubs for federal tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-115895-99 sincerely yours paul f kugler assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


number release date id office uilc cca_2011010614475243 -------------- from -------------------- sent thursday january pm to --------------------- cc ------------------- subject re presentations hi------- - yes the taxpayer would not need to sign the consent prior to signing the return because the consent is not being obtained in the context of solicitation of additional services if the tax_return_preparer were to obtain a consent for purposes of soliciting other services eg financial planning services then the taxpayer would need to sign the consent prior to the preparer's presentation of the completed return to the taxpayer for signature you are correct that there is no restriction under on use or disclosure as it relates to determining estimated_tax for a particular taxpayer a sec_7216 provides an exception to the general_rule i will defer to ------ as to your third concern --------