t c summary opinion united_states tax_court lynda wang petitioner v commissioner of internal revenue respondent docket no 3904-03s filed date lynda wang pro_se kevin m murphy and anne d melzer for respondent pajak special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax the issue for decision is whether petitioner is entitled to deduct for an alleged theft_loss of dollar_figure from petitioner resided in rochester new york at the time she filed her petition petitioner refused to sign a stipulation of facts petitioner filed form_1040 u s individual_income_tax_return for taxable_year on her return petitioner claimed dollar_figure under other miscellaneous deductions respondent determined that petitioner was not entitled to the claimed deduction in her petition petitioner contended that she is entitled to carry forward losses for years in her memorandum petitioner stated that her claimed deduction of dollar_figure was due to a theft_loss from petitioner further stated that in her landlord bobson realty through various agents first stored her belongings for months and subsequently threw them away we first address whether petitioner is entitled to a theft_loss deduction sec_165 allows a deduction for any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise sec_165 in relevant part limits such a deduction for individuals to losses of property not connected with a trade_or_business if such losses arise from theft sec_165 provides that theft losses are treated as sustained during the taxable_year in which the taxpayer discovers the loss the amount of a theft_loss the taxpayer may deduct as limited by sec_165 is the lesser_of the adjusted_basis of the property or its fair_market_value sec_1_165-8 income_tax regs deductions are strictly a matter of legislative grace 503_us_79 292_us_435 taxpayers must substantiate any deductions claimed 65_tc_87 affd per curiam 540_f2d_821 5th cir because petitioner did not meet the substantiation and recordkeeping requirements of sec_7491 the burden_of_proof remains on petitioner rule a in her memorandum petitioner described her belongings as clothes - evening dresses at dollar_figure ea dollar_figure business suits at dollar_figure ea other sec_2 books - yrs graduate study books big_number with notations reports etc papers for career and cpa exam - yrs time effort sec_3 stamp collection scholastic records gre tofel diplomas receipts old coins etc other household item sec_50 pictures of past memories souvenirs big_number total dollar_figure she further described her belongings in part to be years graduate school books research papers reports notes which are for my career business at trial petitioner claimed that her belongings included my ancient collections of ancient coins and stamps and the picture that i took all over the united_states thousands what else also my family memories that’s most important once it’s missing i couldn’t replace them unfortunately memories are delectable but memories are not deductible loss of sentimental value is not a deductible loss ganas v commissioner tcmemo_1990_143 affd without published opinion 943_f2d_1317 11th cir petitioner did not prove the value of her belongings petitioner did not prove the theft of these belongings she did not have a police report she claimed she brought a legal action against her landlord but failed to prove that fact or any result from any legal action other than bare assertions petitioner presented no evidence that she sustained a theft_loss in at trial petitioner’s statements regarding the alleged theft were inconsistent petitioner presented no evidence to substantiate her entitlement to the alleged theft_loss which she claimed as a deduction for taxable_year on this record we conclude that petitioner is not entitled to a theft_loss deduction because we so conclude we need not reach the issue of whether petitioner was entitled to a carryforward deduction accordingly we sustain respondent’s determination contentions we have not addressed are irrelevant moot or without merit reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


t c memo united_states tax_court james d horn petitioner v commissioner of internal revenue respondent docket no 18502-99l filed date p appeals under sec_6330 i r c from r’s determination to proceed by levy to collect unpaid federal assessments of income taxes failure to pay additions and accrued interest for tax years and held p was mentally competent when he signed forms 4549-cg income_tax examination changes for by signing forms 4549-cg p waived his rights to dispute the tax_liabilities for those years prior to assessment and thereby conclusively acknowledged that he had an opportunity to dispute those liabilities within the meaning of sec_6330 b sec_2 held further p was mentally competent when he signed and filed his and income_tax returns -- - held further p is not entitled to relief from collection for any of the years in issue because he failed to establish his rights to any additional deductions for any of those years james d horn pro_se john y chinnapongse for respondent memorandum findings_of_fact and opinion beghe judge petitioner seeks review under sec_6330 of respondent’s determinations to proceed with levies to collect unpaid assessments of individual income taxes failure to pay additions and accrued interest for through and the taxable years and amounts of the assessments as set forth in respondent’s notices of determination are as follows taxable_amount of year assessment dollar_figure big_number big_number big_number big_number big_number total big_number ‘unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure petitioner claims that he was mentally incompetent when he signed his federal_income_tax returns for the years in issue and when he signed forms 4549-cg income_tax examination changes for and through in which he accepted respondent’s audit changes agreed to immediate_assessment of the deficiencies and waived his right to challenge the assessments in the tax_court petitioner has challenged the proposed levies on the sole ground that he does not owe the assessments because respondent failed to allow deductions for worthlessness of his stock in or uncollectability of his loans to his affiliated corporations james horn construction co horn construction and horn enterprises we affirm respondent’s determination to proceed with the proposed levies petitioner has failed to establish that he was rule c provides that the capacity of an individual x to engage in litigation in the court shall be determined by the law of the individual’s domicile rule d provides among other things that if the court believes there is a serious guestion about an individual’s competence to represent himself the court if it deems justice so requires may continue the case until appropriate steps have been taken to obtain an adjudication of the question by a court having jurisdiction so to do or may take such other action as it deems proper nothing in petitioner’s statements in telephone conferences or papers filed during the pretrial phase of this case or in his demeanor and conduct at trial led the court to believe that petitioner was incompetent to represent himself in this proceeding although petitioner had indicated in a written objection to one of respondent’s motions that he wanted a continuance to provide more time to discover evidence to support his claims including evidence he believed was in the possession of the internal_revenue_service petitioner did not move for or even request a continuance on the ground of incompetence to represent himself q4e- incompetent when he executed his income_tax returns or the forms 4549-cg in issue by signing the forms 4549-cg for through petitioner waived his right to challenge the existence or amount of his underlying tax_liabilities for those years prior to assessment and thereby conclusively acknowledged that he had an opportunity to dispute those liabilities within the meaning of sec_6330 b even if petitioner were entitled to dispute his tax_liabilities for any of the years in issue petitioner would not be entitled to any relief petitioner failed to offer credible_evidence to substantiate any additional deductions or even to indicate the taxable_year or years in which they might have been properly allowed findings_of_fact the parties have stipulated some of the facts and the stipulations of facts and the attached exhibits are incorporated herein petitioner resided in modesto california when he filed his petition at least for tax years into or through petitioner was the president and shareholder of two corporations that he had founded horn construction a real_estate developer and horn enterprises a retail hardware business on date petitioner filed a joint form_1040 u s individual_income_tax_return with his former spouse donna kay horn for reporting total taxes due of dollar_figure of which dollar_figure had been paid_by withholding and an estimated_tax penalty of dollar_figure in or around petitioner and his former spouse filed a joint tax_return for reporting total_tax due of dollar_figure of which dollar_figure had been paid_by withholding and an estimated_tax penalty of dollar_figure after examining petitioner’s return respondent proposed to disallow a dollar_figure deduction claimed on schedule e supplemental income and loss of petitioner’s return for legal and professional fees because petitioner could not substantiate the deduction on date petitioner signed a form 4549-cg accepting respondent’s adjustment for anda resulting dollar_figure deficiency an addition_to_tax under sec_6651 of dollar_figure and interest through date of dollar_figure petitioner and his former spouse both signed the form’s consent to assessment and collection which reads as follows consent to assessment and collection - i do not wish to exercise my appeal rights with the internal_revenue_service or to contest in united_states tax_court the findings in this report therefore i give my consent to the immediate_assessment and collection of any increase in tax and penalties and accept any decrease in tax and penalties shown above plus any interest as provided by law this form 4549-cg was signed on behalf of respondent by revenue_agent joe urrutia horn enterprises dissolved at the end of in horn construction filed a chapter bankruptcy petition -- - during the period june through date petitioner was an admitted patient at the modesto psychiatric center the admitting and final diagnosis of the attending physician john j jacisin m d f a p a characterized petitioner as suffering from axis i atypical bipolar disorder depressed delusional disorder unspecified - admission persecutory type - discharge axis ii obsessive compulsive histrionic traits the narrative portion of dr jacisin’s report concludes throughout hospitalization he was fixated on his business concerns and becoming bankrupt conversation with the family indicated the situation was not nearly as severe as he proposed the report of an office visit by petitioner to thomas w luck m d on date states the following primary impression major depression and paranoid schizophrenia-- currently well controlled a letter dated date from dr jacisin to dr luck in support of a request for additional insurance coverage for office visits states in part since my last letter to you of date concerning mr horn’s progress he has gradually become increasingly more anxious again returning to a state in which he is beginning to tremble over his entire body this is correlated with filing of chapter for his business the bank has now taken over the business drastically reducing his salary and his ability to support himself and his family other family members and employees who he felt in the past were in total denial of what was going on are now - j- having to face reality and are extremely angry with him something he is having a great deal of difficulty tolerating when we saw him on he looked like he had regressed significantly we are making every effort to try to treat him intensely on an outpatient basis to prevent further regression and unless we do most likely he will have to be re- hospitalized in or around date respondent began examining petitioner’s federal_income_tax return and investigating his federal_income_tax liabilities for through for which he had not yet filed returns the examination investigation was performed by revenue_agent joe urrutia in horn construction’s chapter bankruptcy case was converted to chapter petitioner filed a personal chapter bankruptcy petition in on date petitioner and his former spouse filed original joint form sec_1040 for and listing total income taxes of dollar_figure zero and dollar_figure respectively and a penalty of dollar_figure for failing to pay estimated_taxes for on date petitioner and his former spouse also filed joint form sec_1040x amended u s individual_income_tax_return for and seeking refunds of dollar_figure and dollar_figure respectively attributable to carrybacks of a net_operating_loss claimed from petitioner and his former spouse did not pay - in full the taxes and penalty shown as owing by their and returns shortly after date agent urrutia proposed substantial adjustments to petitioner’s returns on the return agent urrutia found that an exchange of five duplexes and rental properties owned by petitioner for a turkey ranch owned by horn construction did not qualify for sec_1031 exchange treatment requiring petitioner to recognize dollar_figure in capital_gain with respect to tax years and agent urrutia took the position that dollar_figure and dollar_figure respectively of losses petitioner claimed should be disallowed because they had been incurred by horn enterprises these adjustments eliminated the net_operating_loss carrybacks from that petitioner and his former spouse claimed on their and amended returns agent urrutia also proposed late-filing and accuracy-related_penalties for all years in issue in order to persuade agent urrutia to concede the proposed penalties petitioner submitted to agent urrutia medical records showing petitioner had been suffering psychiatric problems that he argued prevented him from timely and correctly preparing and filing his income_tax returns on date agent urrutia and his manager faith priest met at the modesto office of the internal_revenue_service with petitioner petitioner’s former spouse donna kay horn --- - petitioner’s accountant philip kenneth ware c p a who had prepared petitioner’s late-filed and income_tax returns and his and amended returns petitioner’s attorney james ganser and petitioner’s daughter and bookkeeper susan azevedo to discuss the audit results and petitioner’s request that respondent waive the late-filing and accuracy- related penalties agent urrutia explained his adjustments answered questions and informed those present he would concede the penalties on the basis of the medical records petitioner had provided about his psychiatric problems at the conclusion of the meeting petitioner and his former spouse signed a form cg accepting agent urrutia’s adjustments to their through returns accepting disallowance of the carrybacks claimed on their amended returns for and and showing deficiencies in petitioner’s and income taxes of dollar_figure dollar_figure and dollar_figure respectively plus substantial interest accruals on the unpaid balances the form 4549-cg contained the following waiver consent to assessment and collection - i do not wish to exercise my appeal rights with the internal_revenue_service or to contest in united_states tax_court the findings in this report therefore i give my consent to the immediate_assessment and collection of any increase in tax and penalties and accept any decrease in tax and penalties shown above plus additional interest as provided by law it is ‘mr ware thereafter prepared petitioner’s return -- - understood that this report is subject_to acceptance by the district_director petitioner understood the significance of the form 4549-cg he signed he understood the specific tax issues raised by respondent disagreed with some of respondent’s conclusions and discussed with his attorney and accountant the relevant benefits and burdens of accepting the adjustments ultimately petitioner accepted the recommendation of his advisers and signed the form 4549-cg containing a waiver of his right to challenge the adjustments prior to assessment and collection petitioner has not paid the liabilities shown by the forms 4549-cg he signed respondent accepted petitioner’s return as filed petitioner has not paid the tax_liability shown on his return on or about date petitioner filed his federal_income_tax return petitioner reported total_tax due of dollar_figure on date respondent accepted petitioner’s return as filed petitioner did not pay in full the tax_liability shown on his return respondent assessed the amounts determined on the forms 4549-cg for through as well as the amounts shown on petitioner’s returns for and on date respondent sent petitioner by certified mail two notices of intent to levy and petitioner’s right to request a hearing both containing the language required by sec_6330 and sec_6331 one of the notices was for tax years through the other notice was for tax years and petitioner timely filed two requests corresponding to the two notices for a sec_6330 hearing in his requests for hearing in response to the portion of the form asking why the taxpayer does not agree with the proposed levy petitioner stated i was absent for three years due to illness and am in the process of restructuring a stockholders note that will have a significant effect on my tax consequences i request a personal interview respondent’s appeals officer held a hearing with petitioner by telephone petitioner did not provide any documentary or other evidence to the appeals officer that he was medically incapable of filing returns and waiving his rights to contest his tax obligations prior to assessment petitioner was unable to make the appeals officer understand how the current restructuring of a stockholder note would have any effect on his prior years’ tax_liabilities nor did he present any evidence to support any reduction in those liabilities instead of responding to the appeals officer’s questions petitioner talked about a perceived conspiracy involving the vice president of horn construction the cia the fbi the irs and the iranian mafia the appeals officer also spoke on the telephone with petitioner’s accountant who agreed with respondent’s appeals officer that petitioner should submit an offer_in_compromise the accountant later informed the appeals officer that petitioner was not interested in pursuing an offer_in_compromise respondent’s appeals officer concluded that respondent should proceed with collection because petitioner failed to raise any legitimate defenses or alternatives on date respondent issued petitioner notices of determination concerning collection actions under sec_6320 and or under which he determined to proceed with collection by levy petitioner timely filed a petition with this court pursuant to sec_6330 appealing respondent’s determinations to proceed with collection by levy alleging the the deficiency or liabilities as determined by the commissioner are in income taxes for the years through in the petition petitioner claimed as follows taxpayer was mentally ill from to and unable to make rational decisions the service sic is aware of the illness the taxpayer entered the year with a net fair_market_value of assets over liabilities of dollar_figure the taxpayer currently has no assets only liabilities real_estate values have increased since the irs has in examinations of several of the years added tax and the taxpayer has never seen or does not remember seeing any support for the adjustments in question records and working papers have never been made available to the taxpayer or the taxpayer is unaware that records and or working papers were provided to the taxpayer from the agents to support the adjustments sale of assets settlements and foreclosures has occurred at substantially less than fair_market_value without the taxpayer’s knowledge expenses paid_by the taxpayer for the taxpayer’s corporation horn construction were never allowed and loans made to the corporation by mr horn as an individual were never allowed as a deduction on the individual return the case was originally set for trial on the court’s date san francisco trial session on date the court granted respondent’s uncontested motion for continuance which was based on respondent’s then stated intention to file a motion for partial summary_judgment contesting petitioner’s right to dispute the tax_liabilities for through the case was thereafter reset for trial on the court’s date san francisco trial session respondent in due course filed a motion to dismiss for lack of jurisdiction and to strike as to the ground for respondent’s motion was that respondent had not sent petitioner a notice of lien or levy with respect to the court granted respondent’s motion the record in this case contains no evidence regarding petitioner’s federal_income_tax return payments examination or determinations by respondent or any other matter concerning petitioner’s federal_income_tax liability by date respondent had responded to petitioner’s document requests for copies of returns and amended returns of horn construction and horn enterprises for through documents in respondent’s examination files for petitioner for through and for petitioner’s corporations and a sole_proprietorship for through and documents in respondent’s files regarding the bankruptcy filings of petitioner and horn construction respondent never filed a motion for partial summary_judgment in this case however respondent did file a motion to sever and try separately the threshold issue of whether petitioner’s income_tax liabilities for through were properly before the court on date petitioner filed his opposition to respondent’s motion to sever petitioner opposed the severance on the following grounds there may be some overlapping testimony on both his mental condition and the underlying tax issues horn has not received from the irs the documents he needs to prove his case and will probably need additional time beyond date to adequately prepare for trial wherefore horn requests that the court not grant this motion but that the court grant a continuance so that horn can file the appropriate motion to force the irs to provide the information he needs to prepare his case numerous records including bank statements -- - were given to the irs during the audit and horn has been requesting these records for over two years and the irs failed and continues to fail to produce them the informal request for continuance mentioned in petitioner’s objection to respondent’s motion was not couched in a motion the court did not grant the request the case was tried at the court’s date san francisco trial session on date at the beginning of the trial the court granted respondent’s oral motion to withdraw respondent’s motion to sever petitioner failed to comply with the court’s orders that he respond properly to respondent’s requests for admissions and to respondent’s written interrogatories and document requests respondent’s discovery requests reflected among other things respondent’s efforts to bring out all evidence regarding petitioner’s mental condition during all relevant periods including medical records and any evidence petitioner might have to support his claims of unreported losses and the tax years in which they had occurred at the trial petitioner offered no documentary_evidence regarding his mental condition in addition to the reports previously referred to other than records of petitioner’s receipt of psychotherapy services at least once in and at least times in august through date petitioner offered no evidence to support any additional deductions or to indicate the taxable_year or years in which they - properly might be allowed petitioner failed to file a brief in accordance with the court---ordered briefing schedule opinion this is an appeal under sec_6330 from respondent’s determinations to proceed with proposed levies against petitioner’s property to collect unpaid federal income taxes failure to pay additions and accrued interest for through and sec_6331 allows the commissioner to collect by levy any_tax not paid within days after the commissioner provides the taxpayer with notice_and_demand for payment with certain exceptions not relevant here the commissioner is obliged to provide the taxpayer with notice before proceeding with collection by levy on the taxpayer's property including notice of the administrative appeals available to the taxpayer sec_6331 as part of the internal_revenue_service restructuring and reform act of rra publaw_105_206 112_stat_685 congress enacted sec_6330 which generally provides that the commissioner may not proceed with collection by levy on a taxpayer's property until the taxpayer has received notice of and the opportunity for an appeals_office hearing to review the proposed levy sec_6330 bierson v commissioner 115_tc_576 114_tc_604 if the taxpayer is dissatisfied with the appeals officer’s determination the taxpayer may appeal the determination to the tax_court sec_6330 petitioner has asked us to prevent respondent from proceeding to collect the assessments by levy because respondent failed to allow petitioner alleged deductions even though petitioner never claimed the deductions in a tax_return and apparently agreed in the forms 4549-cg that he signed that respondent could disallow the deductions and assess the resulting deficiencies without allowing petitioner an opportunity to dispute the assessments in this court notwithstanding his failure to claim the deductions ina return for any year before the court and his explicit waivers of the right to challenge respondent’s determinations for the years through petitioner has sought to challenge the as best we can discern against the background of respondent’s disallowances of losses petitioner claimed on his and returns that respondent determined had been incurred by horn enterprises petitioner now wishes to claim losses for some year or years from worthlessness of his stock and debt interests in horn construction and horn enterprises insofar as petitioner wishes to claim deductions for expenses paid_by the taxpayer for the taxpayer’s corporation horn construction that were never allowed petitioner’s payments of such expenses would be disallowed as deductions and treated as capital contributions or loans that he only could recover as worthless_stock or debt losses see eg 802_f2d_365 9th cir affg on this issue tcmemo_1984_264 91_tc_713 unless he showed he had paid such expenses to protect his own trade_or_business see eg 64_tc_132 jenkins v commissioner tcmemo_1983_667 - existence or amount of his underlying tax_liabilities in this proceeding petitioner did not raise any other relevant issues such as appropriate spousal defenses challenges to the appropriateness of collection actions and offers of collection alternatives see sec_6330 a in his request for a sec_6330 hearing at the hearing before respondent’s appeals officer or in his petition to this court sec_6330 b provides b underlying liability ----the person may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability emphasis added petitioner did not receive a notice_of_deficiency for any of the years in issue petitioner has claimed that he may challenge the existence or amount of his underlying tax_liabilities in this proceeding because he did not otherwise have an opportunity to dispute his tax_liability within the meaning of sec_6330 b we must therefore address whether the validity of the underlying tax_liability is properly in issue for any of the tax years before us petitioner’s challenges to his and tax_liabilities respondent claims that petitioner by signing forms 4549-cg for through waived his right to challenge the proposed assessments and should be deemed to have had an opportunity to - - dispute his tax_liabilities we agree in 117_tc_324 we specifically held that a taxpayer who had signed a form 4549-cg could not challenge the underlying tax_liability stated on the form by signing the form_4549 petitioners explicitly waived the right to contest in the tax_court their tax_liability for the years included in the form_4549 x the fact that sec_6330 now provides an opportunity to contest tax_liability for taxpayers who did not receive a notice_of_deficiency sec_6330 c b provides no consolation to petitioners who themselves made the choice not to receive such notice see 114_tc_604 taxpayers who deliberately refused to accept delivery of the notices of deficiency repudiated the opportunity to contest the notices of deficiency in tax_court petitioner has alleged that his waivers were ineffective because he was mentally incompetent when he signed the forms 4549-cg in his request to respondent for a sec_6330 respondent argued in a prehearing motion that petitioner is estopped to challenge on grounds of incompetence the validity of the forms 4549-cg that he signed respondent argues that he relied on the forms in proceeding to assess the taxes rather than first issuing a notice_of_deficiency as would have been required prior to assessment under sec_6213 if the forms 4549-cg are held to be entirely invalid and ineffective then the time to issue a notice_of_deficiency and assess the resulting tax may have expired respondent argued that because he would be prejudiced by the expiration of the period of limitations petitioner is estopped to deny the validity of the forms 4549-cg on the grounds that he was incompetent when he signed them in support of his argument respondent cited 38_tc_251 citing stea291_us_54 halper v commissioner tcmemo_1997_58 dale v commissioner tcmemo_1982_654 we need not decide whether and to what extent estoppel might apply expiration of the period of limitations is an affirmative continued - - hearing petitioner alleged i was absent for three years due to illness in his petition to this court for review of respondent’s determination that collection should proceed petitioner alleged taxpayer was mentally ill from to and unable to make rational decisions the service sic is aware of the illness in assessing petitioner’s mental competence at the various relevant points in time we look to state law for guidance as federal courts generally do when as here there is no established body of federal common_law in point see eg 13_f3d_232 7th cir 671_f2d_1041 7th cir 262_f2d_727 9th cir affg in part and remanding in part 29_tc_279 see also berger v commissioner tcmemo_1996_76 cognitive capacity is the standard generally used for determining ability to enter into an enforceable contract both continued defense that must be pleaded or it is waived 117_tc_308 and petitioner did not so plead even if we were to assume for purposes of argument that estoppel does not apply petitioner remains unable to prevail because of our holding that he was competent to sign the forms 4549-cg ‘we apply contract principles in interpreting applying and determining the enforceability of waiver documents mecom v continued --- - in california petitioner’s residence ’ see smalley v baker cal rptr ct app cal prob code sec_812 west supp and in most other states see restatement contract sec_2d sec_15 although a compulsion or irresistible impulse standard has been applied on occasion see faber v sweet style manufacturing corp n y s 2d sup ct undue influence taking advantage of a contracting party’s impaired ability to make rational decisions may provide a ground for rescission if the other party had actual knowledge see smalley v baker supra or reason to know see restatement contract sec_2d supra of the putative incompetent’s vulnerability under all formulations of the standard the person seeking to avoid the contract has the burden of proving his incompetence see cal prob code sec_810 west supp holman v stockton savs loan bank p 2d cal ct app faber v sweet style manufacturing corp supra pincite restatement contract sec_2d supra illustration l c in continued commissioner 101_tc_374 form 872-a affd without published opinion 40_f3d_385 5th cir 93_tc_623 form 872-a korff v commissioner tcmemo_1993_33 form 870-p we note that on the arguably related issue of an individual’s competence to litigate in this court the court’s rule which is patterned on fed r civ p and was adopted in its present form in looks to the law of the individual’s domicile 60_tc_1094 see supra note -- - any event without reference to state law on the subject of incompetence petitioner bears the burden_of_proof on this subject in this court rule see ravetti v commissioner tcmemo_1993_343 affd without published opinion 38_f3d_1218 9th cir petitioner has failed to offer any credible_evidence to show that he lacked capacity to understand the tax returns and forms 4549-cg that he signed that respondent knew or should have known of his alleged incapacity or even that he signed the forms 4549-cg under compulsion of mental disease or disorder moreover the evidence persuades us that petitioner understood the documents he signed and that his decisions to sign were entirely rational in date when petitioner signed form 4549-cg for the tax_year he was being treated for his psychiatric problems ‘the only evidence petitioner offered other than his testimonial assertions regarding his mental problems were copies of medical records showing that in he had been hospitalized weeks for depression and schizophrenia and was treated on an outpatient basis for these conditions around the time in he signed the first form 4549-cg for and again at least once in and times in august through date these medical records do not show that petitioner lacked the cognitive ability to understand what he signed or that he signed under compulsion the records also do not cover the times when petitioner signed the returns and the second form 4549-cg respondent objected to admissibility of the records on relevance hearsay and authentication grounds the records and petitioner’s testimony do not establish that petitioner lacked cognitive capacity to understand the documents he signed or that he signed under compulsion - - on an outpatient basis however nothing in the medical records offered by petitioner indicates he lacked the cognitive ability to understand what he was signing indeed the records indicate petitioner had a better grasp of reality about his business situation than his family and employees with respect to petitioner’s signing of form 4549-cg for and the uncontradicted evidence establishes that respondent’s agents believed petitioner was competent and petitioner offered no evidence that their belief was unreasonable petitioner signed the form 4549-cg for those years at a meeting attended by agent urrutia and his manager faith priest on behalf of respondent both agent urrutia and ms priest testified credibly they believed petitioner understood the terms of the forms 4549-cg that he signed both testified they would not have accepted the forms 4549-cg from petitioner if they believed he lacked the mental capacity to sign them even against the background of their acceptance for settlement purposes that petitioner’s past psychiatric difficulties excused his late filings and return inaccuracies petitioner offered no credible_evidence to show that agent urrutia and ms priest were or should have been aware of any lack of mental capacity or presence of vulnerability petitioner was represented at the meeting by legal counsel and a certified_public_accountant and was accompanied by his -- - former spouse and his daughter who also maintained his books_and_records that petitioner’s interests were represented at the meeting by his own lawyer and accountant that he was supported at the meeting by family members that the terms of the settlement were fair and reasonable to petitioner and that petitioner’s former spouse also signed the agreements dispel any notion of overreaching or undue influence by or on behalf of respondent finally petitioner’s statements at trial in this case convince us he fully understood the form 4549-cg when he signed it at trial petitioner asked the following questions of and received the following responses from agent urrutia qo in the ‘96 meeting when mrs horn and myself and my attorney representing me and mr ken ware did not the meeting continue to go on and on with breaks being called because i refused to sign the forms and my attorney kept telling me repeatedly if you don’t sign these you’re going to be out in the streets with no money because of the relationship between the lawsuit between horn construction which was in bankruptcy and personal all income would stop and they kept pressuring me and i kept saying these returns are not correct following objections to the form of the guestion qo did i not protest that i did not want to sign the forms at that meeting because i did not believe that they were accurate and my stockholders note was missing a i don’t recall you mentioning that at all qo okkay - - a i do recall and i will say that we did stop a few times for you to converse with your attorney -- qo yes a -- and your accountant and that those -- if that was discussed then i wasn’t there present q okay did we -- i finally not give up and sign because faith priest said that she would give me consideration about my concerns with the stockholders note being missing and that if i could prove to her at a later date she would consider my concerns about the stockholders notes and all the debts being missing a i don’t recall that being said thus even at the time of trial petitioner recalled expressing at the meeting at least to his attorney misgivings about accepting the form 4549-cg because he thought he should be entitled to additional deductions he recalled being convinced by his lawyer and accountant to accept the changes and proceed with the form 4549-cg presumably petitioner’s lawyer and accountant recommended that he accept the agreement because of the significant concessions offered by respondent waiver of the penalties petitioner’s own words at trial show he had a full recollection of the agreement he signed and a full understanding of its significance at the time he signed it we find that petitioner was competent to understand the forms 4549-cg that he signed and we hold that the forms 4549-cg are binding on him by signing the forms 4549-cg petitioner waived his rights to dispute in the tax_court his tax_liabilities for the tax years through prior to assessment he - - thereby conclusively acknowledged that he had an opportunity to dispute the liabilities as a result of the waivers contained in the forms 4549-cg petitioner is barred by sec_6330 c b from challenging in this proceeding the existence or amount of his underlying tax_liabilities for those years petitioner’s challenge to his and tax_liabilities petitioner argues he was incompetent when he signed his and returns and should be allowed in this proceeding to challenge the validity or amount of the underlying tax_liabilities shown due on those returns because he previously had no opportunity to dispute the liabilities because petitioner did not pay the tax_liabilities shown on these returns the assessments for and were based on the amounts set forth on those returns rather than on adjustments made by respondent ’ petitioner did not file or attempt to file amended returns for these years nor did petitioner otherwise inform respondent before initiation of collection action that petitioner disputed the liabilities shown on those returns the commissioner is required to assess the tax shown on a taxpayer’s return sec_6201 the amount shown as the tax by a taxpayer upon his return does not by definition constitute a deficiency sec_6211 see also 118_tc_537 the restrictions on assessment of deficiencies requiring in general that a notice_of_deficiency be sent to the taxpayer and that the taxpayer be given an opportunity to petition this court do not apply to the amount shown as the tax by the taxpayer on his own return see sec_6213 a o7 - petitioner has not offered any credible_evidence to persuade us he was mentally incompetent when he signed the returns for the later years and insofar as petitioner challenges the assessments for and on the ground he was incompetent when he signed and filed the returns we reject petitioner’s challenge on the same grounds on which we have upheld the validity of the forms 4549-cg for and and in so doing we do no more than assume without deciding that the assessments could be invalidated if petitioner had been incompetent when he signed and filed the returns we now turn to petitioner’s contention that sec_6330 b entitles him to challenge respondent’s assessments of the tax_liabilities shown on his and returns because he received no statutory_notice_of_deficiency for such liabilities and did not otherwise have an opportunity to dispute them respondent contends petitioner cannot challenge the validity or amount of the underlying tax_liabilities he reported for and because the assessments were based on petitioner’s own returns the only legal argument respondent we note that after respondent’s brief was filed the internal_revenue_service published additions to the internal_revenue_manual instructions to appeals officers in sec_6330 collection proceedings that would appear to contradict respondent’s litigation position in this case with respect to and administration internal_revenue_manual cch sec at big_number provides in part continued - - offers in support of his contention is the recital that tax_return positions are treated as admissions unless overcome with cogent evidence they are wrong see eg 412_f2d_800 3d cir affg per curiam tcmemo_1968_26 62_tc_739 affd without published opinion 521_f2d_1399 3d cir this is the first case in which the commissioner and a taxpayer have asked us to address the taxpayer’s ability to challenge collection of the tax assessed on the basis of his own continued appeals’ interpretation of have sic an opportunity to dispute such tax_liability is that the taxpayer must be advised in writing of the opportunity to dispute whatever the issue is by going to appeals for example in some letter publication or similar correspondence we do not assume that taxpayers are aware of their legal rights unless they have been advised a having an opportunity to pay the tax and file a claim_for_refund and not having done so does not constitute an opportunity to dispute the liability b also not having filed an amended_return during the applicable time period does not constitute an opportunity to dispute the liability c having an opportunity to dispute the liability means an opportunity occurring before the claim period in most cases this means before assessment but in all cases it means before payment this may be the chance to go to tax_court or otherwise having the chance to go to appeals whether deficiency or non- deficiency cases - - return on the ground he did not otherwise have an opportunity to dispute such tax_liability within the meaning of sec_6330 b we need not and do not answer this question posed by the parties in this proceeding for the tax years and because petitioner failed to take advantage of any of the numerous opportunities he was afforded to specify his alleged losses and the years in which they occurred and to introduce evidence in support of them we leave the resolution of this guestion to another day petitioner failed to show his right to deductions petitioner failed to state and quantify his claims for loss deductions in either his request for a sec_6330 hearing or in his petition to this court he was unable to make the appeals officer understand his claims for any of the years in issue and he failed to introduce any evidence in support of his claims at the sec_6330 hearing petitioner failed to file a brief in answer to respondent’s opening brief as he had been ordered to do in the court-ordered briefing schedule ’ however we need not reject petitioner’s contention on any of the foregoing grounds cf 117_tc_324 petitioner’s failure_to_file a brief would suffice to reject petitioner’s contention see rule 84_tc_693 affd 789_f2d_917 4th cir see also 92_tc_661 89_tc_46 -- - it suffices that petitioner failed to produce any evidence in this proceeding to support his claims of unreported losses for any of the years in issue see rule b petitioner failed to comply with the court’s orders compelling him to respond properly to respondent’s requests for admissions and to respondent’s discovery requests relating to his claims of unreported losses at trial petitioner had no evidence to present to show his entitlement to additional deductions as in smith v commissioner tcmemo_2002_59 in which we recently sustained the commissioner’s determination to proceed with collection petitioner did not provide at trial any evidence in the form of either testimony or documentation to support his claim to any additional deduction in attempted aid of his effort to compel respondent to help petitioner uncover evidence that would substantiate his claims petitioner has instead made unsubstantiated assertions that his alleged losses were caused by a conspiracy in which respondent was a participant taxpayers who dispute the commissioner’s disallowance of deductions claimed on their returns must show that they satisfied the specific statutory requirements entitling them to the claimed deductions 292_us_435 81_tc_806 affd without published opinion 767_f2d_931 9th cir while the court may estimate the amount of allowable deductions where a --- - taxpayer establishes his entitlement to but not the amount of the deductions 39_f2d_540 2d cir any such estimate must have a reasonable evidentiary basis 85_tc_731 without a reasonable evidentiary basis the court’s allowance of deductions would amount to unguided largesse 245_f2d_559 5th cir in the case at hand petitioner argued that once upon a time his shares in horn construction and horn enterprises were worth millions of dollars and that now they are worthless a taxpayer’s loss however is limited to his adjusted_basis in the property not the property’s highest fair_market_value sec_165 in general a loss resulting from worthless_stock is deductible only in the year the stock becomes worthless see sec_165 and does not enter into the computation of net_operating_loss carrybacks and carryforwards sec_172 even if we accepted petitioner’s vague and unsupported allegations of value petitioner offered no evidence to show his adjusted_basis in the stock or when the stock became worthless likewise there is no evidence in the record of a stockholder note and it sec_2tt is noteworthy that petitioner’s taxable_year the year in which horn construction’s chapter bankruptcy case was converted to chapter is not before the court in this proceeding on neither his return nor his return did petitioner claim any loss with respect to his stock or debt interest in horn construction - - worthlessness see sec_166 thus petitioner presented no evidence to support a deductible loss in any of the years in issue had he done so we would also have to consider whether any of the loss-limitation provisions contained in the code apply see eg sec_165 g d a b b petitioner did not address any of these issues petitioner argued in his request for continuance and at trial that he needed more time to locate records to support his alleged deductions we shall not overturn and delay giving effect to respondent’s determinations to proceed with collection on the ground that petitioner should have another opportunity to dispute the liabilities the collection actions in the case at hand relate to taxes due more than to years ago we shall not allow respondent’s collection actions to be held hostage to petitioner’s allegations of possible deductions while he tries to dragoon respondent into providing the evidence to support them petitioner has failed to establish grounds for enjoining respondent from proceeding by levy to collect the assessments at issue we therefore sustain respondent’s determinations to proceed with collection - - to give effect to the foregoing decision will be entered for respondent


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 fip b01 plr-122895-12 date february legend taxpayer state year company lp1 lp2 llc lp3 lp4 lessee a b c d ---------------------------- ------------------------- -------------- ------- --------------------------------- -------------------------------- ---------------------------------- ---------------------------- ------------------------------------------------ ------------------------------ --------------------- -- ---- ---- ---- plr-122895-12 e f g h i k l ----- ----- ---- -------- ---- ---------- ---- dear --------------------- - this is in reply to a letter in which taxpayer requests a ruling in connection with its election to be taxed as a real_estate_investment_trust reit under sections of the internal_revenue_code_of_1986 as amended the code specifically taxpayer requests a ruling that certain payments under the surface lease described below will constitute rents_from_real_property under sec_856 and c facts taxpayer is a state corporation that has elected to be taxed as a reit since year company which is unrelated to taxpayer owns a a percent interest in lp1 lp1 in turn owns a b percent interest in lp2 the remaining c percent interest in lp2 is owned directly by taxpayer company llc and various individuals taxpayer also owns a c percent interest in lp3 the remaining b percent interest in lp3 is owned by individuals and company company also owns a d percent interest in lp4 taxpayer or its predecessors have owned directly or indirectly certain real_property for over e years the property includes both the surface rights surface land and the sub-surface mineral rights mineral rights lp3 and lp4 own the surface land which is approximately f acres lp2 owns the mineral rights underneath the surface land lp2 has no surface rights through easement or otherwise to gain access to the minerals it owns below the surface the split in ownership between the surface land and the mineral rights has been in place for over g years and thus predates the reit election of taxpayer lp2 and lessee have entered into a subsurface lease which covers the mineral rights lying beneath the surface land pursuant to which lessee will extract oil_and_gas and other hydrocarbons from the leased land lessee will make royalty payments to lp2 which are determined based on the gross_sales proceeds received for oil_and_gas plr-122895-12 produced from the leased land multiplied by a royalty percentage lp2 will allocate the royalty payments pro-rata to its partners taxpayer intends to include its share of the royalty payments received by lp2 from lessee under the subsurface lease as non- qualifying_income for purposes of the percent income test under sec_856 and the percent income test under sec_856 the surface land includes an approximately h acre site located within the surface land determined to be the appropriate site for access to the mineral rights drill site the mineral rights however do not include either the surface land or the right to access the surface land company will purchase a i percent undivided tenant in common tic interest in the drill site from lp3 therefore lp3 which is c percent owned by taxpayer and company will each own a i percent undivided tic interest in the drill site company and lp3 together as lessors lessors have entered into a lease with lessee granting lessee access to the surface land surface lease pursuant to the surface lease the rent payable by lessee to lessors will be the greater of i dollar_figurek per month or ii l percent of the gross sale proceeds received by lessee of all oil_and_gas produced at the premises and sold by lessee during the applicable_month less a small transportation cost taxpayer represents that rental payments due under the surface lease are at arm’s-length terms and at fair_market_value rental payments pursuant to the surface lease are not dependent on the net profits of lessee the surface lease is a triple net_lease in addition to the rent payable to the lessors lessee pays all taxes insurance and maintenance_expenses that arise from the use of the drill site the surface lease does not give lessors the right to or control_over any mineral rights under the surface lease lessors expressly grant lessee the right to raze the existing premises for purposes of conducting oil_and_gas operations subject_to restoration requirements at the end of the surface lease taxpayer represents that the surface lease and subsurface lease are separate contracts which where independently negotiated and are based on independent business reasons and economics law and analysis whether amounts received from the surface lease constitute rents_from_real_property sec_856 provides that to qualify as a reit for any taxable_year under part ii of subchapter_m an entity must derive at least percent of its gross_income excluding gross_income from prohibited_transactions from the sources listed in sec_856 which includes rents_from_real_property and at least percent of its gross plr-122895-12 income excluding gross_income from prohibited_transactions from sources listed in sec_856 which also includes rents_from_real_property sec_856 provides that subject_to the exclusions in sec_856 the term rents_from_real_property includes among other things rents from interests_in_real_property in turn sec_856 provides that the term interests_in_real_property includes fee ownership and co-ownership of land or improvements thereon but does not include mineral oil or gas royalty interests sec_1_856-3 provides that a reit that is a partner in a partnership is deemed to own its proportionate share of each of the assets of the partnership and will be deemed to be entitled to the income of the partnership attributable to such share the character of the various assets in the hands of the partnership and items of gross_income of the partnership remains the same in the hands of the partners for all purposes of sec_856 sec_1_856-4 provides that subject_to the exceptions of sec_856 and sec_1_856-4 the term rents_from_real_property means generally the gross amounts received for_the_use_of or the right to use real_property of the reit sec_856 provides that subject_to certain exceptions the term rents_from_real_property does not include any amount received or accrued with respect to any real or personal_property if the determination of such amount depends in whole or in part on the income or profits derived by any person from such property except that any amount so received or accrued shall not be excluded from the term ‘rents from real property’ solely by reason of being based on a fixed percentage or percentages of receipts or sales sec_1_856-4 provides that an amount received or accrued as rent which consists in whole or in part of one or more percentages of the lessee’s receipts or sales in excess of determinable dollar amounts may qualify as rents_from_real_property if i the determinable amounts do not depend on the income or profits of the lessee and ii the percentages and determinable amounts are fixed at the time the lease is entered into and are not renegotiated during the term of the lease in a manner which has the effect of basing rent on income or profits it further provides that an amount will not qualify as rents_from_real_property if considering the lease and all the surrounding circumstances the arrangement does not conform with normal business practice but is in reality used as a means of basing rent on income or profits the legislative_history underlying the tax treatment of reits indicates that the central concern behind the gross_income restrictions is that a reit's gross_income should largely be composed of passive_income for example h_r rep no 86th cong 2d sess pincite 1960_2_cb_819 pincite states o ne of the principal purposes of your committee in imposing restrictions on types of income of a plr-122895-12 qualifying real_estate_investment_trust is to be sure the bulk of its income is from passive_income sources and not from the active_conduct_of_a_trade_or_business revrul_64_75 1964_1_cb_228 holds that where the owner of undivided interests in mineral-bearing real_property subject_to leases under which the minerals are extracted in exchange for payments that are determined primarily by reference to the amount of minerals mined the owner's interests in the real properties are mineral royalty interests rather than real_estate_assets for purposes of sec_856 and revenues derived from its leases do not qualify as rents_from_real_property under sec_856 and the owner's property interest was deemed a mineral oil or gas royalty interest because the receipts fell within the normal and ordinary meaning of the term ‘royalty ’ in 86_f3d_1526 9th cir the court found that the ordinary meaning of the term royalty is a payment made to the owner of property for permitting another to use the property and that t he payment is typically a percentage of profits or a specified sum per item sold the property is typically either an intangible_property right or a right relating to the development of natural_resources therefore the court found that it was the nature of the property the owner is permitting another to use that differentiates royalty from rent id pincite n the court based its conclusion on definitions of royalty in webster's ninth new collegiate dictionary share of the product or profit reserved by the grantor especially of an oil or mining lease and black's law dictionary compensation_for the use of property usually copyrighted material or natural_resources and a share of product or profit reserved by owner for permitting another to use the property id pincite the rent payable pursuant to the surface lease is compensation_for the use of or right to use real_property further taxpayer represents that the rents it received indirectly from its interests in the surface land through lp3 in exchange for lessee’s right to use the drill site were negotiated at arm’s length and comprise the greater of a fixed rental amount or percentage rents based on gross_sales proceeds thus qualifying such percentage rents for the parenthetical exception contained in sec_856 such rents would not constitute prohibited royalty payments as defined by sierra club inc and revrul_64_75 because the property covered by the surface lease does not include the oil_and_gas on which the rents are based the surface lease rents are not amounts reserved by lessors for permitting lessee to extract the oil_and_gas because the lessors do not own the oil_and_gas upon which the rents are calculated rather the surface lease rents are compensation solely for_the_use_of the surface land therefore the amounts paid to taxpayer with respect to the surface lease constitute rents_from_real_property under sec_856 and c this ruling’s application is limited to the facts representations code sections and regulations cited herein because there is some overlap in ownership between the owners of the surface land and mineral rights the contingent payment set forth under plr-122895-12 the surface lease must reflect an arm’s length value no opinion is expressed with regard to whether the surface lease payments are based on arm’s-length terms and at fair_market_value in addition no opinion is expressed with regard to whether taxpayer otherwise qualifies as a reit under subchapter_m of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely robert a martin robert a martin sr tech reviewer branch office of associate chief_counsel financial institutions and products enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------- ------------ ------------------------------------------ ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ---------- telephone number -------------------- refer reply to cc ita b04 plr-111550-12 date date legend taxpayer trust company bank year year date date date date dollar_figurea dollar_figureb dollar_figurec dollar_figured s t u m n p ------------------------------------------------- ----------------------------------------------------------------- -------------------------------------- -------------- ------- ------- --------------------- --------------------- ------------------------- -------------------- --------------- ----------------- --------------- --------------- ------- ---------- ---- ---------- ------------ ------------ dear -------------------------- this is in reply to a letter submitted by your authorized representative requesting a private_letter_ruling under sec_453 of the internal_revenue_code specifically taxpayer requests a ruling that the modification of an installment_sales obligation by deferring the maturity_date substituting a new obligor and altering the interest rate is not a disposition or satisfaction of the installment_obligation within the meaning of sec_453b plr-111550-12 facts taxpayer an individual files its return on a calendar_year basis uses the cash_method_of_accounting and as a former shareholder was engaged in the business of providing business solutions to federal state and commercial customers including professional consulting and technical support services the transaction described below was entered into by taxpayer’s revocable grantor_trust trust taxpayer reports all trust income in year company completed a transaction the original transaction in which i company adopted an employee_stock_ownership_plan which included an employee_stock_ownership_trust together referred to as the esop ii company facilitated the esop’s purchase of all the outstanding_stock of company from the former shareholders including taxpayer and iii the parties to the original transaction entered into certain financial arrangements including a company borrowing dollar_figurea in senior financing from bank the bank loan b company lending dollar_figurea to the esop to purchase a portion of the shares from the former shareholders the company loan and c the esop borrowing an aggregate of dollar_figureb from the former shareholders in the form of notes to pay the balance of the purchase_price the esop_loan as part of the original transaction taxpayer received a promissory note from the esop in the principal_amount of dollar_figurec the note which represents taxpayer’s portion of the esop_loan the note provides for annual interest at the rate of s and monthly payments of interest only for the first two years and monthly payments of principal and interest for a period of m years the entire unpaid principal balance together with all accrued unpaid interest is due on date n years after the esop issued the note as security for payment of the note company absolutely unconditionally and irrevocably guaranteed the esop’s obligations on the note and the esop pledged the stock it purchased from taxpayer to taxpayer taxpayer did not elect out of installment_sale treatment and is reporting gain realized from the sale of the shares of company stock on the installment_method under sec_453 of the code as of date there is dollar_figured in principal and accrued interest outstanding on the note in year company and bank entered into certain amendments to the bank loan to address company’s deteriorated financial condition and to provide for revised payment schedules on the bank loan the company loan and the esop_loan including the note as well as to establish amended financial covenants for company company esop and the shareholders have agreed to make changes to the company loan and the esop_loan to satisfy required bank amendments and to permit company to repay all of its debts on a reasonable schedule that will permit company to operate using available cash_flow and also within applicable legal requirements relating to the esop plr-111550-12 company proposes to complete a transaction the proposed transaction based on the required bank amendments in which i the shareholders will deliver to company and company will assume the notes and pledge agreements that the shareholders are holding from the esop as part of the esop_loan including taxpayer delivering the note to company ii company will modify the payment terms of the notes it assumes including the note and will set forth the modified terms in a new note to be delivered by company to taxpayer the new note and iii in consideration of company assuming the note and issuing the new note the esop will deliver to company a note with a principal_amount equal to the amount currently outstanding on the esop_loan the note restructuring will provide company greater cash_flow flexibility without significantly changing the benefit stream to the esop participants as a result of the proposed transaction and in accordance with the terms of the new note the maturity_date of the note will be deferred the obligor will be substituted and the interest rate will be altered instead of the entire unpaid principal balance together with all accrued unpaid interest being due on date the note will be restructured to provide for monthly payments of interest at the annual rate of t until date and amortized monthly payments of principal and interest at the annual rate of u amortized over a period of p years with the entire unpaid balance together with all accrued unpaid interest being due on date in addition as a result of the proposed transaction instead of the esop being the obligor on the note company currently the guarantor on the note will be substituted as the direct obligor in all other respects the terms of the note will remain unchanged taxpayer requests a ruling that the modification of the terms of the note by deferring the maturity_date substituting a new obligor and altering the interest rate is not a disposition or satisfaction of an installment_obligation within the meaning of sec_453b of the code law analysis sec_453 of the code provides that income from an installment_sale shall be taken into account under the installment_method under the installment_method a portion of the total gross_profit from an installment_sale is included in income in each year in which the seller receives payment sec_453b of the code provides that if an installment_obligation is satisfied at other than its face value or distributed transmitted sold or otherwise_disposed_of gain_or_loss shall result to the extent of the difference between the basis of the obligation and the amount_realized in the case of satisfaction at other than face value or a sale_or_exchange or the fair_market_value of the obligation at the time of distribution transmission or disposition in the case of the distribution transmission or disposition otherwise than by sale_or_exchange in short if an installment_obligation is satisfied at plr-111550-12 its face value or if it is distributed transmitted sold or otherwise_disposed_of the seller must recognize gain_or_loss at that time the internal_revenue_service has held that certain modifications of the terms of an installment_obligation are not a disposition or satisfaction of the obligation in revrul_68_419 1968_2_cb_196 the parties agreed to modify the terms of a note so that each installment of principal due by the original terms of the note would be deferred for a period of five years in addition the rate of interest was increased from six percent to seven percent per annum revrul_68_419 holds that the modification of the terms of a purchaser's note by deferring the dates of payment of principal and increasing the rate of interest is not a disposition or satisfaction of an installment_obligation within the meaning of sec_453 the predecessor of current sec_453b see also revrul_55_429 1955_2_cb_252 reaching similar results in revrul_75_457 1975_2_cb_196 a taxpayer sold real_estate to an individual for cash a deed_of_trust and a promissory note providing for monthly payments over a year term the terms of the deed and note allowed the individual to resell the property provided that the subsequent buyer executed a new note under the same terms and conditions as the original deed_of_trust the original obligor subsequently sold the property to a successor individual who assumed the obligation by executing a new deed_of_trust and note in favor of the taxpayer under the same terms and conditions as the original deed_of_trust and note the original obligor was released from liability on the original note revrul_75_457 holds that the substitution of obligors deeds of trust and promissory notes without any other changes is not a satisfaction or disposition of an installment_obligation under sec_453 of the code likewise revrul_82_122 1982_1_cb_80 holds that the substitution of a new obligor and a change in the rate of interest is not a satisfaction or disposition of an installment_obligation for purposes of sec_453b to summarizing the revenue rulings modification of an installment_obligation by deferring the maturity_date substituting a new obligor and altering the interest rate is not a disposition or satisfaction of an installment_obligation for purposes of the installment_sales provisions under sec_453b moreover where the original installment note is replaced the substitution of a new promissory note without any other changes is not a disposition of the original installment note under sec_453b conclusion based upon the facts and representations presented and the above analysis we conclude that the described modification of the terms of the note by deferring the maturity_date substituting a new obligor and altering the interest rate is not a disposition or satisfaction of an installment_obligation within the meaning of sec_453b of the code plr-111550-12 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 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 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 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely donna j welsh senior technician reviewer branch income_tax accounting cc


internal_revenue_service number release date index number ------------------------------------ --------------------- --------------- ------------------------- - department of the treasury washington dc person to contact ------------------------------------ ------------- telephone number --------------------- refer reply to cc ita - plr-122100-03 date date legend a ------------------------------------------------------------------------------------------ ------------------ ------------ x ------------------------------------------------------------ y ----------------------------------------------------------- z ------------------------------------------------------ date ---------------------- date ------------------ date --------------------------- dear ------------------ this is in reply to your request for a private_letter_ruling to allow the taxpayer a to use an alternative method of basis recovery under sec_15a_453-1 of the temporary income_tax regulations to report contingent payments because the normal basis recovery rule method will substantially and inappropriately defer recovery_of basis facts x is an s_corporation with shareholders on date all of the stock of x was sold on an installment basis to y a wholly owned subsidiary of z the x shareholders and y made elections under sec_338 of the internal_revenue_code to have the stock sale treated as a deemed sale of all of the assets properties rights and business of x subject_to certain liabilities to y followed by the liquidation of x plr-122100-03 the sales agreement calls for payments of fixed amounts a payment consisting of cash and z stock at closing and two cash payments at later dates followed by four contingent payments the contingent payments will be calculated based on a percentage of the positive pre-tax income of z for the period date through date the contingent payments are payable annually the sales agreement set no maximum limit on the amount of the contingent payments law and analysis sec_453 provides that income from an installment_sale shall be taken into account under the installment_method sec_453 defines the term installment_sale to mean a disposition of property if at least one payment is to be received after the end of the taxable_year in which the disposition occurs the term installment_method is defined in sec_453 as a method under which the income recognized for any taxable_year from a disposition is that proportion of the payments received in that year that the gross_profit realized or to be realized when the payment is completed bears to the total_contract_price sec_15a_453-1 defines a contingent_payment_sale as a sale_or_other_disposition of property in which the aggregate selling_price cannot be determined by the close of the taxable_year in which such sale_or_other_disposition occurs unless a taxpayer makes an election under sec_15a_453-1 contingent_payment_sales are to be reported on the installment_method sec_15a_453-1 provides generally that when a stated maximum selling_price cannot be determined as of the close of the taxable_year in which a sale_or_other_disposition occurs but the maximum period over which payments may be received under the contingent sale price agreement is fixed the taxpayer's basis inclusive of selling_expenses shall be allocated to the taxable years in which payments may be received under the agreement in equal annual increments sec_15a_453-1 provides that the normal basis recovery rules set forth in sec_15a_453-1 may with respect to a particular contingent_payment_sale substantially and inappropriately defer recovery_of the taxpayer's basis sec_15a_453-1 provides that the taxpayer may use an alternative method of basis recovery if the taxpayer is able to demonstrate prior to the due_date of the return including extensions for the taxable_year in which the first payment is received that application of the normal basis recovery rule will substantially and inappropriately defer recovery_of basis the taxpayer must receive a ruling from the internal_revenue_service before using an alternative method of basis recovery and must have filed the request for a ruling prior to the due_date for the return including extensions plr-122100-03 to demonstrate that application of the normal basis recovery rule will substantially and inappropriately defer recovery_of basis the taxpayer must show a that the alternative method is a reasonable method of ratably recovering basis and b that under that method it is reasonable to conclude that over time the taxpayer likely will recover basis at a rate twice as fast as the rate at which basis would have been recovered under the otherwise applicable normal basis recovery rule in demonstrating that application of the normal basis recovery rule would substantially and inappropriately defer recovery_of the taxpayer's basis the taxpayer in appropriate circumstances may rely upon contemporaneous or immediate past relevant sales profit or other factual data that are subject_to verification the taxpayer ordinarily is not permitted to rely upon projections of future productivity receipts profits or the like however in special circumstances a reasonable projection may be acceptable based upon a specific event that has already occurred under the alternative method of basis recovery proposed by a the amount of basis allocated to an installment_payment would bear the same ratio to a's total basis in the property sold that the installment_payment bears to the estimated amount of the aggregate payments_to_be_received by a during the term of the installment_obligation the estimate of the aggregate payments_to_be_received during the term of the installment_obligation was determined on the basis of historical data and earnings trends based on the information provided and the representations made it is reasonable to conclude that a’s use of the proposed alternative method of basis recovery will result in basis recovery at a rate twice as fast as the rate at which basis would be recovered under the normal basis recovery rules the proposed alternative method of basis recovery represents a reasonable method of basis recovery accordingly a’s use of the proposed alternative method of basis recovery is approved caveats a copy of this letter must be attached to any income_tax return to which it is relevant we enclose a copy of the letter for this purpose also enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 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 s requesting it sec_6110 provides that it may not be used or cited as precedent plr-122100-03 in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to the taxpayer and the second authorized representative indicated on the power_of_attorney sincerely robert a berkovsky branch chief office of associate chief_counsel income_tax and accounting enclosures


department of the treasury internal_revenue_service washington d c aug tax_exempt_and_government_entities_division se tep rata uniform issue list legend taxpayer a plan b plan c ira d non-ira account e financial_institution f financial_institution g amount dear this is in response to your request received date as supplemented by correspondence received on date in which you request a waiver of the 60-day rollover requirement contained in sec_402 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that she received distributions from plan b and plan c in excess of amount taxpayer a asserts that the failure to accomplish a rollover of amount within the 60-day period described in sec_402 of the code was due to an error on the part of financial_institution g taxpayer a participated in two b plans plan b and plan c which invested in annuity_contracts purchased through financial_institution f taxpayer a met with financial_institution g to establish an investment plan that provided that amount would be rolled over into an ira ira d maintained by financial_institution g on date taxpayer a requested that her vested account balances in plan b and plan c be directly rolled over into ira d realizing that only a partial_distribution had been made in the form of a direct_rollover to ira d taxpayer a made another request for a direct_rollover of amount into ira d however on date amount was transferred by financial_institution f to non-ira account e a non-ira account maintained by financial_institution g the form 1099-r issued by financial_institution f reflected a direct_rollover code g from plan b and plan c of amount with a taxable_amount of zero taxpayer a did not discover the error until february of when she received a form 1099-div taxpayer a represents that amount has not been used for any other purpose based on the above facts and representations taxpayer a requests a waiver of the 60-day rollover requirement under sec_402 of the code with respect to the distribution of amount from plan b and plan c with respect to your ruling_request sec_403 of the code provides that if any portion of the balance_to_the_credit of an employee in a sec_403 annuity_contract is paid to the employee in an eligible_rollover_distribution and the employee transfers any portion of the property received in such distribution to an eligible_retirement_plan described in sec_402 and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent transferred shall not be includible in gross_income for the taxable_year in which paid sec_403 of the code provides that the rules of sec_402 through and shall apply for the purposes of sec_403 includible in gross_income for the taxable_year in which paid sec_402 of the code provides generally that if any portion of an eligible_rollover_distribution from a qualified employees trust is paid to the employee in an eligible_rollover_distribution and the employee transfers any portion of the property received in such distribution to an eligible_retirement_plan and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed such distribution to the extent so transferred shall not be sec_402 of the code provides that the maximum amount of an eligible_rollover_distribution to which paragraph applies shall not exceed the portion of such distribution which is includible in gross_income determined without regard to paragraph sec_402 of the code states that such rollover must be accomplished within days following the day on which the distributee received the property sec_402 of the code provides that the secretary may waive the day requirement under sec_402 where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement sec_402 of the code defines eligible_rollover_distribution as any distribution to an employee of all or a portion of the balance_to_the_credit of an employee in a qualified_trust except that such term shall not include a any distribution which is one of a series of substantially_equal_periodic_payments not less frequently than annually made -- i for the life or life expectancy of the employee or the joint lives or joint life expectancies of the employee and the employee's designated_beneficiary or ii for a specified period of years or more b any distribution to the extent the distribution is required under sec_401 and c any distribution which is made upon hardship of the employee sec_402 of the code defines eligible_retirement_plan as i an individual_retirement_account described in sec_408 ii an individual_retirement_annuity described in sec_408 other than endowment_contract iii a qualified_trust iv an annuity plan described in sec_403 v an eligible_deferred_compensation_plan described in sec_457 maintained by an eligible_employer as described in sec_457 and vi an annuity_contract described in sec_403 revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information and documentation submitted by taxpayer a support her assertion that the failure to accomplish a rollover of amount within the 60-day period described in sec_402 of the code was due to an error on the part of financial_institution g therefore pursuant to sec_402 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount provided all other requirements of sec_402 except the 60-day requirement will be met with respect to the contribution of amount to an ira amount will be considered a rollover_contribution within the meaning of sec_402 this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative if you wish to inquire about this ruling please contact at please address all correspondence to se t ep ra t1 sincerely yours deleted copy of this letter ce carlton a watkins manager employee_plans technical group enclosures notice of intention to disclose whilhiw


third party communication date of communication month dd yyyy cca-10220413-15 id uilc number release date from --------------------- sent thursday date pm to --------------------------- bcc subject fw cca levy ------------- cca properly states our position and we agree with you that we should concede that the levy in your case does not reach payments not yet due to the taxpayer under the contract with the third party attachment cca


internal_revenue_service number release date index numbers ------------------------------------------------------ ------------------------------- ------------------------------------------ ------------------------------- ------------------------------------ department of the treasury washington dc person to contact --------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b03 - plr-150306-13 date june legend x ---------------------------------------------------------- ---------------------------- sub ---------------------------------------------------------- ------------------------------------------------------- state d1 ------------ --------------------- dear --------------- this letter responds 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 for x to elect to treat sub as a qualified_subchapter_s_subsidiary qsub under sec_1361 of the internal_revenue_code code facts the information submitted discloses that x was formed under the laws of state and elected to be an s_corporation effective d1 x represents that it intended to elect to treat sub as a qsub effective d1 however x failed to timely file form_8869 qualified plr-150306-13 subchapter_s subsidiary election for sub x represents that it has filed its tax returns for all of the relevant tax years consistent with sub being a qsub since d1 law and analysis sec_1361 provides that except as provided in regulations prescribed by the secretary for purposes of title_26 i a corporation that is a qsub shall not be treated as a separate corporation and ii all assets liabilities and items of income deduction and credit of a qsub shall be treated as assets liabilities and such items as the case may be of the s_corporation sec_1361 defines the term qualified_subchapter_s_subsidiary as a domestic_corporation that is not an ineligible_corporation as defined in sec_1361 if percent of the stock of the corporation is held by an s_corporation and the s_corporation elects to treat the corporation as a qsub sec_1_1361-3 of the income_tax regulations provides the time and manner of making a qsub election a taxpayer makes a qsub election for a subsidiary by filing form_8869 with the appropriate service_center sec_1_1361-3 provides that a qsub election cannot be effective more than two months and days prior to the date of filing sec_1_1361-3 provides that an extension of time to make a qsub election may be available under sec_301_9100-1 and sec_301_9100-3 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 code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through 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 regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under 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 plr-150306-13 conclusion based on the facts and representations submitted we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of one hundred twenty days from the date of this letter to elect to treat sub as a qsub effective d1 the election should be made for sub by filing form_8869 with the appropriate service_center with a copy of this letter attached a copy is enclosed for that purpose 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 concerning whether x is a valid s_corporation or whether sub is eligible to be a qsub this ruling is directed only to the taxpayer requesting it according to sec_6110 of the code this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative 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 s 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 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 b02 plr-136567-05 date date date ------------ --------------------------- --------------------------------- legend x ----------------------- ---------------- state date dear ----------- submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as an association_taxable_as_a_corporation under sec_301_7701-3 facts represents that x is a domestic entity eligible to elect to be treated as an association_taxable_as_a_corporation due to inadvertence x failed to file a timely form_8832 entity classification election electing to treat x as an association_taxable_as_a_corporation effective date the information submitted states that x was formed under the laws of state x this responds to a letter dated date and subsequent correspondence plr-136567-05 law and analysis corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-2 sec_301_7701-3 provides that a business_entity that is not classified as a sec_301_9100-1 provides that the commissioner may grant a reasonable sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is- i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides that to elect to be classified other than as provided in ' b an eligible_entity must file form_8832 with the designated service_center sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term 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 commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government conclusion 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 file a form_8832 based solely on the information submitted and the representations made we sec_301_9100-1 through provide the standards the as a condition for this late election relief x must amend its federal_income_tax plr-136567-05 with the appropriate service_center and elect to be treated as an association_taxable_as_a_corporation effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose returns consistent with x having made a timely entity classification election to be treated as an association_taxable_as_a_corporation effective date federal tax consequences of the facts described above under any other provision of the code provides that it may not be used or cited as precedent being sent to x’s authorized representatives except as specifically set forth above no opinion is expressed concerning the pursuant to a power_of_attorney on file with this office a copy of this letter is this ruling is directed only to the taxpayer requesting it sec_6110 sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures cc copy of this letter copy for sec_6110 purposes