tcmemo_1997_556 united_states tax_court a c green electrical contractors inc petitioner v commissioner of internal revenue respondent docket no filed date bruce h guttman for petitioner peter j gavagan for respondent memorandum opinion swift judge respondent determined deficiencies in and additions to petitioner's federal income and excise_taxes for petitioner’s taxable years ending date and as follows taxable_year ending income_tax deficiency dollar_figure big_number big_number -- excise_tax deficiency -- dollar_figure big_number big_number additions to tax sec_6651 sec_6659a -- dollar_figure big_number big_number dollar_figure big_number big_number -- unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure after settlement of some issues the issue for decision is whether petitioner's contributions to its employee benefit plans exceeded the actuarial costs of funding retirement benefits provided under the plans background this case was submitted fully stipulated by the parties pursuant to rule when the petition was filed petitioner's principal_place_of_business was located in new york new york during the years in issue chaim rozenblatt and adam jakubowicz each owned percent of the stock of petitioner on date petitioner adopted two defined benefit pension plans the plans -- one for the benefit of rozenblatt and one for the benefit of jakubowicz the plans were drafted by morris j silberstein an actuary with pensions forecasting co the plans were effective retroactively as of date for the years in issue the plans constituted qualified_pension plans under sec_401 and rozenblatt and jakubowicz were the only participants in their respective plans under section dollar_figure of each plan if rozenblatt and jakubowicz are not married at the time of retirement each will receive what is referred to as a normal_retirement_benefit in the form of a single_life_annuity that will provide monthly payments commencing after retirement and continuing for each participant's life section dollar_figure of each plan provides as follows rozenblatt’s or jakubowicz’s normal retirement pension computed under section dollar_figure shall be paid in the form of a monthly annuity for his lifetime commencing on the first day of the month following the date on which he attains his normal_retirement_date such normal form of payment shall be subject_to any election made by such participant under article iv and v of this agreement under section dollar_figure of each plan however if rozenblatt and jakubowicz are married at retirement each will receive monthly annuity payments in the form of a qualified_joint_and_survivor_annuity qjsa under a qjsa periodic annuity payments are made over the joint lives of the participant and his spouse the participant receives annuity payments for his life and if the spouse survives the participant the surviving_spouse receives annuity payments for her life also under section dollar_figure of each plan rozenblatt or jakubowicz could elect in writing not to receive the qjsa and instead to receive simply a single_life_annuity for his life under this election the surviving_spouse would receive nothing section dollar_figure of each plan provides as follows notwithstanding the provisions of article iii the benefits of rozenblatt or jakubowicz having a spouse living on the date on which his benefits would commence because of his retirement on his normal or deferred retirement date or earlier commencement of benefits shall be paid in the form of a qjsa unless within days prior to such date or within such longer or shorter period as may be deemed reasonable by the secretary_of_the_treasury he elects in writing not to take such annuity under section dollar_figure of each plan the qjsa provided under each plan is defined as a joint and 100-percent survivor annuity ie each surviving_spouse is to receive as a survivor annuity the same annuity_payment that her husband is to receive during his life under section dollar_figure of each plan the qjsa is defined further as a joint and 100-percent survivor annuity that is equivalent in value to a participant's retirement pension section dollar_figure of each plan provides as follows qjsa means an annuity for the life of rozenblatt or jakubowicz with a survivor annuity for the life of the spouse which is the actuarial equivalent of his retirement pension the survivor annuity shall be the same amount the annuitant was receiving under the plans actuarial equivalent means equal in present_value retirement pension is defined in the plans as the monthly payment to which rozenblatt or jakubowicz shall become entitled pursuant to the terms of the plans under the plans the trustee the administrator and the actuary were not expressly given discretionary authority to interpret plan provisions and funding decisions of the trustee the administrator and the actuary were not to be regarded as final and unreviewable during the years in issue rozenblatt and jakubowicz each were married for each of the years in issue silberstein the actuary who drafted the plans made actuarial valuations and made funding decisions with regard to the plans in calculating petitioner's yearly contributions to the plans silberstein concluded that rozenblatt and jakubowicz each were entitled to receive a benefit in the form of a subsidized joint and 100-percent survivor annuity ie a joint and 100-percent survivor annuity under which rozenblatt and jakubowicz each would receive the full present_value of a single_life_annuity during their lives the present_value of a subsidized joint and 100-percent survivor annuity generally exceeds the present_value of a single_life_annuity for the life of each participant because each participant receives the full present_value of a single_life_annuity during the participant's life and also each surviving_spouse receives additional annuity payments after the participant's death on the basis in part of silberstein’s treatment of the plans as establishing subsidized joint and 100-percent survivor annuities for rozenblatt and jakubowicz and their spouses petitioner made contributions to the plans in the total_amounts of dollar_figure dollar_figure and dollar_figure respectively for each of the years and on its federal_income_tax returns for years ending date and petitioner claimed deductions under sec_404 for the above total respective contributions to the plans in each year for the year ending date petitioner did not make any deductible contributions to the plans and no deduction with regard thereto was claimed on petitioner's federal_income_tax return on audit of petitioner for and respondent treated rozenblatt and jakubowicz as receiving under the plans only a reduced joint and 100-percent survivor annuity the present_value of a reduced joint and 100-percent survivor annuity equals the present_value of a single_life_annuity for the life of the participant ie the value of a single_life_annuity for the life of the participant is spread over the actuarial life expectancies of the participant and the spouse on the basis of respondent's determination that rozenblatt and jakubowicz were entitled to receive only reduced joint and 100-percent survivor annuities and after several other adjustments not relevant herein respondent disallowed as excess_contributions for and respectively dollar_figure dollar_figure and dollar_figure of the total claimed deductions relating to the plans also for and respondent determined that petitioner was liable for excise_taxes under sec_4972 with regard to the portion of petitioner’s contributions to the plans that in respondent's view constituted excess_contributions discussion generally employers may deduct contributions to qualified_pension plans that fund retirement benefits for plan participants sec_404 such contributions however for federal_income_tax purposes are deductible by employers only to the extent contributions to the plans do not exceed the actuarially projected costs of funding benefits provided under the plans sec_1_404_a_-3 income_tax regs sec_1_404_a_-3 income_tax regs provides in no event shall costs for the purpose of sec_404 exceed costs based on assumptions and methods which are reasonable in view of the provisions and coverage of the plan courts have interpreted the language of employee benefit plans using principles of contract and trust law see 489_us_101 95_f3d_1505 10th cir 77_f3d_84 4th cir 70_f3d_281 3d cir 7_f3d_1091 2d cir 985_f2d_13 1st cir language used in employee benefit plans is generally interpreted according to its common and ordinary meaning and an effort is made to give meaning to all language of the plans chiles v ceridian corp supra sayers v rochester tel corp supra pincite5 where employee benefit plans do not specifically provide trustees or plan administrators with discretionary power to interpret plan provisions and where the plans do not provide that trustees' and administrators' decisions should be given deference interpretations given to the language of plans by trustees or administrators are not entitled to any particular deference firestone tire rubber co v bruch supra pincite- 936_f2d_98 2d cir taxpayers bear the burden_of_proof with regard to claimed deductions rule a 292_us_435 petitioner argues that under the plans involved herein the married participants namely rozenblatt and jakubowicz are entitled to receive qjsa's in the form of subsidized joint and 100-percent survivor annuities petitioner argues that the trustee was given discretionary power to interpret the plans and that the court should defer to the trustee's interpretation of the plans respondent argues that under the plans rozenblatt and jakubowicz are entitled to receive qjsa's in the form of only reduced joint and 100-percent survivor annuities and that contributions to the plans in excess of what was required to fund such reduced joint and 100-percent survivor annuities are not deductible respondent emphasizes that the actuary did not have discretionary power under the plans to interpret plan language and respondent contends that the actuary's funding decisions should be given little or no deference we generally agree with respondent's interpretation of the language of the plans under the plans the trustee the administrator and the plan actuary were not given deference in interpreting the plans and in making funding decisions accordingly we are not required herein to give petitioner's interpretation of the plans any particular deference firestone tire rubber co v bruch supra pincite the term qjsa is defined only in section dollar_figure of each plan section dollar_figure of each plan defines qjsa as a joint and percent survivor annuity which is the actuarial equivalent of the participant's retirement pension as indicated actuarial equivalent means equal in present_value the phrase which is the actuarial equivalent of the participant's retirement pension implies an equivalence in value of two different retirement benefits--namely each participant's normal retirement pension and the joint and 100-percent survivor annuity each plan describes a participant's normal retirement pension in terms of a single_life_annuity when read in the context of the entirety of the plans section dollar_figure quantifies the joint and 100-percent survivor annuity as the actuarial equivalent of a single_life_annuity for the life of each participant or the normal_retirement_benefit provided under section dollar_figure of each plan accordingly we conclude that under section dollar_figure of each plan rozenblatt and jakubowicz each receive a joint and 100-percent survivor annuity that has the same present_value as a single_life_annuity for the life of each married participant ie a reduced joint and 100-percent survivor annuity we note that with regard to qualified_plans a qjsa is generally defined in the code and regulations in terms of a reduced joint_and_survivor_annuity see sec_417 sec_1_401_a_-11 income_tax regs petitioner has not identified any plan language which logically establishes a subsidized joint and 100-percent survivor annuity as a form of benefit for rozenblatt and jakubowicz for the above reasons we agree with respondent's interpretation of the language of the plans and we conclude that under the plans rozenblatt and jakubowicz receive retirement benefits in the form of joint and 100-percent survivor annuities that have the same present_value as single life_annuities for the life of each participant or reduced joint and 100-percent survivor annuities accordingly the portion of petitioner's contributions to the plans that exceed the costs of funding retirement benefits for rozenblatt and jakubowicz in the form of reduced joint and 100-percent survivor annuities was properly disallowed by respondent to reflect the foregoing decision will be entered under rule


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 b03 plr-141293-09 date january legend trust advisor accounting firm date date date date date date date date year territory state x dear ----------- ------------------------------ ------------------------ -------------------------------------------------------- ---------------------- ----------------------- ------------------- -------------------------- ------------------------ --------------------- --------------------- --------------------- -------------------------- ------- ---------------- ------------ this responds to your letter dated date submitted on behalf of trust trust requests under sec_301_9100-1 of the procedure and administration regulations a ruling that its election under sec_856 of the internal_revenue_code code to be treated as a real_estate_investment_trust reit made on its form 1120-reit filed date for its taxable_year ending date be considered as timely made trust is organized to acquire hold and manage commercial loans mezzanine debt and preferred equity investments collateralized by commercial and multifamily facts plr-141293-09 properties and investments in real_estate operating companies in the u s and territory as well as selected investments in obligations backed by pools of mortgage loans trust a state x corporation formed on date commenced operations date trusts represents that at all times it both has intended to elect to be classified as a reit and has operated in a manner intended to qualify as a reit pursuant to sec_856 trust retained advisor as a general advisor to provide management acquisition advisory and administrative services advisor in turn engaged accounting firm to provide tax services advisor employs all of the employees that perform the day-to-day financial legal and accounting operation of trust accounting firm is responsible for preparing the federal and state_income_tax returns for trust in this capacity accounting firm is responsible for preparing form_7004 application_for automatic_extension of time to file certain business income_tax information and other returns for trust’s form 1120-reit u s income_tax return for real_estate_investment_trusts advisor is responsible for filing form_7004 advisor management received the completed form_7004 from accounting firm on date advisor management delivered the form for mailing to advisor’s mailroom on date advisor’s mailroom however inadvertently failed to mail the year form_7004 on behalf of trust by date the filing due_date the form was mailed on date as evidenced by certified mail return receipt advisor management was not aware at the time that the form had been mailed date the following month trust received form_6513 extension of time to file from the internal_revenue_service service noting that trust did not timely file form_7004 upon further investigation advisor management discovered advisor’s mailroom staff mailed the form_7004 on date accounting firm is engaged by advisor on behalf of trust to prepare the form 1120-reit for the tax_year ending date upon discovery of the late-filed form_7004 advisor requested that accounting firm take steps to request relief from the service with respect to the late filing of the form_7004 accounting firm accelerated its preparation of trust’s form 1120-reit trust filed its initial form reit for the taxable_year ending date on date on trust’s form 1120-reit trust elected reit status under sec_856 of the code however because trust had not timely filed a form_7004 trust’s form 1120-reit was not timely filed accordingly trust submitted this request for a private_letter_ruling under sec_301_9100-1 of the procedure and administration regulations requesting that the election of reit status trust made on its form 1120-reit that was filed on date for the tax_year ending date be considered as timely made trust makes the following additional representations the request for relief was filed by trust before the failure to make the regulatory election was discovered by the service plr-141293-09 granting the relief will not result in trust having a lower tax_liability in the aggregate for all years to which the regulatory election applies than trust would have had if the election had been timely made taking into account the time_value_of_money trust does not seek to alter a return position for which an accuracy- related penalty has been or could have been imposed under sec_6662 of the code at the time trust requested relief and the new position requires or permits a regulatory election for which relief is requested being fully informed of the required regulatory election and related tax consequence trust did not choose to not file the election law and analysis sec_856 provides that a corporation trust or association shall not be considered a reit for any taxable_year unless it files with its return for the taxable_year an election to be a reit or has made such election for a previous taxable_year and such election has not be terminated or revoked pursuant to sec_1_856-2 of the regulations the election shall be made by computing taxable_income as a reit in its return for the first taxable_year for which it desires the election to apply sec_301_9100-1 of the regulations provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i sets forth rules that the internal_revenue_service generally will use to determine whether under the particular facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money holding plr-141293-09 based on the information submitted and representations made we conclude trust has satisfied the requirements for granting a reasonable extension of time to make an election under sec_856 of the code and sec_1_856-2 of the regulations to be treated as a reit for its taxable_year ending date accordingly trust’s election to be treated as a reit made on its form reit filed on date for the tax_year ending date will be considered as timely made this ruling is limited to the timeliness of the reit election trust made for its taxable_year ending date this ruling's application is limited to the facts representations code sections and regulations cited herein except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed with regard to whether trust qualifies as a reit under subchapter_m of the code moreover no opinion is expressed with regard to whether the tax_liability of trust is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director's office will determine such tax_liability for the years involved if the director's office determines that such tax_liability is lower that office will determine the federal_income_tax effect the ruling contained in this letter is based upon information and representations submitted by trust 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 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 alice m bennett alice m bennett branch chief branch associate chief_counsel financial institutions products


id office uilc cca_2010100615120037 ---------- number release date from -------------------- sent wednesday october pm to ------------------------ cc --------------------------------- subject re tefra question closing_agreement the courts have held that a partnership_item settlement under section c is in effect just a subsection of that explains how sec_7121 operates in the context of a settlement of partnership items so either delegation_order closing agreements or delegation_order relating to partnership items provide alternative authority for such settlements ------------------------------------------------------------------------- ----------------------------------------------------------------------------- i am not sure who would constitute a gs-12 revenue_agent reviewer for this purpose ------------------- knows we usually get appeals to execute these in any event


tcmemo_2009_225 united_states tax_court brian m dimercurio petitioner v commissioner of internal revenue respondent docket no filed date brian m dimercurio pro_se a gary begun for respondent memorandum opinion goeke judge the only issue remaining for disposition in this deficiency case is whether petitioner is subject_to the additions to tax for fraudulent_failure_to_file income_tax returns for through under sec_6651 1unless otherwise indicated all section references are to continued petitioner a wage earner asserts he is not a taxpayer but rather his social_security trust is the taxable entity we find for the reasons explained herein that petitioner’s claim of good_faith in failing to file form sec_1040 u s individual_income_tax_return for the years at issue is not credible and we further find that respondent has proven by clear_and_convincing evidence that petitioner’s failure_to_file income_tax returns was fraudulent at the time petitioner filed his petition he resided in michigan background petitioner was an employee of compuware corp during the years at issue he received a form_w-2 wage and tax statement from his employer reflecting wages petitioner filed a form_w-4 employee’s withholding allowance certificate in date claiming he was exempt from federal_income_tax in order to avoid any withholding of federal_income_tax from his wages that year he subsequently filed similar state and federal withholding forms making the same assertion for subsequent years in he signed a form_w-4 in which he claimed allowances for dependents petitioner was not exempt from federal_income_tax and did not have dependents as a result of filing the form sec_1 continued the internal_revenue_code w-4 petitioner did not have any federal_income_tax withholding in and he received wages of dollar_figure and dollar_figure respectively in and the form_w-2 his employer prepared reflects dollar_figure of federal_income_tax withheld in that year and wages of dollar_figure in petitioner received wages of dollar_figure and dollar_figure was withheld from his wages for federal_income_tax petitioner last filed a form_1040 for the tax_year in date petitioner sent a letter to his employer claiming to hereby withdraw my authorization for compuware to withhold tax from my personal earnings he thus began his efforts to avoid paying federal_income_tax his failure_to_file a federal_income_tax return for did not go unnoticed and respondent issued a notice_of_deficiency to petitioner on date petitioner petitioned this court relative to the year in brian m dimercurio a_trust v commissioner docket no and on date the court issued an order and decision dismissing the case for failure to state a claim the order and decision states that there is no legal basis to support the argument that the trust was the true party in interest and that the trust earned the wages petitioner was paid in the tax court’s decision was affirmed by the u s court_of_appeals for the sixth circuit via a mandate issued on date dimercurio v commissioner no 6th cir date the court_of_appeals awarded costs of dollar_figure to the commissioner petitioner has pursued his position in other cases including an appeal from a tax_court order involving federal_income_tax which resulted in an order filed by the u s court_of_appeals for the sixth circuit in dimercurio v commissioner no 6th cir date on page of that order the court_of_appeals stated dimercurio argues that the social_security administration in assigning him a unique social_security_number created a federal trust that trust he asserts earned the funds owed to the irs and should have been identified in the notice_of_deficiency this argument which is clearly fantastic and delusional does not deserve extensive refutation nevertheless petitioner continues to pursue the same position in the present case in an order dated date in this docket respondent’s motion for partial summary_judgment was granted and the deficiencies in income_tax and additions to tax under sec_6654 were sustained in petitioner submitted form sec_1041 u s income_tax return for estates and trusts for tax years through and also submitted amended versions of these returns on these returns he consistently claimed the amounts of the wages he received from compuware as fiduciary fees expense deductions petitioner did not contact a tax professional at any time to seek advice about his position that he was exempt from federal_income_tax and he has continued to maintain the same frivolous position until the present respondent issued a notice_of_deficiency to petitioner on date which determined additions to tax under sec_6651 as follows year amount dollar_figure dollar_figure dollar_figure dollar_figure petitioner timely petitioned this court for redetermination of the deficiencies and additions to tax the additions to tax under sec_6651 are the only amounts remaining at issue following the date order regarding these additions to tax a trial was held in detroit michigan discussion sec_6651 imposes additions to tax upon taxpayers who fail to file federal_income_tax returns without reasonable_cause according to the net amount of tax due sec_6651 sec_6651 provides for an increased addition_to_tax when the failure_to_file is fraudulent the amount of each addition_to_tax respondent seeks pursuant to sec_6651 i sec_75 percent of the tax required to be shown on the unfiled return respondent has the burden of proving by clear_and_convincing evidence that there is an underpayment_of_tax and that petitioner intended to evade taxes known or believed to be owing by conduct intended to conceal mislead or otherwise prevent the collection_of_taxes see sec_7454 781_f2d_1566 11th cir affg tcmemo_1985_63 398_f2d_1002 3d cir 394_f2d_366 5th cir affg tcmemo_1966_81 80_tc_1111 fraud is not to be imputed or presumed but rather must be established by some independent evidence of fraudulent intent 55_tc_85 53_tc_96 fraud may be established by surveying the taxpayer’s entire course of conduct and drawing reasonable inferences therefrom 317_us_492 korecky v commissioner supra pincite rowlee v commissioner supra pincite 79_tc_995 affd 748_f2d_331 6th cir although fraud may not be found under ‘circumstances which at the most create only suspicion’ the intent to defraud may be inferred from any conduct the likely effect of which would be to conceal mislead or otherwise prevent the collection_of_taxes believed to be owing spies v united_states supra pincite 92_tc_661 quoting 184_f2d_86 10th cir remanding a memorandum opinion of this court courts have relied on a number of indicia or badges_of_fraud in deciding whether to sustain the commissioner’s determinations with respect to the addition_to_tax for fraud although no single factor may be necessarily sufficient to establish fraud the existence of several indicia may be persuasive circumstantial evidence of fraud 732_f2d_1459 6th cir affg per curiam tcmemo_1982_603 beaver v commissioner supra pincite circumstantial evidence that may give rise to a finding of fraudulent intent includes but is not limited to the following understatement of income inadequate records pattern of failure_to_file tax returns awareness of obligation to file returns report income and pay taxes implausible or inconsistent explanations of behavior concealment of assets failure to cooperate with tax authorities filing false forms w-4 failure to make estimated_tax payments dealing in cash these badges_of_fraud are nonexclusive the taxpayer’s background and the context of the events in question may be considered as circumstantial evidence of fraud spies v united_states supra pincite 290_us_389 while these badges_of_fraud may be present the taxpayer may still have a good_faith understanding of the law that may negate the internal revenue service’s irs allegation of fraud see raney v commissioner tcmemo_2000_277 in raney the taxpayer received wages and pension income and then reported zero income on his tax returns on the meritless claim that the income represented nontaxable receipts nevertheless the court rejected the commissioner’s position to impose the fraud_penalty under sec_6651 on account of the taxpayer’s allegation of good-faith misunderstanding of the application of the law petitioner falsely claimed he had a_trust filed trust tax returns ie form sec_1041 and intentionally failed to file individual income_tax returns ie form sec_1040 for the years at issue in other instances similar actions by taxpayers have been construed as sufficient willfulness to warrant criminal conviction see eg christians v commissioner tcmemo_2008_220 petitioner’s conduct is unquestionably deliberate in 99_tc_202 we held that a taxpayer who acts willfully cannot avail himself of the good-faith misunderstanding defense explained in 498_us_192 see also lopez v commissioner tcmemo_2001_211 in niedringhaus v commissioner supra pincite citing 737_f2d_439 5th cir and 608_f2d_400 10th cir we stated there is a difference however between a good-faith misunderstanding of the laws and a good-faith belief that the law is invalid or a good- faith disagreement with the law petitioner who is college-educated conducted his own research using the internet he formulated his own conclusions failed to consult with a competent tax adviser and manifested his intent by taking action to eliminate withholding having observed petitioner’s testimony at length we found that his intention was to evade tax and his trust theory was little more than an artifice to evade tax we find petitioner’s claims of good_faith lack credibility petitioner intentionally took aggressive steps to stop the withholding of federal_income_tax from his wages and failed to file personal income_tax returns for the years in question these actions and omissions were part of his plan to evade the payment of income_tax he points to the form sec_1041 he filed on the theory that a_trust earned the income but these trust returns were filed only years after the failure_to_file began and after he had been confronted with his failure_to_file by respondent’s revenue agents these trust returns provide no support for petitioner’s claim of good_faith because his true intent to evade tax is evidenced by the matching of every dollar of wage income he was paid to a specious claim of fiduciary fee expense on a form_1041 given these facts we find respondent has proven by clear_and_convincing evidence that petitioner’s failure_to_file for and was fraudulent therefore we sustain the additions to tax under sec_6651 because of this result and the previous order of this court 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 corp b05 plr-128007-07 date date ------------------------------------------- ------------------------------------------- legend olddistributing ------------------------------------------------------------------- ------------------------------------------------------------ newdistributing ----------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- controlled ------------------------------------ ----------------------------------------------------------------------- ------------------------------------------------------------------ statea stateb year1 proposed llc agreement for controlled ------------------------------------------------------------------------------------------------------------ ------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ------------- ------------ --------------------------------- --------------------------------- ----------------------------------------- --------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ------------------- plr-128007-07 proposed llc agreement for newdistributing businessa -------------------------------------------------------------------------------- -------------- locationa businessb ------------------------------------------------------------------------------------------------------- locationb shareholdera --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------- -------------------------------------------------------------- shareholderb -------------------------------------------------------------- shareholderc --------------------------------------------------------------------------------------------------------- ------------------------------------------------------------- ----------------------------------------------------------------------------------------- children ------------------------------------------------------ ---------------------- e f g dear ---------------- rulings as to the federal_income_tax consequences of proposed transactions the this letter responds to your representative’s letter of date requesting ------------------------------------------------------- ----------------------- ------------------------------- ----------------------- ------------------- --- the rulings contained in this letter are based upon facts and representations that plr-128007-07 information submitted in that letter and subsequent correspondence is summarized below were submitted on behalf of the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding i whether the distribution described below satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii whether the distribution is used principally as a device for the distribution of the earnings_and_profits of the distributing company or the controlled company or both see sec_355 of the internal_revenue_code and sec_1_355-2 of the regulations iii whether this distribution is part of a plan or a series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a fifty percent or greater interest in olddistributing newdistributing or controlled see sec_355 of the code and sec_1_355-7 of the regulations and iv whether each of the entities that is intended to be formed as a limited_liability_company an llc will in fact be formed as intended moreover no opinion is expressed on the validity of any subchapter_s_election of either olddistributing newdistributing or controlled in addition no opinion is expressed with regard to the tax consequences of the unrelated transaction described below of accounting and a calendar_year and has been an s_corporation since year1 distributing is engaged in businessa and businessb olddistributing has outstanding e shares of common_stock and no other stock all of which stock is held by shareholdera and shareholderb the shareholders with shareholdera holding f percent and shareholder b holding g percent the amount of stock held by shareholdera the major shareholder is over percent pursuant to the unrelated transaction described below the shareholders may also include shareholderc and the children llc agreement for newdistributing newdistributing will elect to be treated as an association_taxable_as_a_corporation and to be taxed as an s_corporation newdistributing will use the accrual_method of accounting and a calendar_year newdistributing will have outstanding one class of membership interests which will be held by the shareholders in the same manner as they hold stock in olddistributing olddistributing is a closely held statea corporation that uses the accrual_method newdistributing is being formed as a stateb llc in accord with the proposed summary of facts plr-128007-07 controlled is being formed as a stateb llc in accord with the proposed llc agreement for controlled controlled will elect to be treated as an association_taxable_as_a_corporation and to be taxed as an s_corporation controlled will use the accrual_method of accounting and a calendar_year controlled will have outstanding one class of membership interests initially all the membership interests in controlled will be held by distributing management of distributing has represented that operating businessa and businessb in separate entities would facilitate one or more corporate business purposes to achieve this separation distributing will transfer businessa to controlled in exchange for all the membership interests in controlled and then will distribute all the membership interests in controlled to the shareholders the businesses will be operated at separate locations with businessa being operated at locationa and businessb being operated at locationb financial information submitted by olddistributing indicates that each of both olddistributing’s businessa and olddistributing’s businessb has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past years unrelated transaction it is possible that shareholdera will undertake an unrelated transaction unrelated transaction in this transaction shareholdera is planning to transfer a part of the stock it holds in olddistributing to shareholderc and the children or alternatively to transfer to shareholderc and the children a part of the membership interests it is receiving in newdistributing shareholder a is related to shareholderc and the children thus in the event the unrelated transaction occurs prior to the proposed transaction discussed below the shareholders participating in the proposed transaction would include shareholderc and the children proposed transactions contribution distribution s election merger to change place and identity and llc agreements undertaken in the order described below it is planned to take step iv subsequent to steps i ii and iii however depending on circumstances and business exigencies it is possible that step iv would be taken first that is prior to steps i ii and iii if step iv is taken first then olddistributing will have been replaced by newdistributing in undertaking steps i ii and iii accordingly hereafter olddistributing is referred to as olddistributing or newdistributing for purposes of steps i ii and iii it is proposed that the steps steps in the proposed transactions be with regard to timing it is planned for step ii the distribution to be undertaken immediately after step i the contribution so that subsequent to the plr-128007-07 contribution olddistributing or newdistributing will have only a momentary ownership of controlled controlled the assets of businessa including real_property and equipment and liabilities associated with businessa in exchange for all the membership interests in controlled step i the contribution olddistributing or newdistributing will transfer to step ii the distribution olddistributing or newdistributing will distribute to step iii the s election controlled will make an election under sec_1362 to be the shareholders all of the outstanding membership interests in controlled the distribution of the membership interests in controlled will be pro_rata to each of the shareholders and the shareholders will not surrender any of the stock or membership interests in olddistributing or newdistributing following the distribution the outstanding membership interests in controlled will be held by the shareholders in exactly the same percentages as they hold their stock in olddistributing or membership interests in newdistributing treated as an s_corporation within the meaning of sec_1361 the shareholders will cause controlled to file form_2553 election by a small_business_corporation for the purpose of causing controlled to be treated as an association taxable as an s_corporation from its inception step iv the merger olddistributing will merge into newdistributing in accord with the applicable state law with newdistributing electing to be an association taxable as an s_corporation newdistributing will receive all the assets and liabilities of olddistributing except for assets and liabilities transferred to controlled and the shareholders will receive newdistributing membership interests in exchange for their olddistributing stock step v the llc operating agreements operating agreements both for new distributing and for controlled will be executed to provide that for each of these llcs all items of income and loss will be allocated among the members pro_rata in accordance with their percentage membership interests in the respective llcs and all distributions both liquidating and nonliquidating will be made in accordance with their percentage membership interests following representations in connection with the proposed transactions representations relating to the entire transaction olddistributing and its controlling shareholder shareholdera have made the representations plr-128007-07 a the unrelated transaction has a motivation independent and separate from the motivation for the proposed transactions b the proposed transactions steps i ii iii iv and v are not related to or connected to or part of a plan involving any other transactions at the time the proposed transactions are undertaken there will be no plan or intent to undertake any other transactions except for the unrelated transaction will each pay his her or its own expenses_incurred in connection with the proposed transactions olddistributing newdistributing controlled and each of the shareholders c d olddistributing will have been an s_corporation at all times subsequent to year1 e olddistributing has outstanding solely a single class of common_stock f controlled and newdistributing will each have outstanding solely a single class of membership interests g at the time of the proposed transactions neither olddistributing newdistributing nor controlled will have outstanding any debt or convertible securities warrants or options or any other type of right or instrument where such right or instrument constitutes an equity_interest in olddistributing newdistributing or controlled or where pursuant to such right or instrument any person could acquire an equity_interest in olddistributing newdistributing or controlled h i neither olddistributing newdistributing nor controlled is or will be an there is no plan or intention for either olddistributing newdistributing or controlled to issue any stock or membership interests in conjunction with or subsequent to the proposed transactions except as described above in steps i through v investment_company as defined in sec_368 and iv representations relating to steps i and ii the contribution and the distribution newdistributing to controlled both i the total adjusted_basis of the assets and ii the fair_market_value of the assets will each equal or exceed the sum of the liabilities as determined under sec_357 assumed by controlled controlled as determined under sec_357 and ii the liabilities to which the transferred both i the liabilities of olddistributing or newdistributing assumed by j with regard to the assets transferred from olddistributing or k plr-128007-07 assets are subject were incurred in the ordinary course of business and are associated with the assets transferred l none of any of the transfers of assets from olddistributing or newdistributing to controlled will constitute an early disposition of investment_credit_property within the meaning of sec_50 m prior to the distribution all the outstanding membership interests in controlled will be held by olddistributing or newdistributing n following the distribution all of the outstanding membership interests in controlled will be held by the shareholders o controlled neither has nor is expected to have any debt to the shareholders to olddistributing to newdistributing or to any related_entity except possibly for a small amount of pre-existing debt between businessa and businessb that arose in the normal course of business and which if not already paid off will be paid off within the current_year p immediately prior to the distribution each share of the outstanding_stock in olddistributing or membership interest in newdistributing will have been held by its then current holder at all times during the 5-year period prior to the distribution or will have been received in a nonrecognition_transaction in exchange for such 5-year stock however in the event that step iv or the unrelated transaction occurs first all the membership interests in newdistributing will be held by shareholders who received their membership interests in newdistributing in exchange for stock in olddistributing in a nonrecognition_transaction such that for each of the shareholders the holding of the membership interests together with the prior holding of the exchanged stock meets this 5-year period q in the 5-year period prior to the distribution there will have been no r the distribution is not part of a plan or series of related transactions changes and subsequent to the distribution it is not expected that there will be any change in the holding of stock or membership interests in olddistributing newdistributing or controlled except as described above with regard to the unrelated transaction and the proposed transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a fifty percent or greater interest within the meaning of sec_355 in olddistributing newdistributing or controlled including any predecessor or successor of any such corporation it is planned for shareholdera to continue to hold over percent of the equity_interest in both newdistributing and controlled s plr-128007-07 no part of the membership interests in controlled is being received by a shareholder as a creditor employee or in any capacity other than as a shareholder of olddistributing or newdistributing businesses businessa and businessb is representative of the present operations of each business and regarding each business there have been no substantial operational changes since the date of the last financial statements submitted for such business the years of financial information submitted on behalf of each of the t u following the distribution olddistributing and or newdistributing will continue to be directly engaged in the active_conduct of businessb independently and with its own separate employees and through the actions of its own officers directors and or shareholders acting on its behalf and through the actions of certain shared employees shared employees following the distribution no more than percent of the total number of businessb employees will be shared employees these shared employees will conduct certain management and or administrative functions for businessb and various other businesses businessb will have been actively conducted within the meaning of sec_1_355-3 by olddistributing or newdistributing independently and through its own employees and its officers directors and or shareholders at all times in the 5-year period prior to the distribution with shared employees participating only to the extent and in the manner specified above in each year of the 5-year pre-distribution period olddistributing and or newdistributing directly had over employees who were engaged in businessb it is expected that olddistributing or newdistributing will continue to directly have over employees engaged in businessb subsequent to the distribution conduct of businessa independently and with its own employees and through the actions of its own officers directors and or shareholders acting on its behalf and through the actions of certain shared employees following the distribution no more than percent of the total number of businessa employees will be shared employees these shared employees will conduct certain management and or administrative functions for businessa and various other businesses businessa will have been actively conducted within the meaning of sec_1_355-3 by olddistributing and or newdistributing independently and through its own employees and its officers directors and or shareholders at all times in the 5-year period prior to the distribution with shared employees participating only to the extent and in the manner specified above in each year of the 5-year pre-distribution period olddistributing and or newdistributing directly had over employees who were engaged in businessa it is expected that controlled will continue to directly have over employees engaged in businessa subsequent to the distribution following the distribution controlled will be directly engaged in the active v plr-128007-07 purposes w the distribution is being carried out for one or more corporate business x except for the step iv merger of olddistributing into newdistributing and also except for dispositions of assets in the ordinary course of business there is no plan or intention i to liquidate either olddistributing newdistributing or controlled ii to merge either olddistributing newdistributing or controlled with any other corporation or iii to sell or otherwise dispose_of the assets of either olddistributing newdistributing or controlled subsequent to the distribution y there is no plan or commitment by any of the shareholders to sell exchange transfer by gift have redeemed or otherwise dispose_of any of their stock or membership interests in olddistributing newdistributing or controlled except as described above with regard to the unrelated transaction and the proposed transactions z the distribution will not be used principally as a device for the distribution of earnings_and_profits of either olddistributing newdistributing or controlled aa the distribution is not intended to or expected to result in a reduction in the total amount of federal_income_tax payable by olddistributing and its successors that is the total amount of federal_income_tax payable after the distribution by olddistributing newdistributing and controlled is anticipated to be no less than the amount that would be payable by distributing if the proposed transactions did not occur bb after the distribution is consummated any transactions that occur between controlled and olddistributing or newdistributing will occur in the ordinary course of business and will be negotiated at arm’s length and for fair_market_value cc there is no plan or intention by either olddistributing newdistributing or dd neither olddistributing newdistributing nor controlled will be a controlled directly or through any subsidiary or related_entity to purchase any of its outstanding_stock or membership interests after the distribution other than through purchases meeting the requirements of sec_4 b of revproc_96_30 disqualified_investment_corporation within the meaning of sec_355 representations as to s elections ee none of the persons holding stock membership interests or any equity_interest in either olddistributing newdistributing or controlled is a nonresident_alien_individual a foreign_corporation or a_trust except for trusts meeting the requirements of sec_1361 plr-128007-07 ff at the first possible opportunity controlled will elect to be treated as an s_corporation there will be no delay between the contribution and the s election and the election will be made in a manner such that it is effective as of the date of the contribution see sec_1_1361-3 of the regulations gg olddistributing is an s_corporation within the meaning of sec_1361 and it is intended for newdistributing to be an s_corporation hh there is no plan or intention to revoke or otherwise terminate the s_corporation_election of either olddistributing newdistributing or controlled representations with regard to step iv the merger the contribution and the distribution are disregarded for purposes of these representations regarding the merger that is for purposes of these representations regardless of whether the merger comes before after or simultaneously with the contribution and the distribution the contribution and the distribution are disregarded for purposes of determining whether there is a change in the olddistributing and or newdistributing assets and liabilities ii immediately prior to the merger newdistributing will be engaged in no activity and will hold no assets except newdistributing may hold a minimal amount of assets if such assets are required i for the purpose of paying newdistributing’s incidental_expenses and or in order to maintain newdistributing’s status as a corporation in accord with stateb law jj immediately following the merger newdistributing will hold all the assets held by olddistributing immediately prior to the merger except as further described in this representation jj the only change in assets occurring from the merger will be as a result of olddistributing and or newdistributing incurring filing accounting legal fees and or other expenses incident to the merger the total of all these merger costs will be less than one percent of the fair_market_value of the net assets of olddistributing immediately prior to the merger kk all liabilities to which the olddistributing assets are subject at the time of the merger and all liabilities of olddistributing that are properly treated as being assumed by newdistributing in the merger see sec_357 are liabilities that were incurred in the ordinary course of business and are associated with the assets held by olddistributing at the time of the merger ll the shareholders will receive solely newdistributing membership interests in the merger plr-128007-07 mm immediately following the merger the shareholders will own all the membership interests in newdistributing and they will own such membership interests solely as a result of having owned stock in olddistributing prior to the merger nn following the merger each of the shareholders will hold the same percentage of membership interests in newdistributing as the percentage of stock such shareholder previously held in olddistributing pp olddistributing is not under the jurisdiction of a court in a title or similar oo the shareholders’ newdistributing membership interests received in the merger grant them substantially the same rights as to distributions both liquidating and nonliquidating in newdistributing as the rights to distributions that they held in olddistributing as shareholders prior to the merger case within the meaning of sec_368 businessb other consideration received by each olddistributing shareholder will be approximately equal to the fair_market_value of the olddistributing stock surrendered in the exchange qq following the merger newdistributing will continue to be engaged in the fair_market_value of the newdistributing membership interests and rr law as to s_corporations sec_1361 defines an s_corporation with respect to a taxable_year as a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder or d have more than one class of stock sec_1_1361-1 provides that a corporation is treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds sec_1_1361-1 provides that the determination of whether all outstanding shares of stock confer identical right to distribution and liquidation proceeds is made based on the corporate charter articles of incorporation bylaws applicable state law and binding agreements relating to distribution and liquidation proceeds collectively plr-128007-07 the governing provisions a commercial contractual agreement such as a lease employment agreement or loan agreement is not a binding agreement relating to distribution and liquidation proceeds and thus is not a governing provision unless a principal purpose of the arrangement is to circumvent the one class of stock requirement of sec_1361 and sec_1_1361-1 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner merges into a newly formed corporation in a transaction qualifying as a reorganization under sec_368 and the newly formed surviving corporation also meets the requirements of an s_corporation the reorganization does not terminate the s election thus the s election remains in effect for the new corporation revrul_64_250 1964_2_cb_333 concludes that when an s_corporation rulings based solely on the information submitted and the representations set forth revrul_73_526 1973_2_cb_404 concludes that the identifying number previously assigned to the transferor_corporation should be used by the surviving corporation in a statutory merger qualifying as a reorganization under sec_368 above and provided that the membership interests in controlled and newdistributing constitute stock we rule as follows rulings with regard to step i the contribution and step ii the distribution controlled in the contribution followed by the distribution will be a reorganization within the meaning of sec_368 olddistributing or newdistributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 upon the transfer of assets to controlled in exchange for membership interests in controlled and the assumption_of_liabilities of olddistributing or newdistributing by controlled in conjunction with the contribution sec_361 and sec_357 the transfer of assets from olddistributing or newdistributing to no gain_or_loss will be recognized by olddistributing or newdistributing plr-128007-07 no gain_or_loss will be recognized by controlled on the receipt of assets of olddistributing or newdistributing in exchange for membership interests in controlled sec_1032 accordance with sec_362 and sec_362 include the period during which such asset was held by olddistributing and or newdistributing sec_1223 the basis of each asset received by controlled will be determined in the holding_period for each of the assets received by controlled will for each of the shareholders immediately after the distribution the no gain_or_loss will be recognized by olddistributing or newdistributing upon the distributions to the shareholders of membership interests in controlled in the distribution as described above sec_361 no gain_or_loss will be recognized by and no amount will be included in the income of the shareholders upon receipt of membership interests in controlled in the distribution sec_355 shareholder’s total bases in all the stock and membership interests held that is the total of i the basis of all the membership interests in controlled received by such shareholder plus ii the basis of the stock in olddistributing or membership interests in newdistributing held by such shareholder will be the same as the basis of the olddistributing stock or newdistributing membership interests held by such shareholder immediately prior to the distribution sec_358 for each shareholder the shareholder’s total basis will be allocated among the stock of olddistributing or membership interests in newdistributing and the membership interests in controlled in proportion to the relative fair market values of such stock and or membership interests in accordance with sec_1_358-2 interests received in controlled will include the holding_period of the olddistributing stock or newdistributing membership interests with respect to which it is received provided that the olddistributing stock or newdistributing membership interests is held as a capital_asset in the hands of the shareholder on the date of the exchange sec_1223 profits among olddistributing or newdistributing and controlled will be made under sec_1_312-10 as defined in sec_1368 immediately prior to the distribution will be allocated as provided in sec_312 of the code proper allocation of earnings and for each of the shareholders the holding_period of the membership olddistributing’s or new distributing’s accumulated adjustment account provided that the distribution is undertaken immediately after the plr-128007-07 between olddistributing or newdistributing and controlled in a manner similar to the manner in which earnings_and_profits are allocated in ruling above under sec_312 sec_1_1368-2 rulings with regard to step iii the s election by controlled contribution olddistributing's or newdistributing’s momentary ownership of the membership interests in controlled as part of the reorganization under sec_368 will not cause controlled to have an ineligible shareholder for any portion of its first taxable_year under sec_1361 and will not in itself render controlled ineligible to elect to be an s_corporation for its first taxable_year if controlled otherwise meets the requirements of a small_business_corporation under sec_1361 it will be eligible to make a subchapter_s_election under sec_1362 for its first taxable_year provided such election is made effective immediately following the distribution for the last taxable_year before the effective s election olddistributing has been an s_corporation since year1 if controlled makes an effective s election under sec_1362 for its first taxable_year controlled will have no history of being a c_corporation moreover the assets of controlled do not have a c history after year1 provided that controlled makes an effective s election for its first taxable_year controlled is not subject_to sec_1363 sec_1363 is applicable to an s_corporation that was a c_corporation the proposed llc agreement for controlled if executed in a form neither olddistributing newdistributing nor controlled will recognize any lifo_recapture tax pursuant to sec_1363 and the regulations thereunder as a result of the proposed transactions substantially identical to that proposed will be considered a governing provision for purposes of sec_1_1361-1 since it will be a binding agreement that defines the members' rights to distribution and liquidating proceeds furthermore controlled’s llc agreement once executed will not by its terms cause controlled to have a second class of stock within the meaning of sec_1361 controlled will not be subject_to the built-in_gain provisions of sec_1374 provided that the 10-year recognition_period specified in sec_1374 has already expired for olddistributing and or newdistributing rulings with regard to step iv the merger shareholders receive membership interests in newdistributing in exchange for their stock in olddistributing is a reorganization within the meaning of sec_368 and the merger of olddistributing into newdistributing in which the plr-128007-07 sec_368 olddistributing and newdistributing will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by olddistributing upon the transfer of assets to newdistributing in exchange for membership interests in newdistributing and newdistributing’s assumption_of_liabilities sec_361 and sec_357 no gain_or_loss will be recognized by newdistributing on the receipt of olddistributing assets in exchange for newdistributing membership interests sec_1032 the basis of each asset received by newdistributing will be the same as the basis of such asset in the hands of olddistributing immediately prior to the merger sec_362 the holding_period for each of the assets received by newdistributing will include the period during which such asset was held by olddistributing sec_1223 no gain_or_loss will be recognized by olddistributing upon the distribution to the shareholders of the newdistributing membership certificates sec_361 no gain_or_loss will be recognized by the shareholders upon receipt of newdistributing membership interests in exchange for their olddistributing stock sec_354 for each of the shareholders the basis in the newdistributing membership interests received will be equal to the basis of the olddistributing stock surrendered by such shareholder in exchange therefor sec_358 for each of the shareholders the holding_period for the newdistributing membership interests received will include the period during which such shareholder held the olddistributing stock exchanged therefor provided that the olddistributing stock is held as a capital_asset in the hands of such shareholder on the date of the exchange sec_1223 the merger does not result in a closing of the tax_year sec_381 of the code and sec_1_381_b_-1 of the regulations as provided by sec_381 newdistributing will succeed to and take into account as of the date the merger is consummated all the items of olddistributing described in sec_381 including any olddistributing earnings_and_profits or any deficit therein rulings with regard to subchapter_s matters relating to newdistributing plr-128007-07 provided that the assets of olddistributing are not presently subject_to the built-in_gain provisions of sec_1374 they will continue to not be subject_to the built-in_gain provisions of sec_1374 in the hands of newdistributing the proposed llc agreement for newdistributing if executed in a form substantially identical to that proposed will be considered a governing provision for purposes of sec_1_1361-1 since it will be a binding agreement that defines the members' rights to distribution and liquidating proceeds further newdistributing’s llc agreement once executed will not by its terms cause newdistributing to have a second class of stock within the meaning of sec_1361 olddistributing’s accumulated_adjustments_account as defined in sec_1368 immediately prior to the merger will be acquired by newdistributing sec_1_1368-2 the merger which constitutes an f reorganization as provided by ruling caveats newdistributing as the successor to olddistributing in the f except as expressly provided herein no opinion is expressed or implied above will not result in a termination of olddistributing’s s election within the meaning of sec_1362 provided newdistributing meets the requirements of an s_corporation under sec_1361 see revrul_64_250 1964_2_cb_333 reorganization will retain olddistributing’s previously assigned identifying number ein see revrul_73_526 1973_2_cb_404 concerning the tax consequences of any aspect of any matter or item discussed or referenced in this letter moreover no opinion is expressed about the tax treatment of the transactions or of any other matter under other provisions of the code or regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions not specifically covered by the above rulings in particular as provided above no opinion is expressed regarding i whether the distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the distribution is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the code and sec_1 d of the regulations iii whether the distribution is part of a plan or series of related transactions under sec_355 and iv whether each of the entities that is intended to be formed as an llc will in fact be formed as intended furthermore no opinion is expressed as to the validity of any subchapter_s_election finally no opinion is expressed about the tax treatment of the unrelated transaction page above procedural statements this private_letter_ruling is directed only to the taxpayers who requested it it is important that a copy of this letter be attached to the federal_income_tax plr-128007-07 sec_6110 of the code provides that this private_letter_ruling may not be used or cited as precedent returns of each taxpayer involved for the taxable_year s in which the transactions are consummated alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching to the return a statement that provides the date and control number plr-128007-07 of this ruling letter being sent to your authorized representative pursuant to the power_of_attorney on file in this matter a copy of this letter is sincerely _douglas c bates__________ douglas c bates assistant to the branch chief branch office of associate chief_counsel corporate


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date cc psi b06 conex-133857-10 number release date uil 25c the honorable joe sestak u s house of representatives washington d c attention -------------------- dear mr sestak i am responding to your inquiry dated date on behalf of your constituent ----- -------------------------------------------------------------------------------------------------- he asked about the residential energy_property credit available for eligible building envelope components including exterior windows see enclosed sec_25c of the internal_revenue_code the code ------------ asked that we issue an interpretation of sec_25c that would allow the credit for qualifying property purchased by date if the taxpayer has the property installed in early because the congress expressly stated in sec_25c that taxpayers may not claim the credit for property placed_in_service ie installed after date we have no authority to interpret the statute otherwise the congress would have to change the law to extend the credit to property installed after date the law provides a tax_credit for amounts paid for qualifying building envelope components including exterior windows and skylights the credit may not exceed dollar_figure for the total expenditures_for qualifying property for taxable years beginning in and the credit is available for improvements to an existing home or an addition or renovation to an existing home the credit i sec_30 percent of the expenditures_for qualifying property that a taxpayer pays or incurs during a taxable_year for this credit the law uses a rule from sec_25d of the code to determine when a taxpayer pays or incurs an expenditure under this rule a taxpayer treats an expenditure as made when the original installation of an item is completed or if the expenditure is for a renovation when the taxpayer begins the original_use of the renovated property conex-133857-10 the law also provides that the credit is not available for any property placed_in_service after date sec_25c of the code placed_in_service is an often- used phrase in tax law that means the property is in a condition or state of readiness and availability for a specifically assigned function windows and skylights are not ready and available for use until installed in the taxpayer’s principal_residence thus a taxpayer must install windows and skylights by date to qualify for the tax_credit i hope this information is helpful if -------------or you have further questions please contact ----------------------- or me at -------------------- sincerely charles b ramsey chief branch office of associate chief_counsel passthroughs special industries enclosure


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 b03 plr-148323-12 date date x ----------------------- ----------------------------------------------------------- legend shareholder ------------------------------------------------------------- ---------------------- state a --------- ------------------------- dear --------------- this letter responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code code facts x was incorporated on a under state law x’s sole shareholder shareholder intended for x to be an s_corporation effective from its date of incorporation however a form_2553 election by a small_business_corporation was not timely filed thus x requests a ruling that it will be recognized as an s_corporation effective a law and analysis sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation plr-148323-12 sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year - a at any time during the preceding_taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat such an election as timely made for the taxable_year and sec_1362 shall not apply conclusion based on the facts submitted and representations made we conclude that x has established reasonable_cause for failing to make a timely s_corporation_election thus we conclude that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 effective a within days following the date of this letter the election shall be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is otherwise eligible to be an s_corporation for federal tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative sincerely s mary beth carchia acting branch chief branch office of the associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------- --------------------------------------- ---------------------------------- department of the treasury washington dc person to contact ------------------------ id no ------------ telephone number --------------------- refer reply to cc fip b02 plr-105289-10 date date legend legend taxpayer ---------------------- ------------------------------------------------------------------------------ employer -------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------- parent company a company b company c law firm state year year year year year year ------------------------------------------------- ------------------------------- ----------------------------- ---------------------------------- --------------------------- ----------- ------- ------- ------- ------- ------- ------- plr-105289-10 year year dear ------------- ------- ------- this is in reply to a letter dated date and supplemental correspondence dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations for taxpayer to file a written representation under sec_1_7872-15 of the income_tax regulations if this written representation under sec_1_7872-15 is considered timely filed and the other requirements under sec_1_7872-15 are satisfied then an otherwise noncontingent payment on a split-dollar loan that is nonrecourse to the borrower is not a contingent payment under sec_1_7872-15 facts employer and parent employer’s parent_corporation are state non-profit corporations exempt from taxation under sec_501 of the internal_revenue_code as organizations described in sec_501 and are classified as public_charities under sec_509 since year parent has had a split-dollar_life_insurance program for certain of its executive level employees and employees of its subsidiary corporations including employer in year parent hired company a to consult on matters relating to the split- dollar program and to administer the program company a recommended revising the split-dollar plan and in year parent implemented a new split-dollar_life_insurance program company b subsequently acquired company a and became parent’s consultant and administrator of the split-dollar program in year parent implemented a new split-dollar_life_insurance program current sdp upon the recommendation of company b the current sdp was entered into after the treasury department’s issuance of final regulations under sec_1_61-22 and sec_1_7872-15 pertaining to split-dollar_life_insurance arrangements the split-dollar regulations under the current sdp employer pays the premiums on a life_insurance_policy owned by taxpayer the premium payments made by employer are treated as loans pursuant to the split-dollar regulations whereby employer is the lender and the taxpayer is the borrower the parties to the loan taxpayer represents that the loans were to each have a stated_interest rate equal to the applicable_federal_rate so as not to be below-market split-dollar loans under the split-dollar regulations employer made the first loan under the current sdp to taxpayer in year taxpayer represents that a plr-105289-10 reasonable person would expect that all payments under the loans will be made as described in sec_1_7872-15 company b was instrumental in implementing the current sdp for parent employer and employee participants including taxpayer collectively plan participants company b was responsible for advising plan participants regarding the set-up of the current sdp determining the type of life_insurance policies associated with the current sdp and administering the current sdp taxpayer represents that taxpayer lacked knowledge and experience with regards to split-dollar_life_insurance arrangements and the split-dollar regulations and therefore relied on employer’s guidance representations conclusions and information regarding the current sdp employer in turn relied on company b’s guidance in developing implementing and administering the current sdp company b provided employer’s tax_return_preparer with a governing document pertaining to the current sdp but did not provide the preparer with a copy of the plan’s participation_agreement due to some confusing language in the governing document the tax_return_preparer erroneously concluded that the loans involved in the current sdp were recourse loans the tax_return_preparer has provided an affidavit stating that discussions with company b representatives regarding the current sdp confirmed his conclusion that the loans were recourse in nature therefore employer did not execute or file the written representations for nonrecourse split-dollar loans pursuant to sec_1_7872-15 and neither did taxpayer in year company b ceased administering the current sdp and employer hired company c to administer the current sdp due to the decline in the value of common stocks and many bonds from year to early year the cash surrender values of the life_insurance policies under the current sdp declined employer employed counsel from law firm to review the current sdp and advise employer on options to revise or terminate the plan counsel from law firm determined that under applicable state law the loans under the current sdp were not recourse loans but rather nonrecourse loans secured_by the life_insurance policies subsequently employer informed taxpayer that the loans were nonrecourse loans and that a written representation should have been filed by both taxpayer and employer to ensure that payments on the loans were not treated as contingent payments employer further explained that the written representation should have been made in year when the first loan was made to taxpayer under the plan and asked that taxpayer file a request for an extension of time to make the written representations under sec_1 d i and ii taxpayer makes the following representations the granting of relief under sec_301_9100-3 would not result in taxpayer having a lower tax_liability in the aggregate for all years to which the election applies than it would have had if the election had been plr-105289-10 timely made taking into account the time_value_of_money taxpayer did not knowingly choose not to file the election taxpayer did not use hindsight in requesting relief finally taxpayer represents that it is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 in support of its ruling_request taxpayer has submitted the affidavits of taxpayer employer’s chief_executive_officer employer’s tax_return_preparer and employer’s counsel from law firm regarding the events that led to taxpayer’s failure to make the regulatory election pursuant to sec_1_7872-15 and ii law and analysis sec_1_7872-15 of the regulations provides that except as provided in sec_1_7872-15 if a payment on a split-dollar loan is nonrecourse to the borrower the payment is a contingent payment for purposes of sec_1_7872-15 sec_1_7872-15 provides that an otherwise noncontingent payment on a split-dollar loan that is nonrecourse to the borrower is not a contingent payment under sec_1_7872-15 if the parties to the split-dollar_life_insurance arrangement represent in writing that a reasonable person would expect that all payments under the loan will be made sec_1_7872-15 describes the time and manner requirements for providing the written representation required by sec_1_7872-15 sec_1 d ii provides in part that the written representation be signed by both the borrower and lender not later than the last day including extensions for filing the federal_income_tax return of the borrower or lender whichever is earlier for the taxable_year in which the lender makes the first split-dollar loan under the split-dollar_life_insurance arrangement sec_301_9100-1 defines election to include an application_for relief in respect of tax a request to adopt change or retain an accounting_method or accounting_period the term does not include an application_for an extension of time for filing a return under sec_6081 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulation or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 sets forth parameters for determining whether under particular facts and circumstances the commissioner will grant an extension of time for regulatory elections that do not meet the requirements for an automatic_extension under sec_301_9100-2 sec_301_9100-3 provides that when a taxpayer does not meet the plr-105289-10 requirements for an automatic_extension under sec_301_9100-2 the taxpayer must provide evidence satisfactorily establishing that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the government sec_301_9100-3 provides that subject_to sec_301_9100-3 a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer satisfies at least one of the following five criteria i the request for relief was made before the service discovered the failure to make the regulatory election ii the failure to make the election was due to intervening events beyond the taxpayer’s control iii after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied on the written advice of the service or v the taxpayer reasonably relied upon a qualified_tax professional including a tax professional employed by the taxpayer and that tax professional failed to make or failed to advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer has not reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the professional was either i not competent to render advice on the regulatory election or ii not aware of all relevant facts sec_301_9100-3 provides that a taxpayer will not be deemed to have acted reasonably and in good_faith if taxpayer does one of the following i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and the subsequent tax consequences but chose not to make the election or iii uses hindsight in requesting relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based on the information submitted and taxpayer’s representations we conclude that taxpayer has satisfied the requirements for granting a reasonable extension of time to file the written representation as required under sec_1 d i and ii taxpayer is therefore granted a period of time not to exceed days from the date of this letter to prepare and have both parties to the loan sign the written representation provided that the written representation is timely signed by both parties to the loan as required by this letter and filed with the taxpayer’s tax_return for year plr-105289-10 the written representation will be deemed effective for all years in which the arrangement has been in effect in accordance with sec_1_7872-15 a copy of the written representation should be attached to taxpayer’s tax_return for any subsequent taxable_year in which employer makes a split-dollar loan to taxpayer to which the representation applies except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences relating to the facts herein under any other provision of the code this ruling is limited to the timeliness of the filing requirement of the written representation under sec_1_7872-15 and ii no opinion is expressed with regard to whether taxpayer satisfied the other requirements under sec_1_7872-15 and ii the loan treatment requirements under sec_1_7872-15 or whether payments under the loan are otherwise noncontingent payments for purposes of sec_1_7872-15 no opinion is expressed with regard to whether the tax_liability of taxpayer is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director’s office will determine such tax_liability for the years involved if the director’s office determines that such tax_liability is lower that office will determine the federal_income_tax effect 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 representatives sincerely david b silber david b silber chief branch office of associate chief_counsel financial institutions and products