internal_revenue_service department of the treasury index number number release date washington dc person to contact telephone number refer reply to cc dom corp plr-118095-98 date date purchaser target sellers country x purchaser’s company official outside tax professionals authorized plr-118095-98 representatives business a business b date a date b date c x dear this letter responds to your authorized representatives’ letter dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an election the extension is being requested for purchaser to file an election under sec_338 of the internal_revenue_code and sec_1_338-1 and sec_1_338-1 of the income_tax regulations with respect to its acquisition of the stock of target sometimes hereinafter referred to as the election on date a additional information was received in a letter dated date the material information submitted for consideration is summarized below purchaser is a publically traded domestic_corporation that is the common parent of a consolidated_group and has a taxable_year ending on x target is a country x corporation that was wholly owned by sellers individuals who are citizens and residents of country x target has one or more subsidiaries country x corporations but an extension of time to make a sec_338 election for them is not being requested purchaser and target are engaged in business a and business b respectively prior to the below described acquisition sellers and target including target’s subsidiaries did not file u s income_tax returns and they were not subject_to u s income_taxation further neither target or its subsidiaries was a controlled_foreign_corporation within the meaning of sec_957 a passive_foreign_investment_company for which an election under sec_1295 was in effect a foreign_investment_company or a foreign_corporation the stock ownership of which is described in sec_552 or required under sec_1_6012-2 to file a u s income_tax return plr-118095-98 on date a purchaser acquired from sellers for cash in fully taxable acquisitions of the stock of target it is represented that the acquisition of target constituted a qualified_stock_purchase within the meaning of sec_338 and that purchaser was not related to sellers within the meaning of sec_338 the period of limitations on assessments under sec_6501 has not expired for purchaser’s or target's taxable_year s in which the acquisition occurred the taxable years in which the election should have been filed or any taxable years that would have been affected by the election had it been timely filed the election was due on date b however for various reasons the election was not filed on date c which is after the due_date for the election purchaser’s company official outside tax professionals and authorized representatives discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election sec_338 permits certain stock purchases to be treated as asset purchases if the purchasing_corporation makes or is treated as having made a sec_338 election under sec_338 and the acquisition is a qualified_stock_purchase sec_338 defines a qualified_stock_purchase as any transaction or series of transaction in which stock meeting the requirements of sec_1504 of one corporation is acquired by another corporation by purchase during the month acquisition period sec_338 provides that the term purchase means any acquisition of stock but only if the basis of the stock in the hands of the purchasing_corporation is not determined in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or under sec_1014 relating to property_acquired_from_a_decedent the stock is not acquired in an exchange to which sec_351 sec_354 sec_355 or sec_356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain_or_loss realized on the transaction and the stock is not acquired from a person the ownership of whose stock would under sec_318 be attributed to the person acquiring such stock sec_1_338-1 provides that a purchasing_corporation makes a sec_338 election for target by filing a statement of sec_338 election on form 8023-a or form_8023 as applicable in accordance with the instructions on the form the sec_338 election must be filed not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs a sec_338 election is irrevocable form 8023-a and form_8023 as applicable must be filed as described in the form and its instructions and also must be attached to form_5471 information_return with respect to foreign_corporation filed with respect to the purchasing_corporation by each united_states_shareholder for the purchasing_corporation sec_1_338-2 plr-118095-98 provides that if an election under sec_338 is made for target old target is deemed to sell target's assets and new target is deemed to acquire those assets sec_1_338-2 provides that the purchasing_corporation may make an election under sec_338 for target even though target is liquidated on or after the acquisition_date sec_1_338-2 provides that an election may be made for target after the acquisition of assets of the purchasing_corporation by another corporation in a transaction described in sec_381 provided that the purchasing_corporation is considered for tax purposes as the purchasing_corporation of the target stock the acquiring_corporation in the sec_381 transaction may make an election under sec_338 for target sec_1_338-2 example illustrates how the purchase of a corporation holding target stock provided a sec_338 election is made therefor and the direct purchase of the remaining target stock can be combined to make a qualified_stock_purchase sec_1_1502-77 provides that the common parent for all purposes other than for several purposes not relevant here shall be the sole agent for each subsidiary in the group duly authorized to act in its own name in all matters relating to the tax_liability of the consolidated_return_year see also form 8023-a form_8023 and the instructions thereto under sec_301_9100-1 c the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i provided the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the times for filing the election was fixed by the regulations ie sec_1_338-1 therefore the commissioner has discretionary authority under plr-118095-98 to grant an extension of time for purchaser to file the election provided purchaser shows it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser’s company official outside tax professionals and authorized representatives explain the circumstances that resulted in the failure_to_file a valid election the information establishes that tax professionals were responsible for the election that purchaser relied on the tax professionals to timely make the election and that the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations that have been made we conclude that purchaser acted reasonably and in good_faith in failing to timely file the election the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly we grant an extension of time under sec_301_9100-1 until days from the date_of_issuance of this letter for purchaser to file the election with respect to the acquisition of the stock of target as described above the above extension of time is conditioned on the taxpayers' purchaser's target's and sellers’ to the extent they have any us tax_liability tax_liability being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the district director's office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers' liability is lower sec_301_9100-3 purchaser should file the elections in accordance with sec_1_338-1 that is a new election on form 8023-a or form_8023 must be executed on or after the date of this letter which grants an extension and filed in accordance with the instructions on the election form together with the information that is required to be attached to the election form a copy of this letter should be attached to the election form purchaser must file or amend its return along with the target_corporation if and as applicable to report the acquisition as a sec_338 transaction and to attach a copy of this letter the election form and the information required therewith that is the old target must file a separate final return if and as applicable and the new target must be included in purchaser's return by being listed on form_5471 information_return with respect to a foreign_corporation for the first year following the acquisition see announcement 1998_2_irb_38 and sec_1_338-1 with regard to which election form to use plr-118095-98 no opinion is expressed as to whether purchaser’s acquisition of target stock qualifies as a qualified_stock_purchase whether the acquisition of target stock qualifies for sec_338 treatment and if the acquisition of target stock qualifies for sec_338 treatment as to the amount of gain_or_loss recognized if any by target on the deemed asset sales in addition no opinion is expressed as to the tax effects or consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayer its employees and representatives however the district_director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply a copy of this letter is being sent to purchaser's company official and the authorized representatives requested pursuant to the power_of_attorney on file in this office this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel corporate by richard todd counsel to the assistant chief_counsel corporate


t c summary opinion united_states tax_court walter a and alfreda kocot petitioners v commissioner of internal revenue respondent docket no 22223-04s filed date walter a kocot pro_se patricia h delzotti for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in petitioners’ federal_income_tax in the amount of dollar_figure for the taxable_year at issue there are two issues for decision the correct amount of taxable social_security_benefits received by petitioners in resulting in the proposed deficiency and whether petitioners are entitled to any overpayment for taxable_year background some of the facts have been stipulated and are so found the stipulation of the parties with accompanying exhibits is incorporated herein by reference at the time that the underlying petition was filed in this case petitioners resided in jersey city new jersey on or about date petitioners timely filed their form_1040 u s individual_income_tax_return for reporting dollar_figure in total social_security_benefits received on line 20a and that same amount dollar_figure as the taxable_portion thereof on line 20b petitioners’ reporting dollar_figure on both lines 20a and 20b of their return subsequently spawned a series of communications between petitioners and respondent’s service_center in chamblee georgia on date responding to petitioners’ reporting the same amount--dollar_figure--on both lines 20a and 20b of their return respondent sent petitioners a proposed change letter june letter that reduced line 20b of petitioners’ return to dollar_figure respondent reduced the amount reported by petitioners on line 20a of their return dollar_figure by percent to accurately reflect the taxable_portion thereof dollar_figure the june letter also corrected the amount claimed by petitioners as their standard_deduction line from dollar_figure to dollar_figure since both petitioners were over years of age in the 15-percent reduction to the reported amount on line 20a dollar_figure and the increase in petitioners’ standard_deduction dollar_figure resulted in petitioners’ receipt of a refund for taxable_year in the amount of dollar_figure after sending the june letter respondent received information from the social_security administration indicating that petitioners’ total social_security_benefits received for taxable_year were actually dollar_figure and not dollar_figure as petitioners originally reported on line 20a of their return subsequently on date respondent sent a second proposed change letter april letter which increased petitioners’ taxable social_security_benefits received from dollar_figure to dollar_figure rounded to the nearest dollar subsequent to mailing the april letter respondent discovered what was believed to be a second error petitioners claimed total income_tax_withholding of dollar_figure on their return respondent reduced this amount by dollar_figure to reflect income_tax withheld on a pension_plan distributed from christ hospital to petitioner alfreda kocot this reduction occurred as a result of petitioners’ erroneous attachment of forms 1099-r distribution from pensions annuities retirement or profit- sharing plans iras insurance contracts etc for both taxable_year sec_2001 and sec_2002 to their return although the dollar_figure reduction was reflected on the april letter correspondence between the parties subsequently resolved this discrepancy on date june letter respondent sent a third revised proposed change letter that restored petitioners’ total claimed income_tax_withholding to dollar_figure yet kept the amount of taxable social_security_benefits received at dollar_figure as a result of these changes the june letter computed an income_tax deficiency of dollar_figure respondent issued a notice_of_deficiency in the amount of dollar_figure on date petitioners paid the deficiency on date and interest thereon on date petitioners timely filed their petition in the underlying case on date petitioners sent numerous letters contesting respondent’s proposed changes and asserting that respondent had acted negligently in making the determinations specifically petitioners disagreed with the proposed change provided in the june letter and on date after the issuance of the notice_of_deficiency notified respondent of their disagreement including inter alia a social_security_benefits worksheet which they prepared that showed dollar_figure as the taxable social_security_benefits received in this amount-- dollar_figure--is the same amount listed on the notice_of_deficiency discussion the commissioner’s determinations are presumed correct and taxpayers generally bear the burden of proving otherwise 290_us_111 in this case petitioners do not deny their error in reporting dollar_figure on both lines 20a and 20b on their return in fact before trial petitioners paid both the dollar_figure amount in deficiency as well as dollar_figure in interest assessed by respondent petitioners argue that they are entitled to dollar_figure as an overpayment of taxes dollar_figure and interest dollar_figure because respondent failed to account for dollar_figure in estimated payments made by petitioners towards their income_tax_liability despite petitioners’ admitted errors on their return the amount of their adjusted_gross_income did not change and therefore their overall tax_liability should not change respondent employed a slip shod method of examination resulting in petitioners’ receipt of four notices of deficiency and petitioners were unjustly given only three days to file their petition with the tax_court for reasons stated herein we find that petitioners have not sufficiently proved these claims that the total amount of social_security_benefits received by petitioners in line 20a was dollar_figure and that petitioners are not entitled to any overpayment first petitioners assert that the amount in deficiency determined in the date notice_of_deficiency is incorrect because respondent failed to account for petitioners’ dollar_figure in estimated_tax payments however in the june letter respondent acknowledged petitioners’ total payments of dollar_figure a dollar_figure payment included with their return dollar_figure in federal_income_tax withheld and dollar_figure in estimated_tax payments subsequent documents including the april and june letters contain only those items for which respondent proposed a change since respondent did not dispute or propose any change to the amount of estimated_tax petitioners paid in the estimated_tax was not included as part of the proposed change computations this omission did not as petitioners assert mean that respondent excluded the dollar_figure in estimated_tax payments from the computations in fact the notice_of_deficiency determined that the reason for the dollar_figure deficiency was due to an increase in petitioners’ reported taxable_income from dollar_figure to dollar_figure and accordingly an increase in the amount of tax due from dollar_figure to dollar_figure second petitioners claim that despite their error in not reporting the correct amount of total social_security_benefits received on line 20a of their return because the corrected figure did not change the amount of the total adjusted_gross_income their income_tax_liability should not change notably the parties agree that petitioners’ adjusted_gross_income for taxable_year was dollar_figure the june letter changed the amount of standard_deduction originally claimed by petitioners on their return from dollar_figure to dollar_figure as both petitioners were over years of age in this correction coupled with the dollar_figure exemption resulted in total taxable_income of dollar_figure and not dollar_figure as petitioners maintained at trial accordingly the amount of tax due on petitioners’ total taxable_income of dollar_figure was dollar_figure with dollar_figure being the correct amount of tax owed by petitioners since petitioners remitted dollar_figure with their completed return they would have been entitled to an overpayment of dollar_figure however since respondent refunded dollar_figure based upon petitioners’ underlying error respondent was correct in subsequently determining a dollar_figure deficiency in addition to the aforementioned claims petitioners argued at trial that respondent engaged in a slip shod method of examination sending four notices of deficiency to petitioners and giving petitioners only three days to file their petition with the court while we acknowledge petitioners’ frustration and confusion including their receipt of three separate proposed change letters we cannot find that respondent acted improperly petitioners received only one notice_of_deficiency dated date that clearly put them on notice that the last date on which they could file a petition with this court was date in summary we find that line 20b of petitioners’ return should be dollar_figure an amount to which all parties agree and that because petitioners were awarded a refund greater than their income_tax_liability they are not entitled to any overpayment pursuant to rule in the june letter respondent redetermined petitioners’ adjusted_gross_income as dollar_figure the reason for this adjustment was that petitioners had reported the same amount--dollar_figure--on both lines 20a and 20b of their return accordingly when respondent reduced the line 20a amount by percent to reflect the taxable_portion thereof the amount of adjusted_gross_income was also reduced to dollar_figure reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b9-plr-124807-02 date date re legend taxpayer spouse date trust trust a b trustee attorneys date date date year year year dear this is in response to your letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an allocation of the generation-skipping_transfer gst tax exemption the facts and representations submitted are summarized as follows on date taxpayer and spouse established trust an irrevocable_trust for taxpayer’s son and his lineal_descendants and trust an irrevocable_trust for the taxpayer’s daughter and her lineal_descendants collectively referred to as trusts plr-124807-02 under the terms of trust the assets are held as a single trust and are available for distribution to a or his descendants article ii paragraph a provides that the trustee shall pay to or apply for the benefit of a beneficiary net_income and trust principal for the beneficiary’s support medical dental hospital nursing and education expenses any net_income not expended shall be added annually to principal article ii paragraph d provides trust shall terminate upon the first to occur of the following events a twenty-one years after the death of the last to die of the trustors and all individual beneficiaries under the trust and all descendants of the trustor living at the time the trust became irrevocable or b upon the death of the last to die of a or a’s lineal_descendants if the trust terminates by operation of paragraph a the assets of the trust shall be distributed according to the principle of representation to the then living lineal_descendants of a if the trust terminates by operation of paragraph b the assets of the trust shall be distributed to the trustee of trust if it exists to be held administered and distributed in accordance with the terms of trust if trust does not exist the assets of the trust shall be distributed to the trustors’ then living descendants on the principal of representation if the trustors have no living descendants than all of the trust assets shall be distributed to the trusts persons or entities entitled to the residue of the estate of the last to die of a and a’s then living lineal_descendants as if such person’s death had occurred on the date on which trust terminated the terms of trust are the same as trust except that the primary beneficiaries of trust are b and b’s lineal_descendants on date taxpayer and spouse each transferred dollar_figure to each trust on date attorneys advised taxpayer and trustee that a gift_tax_return form_709 was not required because the value of the transfer was less than the annual exclusion amount allowable under sec_2503 of the internal_revenue_code based upon attorney’s advice taxpayer did not file form_709 for year which also resulted in a failure to timely allocate dollar_figure of his gst_exemption in year and year taxpayer made gifts of dollar_figure in cash to each trust taxpayer also failed to file a form_709 for year and year as a result gst_exemption was not allocated to the transfers in year and year upon review of taxpayer’s estate plan in date taxpayer was informed that gift_tax filings and gst_exemption allocations should have been made for transfers to the trusts taxpayer has requested the following rulings an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-1 and sec_301_9100-3 to make allocations of taxpayer’s gst_exemption to trust and trust and that such allocations are to be made based on the value of the transferred assets on the date transferred to trust and trust plr-124807-02 sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period and such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute plr-124807-02 notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute accordingly taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore taxpayer is granted an extension of time of days from the date of this letter to make allocations of taxpayer’s available gst_exemption with respect to taxpayer’s transfers to trusts the allocations will be effective as of the date of the transfers to trusts and the gift_tax value of the transfers to trusts will be used in determining the amount of gst_exemption to be allocated to trusts plr-124807-02 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent the allocation should be made on a form_709 united_states gift and generation-skipping_transfer_tax return and filed with the internal_revenue_service center cincinnati oh a copy of this letter should be attached to the form_709 a copy is enclosed for this purpose sincerely william p o’shea acting associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c aug se t ep ral tz uniform issue list rrrkekkkk k kkk kkk kh rkkk rrkrekekkaakk kk kkk legend taxpayer a ira x amount a kkkkkkkhk keh kk ke account no maintained by kkkkkhkk kkk on behalf of rerkkkkk kk hhh dollar_figure kak ’ financial_institution a rkkkk kk kkhkkkkhhk kkk calalalalalalalel keakkkre wena eee financial_institution b rr krkkkkkk kkkhkekkkk kkkhkkk kkk financial advisora weekeaee jee acvisofs llc ke rrkkkkk khhhkhk kkkkkkhkke thkkkik kk kikik khkkk ’ date date kakk k kkk kea kk kkk dear kk kkkkkk this is in response to your request dated as supplemented by correspondence dated in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested page taxpayer a age represents that he received a distribution from ira x of amount a taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to the error of financial_institution b taxpayer a further represents that amount a has not been used for any other purpose taxpayer a maintains ira x with financial_institution a in taxpayer a held several consultations with his financial advisor financial advisor a regarding current interest rates in his individual_retirement_account ira x financial advisor a advised taxpayer a to roll over funds in his ira into another ira with higher interest rates taxpayer a decided to roll over a portion of ira x into a local credit_union offering higher interest rates financial advisor a instructed taxpayer a that he had to complete the rollover within days of receiving the funds acting upon financial advisor a’s instructions taxpayer a received amount a from financial_institution a in the form of a check on date and went to financial_institution b the next day date intending to make a deposit into another ira account taxpayer a did not have any taxes withheld from amount a at the time taxpayer a represents that on entering financial_institution b he explained to the bank clerk that he wanted to open an ira cd paying a certain interest rate with amount a the bank clerk completed the application form for taxpayer a handwriting all the required terms of the form however the bank clerk failed to mark a small box that would indicate that the account be opened as an ira rather than a non-ira once the bank clerk completed the application form the bank clerk offered the form to taxpayer a for his signature relying on the bank clerk’s expertise taxpayer a signed the form made the deposit and left financial_institution b believing that an ira account had been opened to receive the deposit taxpayer a did not realize an error had been made until he received a 1099-int form for the _ tax_year indicating that the check had been deposited into a non-ira instead of an ira based on the facts and representations you request a ruling that the internal_revenue_service waive the day rollover requirement with respect to the distribution of amount a contained in sec_408 of the code in this instance sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or page ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover was caused by an error of financial_institution b therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount a from ira x taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount a into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount a will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code rae’ no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact jat please address all correspondence to se t ep ra t id sincerely yours dn achat by d ittlejohn manager onzell employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


internal_revenue_service number release date index number ----------------------------------- --------------------------- ---------------------------------- re ------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number ---------------------- refer reply to cc psi plr-137694-16 date date legend decedent date spouse date dear ---------------- --------------------------------- ------------------ ----------------------- ------------------------------ ------------------ ------------------- this letter responds to your authorized representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code code to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a timely form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election plr-137694-16 it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death and decedent made no taxable_gifts during her lifetime you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-137694-16 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return plr-137694-16 under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void plr-137694-16 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs special industries by lorraine e gardner lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division contact person identification_number telephone number employer_identification_number number release date date date uil legend date grantor operating_foundation dear this is in response to your ruling_request regarding whether grants you will make are properly characterized as qualified distributions under sec_4942 of the internal_revenue_code i r c facts you are a nonprofit corporation recognized as an organization described in sec_501 c and classified as a private non-operating foundation under sec_509 not described in grantor's father created you you are organized and operated for charitable religious scientific literary or educational_purposes your mission is to receive and maintain a fund or funds of real and or personal_property and to use the principal and or income from such fund s exclusively for charitable religious scientific literary or educational_purposes either directly or by contributions to organizations exempt under sec_501 c your board_of trustees consists of one class a trustee and three class b trustees the class a trustee is entitled to eight votes and each class b trustee is entitled to one vote grantor currently serves as the class a trustee and as a class b trustee grantor's son and nephew each currently serve as class b trustees grantor grantor's son and grantor's nephew are each a disqualified_person as defined in sec_4946 with respect to you and to operating_foundation you are not a membership corporation but your trustees maintain control and oversight similar to that of members of a nonprofit corporation including the power to nominate and elect directors amend the bylaws and certificate of incorporation and approve fundamental changes such as merger dissolution or transfer of substantial assets you also have a board_of directors which manages the general business and affairs of the corporation each director is entitled to one vote grantor son and nephew all serve on the board_of directors along with three additional unrelated directors grantor serves as the chair of the board and with son and nephew also serve as your officers operating_foundation is a nonprofit corporation described in sec_501 c and classified as a private_operating_foundation under sec_509 described in its purposes are charitable and educational and its mission is to promote the appreciation of and education about grantor's art medium specifically and public art generally primarily through the creation maintenance and public placement of artwork created by grantor operating_foundation will own many grantor created artwork pieces all preliminary pieces all future pieces and copyrights to all grantor created artworks together the collection operating foundation's governance and management structure and composition is nearly identical to yours except that your board_of directors has three more directors than it and those three directors are unrelated whereas all of its directors are related you will also make start-up and on-going grants to operating_foundation these grants are not restricted they do not require operating_foundation to expend them for specific purposes they are general operating grants and may be used by operating_foundation to acquire or maintain assets which are used directly in the conduct of its exempt_activities and for reasonable administrative expenses and other operating costs to pay its employees and to service its debt if any you will ensure that operating_foundation pays out such grant funds for the active_conduct of activities constituting its purpose or function as described in sec_4942u not later than the close of the first taxable_year after the taxable_year in which such grant funds are received by requiring operating_foundation to complete and submit expenditure_responsibility reports annually operating_foundation has represented that it will i use your grant funds for qualifying distributions directly for the active_conduct of activities constituting its purpose or function as described in including amounts paid to acquire or maintain assets which are used directly in the conduct of its exempt_activities and for reasonable administrative expenses and other operating costs ii make such qualifying distributions not later than the close of the first taxable_year after the taxable_year in which such grant funds are received and iii treat such expenditures as distributions out of corpus rulings requested you have requested the following ruling you may count grants made to operating_foundation as qualifying distributions as permitted in sec_4942 if i operating_foundation uses such grant funds for qualifying distributions directly for the active_conduct of activities constituting its purpose or function as described in including amounts paid to acquire or maintain assets which are used directly in the conduct of its exempt_activities and for reasonable administrative expenses and other operating costs ii operating_foundation makes such qualifying distributions not later than the close of the first taxable_year after the taxable_year in which such grant funds are received and iii the expenditures by operating_foundation are treated by it as distributions out of corpus sec_501 provides an exemption from federal tax for organizations that are organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_4942 imposes on the undistributed_income_of_a_private_foundation for any taxable_year which has not been distributed before the first day of the second or any succeeding taxable_year following such taxable_year if such first day falls within the taxable_period a tax equal to percent of the amount of such income remaining undistributed at the beginning of such second or succeeding taxable_year sec_4942 states that for purposes of this section the term qualifying_distribution includes a contribution to a private_operating_foundation and certain other organizations if not later than the close of the first taxable_year after its taxable_year in which such contribution is received such organization makes a distribution within the meaning of paragraph or without regard to this paragraph which is treated under subsection h as a distribution out of corpus or would be so treated if such sec_501 c organization were a private_foundation which is not an operating_foundation and b the private_foundation making the contribution obtains adequate_records or other_sufficient_evidence from such organization showing that the qualifying_distribution described in subparagraph a has been made by such organization i r c defines operating_foundation for purposes of sec_4942 to mean one a which makes qualifying distributions within the meaning of paragraph or of subsection g directly for the active_conduct of the activities constituting the purpose or function for which it is organized and operated equal to substantially_all of the lesser_of i its adjusted_net_income as defined in subsection f or ii its minimum_investment_return and b i substantially more than half of the assets of which are devoted directly to such activities or to functionally related businesses as defined in paragraph or to both or are stock of a corporation which is controlled by the foundation and substantially_all of the assets of which are so devoted ii which normally makes qualifying distributions within the meaning of paragraph or of subsection g directly for the active_conduct of the activities constituting the purpose or function for which it is organized and operated in an amount not less than two-thirds of its minimum_investment_return as defined in subsection e or iii substantially_all of the support other than gross_investment_income as defined in sec_509 of which is normally received from the general_public and from or more exempt_organizations which are not described in sec_4946 h with respect to each other or the recipient foundation not more than percent of the support other than gross_investment_income of which is normally received from any one such exempt_organization and not more than half of the support of which is normally received from gross_investment_income notwithstanding the provisions of a if the qualifying distributions within the meaning of paragraph or of subsection g of an organization for the taxable_year exceed the minimum_investment_return for the taxable_year clause ii of subparagraph a shall not apply unless substantially_all of such qualifying distributions are made directly for the active_conduct of the activities constituting the purpose or function for which it is organized and operated under sec_53_4942_a_-3 for purposes of subparagraph i b of this paragraph an organization is controlled by a foundation or one or more disqualified persons with respect to the foundation if any of such persons may by aggregating their votes or positions of authority require the donee organization to make an expenditure or prevent the donee organization from making an expenditure regardless of the method by which the control is exercised or exercisable analysis sec_4942 imposes an excise_tax on the undistributed_income of each private_foundation for each taxable_year the tax shall not apply to the undistributed_income_of_a_private_foundation for any taxable_year for which it is an operating_foundation as defined in subsection u undistributed_income is the amount that distributable income exceeds qualifying distributions qualifying distributions generally exclude distributions to private nonoperating foundations and controlled organizations operating_foundation is a controlled organization with respect to you because i grantor grantor's son and grantor's nephew are each a disqualified_person within the meaning of sec_4946 with respect to you and operating_foundation and ii grantor as class a trustee of both organizations has a majority vote of all trustees see sec_53 a - a sec_4942u provides that excluded distributions can be qualified distributions if the recipient controlled organization within a certain time period makes a distribution equal to the amount of such contribution and such distribution is a qualifying_distribution within the meaning of paragraph or without regard to this paragraph which is treated under subsection h as a distribution out of corpus or would be so treated if such organization were a private_foundation which is not an operating_foundation and the distributing private_foundation obtains adequate_records or other_sufficient_evidence from such organization showing that the qualifying_distribution described in subparagraph a has been made by such organization you are making grants to operating_foundation to acquire and maintain assets which are used directly in the conduct of its exempt_activities and for reasonable administrative expenses and other operating costs to pay its employees and to service its debt if any operating_foundation has represented that it will i use your grant funds for qualifying distributions directly for the active_conduct of activities constituting its purpose or function as described in sec_4942u including amounts paid to acquire or maintain assets which are used directly in the conduct of its exempt_activities and for reasonable administrative expenses and other operating costs ii make such qualifying distributions not later than the close of the first taxable_year after the taxable_year in which such grant funds are received and iii treat such expenditures as distributions out of corpus conclusion based on the foregoing we rule as follows you may count grants made to operating_foundation as qualifying distributions as permitted in sec_4942 if i operating_foundation uses such grant funds for qualifying distributions directly for the active_conduct of activities constituting its purpose or function as described in sec_4942 including amounts paid to acquire or maintain assets which are used directly in the conduct of its exempt_activities and for reasonable administrative expenses and other operating costs ii operating_foundation makes such qualifying distributions not later than the close of the first taxable_year after the taxable_year in which such grant funds are received and iii the expenditures by operating_foundation are treated by it as distributions out of corpus this ruling will be made available for public inspection under sec_6110 after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_611 o k provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolved questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely michael seto manager exempt_organizations technical enclosure notice


t c summary opinion united_states tax_court albert chen and nai-fen chen petitioners v commissioner of internal revenue respondent docket no 12982-12s filed date ronald jay cohen for petitioners peter n scharff for respondent summary opinion dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition wa sec_1 unless otherwise indicated all subsequent section references are to the internal_revenue_code code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax and a sec_6662 accuracy-related_penalty of dollar_figure the issues for decision are whether petitioners are entitled to a deduction for expenses on schedule c profit or loss from business are entitled to an abandonment_loss deduction and are liable for a sec_6662 accuracy- related penalty background some of the facts have been stipulated and are so found the stipulation of facts and the exhibits received in evidence are incorporated herein by reference petitioners resided in new york when the petition was filed albert chen petitioner husband is a retired civil engineer during his employment as a civil engineer he designed and constructed power plant structures at pacific gas electric he has over years of experience in design and construction supervision although petitioner is retired in he performed work for several companies on a contract basis nai-fen chen petitioner wife is a retired registered nurse she retired around she entered the real_estate business in or around and later became a licensed real_estate agent in petitioner wife received nonemployee compensation of dollar_figure from keller williams realty and a commission from weichert realtors of dollar_figure in or around petitioners purchased an 81-acre parcel of land in the town of greenville new york town petitioners currently reside in a single_family_residence on that property in or around petitioners decided to develop and subdivide the property with a plan to sell individual residential lots petitioners prepared a business plan under which the land would be subdivided into lots and a one-family home would be built on each lot over the next several years petitioners hired land-use professionals who provided topographical mapping land surveying subdivision design soil testing and other related_services in preparation for submitting a plan to the town planning board board for subdivision approval petitioners entered into an agreement with one of the land use professional companies mjs engineering pc mjs to assist with planning for the subdivision of the property and drafting the subdivision plans for submission to the board through mjs petitioners submitted their first subdivision plan to the board in and enclosed the required escrow payment mjs submitted several revised applications over the next several years including and over that same time period petitioners made additional escrow payments to the board as requested in late the board granted preliminary approval for the subdivision plans in date petitioners submitted an additional escrow payment to the board in date mjs submitted to the board a well location plan and indicated that mjs would submit an application to the health department for a review of the proposed septic systems and wells the record does not indicate that mjs performed any further activity on behalf of petitioners in pursuit of the subdivision plans for the property throughout the term of petitioners’ contract with mjs mjs submitted to petitioners itemized billing statements for their services and the amount billed for those services the itemized statements concern primarily subdivision planning activities including work performed by mjs in drafting the subdivision application_for petitioners claimed schedule c expense deductions relating to legal and professional services incurred by the hiring of land use professionals and for amounts paid in escrow to the board for their land developing and subdivision activity petitioners also claimed deductions for car and truck expenses meal and entertainment_expenses depreciation expenses and home_office and advertising expenses related to the land development project respondent issued petitioners a notice_of_deficiency dated date disallowing the claimed schedule c expense deductions determining that petitioners were not engaged in a trade_or_business with respect to the development of the property and that their expenses were capital expenditures with respect to the property discussion generally the commissioner’s determinations are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a see 503_us_79 290_us_111 additionally deductions are strictly a matter of legislative grace and taxpayers must satisfy the specific requirements for any deduction claimed for the taxable_year indopco inc v commissioner u s pincite 292_us_435 in some cases the burden_of_proof with respect to relevant factual issues may shift to the commissioner under sec_7491 because the court decides this case without regard to the burden_of_proof sec_7491 is inapplicable trade_or_business expense sec_2 sec_162 provides that t here shall be allowed as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business sec_162 does not however permit current deductions for startup or preopening expenses_incurred by taxpayers before beginning business operations sec_195 794_f2d_1157 6th cir rev’g 83_tc_103 t o be engaged in a trade_or_business the taxpayer must be involved in the activity with continuity and regularity and the taxpayer’s primary purpose for engaging in the activity must be for income or profit 480_us_23 with regard to the ownership and potential development of real_property it is necessary to determine whether the ownership and development of the property rises to the level of a trade_or_business which requires an examination of the facts on a case-by-case basis see 312_us_212 where postpurchase activities related to development are only in their to the extent petitioner wife was engaged in a trade_or_business as a real_estate_professional petitioners did not show which expenses related to the real_estate business show whether such expenses were ordinary and necessary expenses of the real_estate business or substantiate the expenses as required by the code exploratory or formative stages then those activities do not rise to the level of a trade_or_business christian v commissioner tcmemo_1995_12 respondent relying on 91_tc_660 and christian alleges that petitioners were not engaged in a trade_or_business because petitioners did not have any prior experience with real_estate development the property remained undeveloped as of the time of trial petitioners did not sell any of the plots and petitioners have not demonstrated a profit from their activity in polakis the taxpayer a vascular surgeon purchased approximately acres of undeveloped land at the time of purchase the land was zoned as agricultural property and the minimum parcel size was acres consistent with the zoning of the property the taxpayer used or leased the land for farming and other agricultural activities the taxpayer later investigated whether the property could in fact be developed in this pursuit he informally contacted three individuals regarding development financing and contract work he did not enter into any contractual relationship with these individuals the contractor contacted several members on the planning commission obtained a copy of an applicable environmental impact report and investigated the technical requirements for the development of the property the taxpayer himself did not investigate the requirements for developing the property and maintained no books_or_records of these investigative activities when an issue arose regarding a sewer trunk line extension several landowners including the taxpayer hired a lobbyist to promote their general interest regarding the extension of a sewer trunk line service to the property the lobbyist attended city council meetings but did not specifically lobby for the extension of the sewer trunk line to the property this court found that the taxpayer was not in the business of developing real_estate at the time he purchased the property and that his postpurchase activities never rose to the level of engaging in a trade_or_business so as to transmute the property into a business venture in christian the taxpayer who had engaged in several real_estate transactions before purchasing a property but had not engaged in the trade_or_business of developing a real_estate subdivision sought investors for the property with the possibility of subdividing it the taxpayer obtained advice regarding the requirements for subdividing the property but did not submit any of the preliminary plans to the county or start the formal subdivision process the taxpayer showed the property to potential investors and other individuals and consulted with several real_estate developers about ways to develop the property but no preliminary plat was submitted no final plat was prepared and no lots were staked out the property remained in the same undeveloped condition as when it was purchased the court found that although the taxpayer consulted with real_estate developers devoted considerable time and effort in planning to develop the property and attempted to attract potential investors and capital the taxpayer never followed through on plans to develop the property into rural residential homesites the taxpayer merely had plans for a potential business which never materialized the court found it significant that the taxpayer made no sales because there were simply no lots to sell petitioners allege that they were engaged in the business of developing and selling the property but testified that they have not sold any lots and no final subdivision plans were ever submitted petitioner husband testified that sales activities were scheduled to begin in but in there were no marketing efforts to solicit contracts nor were there any offers from prospective buyers petitioners expended time energy and money towards the planning and development of their property however it appears that from through most if not all of the development was devoted to planning and not to the sale and actual subdivision of the property petitioners kept and provided records however their development activities were still in the planning and exploratory phase and did not rise to the level of a trade_or_business therefore any expenditures relating to the property were not currently deductible in unless the development project was completely abandoned in that year see sec_195 see also 345_f2d_901 4th cir vacated and remanded on other issues 382_us_68 abandonment sec_165 allows as a deduction any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise in the case of an individual the deduction is allowable for losses_incurred in any transaction entered into for profit sec_165 91_tc_396 aff’d without published opinion 940_f2d_1534 9th cir petitioners’ profit_motive is not at issue where a taxpayer abandons a transaction entered into for profit because property used in the transaction has suddenly become useless certain expenditures incurred in the year of abandonment thereby become immediately deductible as an abandonment_loss for the year when such losses were actually sustained 72_tc_481 sec_1_165-2 income_tax regs abandonment of an asset involves actual intent on the part of the owner to abandon it coupled with an affirmative act to carry out that intention 274_us_398 with regard to tangible_property a finding of abandonment requires that the taxpayer satisfy three elements that the property be permanently discarded from use in the taxpayer’s business that it no longer be useful in the taxpayer’s business and that its usefulness in the taxpayer’s business suddenly terminated la port v commissioner 671_f2d_1028 7th cir aff’g tcmemo_1980_355 155_f2d_45 1st cir interpreting a prior version of the regulations aff’g a memorandum opinion of this court sec_1_165-2 income_tax regs the court_of_appeals for the second circuit has stated that abandonment is met only in the event of a permanent abandonment or permanent devotion of the property to a radically different use 144_f2d_115 2d cir substance and not mere form governs in determining a deductible loss frgc inv llc v commissioner tcmemo_2002_276 aff’d 89_fedappx_656 9th cir sec_1_165-1 income_tax regs respondent alleges that petitioners are not entitled to an abandonment_loss deduction as they have not demonstrated that they completely abandoned development plans for the land in in support respondent asserts that petitioners continue to own the property they have not demonstrated that the property is useless nor have they demonstrated that they would not continue their efforts to develop the property in the future petitioners testified that they had completely abandoned the development project in because of a severe decline in the housing market and a change in the wetland laws petitioner husband testified that a new delineation in the wetland laws changing the size of the buffer area resulted in a decrease in the amount of acreage that could be developed consequently according to petitioners the whole business and development plan for the property and the placement of the lots would need to change and petitioners would incur additional costs and expenses as a result of the change although petitioners testified that a change in the wetland laws required them to abandon their development project as then formulated they failed to demonstrate that the change in the laws affected their development efforts in a way which would require a complete abandonment of the development project petitioners’ testimony indicates that the change seemed merely to modify petitioners’ plans for the development of the property in addition despite the change in the wetland laws mjs continued near the end of to seek approval for preliminary subdivision plans in date petitioners submitted an additional escrow payment to the board in date mjs submitted to the board a well location plan and indicated that mjs would submit an application to the health department for a review of the proposed septic systems and wells in addition although the parties stipulated as to the housing market in the year at issue petitioners admitted in correspondence with the internal_revenue_service in that they would revive efforts to develop the land in the event of an economic recovery although petitioners may have since abandoned the project in a year following petitioners have not demonstrated that they completely abandoned the development project in the year at issue consequently petitioners are not entitled to an abandonment_loss deduction for accuracy-related_penalty respondent determined that petitioners are liable for an accuracy-related_penalty under sec_6662 sec_6662 and b imposes a penalty on the portion of an underpayment attributable to any one of various factors including negligence or disregard of rules or regulations negligence includes any failure to make a reasonable attempt to comply with the provisions of the code including any failure to keep adequate books_and_records or to substantiate items properly see sec_6662 sec_1_6662-3 income_tax regs under sec_7491 respondent has the burden of production with respect to the accuracy-related_penalty see 116_tc_438 respondent has met his burden sec_6664 provides an exception to the sec_6662 penalty if it is shown that there was reasonable_cause for any portion of the underpayment and the taxpayer acted in good_faith the determination of whether a taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all the pertinent facts and circumstances sec_1_6664-4 income_tax regs the most important factor is the extent of the taxpayer’s effort to assess his proper tax_liability id circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in view of the taxpayer’s experience knowledge and education id petitioners maintained records of their expenses however they were not engaged in an active trade_or_business in the year at issue and failed to present any testimony or information as to why they should not be subject_to the accuracy- related penalty therefore the court sustains respondent’s determination we have considered all of the parties’ arguments and to the extent not addressed herein we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


t ep pati tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c oct uniform issue list legend company a company b plan c firm d dear this is in response to a letter dated date in which you request through your authorized representatives an extension of time pursuant to sec_301_9100-1 of the procedure and administration regulations the p a regulations to file the notice of election described in sec_3 of revproc_93_40 1993_2_cb_535 rev_proc to be treated as operating qualified_separate_lines_of_business qslobs’ under sec_414 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalties of perjury in support of the ruling_request company a is the parent company in a controlled_group_of_corporations that includes company b company a and company b are separate corporate entities that maintain separate lines of business_company b established plan c a defined benefit pension_plan in when it acquired the assets of company b’s predecessor_plan c covers only company b’s non-union employees company b maintains a separate retirement_plan for its union employees in addition another controlled_group member maintains a qualified 401_k_plan in which certain company b employees may participate effective date company b closed the entry of new participants in plan c and froze both the accrued_benefits of participants with less than five years_of_service and the accrued_benefits of participants with five or more years_of_service who elected to cease to accrue future_benefits under plan c those participants whose accrued_benefits under plan c were frozen as of date became eligible to participate in the 401_k_plan maintained by another controlled_group member also in plan c’s assets were invested in annuity_contracts issued by firm d firm d also became plan c’s actuary contract administrator and investment_advisor firm d was responsible for performing coverage and nondiscrimination testing for plan c firm d provided company b with a questionnaire to collect information about plan c company b’s accounting manager completed the questionnaire and provided answers specific to company b and plan c the questionnaire reported that company b was a member of a controlled_group_of_corporations but it provided information specific only to company b because information on the other members of the controlled_group was not available to the accounting manager firm d’s questionnaire also included a census form on which firm d indicated that benefits under plan c were frozen that no future accrual would occur that plan c satisfied the minimum_coverage_rules and it did not need to be tested this statement on the questionnaire was not entirely accurate because the accrued_benefits of all participants were not frozen as of date due to the continued participation of those participants who had five or more years_of_service and who had elected to continue to accrue future_benefits under plan c nonetheless company b’s accounting manager completed the census portion of the questionnaire by answering on behalf of company b with information available to him as such he indicated that company b itself did not have separate lines of business and that company b itself had not filed form 5310-a notice of qualified_separate_lines_of_business company b represents that firm d did not follow up regarding company b’s statement that company b was part of a controlled_group firm d also did not explain the consequences of a qualified separate_line_of_business qslob election for its part company b acknowledges that it did not question firm d's statement regarding non- discrimination testing and the effect of plan c’s status as a frozen_plan thereafter company b submitted demographic information to firm d based solely on the employees of company b and not on any other employees in the controlled_group company b asserts that when active_participation under the plan fell below employees in firm d indicated that plan c satisfied coverage rules because at least of the employees of the employer were covered company b did not learn of the error until date in the course of the due diligence process for company a’s acquisition by another entity until the end of company b was not aware that the way it was reporting demographic census data was insufficient to permit proper coverage testing unless a qslob election was in effect company b provided an affidavit signed by its chief financial officer he describes the events that led to the failure to make the qslob election and how company b reasonably relied on firm d to advise it on matters such as the adequacy of its reporting demographic information and the need for a qslob election company a and company b request a ruling that the service grant an extension of time pursuant to sec_301_9100-1 of the p a regulations to file the notice of an election described in sec_3 of revproc_93_40 to be treated as a qslob under sec_414 of the code for the testing year and each subsequent year thereafter in general sec_414 of the code provides that for purposes of sec_129 and sec_410 an employer shall be treated as operating separate lines of business during any year if the employer operates separate lines of business for bona_fide business reasons and satisfies certain other conditions under the code if the employer is treated as operating qslobs for the year the employer may apply the minimum coverage requirements of sec_410 including the nondiscrimination requirements of sec_401 and the minimum participation requirements of sec_401 separately with respect to the employees in each qualified separate business line sec_414 of the code requires that an employer notify the secretary_of_the_treasury that a line_of_business is being treated as separate for purposes of sec_129 and sec_410 sec_3 of revproc_93_40 sets forth the exclusive rules for satisfying the notice requirement of sec_414 of the code section dollar_figure of revproc_93_40 provides that notice must be given by filing form 5310-a section dollar_figure of revproc_93_40 provides that notice for a testing year must be given on or before the notification date for the testing year the notification date for a testing year is the later of october of the year following the testing year or the 15th day of the 10th month after the close of the plan_year of the plan of the employer that begins earliest in the testing year section dollar_figure of revproc_93_40 provides that after the notification date notice cannot be modified withdrawn or revoked and will be treated as applying to subsequent testing years unless the employer takes timely action to provide a new notice sec_301_9100-1 of the p a regulations states that the regulations under sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner of internal revenue commissioner will use to determine whether to grant an extension of time to make a regulatory election it further provides that the granting of an extension of time is not a determination that the taxpayer is otherwise eligible to make the election sec_301_9100-1 of the p a regulations defines a regulatory election to mean an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin notice that an employer elects to be treated as operating qualified_separate_lines_of_business pursuant to sec_414 of the code and sec_3 of revproc_93_40 constitutes a regulatory election sec_301_9100-1 of the p a regulations provides that the commissioner in the commissioner's discretion may grant a reasonable extension of time under the rules of sec_301_9100-2 and sec_301_9100-3 to make a regulatory election sec_301_9100-2 of the p a regulations lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the p a regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the p a regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith if i the taxpayer's request for relief under this section is filed before the failure to make a timely election is discovered by the service ii the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 of the p a regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute_of_limitations before the taxpayer's receipt of a ruling granting relief under this section according to the facts representations and affidavits submitted until date company b was unaware of the need for a qslob election company b engaged firm d in to perform services for plan c including coverage and non-discrimination testing and company b responded to firm d’s intake questionnaire based on information available to company b firm d did not follow up on responses to the questionnaire that would reasonably have led to a determination that a qslob election was necessary with respect to company b to remain in compliance with the requirements of sec_401 of the code company b reasonably relied on firm d as its third party service provider to advise company b of the need to file form 5310-a in addition company a and company b requested relief under sec_301_9100-1 of the p a regulations prior to the service discovering the failure_to_file the election thus company a satisfies clauses i iii and v of sec_301 b in addition the interests of the government will not be prejudiced by granting the relief requested because granting relief will not result in the taxpayer having a lower tax_liability in the aggregate for the taxable years affected including those years closed by the statute_of_limitations accordingly because the taxpayer has acted reasonably and in good_faith and the granting of relief will not prejudice the interests of the government company a is granted an extension of days from the date of the issuance of this ruling letter to file notification of the qslob election on form 5310-a with the appropriate office of the service for the testing year and each subsequent year thereafter no opinion is expressed as to whether company b otherwise satisfies the requirements under sec_414 of the code to be treated as a qslob for the testing year and subsequent years this ruling does not constitute a determination that a separate_line_of_business satisfies the requirement of administrative scrutiny within the meaning of sec_1_414_r_-6 of the federal_income_tax regulations no opinion is expressed as to the tax treatment of the transaction described herein under any other provisions of the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file with this office if you have any questions please contact i d by phone at or fax at se t ep ra t1 please address all correspondence to sincerely yours corker wa eins carlton a watkins manager employee pians technical group enclosures deleted copy of ruling letter notice of intention to disclose cc