internal_revenue_service number release date index number ------------------------ -------------------------- ------------------------------------------------------------ -------------------------------------------------- ---------------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc fip b02 plr-114293-07 date date ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- -------------------------- -------------------------- -------------------------- -------------------- -------------------- fund fund ------- --------------------------------------------------- state x date date date date date month year dollar_figurea dollar_figureb dollar_figurec tax advisor ---------------------- ------------------ ----------------- ----------------- --------------- --------------------------------------- ---------------------------------------- plr-114293-07 dear ----------------- this is in reply to a letter dated date and a subsequent submission requesting on behalf of fund an extension of time pursuant to sec_301_9100-1 of the procedure and administration regulations to make elections under sec_855 of the internal_revenue_code and sec_1_1272-3 of the income_tax regulations facts fund was organized as a state x business_trust on date and is registered under the investment_company act of as amended fund began operations on date and has always intended to qualify as a regulated_investment_company ric subject_to the provisions of sections of subchapter_m of chapter i of the code in month fund determined that the necessary distributions to eliminate its investment_company_taxable_income icti for year would be dollar_figurea fund also determined that distributions from icti had already been made for year in the amount of dollar_figureb and that additional distributions were required for the remaining dollar_figurec the calculation of fund’s icti was done assuming that the election under sec_1_1272-3 to treat all interest on debt instruments as original_issue_discount and the sec_855 election would be timely made fund declared the necessary dividends and by date fund had made the required dividend distributions the only remaining step fund had to complete to be in full compliance with sec_855 and with sec_1_1272-3 was to make the required elections on the timely filed form 1120-ric u s income_tax return for regulated_investment_companies for year fund filed form_7004 application_for automatic 6-month extension of time to file certain business income_tax information and other returns on date the due_date for the form 1120-ric was automatically extended for six months fund’s form 1120-ric however was not filed until date one day after the extended due_date fund represents that fund timely prepared the form 1120-ric and sent it to tax advisor for review and signature and thought that the form was timely filed however due to an administrative error by tax advisor fund’s form 1120-ric was filed one day after the extended due_date due to the late filing fund’s election under sec_855 to treat a portion of its icti dividends_paid after the end of year as having been distributed during year was not timely made further fund’s election to treat all interest on debt instruments as original_issue_discount under sec_1_1272-3 was also not timely made plr-114293-07 the returns filed by fund included the elections under sec_855 and sec_1_1272-3 fund has submitted the affidavit of a tax advisor director in support of this requested ruling fund makes the following representations with respect to the election under sec_855 and the election under sec_1_1272-3 the request for relief was filed by fund before the failure to make the regulatory election was discovered by the service granting the relief will not result in fund having a lower tax_liability in the aggregate for all years to which the regulatory election applies than fund would have had if the election had been timely made taking into account the time_value_of_money fund does not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under code sec_6662 at the time fund requested relief and the new position requires or permits a regulatory election for which relief is requested being fully informed of the required regulatory election and related tax consequences fund did not choose to not file the election fund makes the following additional representations with respect to the election under sec_1_1272-3 the election would not permit a change from an impermissible method_of_accounting that is an issue under consideration by examination an appeals officer or a federal court and the change would not provide a more favorable method or more favorable terms and conditions than if the change were made as part of an examination the election does not provide a more favorable method_of_accounting or more favorable terms and conditions if the election is made by a certain date or taxable_year law and analysis under sec_855 if a ric declares a dividend before the due_date including extensions for filing its income_tax return for a taxable_year and distributes the dividend in the 12-month_period following the end of the tax_year and not later than the date of the first regular dividend payment made after the declaration the dividend is considered paid during the taxable_year if the ric so elects on its income_tax return for the taxable_year plr-114293-07 under sec_1_855-1 the election under sec_855 must be made in the return filed by the ric for the taxable_year under sec_1_1272-3 a holder of a debt_instrument may elect to include in gross_income all interest that accrues on the instrument by using the constant_yield_method under sec_1_1272-3 a holder makes the election by attaching to the holder’s timely filed federal_income_tax return a statement that the holder is making an election under this section and that identifies the debt instruments subject_to the election sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose deadline is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal revenue bulleting or a statutory election but no more than months except in cases of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i of the regulations sets forth rules that the internal_revenue_service generally will use to determine whether under the facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had the election been timely made taking into account the time_value_of_money sec_301_9100-3 provides special rules for accounting_method regulatory elections the special rules in sec_301_9100-3 and ii however do not apply to an election under sec_1_1272-3 the election does not require advance written consent of the commissioner and does not require an adjustment under sec_481 conclusion based upon the facts and representations submitted we conclude that fund has satisfied the requirements for granting a reasonable extension of time to make the elections under sec_855 and sec_1_1272-3 accordingly fund is granted an extension of time until date to make elections under sec_855 and sec_1_1272-3 plr-114293-07 this ruling is limited to the timeliness of the filing of the fund’s income_tax returns for purposes of the elections under sec_855 and sec_1_1272-3 this ruling does not relieve fund of any penalties it may owe as a result of the failure_to_file its federal_income_tax return on time this ruling’s application is limited to the facts representations code sections and regulations cited herein no opinion is expressed with regard to whether fund otherwise qualifies as a ric under subchapter_m of the code no opinion is expressed with regard to whether fund’s tax_liability is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax return involved the director’s office will determine such tax_liability for the years involved if the director’s office determines that such tax_liability is lower that office will determine the federal_income_tax effect except as specifically provided otherwise no opinion is expressed on the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the terms of a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely william e coppersmith william e coppersmith chief branch office of associate chief_counsel financial institutions products


t c memo united_states tax_court john p teresa hennen petitioners v commissioner of internal revenue respondent docket no filed date garry a pearson and jon j jensen for petitioners blaine c holiday for respondent memorandum findings_of_fact and opinion pajak special_trial_judge respondent determined deficiencies in petitioners' and federal income taxes in the amounts of dollar_figure dollar_figure and dollar_figure respectively all section references are to the internal_revenue_code in effect for the years in issue all rule references are to the tax_court rules_of_practice and procedure the sole issue for decision is whether rental payments received by petitioner teresa hennen mrs hennen from petitioner john p hennen mr hennen are includable in mrs hennen's net_earnings_from_self-employment under sec_1402 and thus subject_to self-employment taxes findings_of_fact some of the facts have been stipulated and are so found petitioners resided in minnesota at the time the petition was filed mr and mrs hennen have farmed for years since they have been married during the taxable years at issue mr hennen conducted farming operations in lyon county minnesota he hada diversified farm and raised cattle hogs corn soybeans alfalfa and wheat mr hennen operated the farm as a sole_proprietorship but he actually farmed with his and mrs hennen's two sons the farm was acres in area their house anda house occupied by a son and his wife were on the farm premises mr hennen owned about acres and mrs hennen owned acres the other acreage is rented from others mr hennen rented the acres of farmland from mrs hennen for dollar_figure per year under an oral agreement mr hennen paid her dollar_figure an acre which 1s comparable to the amount he paid to others mr hennen used the land rented from mrs hennen in the farming operations to produce agricultural commodities such as livestock and crops mrs hennen owned the acres in her own name she purchased the acres from her uncle in mr hennen then entered into an oral arrangement to lease the acreage from mrs hennen mrs hennen deposits the rent received from her husband in her farm account which is separate from his account when petitioners entered into the oral agreement petitioners expected that mrs hennen would perform the duties she had been performing in the farming operations since mr and mrs hennen began farming mrs hennen has provided general farming services to the endeavor she bought cattle loaded cattle and vaccinated cattle she cleaned shop she also sprayed weeds picked up parts unloaded grain and drove a tractor in addition mrs hennen performed the farm bookkeeping mrs hennen carried on these duties prior to renting the land to her husband mrs hennen did whatever it took to make the farm run more smoothly and had done so ever since mr hennen and mrs hennen were married years ago mrs hennen worked on the farm approximately big_number hours per year mrs hennen did not participate in making decisions as to the type of crop to plant nor did she participate in other management decisions mr hennen made the management decisions in each of the years in issue mrs hennen entered into a purported employment agreement agreement with mr hennen the agreement said that with respect to mr hennen's business of farming mrs hennen was to perform bookkeeping run errands for the business and help with livestock chores and field work in essence the agreement memorialized almost the same duties that mrs hennen had been performing since mr and mrs hennen began farming together the agreement also said mrs hennen could participate in her husband's health and accident insurance plan according to the terms and provisions of that plan mrs hennen would have continued to do the same farming jobs even if there had been no agreement for all years in issue petitioners filed their form sec_1040 income_tax returns on a married_filing_jointly basis on their schedules e supplemental income and loss petitioners reported that they received net rental income for and from farm and house farms and farms respectively in the amounts of dollar_figure dollar_figure and dollar_figure respectively on line wages salaries tips etc of their form sec_1040 petitioners reported that mrs hennen received wages from mr hennen in the amounts of dollar_figure dollar_figure and dollar_figure for and respectively and in petitioners also reported that mrs hennen received wages from world book inc in the amount of dollar_figure the amounts deducted as labor hired on the respective schedules f profit or loss from farming for the years in issue exceeded the amounts purportedly paid to mrs hennen mr hennen failed to withhold federal income taxes state income taxes federal_insurance_contribution_act taxes and medicare_tax for all years in the notice_of_deficiency respondent inter alia determined that the real_estate rental payments mrs hennen received from mr hennen during the taxable years at issue are includable in mrs hennen's net_earnings_from_self-employment under sec_1402 and thus subject_to self-employment_tax respondent also allowed petitioners a deduction for one- half of the self-employment taxes imposed for the taxable years at issue on the forms sales of business property attached to their returns mr and mrs hennen reported gains of dollar_figure from a sale of acres in and gains from the sale of a sprayer in opinion sec_1401 provides that a tax shall be imposed on the self-employment_income of every individual generally rentals from real_estate are excluded from the computation of net_earnings_from_self-employment sec_1402 however sec_1402 also provides that rentals derived by the owner or tenant of land are not excluded from the computation of net_earnings_from_self-employment if a such income is derived under an arrangement between the owner or tenant and another individual which provides that such other individual shall produce agricultural commodities including livestock on such land and that there shall be material_participation by the owner or tenant in the production or the management_of_the_production of such agricultural commodities and b there is material_participation by the owner or tenant with respect to any such agricultural commodity in other words as the regulations provide in pertinent part if the rental income is derived under an arrangement between the owner of land owner and another person which provides that such other person shall produce agricultural commodities on such land and that there shall be material_participation by the owner in the production of such agricultural commodities and there is such material_participation by the owner then the rental income received by the owner pursuant to the arrangement is considered earnings from self-employment sec_1_1402_a_-4 income_tax regs such income is characterized as includible farm rental income id in determining whether compensation is includable in self-employment_income under sections such provisions are to be broadly construed to favor coverage for social_security purposes 95_tc_639 the rental exclusion in sec_1402 is to be strictly construed to prevent this exclusion from interfering with the congressional purpose of effectuating maximum coverage under the social_security umbrella 60_tc_829 petitioners contend that the oral lease agreement does not require material_participation by mrs hennen in the farming operations petitioners further contend that the rental income that mrs hennen received from mr hennen was rental from real_estate and therefore should be excluded in determining whether mrs hennen had any net_earnings_from_self-employment as that term is used in sec_1402 in light of all the facts and circumstances we must decide whether mrs hennen received rental income from mr hennen pursuant to an arrangement between the parties to produce agricultural commodities on the farm within the meaning of sec_1402 a a in mizell v commissioner tcmemo_1995_571 this court explained that the word arrangement is defined as an agreement webster's third new international dictionary while the concept of an agreement certainly includes a contractual agreement it is a broader concept that would also include other forms of agreements not necessarily arising from strict contractual relationships consistent with its dictionary definition in most of the instances where it is used in the internal_revenue_code the word arrangement refers to some general relationship or overall understanding between or among parties in connection with a specific activity or situation generally it is not limited only to contractual relationships or used in a way that suggests that its terms and conditions must be included in a single agreement contractual or otherwise congress obviously recognized a distinction between a contract and the broader concept of an arrangement as is evident from those sections of the internal_revenue_code that make reference to both the parties stipulated that mr hennen used the land rented from mrs hennen in the farming operations to produce agricultural commodities such as livestock and crops with respect to whether under the arrangement mrs hennen was to materially participate in the farming operations we look not only to the obligations imposed upon mrs hennen by the oral lease but to those obligations that existed within the overall scheme of the farming operations which were to take place on mrs hennen's property mizell v commissioner tcmemo_1995_ emphasis supplied these include mrs hennen's obligations as a longstanding participant in the farming_business as well as the general understanding between mr hennen and mrs hennen with respect to the production of agricultural products id viewed in this light the arrangement between mr and mrs hennen provided or contemplated that mrs hennen materially participate in the production of agricultural commodities on the farmland mr hennen claimed he made all the management decisions he acknowledged that he had farmed with his wife for years mr hennen candidly stated in the answer to the following question respondent q and in fact she does materially participate and help out and pull her share mr hennen a if you are familiar with the farm sir that's what makes a farm successful everybody carries their weight although petitioners contend that the purported oral lease agreement did not require mrs hennen to participate materially in the farming operations the record supports a finding that mrs hennen played a material role in the production of agricultural commodities under an arrangement with her husband for years through the taxable years at issue mrs hennen performed general farming services on the farm on a regular and intermittent basis as we detailed in the findings_of_fact petitioners admitted that mrs hennen purchased cattle loaded cattle vaccinated cattle cleaned shop picked up parts and unloaded grain in addition they acknowledged that mrs hennen drove a tractor and performed the farm bookkeeping as noted mrs hennen worked on the farm approximately big_number hours per year we deem it immaterial that mrs hennen also purportedly was paid a salary for her services with a corresponding deduction taken on their tax returns in our view these regularly performed services are material to the production of an agricultural commodity and the intermittent services performed are material to the production operations to which they relate sec_1 a --4 b example income_tax regs the regulations provide in pertinent part that if the rental income is derived under an arrangement between the owner of land and another person which provides that such other person shall produce agricultural commodities on such land and that there shall be material_participation by the owner in the production or the management_of_the_production of such agricultural commodities and there is such material_participation by the owner then the rental income received by the owner pursuant to the arrangement is considered earnings from self-employment sec_1_1402_a_-4 income_tax regs accordingly we find that the rental income is includable farm rental income that is part of mrs hennen's net_earnings_from_self-employment under sec_1402 for each of the taxable years at issue this is the same conclusion we reached in a similar case decided after this case was heard bot v commissioner tcmemo_1999_256 we have considered all of the arguments presented by the parties and to the extent not discussed above they are without merit or not relevant to reflect the foregoing decision will be entered for respondent


t c memo united_states tax_court stanley k and tomi l baumann petitioners v commissioner of internal revenue respondent docket no filed date frederick j o’laughlin for petitioner stanley k baumann tomi l baumann pro_se william f castor for respondent memorandum findings_of_fact and opinion kroupa judge this case arises from a request for relief from joint_and_several_liability under sec_6015 f in connection with petitioners’ deficiency proceeding although the 1all section references are to the internal_revenue_code in effect for and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated nonrequesting spouse petitioner stanley k baumann stanley did not object when the requesting spouse petitioner tomi l baumann tomi amended the deficiency petition to include the claim for relief under sec_6015 stanley now objects after respondent determined that tomi qualifies for relief stanley objects by arguing that despite stanley’s being allowed to participate in respondent’s determination whether tomi qualified for relief respondent nonetheless abused his discretion in granting relief under sec_6015 because respondent did not examine all the facts and circumstances as required under sec_6015 the issue for decision is whether respondent abused his discretion in granting tomi relief from joint_and_several_liability under sec_6015 we hold that he did not background findings_of_fact petitioners while married timely filed their joint federal_income_tax return for respondent sent a joint notice_of_deficiency to petitioners on date in which respondent determined an income_tax deficiency against petitioners of dollar_figure for and an accuracy-related_penalty of dollar_figure under sec_6662 the deficiency was attributable to respondent’s disallowing gambling_losses in excess of gambling income under sec_165 instead of allowing stanley to claim his gambling_losses against income from his drywall construction business petitioners timely filed a petition contesting respondent’s determination in the deficiency_notice at the time petitioners filed their joint petition petitioners resided in oklahoma city oklahoma attorney frederick j o’laughlin counsel represented both petitioners in the deficiency proceeding respondent filed a motion for summary_judgment summary_judgment motion on date involving all issues set forth in the deficiency_notice respondent asserted in the summary_judgment motion that petitioners were not entitled as a matter of law to deduct gambling_losses in excess of gambling income under sec_165 on the date petitioners were ordered to file a response to respondent’s summary_judgment motion petitioners’ counsel filed a motion to withdraw as counsel for tomi because petitioners had since divorced and their divorce created a conflict of interest along with the motion to withdraw counsel filed on behalf of both petitioners a response to respondent’s summary_judgment motion the court granted counsel’s motion for leave to withdraw as counsel for tomi administrative request for relief while the deficiency proceeding was pending tomi filed2 a form_8857 request for innocent spouse relief seeking relief from liability for the deficiency and accuracy-related_penalty for taxable_year the year at issue tomi attached a form questionnaire for requesting spouse on which tomi stated that she filed the return for relying on the advice of her return preparer who happened to be petitioners’ counsel and that she was unfamiliar with the tax laws once examining officer lori sperle examining officer of respondent’s oklahoma city office received tomi’s innocent spouse case from respondent’s cincinnati centralized innocent spouse operation cciso the examining officer sent two letters to stanley notifying him that tomi had filed a claim for relief under sec_6015 one letter entitled letter to non- requesting spouse was dated date and another letter was dated date the letters notified stanley that tomi 2the record does not reflect the exact date tomi filed her request for relief the record reflects that respondent’s cincinnati centralized innocent spouse operation cciso received the form_8857 on date and that the form was dated date 3tomi’s request for relief also sought relief for unpaid taxes for the deficiency_notice did not involve however and so is not before us 4tomi did not disclose on this questionnaire that she was abused had filed a request for relief from joint_and_several_liability and notified stanley that he could take part in the proceeding by providing information for respondent to consider in making a relief determination the letters also requested that stanley complete an enclosed form innocent spouse information request information request to provide any information stanley wanted respondent to consider in making the relief determination stanley completed the information request and submitted it to respondent on date stanley also submitted a sworn statement on the same date asserting that tomi was not entitled to relief because she had full knowledge of and she benefited from the gambling activity the examining officer sent neither tomi nor stanley a preliminary determination_letter for deficiency hearing the court held a hearing on respondent’s summary_judgment motion on date at the hearing respondent notified the court and petitioners that respondent was converting the summary_judgment motion into a motion for partial summary 5although respondent sent a preliminary determination_letter to tomi on date informing tomi that she did not qualify for relief for which year is not before us see supra note respondent did not send a preliminary determination_letter for the year at issue whether a preliminary determination_letter had been issued for is relevant for purposes of deciding whether revproc_2003_61 2003_2_cb_296 or revproc_2000_15 2000_1_cb_447 applies judgment respondent was not moving for summary_judgment as to the accuracy-related_penalty under sec_6662 in addition respondent notified the court that tomi had filed a claim for relief under sec_6015 and that the summary_judgment motion did not include tomi’s request for relief under sec_6015 the court granted respondent’s motion as to the dollar_figure deficiency but denied the motion as to the accuracy-related_penalty in an order dated date the court did not specifically mention tomi’s request for relief under sec_6015 in the order but the court restored the case to the general docket for trial or other_disposition amended petition to add claim for relief on date tomi filed a pleading entitled a motion for leave to file an amendment to the petition which motion embodied an amendment to the petition in which tomi claimed relief under sec_6015 a copy of the motion and the proposed amendment was served on stanley through his counsel and on respondent neither respondent nor stanley objected to the motion to amend the petition the court granted the motion to amend the petition to add tomi’s claim under sec_6015 on date appeals determination appeals officer robert baty appeals officer baty of respondent’s oklahoma city office received the administrative innocent spouse case file on date the administrative file included the correspondence between petitioners and the examining officer the record of the examining officer’s interview with tomi and the examining officer’s work papers the administrative file included the information request that stanley submitted and included the divorce decree ordering stanley to pay and to hold tomi harmless from their joint federal_income_tax liabilities through and including which includes petitioners’ joint income_tax_liability for the examining officer’s work papers included records of the innocent spouse determination interview the examining officer conducted with tomi on date the examining officer’s work papers show that the examining officer determined that tomi was not entitled to relief under sec_6015 or c because tomi had actual knowledge of the gambling activity and tomi’s lack of knowing the tax consequences was no defense the examining officer also determined that even though five factors weighed in favor of granting tomi relief under sec_6015 tomi was not entitled to relief under sec_6015 because tomi had knowledge of the gambling activity the five 6ignorance of the law is not a defense for a taxpayer seeking relief under sec_6015 292_f3d_800 d c cir affg tcmemo_2000_332 282_f3d_326 5th cir affg 115_tc_183 887_f2d_959 9th cir factors weighing in favor of sec_6015 relief included petitioners’ divorce tomi would face economic hardship if relief were not granted petitioners’ divorce decree stated that stanley was responsible for the income_tax_liability the entire deficiency was attributable to stanley and tomi was current with all her federal tax obligations while stanley was not after reviewing the administrative file appeals officer baty had a conference with tomi on date during which tomi detailed the abuse she allegedly suffered from stanley tomi provided information and documents to substantiate that stanley physically assaulted her numerous times that stanley had threatened tomi’s life with a shotgun during the divorce action that he had tried to burn their house while she and her children were inside that he was charged with arson that he was taken to a psychiatric hospital after he attempted suicide with a shotgun and that he had threatened the life of her older son from a previous marriage after the conference appeals officer baty obtained third- party information that confirmed the information tomi provided him during the conference appeals officer baty verified the information by accessing the oklahoma state courts network’s oscn web site and locating relevant court documents appeals officer baty verified through court documents that tomi filed for divorce from stanley that tomi filed a petition for a protective_order based on domestic abuse and that a temporary protective_order was issued the appeals officer also verified that the state of oklahoma filed an information against stanley for fourth degree felony arson and issued an arrest warrant against him shortly after tomi filed for divorce the court records also showed that stanley subsequently pleaded guilty to misdemeanor arson and received a 1-year suspended sentence the administrative file also included a certified copy of an oklahoma city police department crime report that described a domestic disturbance call made to the police from tomi’s residence reporting to the police that stanley had threatened suicide with a shotgun and that the police confiscated the shotgun this police crime report was dated day before stanley’s involuntary commitment to griffin memorial hospital in norman oklahoma for observation which commitment caused the originally scheduled trial to be continued appeals officer baty found the same factors weighing in favor of relief that the examining officer had previously found except that appeals officer baty also found that abuse existed and that the abuse was a significant and compelling factor warranting relief also although the appeals officer found that tomi had knowledge of the gambling activity he noted that the examining agent did not consider revproc_2003_61 2003_2_cb_296 which revised the weight to be given to the knowledge factor revproc_2003_61 sec_3 c b pincite reason to know of the item giving rise to the deficiency no longer is an extremely strong factor that should weigh more heavily against relief than other factors revproc_2003_61 sec_4 a iii b c b pincite actual knowledge is to be considered a strong factor weighing against relief which may nevertheless be overcome if the factors in favor of equitable relief are particularly compelling id appeals officer baty determined that the knowledge factor did not prevent tomi from qualifying for relief appeals officer baty determined that although tomi was not entitled to relief under sec_6015 or c because she knew of the items giving rise to the deficiency she was entitled to partial relief under sec_6015 to the extent her liability exceeded the amount of her income_tax refund for of dollar_figure appeals officer baty notified tomi of this determination in a notice_of_determination concerning your request for relief from joint_and_several_liability under sec_6015 notice determination dated date the notice 7rev proc 2003_2_cb_296 superseded revproc_2000_15 2000_1_cb_447 revproc_2003_61 supra is effective for requests for relief pending on date for which no preliminary determination_letter has been issued as of date revproc_2003_61 sec c b pincite because no preliminary determination_letter had been issued as of date revproc_2003_61 supra applies to this case determination indicated that e conomic considerations abuse indications and compliance factors were considered and were deemed sufficient to support the proposed settlement the notice determination explained that tomi could proceed to trial either if she disagreed with the decision or if stanley objected the notice determination also mentioned that the case was scheduled for trial during the week of date appeals officer baty sent the notice determination to stanley’s counsel as well stanley’s counsel was also provided with a copy of the notice determination and other items in the administrative record at a conference on date with respondent’s counsel in preparation of trial trial on the sec_6015 claim stanley’s counsel stated at trial that stanley did not object to tomi’s amending the petition to seek relief from joint liability but that stanley seeks to object now to respondent’s determination that tomi qualifies for partial relief at the trial appeals officer baty authenticated the administrative file and the entire administrative file was admitted into evidence appeals officer baty testified and explained the factors he considered in deciding to grant tomi equitable relief under sec_6015 stanley neither testified nor refuted any of appeals officer baty’s statements stanley only questioned the subsection under which tomi requested relief because he argued if tomi requested relief under subsection b or c then he would be entitled to receive notice of and have a right to participate in the determination whether tomi was entitled to relief as we understand stanley’s argument stanley asserts that appeals officer baty abused his discretion in granting tomi partial relief under sec_6015 for apparently because stanley did not have an adequate opportunity to participate in respondent’s determination opinion this case involves the participatory rights a nonrequesting spouse has in respondent’s determination whether the requesting spouse is entitled to relief under sec_6105 the question stanley asks us to address is how much participation a nonrequesting spouse must be afforded to challenge the other spouse’s claim for relief under sec_6015 where both spouses are before the court in the same deficiency proceeding before 8contrary to counsel’s remarks at trial this case is not a stand alone proceeding commenced under sec_6015 as discussed infra sec_6015 enables an electing spouse to petition for review of an administrative determination regarding relief or failure to rule as a stand alone matter independent of a deficiency proceeding although this is not a so-called stand alone case sec_6015 provides that the court shall establish rules providing a nonrequesting spouse with adequate notice and an opportunity to become a party sec_6015 rule requires the commissioner to notify the nonrequesting spouse and allows the nonrequesting spouse to intervene in a stand alone case see 115_tc_118 we address whether respondent abused his discretion in granting tomi partial relief from joint liability under sec_6015 we must first address whether we have jurisdiction and whether stanley may challenge tomi’s claim for relief tax_court has jurisdiction the tax_court is a court of limited jurisdiction and may exercise jurisdiction only to the extent authorized by congress 85_tc_527 there are three jurisdictional bases for the court to review a claim for relief from joint_and_several_liability 123_tc_135 115_tc_118 114_tc_354 first a taxpayer may seek relief from joint_and_several_liability on a joint_return by raising the matter as an affirmative defense in a petition for a redetermination of a deficiency filed under sec_6213 ie a deficiency proceeding king v commissioner supra pincite corson v commissioner supra pincite 114_tc_276 second a taxpayer may file a so-called stand alone petition seeking relief from joint_and_several_liability on a joint_return where the commissioner has issued a final_determination denying the taxpayer’s claim for relief or the commissioner has failed to rule on the taxpayer’s claim within months of its filing see sec_6015 117_tc_279 king v commissioner supra pincite corson v commissioner supra pincite 114_tc_324 sec_6015 enables an electing spouse to petition for review of an administrative determination regarding relief or failure to rule as a stand alone matter independent of a deficiency proceeding king v commissioner supra pincite corson v commissioner supra pincite fernandez v commissioner supra pincite finally a taxpayer may request relief from joint_and_several_liability on a joint_return in a petition for review of a lien or levy action see sec_6320 sec_6330 the petition in this case was filed in a deficiency proceeding we therefore have jurisdiction we next address whether stanley may contest tomi’s claim for relief we have previously held that one spouse can challenge the other spouse’s claim for relief in a deficiency case corson v commissioner supra we determined that we could consider the wife’s claim based on the court’s traditional deficiency jurisdiction id pincite when the commissioner negotiated a settlement with the wife concerning relief under sec_6015 the husband refused to agree to the negotiated settlement the court denied the motion by respondent for entry of decision holding that the husband must be allowed to be heard on the question whether the wife is entitled to relief corson v commissioner supra pincite here stanley had an opportunity to be heard stanley was a party to the proceeding stanley received the notice required stanley received notice of tomi’s claim for relief when she filed form_8857 stanley also received notice that tomi was amending the deficiency petition to add her claim for relief to the petition and stanley did not object to tomi’s amending the petition in addition stanley was permitted to submit information to respondent relative to tomi’s claim for relief stanley submitted a completed information request on form and submitted a sworn statement to respondent the information stanley submitted is part of the administrative file appeals officer baty reviewed in making a final_determination that tomi qualifies for partial relief under sec_6015 we further note that stanley’s opportunity to participate did not end with respondent’s administrative determination stanley as a party to this proceeding had an opportunity to object to respondent’s determination during the trial on the sec_6015 claim instead of providing testimony or facts to refute respondent’s determination however stanley argued that he did not have adequate participation in respondent’s determination stanley argued that his only participation was completing the information request and submitting the sworn statement it is this level of participation with which stanley remains dissatisfied we find that simply because stanley dislikes the result does not mean he was deprived of his right to participate in respondent’s determination whether tomi qualified for relief we now address whether respondent abused his discretion in determining that tomi is entitled to partial relief relief from joint_and_several_liability under sec_6015 married taxpayers may generally elect to file a joint federal_income_tax return sec_6013 after making the election each spouse is jointly and severally liable for the entire tax due sec_6013 a spouse may seek relief from joint_and_several_liability under sec_6015 a spouse may qualify for relief from liability under sec_6015 or if eligible may allocate liability under sec_6015 in addition a spouse may seek equitable relief under sec_6015 if relief is not available under sec_6015 or c fernandez v commissioner supra pincite butler v commissioner supra pincite under sec_6015 the commissioner has the discretion to relieve a spouse or former spouse of joint liability if taking into account all the facts and circumstances it is inequitable to hold that spouse liable for any deficiency or unpaid tax or any portion of either and that spouse is not eligible for relief under sec_6015 or c sec_6015 respondent found that tomi was not entitled to relief under either sec_6015 or c because she had actual knowledge of the gambling activity furthermore tomi agrees that she was not eligible for relief under either sec_6015 or c and that she was entitled to partial relief under sec_6015 as respondent determined typically a spouse seeking equitable relief from joint_and_several_liability under sec_6015 must prove that the commissioner’s determination regarding relief was an abuse_of_discretion rule a 120_tc_137 118_tc_106 affd 353_f3d_1181 10th cir 115_tc_183 affd 282_f3d_326 5th cir butler v commissioner t c pincite the commissioner’s exercise of discretion is entitled to due deference in order to prevail the taxpayer must demonstrate that the commissioner exercised his discretion arbitrarily capriciously or without sound basis in fact or law jonson v commissioner supra pincite here the nonrequesting spouse stanley must demonstrate that respondent exercised his discretion arbitrarily capriciously or without sound basis in 9the taxpayer bears the burden_of_proof except as otherwise provided in sec_6015 rule a 119_tc_306 affd 101_fedappx_34 6th cir fact or law see id 112_tc_19 the commissioner has prescribed procedures as directed by sec_6015 for determining whether a spouse qualifies for relief under subsection f these procedures are set forth in revproc_2003_61 2003_2_cb_296 revproc_2003_61 supra which applies here has a nonexhaustive list of factors weighing in favor of relief and factors weighing against relief stanley has failed to present any evidence that would suggest with regard to these factors that tomi did not qualify for equitable relief as respondent determined accordingly we conclude that respondent did not abuse his discretion by acting arbitrarily capriciously or without sound basis in fact in granting tomi equitable relief under sec_6015 we have considered all arguments the parties made in reaching our holdings and to the extent not mentioned we find them to be irrelevant or without merit to reflect the foregoing an appropriate decision will be entered


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 2-plr-129432-00 date date legend x a b c d d1 d2 year dear this letter responds to your representative’s letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the represented facts are as follows x was incorporated on d2 a b c and d the shareholders of x intended x to be an s_corporation effective for the year taxable_year but form_2553 election by a small_business_corporation was not filed timely this intent is evidenced by a resolution of the officers of x dated d1 of year which states that x will elect to be taxed under subchapter_s accordingly x requests a ruling that it will be treated as an s_corporation effective d2 sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable plr-129432-00 year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to x’s authorized representative sincerely yours jeanne m sullivan assistant to the chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp b05 - plr-118331-00 date date legend parent purchaser sellers target date a date b date c date d y business x company official plr-118331-00 outside tax professional this responds to your letter dated date requesting on behalf of the taxpayers identified above an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election parent as the common parent of the consolidated_group of which purchaser is a member and sellers are requesting an extension to file a sec_338 election under sec_338 and sec_338 of the internal_revenue_code and sec_1_338_h_10_-1 of the income_tax regulations with respect to purchaser’s acquisition of the stock of target sometimes hereinafter referred to as the election on date b all citations in this letter to regulations under sec_338 are to the regulations as in effect for date b additional information was submitted in letters dated may september and date the material information is summarized below parent is the common parent of a consolidated_group that has a calendar taxable_year and uses an accrual_method of accounting purchaser is a wholly owned subsidiary of parent and is included in parent’s group parent’s group includes approximately y subsidiaries and the group is engaged in business x prior to the acquisitions target was an s_corporation within the meaning of sec_1361 that was wholly owned by sellers on date a parent and sellers entered into a stock purchase agreement for parent to acquire all of sellers’ stock of target for cash on date b parent assigned to purchaser and purchaser assumed all of parent’s rights and obligations under the stock purchase agreement sellers consented to the assignment but parent remained obligated to sellers under the stock purchase agreement also on date b purchaser acquired all of the stock of target from sellers pursuant to the stock purchase agreement in a fully taxable_acquisition it is represented that parent is not and was not at all times relevant related to sellers within the meaning of sec_338 purchaser’s acquisition of all of the outstanding_stock of target qualified as a qualified_stock_purchase as defined in sec_338 and sellers will not report gain on the transaction under the installment_method of sec_453 following the acquisition new target was included in parent’s consolidated_return parent and sellers intended to file the election the election was due on date c but for various reasons it was not filed on date d which is after the due_date for the election company official and outside tax professional discovered that the election was not filed the period of limitations on assessment under sec_6501 has not plr-118331-00 expired for parent’s sellers’ or target’s taxable_year in which the acquisition sale was consummated the taxable_year in which the election should have been filed or for any taxable_year s that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions 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_1_338-1 provides that a sec_338 election is an election to apply sec_338 to target sec_338 specifies the requirements for making a sec_338 election sec_338 defines a qualified_stock_purchase as any transaction or series of transactions in which stock meeting the requirements of sec_1504 of corporation is acquired by another corporation by purchase during the 12-month_acquisition_period sec_338 provides that the term purchase means any acquisition of stock but only if i the basis of the stock in the hands of the purchasing_corporation is not determined i in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or ii under sec_1014 relating to property_acquired_from_a_decedent ii 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 iii the stock is not acquired from a person the ownership of whose stock would under sec_318 other than paragraph thereof be attributed to the person acquiring such stock sec_338 permits the purchasing and selling corporations to elect jointly to treat the target_corporation as deemed to sell all of its assets and distribute the proceeds in complete_liquidation the sale of stock included in the qualified_stock_purchase generally is ignored a sec_338 election may be made for target only if it is a member of a selling_consolidated_group a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 gain_or_loss on the deemed sale is included in the consolidated_return of the selling group unless the target_corporation is a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 provides that a sec_338 election may be made for the target_corporation if the purchasing_corporation makes a qualified_stock_purchase of the target_corporation stock sec_1_338_h_10_-1 provides that if a sec_338 election is made for the target_corporation it is irrevocable sec_1_338_h_10_-1 provides that a sec_338 election is jointly made by a purchaser and the selling_consolidated_group or the selling affiliate or the s_corporation shareholders on form_8023 in accordance with the instructions to the form the regulations further provide that the election must be made not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs the instructions to form_8023 provide that a sec_338 election must be made jointly by the purchasing_corporation and the common parent of the selling_consolidated_group plr-118331-00 or selling affiliate or s_corporation shareholders the instructions provide that the form must be signed by a person authorized to act on behalf of each corporation and if made for an s_corporation it must be signed by each s_corporation shareholder who sells target stock in the qualified_stock_purchase the instructions further provide that the signatures dates and titles if applicable of those persons must be provided in a signature attachment and they provide specific details as to the preparation of the signature attachment and its attachment to form_8023 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 for the consolidated_return_year see also form_8023 and the instructions thereto under sec_301_9100-1 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 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 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 time for filing the election is fixed by the regulations ie sec_1_338_h_10_-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent and sellers to file the election provided parent and sellers show they 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 parent sellers company official and outside tax professional explain the circumstances that resulted in the failure to timely file the valid election the information also establishes that tax professionals were responsible for the election that parent and sellers 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 plr-118331-00 made we conclude that parent and sellers have shown they 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 accordingly an extension of time is granted under sec_301_9100-1 until days from the date_of_issuance of this letter for parent and sellers to file the election with respect to the acquisition of target as described above the above extension of time is conditioned on the filing within days of the issuance of this letter of all returns and amended returns if any necessary to report the transaction in accordance with the election and the taxpayers' parent’s purchaser’s sellers’ and target’s tax_liability if any 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 the above extension is also conditioned on i parent and sellers signing the election and ii parent and sellers treating the acquisition sale of the stock of target as a sec_338 transaction parent and sellers must file the election in accordance with sec_1_338_h_10_-1 that is a new election on form_8023 must be executed on or after the date of this letter which grants an extension and filed in accordance with the instructions to the form a copy of this letter should be attached to the election form parent and sellers must file or amend their returns as applicable for the year in which the transaction was consummated to report the acquisition sale as a sec_338 transaction and to attach thereto a copy of this letter and a copy of the election form however if parent and or sellers have already reported the transaction as a sec_338 transaction then they must merely amend their returns to attach thereto a copy of the election and a copy of this letter pursuant to sec_1_338_h_10_-1 target’s s election is not terminated accordingly target is not required to file an s_short_year return ie a year that ended the day before the acquisition nor a one day short return as a non-affiliated c_corporation we express no opinion as to whether the acquisition sale of target’s stock qualifies as a qualified_stock_purchase under sec_338 whether the acquisition sale of target’s stock qualifies for sec_338 treatment or if sec_338 is applicable as to the amount and character of gain_or_loss if any recognized by target and thus by sellers on target’s deemed asset sale and deemed liquidation in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or plr-118331-00 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 taxpayers however the district_director s 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 this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter is being sent to company official and parent’s authorized representative pursuant to the power_of_attorney on file in this office sincerely yours associate chief_counsel corporate by ken cohen acting chief branch


t c summary opinion united_states tax_court vincent a suarez jr and esther suarez petitioners v commissioner of internal revenue respondent docket no 19455-03s filed date vincent a suarez jr and esther suarez pro sese ric d hulshoff for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when 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 all subsequent section references are to the internal_revenue_code in effect at relevant times respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax for the sole issue for decision is whether petitioners are liable under sec_72 for the percent additional tax on an early distribution from a qualified_retirement_plan background some of the facts have been stipulated and they are so found the stipulation of facts and the attached exhibits are incorporated by this reference petitioners resided in sierra vista arizona at the time the petition was filed petitioners victor a and esther suarez are husband and wife during the year in issue they were homeowners of property pincite raffaele drive in sierra vista arizona in victor a suarez hereinafter petitioner withdrew dollar_figure from his individual_retirement_account ira he received the ira distribution from national financial services llc the funds from the ira were used for a downpayment and the rebuilding costs of a house petitioners purchased from the department of veterans affairs in petitioners timely filed a form_1040 u s individual_income_tax_return for on their return petitioners included in gross_income a distribution from petitioner’s ira account in on petitioners’ federal_income_tax return for the amount of distribution from the ira was listed as dollar_figure the stipulation of facts rounded the amount down to dollar_figure the amount of dollar_figure petitioners did not report on their return the additional 10-percent tax imposed by sec_72 with respect to the dollar_figure distribution in the notice_of_deficiency respondent determined that petitioners are liable for the 10-percent additional tax on the early distribution from petitioner’s ira petitioners acknowledge that the distribution from the ira does not qualify for any of the exceptions under sec_72 discussion sec_72 imposes an additional tax on early distribution from qualified_retirement_plans equal to percent of the portion of such amount which is includable in gross_income a qualified_retirement_plan includes a qualified_pension or profit sharing plan under sec_401 sec_401 the sec_72 additional tax does not apply to certain distributions since petitioners concede that they do not come within any of the exceptions under sec_72 we consider whether any other provisions would permit petitioners to be relieved from the 10-percent additional tax sec_72 provides in relevant part an exception to the 10-percent additional tax for distributions to an individual from an individual_retirement_plan which are qualified first-time home buyer distributions a qualified first-time home buyer distribution is any payment or distribution received by an individual to the extent such payment or distribution is used by the individual to pay qualified_acquisition_costs with respect to a principal_residence of a first-time home buyer who is such individual sec_72 a first-time home buyer in relevant part means any individual if such individual and if married such individual’s spouse had no present ownership_interest in a principal_residence during the 2-year period ending on the date_of_acquisition of the principal_residence sec_72 petitioners cannot avail themselves of the first-time home buyer exception while the record is not entirely clear the parties stipulated that during petitioners were existing homeowners residing pincite raffaele drive sierra vista arizona there was no argument put forth by petitioners that this was not their principal_residence based on this record we conclude that petitioner’s ira distribution does not come within the provisions of sec_72 petitioners argue that the withdrawal did not cause the government harm because they have other retirement accounts and that petitioners will not be a burden to the government when they there is a lifetime limitation of dollar_figure pursuant to sec_72 retire because they have sufficient money to take care of them selves deductions which are strictly construed are a matter of legislative grace and the burden of clearly showing the right to the claimed deduction is on the taxpayer 503_us_79 we are bound by the internal_revenue_code and it is within the province of the legislature to decide the circumstances of inclusion deductions and exceptions see 120_tc_109 the 10-percent additional tax applies to early distributions unless otherwise specifically exempted 122_f3d_835 9th cir affg tcmemo_1995_298 accordingly respondent’s determination that petitioners are liable for the 10-percent additional tax is sustained reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury number release date index no washington dc person to contact telephone number refer reply to cc intl br1 plr-110200-03 date date taxpayer company a company b country c date d date e date f dear this responds to a letter from the taxpayer’s authorized representative dated d as supplemented by a letter dated e in which you requested a ruling that premiums received by the taxpayer on policies of insurance or reinsurance of u s risks are exempt from the insurance excise_tax imposed by sec_4371 of the internal_revenue_code_of_1986 as amended code pursuant to the united states-ireland income_tax convention treaty the ruling contained in this letter is based upon information and representations submitted by or on behalf of the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party although this office has not verified any of the material submitted in support of the request for a ruling it is subject_to verification on examination the taxpayer is a reinsurance company that was organized in ireland on date f it is a wholly owned subsidiary of company a a reinsurance company organized in country c ultimate control of company a is held by company b a company organized in country c sec_4371 imposes an excise_tax on premiums_paid on insurance policies issued to u s persons and covering risks wholly or partly within the united_states and to foreign persons engaged in a u s trade_or_business and covering risks within the united_states see sec_4372 revproc_92_39 1992_1_cb_860 establishes page procedures for entering into a closing_agreement to establish an exemption from the sec_4371 excise_tax when the exemption is claimed under a u s income_tax treaty article business profits of the treaty provides as follows the profits of an enterprise of a contracting state shall be taxable only in that state unless the enterprise carries on business in the other contracting state through a permanent_establishment situated therein article a taxes covered includes the sec_4371 excise_tax within the scope of the treaty but contains the following limitation the convention shall however apply to the federal excise_taxes imposed on insurance premiums_paid to foreign insurers only to the extent that the risks covered by such premiums are not reinsured with a person not entitled to the benefits of this or any other convention which provides exemption from these taxes paragraph of the protocol to the treaty requires that an irish insurance_company be subject_to the generally applicable irish tax on such companies as follows for the purposes of paragraph it is understood that this convention shall not apply to the federal excise_taxes imposed on insurance premiums_paid to foreign insurers where such premiums are not subject_to the generally applicable tax imposed on insurance corporations in the contracting state in which such insurers are resident the limitation_on_benefits provision in article of the treaty sets forth several alternative safe harbors for claiming benefits under the treaty article a provides that a person who is not a qualified_person under paragraph of article nevertheless may qualify for benefits under the treaty with respect to an item_of_income derived from the other state if i such resident is engaged in the active_conduct_of_a_trade_or_business in the first-mentioned state other than the business of making or managing investments unless such business is carried out by a bank or insurance_company acting in the ordinary course of its business and ii the item_of_income is connected with or incidental to the trade_or_business in the first-mentioned state provided that where such item is connected with a trade_or_business in the first-mentioned state and such resident has an ownership_interest in the activity in the other state that generated the income the trade_or_business is substantial in relation to that activity page paragraph b i b of the protocol to the treaty states that an insurance_company will be considered to be engaged in the active_conduct_of_a_trade_or_business if its gross_income consists primarily of insurance or reinsurance premiums and investment_income attributable to such premiums article b i of the treaty provides that an item_of_income is connected with a trade_or_business if the activity in the other state that generated the item_of_income is a line_of_business that forms a part of or is complementary to the trade_or_business conducted in the first-mentioned state by the income recipient the taxpayer represents that it is a resident of ireland and is subject_to the generally applicable irish tax imposed on irish insurance_companies the taxpayer states that its gross_income consists primarily of premiums and investment earnings attributable to such premiums the premium income it receives from u s insureds is generated by an activity that forms a part of its trade_or_business in ireland according to the taxpayer based on these representations we conclude that the taxpayer satisfies the active trade_or_business test of article and is eligible for benefits under the treaty according to paragraph a of the closing_agreement the liability of the taxpayer for federal excise_tax as agreed upon including liability resulting from reinsurance of u s risks with persons not entitled to exemption under the treaty or another convention will commence on date the letter_of_credit required by paragraph a of the closing_agreement in the amount of dollar_figure must be in effect within days of the date the agreement is signed on behalf of the commissioner any person otherwise required to remit the federal excise_tax on foreign insurance or reinsurance policies issued by the taxpayer pursuant to sec_46_4374-1 of the excise_tax regulations may rely upon a copy of this letter or an executed copy of the closing_agreement as authority that they may consider premiums_paid to the taxpayer on and after date as exempt under the treaty from the federal excise_tax except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling does not address the issues of whether the taxpayer is an insurance_company or whether premiums_paid to the taxpayer are deductible under sec_162 of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer’s representative page sincerely yours ____________________ w edward williams senior technical reviewer branch office of associate chief_counsel international cc


office_of_chief_counsel internal_revenue_service memorandum cc pa cbs b02 gl-157629-03 number release date uilc date date to associate area_counsel small_business self-employed cc sb lv from chief branch collection bankruptcy summonses procedure and administration subject bankruptcy code sec_507 construction of the three-year_rule this chief_counsel_advice responds to your request that we prereview a memorandum forwarded to our office on date we agree with the following conclusions reached in your memorandum in accordance with sec_6110 chief_counsel_advice may not be used or cited as precedent issue sec_1 assuming a debtor files a chapter bankruptcy petition on date owes income taxes for the tax_year and did not obtain an extension for filing the return does the income_tax_liability fall within the three-year_rule of bankruptcy code sec_507 so as to render the tax_liabilities nondischargeable priority claims assuming a debtor files a chapter bankruptcy petition on date owes income taxes for the tax_year and did not obtain an extension for filing the return does the income_tax_liability fall within the three-year_rule of bankruptcy code sec_507 when date the due_date of the return fell on a saturday conclusion because the tax_return for the income_tax liabilities was last due on date rather than after date the income_tax liabilities will not be entitled to priority status under sec_507 and excepted from discharge under section a a gl-157629-03 because the tax_return for the ------- income_tax liabilities was last due on april ---- -------- rather than after april ------- the ------- income_tax liabilities will not be entitled to priority status under sec_507 and excepted from discharge under section a a the fact that april ------- fell on a saturday does not change the due_date for filing the ------- income_tax return for purposes of applying sec_507 law and analysis section a a of the bankruptcy code u s c excepts from discharge taxes afforded priority treatment under bankruptcy code sec_507 under sec_507 income taxes for a taxable_year ending on or before the date of the filing of the petition for which a return if required is last due including extensions after three years before the date of the filing of the petition are entitled to priority treatment thus in order to determine whether an income_tax_liability for a year ending on or before the date of the bankruptcy petition is entitled to priority classification under sec_507 the last due_date of the income_tax return must be determined and that date must be after three years before the date of the filing of the petition situation in the first scenario the debtor files a chapter bankruptcy case on april -------- owing income taxes for the ------- tax_year three years before the bankruptcy petition date is april ------- accordingly in order for the ------- income_tax liabilities to be entitled to priority status under sec_507 the last due_date of the return must be after april ------- assuming that the debtor did not obtain any extensions the income_tax return for was last due on april ------- not after april ------ sec_6072 thus the three-year_rule will not give the liabilities priority classification and will not cause them to be excepted from discharge under section a a in re 142_br_160 bankr w d mich sec_507 would only give the income_tax liabilities priority classification and cause them to be excepted from discharge if the bankruptcy petition was filed on date or earlier in the year situation in this scenario the debtor files a chapter bankruptcy petition on april ------- owing income taxes for the ------- tax_year three years before the date of the petition is april ------- accordingly in order for the ------- income_tax liabilities to be entitled to priority status under sec_507 the last due_date of the return must be after april -------- assuming that the debtor did not obtain any extensions the income_tax return for ------- was last due on date not after april ------- however april ------- fell on a saturday which raises the issue of whether the last due_date of the ------- income_tax return was extended to the following monday april ------- gl-157629-03 because april ------- fell on a saturday returns filed by the following monday april ------- were treated as timely filed i r c sec_7503 sec_1 however sec_7503 does not change the due_date for filing the return see revrul_81_269 1981_2_cb_243 sec_7503 does not change computation of the three-year limitation period for making an assessment even though the statutory due_date of the return falls on a saturday sunday or holiday thus the income_tax return for is still treated as last due on april ------- for purposes of applying sec_507 as a result and consistent with the first situation the ------- income_tax liabilities will not receive priority classification under the three-year_rule of sec_507 and be excepted from discharge under section a a note however that the operation of sec_7503 which does not change the due_date of returns but treats them as timely filed in the case of saturdays sundays and legal holidays should be distinguished from the operation of sec_6081 which governs extensions of time for filing returns and does change the due_date of returns an extension of time for filing returns under sec_6081 will change the priority discharge calculations under sec_507 and a a 151_br_952 m d fla please call if you have any further questions