t c memo united_states tax_court michael k berry petitioner v commissioner of internal revenue respondent docket no filed date p and x were divorced in california the san diego county superior court awarded p and x joint legal and physical custody of their two minor children designated x as the primary caretaker of the children and ordered p to pay monthly family support combined but unallocated spousal support and child_support to x in p paid x dollar_figure in respect of his family support obligation consisting of monthly payments of dollar_figure and an additional dollar_figure attributable to p’s arrearage from prior years also in p paid two court-appointed psychologists dollar_figure dollar_figure of which the san diego county superior court subsequently in credited to his arrearage p contends that all of those payments dollar_figure constitute alimony as defined in sec_71 i r c and that he is therefore entitled to deduct those payments pursuant to sec_215 i r c r contends that none of the payments at issue qualifies as deductible_alimony the primary dispute between the parties is whether p’s family support payments satisfy sec_71 which provides that a cash payment meeting the requirements of sec_71 a - c is alimony only if there is no liability to make any such payment for any period after the death of the payee spouse continuing payment_liability and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse substitute payment_liability held p had no continuing payment_liability as contemplated in sec_71 with respect to the family support payments at issue held further a payor spouse’s general state law obligation to continue supporting his or her children in the event of the payee spouse’s death does not in and of itself give rise to a substitute payment_liability as contemplated in sec_71 with respect to an unallocated support obligation such as california family support held further p had no substitute payment_liability as contemplated in sec_71 with respect to the family support payments at issue held further p is entitled to an alimony deduction for in the amount of dollar_figure consisting of the monthly payments of dollar_figure dollar_figure and the additional dollar_figure payment attributable to his arrearage p is not entitled to any alimony deduction for in respect of his payments to the court- appointed psychologists held further p is liable for the addition_to_tax under sec_6651 i r c for failure_to_file timely his return gary m erickson for petitioner james j posedel for respondent memorandum opinion beghe judge respondent determined a deficiency of dollar_figure and an addition_to_tax under sec_6651 of dollar_figure with respect to petitioner’s federal_income_tax for after giving effect to various concessions the issues remaining for decision are whether petitioner is entitled to an alimony deduction of dollar_figure for his tax_year under sec_215 we hold petitioner’s deduction is limited to dollar_figure and whether petitioner is liable for the addition_to_tax under sec_6651 for failure_to_file timely his return we hold petitioner is so liable in deciding the first issue we hold that the fact that a payor spouse’s general state law obligation to support his or her unless otherwise specified all section references are to the internal_revenue_code_of_1986 as in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure all dollar amounts have been rounded to the nearest dollar on schedule c profit or loss from business to his return petitioner claimed deductions of dollar_figure for office expense and dollar_figure for other expenses petitioner concedes respondent’s downward adjustments of dollar_figure for office expense and dollar_figure for other expenses petitioner agrees with respondent’s determination in the statutory notice that petitioner is entitled to the standard_deduction in lieu of his claimed itemized_deductions petitioner agrees with respondent’s upward adjustments to his self-employment_tax and self-employment_tax deduction resulting from the increase in petitioner’s schedule c net_income a computation under rule is necessary to give effect to these concessions and our decision children survives the death of the payee spouse does not in and of itself cause all or any part of an unallocated support obligation such as california family support to fail to qualify as alimony by reason of sec_71 background this case is before the court fully stipulated under rule the stipulation of facts and except as provided below the attached exhibits are incorporated herein by this reference petitioner resided in san diego california when he filed his petition during his taxable calendar_year and at all relevant times petitioner accounted for his federal_income_tax liability using the cash_method_of_accounting petitioner and his former spouse carmen b de berry carmen were married on date they had two children anthony m berry who was born on date and natalie m berry who was born on date on date carmen filed a petition for legal_separation from petitioner in the san diego county superior court the superior court which led to a proceeding for dissolution of their marriage petitioner and carmen eventually agreed to a settlement petitioner’s counsel recited the terms of the settlement in open respondent objects to petitioner’s exhibit sec_5 and on the ground of relevance we address these objections in our discussion court on date the superior court incorporated the terms of the settlement in a judgment of dissolution of marriage dated date the dissolution judgment in the dissolution judgment the superior court ordered petitioner to pay carmen family support of dollar_figure per month the dissolution judgment provided that petitioner and carmen would have joint legal and physical custody of the two children and that carmen would be the primary caretaker in an order dated date the order relating to a hearing held on date the superior court declared that timeshare for the children of the parties i sec_42 to father adjusted petitioner’s family support obligation to carmen to dollar_figure per month effective date and found that as of date petitioner was dollar_figure in arrears on his support obligation which amount included dollar_figure of interest petitioner paid carmen dollar_figure during pursuant to the order that figure represent sec_12 monthly payments of dollar_figure dollar_figure and an additional dollar_figure attributable to petitioner’s support arrearage petitioner paid two court-appointed psychologists drs caffaro and murphy dollar_figure on carmen’s behalf during petitioner also paid dr caffaro dollar_figure on date in an order dated date relating to a hearing held on date the superior court recited the date arrearage set by the order dollar_figure and credited the payments to drs caffaro and murphy that petitioner made on carmen’s behalf during dollar_figure against the arrearage on date petitioner filed a form_1040 u s individual_income_tax_return for his tax_year petitioner did not seek nor was he granted an extension of time to file his return on his return petitioner claimed an alimony deduction of dollar_figure on date respondent issued petitioner a statutory_notice_of_deficiency for his tax_year in the notice_of_deficiency respondent disallowed in full the dollar_figure alimony deduction that petitioner claimed on his return on the grounds that you did not establish that the amount shown was a alimony and b paid petitioner now contends he is entitled to an alimony deduction of dollar_figure for his tax_year consisting of the dollar_figure he paid carmen in pursuant to the order the dollar_figure he paid drs caffaro and murphy on carmen’s behalf the order does not appear to account for the dollar_figure arrearage payment the parties stipulate petitioner made in pursuant to the order the record does not reveal the derivation of that figure during and his dollar_figure payment to dr caffaro on date discussion i alimony deduction a introduction statutory overview generally alimony and separate_maintenance payments hereinafter collectively referred to as alimony are taxable to the recipient and deductible by the payor sec_61 sec_71 sec_215 sec_71 defines alimony as follows in general --the term alimony_or_separate_maintenance_payment means any payment in cash if-- a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income under this section and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse sec_71 provides however that the general inclusion rule_of sec_71 does not apply to that part of any payment which the terms of the divorce_or_separation_instrument fix in terms of an amount of money or a part of the payment as a sum which is payable for the support of children of the payor spouse the parties agree petitioner’s family support payments to carmen6 satisfy the requirements of sec_71 a - c for qualification as alimony they disagree whether those payments satisfy sec_71 for ease of reference we shall refer to the types of liability described in the first and second clauses of sec_71 as continuing payment_liability we address petitioner’s payments to drs caffaro and murphy in part i e the parties stipulate that dollar_figure of the dollar_figure paid_by petitioner to carmen in represented amounts paid_by petitioner which were attributable to family support arrearages from prior years that language is potentially broad enough to include interest ie the dollar_figure interest component of petitioner’s date arrearage which unlike qualifying_alimony is generally not deductible in this context see sec_163 the record does not reflect whether the superior court in fact credited the dollar_figure to pre-1999 family support principal interest thereon or both or neither for that matter see supra note on brief however respondent does not distinguish between petitioner’s payments of current and past due pre-1999 family support in referring to such amounts in the aggregate as family support the deductibility of which turns on the application of sec_71 accordingly we deem respondent to have conceded that the arrears paid_by petitioner to carmen in were family support rather than interest and substitute payment_liability respectively collectively postdeath liability historical context before we begin our analysis some historical background would be helpful prior to the internal_revenue_code described taxable alimony as periodic_payments whether or not made at regular intervals received in discharge of or attributable to property transferred in trust or otherwise in discharge of a legal_obligation which because of the marital or family relationship is imposed upon or incurred by the payor spouse under_a_divorce_or_separation_instrument sec_22 i r c as enacted by the revenue act of ch sec_120 56_stat_816 the act see also sec_71 and i r c prior to amendment by the deficit_reduction_act_of_1984 publaw_98_369 98_stat_494 the 1984_act similar language the general_rule of inclusion in the recipient’s income did not apply to that part of any such periodic_payment which the terms of the decree or written instrument fix in terms of an amount of money or a portion of the payment as a sum which is payable for the support of minor children sec_22 i r c supra see also sec_71 i r c supra substantially identical language furthermore except as otherwise provided i nstallment payments discharging a part of an obligation the principal sum of which is in terms of money or property specified in the decree or instrument were not considered periodic_payments sec_22 i r c supra see also sec_71 i r c supra substantially identical language while the exception to the general_rule of inclusion for child_support did not state that only amounts fixed as child_support in the divorce_or_separation_instrument were treated as such for tax purposes that was clearly the intent of congress if however the periodic_payments are received by the wife for the support and maintenance of herself and of minor children of the husband without such specific designation of the portion for the support of such children then the whole of such amount is includible in the income of the wife ie is treated as alimony as provided in sec_22 h rept 77th cong 1st sess 1942_2_cb_372 s rept 77th cong 2d sess 1942_2_cb_504 the supreme court gave effect to that intent in 366_us_299 holding that t he agreement must expressly specify or ‘fix’ a sum certain or percentage of the payment for child_support before any of the payment is excluded from the payee spouse’s income ie regulations issued within months of the enactment of the act parroted the language quoted above see sec k - d regs as amended by t d 1942_2_cb_53 see also sec_1_71-1 income_tax regs identical except for statutory reference is not treated as alimony id pincite emphasis added furthermore the court narrowly construed that requirement holding that language in a marital agreement providing for a pro_rata reduction in payments to the payee spouse as each child became emancipated did not fix such amounts as child_support as contemplated in the statute the court in commissioner v lester supra pincite recognized the pervasive incentive under federal_income_tax law to characterize marital payments as includable deductible_alimony rather than excludable nondeductible child_support on the other hand the wife generally being in a lower income_tax bracket than the husband could in the final analysis receive a larger net payment from the husband if he could deduct the gross payment from his income in blessing the technique utilized by mr lester the court afforded practitioners great flexibility in disguising child_support as alimony for tax purposes as one california court explained in the aftermath of lester it became a common practice for spousal support awards to be loaded that is a theoretically larger than otherwise spousal support payment and a correspondingly adjusted-down child_support payment was agreed upon in order to take advantage of the tax laws and assumedly to provide adequately for the children through the supported custodial spouse’s increased income in so holding the court relied extensively on the legislative_history of the statute including the passage quoted above in re marriage of leathers cal rptr ct app unpublished as it turned out the practice of disguising child_support as alimony for tax purposes conflicted with california law requiring adequate child_support awards id see in re marriage of ames cal rptr ct app as the court in in re marriage of leathers supra pincite continued not surprisingly the twain of good tax breaks and good domestic relations law did not meet for long in in re marriage of ames citation omitted the court of appeal for the second district held that an inadequate child_support award could not be justified or sustained by reference to a spousal support award allegedly inflated to take advantage of federal tax laws on the theory that the total income to the custodial spouse is adequate for both the wife and the children fn ref omitted ames’ affirmation of the need for an adequate separate child_support award was incompatible with the lester taxing scheme the california legislature responded in by creating the concept of family support which represents combined but unallocated child_support and spousal support see cal stat ch sec_4 adding former cal civil code sec d the new california statutory provision effectively skirted the holding of in re marriage of ames supra by providing that a court need not make a separate order for child_support when the parties use the family support techniquedollar_figure that aspect of the legislation now appears in sec of the california family code in congress replaced the periodic_payment installment_payment distinction contained in former sec_71 and c with the four-pronged definition of alimony set forth in sec_71 including the proscription of postdeath liability contained in subparagraph d thereof reinforced by a recapture rule sec_71 for front-loaded alimony deficit_reduction_act_of_1984 supra sec_422 while the exception to the general_rule of inclusion for amounts fixed as child_support remained essentially unchanged see sec_71 congress did overturn the result in commissioner v lester supra see sec_71 reduction in support that is clearly associated with a contingency specified in the divorce_or_separation_instrument that relates to a child will be treated as an amount fixed as payable for child_support lester continues however to stand for the proposition that subject_to sec_71 amounts will not be treated as child_support for purposes of sec_71 unless specifically designated as such in the governing divorce document see eg lawton v commissioner tcmemo_1999_243 raymond v commissioner tcmemo_1997_219 ambrose v commissioner tcmemo_1996_128 as enacted sec_71 closed with the following parenthetical and the divorce_or_separation_instrument states that there is no such liability congress dropped that requirement in see tax_reform_act_of_1986 publaw_99_514 sec b 100_stat_2853 apparently to mitigate the effects of sloppy lawyering by allowing state law to ‘save’ alimony arrangements that meet all requirements of sec_71 except the explicit statement of termination upon death 102_f3d_842 6th cir affg tcmemo_1995_183 accordingly while we continue to consult the divorce documents first in determining a payor spouse’s postdeath liability for purposes of sec_71 eg 123_tc_258 we may now look to applicable state law if those documents are inconclusive eg gilbert v commissioner tcmemo_2003_92 affd sub nom 94_fedappx_126 3d cir the california legislature has not made any changes in the california family support regime in response to congress’s and amendments to sec_71 b continuing payment_liability with respect to petitioner’s family support obligation overview under this prong of sec_71 we seek to determine whether carmen’s estate could enforce petitioner’s family support obligation for any period after carmen’s death see eg preston v commissioner tcmemo_1999_49 n affd in part vacated and remanded in part on another issue 209_f3d_1281 11th cir human v commissioner tcmemo_1998_ sugarman v commissioner tcmemo_1996_410 see also geier simplifying and rationalizing the federal_income_tax law applicable to transfers in divorce tax law n mcmahon tax aspects of divorce and separation fam l q as a practical matter inasmuch as petitioner’s family support obligation is otherwise open-ended ie has no expressly specified term the issue is whether that obligation would terminate automatically at carmen’s death or alternatively would remain enforceable by carmen’s estate until petitioner petitioned the superior court for reliefdollar_figure the divorce documents a scope of inquiry none of the superior court documents in the record the divorce documents addresses the contingency of carmen’s death however inasmuch as the dissolution judgment incorporates the terms of petitioner’s and carmen’s settlement agreement petitioner seeks to introduce extrinsic evidence of his and carmen’s intent regarding the effect of carmen’s death on petitioner’s family support obligation petitioner’s exhibit is a transcript of a date hearing in the superior court although the period of any such interim enforceability presumably would be brief any continuing payment_liability with respect to a payment obligation is apparently sufficient to disqualify as alimony all payments made pursuant to that obligation including payments made before the payee spouse’s death see sec_1_71-1t q a-10 temporary income_tax regs fed reg date that contains the following exchange between carmen and her counsel q and you understand that under this agreement that the support of dollar_figure payable by husband to you will be taxable to you a yes petitioner’s exhibit is a copy of carmen’s federal_income_tax return on which she reported dollar_figure of other income described as family support received respondent objects to petitioner’s exhibit sec_5 and on the ground of relevance in essence respondent argues that petitioner’s and carmen’s belief or understanding that the payments would be taxable to carmen and carmen’s inclusion of the payments in the income reported on her tax_return have no bearing on the issue of petitioner’s liability to continue making those payments in the event of carmen’s death for the reasons discussed below we shall sustain respondent’s objection b extrinsic evidence in general before we address respondent’s relevance objection we consider the larger issue of whether resort to extrinsic evidence of intent is appropriate in this case in construing divorce documents under sec_71 to determine the payor spouse’s postdeath liability we are generally prohibited from considering extrinsic evidence if the operative documents speak unambiguously to the matter okerson v commissioner supra pincite if the documents are silent or ambiguous we may to the extent permissible under applicable state law principles consider extrinsic evidence of the parties’ intent regarding such postdeath liability see wells v commissioner tcmemo_1998_ cunningham v commissioner tcmemo_1994_474 cf 68_tc_249 interpretation of trust instrument affd 608_f2d_240 5th cir the majority view in california appears to be that a marital settlement agreement that has been incorporated into a judgment is treated no differently from any other written_agreement for purposes of determining the admissibility of extrinsic evidence vance pierson cal civ prac fam law litig sec dollar_figure rev date see eg in re marriage of simundza cal rptr 3d ct app in re marriage of trearse cal rptr ct app but see in re marriage of benson cal rptr ct app accordingly inasmuch as the divorce documents do not address the effect of carmen’s death on petitioner’s family support obligation we may consider petitioner’s exhibit sec_5 and offered to establish his and carmen’s alleged understanding that the obligation would although we apply the rules of evidence applicable in trials without a jury in the u s district_court for the district of columbia sec_7453 it is well recognized that the so-called parol evidence rule limiting the role of extrinsic evidence of intent in the interpretation of a written instrument is a rule_of substantive law rather than a rule_of evidence 68_tc_249 affd 608_f2d_240 5th cir terminate automatically at her death subject_to respondent’s relevance objection c respondent’s relevance objection evidence is relevant and therefore generally admissible if it has any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence fed r evid and if however the relevance of the evidence in question depends on the existence of some other fact then the admissibility of such conditionally relevant evidence itself depends on the introduction of evidence sufficient to support a finding of the existence of that other fact see fed r evid b and advisory committee’s note the ultimate factual issue in this case is whether petitioner and carmen intended the family support payments to terminate automatically at carmen’s death petitioner’s exhibit sec_5 and certainly tend to increase the factual likelihood that he and carmen intended the payments to qualify as alimony for we note that we would reach a different conclusion if the california family code required that any such understanding be in writing see in re marriage of trearse cal rptr ct app a limitation on the admissibility of extrinsic evidence to prove the intent of the parties to a marital settlement agreement has been recognized where a statute requires the parties to the agreement to state certain matters specifically in writing cf cal fam code sec west discussed infra any agreement that a spousal support obligation will not terminate upon the death of the payee spouse must be in writing federal_income_tax purposes however that fact could be relevant to our ultimate factual determination in that it would tend to show that petitioner and carmen intended the payments to terminate automatically at carmen’s death only if petitioner and carmen knew their intended tax treatment depended on the effect of carmen’s death on petitioner’s payment obligationdollar_figure petitioner has offered no evidence that would support a finding of actual knowledge in that regard and we deem it inappropriate to impute such knowledge in this contextdollar_figure cf we do not fail to recognize that under the tax law in effect prior to we treated a tax intent clause in the divorce documents providing that the payments would be fully taxable to the payee as relevant to the classification of the payments for tax purposes see stevens v commissioner tcmemo_1982_352 affd 709_f2d_12 5th cir assuming for the sake of argument that knowledge of petitioner’s and carmen’s respective counsel could be ascribed to petitioner and carmen for these purposes the record contains no indication that their counsel knew the intended tax treatment depended on the effect of carmen’s death on petitioner’s payment obligation if taxpayers could rely on mutually intended tax consequences to establish an agreement satisfying sec_71 then they could effectively opt into alimony treatment a result we believe is not supported by the statute see geier simplifying and rationalizing the federal_income_tax law applicable to transfers in divorce tax law while taxpayers can opt_out of alimony treatment pursuant to sec_71 they have no power to opt into alimony treatment under the statute cf 123_tc_258 rejecting the relevance of the state court’s alleged intent that the payments at issue be deductible as alimony we do not mean to suggest however that evidence of intended tax consequences and of tax reporting consistent with continued cunningham v commissioner supra knowledge of payee spouse’s counsel that payor spouse intended to deduct payments at issue does not equate to knowledge that the payments were intended to terminate on the payee spouse’s death dollar_figure accordingly we sustain respondent’s relevance objection and exclude from evidence petitioner’s exhibit sec_5 and see fed r evid b d conclusion the divorce documents do not address the contingency of carmen’s death and petitioner has not offered any competent evidence of his and carmen’s intent in that regard we therefore turn to california law in order to determine the effect of carmen’s death on petitioner’s family support obligation continued that intent can never be relevant to a determination of the intended scope of the payor’s liability for example a state court might find such evidence relevant in a suit by the payee’s estate to enforce payment after the payee’s death in cunningham v commissioner tcmemo_1994_474 we considered the weight to be afforded extrinsic evidence of intended tax consequences rather than the threshold issue of its admissibility our observations therein are nonetheless instructive if both parties wanted the payments to be deductible and had understood the applicable tax requirements needed to make them deductible we could infer that they intended the agreement to satisfy those requirements because neither mark nor his counsel appears to have understood that new sec_71 required the support payments to terminate in the event of the death of shirley we are unable to infer that they had considered that requirement when mark signed the settlement agreement emphasis added family support under california law a statutory overview the california family code family code defines family support as an agreement between the parents or an order or judgment that combines child_support and spousal support without designating the amount to be paid for child_support and the amount to be paid for spousal support cal fam code sec west as discussed supra pp the term entered the statutory lexicon in as the result of an attempt by the california legislature to reconcile principles of california child_support law with federal_income_tax law regarding the deductibility of payments to an ex-spouse while portions of the family code are devoted exclusively to the well-established components of family support see cal fam code secs west child_support and spousal support respectively the family code contains no comprehensive set of rules relating to the newfangled amalgam in particular the family code does not specifically address the effect of the payee’s death on a family support obligation b family code section petitioner argues that family code section which generally operates to terminate spousal support upon the death of the payee spouse is broad enough to include family supportdollar_figure in wells v commissioner tcmemo_1998_2 we continued that section provides except as otherwise agreed by the parties in writing the obligation of a party under an order for the support of the other party terminates upon the death of either party or the remarriage of the other party emphasis added notwithstanding that family code section is contained in a portion of the family code div pt secs entitled spousal support petitioner argues that if the legislature wanted the operation of cal fam code section to be limited to spousal support then ‘spousal support’ would have been used instead of ‘support of the other party’ to the extent petitioner is suggesting that the use of the phrase support of the other party in family code section reflects the drafters’ intention to signify family support as well as spousal support the history of the provision indicates otherwise the reference in family code section to support of the other party dates from years before the continued concluded without discussion that family code sec pertains only to spousal support orders and does not address family support payments contrary to petitioner’s assertion we did not conclude otherwise in ambrose v commissioner tcmemo_1996_128 family code sec a provides that in ordering a party to pay for the support of the other party the court is to take into consideration the circumstances as provided in chapter commencing with section family code sec lists circumstances the court is to consider i n ordering spousal support under this part california legislature created the concept of family support see hilton v mcnitt p 2d cal see also cal stat ch sec prior to the then-existing statutory predecessor of family code section former california civil code sec_139 was phrased in terms of the husband’s obligation to support the wife taliaferro v taliaferro p 2d cal dist ct app see cal civ code sec_139 as amended by cal stat ch sec dollar_figure the broadening of the statutory language in simply rendered the obligation of spousal support gender-neutral see franklin life ins co v kitchens cal rptr ct app newhall v newhall p 2d cal dist ct app c other family code provisions notwithstanding the foregoing other provisions of the family code display the intention of the california legislature that family support qualify as deductible_alimony under federal_income_tax law see eg cal fam code sec west orders complying with the statewide uniform guideline for child_support may be phrased in terms of family support as long as the amount is adjusted to reflect the effect of additional former cal civ code sec_139 is the immediate statutory predecessor of former cal civ code sec b which is the immediate statutory predecessor of family code sec deductibility dollar_figure accordingly one could argue that the family code should be interpreted consistently with that intent whenever as is the case with family code section such an interpretation would not do violence to the plain language of the statute cf cal fam code sec west provisions regarding the statewide uniform guideline for child_support shall not be construed to affect the treatment of spousal support and separate_maintenance payments pursuant to sec_71 of the internal_revenue_code of because as discussed infra we conclude that petitioner’s family support payments qualify as deductible_alimony without regard to family code section we need not decide whether a california court would adopt that interpretive approach d caselaw neither party cites nor are we aware of any california cases addressing the issue of whether absent an agreement of the parties or a directive in the divorce decree an obligation to pay family support terminates upon the death of the payee spouse petitioner draws support from danz v danz p 2d cal dist ct app and hale v hale p 2d cal dist ct app cases in which the court limited enforcement of an unallocated support award to amounts that had accrued prior to the payee spouse’s remarriage while those cases are somewhat california enacted its statewide uniform guideline for child_support in see cal stat ch sec_138 analogous to this case we think a more instructive case is in re marriage of benjamins cal rptr 2d ct app that case involved a payor spouse’s obligation under a marital settlement agreement the terms of which were incorporated in the divorce decree to pay the payee spouse on or before date an amount equal to her medical_insurance_premium for the 1-year period commencing on that date although the payee spouse died in date her daughter as successor_in_interest demanded payment of the premium amount dollar_figure under threat of legal action the payor spouse paid the premium amount and then petitioned the court for reimbursement the court held for the payor spouse reasoning that the obligation was in the nature of spousal support which pursuant to family code section terminated at the payee spouse’s death id pincite we believe a california court would similarly reject any attempt by carmen’s successor_in_interest eg her estate to enforce petitioner’s family support obligation for any period after carmen’s death family support quite simply consists of spousal support and child_support and it is well settled under california law that a child_support obligation runs to the child and not to the payee spouse in re marriage of comer cal rptr 2d see also keith g v suzanne h cal rptr 2d ct app in re marriage of mccann cal rptr 2d ct app hogoboom king cal prac guide fam law sec ed dollar_figure it logically follows that carmen’s interest in petitioner’s family support obligation like the payee spouse’s interest in the premium obligation at issue in in re marriage of benjamins supra is in the nature of spousal support her interest in the award would therefore terminate at her death leaving her successor without an enforceable interest conclusion we conclude that petitioner’s family support obligation does not entail continuing payment_liability as contemplated in sec_71 c substitute payment_liability with respect to petitioner’s family support obligation overview under this prong of sec_71 we look beyond the issue of continuing enforceability in search of any payment obligation after carmen’s death that would in substance represent a continuation in whole or in part of petitioner’s family support payments see sec_1_71-1t q a-14 temporary income_tax regs fed reg date determination of whether payments commencing increasing or accelerating upon the death of the payee spouse are a substitute as discussed infra the child_support component of petitioner’s family support obligation is more relevant to our inquiry regarding substitute as opposed to continuing payment_liability for the continuation of payments ostensibly terminating at that time depends on all of the facts and circumstances okerson v commissioner our recent opinion in 123_tc_258 nicely illustrates the operation of the substitute payment clause of sec_71 the divorce decree in that case required mr okerson to pay mrs okerson dollar_figure as alimony necessary for her support in varying installments over a period of approximately years id pincite although the decree specified that s aid alimony would terminate upon mrs okerson’s death another provision obligated mr okerson to pay the remaining installments in that event for or on behalf of the education of the parties’ two children id pincite a subsequent decree required mr okerson to pay mrs okerson’s attorney dollar_figure on mrs okerson’s behalf as alimony necessary for her support over a period of months id that decree similarly provided that s aid alimony would terminate upon mrs okerson’s death in which case the remaining installments would be payable directly to her attorney id pincite we concluded that both postdeath obligations were substitute payment liabilities as contemplated in sec_71 with respect to the payments to mrs okerson labeled as alimony and that consequently the payments to mrs okerson failed to qualify as deductible_alimony id pincite see also sec_1_71-1t q a-14 examples and temporary income_tax regs supra the child_support obligation embedded in family support unlike okerson v commissioner supra as well as the above- cited examples in respondent’s temporary regulations this case does not involve language in a divorce decree that can be construed as imposing a substitute payment obligation with respect to the payments at issue rather the issue in this case is whether we can infer a substitute payment obligation with respect to petitioner’s family support payments on the basis of their undesignated child_support component while spousal support generally terminates on the death of the payee spouse cal fam code sec west a parent’s duty to support his or her child generally continues until the child’s emancipation cal fam code secs west arguably then petitioner’s potential liability for child_support payments in the event of carmen’s death represents a substitute payment obligation with respect to a corresponding portion of his family support payments we essentially adopted the foregoing analysis in wells v commissioner tcmemo_1998_2 in that case which respondent urges us to follow we sustained the commissioner’s determination that the taxpayer’s family support payments did not satisfy sec_71 relying in part on the following reasoning assuming a worst case scenario ie custodial_parent dies and custody is awarded to someone other than the surviving_spouse we cannot believe that california law would permit the surviving parent to avoid any further support obligations see also 94_fedappx_126 3d cir citing the pennsylvania equivalent of cal fam code secs and for the proposition that e ven if the technical obligation to make unallocated support payments under the order to ms gilbert would have ended upon her death the obligation to make substitute_payments would have continued because hawley would still have been required to support his children affg gilbert v commissioner tcmemo_2003_92 petitioner on the other hand urges us to reject wells v commissioner supra he argues among other things that none of the payments made by petitioner can be considered ‘child support’ pursuant to either sec_71 or sec_71 and therefore the payments qualify as alimony under sec_71 that aspect of petitioner’s argument underscores the incompatibility of the expansive reading of sec_71 in wells and the narrow reading of sec_71’s predecessor in 366_us_299 under the worst case scenario approach of wells which assumes that someone other than the payor spouse would take custody of the children upon the payee spouse’s death the substitute payment clause of sec_71 will invariably render the child_support element of unallocated support nondeductible solely on the basis of the payor’s general state law obligation to support his or her children ie through payments to the presumed successor custodian dollar_figure in contrast lester stands for the principle subject now to sec_71 that only amounts specifically designated as child_support in the divorce decree will be treated as nondeductible child_support under sec_71dollar_figure see lawton v commissioner tcmemo_1999_243 rejecting the argument that pennsylvania’s child_support guidelines effectively fix a portion of an unallocated support obligation as child_support within the meaning of sec_71 see also simpson v commissioner tcmemo_1999_251 same this court has never squarely addressed and resolved the tension between sec_71 and c in the context of unallocated support obligationsdollar_figure for the reasons discussed we are not aware of any jurisdiction in the united_states that does not impose a general obligation on parents to support their minor children sec_71 provides that a reduction in support that is clearly associated with a contingency specified in the governing divorce document that relates to a child will be treated as an amount fixed as payable for the support of children within the meaning of sec_71 see supra p compare wells v commissioner tcmemo_1998_2 gilbert v commissioner tcmemo_2003_92 affd sub nom 94_fedappx_126 3d cir and miller v commissioner tcmemo_1999_273 affd sub nom 293_f3d_1208 10th cir with ambrose v commissioner tcmemo_1996_128 and heller v commissioner tcmemo_1994_463 affd in part and remanded in part aftr 2d ustc par big_number 9th cir see also kean v commissioner tcmemo_2003_163 murphy v continued below we resolve this tension by rejecting the interpretation of sec_71 inherent in the worst case scenario approach of wells v commissioner supra specifically we reject the notion that the applicability of sec_71 to an unallocated support obligation is to be determined by invariably assuming that a third party would take custody of the children upon the payee spouse’s death thereby ensuring the existence of a substitute payment obligationdollar_figure continued commissioner tcmemo_1996_258 petitioner has brought to our attention that the conflict in the authorities has not gone unnoticed see udrys california family support tax consequences after wells v commissioner orange county law see also the comment of the court_of_appeals in lovejoy v commissioner supra pincitell there is no colorado law squarely addressing the treatment of unallocated payments upon the death of the payee spouse the only on-point cases cited by the parties address california law and are conflicting compare heller v commissioner 103_f3d_138 wl at 9th cir unpublished holding that the obligation to pay unallocated support would automatically terminate upon the recipient’s death and ambrose v commissioner 71_tcm_2429 date same with wells v commissioner 75_tcm_1507 date holding that the obligation does not terminate upon death this split of authority interpreting california law is no help to lovejoy’s attempt to show that colorado law provides for the termination of unallocated payments upon the payee spouse’s death we observe that the unpublished opinion of heller v commissioner supra by the court_of_appeals for the ninth circuit is not binding precedent in the ninth circuit to which an appeal in this case would lie see 9th cir r a continued a the case against the worst case scenario approach general principles of statutory construction the worst case scenario approach of wells v commissioner tcmemo_1998_2 renders sec_71 largely superfluous in violation of the general premise that ‘a statute ought upon the whole to be so construed that if it can be prevented no clause sentence or word shall be superfluous void or insignificant ’ 533_us_167 quoting 101_us_112 specifically if the general state law obligation to support one’s children were the functional equivalent of a substitute payment obligation in every case as would obtain if one must assume that someone other than the payor spouse would take custody of the children upon the payee spouse’s death then the only amounts that sec_71 could to the exclusion of sec_71 render nondeductible would be amounts fixed as child_support taking into account sec_71 in excess of the amount of the general state law obligationdollar_figure cf trw inc v continued accordingly we need not decide whether the doctrine_of 54_tc_742 affd 445_f2d_985 10th cir would require us to follow heller presumably the amount of the state law obligation would be determined by reference to the child_support guidelines enacted by the state in compliance with federal_law see u s c sec_667 cf lawton v commissioner tcmemo_1999_243 rejecting payee spouse’s attempt to identify child_support element of unallocated support payments by reference to continued andrews 534_us_19 rejecting andrews’s attempt to generate some role for the express exception in the statute independent of that which would be filled by the rule_of general application she asked the court to read into the statute 123_tc_219 rejecting an interpretation of sec_3121 that would have effectively denied its beneficial effects to most if not all small fishing boat owners who are the intended beneficiaries of the provision expanding the reach of sec_71 to the extent suggested by the worst case scenario approach also runs contrary to the maxim that a specific provision controls over a general one particularly when the two are interrelated and closely situated in the statute e g 450_us_1 analyzing sec_501 and e inasmuch as sec_71 but not sec_71 specifically addresses child_support the foregoing rule_of construction militates against an interpretation of sec_71 which contrary to the specific designation principle of sec_71 invariably has the effect of converting undesignated support into child_support b legislative_history of the 1984_act notwithstanding the foregoing the intent of the drafters i sec_27 continued pennsylvania’s child_support guidelines paramount and if extrinsic evidence of that intent were to contradict the implications of the general principles discussed above the former would control e g 192_f3d_941 9th cir although specific statutes normally trump conflicting general statutes appellants’ argument relying on that general principle ignores the specifically stated intent of congress having said that we see nothing in the legislative_history of the 1984_act indicating that in enacting sec_71 congress intended to abandon the specific designation principle of sec_71 any inference to that effect is particularly unwarranted in light of the fact that congress crafted a narrow exception to that principle as part of the same legislation see sec_71 supra note cf 843_f2d_367 9th cir we cannot conclude that congress chose to repeal i r c sec_2056 expressly and left sec_2056 intact only to effectuate its repeal by implication to be sure congress did contemplate that sec_71 could in derogation of the specific designation principle of sec_71 render excludable and therefore nondeductible the portion of a payment that in substance but not in form represents child_support a provision for a substitute payment such as an additional_amount to be paid as child_support after the death of the payee spouse will prevent a corresponding amount of the payment to the payee spouse from qualifying as alimony h rept part pincite the house report dollar_figure that example however like sec_71 represents only a limited departure from the specific designation principle in that it relies on other language in the governing instrument see also 123_tc_258 finding substitute payment obligation based on provision in the divorce decree requiring payments for children’s education in the event of payee spouse’s death sec_1_71-1t q a-14 example temporary income_tax regs supra finding substitute payment obligation based on provision in the divorce decree requiring payments to children’s trust in the event of payee spouse’s death indeed the example in the house report can be viewed as a corollary of sec_71 that is a provision for additional or increased child_support that is contingent upon the supported spouse’s death is simply the flip side of a provision for decreased spousal support that is contingent upon the death or emancipation of a child c amendment of sec_71 finally one can draw a negative inference from the repeal of the requirement that the termination at death that example appears to recharacterize alimony as child_support notwithstanding that the report elsewhere provides that the bill attempts to define alimony in a way that would conform to general notions of what type sic of payments constitute alimony as distinguished from property_settlements h rept part pincite emphasis added see discussion supra pp condition of sec_71 be contained in the governing instrument see supra pp as we have previously observed in that regard if congress had intended that state law could fix the amount of child_support payments where such amounts are not fixed by the terms of the divorce_or_separation_instrument it certainly could have made a similar change in the wording of sec_71 we conclude from the absence of such a change that congress did not intend the interpretation that petitioner advocates lawton v commissioner tcmemo_1999_243 as noted above the payee spouse taxpayer in that case argued unsuccessfully that pennsylvania’s child_support guidelines operated to fix a portion of an unallocated support obligation as child_support within the meaning of sec_71 we similarly conclude that congress did not intend the interpretation of sec_71 suggested by the worst case scenario approach of wells v commissioner tcmemo_1998_2 d conclusion we reject the notion that one must assume a worst case scenario under which someone other than the payor spouse would take custody of the children upon the death of the payee spouse in determining the applicability of the substitute payment clause of sec_71 to an unallocated support obligation accordingly we hold that a payor spouse’s general state law obligation to support his or her children without more does not cause any or all of that spouse’s unallocated support obligation to fail to qualify as alimony by reason of the substitute payment clause of sec_71 no substitute payment_liability attributable to the embedded child_support obligation we need not decide whether a general state law obligation to support one’s children when viewed in conjunction with additional statutory provisions of the jurisdiction in question or the facts of a particular case could form the basis of a substitute payment obligation under sec_71 that is even if there may be circumstances in which such an obligation could have implications under sec_71 we are satisfied they are not present in this case under california law a surviving parent is entitled to custody of his or her children cal fam code sec b west even if the predeceasing parent had been awarded sole custody in re guardianship of donaldson cal rptr ct app see hogoboom king cal prac guide fam law sec ed accordingly even if petitioner had not been awarded joint legal and joint physical custody of the children he would be entitled to immediate custody upon carmen’s death compare n j stat ann sec west upon the death of the custodial_parent the care and custody of the children shall not revert to the surviving parent without an order or judgment of the superior court to that effect it follows that there would be no interim period during which petitioner might be required pending judicial action to make payments to a de_facto custodian in discharge of his general state law obligation to support the childrendollar_figure a third party could defeat petitioner’s initial custody right only by going to court and demonstrating that petitioner’s custody would be detrimental to the children and that a change in custody is required to serve the best interest of the children see cal fam code sec west hogoboom king supra sec as noted above the superior court awarded petitioner joint physical as well as joint legal custody of the children and the order indicates that petitioner’s share of physical custody at that time wa sec_42 percent in the absence of any evidence that notwithstanding such court-approved custody a third party would have had grounds to challenge petitioner’s custody rights had carmen died we have no reason to believe that anyone other than petitioner would be entitled to physical custody of the children for periods after carmen’s death absent a successor payee petitioner would have no substitute payment_liability with respect to the child_support element of his family support obligation see kean v commissioner tcmemo_2003_163 as we observed in cunningham v commissioner tcmemo_1994_474 if a payor spouse is required to make even one otherwise qualifying payment after the death of the payee spouse none of the related payments required before the payee spouse’s death will be alimony see 123_tc_258 sec_1_71-1t q a-13 temporary income_tax regs supra cf supra note applying sec_71 to unallocated support ordered by new jersey court inasmuch as mr and ms kean shared physical custody of the children there would be no logical reason for the new jersey court to order that mr kean continue to pay support or for the new jersey court to order any payment as a substitute for the unallocated support had ms kean died we reach the foregoing conclusion without regard to whether as is apparently the case with california child_support orders see in re marriage of mccann cal rptr 2d ct app the controlling order would technically remain in effect after carmen’s death until petitioner obtained its prospective judicial termination cf in re marriage of trainotti cal rptr ct app payee under child_support order sought to collect amounts that had accrued during the period between payor’s assumption of sole physical custody of the child and the judicial termination of the child_support order months later trial_court erred by refusing to consider whether appellant the payor had satisfied his obligation by furnishing christopher the minor child with the approval of his former wife a home and support that was equal to or in excess of the court-ordered amount jackson v jackson cal rptr although the court may have viewed such direct expenditures as the functional equivalent of payments under the child_support order neither party suggests that for purposes of the substitute payment clause of sec_71 hypothetical direct expenditures on behalf of children in one’s custody ie continued ct app similar d conclusion--deductibility of family support payments given the lack of continuing payment_liability and substitute payment_liability with respect to petitioner’s family support obligation the family support payments at issue satisfy the requirements of sec_71 because the parties do not dispute the applicability of sec_71 a - c to those payments and respondent does not argue any other grounds for nondeductibility eg sec_71 petitioner is entitled to deduct the entire amount of family support payments he made to carmen in dollar_figure dollar_figure e payments to drs caffaro and murphy procedural issue petitioner’s petition did not include a claim that he i sec_30 continued following the payee spouse’s putative death should be treated the same as hypothetical payments to a successor custodian we would reject any such expansive reading of sec_71 for the same reasons we reject the expansive reading suggested by wells v commissioner tcmemo_1998_2 see supra pp we recognize that if carmen died petitioner conceivably could be liable to her estate for at least some portion of his family support arrearage if that were so then the portion of petitioner’s payments to carmen constituting arrears dollar_figure arguably would fail to satisfy sec_71 however under well-established caselaw involving pre-1984 sec_71 payments of alimony arrearages retained the character of the payments originally due see eg 79_tc_456 affd 751_f2d_1168 11th cir absent any indication in the legislative_history of the 1984_act that congress intended to change that result we believe the same principle would apply under post-1984 sec_71 entitled to a deduction for alimony in excess of the amount claimed on his return and disallowed by respondent dollar_figure nor did he move for leave to amend the petition to include such a claim see rule a normally we do not consider issues not raised in the pleadings e g christensen v commissioner tcmemo_1996_254 n affd without published opinion 142_f3d_442 9th cir see rule b however the parties’ stipulations reflect both the claim for an increased deduction dollar_figure and the basis for that claim ie the amounts paid to drs caffaro and murphy and respondent addressed the issue in his reply brief accordingly we shall treat petitioner’s claim for an increased alimony deduction as having been tried by consent of the parties see rule b see also 88_tc_238 ndollar_figure application of rule b in the context of a fully stipulated case substantive analysis the record reveals no factual predicate for petitioner’s claim that his payments to drs caffaro and murphy in dollar_figure dollar_figure dollar_figure qualify as deductible_alimony in order so to qualify such payments would have to have been made under_a_divorce_or_separation_instrument sec_71 see sec_71 neither the dissolution judgment the order nor any other document contained in the record including the parties’ stipulations reveals any obligation of petitioner to make payments to drs caffaro and murphydollar_figure we therefore conclude that petitioner’s payments to drs caffaro and murphy in dollar_figure do not qualify as alimony deductible in the fact that the superior court subsequently credited in the bulk of the caffaro murphy payments dollar_figure to petitioner’s family support arrearage does not help his case petitioner apparently assumes that if the family support he paid carmen in pursuant to the order qualifies as deductible_alimony then any other outlay credited in a later year against his family support arrearage must be deductible in as well if that is his position we are not aware of any authority to support it cf 93_tc_123 rejecting commissioner’s argument that because overpayment credited in against cash_basis taxpayer’s liability for interest on deficiency was attributable to payments made in such deficiency_interest was properly deductible in conclusion we hold petitioner is not entitled to any alimony deduction for in respect of his payments to drs caffaro and murphy furthermore the parties’ stipulations do not indicate that petitioner made the date payment to dr caffaro dollar_figure on carmen’s behalf see sec_71 despite having effectively put the issue in play see supra pp petitioner did not separately address on brief the deductibility of the caffaro murphy payments credited to his arrearage ii late filing addition_to_tax respondent determined that petitioner is liable for the addition_to_tax under sec_6651 for failure_to_file timely his return sec_6651 imposes an addition_to_tax for failing to file a return on or before the specified filing_date unless it is shown that such failure is due to reasonable_cause and not due to willful neglect once the commissioner demonstrates the appropriateness of imposing the addition_to_tax thereby satisfying his initial burden of production under sec_7491 the taxpayer bears the burden of proving the applicability of the exception for reasonable_cause and lack of willful neglect see 116_tc_438 the parties stipulated that petitioner did not file his return until date and that petitioner did not seek nor was he granted an extension of time to file that return accordingly respondent has met his burden of production to prove reasonable_cause petitioner must show he exercised ordinary business care and prudence and was nevertheless unable to file his return within the prescribed time 121_tc_89 sec_301_6651-1 proced admin regs petitioner asserts that the late filing of his return was due primarily to the fact that he was in the process of establishing a new business and was unable to assemble in a timely manner the necessary documentation to support the business deductions claimed on the return there is no record evidence to support that assertion and even if there were we are not persuaded that petitioner’s preoccupation with establishing a new business would constitute reasonable_cause for failure_to_file timely his return see polsby v commissioner tcmemo_1998_459 estate of bevan v commissioner tcmemo_1989_256 we uphold respondent’s determination that petitioner is liable for the addition_to_tax under sec_6651 for failure_to_file timely his return the correct amount of the addition_to_tax must be calculated as part of the rule computation to give effect to the foregoing decision will be entered under rule


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 3-plr-125525-02 date date legend x a state d1 dear this letter responds to your letter dated date and subsequent correspondence requesting on behalf of x a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 and x's sole shareholder a intended for x to be an s_corporation however x's form_2553 election by a small_business_corporation was not filed timely x requests a ruling under sec_1362 that it will be recognized as an s_corporation effective for the taxable_year beginning d1 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made plr-125525-02 sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year conclusion based on the facts submitted and representations made we conclude that x has established reasonable_cause for its failing to make a timely election and that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 containing an effective date of d1 for the election within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is an s_corporation for federal tax purposes pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x 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 sincerely christine ellison chief branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


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 b04 plr-127988-16 date march legend donor son date year trust asset law firm attorney ----------------------------------------------------- -------------------------- ------------------------ ------- ---------------------------------------------- ---------------------------------------------------------------- ------------------------------------ ----------------------- dear ------------------------ this letter responds to your authorized representative’s letter dated date and subsequent correspondence requesting an extension of time under sec_2642 of the internal_revenue_code code and sec_301_9100-3 of the procedure and administration regulations to allocate donor’s generation-skipping_transfer gst_exemption to trust the facts and representations submitted are summarized as follows on date a date before date donor created trust for the primary benefit of his grandchildren the children of son on date donor transferred asset to trust donor hired law firm to prepare his form_709 united_states gift and generation-skipping_transfer_tax return for year a paralegal of law firm prepared plr-127988-16 the return and attorney reviewed the return the paralegal did not allocate gst_exemption to this transfer you have requested an extension of time under sec_2642 and sec_301_9100-3 to allocate donor’s gst_exemption to trust based on the gift_tax value of asset as of the date of transfer to trust law and analysis sec_2601 imposes a tax on every generation-skipping_transfer a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 as in effect for year provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that an individual's gst_exemption may be allocated 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 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 under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is the excess if any of one over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of the gst_exemption under sec_2631 allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip reduced by the sum of any federal estate_tax or state death_tax actually recovered from the trust attributable to such property and any charitable deduction allowed under sec_2055 or sec_2522 with respect to such property plr-127988-16 sec_2642 as in effect for year provides that 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 or is deemed to be made under sec_2632 the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter and such allocation shall be effective on and after the date of such transfer sec_2642 provides 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 sec_2642 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 see notice_2001_50 2001_2_cb_189 notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers is 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 under the provisions of sec_301_9100-3 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 in accordance with sec_2642 and notice_2001_50 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_9100-3 provides in part that requests for relief subject_to 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 the grant of 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 plr-127988-16 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore donor is granted an extension of time of days from the date of this letter to allocate his available gst_exemption to the year transfer to trust the allocations will be effective as of the respective date of the transfer and the value of the transfer as determined for federal gift_tax purposes will be used in determining the amount of gst_exemption to be allocated to trust the allocation should be made on a supplemental form_709 for year the form_709 should be filed with the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh a copy of this letter should be attached to the supplemental form_709 a copy is enclosed for this purpose in accordance with the power_of_attorney on file with this office we have sent a copy of this letter to your authorized representatives except as expressly provided herein we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 plr-127988-16 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 and special industries by leslie h finlow leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service number release date index number 2056a ------------------------------- --------------------------------------------------------------- -------------------------------------- -------------------------- ------------------------------------- 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-113058-10 date september decedent -------------------------------------------- spouse children trust date date a ------------------- ----------------------------------------------------------------------------- --------------------------------------------------------------------------------------- ----------------------- ----------------------- ---------- dear ---------------------------------- this responds to your letter dated date requesting rulings for an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make a qualified_domestic_trust qdot election under sec_2056a of the internal_revenue_code with respect to a_trust the facts and representations submitted are as follows on date decedent a resident of state and a lawful permanent resident_of_the_united_states died testate survived by spouse spouse and four children children neither decedent nor spouse is a citizen_of_the_united_states children are citizens of the united_states children are executors of decedent’s estate under article second of his last will and testament will decedent bequeathed a percent of the residue of his estate in trust trust for the benefit of spouse children are trustees of trust under the terms of trust the trustees must pay all income to spouse and may distribute principal to spouse or use it solely for her benefit during her lifetime upon spouse’s death trust will terminate and the trustees will distribute the assets equally to children plr-113058-10 on date the executors of decedent’s estate timely filed a form_706 united_states estate and generation-skipping tax_return and elected on the schedule m for the assets of trust to qualify for the estate_tax_marital_deduction the executors represent that they engaged a tax accountant to prepare the form_706 and that the accountant failed to make the election to treat the trust as a qdot on such form the estate is requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 to make a qdot election with respect to trust 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_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse under sec_2056 a marital_deduction is allowed for qualified_terminable_interest_property qtip which is defined under sec_2056 as property i which passes from the decedent ii in which the surviving_spouse has a qualifying_income_interest_for_life and iii to which the election under sec_2056 applies sec_2056 provides that the election with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 section b b ii provides that a surviving_spouse has a qualifying_income_interest_for_life in property if i the surviving_spouse is entitled to all of the income from the property payable annually or at more frequent intervals and ii no person has a power to appoint any part of the property to any person other than the surviving_spouse sec_2056 provides that if the surviving_spouse is not a citizen_of_the_united_states no deduction shall be allowed under sec_2056 however sec_2056 provides that sec_2056 will not apply to any property passing to the surviving_spouse in a qdot under sec_2056a in order for a_trust to qualify as a qdot the trust instrument must require that at least one trustee of the trust be an individual citizen_of_the_united_states or domestic_corporation and that no distribution other than a distribution of income may be made from the trust unless a trustee who is an individual citizen_of_the_united_states or a domestic_corporation has the right to withhold from the distribution the additional estate_tax imposed by sec_2056a on the distribution the trust must meet the requirements that are prescribed under treasury regulations to ensure the collection of the tax imposed by sec_2056a and the executor must make the election prescribed by sec_2056a to treat the trust as qdot plr-113058-10 under sec_2056a and sec_20_2056a-3 the election to treat a_trust as a qdot must be made on the last federal estate_tax_return filed before the due_date including extensions of time to file actually granted or if a timely return is not filed on the first federal estate_tax_return filed after the due_date the election once made is irrevocable no election may be made if the return is filed more than year after the due_date of the return 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 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 an extension of time until days after the receipt of this letter is granted to make a qdot election with respect to trust and a percent of the residue of decedent’s estate that passed in trust pursuant to article second of decedent’s will the election should be made on a supplemental form_706 united_states estate and generation-skipping_transfer_tax return filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the supplemental form_706 a copy is enclosed for this purpose furthermore 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 the ruling s in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the code are in effect during the period at issue this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-113058-10 in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative 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 sincerely james f hogan chief branch passthroughs special industries


internal_revenue_service number release date index number 45k ------------------------ ----------------------------------- --------------------------------------- ------------------------------------------ -------------------------- - department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b07 plr-110119-06 date august ------------------------------------------------------------------------------------------ legend p ------------------------------------------------------------------------------------------------------- t u v facility facility facility facility site site reagent location location location location location location date date -------------------------------------------------- ---------------------------- ----------------------------------- ----------------- ---------------- -------- ------- ----------------------- ---------------------- ---------------- ------------------------------------ ---------------------------- ----------------------------------------- ------------------------------------------- ------------------------------------------ ----------------------------- --------------------------- ------------------------- plr-110119-06 dear ---------------- this letter is in response to your letter dated date submitted on behalf of p by its authorized representative requesting rulings under sec_45k formerly sec_29 and of the internal_revenue_code the facts as represented by p and p's authorized representative are as follows p received plr-130091-02 on date and plr-110057-97 on date which rule on issues addressed by this letter p seeks a confirmation of the rulings in light of the relocation of facility and facility p is a delaware limited_partnership classified as a partnership for federal_income_tax purposes the members of p are u and v partners v is responsible for the day- to-day management of p p owns facility facility facility and facility the facility or facilities facility was originally located in location facility was originally located in location facility was originally located in location facility was originally located in location each facility consists of two production lines each of which consists of a briquetter that is fed by its associated mixer p has supplied a detailed description of the process employed at the facilities p is now using reagent in the process for the production of synthetic_fuel at the facilities p relocated and reassembled facility and began operating at site in location site is on land owned by t p relocated and reassembled facility and is in the final stages of relocating to location site is on land owned by t p has entered into a number of agreements with parties unrelated to p and its partners with respect to the operation of synthetic_fuel production at facility and facility these agreements have been provided and described in detail in the ruling_request p has provided a detailed list of costs from the relocations of facility and facility and has represented that following the relocations the fair_market_value of the used_property will be more than percent of each facility's total fair_market_value the cost of the new property plus the value of the used_property the service recently completed an audit of p in connection with the audit the service requested and reviewed information and various documents regarding the placed-in-service facts of the facilities thereafter p received signed forms 870-pt from the service which closed the audit without any adjustment relating to whether p's facilities were placed-in-service prior to date pursuant to a binding written contract in effect before date plr-110119-06 a recognized expert in coal combustion chemistry has performed tests on the coal used at the facilities and the synthetic_fuel produced at the facilities and has submitted reports on fuel produced from coal using the process described in the ruling_request with the use of the reformulated chemical reagent the expert has concluded in each case that a significant chemical change takes place with the application of the process using reagent the rulings requested by p in light of the proposed transactions described above are each facility of p with use of the process described and the reagent will produce a qualified_fuel within the meaning of sec_45k the construction_contract constitutes a binding written contract in effect before date within the meaning of sec_45k the production of qualified_fuel from the facilities will be attributable solely to p within the meaning of sec_45k and thus p will be entitled to the credit under sec_45k on the qualified_fuel sold to unrelated persons provided the facilities were placed_in_service by the deadline in sec_45k date the sec_45k credit attributable to p will be allocated among its partners u and v under the principles of sec_702 in accordance with their interests in p when the credit arises which interest is determined based on a valid allocation of the p’s gross_income that arises from the receipts from the sale of the qualified_fuel and provided a facility was placed_in_service prior to date within the meaning of sec_45k relocation of such facility to a different location after date will not result in a new placed_in_service_date for such facility for purposes of sec_45k provided the fair_market_value of the used_property of such facility is more than percent of such facility's total fair_market_value the cost of the new property plus the value of the used_property the changes since the issuance of the rulings are the relocation of facility and facility and the use of reagent the rulings issued in the previous rulings are not affected by the changed facts as described in the ruling_request ruling_request sec_1 sec_45k allows a credit for qualified_fuels sold by the taxpayer to an unrelated_person during the taxable_year the production of which is attributable to the plr-110119-06 taxpayer the credit for the taxable_year is an amount equal to dollar_figure adjusted for inflation multiplied by the barrel-of-oil_equivalent of qualified_fuels sold sec_45k defines qualified_fuels to include liquid gaseous or solid synthetic fuels produced from coal including lignite including such fuels when used as feedstocks in revrul_86_100 1986_2_cb_3 the internal_revenue_service ruled that the definition of the term synthetic_fuel under sec_48 and its regulations are relevant to the interpretation of the term under sec_45k former sec_48 provided a credit for the cost of equipment used for converting an alternate_substance into a synthetic liquid gaseous or solid fuel revrul_86_100 notes that both sec_29 and former sec_48 contain almost identical language and have the same overall congressional intent namely to encourage energy conservation and aid development of domestic energy production under sec_1_48-9 of the income_tax regulations a synthetic_fuel differs significantly in chemical composition as opposed to physical composition from the alternate_substance used to produce it coal is an alternate_substance under sec_1_48-9 consistent with its private_letter_ruling practice that began in the mid 1990s the service in revproc_2001_30 provided that taxpayers must satisfy certain conditions in order to obtain a letter_ruling that a solid fuel other than coke produced from coal is a qualified_fuel under sec_29 revproc_2001_30 as modified by revproc_2001_34 2001_1_cb_1293 the revenue_procedure requires taxpayers to present evidence that all or substantially_all of the coal used as feedstock undergoes a significant chemical change to meet this requirement and obtain favorable private letter rulings taxpayers provided expert reports confirming that their processes resulted in a significant chemical change in announcement 2003_30_irb_222 the service announced that it was reviewing the scientific validity of test procedures and results presented of significant chemical change in expert reports in announcement 2003_46_irb_1090 the service announced that it had determined that the test procedures and results used by taxpayers were scientifically valid if the procedures were applied in a consistent and unbiased manner however the service concluded that the processes approved under its long standing ruling practice and as set forth in revproc_2001_30 did not produce the level of chemical change required by sec_29 nevertheless the service announced that it recognized that many taxpayers and their investors have relied on its long standing ruling practice to make investments therefore the service announced that it would continue to issue rulings on significant chemical change but only under the guidelines set forth in revproc_2001_30 as modified by revproc_2001_34 this ruling is provided to p consistent with announcement and the service's long standing ruling practice accordingly based on the information supplied plr-110119-06 by p and p's authorized representative including the test results submitted by p we agree that the fuel produced in the facilities using the process and reagent described in p's ruling_request and in the previous rulings will result in a significant chemical change to the coal transforming the coal into a solid synthetic_fuel from coal because p owns the facilities and operates and maintains the facilities we conclude p will be entitled to the sec_45k credit for the production of the qualified_fuel from the facilities that is sold to an unrelated_person ruling_request sec_45k and f provide that sec_45k applies with respect to qualified_fuels that are produced in a facility placed_in_service after date and before date and that are sold before date sec_45k modifies sec_45k in the case of a facility producing qualified_fuels described in sec_45k which qualified_fuels include solid synthetic fuels produced from coal or lignite sec_45k provides that for purposes of sec_45k a facility shall be treated as placed_in_service before date if the facility is placed_in_service before date pursuant to a binding written contract in effect before date sec_45k provides that if the facility is originally placed_in_service after date sec_45k shall be applied by substituting date for date a contract is binding only if it is enforceable under local law against a taxpayer and does not limit damages to a specified amount eg by use of a liquidated_damages provision a contract provision limiting damages to an amount equal to at least five percent of the total_contract_price for example should be treated as not limiting damages the construction contracts executed prior to date include such essential features as a description of the facility to be constructed a completion date and a maximum price p has represented that each construction_contract is binding under applicable state law and that each contract provides for liquidated_damages of at least five percent therefore we reaffirm our conclusion in the previous ruling that the construction contracts are binding written contract in effect before date within the meaning of sec_45k ruling_request sec_45k allows a credit for qualified_fuels sold by the taxpayer to an unrelated_person during the taxable_year the production of which is attributable to the taxpayer under sec_7701 the term taxpayer means any person subject_to any internal revenue tax sec_7701 provides that the term person includes an individual trust estate partnership_association company or corporation accordingly p should be treated as the taxpayer for purposes of the sec_45k credit plr-110119-06 sec_702 and the regulations thereunder require each partner to take into account separately the partner's_distributive_share of each class or item of the partnership's income gain loss deduction or credit see sec_1_702-1 sec_1_702-1 of income_tax regulation requires each partner to take into account separately the partner's_distributive_share of any partnership_item which if separately taken into account by any partner would result in an income_tax_liability different from that which would otherwise result under sec_1_702-1 a partner's_distributive_share is determined as provided in sec_704 and sec_1_704-1 sec_704 provides that a partner's_distributive_share of income gain loss deduction or credit is except as otherwise provided in chapter of subtitle a of title_26 determined by the partnership_agreement sec_704 provides that a partner's_distributive_share of income gain loss deduction or credit or item thereof is determined in accordance with the partner's_interest_in_the_partnership determined by taking into account all facts and circumstances if i the partnership_agreement does not provide for the partner's_distributive_share of income gain loss deduction or credit or item thereof or ii the allocation to a partner under the agreement of income gain loss deduction or credit or item thereof lacks substantial economic_effect under sec_1_704-1 allocations of tax_credits and tax_credit recapture except for sec_38 property do not result in any adjustments to the partners' capital accounts thus these allocations cannot have economic_effect under sec_1_704-1 and the tax_credits and tax_credit recapture must be allocated in accordance with the partners' interests in the partnership as of the time the tax_credit or tax_credit recapture arises the regulations provide however that in determining the partners' interests in the partnership regarding tax_credits that arise from receipts of the partnership whether or not taxable such as the sec_45k credit if that receipt also gives rise to a valid allocation of partnership income the partners' interests in the partnership with respect to such item of credit will be in the same proportion as such partners' respective distributive shares of such income sec_1_704-1 based on the information submitted we conclude that the sec_45k credit attributable to p may be passed through to and allocated to u and v in accordance with each partner's interest in p when the credit arises for the sec_45k credit a partner's interest in p is determined based on a valid allocation of the receipts from the sale of the sec_45k qualified_fuel ruling_request revrul_94_31 1994_1_cb_16 concerns sec_45 which provides a credit for electricity produced from certain renewable resources including wind the credit is based on the amount of electricity produced_by_the_taxpayer at a qualified_facility during a 10-year period beginning on the date the facility was originally placed_in_service and plr-110119-06 sold by the taxpayer to an unrelated_person during the taxable_year revrul_94_31 holds that for purposes of sec_45 a facility qualifies as originally placed_in_service even though it contains some used_property provided the fair_market_value of the used_property is not more than percent of the facility's total value the cost of the new property plus the value of the used_property revrul_94_31 concerns a factual context similar to the present situations consistent with the holding in revrul_94_31 if the facility or facility were placed_in_service prior to date within the meaning of sec_45k the relocation of either facility after date or replacement of parts of facility or facility after that date will not result in a new placed_in_service_date for either facility for purposes of sec_45k provided the fair_market_value of the original property is more than percent of each respective facility's total fair_market_value at the time of the relocation or replacement when property is placed_in_service is a factual determination and we express no opinion on when the facilities were placed_in_service accordingly based on the information submitted and the representations made we conclude as follows each facility of p with use of the process described and the reagent will produce a qualified_fuel within the meaning of sec_45k the construction_contract constitutes a binding written contract in effect before date within the meaning of sec_45k the production of qualified_fuel from the facilities will be attributable solely to p within the meaning of sec_45k and thus p will be entitled to the credit under sec_45k of the code on the qualified_fuel sold to unrelated persons provided the facilities were placed_in_service by the deadline in sec_45k date the sec_45k credit attributable to p will be allocated among its partners u and v under the principles of sec_702 in accordance with their interests in p when the credit arises which interest is determined based on a valid allocation of the p’s gross_income that arises from the receipts from the sale of the qualified_fuel and provided a facility was placed_in_service prior to date within the meaning of sec_45k relocation of such facility to a different location after date will not result in a new placed_in_service_date for such facility for purposes of sec_45k provided the fair_market_value of the used_property of such facility is more than percent of such facility's total fair_market_value the cost of the new property plus the value of the used_property plr-110119-06 the conclusions drawn and rulings given in this letter are subject_to the requirements that taxpayer i maintain sampling and quality control procedures that conform to astm or other appropriate industry guidelines at the facilities that are the subject of this letter ii obtain regular reports from independent laboratories that have analyzed the fuel produced in such facilities to verify that the coal used to produce the fuel undergoes a significant chemical change and iii maintain records and data underlying the reports that taxpayer obtains from independent laboratories including raw ftir data and processed ftir data sufficient to document the selection of absorption peaks and integration points except as specifically ruled upon above we express no opinion concerning the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling may be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in this ruling see dollar_figure of revproc_2006_1 2006_1_irb_1 however when the criteria in dollar_figure of revproc_2006_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely s joseph h makurath senior technician reviewer branch office of associate chief_counsel passthroughs special industries -------------------- cc ----------------------- ------------------------------------ --------------------------------