t c memo united_states tax_court dwight s antonina k platt petitioners v commissioner of internal revenue respondent herbert christine bangs petitioners v commissioner of internal revenue respondent docket nos filed date w randolph shump for petitioners in docket no stuart henry levine for petitioners in docket no bradley c plovan for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined the following defi- ciencies in and accuracy-related_penalties under sec_6662 a on petitioners’ respective federal_income_tax for petitioners deficiency accuracy-related_penalty dwight s platt and antonina k platt herbert bangs and christine bangs dollar_figure big_number dollar_figure we must decide whether certain payments that petitioner herbert bangs mr bangs made during to petitioner antonina platt ms platt are deductible or excludable from mr bangs’ income for his taxable_year and includible in ms platt’s income for her taxable_year we hold that they are not findings_of_fact all of the facts in these cases which the parties submitted under rule have been stipulated by the parties and are so found except as stated below petitioners in the case at docket no ms platt and dwight platt mr platt resided in stevenson maryland at the time they filed the petition in that case petitioners in the case at docket no mr bangs and christine bangs ms 1unless otherwise indicated all section references are to the internal_revenue_code code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure 2respondent made certain additional determinations in the respective notices of deficiency that respondent issued to petitioners in these cases the resolution of which flows auto- matically from our resolution of the determinations in those respective notices that we address herein see also infra note bangs resided in ruxton maryland at the time they filed the petition in that case on a date not disclosed by the record mr bangs and ms platt were married at all relevant times including while mr bangs was married to ms platt mr bangs participated in a pension_plan baltimore county pension_plan maintained by his employer baltimore county maryland at those times that was the only pension_plan in which mr bangs participated on date mr bangs and ms platt divorced pursuant to a decree of divorce divorce decree issued by the circuit_court for baltimore county the divorce decree provided in pertinent part it is further ordered that the defendant shall pay to the plaintiff directly as permanent alimony the sum of three hundred dollars dollar_figure per month effective date payable until the death of either party or the remarriage of the plaintiff which- ever shall first occur subject_to the further order of the court it is further ordered that the defendant shall pay to the plaintiff as a monetary award the sum of thirty-two thousand nine hundred dollars dollar_figure which sum shall be payable within days of date it is further ordered that the aforesaid monetary award shall be reduced to judgment on date and shall draw interest at the legal rate from such date 3we shall refer to the second-ordered paragraph quoted above as the divorce decree dollar_figure lump-sum payment provision it is further ordered that with respect to the defendant’s pension the defendant shall pay to the plaintiff if as and when he receives each pension payment that sum which is determined in accordance with the following formula percent x years and seven months of marriage by total years of employment it is further ordered that if the defendant voluntarily takes his pension as a lump sum either before or after retirement then defendant shall upon receipt of said lump sum pay to the plaintiff the sum of twenty-two thousand five hundred dollars dollar_figure with simple interest at the rate of ten percent from date to the date of payment reproduced literally during mr bangs received monthly payments from the baltimore county pension_plan pursuant to the divorce decree provision in question shortly after receiving each such monthly payment mr bangs made the following monthly payments totaling dollar_figure5 monthly payments at issue on the dates indicated by electronic transfers from a joint checking account that he and ms bangs maintained to a checking account of ms platt 4we shall refer to the fourth-ordered paragraph quoted above as the divorce decree provision in question 5the parties stipulated that during mr bangs paid to ms platt dollar_figure pursuant to the divorce decree provision in question that stipulation is clearly contrary to the facts that we have found are established by the record and we shall disre- gard it see 93_tc_181 the record establishes and we have found that during mr bangs paid to ms platt dollar_figure pursuant to the divorce decree provision in question date of payment amount of payment dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure mr bangs and ms bangs timely filed form_1040 u s indi- vidual income_tax return form_1040 for their taxable_year mr bangs’ return in that return mr bangs claimed a deduc- tion of dollar_figure for alimony mr bangs did not issue to ms platt and did not file with the internal_revenue_service any form_1099 for a nominee distribution with respect to those payments on date respondent issued to mr bangs a notice_of_deficiency with respect to his taxable_year notice for mr bangs’ taxable_year in that notice respondent disallowed the alimony deduction that mr bangs claimed in mr bangs’ return in the notice for mr bangs’ taxable_year 6for convenience we shall generally refer hereinafter only to mr bangs and not to ms bangs 7see supra note the record does not disclose why mr bangs deducted as alimony dollar_figure in excess of the dollar_figure that he paid to ms platt during that year pursuant to that divorce decree provision respondent also determined that mr bangs is liable for his taxable_year for the accuracy-related_penalty under sec_6662 mr platt and ms platt timely filed form_1040 for their taxable_year in that return ms platt did not include in income the dollar_figure9 that she received from mr bangs during on date respondent issued to ms platt a notice_of_deficiency with respect to her taxable_year notice for ms platt’s taxable_year in that notice respondent determined that ms platt received dollar_figure of alimony that is includible in her income for that year in the notice for ms platt’s taxable_year respondent also determined that ms platt is liable for her taxable_year for the accuracy- related penalty under sec_6662 opinion the parties submitted these cases fully stipulated under rule that the parties submitted these cases under that rule does not affect who has the burden_of_proof or the effect of a 8for convenience we shall generally refer hereinafter only to ms platt and not to mr platt 9see supra note 10see supra note failure of proofdollar_figure rule b 95_tc_82 affd 943_f2d_22 8th cir in support of his argument that the monthly payments at issue are deductible or excludable from his income and includible in ms platt’s income for the taxable_year mr bangs advances several arguments we first address mr bangs’ argument that the monthly payments at issue constitute alimony under sec_71 and are deductible under sec_215 ms platt and respondent take the position that those payments are not alimony under that sectiondollar_figure in advancing their respective positions on brief as to whether the monthly payments at issue constitute alimony under sec_71 mr bangs and ms platt rely on sec_71 as amended by the deficit_reduction_act_of_1984 defra publaw_98_369 98_stat_795 amended sec_71 respondent argues that amended sec_71 does not apply to those payments we agree with respondentdollar_figure 11the parties do not address sec_7491 in any event we need not decide whether the burden_of_proof shifts to respondent under that section that is because resolution of the issue presented here does not depend on who has the burden_of_proof 12respondent in each of these cases is in essence a stake- holder on brief however respondent agrees with ms platt’s position 13defra also amended sec_215 amended sec_215 defra publaw_98_369 98_stat_797 that amendment applies with respect to divorce and separation instruments continued amended sec_71 applies with respect to divorce and separation instruments executed after date and any such instruments executed before date but modified on or after that date if the modification expressly provides that amended sec_71 applies to such modification defra sec_422 98_stat_798 in his reply brief mr bangs argues that sec_71 before its amendment by defra does not apply in the instant cases because he and ms platt effectively stipulated that amended sec_71 appliesdollar_figure we reject that argument we note ini- tially that although mr bangs and ms platt take the position on brief that amended sec_71 applies in these cases they did not stipulate that that section applies even if mr bangs and continued executed after date and any such instruments executed before date but modified on or after that date if the modification expressly provides that amended sec_215 applies to that modification defra sec_422 98_stat_798 the parties do not address whether sec_215 before its amendment by defra or amended sec_215 applies in these cases on the record before us we hold that sec_215 before its amendment by defra and not amended sec_215 applies 14in his reply brief mr bangs also argues that amended sec_71 applies because the commissioner made the assessments against both sets of taxpayers in order to avoid being ‘whip- sawed’ we reject that argument that respondent made the respective determinations at issue in order to avoid being whipsawed is irrelevant to resolving whether sec_71 before its amendment by defra or amended sec_71 applies in these cases in her reply brief ms platt does not address respondent’s argument that sec_71 before its amendment by defra and not amended sec_71 applies in these cases ms platt had stipulated that amended sec_71 applies in these cases the court is not bound by stipulations of law see eg 95_tc_132 ndollar_figure the circuit_court for baltimore county issued the divorce decree on date the record does not establish that that court modified that decree after that date on the record before us we hold that sec_71 before its amendment by defra and not amended sec_71 applies in determining whether the monthly payments at issue constitute alimony in his reply brief mr bangs states we would agree that if the pre-tax reform act of version of sec_71 sec_71 before its amendment by defra is applicable the disputed payments monthly payments at issue do not constitute alimony mr bangs thus concedes that if we were to hold that sec_71 before its amendment by defra applies which we have the monthly payments at issue do not constitute alimony under that section based on mr bangs’ concession we hold that the monthly payments at issue do not constitute alimony under sec_71 before its amendment by defra and are not deductible under sec_215 before its amendment by defradollar_figure we turn now to mr bangs’ argument that ms platt was the owner of an interest in the baltimore county pension_plan since the divorce decree ordered him to pay her if as and when he 15see supra note receives each pension payment that sum which is determined in accordance with the following formula percent x years and seven months of marriage by total years of employment as a result according to mr bangs the monthly payments at issue are excludable from his income and includible in ms platt’s income for the taxable_year ms platt and respon- dent argue that ms platt did not own an interest in the balti- more county pension plandollar_figure as a result according to ms platt and respondent the monthly payments at issue are includible in mr bangs’ income and excludable from her income for the taxable_year petitioners in each of these cases agree and respondent does not dispute that the baltimore county pension_plan consti- tutes a qualified_pension plan within the meaning of sec_401dollar_figure moreover none of the parties disputes that the balti- 16see supra note sec_401 provides in pertinent part sec_401 qualified_pension profit-sharing and stock_bonus_plans a requirements for qualification --a trust created or organized in the united_states and forming part of a stock bonus pension or profit-sharing_plan of an employer for the exclusive benefit of his employ- ees or their beneficiaries shall constitute a qualified_trust under this section-- if contributions are made to the trust by such employer or employees or both for the purpose of distributing to such employees or their continued more county pension_plan constitutes a governmental_plan as defined in sec_414dollar_figure inexplicably however none of the parties addresses sec_402 in advancing their respective positions as to whether the monthly payments at issue are excludable from mr bangs’ income and includible in ms platt’s income for the taxable_year dollar_figure that section governs the continued beneficiaries the corpus and income of the fund accumulated by the trust in accordance with such plan if under the trust instrument it is im- possible at any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust for any part of the corpus or income to be within the taxable_year or thereafter used for or diverted to purposes other than for the exclusive benefit of his employees or their beneficiaries all references hereinafter to a qualified_pension plan are to a qualified_pension plan within the meaning of sec_401 sec_414 defines the term governmental_plan as a plan established and maintained for its employees by the govern- ment of the united_states by the government of any state or political_subdivision thereof or by any agency or instrumental- ity of any of the foregoing all references hereinafter to a governmental_plan are to a governmental_plan within the meaning of sec_414 19instead in support of their respective positions as to whether the monthly payments at issue are excludable from mr bangs’ income and includible in ms platt’s income for the taxable_year the parties rely on sec_61 and on cases eg pfister v commissioner tcmemo_2002_198 affd 359_f3d_352 4th cir and witcher v commissioner t c memo in which the court based its respective holdings on that section although sec_61 provides the general_rule that gross_income includes income derived from pensions congress provided a special rule in sec_402 with respect to continued taxation of distributions from a qualified_pension plan sec_402 provides that any amount distributed from a qualified_pension plan including a governmental_plan is generally taxable to the distributee under such a plan in 97_tc_51 the court addressed the meaning of the term distributee in sec_402 in the context of a qualified_pension plan which was not a governmental_plan or any other qualified_plan that was not subject_to the so-called spendthrift provisions of sec_401dollar_figure the court held there that the term distributee in sec_402 ordinarily means the participant or the benefi- ciary who is entitled under such a plan to receive a distribu- tion darby v commissioner supra pincite in so holding the continued distributions from qualified_pension plans see 97_tc_51 unlike the instant cases pfister and witcher did not involve qualified_pension plans those cases involved federal military retirement programs that are subject_to federal statutes that do not apply in the instant cases the parties’ reliance on sec_61 and on pfister and witcher is misplaced 20all references hereinafter to the spendthrift provisions are to the provisions of sec_401 that with certain exceptions prohibit the assignment and alienation of benefits under a qualified_pension plan 21the rationale on which the court based its holding in darby v commissioner supra related in large part to congress’ addition to the code in of the provisions relating to qualified domestic relations orders qdro provisions those provisions include sec_414 which defines the term qualified_domestic_relations_order qdro and sec_402 origi- continued court rejected the taxpayer’s argument that the term distributee in sec_402 means the owner of an interest in a qualified_pension plan id pincite continued nally enacted as sec_402 which governs the taxation of distributions or payments that are made pursuant to a qdro as discussed below when congress enacted the qdro provisions in those provisions did not apply to governmental plans that are not subject_to the spendthrift provisions of sec_401 see sec_414 sec_401 sec_1_401_a_-13 income_tax regs see also h rept pincite the legislative_history of the qdro provisions enacted in states in pertinent part generally under present law benefits under a pension profit-sharing or stock_bonus_plan pension_plan are subject_to prohibitions against assignment_or_alienation spendthrift provisions sic several cases have arisen in which courts have been required to determine whether the spend- thrift provisions apply to family support obligations eg alimony separate_maintenance and child_support_obligations there is a divergence of opinion among those courts reasons for change the committee believes that the spendthrift rules should be clarified by creating a limited exception that permits benefits under a pension etc plan to be divided under certain circumstances in order to provide rational rules for plan administers sic the committee believes it is necessary to establish guide- lines for determining whether the exception to the spendthrift rules applies s rept pincite 1984_2_cb_447 a question arises as to whether the definition of the term distributee in darby v commissioner supra applies in the instant cases where the qualified_pension plan in question is a governmental_plan that is not subject_to the spendthrift provi- sions of sec_401dollar_figure we need not resolve that ques- tion that is because regardless of whether in the context of a governmental_plan such as the qualified_pension plan involved in the instant cases the term distributee in sec_402 means the participant or the beneficiary under such a plan as the court held in darby or the owner of such a plan as the parties apparently argue here on the record before us we find that for purposes of sec_402 mr bangs and not ms platt was the distributee under the baltimore county pension_plan the parties do not dispute that during the year at issue mr bangs and not ms platt was a participant under the balti- more county pension_plan and that during that year ms platt was not a beneficiary of an interest in that pension_plan we thus consider only the parties’ disagreement over whether ms 22in 101_tc_489 the court set forth an exception to the general definition in darby v commissioner supra of the term distributee in sec_402 the court held in powell that that definition did not apply in a situation governed by community_property_laws where the former spouse’s rights were acquired by her directly at the outset and did not represent a transfer to her of rights which had previ- ously accrued to her husband id pincite accordingly the court further held in powell that the former spouse was a distributee under sec_402 who was taxable on her share of the pension benefits in question id pincite platt was the owner of an interest in the baltimore county pension_plan in support of their respective positions as to whether ms platt was the owner of an interest in the baltimore county pension_plan the parties rely on the divorce decree provision in question that provision requires mr bangs to pay an amount determined pursuant to a formula stated therein if as and when he receives a payment from the baltimore county pension_plan contrary to mr bangs’ argument the divorce decree provision in question does not provide that ms platt is the owner of an interest in that plandollar_figure nor has that provision been construed to do so in fact the court of special appeals of maryland concluded that the divorce decree provision in question granted nothing more than a monetary award to ms platt see bangs v bangs a 2d md ct spec app in bangs v bangs supra mr bangs appealed from the divorce decree involved in these cases in that appeal mr bangs did not argue as he does here that the divorce decree provision in question provided that ms platt was the owner of an 23as discussed supra note mr bangs’ reliance on pfister v commissioner tcmemo_2002_198 is misplaced because that case involved a federal military retirement program that was subject_to federal statutes that do not apply in the instant cases mr bangs’ reliance on pfister also is misplaced because unlike the divorce decree involved in the instant cases the divorce decree involved in pfister provided that the taxpayer in that case was to be owner of and receive one-half of husband’s disposable retired or retainer pay id interest in the baltimore county pension_plan instead he argued that the circuit_court for baltimore county granted ms platt two monetary awards consisting of the payment ordered under the divorce decree dollar_figure lump-sum payment provision24 and the payments ordered under the divorce decree provision in question25 and that the circuit_court for baltimore county erred by refusing to place a cap or ceiling on the latter payments id pincite3 the court of special appeals of maryland agreed with mr bangs that the payments ordered under the divorce decree dollar_figure lump-sum payment provision and under the divorce decree provision in question were in the nature of a monetary award id pincite but disagreed with mr bangs that the circuit_court for baltimore county had granted ms platt two separate monetary awards under 24the divorce decree dollar_figure lump-sum payment provision provided it is further ordered that the defendant shall pay to the plaintiff as a monetary award the sum of thirty-two thousand nine hundred dollars dollar_figure which sum shall be payable within days of date 25the divorce decree provision in question provided it is further ordered that with respect to the defendant’s pension the defendant shall pay to the plaintiff if as and when he receives each pension payment that sum which is determined in accordance with the following formula percent x years and seven months of marriage by total years of employment those two provisions id the court of special appeals of maryland held that the circuit_court for baltimore county granted ms platt only one monetary award consisting of the payment ordered under the divorce decree dollar_figure lump-sum payment provi- sion and the payments ordered under the divorce decree provision in question id pincite3 the court of special appeals of maryland also disagreed with mr bangs’ argument that the circuit_court for baltimore county erred by refusing to place a cap or ceiling on the latter payments id pincite according to the court of special appeals of maryland the circuit_court for baltimore county had broad discretion and did not abuse that discretion by determining a fixed percentage for ms platt of the future payments that mr bangs was to receive from the baltimore county pension_plan id pincite3 the law of maryland in effect at the time that the circuit_court for baltimore county issued the divorce decree involved in the instant cases provides further support for our finding that the divorce decree provision in question does not provide that ms platt is the owner of an interest in the baltimore county pension plandollar_figure the law of maryland in effect at that time md 26as discussed supra note mr bangs’ reliance on witcher v commissioner tcmemo_2002_292 is misplaced because that case involved a federal military retirement program that was subject_to federal statutes that do not apply in the instant cases mr bangs’ reliance on witcher also is misplaced because unlike the state law involved in the instant cases the state law continued code ann cts jud proc sec 3-6a-05 supp repealed and recodified as md code ann fam law sec by acts ch sec_1 and did not authorize maryland courts to transfer ownership of an interest in a pension_plan as part of a divorce settlement see generally klingenberg v klingenberg a 2d md it was not until that the legislature of the state of maryland autho- rized maryland courts to transfer ownership of an interest in a pension retirement profit sharing or deferred_compensation continued involved in witcher authorized the court that issued the divorce decree involved in that case to award an ownership_interest in a military pension as part of a divorce settlement id 27the law of maryland in effect at the time that the circuit_court for baltimore county issued the divorce decree involved in the instant cases md code ann cts jud proc sec 3-6a-05 supp repealed and recodified as md code ann fam law sec by acts ch sec_1 and provided in pertinent part sec 3-6a-05 monetary award b the court shall determine the value of all marital property after making the determination the court may grant a monetary award as an adjustment of the equities and rights of the parties concerning marital property whether or not alimony is awarded in deering v deering a 2d md the court_of_appeals of maryland held under the above-quoted provi- sion that a spouse’s pension rights to the extent accumulated during the marriage constitute a form of ‘marital property’ plan as part of a divorce settlement md code ann fam law sec a i west dollar_figure see generally klingenberg v klingenberg supra pincite on the record before us we find that ms platt was not the owner of an interest in the baltimore county pension_plan on that record we further find that regardless of whether in the context of a governmental_plan such as the qualified_pension plan involved in the instant cases the term distributee in sec_402 means the participant or the beneficiary under such a plan as the court held in darby v commissioner t c 28md code ann fam law sec a west provides in pertinent part a after the court determines which property is marital property and the value of the marital property the court may transfer ownership of an interest in property described in paragraph of this subsection grant a monetary award or both as an adjustment of the equities and rights of the parties concerning marital property whether or not alimony is awarded the court may transfer ownership of an inter- est in i a pension retirement profit sharing or deferred_compensation plan from one party to either or both parties ii subject_to the consent of any lienholders family use personal_property from one or both parties to either or both parties and iii subject_to the terms of any lien real_property jointly owned by the parties and used as the principal_residence of the parties when they lived together pincite or the owner of an interest in such a plan as the parties apparently argue here for purposes of that section mr bangs and not ms platt was the distributee under the baltimore county pension_plan unless the divorce decree qualifies under sec_414 as a qdro the final argument that mr bangs advances in support of his position in these cases and that we consider now is that the divorce decree involved in these cases qualifies under sec_414 as a qdro if the divorce decree were to qualify as such ms platt would be an alternate payee29 under the baltimore county pension_plan in that event she would be treated for purposes of sec_402 as the distributee under that plan of the payments to which she was entitled pursuant to the divorce decree provision in question see sec_402 we reject mr bangs’ argument that the divorce decree qualifies under sec_414 as a qdrodollar_figure the qdro provision sec_29sec p defines the term alternate_payee as any spouse former spouse child or other dependent of a participant who is recognized by a domestic_relations_order as having a right to receive all or a portion of the benefits payable under a plan with respect to such participant 30we note that the parties stipulated qdro stipulation no ‘qualified domestic relations order’ ‘qdro’ has been issued to either antonina k platt or herbert bangs either on date or at any time thereafter none of the parties argues that the qdro stipulation means that the divorce decree involved in the instant cases may not qualify under sec_414 as a qdro we shall independently address whether that divorce decree so qualifies that congress enacted in did not apply to governmental plans see sec_414 see also supra note in congress added sec_414 to the codedollar_figure omnibus budget reconciliation act of obra publaw_101_239 sec a stat sec_414 provides that a distribution or payment from a governmental_plan shall be treated as made pursuant to a qualified domestic rela- tions order if it is made pursuant to a domestic_relations_order which meets the requirement of clause i of paragraph a of sec_414dollar_figure sec_414 applies only with respect to transfers of marital interests in governmental plans that occur after date obra sec a 103_stat_2428 31congress added sec_414 to the code in order to conform generally the tax rules relating to transfers of inter- ests in a governmental_plan to the tax rules applicable to other qualified_plans pursuant to the retirement equity act h rept pincite 32generally a domestic_relations_order qualifies under sec_414 as a qdro if that order creates or recognizes the existence of an alternate payee’s right to or assigns to an alternate_payee the right to receive all or a portion of the benefits payable with respect to a participant under a plan sec_414 clearly specifies certain facts such as the name and last known mailing address of the participant and the name and mailing address of the alternate_payee sec_414 and does not alter the amount or form of the plan benefits sec_414 with respect to governmental plans however a domestic_relations_order qualifies under sec_414 as a qdro if that order creates or recognizes the existence of an alternate payee’s right or assigns to an alternate_payee the right to receive all or a portion of the benefits payable with respect to a participant under a plan see sec_414 the circuit_court for baltimore county issued the divorce decree involved in the instant cases on date on the record before us we hold that sec_414 does not apply to that divorce decree on that record we further hold that the divorce decree involved in the instant cases does not qualify under sec_414 as a qdro and that ms platt is not an alternate_payee for purposes of sec_402 accordingly we further hold that ms platt is not to be treated as a distributee under the baltimore county pension_plan of the payments to which she was entitled pursuant to the divorce decree provision in question see sec_402 based upon our examination of the entire record before us we find that the monthly payments at issue are not deductible or excludable from mr bangs’ income and are not includible in ms platt’s income for the taxable_year dollar_figure we have considered all of the parties’ respective conten- tions and arguments that are not discussed herein and we find them to be without merit irrelevant and or moot 33on brief respondent does not advance any arguments in support of the respective determinations under sec_6662 in the notice for mr bangs’ taxable_year and in the notice for ms platt’s taxable_year we conclude that respondent has abandoned those determinations assuming arguendo that we had not concluded that respondent abandoned those respective determinations on the record before us we find that neither petitioners in the case at docket no nor petitioners in the case at docket no are liable for the accuracy- related penalty under sec_6662 to reflect the foregoing decision will be entered for petitioners in docket no decision will be entered for respondent as to the deficiency and for petitioners as to the accuracy- related penalty under sec_6662 in docket no


internal_revenue_service number release date index number -------------------------------------- --------------------------------------------------------------- ----- ------------------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ----------------- telephone number --------------------- refer reply to cc psi b01 plr-139672-11 date date legend x ------------------------------------------ ------------------------------------------------------------------- date1 -------------------------- date2 ---------------------- state -------- dear ------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated on date1 under the laws of state x intended to be treated as an s_corporation for federal tax purposes effective date2 but the proper election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides in relevant part that 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 plr-139672-11 as an s_corporation for the year in which the election is made sec_1362 provides that if the 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 sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such election as timely made for such taxable_year and effective as of the first day of that year x did not file a timely election to be treated as an s_corporation under sec_1362 effective date2 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective date2 if within days from the date of this letter x submits a properly completed form_2553 with a copy of this letter attached to the appropriate service_center 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 specifically no opinion is expressed or implied concerning whether x otherwise qualifies as an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely faith p colson faith p colson senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l date number release date uilc cc pa apjp b02 scaf-130097-02 service_center advice memorandum for associate area_counsel small_business self employed cc sb phi from ashton p trice senior technician reviewer administrative provisions judicial practice cc pa apjp b02 subject failure_to_file and failure to pay penalties for overseas taxpayers this responds to your request for significant advice dated date in connection with a question posed by the philadelphia service_center issue whether in calculating the failure_to_file and failure to pay penalties under sec_6651 respectively the internal_revenue_service service should use april or june as the date after which the penalties will accrue for taxpayers who qualify for an automatic two-month extension under sec_1_6081-5 but file and pay late conclusion the service should use june as the date after which both failure_to_file and failure to pay penalties will accrue for taxpayers who qualify for the automatic two- month extension under sec_1_6081-5 but file and pay late facts taxpayer is a united_states citizen living abroad taxpayer is a calendar_year taxpayer who filed a income_tax return after june attached to the return was a letter stating that under the provisions of sec_1_6081-5 the taxpayer qualified for a two-month extension within which to file a return the late- filed return showed a balance due which was remitted with the return scaf-130097-02 taxpayer failed to provide an explanation for filing the return beyond the extended due_date the service processed the late-filed return and taxpayer was charged statutory interest additionally taxpayer was assessed a penalty for both failure to timely file and failure to timely pay pursuant to sec_6651 and respectively the penalties were calculated from april the original due_date of the return excluding extensions failure_to_file discussion in the event that a taxpayer fails to file a timely return sec_6651 imposes an addition_to_tax of percent of the amount of tax required to be shown on the return for each month or fraction thereof during which the failure continues not to exceed percent in the aggregate the penalty is reduced by any_tax paid on or before the date prescribed for payment sec_6651 the penalty extends from the prescribed date for filing the return which is determined by reference to any extension of time for filing the return sec_6651 mordkin v commissioner tcmemo_1996_187 thus the accrual of the failure_to_file_penalty begins immediately after the extended due_date for filing the return generally for calendar_year taxpayers returns are required to be filed on or before april following the close of the taxable_year sec_6072 sec_6081 however provides that the service may grant a reasonable extension of time for filing a return not to exceed six months except that the service has authority to grant longer extensions to taxpayers who are abroad sec_6081 sec_1_6081-5 provides an extension of time for filing returns and paying any_tax shown on the return up to and including the fifteenth day of the sixth month following the close of the taxable_year for united_states citizens or residents whose tax homes and abodes in a real and substantial sense are outside the united_states and puerto rico for calendar_year taxpayers that date is june the date prescribed for payment is generally the filing due_date without regard to extensions of time for filing sec_6151 accordingly publication provides that if a taxpayer fails to file by the due_date with extensions then the failure_to_file_penalty will be calculated on the amount of tax not paid_by the due_date without regard to extensions see publication page catalog number 10311f revision we do not believe that this statement contemplates situations in which there has been an extension of the payment due_date as opposed to the filing due_date this extension applies to returns of income due after date see sec_1_6081-5 scaf-130097-02 to qualify for the extension the taxpayer must attach a statement to the return stating the reason the taxpayer qualifies for the extension in the event that a taxpayer meets the requirements of sec_1 a and attaches a statement stating the reason he or she qualifies for the extension the extension would be valid thus the failure_to_file_penalty should be imposed only if the taxpayer fails to file by the extended due_date june if the taxpayer does not file by june the failure_to_file_penalty should be calculated on the basis of each month or part thereof after june that the failure continues up to five months sec_6651 sec_1_6081-5 failure to pay if a taxpayer fails to pay the amount show as tax on any return on or before the date prescribed for payment determined with regard to extension of time for payment an addition_to_tax of percent of the unpaid tax is added for each month or fraction thereof not to exceed percent sec_6651 generally payment of tax is due at the time the return for the tax is due to be filed without regard to any extension of time for filing the return sec_6151 in other words extensions of time for filing do not constitute extensions of time for payment in some cases however taxpayers may obtain extensions of time for payment sec_6161 provides that the service may extend the time for payment of tax shown or required to be shown on any return for a reasonable period of time not to exceed six months sec_1_6081-5 discussed above provides an automatic_extension of time for payment for overseas taxpayers who submit a proper statement attached to their return because sec_6651 provides that the failure to pay penalty is determined with regard to extensions of time for payment if a taxpayer complies with the requirement of sec_1_6081-5 and attaches a statement stating the reason the taxpayer qualifies for the extension the failure to pay penalty should while sec_6081 generally provides extensions of time to file sec_1_6081-5 provides for an extension of time to pay as well consistent with this rule is irm which states that the penalty_period for the failure to pay penalty is the number of months from the return_due_date - not including extensions - until the tax is paid in full or the maximum percent is reached we do not believe that that particular statement in the irm addresses situations in which the taxpayer has obtained an extension of time to pay as opposed to an extension of time to file scaf-130097-02 arise only if payment is made after the extended payment due_date ie after june for a calendar_year taxpayer sec_6651 furthermore the failure to pay penalty should be calculated on the basis of each month or part thereof after june that the failure to pay continues up to months when the penalty would reach its maximum amount sec_6651 if you have any questions or need further information please contact branch of administrative provisions judicial practice at


internal_revenue_service number release date index number ----------------------------------------- --------------------------------------- ----------------------------- ---------------------------------- in 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 intl b06 plr-115711-17 date date -------------- legend ----------------------------------------------------------------- ----------------------------------------- taxpayer company accounting firm ------------------------ -------- accountant date date date ---------------------- --------------------- ---------------------- --------------------------- dear ----- ------------------ this responds to correspondence dated date requesting that the internal_revenue_service service grant taxpayer an extension of time under sec_301_9100-1 and sec_301_9100-3 to file form 4876-a election to be treated as an interest_charge_disc for taxpayer’s first taxable_year the rulings contained in this letter are based upon information and representations submitted by taxpayer and its representatives and accompanied by affidavits and penalties of perjury statements executed by appropriate parties this office has not verified any of the materials submitted in support of the request for rulings they are subject_to verification on examination plr-115711-17 facts taxpayer is a domestic_corporation formed on date for the purpose of serving as an interest charge domestic_international_sales_corporation ic-disc taxpayer established a commission arrangement with company after formation taxpayer failed to timely file form 4876-a due to miscommunication between itself and accounting firm in a private_letter_ruling issued on date the service granted taxpayer an extension of days from the date of the private_letter_ruling to file form 4876-a for taxpayer’s first taxable_year after issuance of the private_letter_ruling taxpayer immediately contacted accountant who represented taxpayer concerning the ruling regarding instructions on how to properly complete the appropriate paperwork for making the late election taxpayer relied on accountant to properly advise it on how to file form 4876-a however accountant did not immediately reply to taxpayer and when accountant did reply failed to describe to taxpayer the deadline to timely file form 4876-a taxpayer filed form 4876-a on date but because this was after the day extension for filing the form it was rejected by the service taxpayer has since terminated its relationship with accountant as a result taxpayer has requested a ruling that grants an additional extension of time of days from the date of this ruling letter to file form 4876-a and that such filing will be treated as a timely election to be treated as an ic-disc for taxpayer’s first taxable_year law and analysis sec_992 of the internal_revenue_code code provides that an election by a corporation to be treated as a disc1 shall be made by such corporation for a taxable_year at any time during the 90-day period immediately preceding the beginning of the taxable_year except that the secretary may give his consent to the making of an election at such other times as he may designate sec_992 of the code provides that such election shall be made in such manner as the secretary shall prescribe and shall be valid only if all persons who are shareholders in such corporation on such first day of the first taxable_year for which such election is effective consent to such election temp sec_1_921-1t provides in part that a corporation electing ic- disc status must file form 4876-a and that a corporation electing to be treated as an ic-disc for its first taxable_year shall make its election within days after the beginning of that year as used in this letter the terms ic-disc and disc have the same meaning plr-115711-17 sec_301_9100-1 provides in part that the commissioner in exercising the commissioner’s discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that a regulatory election is an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin for this purpose an election includes an application_for relief in respect of tax sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government in the present situation the election described in temp sec_1_921-1t is a regulatory election as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards for relief set forth in sec_301_9100-3 based on the facts and representations submitted with taxpayer’s ruling_request we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file form 4876-a such filing will be treated as a timely election to be treated as an ic- disc for taxpayer’s first taxable_year the granting of an extension in this ruling letter is not a determination that taxpayer is otherwise eligible to make the election or to claim ic-disc status or benefits see sec_301_9100-1 taxpayer should attach a copy of this ruling letter to its form 4876-a and federal_income_tax return for the taxable years to which this letter applies this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent except as expressly provided herein this letter does not express or imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter plr-115711-17 pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to your authorized representatives sincerely _____________________________________ robert z kelley assistant to the branch chief branch office of associate chief_counsel international enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court estate of mary roppolo artall deceased jasper artall co- executor betty jo artall vollenweider co-executor and ralph artall co-executor petitioners v commissioner of internal revenue respondent docket no filed date donald a capretz and lawrence d huter for petitioners lillian d brigman for respondent memorandum opinion halpern judge respondent determined a dollar_figure deficiency in federal estate_tax all section references are to the internal_revenue_code in effect for date the date of the death of mary roppolo artall decedent all rule references are to the tax_court rules_of_practice and procedure some of the facts have been stipulated and are so found the stipulation of facts with accompanying exhibits is incorporated herein by this reference jasper and ralph artall resided in louisiana and betty jo artall vollenweider resided in texas at the time the petition was filed the sole issue remaining for decision is a question of law that recently we answered in estate of farnam v commissioner t c __ the question is whether for purposes of the liquidity test of sec_2057 decedent’s loans to an entity owned by her and two of her children and carrying_on_a_trade_or_business are to be treated as interests in that entity in estate of farnam we answered that question in the negative petitioners have made no arguments that lead us to believe that we erred in estate of farnam we rely on estate of farnam and hold accordingly decision will be entered under rule


internal_revenue_service director exempt_organizations rulings and agreements department of the treasury p o box - room cincinnati ohio release number release date date date employer_identification_number person to contact - id contact telephone numbers phone fax uil legend b c d e x y name of foundation name of scholarship program name of associate partnership schools name of organization dollar amount dollar amount dear - a is classified as of the code and that it of the internal_revenue_code dated we have considered your request for advance approval of your grant-making program under sec_4945 march our records indicate that b was recognized as exempt from federal_income_tax under sec_501 private_foundation as defined in sec_509 your letter indicates that b will operate a grant-making program called c to further the educational opportunities of students to attend an educational_institution that meets the requirements of sec_170 b a ii the program will initially award scholarships to pay for tuition in the amount of x annually for a total amount of y per student over the course in the future the of up amounts of the scholarships may be increased to the extent educational a public charity under costs rise of the code which in turn will pay the scholarship sec_501 awards directly to each educational_institution that a recipient will attend their college career if they comply with the program requirements and expectations in order to be eligible for the award candidates must meet the following five conditions to five years of college undergraduate study scholarship recipients may receive funding for up to five years of these stipends will be paid to e a u s citizen or she must be d a graduating high school senior in good standing at he d ora must be former high school graduate or currently enrolled college student at a have successfully completed a minimum of three courses administered in high school with a minimum grade point average of in the by e coursework and achieved an overall minimum grade point average of each recipient must have been accepted into an engineering program an accredited college or university with a declared or track at aerospace engineering major in one of the following disciplines computer engineering computer science or equivalent electrical engineering mechanical engineering nuclear engineering or systems engineering with possible additional engineering disciplines to be added in the future in all high school studies the selection committee consists of employees officers of in administering this program committee are associated with b or the corporation that is affiliated with b the selection process b benefit either directly or indirectly with respect to any grantee if such a relationship exists the individual will not be involved in no member of the selection committee officers of e who will aid none of the individuals on the selection or any officers of the affiliated_corporation will derive any private the selection of recipients is made by the committee members based on an objective and nondiscriminatory basis which will consider the following performance in courses administered overall academic performance by e demonstrated citizenship letters of recommendation an applicant essay and or e agrees to maintain records regarding recipients of funds to include the information used to evaluate the qualifications of grantees the b i identification of the grantees the amount of each grant completed application of each grantee and other follow-up data obtained in administering the grant program if the foundation learns that any of the scholarship funds it has awarded are being diverted from the intended purposes it will take all reasonable and appropriate steps to recover the funds and or to ensure restoration of this would include the diverted funds to the purposes of the scholarship legal action if deemed appropriate under the circumstances all progress reports and iii ii iv b and of the code impose certain excige taxes on sec_4945 a taxable_expenditures made by a private_foundation sec_4945 means any amount_paid or incurred by a private_foundation as individual for travel unless such grant satisfies the requirements of subsection g of the code provides that the term taxable_expenditure a grant to an study or other similar purposes by such individual sec_4945 of the code provides that sec_4945 d apply to individual grants awarded on an objective and nondiscriminatory shall not basis pursuant to procedure approved in advance if that it is demonstrated the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 study at an educational_organization described in sec_170 b a to be used for and is the grant constitutes a prize or award which is subject_to the if the recipient of such prize or provisions of sec_74 award is selected from the general_public or to achieve a specific objective the purpose of the grant is produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 approval a private_foundation must demonstrate that of the regulations provides that to secure i ii its grant procedure includes an objective and nondiscriminatory selection process such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that effective your procedures for granting the awards comply with the december requirements contained in sec_4945 granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 this determination is conditioned on the understanding that there will be is further no material_change in the facts upon which it conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or of the inconsistent with the purpose described in sec_170 b of the code and that awards for a purpose that is is based it code the approval of your award program procedures constitutes a one-time approval of your system standards and procedures designed to result in of the code awards which meet the requirements of sec_4945 determination only covers the grant programs described above approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request thus this a true charitable any funds you distribute to individuals must be made on basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it of the code provides that it may not be used or cited as sec_6110 a precedent you must report any future changes in your grant making procedures keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above please sincerely yours robert choi director exempt_organizations rulings and agreements


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc tege eb qp2-plr-156992-01 date date taxpayers company a state x state y dear this ruling is in response to the letter dated date on your behalf from your representative concerning the application of sec_1042 of the internal_revenue_code the code to certain transactions described below on the taxpayers sold stock of company a to an employee_stock_ownership_plan esop as defined in sec_4975 of the code maintained by company a and elected nonrecognition treatment on the gain from the sale under sec_1042 of the code you have represented that pursuant to the sec_1042 election the proceeds of the sale were invested in qualified_replacement_property within the meaning of sec_1042 of the code within one year of the date of the sale you have represented that the taxpayers contributed the qualified_replacement_property along with other assets to separate revocable trusts established under the laws of state x state x trusts the trust instrument provides that the state x trusts may be revoked by the grantor in whole or in part at any time before the death of the grantor the grantor may also direct the trustee to pay amounts out of the trust estate to any other person or organization each taxpayer is the sole grantor of his respective state x trusts in addition the trustee of the state x trusts is not the grantor neither taxpayers are trustee of the state x trusts you have represented that the taxpayers are treated as the owners of their respective state x trusts for federal tax purposes under sec_671 of the code the taxpayers propose to transfer the assets of their respective state x trusts to irrevocable trusts governed by the laws of state y state y trusts to eliminate state y’s intangible tax neither taxpayers are the trustee of the state y trusts the trustee of the state y trusts is not the grantor h or w the taxpayers’ state y trusts will be funded by the assets of their respective state x trusts this will occur prior to january of each year in addition the state y trusts’ governing trust documents require the trustee to transfer the entire trust estate to the state x trust on april of each year essentially each year the assets of each state x trust including the qualified_replacement_property will be transferred to the respective state y trust with a subsequent transfer back to the respective state x trust the state y trust instrument provides that during the grantor’s lifetime the trustee may pay or apply all or any part of the net_income or principal of the trust estate to the grantor or for the grantor’s benefit any undistributed_income shall be added to the trust estate of the state y trust you have requested a ruling that the transfer of qualified_replacement_property from the state x trusts to the respective state y trusts will not be treated as a disposition of the qualified_replacement_property within the meaning of sec_1042 of the code code sec_1042 provides that if a taxpayer disposes of any qualified_replacement_property then notwithstanding any other provision of this title gain if any shall be recognized to the extent of the gain which was not recognized under subsection a by reason of the acquisition by such taxpayer of such qualified_replacement_property thus gain realized from the disposition of any qualified_replacement_property by a taxpayer who made an election under sec_1042 must be recognized at the time of the disposition regardless of any other nonrecognition provisions of the code that may otherwise have applied sec_1042 provides that the recapture rules of sec_1042 shall not apply to any transfer of qualified_replacement_property that occurs in any reorganization within the meaning of sec_368 unless the person making the election under sec_1042 owns stock representing control of the acquiring or acquired_corporation and such property is substituted_basis_property in the hands of the transferee by reason of the death of the person making the election by gift or in any transaction to which sec_1042 applies sec_671 through of the code contain rules under which the grantor of a_trust will be treated as the owner of all or any portion of a_trust sec_677 of the code provides that the grantor shall be treated as the owner of any portion of a_trust whose income without the approval or consent of any adverse_party is or may be distributed to the grantor or held or accumulated for future distribution to the grantor based on the above h w will be treated as owner of their respective state y trust for federal tax purposes therefore there is no disposition upon the transfer of the qualified_replacement_property from the state x trusts to the state y trusts and vice versa except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative 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 robert d patchell chief qualified_plans branch office of division counsel associate chief_counsel tax exempt and government entities


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l date number release date cc corp b5 postu-152249-01 uilc internal_revenue_service national_office field_service_advice memorandum for associate area_counsel lmsb austin texas cc lm nr hou 1aus from associate chief_counsel corp cc corp b5 subject f reorganization this chief_counsel_advice responds to your memorandum dated date concerning whether a transaction may qualify as an f reorganization under sec_368 of the internal_revenue_code field_service_advice is not binding on examination or appeals and is not a final case determination this chief_counsel_advice should not be cited as precedent legend corporation x limited_partnership x state x product x date a postu-152249-01 issue whether a corporation which converts under state law to a limited_partnership and subsequently elects under sec_301_7701-3 of the regulations to be treated as a corporation for federal_income_tax purposes is eligible to be treated as if it had undergone a reorganization under sec_368 conclusion in certain instances a corporation undergoing a transaction similar to the one described below may be treated as if it had undergone a reorganization under sec_368 facts corporation x was a closely_held_corporation which produced product x for schools hospitals foundations and corporations in date a pursuant to a state x statute the shareholders converted the corporation into a limited_partnership and elected under the check-the-box_regulations sec_301_7701-3 to treat the state law limited_partnership as a corporation for federal tax purposes a certificate of conversion was issued by the secretary of state of state x acknowledging that the state x corporation known as corporation x was converted to a state x limited_partnership known as limited_partnership x following the conversion and election the entity continues to file its federal_income_tax returns on form_1120 as a corporation consistent with the election to be treated as a corporation for federal_income_tax purposes law and analysis sec_368 defines an f reorganization as a mere change in identity form or place of organization of one corporation however effected sec_1_368-1 provides general requirements for reorganizations under sec_301_7701-3 a business_entity that is an eligible_entity can elect its classification for federal tax purposes an eligible_entity is a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership sec_301_7701-3 an election designating or changing an eligible entity’s classification for federal tax purposes is effective on the date specified by the eligible_entity on form postu-152249-01 sec_301_7701-3 the specified effective date can not be more than seventy-five days prior to the date on which the election is filed and can not be more than twelve months after the date on which the election is filed id based upon the above if the effective date of the election by limited_partnership x to be treated as an association_taxable_as_a_corporation immediately follows the last day of corporation x then limited_partnership x has never existed as a partnership for federal tax purposes therefore assuming all other statutory and judicial requirements have been met the transaction could qualify as a reorganization under sec_368 case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views should you have any additional questions please contact branch at associate chief_counsel corporate by john p moriarty assistant to the branch chief branch


internal_revenue_service number release date index number -------------------------------------- --------------------------------------------- -------------------------------- ---------------------------------------- in re -------------------------------------- --------------------------- ------------------------------------ department of the treasury washington dc person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc intl b02 - plr-124783-02 date october ------------ ---------------------- ---------------------- do ----------------------ty ------------------- legend accountant attorney country a fund fund fund management pfic pfic ---------------------------------------------------------------------------------------------------------- pfic pfic pfic taxpayers -------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------- ---------------------------- --------------------------------------------------------------------------------- ------------------ ------------------- ----------------------------------------- --------------------- -------------- ------------------------------------- the rulings contained in this letter are based upon information and this is in response to a letter dated date supplemented and corrected plr-124783-02 dear ------------------------------ by information submitted on date date date and date requesting consent under sec_1_1295-3 to make retroactive qualified_electing_fund qef elections to treat the stock indirectly owned by taxpayers in each passive_foreign_investment_company pfics listed below as stock in a qef effective as of the first taxable_year taxpayers owned stock in each pfic 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 facts and representations the following facts year cash_basis taxpayers in taxpayers acquired an interest in fund a country a limited_partnership fund fund owned stock of four pfics pfic pfic pfic and pfic in taxpayers acquired an interest in fund also a country a limited_partnership fund fund also owned stock of pfic in addition fund owned stock of pfic pfic sec_1 through are not controlled_foreign_corporations cfcs within the meaning of sec_951 through of the internal_revenue_code various tax matters including the tax consequences of their investments attorney specialized in tax law while representing taxpayers attorney was aware that taxpayers were investing in foreign_corporations either directly or indirectly through investments in foreign limited_partnership funds however attorney failed to examine whether some such foreign_corporations were pfics and as a result attorney failed to advise taxpayers of the possibility of making or the consequences of failing to make a qef election in connection with their private_letter_ruling request taxpayers have represented taxpayers were advised by attorney prior to his retirement in regarding taxpayers are married and file a joint federal_income_tax return as calendar- all section references are to the internal_revenue_code_of_1986 or the corresponding treasury regulations thereunder in addition to attorney taxpayers relied on accountant since to prepare taxpayers first became aware that they might own stock in pfics in date taxpayers have submitted affidavits executed by attorney and accountant which plr-124783-02 their federal_income_tax returns including matters such as the consequences of making or failing to make qef elections although accountant was aware that taxpayers invested in various investment funds accountant was unaware that these funds invested in pfics and as a result did not advise taxpayers of the possibility of making or the consequences of failing to make a qef election reflect the above statements concerning their failures to advise taxpayers of the possibility of making or the consequences of failing to make qef elections upon receiving notification from fund management that it was investigating whether the funds in which taxpayers and their family members invested included corporations that are pfics in july of fund management sent taxpayers confirmation that they owned stock in pfics ruling requested make retroactive qef elections under sec_1_1295-3 to treat pfic sec_1 through as a qef effective as of the first taxable_year in which they owned stock in such pfic law and analysis taxpayers request the consent of the commissioner of internal revenue to sec_1295 provides the general_rule that any pfic shall be treated as a qef with respect to the taxpayer provided an election by the taxpayer under sec_1295 applies to such company for the taxable_year and the company complies with requirements that the secretary may prescribe for purposes of determining the ordinary_earnings and net_capital_gain of such company and otherwise carrying out the purposes of subpart b treatment of qualified electing funds sec_1295 provides that a taxpayer may make a qef election with respect to a pfic for any taxable_year of the taxpayer sec_1_1295-1 provides that a foreign_corporation with respect to which a sec_1295 election is made will be treated as a qef for its taxable_year ending with or within the shareholder’s election_year and all subsequent taxable years of the foreign_corporation that are included wholly or partly in the shareholder’s holding_period or periods of stock of the foreign_corporation plr-124783-02 sec_1295 states that an election may be made for any taxable_year at any time on or before the due_date determined with regard to extensions for filing the return of the tax_imposed_by_chapter_1 for such taxable_year election due_date to the extent provided in regulations an election may be made later than the election due_date where the taxpayer fails to make a timely election because the taxpayer reasonably believed the company was not a pfic retroactive election sec_1_1295-3 provides that a shareholder may request the consent of the commissioner to make a retroactive qef election if the shareholder satisfies the following requirements the shareholder reasonably relied on a qualified_tax professional granting consent will not prejudice the interests of the united_states government the shareholder requests consent before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder and the shareholder satisfies all procedural requirements set forth in sec_1_1295-3 as provided in sec_1_1295-3 a shareholder is deemed to have reasonably relied on a qualified_tax professional only if the shareholder reasonably relied on a qualified_tax professional who failed to identify the foreign_corporation as a pfic or failed to advise the shareholder of the consequences of making or failing to make a qef election the section further states that a shareholder will not be considered to have reasonably relied on a qualified_tax professional if the shareholder knew or reasonably should have known that the foreign_corporation was a pfic and of the availability of a sec_1295 election or knew or reasonably should have known that the qualified_tax professional was not competent to render tax_advice with respect to ownership of shares of a foreign_corporation or did not have access to all relevant facts and circumstances in the present case taxpayers relied upon attorney for advice on various tax matters including the tax consequences of foreign investments taxpayers also relied upon accountant for their federal_income_tax return preparation including the consequences of making or failing to make available elections such as a qef election taxpayers were not tax professionals and were unaware that the foreign_corporations in which they invested directly or indirectly were pfics until it was brought to their attention in attorney and accountant were competent to render tax_advice with respect to stock ownership in a foreign_corporation but did not identify the foreign_corporations in which taxpayers invested indirectly as pfics or inform taxpayers of plr-124783-02 the availability of a qef election taxpayers reasonably relied on a qualified_tax professional within the meaning of treas reg ' f i and the second requirement of sec_1_1295-3 states that the commissioner may grant consent to a taxpayer to make a retroactive election only if granting consent will not prejudice the interests of the united_states government sec_1_1295-3 provides that the interests of the united_states government are prejudiced if granting the request would result in the shareholder having a lower tax_liability taking into account applicable_interest charges in the aggregate for all years affected by the retroactive election other than by a de_minimis amount than the shareholder would have had if the shareholder had made the qef election by the election due_date taking into account the time_value_of_money for purposes of the computation if granting relief would prejudice the interests of the united_states government the commissioner may in his sole discretion grant consent to make a retroactive election provided the shareholder enters into a closing_agreement with the commissioner that requires the shareholder to pay an amount sufficient to eliminate any prejudice to the government as a consequence of the shareholder’s inability to file amended returns for the closed taxable years treas reg ' f ii in the present case it has been determined that granting relief will not prejudice the interests of the united_states government the third requirement to be met under sec_1_1295-3 is that the request must be made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder taxpayers represent that they made the request for consent to make retroactive qef elections before the issue was raised on audit the final requirement for a retroactive election under sec_1_1295-3 is that the procedural requirements set forth in sec_1_1295-3 must be met the procedural requirements set forth include filing a request for consent to make a retroactive election and appropriate user_fee with the office of the associate chief_counsel international treas reg ' f i additionally affidavits signed under penalties of perjury must be submitted by the shareholder and any qualified_tax professional upon whose advice the shareholder relied treas reg ' f ii and iii these affidavits must describe the events that led to the failure to make a qef election by the election due_date the discovery of such failure and the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional taxpayers have submitted affidavits meeting the requirements set forth in sec_1_1295-3 describing the failures of attorney and accountant to inform taxpayers of the need to make qef elections taxpayers have submitted the appropriate user_fee therefore taxpayers have met the procedural requirements of sec_1_1295-3 the rulings contained in this letter are based upon information and based on the information submitted and the representations made taxpayers plr-124783-02 are granted consent to make retroactive qef elections under sec_1_1295-3 with respect to their indirect ownership in pfic pfic pfic and pfic effective for their taxable_year and with respect to their indirect ownership in pfic effective for their taxable_year provided taxpayers comply with the rules under sec_1_1295-3 regarding time and manner for making the retroactive qef election 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 the code provides that it may not be used or cited as precedent relevant letter is being sent to taxpayers this ruling is directed only to the taxpayer s requesting it sec_6110 of in accordance with the power_of_attorney on file with this office a copy of this a copy of this letter must be attached to any income_tax return to which it is sincerely valerie a mark lippe senior technical reviewer branch office of associate chief_counsel international cc ---------------------------------------