office_of_chief_counsel internal_revenue_service memorandum number release date cc psi postf-140487-12 uilc date date to associate area_counsel philadelphia cc lb_i hmt phi1 large business international from chief branch passthroughs special industries subject change in accounting_method and sec_734 adjustments this memorandum responds to your request for assistance this advice may not be used or cited as precedent legend taxpayer bank years issue ---------------------------------- --------------------------- -------------------- does an adjustment otherwise constituting a change in accounting_method under sec_446 and sec_481 still constitute a change in accounting_method if taxpayer had an election under sec_754 in effect for taxable years prior to the year_of_change and its basis adjustments under sec_734 would have been different if the new accounting_method had been used in all taxable years prior to the year_of_change conclusion an adjustment otherwise constituting a change in accounting_method under sec_446 and sec_481 constitutes a change in accounting_method regardless of whether taxpayer postf-140487-12 made an election under sec_754 and its sec_734 basis adjustments would have been different if the new accounting_method had been used in all taxable years prior to the year_of_change facts taxpayer a limited_liability_company that is treated as a partnership for federal tax purposes purchases and disposes of positions in securities taxpayer generally engages in daily trading of such positions taxpayer has conducted much of its securities trading under various barrier basket transactions basket transactions with bank a broker and investment bank in a typical basket transaction taxpayer makes an upfront payment of percent of the notional amount referenced in the basket transaction bank provides the remaining percent the total amount of which is used to acquire a basket of securities that is actively_traded and managed by taxpayer’s affiliate on an ongoing basis the contract between taxpayer and bank describes taxpayer’s investment as a premium that gives taxpayer the option to receive a cash settlement amount from bank when the contract expires or is otherwise terminated each contract is for at least a year the cash settlement amount is determined by a formula that generally reflects the increase decrease in the value of the securities including expense and income payments made or received with respect to the securities held and traded within the basket transaction and the interest and fees payable to bank for its services and capital taxpayer does not recognize gains losses income or deductions as it trades the securities within the basket transaction instead taxpayer defers recognition of any_tax consequences until the basket transaction expires or otherwise terminates when taxpayer recognizes gain equaling the difference between the cash settlement amount and the upfront payment made during the period it engaged in the basket transactions taxpayer redeemed the interests of several withdrawing partners in each case the distribution exceeded the withdrawing partner's basis in its interest in taxpayer and as a result the withdrawing partner recognized gain under sec_731 because taxpayer had an election under sec_754 in effect taxpayer increased its basis in its assets under sec_734 to account for the withdrawing partner’s sec_731 gain taxpayer’s federal_income_tax returns for years are currently under examination by the internal_revenue_service based upon its review field operations has determined that the basket transactions lack the requirements to be treated as options to purchase property for tax purposes further field operations has determined that taxpayer had the burdens and benefits of ownership of the securities underlying the basket transactions and thus held the beneficial_ownership of these securities for tax purposes accordingly field operations has challenged taxpayer’s deferral of gains losses income or deductions associated with the basket transactions field operations intends to place taxpayer on a correct accounting_method consistent with its ownership of the securities this accounting_method will not permit taxpayer to defer reporting the relevant gains losses income or deductions until the taxpayer postf-140487-12 identified basket transactions expire or terminate but will instead require taxpayer to recognize these gains losses income or deductions at a much earlier time consistent with field operations’ conclusion that taxpayer and not bank was the owner of each asset held within the basket pursuant to this accounting_method change field operations intends to impose an adjustment under sec_481 in the first taxable_year under examination previously advice was provided to field operations that a change to no longer treating certain securities transactions as options and thus stopping the deferral of the gains losses income or deductions associated with those transactions is a service imposed change in accounting_method under sec_446 further the advice noted that the computation and recognition of an appropriate adjustment under sec_481 was needed to eliminate any distortions duplications or omissions of income or deductions caused by the accounting_method change if taxpayer had correctly accounted for the securities under the new accounting_method imposed by field operations it would have recognized income attributable to the securities much earlier and taxpayer’s resulting income would have been allocated to all partners including those who were redeemed increasing their basis in their interests in taxpayer under sec_705 these basis increases would have resulted in the redeemed partners recognizing less sec_731 gain upon redemption and thus taxpayer’s sec_734 adjustments would have been smaller taxpayer agrees that its sec_734 adjustments would have been smaller had it used the new accounting_method in all prior taxable years however taxpayer asserts that the proposed accounting_method change would create a permanent difference in its lifetime taxable_income because its sec_734 adjustments will be reduced and that therefore field operation’s proposed treatment of the basket transactions does not involve a change in accounting_method field operations has requested advice concerning whether its proposed treatment of the basket transactions is a change in accounting_method notwithstanding taxpayer’s sec_734 adjustments law and analysis sec_446 provides that if no accounting_method has been regularly used by the taxpayer or if the method used does not clearly reflect income the computation of taxable_income shall be made under such method as in the opinion of the secretary does clearly reflect income see also sec_1_446-1 the commissioner has broad discretion in determining whether a taxpayer’s accounting_method clearly reflects income and the commissioner’s determination must be upheld unless it is clearly unlawful see 439_us_522 664_f2d_881 2nd cir postf-140487-12 sec_1_446-1 provides that a change in accounting_method includes a change in the overall plan of accounting for gross_income or deductions or a change in the treatment of any material_item used in such overall plan a material_item includes any item that involves the proper time for the inclusion of the item in income or the taking of a deduction sec_1_446-1 in determining whether timing is involved generally the pertinent inquiry is whether the accounting practice permanently affects the taxpayer's lifetime taxable_income or merely changes the taxable_year in which taxable_income is reported see revproc_2002_18 2002_1_cb_678 sec_2 revproc_91_31 1991_1_cb_566 78_tc_705 743_f2d_781 11th cir 126_tc_322 415_f2d_1341 7th cir if the accounting practice does not permanently affect the taxpayer’s lifetime taxable_income but does or could change the taxable_year in which taxable_income is reported it involves timing and is therefore an accounting_method for purposes of sec_446 lifetime taxable_income is analyzed with respect to the item s at issue solely at the partnership level see eg sec_1_481-2 accordingly it is appropriate to disaggregate the elective basis adjustments relating to a departing partner’s recognition of partnership built-in-gain and the change in a partner’s basis resulting from the change in timing of the item’s recognition which are irrelevant to the determination of whether the change in the timing of recognition of gains losses income or deductions resulting from trades of the securities within the basket transaction constitutes a method_of_accounting for purposes of sec_446 and sec_481 partnerships are flow-through entities that do not pay an entity-level income_tax under sec_701 instead under sec_702 each partner must take into account in determining their income_tax their distributive_share of the partnership’s income sec_705 provides in part that each partner's basis in their partnership_interest is increased by their distributive_share of income from the partnership sec_731 provides in part that in the case of a distribution by a partnership to a partner gain shall be recognized by the partner to the extent that any money distributed exceeds the adjusted_basis of the partner's_interest_in_the_partnership immediately before the distribution unless the partnership increases the basis of its assets to reflect the sec_731 gain recognized by the withdrawing partner there may be a temporary distortion in the income recognized by the remaining partners who may be taxed on the built-in_gain economically attributable to the redeemed partner to eliminate these timing distortions sec_734 provides in part that if the partnership has an election under sec_754 in effect the partnership shall increase the adjusted_basis of partnership property by the amount of any gain recognized to the distributee partner under sec_731 the partnership takes any sec_734 adjustments into account when calculating its gain_or_loss upon sale or disposition of property subject_to an sec_734 adjustment the purpose and effect of an election postf-140487-12 under sec_754 and basis adjustments under sec_734 are to eliminate distortions in the timing of income and loss an election under sec_754 does not affect the total income recognized by all the partners over the life of the partnership when there is a change in accounting_method to which sec_481 is applied income for taxable years preceding the year_of_change must be determined under the accounting_method that was then used and income for the year_of_change and the following taxable years must be determined under the new accounting_method as if the new method had always been used accordingly taxpayer’s sec_734 adjustments for years preceding the year_of_change must be computed using the accounting_method that was then used taxpayer’s sec_734 adjustments for the year_of_change and subsequent years must be redetermined consistent with the new accounting_method in computing the net sec_481 adjustment a taxpayer must take into account all relevant accounts see revproc_2002_18 sec_2 revproc_97_27 1997_1_cb_680 sec_2 here the sec_481 adjustment represents the difference in gain_or_loss for all of the underlying securities that would have been recognized under the new method less the gain_or_loss that was recognized under the prior method as of the beginning of the year_of_change taxpayer’s sec_734 adjustments for taxable years prior to the year_of_change as calculated under the prior method are fully taken into account in calculating the basis in the securities in addition beginning in the year_of_change taxpayer’s basis in its securities will be modified to reflect the gain_or_loss recognized in connection with the change in accounting_method the determination of whether a partnership has a change in accounting_method does not depend on whether the partnership made an election under sec_754 whose only purpose and effect is to eliminate distortions caused by partnership_distributions and sales of partnership interests the partners of a partnership using a given accounting_method ultimately recognize the same amount of cumulative taxable_income over the life of the partnership whether or not the partnership makes an election under sec_754 a change in accounting_method under sec_446 occurs when taxpayer partnership no longer treats certain securities transactions as options and thus stops deferring the gains losses income or deductions associated with those transactions case development hazards and other considerations no opinion is expressed or implied on whether taxpayer’s transactions constitute options under sec_1234 postf-140487-12 this writing may contain privileged information any unauthorized disclosure of this writing may undermine the ability of the internal_revenue_service to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call benjamin weaver at if you have any further questions sincerely ________________________________ david r haglund chief branch office of the associate chief_counsel passthroughs special industries


internal_revenue_service number release date index no date cc psi - plr-113536-00 x a d1 d2 year dear this responds to a letter dated date and previous correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year the sole shareholder of x is a a x's president represents that x relied on its accountant to prepare the necessary documents for purposes of obtaining x’s s_corporation status however the form_2553 election by a small_business_corporation for x was not filed a represents that it was a’s intent to have x elect to be an s_corporation effective d2 of year x’s form ss-4 application_for employer_identification_number reflects that it was a’s intent to have x treated as an s_corporation x filed its tax_return using form_1120s u s income_tax return for an s_corporation sec_1362 of the code provides that if-- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective for x's tax_year beginning d2 of year accordingly provided that x makes an election to be an s_corporation by filing a form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically ruled upon above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative office of the associate chief_counsel passthroughs and special industries sincerely yours jeanne m sullivan assistant to the chief branch enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court kirk a keegan jr petitioner v commissioner of internal revenue respondent docket no filed date after requesting a legal_separation from his wife but before a stipulation and order to show cause was filed on date in state court p made certain payments to or on behalf of his wife in the nature of support p deducted these payments together with payments made after date from his gross_income as alimony pursuant to sec_215 i r c on his federal_income_tax return for r limited p's alimony deduction to those payments made after date on the facts held no alimony deduction is allowed under sec_215 i r c for payments made by petitioner to his wife prior to date since these payments did not stem from a written_separation_agreement within the ambit of sec_71 i r c kirk a keegan jr pro_se christine v olsen for respondent memorandum opinion nims judge respondent determined a deficiency in the federal_income_tax of kirk a keegan jr petitioner for the tax_year ended date in the amount of dollar_figure and an accuracy-related_penalty pursuant to sec_6662 in the amount of dollar_figure all section references are to sections of the internal_revenue_code in effect for the year in issue unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure after concessions the sole remaining issue for decision is whether petitioner is entitled to a sec_215 alimony deduction in excess of that allowed by respondent for amounts paid for the support of petitioner's wife barbara c keegan mrs keegan this case was submitted fully stipulated and the facts as stipulated are so found this reference incorporates herein the stipulation of facts and attached exhibits petitioner resided in newport beach california at the time he filed his petition background petitioner requested a legal_separation from mrs keegan on date later that month petitioner began making payments of between dollar_figure and dollar_figure a month to or on behalf of mrs keegan an order to show cause scheduled for date was postponed because petitioner was out of town on business an order to show cause scheduled for date was postponed at the request of opposing counsel on date a stipulation and order to show cause was filed in the superior court of the state of california in the stipulation and order to show cause the parties agreed that petitioner would make spousal support payments in the amount of dollar_figure per month commencing date during petitioner made payments to or on behalf of mrs keegan in the total amount of dollar_figure of that amount dollar_figure was paid prior to the entry of the stipulation and order to show cause petitioner deducted the entire dollar_figure as alimony on line of his form_1040 u s individual_income_tax_return for respondent issued a notice_of_deficiency on date among other things respondent limited petitioner's deduction for alimony to dollar_figure which amount represents support payments made by petitioner to mrs keegan subsequent to the filing of the stipulation and order to show cause respondent also determined that petitioner was liable for an accuracy- related penalty under sec_6662 for negligence in the amount of dollar_figure respondent has since conceded that petitioner is not liable for this penalty discussion we must decide whether petitioner may deduct as alimony under sec_215 payments to or on behalf of mrs keegan in the total amount of dollar_figure that were made prior to the entry of the stipulation and order to show cause on date petitioner has conceded that additional payments totaling dollar_figure made prior to that date are not deductible as a preliminary evidentiary matter we must decide whether to reopen the record in this case to permit petitioner to include two letters which are attached to petitioner's memorandum of authorities filed in lieu of a posttrial brief by direction of the court pursuant to the court's order dated date directing respondent to file on or before date any objection to the record's being reopened to receive the letters in evidence respondent has filed a notice of objection to the record's being reopened for this purpose on the grounds of hearsay and undue prejudice reopening the record for the submission of additional proof lies within the discretion of the court 401_us_321 petitioner is not represented by counsel in this case and in the interest of justice and for completeness we deem it appropriate to receive the two letters in evidence respondent is not prejudiced however because as discussed infra petitioner has not established that he may deduct under sec_215 or any other section the dollar_figure of payments remaining in dispute one of the letters dated date the date letter is from steven e briggs briggs petitioner's attorney in his domestic relations matter to mrs keegan's attorney it states in pertinent part that in an effort to resolve this pending order to show cause dr keegan would propose to pay mrs keegan as and for spousal support the sum of dollar_figure per month if this arrangement is acceptable to your client let me know and i will be happy to write up a stipulation which would then enable us to take the order to show cause off calendar emphasis added the other letter dated date the date letter is from briggs to petitioner it states in relevant part that the date letter set forth in writing that we would continue to make the support payments as previously agreed which you made all of the payments made between february and may of were agreed upon by the parties and were the subject of understandings in connection with which the order to show cause hearings were continued as has often been stated deductions are a matter of legislative grace and taxpayers bear the burden of proving that they are entitled to any deductions claimed rule a 503_us_79 sec_215 provides generally in the case of an individual that there shall be allowed as a deduction an amount equal to the alimony or separate_maintenance payments paid during such individual's taxable_year sec_215 sec_215 further provides that the term 'alimony or separate_maintenance payment' means any alimony_or_separate_maintenance_payment as defined in sec_71 which is includible in the gross_income of the recipient under sec_71 sec_71 defines the term alimony_or_separate_maintenance_payment in pertinent part as any payment in cash received by or on behalf of a spouse under_a_divorce_or_separation_instrument sec_71 defines the term divorce_or_separation_instrument as follows a a decree of divorce or separate_maintenance or a written instrument incident to such a decree b a written_separation_agreement or c a decree not described in subparagraph a requiring a spouse to make payments for the support or maintenance of the other spouse no decree within the meaning of sec_71 or c was in effect when petitioner made the payments at issue rather petitioner asserts that he is entitled to deduct the amount of all payments from date to date dollar_figure since he argues a written_separation_agreement existed on date within the meaning of sec_71 in the form of the date letter respondent contends on the other hand that there was no written_agreement prior to the entry of the stipulation and order to show cause on that basis respondent maintains that no alimony deduction for the period prior to date is allowable we have no doubt that the payments at issue were intended to be in the nature of alimony nevertheless for reasons which follow we agree with respondent that the facts of this case show that there was no written_separation_agreement within the ambit of sec_71 prior to date the term written_separation_agreement is not defined by the code the legislative_history or applicable regulations 59_tc_97 ewell v commissioner tcmemo_1996_253 however we have stated previously that a written_separation_agreement is a clear written_statement of the terms of support for separated parties bogard v commissioner supra pincite it must be a writing that constitutes an agreement 84_tc_809 affd without published opinion 800_f2d_260 4th cir an agreement requires mutual assent or a meeting of the minds 90_tc_684 a letter which does not show that there was a meeting of the minds is not a written_separation_agreement under the statute grant v commissioner supra pincite 59_tc_846 to be given effect under sec_71 a written_separation_agreement at least requires more than a written_statement by one spouse offering to make support payments and the acceptance of those payments by the other spouse nemeth v commissioner tcmemo_1982_646 a letter may satisfy the requirements of sec_71 even in the absence of the parties' signatures if it embodies the terms of a prior oral agreement or understanding see 13_tc_1092 osterbauer v commissioner tcmemo_1982_266 petitioner cites azenaro v commissioner tcmemo_1989_ in support of his position that the date letter constitutes a written_separation_agreement however that case is distinguishable from the case at hand in azenaro v commissioner supra we held that a letter from the attorney for the taxpayer's husband year after the couple separated which offered a monthly payment and which was subsequently received and signed by the recipient taxpayer constituted a valid written_separation_agreement the letter as acknowledged and accepted by the taxpayer by her signature on the assent form was a clear and concise agreement in written form delineating the terms under which the husband would support the taxpayer the payor- husband's signature on the letter was not necessary for the agreement to be valid as his attorney acted as his agent and the husband in fact carried out the terms of the agreement in contrast to the letter in azenaro v commissioner supra the language of the date letter is unequivocally that of a proposal or offer to negotiate if this arrangement is acceptable the date letter was not signed by mrs keegan nor was any other writing acceding to its terms executed on her behalf see estate of hill v commissioner supra pincite harlow v commissioner tcmemo_1984_393 a unilateral written_statement by a party stating that he is willing to pay his spouse certain sums for her support clearly does not meet the statutory requirement of a written_separation_agreement petitioner next cites jefferson v commissioner supra in support of his contention that though the letter itself constituted a proposal its acceptance made it an enforceable agreement and a 'written instrument' within the meaning of sec_71 however jefferson v commissioner supra is distinguishable from the facts of this case in jefferson v commissioner supra we stated that the letter from the taxpayer to his wife embodied the terms of a prior oral agreement or understanding with reference to periodic_payments to be made for the wife's support and maintenance and that the letter confirmed that oral agreement or understanding id pincite emphasis added the letter relied upon by the taxpayer therein although it did not bear his wife's signature and no other writing was executed on her behalf nonetheless clearly recited the parties' prior oral agreement that he would pay his wife a specified sum of support and thus sufficed for purposes of the statutory predecessor of sec_215 in contrast in the instant case the date letter does not memorialize any prior agreement between petitioner and mrs keegan to the extent that the date letter from briggs purporting to summarize events that occurred years earlier implies that the date letter embodies the terms of a previous oral understanding we think that briggs mischaracterizes the contents of the earlier letter in any event the date letter fails to confirm such an oral agreement see id pincite petitioner himself acknowledges that the date letter was a mere proposal albeit one that was accepted by his wife on or prior to date yet as mentioned above her signature was not on the date letter nor was there any other writing executed on her behalf evidencing an agreement moreover it is well settled that the subsequent acceptance of support payments by a spouse without more does not transform a unilateral offer into a bilateral agreement see harlow v commissioner supra nemeth v commissioner supra greenfield v commissioner tcmemo_1978_386 we conclude that taken together the date letter and the fact that petitioner provided support for mrs keegan prior to date do not rise to the level of a written_separation_agreement for purposes of sec_71 and sec_215 see grant v commissioner supra pincite cf ewell v commissioner supra therefore we hold that none of the payments that petitioner made before the stipulation and order to show cause was filed on date may be deducted by petitioner as alimony under sec_215 to reflect the foregoing an appropriate order will be issued and a decision will be entered under rule


department of the treasury i n t e r n al r e v e n u e s e r v i c e w as h i n g t o n d c offic e of c h ief c o u n sel number release date date cc ita ebcleverdon gl-808387-00 uil 468b memorandum for m k mortensen associate area_counsel cc sb slc attn mark howard from james l atkinson acting deputy associate chief_counsel income_tax accounting subject legend x y z office a year date date this field_service_advice responds to your request for assistance in determining the proper application of the qualified_settlement_fund qsf rules in the above-captioned case field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent gl-808387-00 disclosure statement field_service_advice is chief_counsel_advice and is open to public inspection pursuant to the provisions of sec_6110 the provisions of sec_6110 require the service to remove taxpayer identifying information and provide the taxpayer with notice of intention to disclose before it is made available for public inspection sec_6110 and i sec_6110 also authorizes the service to delete information from field_service_advice that is protected from disclosure under u s c sec_552 b and c before the document is provided to the taxpayer with notice of intention to disclose only the national_office function issuing the field_service_advice is authorized to make such deletions and to make the redacted document available for public inspection accordingly the examination appeals or counsel recipient of this document may not provide a copy of this unredacted document to the taxpayer or their representative the recipient of this document may share this unredacted document only with those persons whose official tax_administration duties with respect to the case and the issues discussed in the document require inspection or disclosure of the field_service_advice facts in the early 1990's several x individuals subscribed to investments in y securities promoted by x and y promoters including a apparently the promoters were not complying with securities regulations and in year the z office handed down a criminal indictment against the promoters and began forfeiture proceedings against them on date the court overseeing the proceedings which by this time also included a civil suit brought by the x investors ordered in accordance with a stipulation of the promoters that the seized property should be delivered to the investors as restitution under a plan to be set forth in a subsequent stipulation of the parties pending the distribution the court ordered the y to retain possession of the property the z office requested appointment of a receiver we understand that the seized assets did not generate a substantial amount of income between date and date on date the court appointed a receiver to manage the seized assets with the ultimate goal of liquidation and restitution to the x investors in the order the court instructed the y to turn over all properties it held to the receiver encumbered the property with a judicial lien and directed the receiver to prepare an accounting of the receivership the order also subjected the property in the receivership to the jurisdiction of the court since this time the receiver has been locating additional property hidden by the defendants in addition some of the investors have sued and received a recovery from a law firm that was involved in the securities promotions we understand that the court plans to take this recovery into account in ordering the final distribution from the receivership gl-808387-00 law and analysis sec_468b of the internal_revenue_code states that nothing in any provision of law shall be construed as providing that an escrow account settlement fund or similar fund is not subject_to income current tax the secretary shall prescribe regulations providing for the taxation of any such account or fund whether as a grantor_trust or otherwise the qualified_settlement_fund qsf regulations were published to implement the congressional mandate to provide for the current income_taxation of such accounts and funds as grantor trusts or otherwise pursuant to sec_1_468b-1 a fund account or trust is a qsf as relevant here if it is established pursuant to an order of or is approved by the united_states or any agency_or_instrumentality including a court of law thereof and it is subject_to the continuing jurisdiction of that governmental authority it is established to resolve or satisfy one or more contested claims that have resulted or may result from an event or related series of events that has occurred and that has given rise to at least one claim asserting liability arising out of a tort breach of contract or violation of law and the fund account or trust is a_trust under applicable state law or its assets are otherwise segregated from other assets of the transferor and related_persons sec_1_468b-1 provides that if a fund account or trust that is a qsf could be classified as a_trust under sec_301_7701-4 it is classified as a qsf for all purposes of the internal_revenue_code this regulation also provides that if a fund account or trust organized as a_trust under applicable state law is a qsf and could be classified as an association under or a partnership under sec_301_7701-3 it is a qsf for all purposes of the code sec_468b was enacted to provide for the current taxation of escrow accounts settlement funds and similar funds reversing revrul_71_119 1971_1_cb_163 a settlement fund is not a_trust and the court administering the fund is not a fiduciary see h_r conf_rep no 99th cong 2d sess vol c b this eliminates the homeless income problem that arose when a defendant deposited an amount into a settlement fund to pay a claim under prior_law the defendant asserted it was not taxable on the fund income since it paid the corpus into a court- established fund to settle a liability in addition the amount payable to any particular claimant was not known until a later date sec_1_468b-1 fulfills the mandate to publish regulations providing for the current taxation of income on such funds by treating the settlement fund itself as a taxable entity with respect to earnings on the deposited amount regardless of the nature or character of the potential claimants gl-808387-00 sec_1_468b-2 provides that a qsf is a united_states_person and is subject_to tax on its modified income for any taxable_year at a rate equal to the maximum rate in effect under sec_1 of the code court order a fund account or trust is ordered by or approved by a governmental authority when the authority issues its initial or preliminary order to establish or grants its initial or preliminary approval of the fund account or trust even if the order or approval is subject_to review or revision sec_1_468b-1 the date order meets the court order requirement of sec_1_468b-1 although the order did not explicitly state that the court retained jurisdiction it is clear from the context that the court remained involved in the disposition of the assets the receivership in this case was established by court order on date and the order explicitly gives the court jurisdiction over the receivership therefore the receivership meets this requirement resolves or satisfies claims the facts indicate that the seizure and holding of the property both by the z office and by the receiver were not designed to fully satisfy all the claims in this action we understand that the investors may have other legal avenues for recovering their losses from the promoters however we also understand that the investors will not be allowed a double recovery - that is if they receive cents for every dollar’s worth of claims against the promoters any separate recovery will be limited to the remaining cents although the regulations are not explicit on this issue it is this office’s position that this type of pro tanto resolution or satisfaction meets the regulation standards the qsf rules should be distinguished from the designated_settlement_fund rules that appear in sec_468b a - f which require that the fund extinguishes completely the transferor’s liability the qsf rules were designed to provide more flexibility for example if a defendant’s total liability is dollar_figure million and the defendant pays dollar_figure million into an account in partial satisfaction there is a resolution or satisfaction with respect to dollar_figure million of the liability even though the rest of the liability will be satisfied outside of this arrangement see example of sec_1_468b-1 which concludes that a fund to resolve a liability of dollar_figure million is a qsf where only dollar_figure million was transferred to the fund see also example of sec_1_468b-1 which concludes that a defendant’s partial deposit of amounts into a fund is treated as a qsf accordingly this requirement has been met segregated assets gl-808387-00 this requirement is satisfied if assets are physically segregated from other assets of the transferor this is the case with respect to both the z office stewardship and the receivership conclusion the fund held by the z office and the receiver is a qsf because each of the three requirements for classification of a qsf in sec_1_468b-1 were met on date in addition pursuant to sec_1_468b-1 classification as a qsf precludes treatment of the fund as a_trust or other type of entity further the fact that the potential claimants are not subject_to united_states income_tax because they are nonresident_aliens is not a relevant consideration instead sec_1_468b-2 states that a fund that is a qsf is a united_states_person and that it is subject_to tax on fund earnings i hope you find this information to be helpful please contact edwin b cleverdon at if you need further assistance


department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c of f i c e of c h i ef c ou n sel number info release date conex uil date the honorable herb kohl united_states senator west mifflin street suite columbus oh attention ------------------ dear senator kohl this letter responds to your inquiry dated date on behalf of one of your constituents who received a cp notice for tax_year your constituent is a retired insurance agent who received payments from his former insurance_company after he retired the company classified these payments as non-employee compensation but your constituent believes these payments are termination benefits that are not subject_to self-employment_tax during the 1990s many retired insurance agents questioned the application of the self- employment_tax to certain payments they received after retiring the issue became rather controversial as agents filed several lawsuits in a number of jurisdictions and the courts decided some cases in favor of the taxpayer and others in favor of the government as a result the congress recognized the need to clarify the law and effective for payments after date the congress amended sec_1402 of the internal_revenue_code to provide an exclusion from seca_tax for payments if they met certain requirements under new sec_1402 these requirements are the individual receives the amount after termination of his or her agreement to perform services for the company the individual performs no services for the company after termination conex-122970-09 the individual enters into a covenant_not_to_compete against the company which applies to at least the 1-year period beginning on the date of such termination and the amount of the payment- -depends primarily on policies sold by or credited to the account of the individual during the last year of his or her agreement or the extent to which such policies remain in force for some period after such termination or both -does not depend to any extent on length of service or overall earnings from services performed for the company without regard to whether eligibility for payment depends on length of service your constituent must satisfy all of these requirements to be able to exclude the payments he received from his former insurance_company from self-employment_tax we do not know all the facts and circumstances surrounding the payments at issue but it appears that under the agent termination benefits program form that you provided the amount of the payment the former insurance_company pays to a retired agent will increase based on the number of years_of_service if the amount of the payment to a retired agent depends on the length of service the payments will not satisfy the requirement in sec_1402 for exclusion from net_earnings from self- employment i hope this information is helpful if you would like to discuss this further please contact ------------------of my staff at ---------------------or me at -------------------- sincerely nancy j marks division counsel associate chief_counsel tax exempt government entities


department of the treasury internal_revenue_service washington d c uniform issue list 408a jan seit erc tz legend taxpayer a custodian b firm c amount a amount b irax roth_ira y year1 year year3 dear this is in respanse to your request dated date as supplemented by correspondence dated date submitted on your behalf by your authorized representative in which you request relief under sec_301_9100-3 of the procedure and administrative regulations the regulations the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a maintained ira x a traditional_ira described in sec_408 of the internal_revenue_code the code with custodian b in year taxpayer a transferred ieee page amount a from ira x to roth_ira y an ira described in sec_408a of the code at the time of the transfer taxpayer a anticipated that her gross_income would not exceed dollar_figure the limit for establishing a roth_ira under sec_408a however year-end dividends and capital_gain distributions produced a total adjusted_gross_income of amount b surpassing the sec_408a limit taxpayer a engaged firm c to prepare her tax_return for year and provided firm c with the form 1099-r pensions annuities retirement or profit-sharing_plans iras insurance contracts gtc she received from custodian b showing amount a as a taxable_distribution taxpayer a relied on firm to advise her on all matters related to her tax retum firm c however failed to notice that taxpayer a’s adjusted_gross_income for year rendered her ineligible to transfer amount a to a roth_ira and consequently failed to inform taxpayer a that she needed to elect to recharacterize amount a as a contribution to a traditional ra before the deadline for her year tax_return the error was not discovered until year when firm c reviewed taxpayer a’s tax retum for year distributions from prior to being contacted by taxpayer a the internal_revenue_service the service had not discovered taxpayer a's failure to recharacterize the contribution as of the date of this ruling_request taxpayer a had not recharacterized amount a as a contribution to a traditional_ira the statute_of_limitations on taxpayer a’s year federal_income_tax retum remains open based on the foregoing facts and representations you have requested a ruling that pursuant to sec_301_9100-3 of the regulations taxpayer a may be granted a period not to exceed days from the date_of_issuance of this ruling to make an election under sec_1_408a-5 of the income_tax regulations the i t regulations to recharacterize amount a as a contribution to a traditional fra sec_408a of the code provides in retovant part that a taxpayer generally is not allowed to make a rollover coniribution to a roth_ira from an individual_retirement_plan other than a roth_ira during any taxable_year if the taxpayer's adjusted_gross_income for that year exceeds dollar_figure sec_408a provides that a conversion of a traditional_ira to a roth_ira is treated as a rollover from the traditional_ira to the roth_ira sec_408a d of the code and section big_number -5 of the i t regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira in a recharacterization the ira contribution is treated as having been made to the transferee ra and not the transferor ira under sec_408a of the code and sec_1_408a-5 of the i t regulations this page recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer's federal_income_tax return for the year of contribution sec_1 q a-6 of the i t regulations describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth ra the taxpayer must notify the roth_ira trustee of the taxpayer's intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the regulations in general provide guidance concerning requests for relief submitted to the service on or after date sec_301_9100-1 provides that the commissioner of internal revenue in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 of the regulations lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 generally provides guidance with respect to the granting of relief with respect to those efections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_307 e to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if its request for sec_301 relief is filed before the failure to make a timely election is discovered by tha service ii if the taxpayer inadvertently the taxpayer's control iii if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was uniaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v the taxpayer reasonably relled 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 failed to make the election because of intervening events beyond sec_301 c ii of the regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not naa page grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute_of_limitations before the taxpayer's receipt of a ruling granting relief under this saction the information presented and documentation submitted by taxpayer a is consistent with her assertion that her failure to elect to recharacterize the roth_ira on or before ihe date prescribed by law including extensions for filing her federal_income_tax retum for the year of contribution was caused by her reasonable reliance on firm g and its representatives whe were tax professionals employed by taxpayer a and who failed to advise taxpayer a to make the election taxpayer a filed this request before the service discovered her failure to make a timely election to recharacterize the failed conversion based on the above taxpayer a meets the requirements of sec_301_9100-3 of the regulations clauses i and v for the year tax_year in addition since the statute_of_limitations is still open under sec_301_9100-3 ii of the regulations granting relief will not prejudice the interests of the goverment accordingly taxpayer a is granted an extension of days as measured from the date of the issuance of this ruling letter to recharacterize amount a as a contribution to a traditional_ira no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may ba applicable thereto 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 by others as precedent pursuant to a power of attomey on file with this office a copy of this letter_ruling is being sent to your authorized representative if you wish to inquire about this ruling please contact please address ail correspondence to se t ep ra t2 sincerely yours dereel luni donzell hl citejon’ manager employee_plans technical group of enclosures deleted copy of this letter notice of intention to disclose notice page cc


t c no united_states tax_court michael a zapara and gina a zapara petitioners v commissioner of internal revenue respondent docket no 9480-02l filed date r moved for reconsideration of our opinion reported in 124_tc_223 zapara i finding that r failed to comply with ps’ written request to liquidate ps’ levied-upon stock accounts as required by sec_6335 i r c zapara i held that ps were entitled to a credit for the value of their seized stock as of the date by which it should have been sold under the statute r contends that ps’ citation of sec_6335 i r c on reply brief constituted the untimely raising of a new issue and that the evidence does not show that ps made sufficient written request pursuant to sec_6335 i r c r also contends that this court lacks jurisdiction to order the relief provided in zapara i which r characterizes as an award of damages pursuant to sec this opinion supplements our prior opinion in 124_tc_223 zapara i i r c which r contends is the exclusive remedy for a violation of sec_6335 i r c held ps’ citation of sec_6335 i r c on reply brief did not raise a new issue but appealed to the correct application of law held further ps’ request to sell the stock complied with the requirements of sec_6335 i r c held further the relief provided in zapara i was not an award of damages but specific relief to provide ps the credit to which they would have been entitled if r had complied with ps’ request to sell the stock held further by failing to adhere to the statutory mandate of sec_6335 i r c r frustrated ps’ ability to use the stock to defray their tax_liabilities and increased their risk with respect to the stock accordingly r is treated as assuming the risk of loss with respect to the stock 767_f2d_1098 4th cir and 449_f2d_623 7th cir followed 419_f3d_944 9th cir distinguished held further sec_7433 i r c does not preclude the specific relief provided in zapara i michael a zapara and gina a zapara pro sese deborah a butler for respondent supplemental opinion thornton judge respondent has moved for reconsideration of our prior opinion in 124_tc_223 zapara i in zapara i we held among other things that in this action pursuant to sec_6330 to review respondent’s jeopardy_levy of certain stock accounts petitioners are entitled to a credit for the value of their seized stock as of the date by which the stock should have been sold under sec_6335 ie days after petitioners requested respondent in writing to sell the stock and apply the proceeds to their outstanding tax_liabilities we remanded the case to the appeals_office for the purpose of establishing the value of the stock accounts as of days after date background we adopt the findings of facts in zapara i for convenience and clarity we repeat here the facts necessary to understand the discussion that follows and we supplement the facts as appropriate on date respondent made a jeopardy_levy with respect to certain nominee stock accounts held on petitioners’ behalf respondent’s collection_division took the position that these stock accounts had a value of approximately dollar_figure million-- more than enough to pay off fully petitioners’ then-outstanding tax_liabilities of about dollar_figure by letter dated date petitioners requested a sec_6330 appeals hearing with respect to the jeopardy_levy during the pendency of their appeals_office case petitioners became concerned about a possible decline in the value of their levied-upon stock the stock petitioners’ then-representative unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure all section references are to the internal_revenue_code in effect for the years in issue after receiving respondent’s motion for reconsideration we stayed our order remanding this case to the appeals_office steven r mather mr mather requested respondent’s revenue_officer to liquidate the stock accounts and apply the proceeds to petitioners’ outstanding tax_liabilities the revenue_officer directed mr mather to get the appeals officer’s approval for the stock sale consequently on date mr mather faxed to the appeals officer a request for her approval of the stock sale the fax which is not in evidence is described in the appeals officer’s contemporaneous case activity records as asking me for a letter to say okay to release stock for sale on date the appeals officer called mr mather about this request an entry in the appeals officer’s case activity records dated date states called rep mr mather -re sale of stock that had been levied under jeopardy_assessment although no move had been made to sell stock because of cdp hearing per rep-tp taxpayer wants to sell stock while it still has value and have proceeds appkied sic to tax told rep that i would like him to put his request in writing and send to me w cc to ro revenue_officer since he is still working with the ro he said he will do informed rep that i was going to talk to ro about stock sale-he was okay with me doing that-rep had already talked to him about too sic that same day the appeals officer called the revenue_officer who indicated that petitioners had a lot of shares of stock that were not widely traded and that he wanted to determine the fair_market_value and have all proceeds applied to petitioners’ deficiency the appeals officer’s contemporaneous case activity records state that this is what i also want that same day the appeals officer made inquiries of other irs personnel about a possible stock sale and was advised that if fmv fair_market_value is determinate we can sell but if fmv is not determinate then per irm internal_revenue_manual we have to sell at auction in an entry in her case activity records dated date day after the terrorist attacks of date the appeals officer indicated that she would continue to research work with rep on possible sale of stock he has requested to happen a date entry in the appeals officer’s case activity records states rep called-wants to sell stock-i previously talked to ro-he has no problems with it-have to determine fmv-rep to submit info to me in writing-and to ro who will verify and let me know an entry dated date states need to call rep-re status of appeal funds have been levied under jeopardy levy-tp wanted to sell them while they still had value-ro does not object-will oversee-then attack- market fell-therefore believe sale of stock has not happened an entry dated date repeats this language verbatim finally an entry dated date indicates that the appeals officer called revenue_agent f stevens who stated he did not know status of case and that rep did not provide stock information to him to be able to sell stock to pay tax apparently it may not have been worth much the appeals officer’s appeals case memo undated but attached to form 5402-c appeals transmittal and case memo signed date states in pertinent part the representative indicated in discussions with the appeals officer that his goal in resolving the issue in this case was to sell the stock seized by the irs and apply it to the deficiencies owed in addition to getting the audit assessments reduced on appeal in district_court he believed if this was done the amount owed would be resolved and possibly full paid through the stock sale the request to sell the stock was made during consideration of this case the taxpayers believed that the stock would become worthless while the appeal was pending due to the downturn in the market the taxpayers wanted to liquidate the stock so that some credit could be applied to the balance due irs the taxpayers contended that while sic the revenue_officer seized the stock the value of the stock if liquidated was greater than the balance of the liabilities and that it had declined to the point where the value is only a fraction of the balance due the representative was supposed to address this request in writing to appeals in order for consideration sic to sell the stock the revenue_officer was in agreement to the stock sale if it was sold at fair_market_value and all proceeds were applied to the deficiencies owed no request was received in writing from the representative as requested on date a notice_of_determination concerning collection action s under sec_6320 and or the notice_of_determination was issued to petitioners in the notice_of_determination the appeals_office determined that petitioner sec_4 the record does not otherwise reveal the role of revenue_agent f stevens in this case were precluded from challenging their underlying tax_liabilities for and and that respondent’s jeopardy_levy would not be withdrawn the notice_of_determination does not expressly address petitioners’ request to sell the stock discussion the granting of a motion for reconsideration rests within the court’s discretion 110_tc_440 see lucky stores inc v commissioner tcmemo_1997_70 affd 153_f3d_964 9th cir a motion for reconsideration will be denied absent a showing of unusual circumstances or substantial error estate of quick v commissioner supra see 95_tc_467 affd without published opinion sub nom stell v commissioner 999_f2d_544 9th cir 87_tc_164 whether application of sec_6335 was an untimely new issue petitioners cited sec_6335 only in their reply brief respondent suggests that he therefore lacked adequate opportunity to present evidence and legal argument regarding the application of sec_6335 we disagree before during and after trial petitioners repeatedly raised the claim that respondent had wrongly refused to comply with their request to liquidate the seized stock accounts and to give them appropriate credit as respondent notes in his motion for reconsideration continued clearly respondent had fair warning of this issue in fact respondent’s pretrial memorandum--submitted to the court about weeks before trial--specifically addressed this issue although without reference to sec_6335 or any other legal authority similarly in his opening and reply briefs respondent addressed this issue again without citation to any legal authority arguing that the appeals officer properly refused to comply with petitioners’ request to sell the stock because petitioners failed to submit certain information in writing as requested by the appeals officer we believe that petitioners’ citation to sec_6335 on reply brief does not raise a new issue but appeals to the application of the correct law based upon the record presented and in support of a claim of which respondent was well aware neither party can avoid the application of the correct law to the facts of the case by failing to plead or argue it that is the province of the court 89_tc_105 körner j concurring citing 57_tc_767 continued petitioners did not expressly raise this issue in their petition nevertheless because at trial respondent having previously addressed the issue in his pretrial memorandum acquiesced in the introduction of evidence on this issue without objection it was tried with at least the implied consent of respondent accordingly we treat the issue in all respects as if it had been raised in the pleadings see rule b 103_tc_525 affd 100_f3d_778 10th cir cf 92_tc_1267 holding that the commissioner was not precluded from raising for the first time on brief the applicability of sec_751 affd 906_f2d_62 2d cir respondent was no less well situated than these pro sese petitioners to be aware of the relevant statutory provisions respondent had adequate opportunity to present pertinent evidence at trial regarding petitioners’ claim and the defense thereto that he had asserted even before trial and that constitutes a mainspring of his motion for reconsideration ie that petitioners failed to make an adequate written request for the appeals officer to sell the stock in his motion for reconsideration although he complains that we should have held additional evidentiary hearings on the application of sec_6335 respondent has not expressly requested that we now hold additional evidentiary hearings or described what additional evidence he might now wish to offer we note that in his pretrial memorandum respondent indicated that he expected to call various witnesses including the appeals officer to testify at trial however respondent called no witnesses and offered into evidence only selective portions of the administrative record similarly respondent has not expressly requested the opportunity for additional briefing regarding the application of sec f in his 16-page memorandum of law in support of motion for reconsideration of opinion respondent has included extensive legal argument regarding this matter petitioners have filed a response we conclude that additional briefing would not be helpful to the court the record contains sufficient facts to permit us to decide this case based on the application of sec_6335 particularly in light of our conclusion that petitioners have not raised a new issue we conclude that additional evidentiary proceedings are unnecessary whether petitioners made sufficient request to sell the stock in his motion for reconsideration respondent argues that the evidence does not support the finding in zapara i that the date fax met the requirements of sec_301 d ii proced admin regs in zapara i we acknowledged that because the parties did not stipulate the complete administrative record or offer the date fax into evidence we are unable to determine whether the fax contained all the information specified in the applicable regulations zapara v commissioner t c pincite n we concluded however considering the appeals officer’s subsequent response we believe that the fax was sufficient for purposes of sec_6335 id we reached this conclusion on the basis of all the evidence in the administrative record that was presented to the court that evidence convinces us as discussed in greater detail infra that the appeals officer treated the date fax as a request to sell the stock that she acquiesced in the sale of the stock subject_to petitioners’ submitting information about the stock’s fair market value--information that we concluded is not required by the applicable sec_6335 regulations that she ultimately relegated responsibility for the stock sale to the revenue_officer whose involvement with petitioners’ request predated the date fax and that for a period of some months in late and early the appeals officer was uncertain as to whether or not the stock sale had taken place although the administrative record does not show that the appeals officer expressly determined that the date fax met the requirements of the sec_6335 regulations it also does not show that she expressly made any contrary determination in fact the administrative record does not contain the slightest indication that the appeals officer was even aware of much less based her actions on the directives of sec_6335 or the regulations thereunder this circumstance has complicated our task of evaluating the appeals officer’s response to petitioners’ request to sell the stock but it does not relieve respondent of his duty to comply with the directives of sec_6335 which we briefly review below sec_6335 requires the secretary as soon as practicable after seizing property to publish notice of sale sec_6335 the sale must occur no more than days after such public notice sec_6335 if the owner of the levied- upon property believes the irs is taking too long to publish the final_determination contains no reference to this issue notice of sale sec_6335 provides a remedy see 44_f3d_795 9th cir the owner may request the sale to take place within days and the secretary shall comply with such request unless the secretary determines and notifies the owner within the requisite days that the sale would not be in the best interests of the united_states sec_6335 the federal courts have always required strict compliance by the government with sec_6335 anderson v united_states supra pincite the regulations under sec_6335 prescribe the form in which the sec_6335 request is to be made we have no occasion here to question respondent’s ability to insist upon strict adherence to those regulatory requirements in the first instance when a taxpayer requests respondent to sell seized property but where as in this case respondent’s agents and officers themselves appeared unaware of either the statutory or regulatory requirements under sec_6335 and received and processed petitioners’ request to sell the seized property insisting only upon conditions that lie outside the regulatory requirements and the facts do not indicate that respondent otherwise lacked the information necessary to comply with petitioners’ request respondent cannot be heard to complain in hindsight that petitioners’ request was insufficient respondent contends that the appeals officer did not abuse her discretion in finding that petitioners did not make a written request to sell the stock it is undisputed however that petitioners did make a written request on date in the fax from mr mather to the appeals officer on the basis of all the evidence we have concluded that the fax constituted a request to sell the stock consistent with the manner in which the appeals officer treated itdollar_figure consequently if we were to this court has held that in exercising judicial review pursuant to sec_6330 we review respondent’s determinations de novo where the validity of the underlying tax_liability is at issue but otherwise review respondent’s determinations for abuse_of_discretion see eg 114_tc_604 at least one court has held that in a sec_6330 collection case procedural challenges as opposed to challenges to the correctness of the administrative determination should be reviewed de novo rather than for abuse_of_discretion 345_fsupp2d_1218 w d okla the instant case presents a mix of a sec_6335 procedural challenge and a correctness challenge as to underlying factual matters the standard of review is further complicated by the fact that the final_determination does not expressly address petitioners’ request to sell the stock because we would conclude that respondent erred in failing to comply with petitioners’ request even under the more restrictive abuse_of_discretion standard we need not and do not decide whether a de novo standard of review applies to the procedural challenge presented by this case in a footnote to his legal memorandum in support of his motion for reconsideration respondent quibbles over whether the fax represented an express request by petitioners to sell the stock postulating that it can also be construed as a request to release the levy on the stock or to release the stock back to petitioners the administrative record clearly shows however that the appeals officer treated the fax as a request by petitioners to sell the stock in fact her first documented action after receiving the fax was to call mr mather re sale of stock that had been levied immediately thereafter the appeals officer spoke to the revenue_officer and other irs personnel about a possible sale of petitioners’ stock the following week she made a note in her case activity records that she would continue to research work with rep on possible sale of stock he continued agree with respondent that the appeals officer found that there was no written request submitted by the taxpayers for the sale of the stock we would conclude that such a finding was an abuse_of_discretion as being without sound basis in fact respondent leans heavily on a statement in the appeals officer’s appeals case memo no request was received in writing from the representative as requested the administrative record shows however that what the appeals officer ultimately requested from mr mather and conditioned the sale of the stock upon was information in writing as to the fair_market_value of the stockdollar_figure this conclusion is consistent with the context of continued has requested to happen a day later she spoke by phone to mr mather who according to her notes wants to sell stock the appeals officer’s case activity notes indicate that she would continue to work with mr mather on possible sale of stock he has requested to happen in her appeals case memo the appeals officer states the request to sell the stock was made during the consideration of this case according to a date entry in her case activity records the appeals officer in her first telephone conversation with mr mather after receiving the date fax told him that she would like him to put his request in writing with a copy to the revenue_officer according to the appeals officer’s own characterization of it then this directive was precatory there is no indication that the appeals officer made her consideration of mr mather’s faxed request which was necessarily in writing conditional on his submitting an additional written request to the contrary the case activity records show that immediately after speaking with mr mather the appeals officer spoke with the revenue_officer who was not only already familiar with mr mather’s request but acquiesced in it subject_to ascertaining the stock’s fair_market_value other irs personnel to whom she spoke reiterated concerns about determining the stock’s fair_market_value continued the appeals officer’s complete discussion of this matter in the appeals case memo and with the parties’ fact stipulations which state in pertinent part during the course of petitioners’ collection_due_process case petitioners’ representative raised the following issues that petitioners wished to sell stock in the possession of a revenue_officer and apply the proceeds to their outstanding tax_liabilities with respect to the sale of stock the appeals officer informed petitioners’ representative continued on date less than a week after her prior conversation with mr mather the appeals officer spoke with mr mather again this time her request was for information about the fair_market_value of the stock this information was to be submitted to the revenue_officer for his verification after this the appeals officer seems to have relegated the matter of the stock sale to the revenue_officer and to a revenue_agent in identical entries in her case activity records dated date and date the appeals officer noted that petitioners wished to sell their levied-upon stock and that the revenue_officer does not object-will oversee-then attack- market fell-therefore believe sale of stock has not happened emphasis added the final germane entry is dated date and indicates that the appeals officer called revenue_agent f stevens otherwise unidentified in the record who stated he did not know status of case and that rep did not provide stock information to him to be able to sell stock to pay tax apparently it may not have been worth much these entries suggest several things namely that the appeals officer was aware that petitioners’ request to sell the stock had been and possibly still was under active consideration that the stock sale was held up because of continued lack of information about its fair_market_value and not because of any question as to whether petitioners had otherwise made sufficient written request and that for a period of some months between late and early the appeals officer having relegated responsibility for the stock sale to the revenue_officer and the revenue_agent was uncertain as to whether the sale might have already occurred that he needed to submit information regarding the stock such as the fair_market_value in writing and that a revenue_officer would make a determination regarding the sale of the stock petitioners did not submit the required information regarding the fair_market_value of the stock emphasis added as we discussed in zapara i neither sec_6335 nor the regulations thereunder require the owner to include information about fair_market_value in a request to sell seized property accordingly it was an abuse_of_discretion for the appeals officer to insist on petitioners’ providing such information before complying with the statutory mandate of sec_6335 to comply with the request to sell the seized property in his motion for reconsideration respondent argues that petitioners failed to identify or describe the stock contained in the seized stock accounts and so did not satisfy the requirements of sec_301_6335-1 proced admin regs as pertinent to this line of argument the regulations require a request for sale of seized property to contain a description of the seized property that is the subject of the request sec_301 d ii b proced admin regs in the instant case the seized property was three stock accounts at travis morgan securities inc as described in the notices of levy upon which this case is based and which are part of the administrative record the notices of levy gave the commissioner the rights to all the property in the stock accounts and created a custodial relationship between the irs and travis morgan securities inc such that the stock came into the constructive possession of the government see 472_us_713 dollar_figure accordingly we do not believe that respondent lacked the ability to know the identity of the stocks in the levied-upon stock accounts as necessary to comply with petitioners’ request to sell the stock more to the point the administrative record does not suggest that the appeals officer was ever in doubt as to the identity of the seized property that was the subject of petitioners’ request that the appeals officer ever expressly requested further information in this regard other than as might be incidental to her request for fair_market_value information or that any failure by petitioners to provide such information was the reason for respondent’s failure to comply with petitioners’ request to sell the stock in his memorandum in support of his motion for reconsideration respondent contends that we should remand this case to the appeals officer for a determination as to whether petitioners’ request that respondent sell the stock was sufficient under the sec_6335 regulations in light of the foregoing discussion we do not believe it is necessary productive or appropriate to remand this case to the appeals officer to reconsider in hindsight her compliance with sec_12 in their stipulations of fact the parties have described the stock as being in the possession of a revenue_officer f see 117_tc_183 we believe that the highly predictable outcome of such a remand would only necessitate further judicial review at a later date whether this court has authority to grant petitioners relief in zapara i we held that because respondent neither complied with petitioners’ request to sell the stock nor determined and notified petitioners that selling the stock would not be in the united states’ best interests petitioners are entitled to a credit for the value of the stock accounts as of the date by which the stocks should have been sold under sec_6335 ie days from date zapara v commissioner t c pincite citing 767_f2d_1098 4th cir we held that respondent could not claim any interest or accrue penalties on this credited amount after such date id we noted that if the value of the stock presently exceeds its value as of days from such date then respondent should sell the stock and give petitioners appropriate credit id n in his motion for reconsideration respondent contends that this court lacked jurisdiction to order such relief characterizing it as an award of damages petitioners’ request for a credit on their taxes due to the delayed sale of the stock caused by respondent’s alleged disregard of sec_6335 is a claim for damages pursuant to sec_7433 the united_states district_court may only grant relief because of respondent’s reckless intentional or negligent disregard of the internal_revenue_code or regulations sec_7433 is the exclusive remedy for a taxpayer seeking damages against the united_states for such conduct respondent is correct that this court lacks jurisdiction to award damages pursuant to sec_7433 see williams v commissioner tcmemo_2005_94 chocallo v commissioner tcmemo_2004_152 respondent is incorrect however that we have awarded damages to petitioners pursuant to sec_7433 rather we have provided petitioners specific relief the distinction between damages and specific relief has been explained thus ‘damages are given to the plaintiff to substitute for a suffered loss whereas specific remedies are not substitute remedies at all but attempt to give the plaintiff the very thing to which he was entitled ’ 487_us_879 quoting md dept of human res v dept of health and human servs 763_f2d_1441 ndollar_figure d c cir in zapara i we did not award petitioners damages to substitute for any suffered loss in fact we did not endeavor to ascertain whether petitioners have suffered any loss instead we ordered specific relief that attempts to give petitioners the credit to which they would have been entitled had respondent complied with their request to sell the stock as required by sec_6335dollar_figure our holding in zapara i requires that if the value of the stock is presently no greater than it was as of the last date it should have been sold under sec_6335 petitioners are entitled to a credit against their tax_liability for the value of the stock as of that date otherwise respondent is to sell the continued we have provided petitioners this specific relief in the exercise of this court’s inherent equitable powers as the united_states court_of_appeals for the ninth circuit to which this case is appealable has observed the tax_court possesses within its statutorily defined sphere the authority to apply the full range of equitable principles generally granted to courts that possess judicial powers 264_f3d_904 9th cir affg 113_tc_6 see 231_f3d_541 9th cir even if the tax_court does not have far- reaching general equitable powers it can apply equitable powers within its own jurisdictional competence affg tcmemo_1998_145 20_f3d_173 5th cir concluding that the tax_court is empowered to apply the equitable principle of reformation to a case over which it already has jurisdiction affg tcmemo_1992_36 chocallo v commissioner supra requiring the commissioner to return to the taxpayer with interest the amount collected by levy where the levy had been made without following the hearing procedures required under sec_6330 clearly this case falls within this court’s statutorily defined sphere estate of branson v commissioner supra continued stock and give petitioners appropriate credit either contingency results in a credit to petitioners equal to the value of the stock rather than an award for any suffered loss sec_6330 broadly gives the tax_court jurisdiction with respect to such matter as constitutes the subject of the taxpayer’s appeal from an appeals_office determination at least so long as the underlying tax_liability is of a type over which the tax_court has jurisdiction as it is in the instant case this jurisdictional grant encompasses review of a jeopardy_levy such is at issue here see 119_tc_356 in the exercise of this jurisdiction this court has the authority to review for error respondent’s compliance with petitioners’ request to sell the seized stock inasmuch as this matter is properly part of the subject of petitioners’ appeal from the administrative determination it would be anomalous if this court’s authority were limited to finding such error and did not extend to redressing itdollar_figure whether the equitable remedy provided in zapara i was appropriate in zapara i we treated respondent as having assumed the risk of loss with respect to the stock by failing to adhere to this court has recognized limits to its ability to provide relief in sec_6330 collection cases for instance in 126_tc_1 this court held that it lacks jurisdiction in a sec_6330 proceeding to determine an overpayment or to order a refund_or_credit of taxes paid the decision in greene-thapedi was predicated partly on a long jurisdictional history that militated against this court’s assuming refund jurisdiction without express legislative provision and partly on the absence in sec_6330 of limitations corresponding to the limitations in sec_6511 on claims for credits or refunds of overpayments of tax such concerns are not presented by the instant case which does not involve any claim of an overpayment of taxes and does not involve any refund_or_credit with respect to an overpayment of taxes the sec_6335 mandate to comply with petitioners’ request to sell it in evaluating the circumstances under which the government should be considered to assume the risk of loss with respect to seized property three appellate court cases are especially instructive two of these cases 767_f2d_1098 4th cir and 449_f2d_623 7th cir were discussed in zapara i in these two cases the government was held to have assumed the risk of loss with respect to seized property the taxpayers were afforded the same type of equitable relief that we have provided petitioners the third case 419_f3d_944 9th cir decided after our opinion in zapara i and after the filing of respondent’s motion for reconsideration concluded that the risk of loss did not pass to the government a comparison of the facts and analyses of these three cases convinces us that the result in the instant case properly aligns with the result in barlows and pittman the courts in barlows and pittman held that the government assumed the risk of loss with respect to levied-upon properties an account receivable in barlows real_estate in pittman where it exercised dominion and control_over the properties having failed to publish notice of sale as soon as practicable as required by sec_6335 in each case the government’s actions impeded the taxpayer’s ability to use the levied-upon property to defray outstanding tax_liabilities and increased the taxpayer’s risk with respect to the levied-upon propertydollar_figure in each case the court held that the taxpayer was entitled to equitable relief in the form of credit against tax_liability for the value of the property seized because current sec_6335 had not yet been enacted when barlows and pittman were decided those cases necessarily did not consider the effect of the government’s failure to adhere to the mandate of sec_6335 to comply with the owner’s request to sell the seized property absent a determination and notification to the owner that the sale would not be in the best interests of the united_states confronted with that issue in this case we have concluded that the consequences to petitioner sec_15 the court_of_appeals in 449_f2d_623 7th cir noted that had the government followed the requirements of sec_6335 to advertise and sell the seized real_estate there would have been no question that the taxpayer’s liability would have been reduced to reflect the seizure as the court observed the government did not follow through and sell the property as required by the code instead it held it and permitted it to deteriorate in value id pincite consequently the court concluded we do not conceive that the error of the government and any loss resulting from it are attributable to the taxpayer id the court_of_appeals in 767_f2d_1098 4th cir affirmed on the basis of the district court’s opinion which stated in part the irs assumed the risk of the third-party debtor’s default when the irs acted inconsistently with the statute sec_6335 thereby increasing barlows’ risk in the property and precluding barlows from proceeding against the account itself 767_f2d_1098 4th cir of respondent’s failure to comply with sec_6335 are sufficiently similar to the consequences of the government’s wrongful actions in barlows and pittman as to demand an equivalent remedy for reasons explained in more detail below as previously noted the very object of sec_6335 is to provide a remedy when the taxpayer believes the irs is taking too long to publish notice of sale anderson v united_states f 3d pincite by failing to comply with the mandate of sec_6335 respondent thwarted petitioners’ statutory remedy respondent’s wrongful action was in its consequences to petitioners tantamount to respondent’s exercising dominion and control while failing to adhere to sec_6335 as in barlows and pittman as in barlows and pittman respondent’s wrongful action frustrated petitioners’ ability to use the levied-upon property to defray their tax_liabilities and increased petitioners’ risk with respect to the levied-upon property in these circumstances we do not believe it is dispositive whether respondent’s wrongful action might be said to have constituted the exercise of dominion and controldollar_figure here as in barlows and pittman any loss resulting from respondent’s wrongful action is not attributable to petitioners and should we believe be assumed by respondent accordingly we have followed barlows and in zapara i we concluded that the record did not establish that respondent had exercised dominion and control_over petitioners’ seized stocks 124_tc_223 pittman in assigning the risk of loss to respondent with respect to the seized property and in providing petitioners corresponding equitable relief by contrast in stead v united_states supra the irs did nothing to assume the risk of loss with respect to the levied- upon property unlike the instant case stead involved neither a taxpayer’s request to sell levied-upon property nor the application of sec_6335 in stead the irs had levied upon a bank account controlled by the taxpayers subsequently the levied-upon funds disappeared from the bank account but were neither returned to the taxpayers nor remitted to the irs petitioners paid their outstanding tax_liability and filed a claim_for_refund arguing in essence that they had paid their taxes twice affirming summary_judgment for the government the court_of_appeals for the ninth circuit cited zapara i with apparent approval for the proposition that under most circumstances a tax is ‘paid’ when the government becomes the owner of the property stead v united_states f 3d at dollar_figure citing barlows and pittman the court_of_appeals the court_of_appeals for the ninth circuit did not otherwise address the analysis or holdings of zapara i acknowledged that the risk of loss might pass to the government if it exerted dominion and control_over the levied propertydollar_figure id because the government had taken no action with respect to the taxpayers’ bank account aside from levying upon the funds within it however the court_of_appeals held that the risk of loss did not pass to the government id pincite in confirming that the risk of loss might pass to the government as a consequence of its exercising dominion and control_over seized property the court_of_appeals in stead did not foreclose the possibility that the risk of loss might pass to the government for other reasons to the contrary in dicta the court_of_appeals suggested that the risk of loss might have passed to the government if the taxpayers had shown that the the court_of_appeals stated there are situations in which the government exerts such extensive dominion and control_over a levied property that it should bear the risk of any loss see eg 449_f2d_623 7th cir 767_f2d_1098 a levy without more is not sufficient to transfer the risk of loss to the government unless the government takes affirmative action to administer the levied upon property as it did in pittman and barlows inc a tax levy does not in and of itself equate to payment of tax_liability 419_f3d_944 9th cir government acted with affirmative negligence in serving as custodian of the levied-upon propertydollar_figure id pincite whether sec_7433 is the exclusive remedy by failing to comply with sec_6335 respondent denied petitioners the benefit of the statutory remedy whereby they sought to protect themselves against future losses in the stock’s value respondent suggests however that because sec_6335 specifies no remedy for respondent’s noncompliance there can be no remedy other than as might arise from a civil cause of citing 462_us_198 the court_of_appeals analogized the remedies available to the irs under sec_6331 and sec_6332 to the remedies available to private secured creditors under article of the uniform commercial code stead v united_states f 3d pincite the court_of_appeals noted that u c c sec a requires a secured creditor in possession to use reasonable care in serving as custodian of the property and suggested that the taxpayers might have been entitled to credit against their tax_liability if they could have shown affirmative negligence by the government in this regard id the court_of_appeals in stead had no occasion to consider the application of this standard of reasonable care to a situation like the instant case where the debtor demands the secured party to liquidate the collateral we note however that pursuant to u c c sec a if the secured party negligently fails to liquidate the collateral after a demand to that effect has been made the secured party will be held liable for the resultant loss without regard to the presence in the contract of a clause exempting the secured party from liability anderson uniform commercial code sec pincite 3d ed because we have grounded the specific relief in zapara i on respondent’s violation of sec_6335 we need not and do not decide whether respondent’s employees acted negligently in this regard or whether such negligent conduct might constitute a separate ground for providing petitioners credit against their tax_liability action for damages pursuant to sec_7433 for the reasons discussed below we disagree sec_7433 provides that except as provided in sec_7432 a civil_action brought by a taxpayer against the united_states shall be the exclusive remedy for recovering damages resulting from unauthorized collection actions emphasis added respondent apparently would have us read the underscored language out of the statute fundamental principles of statutory construction preclude us from reading the statute in such a way as to render statutory language mere surplusage see eg 404_us_293 moreover incongruities between the mandate of sec_6335 and the scope of the sec_7433 cause of action for damages suggest that sec_7433 was not intended to occupy or encroach upon the field of available judicial remedies for respondent’s violation of sec_6335 most notably sec_7433 predicates a cause of action for damages on culpable conduct by the commissioner’s officers or employees ie negligent reckless or intentional disregard of statutory or regulatory provisions the statutory mandate of sec_6335 on the other hand does not turn on culpability or the lack thereof a violation of sec_6335 arising for example from a legal misunderstanding by respondent’s employees is no less a violation because it is not negligent reckless or intentional yet under respondent’s view which we cannot characterize as disinterested such a violation apparently would be without remedy either in the form of damages or specific reliefdollar_figure the provisions currently found in sec_6335 and sec_7433 were enacted as part of the technical_and_miscellaneous_revenue_act_of_1988 publaw_100_647 102_stat_3342 both provisions are included in a set of provisions known as the taxpayer_bill_of_rights intended as the name connotes to promote and protect taxpayer rights s rept pincite in light of these broader purposes of the taxpayer_bill_of_rights and the specific remedial nature of sec_6335 we do not believe that congress intended sec_7433 to displace equitable remedies for violations of sec_6335dollar_figure in a footnote to his memorandum in support of his motion for reconsideration respondent suggests that he is not authorized to credit petitioners’ account as contemplated in zapara i citing sec_6402 respondent states that he is not generally similarly there are other gaps in the scheme of relief under sec_7433 insofar as it might provide a remedy for a violation of sec_6335 for instance whereas sec_6335 entitles the owner of levied-upon property who may or may not be the same person as the taxpayer to request sale of the property sec_7433 limits a cause of action for damages to the taxpayer furthermore the damages available under sec_7433 are capped at dollar_figure for negligent disregard of law and dollar_figure for reckless or intentional disregard of law the legislative_history of sec_7433 gives the reasons for change in toto as follows the committee believes that taxpayers should be provided a civil cause of action to compensate them for damages that arise out of unlawful actions or inaction of irs employees that occur during the determination or collection of federal taxes s rept pincite authorized to credit a taxpayer’s account without an overpayment sec_6402 merely provides a procedure whereby respondent may credit a taxpayer’s overpayment against an outstanding tax_liability before refunding the balance neither sec_6402 nor any other provision of law forecloses respondent from giving petitioners proper credit as ordered by this court in the exercise of its authority pursuant to sec_6330dollar_figure to reflect the foregoing an order will be issued denying respondent’s motion for reconsideration the amount if any of credit due to petitioners will depend upon findings this court has ordered respondent’s appeals_office to make upon remand