internal_revenue_service number release date index number - ------------------------------------------------------------ -------------------------------- ------------------------------------------------------------ ------------------ ---------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number -------------------- refer reply to cc tege eoeg teb presp-148282-06 date date dear -------------- this letter is in response to your application_for an allocation of authority to issue dollar_figure------- ------------------in clean renewable energy bonds crebs under sec_54 of the internal_revenue_code the code sec_54 of the code imposes a limitation of dollar_figure on the amount of crebs which may be issued to finance qualified projects the limitation sec_54 provides that the limitation is to be allocated by the secretary of treasury in such manner as the secretary deems appropriate except that no more than dollar_figure of the limitation may be allocated to finance qualified projects of qualified borrowers which are governmental bodies section of notice_2005_98 2005_52_irb_1211 provides that the limitation will be allocated among qualified projects for which a share of such limitation has been requested beginning with the project s requesting the smallest share in dollar amount and continuing with the project s requesting the next-smallest share until the total limitation has been exhausted however in the event that dollar_figure has been allocated to qualified projects of qualified borrowers that are governmental bodies the remaining shares of the limitation will be allocated under the methodology described in the previous sentence only to qualified projects of qualified borrowers that are not governmental bodies for purposes of allocating the limitation among projects all qualified projects located at the same site and owned by the same qualified_borrower are treated as a single project and each project is treated as requesting a single allocation presp-148282-06 an allocation of shares of the limitation cannot be made with respect to the project owned by the borrower listed in appendix a because such borrower is a governmental body and dollar_figure has already been allocated to applications requesting a smaller share of the limitation to finance qualified projects owned by qualified borrowers that are governmental bodies we appreciate your submission of the application_for our consideration and encourage you to continue to pursue your plans for constructing a clean renewable energy project sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-148282-06 borrower name appendix a project type project location -------------------------------- -------------------------------- -------------------------------- trash combustion facility -------------------------------- -------------------------------- -------- amount requested dollar_figure----------------- ---------------


lawrence f peek and sara l peek petitioners v commissioner of internal revenue respondent darrell g fleck and kimberly j fleck petitioners v commissioner of internal revenue respondent docket nos filed date in ps established traditional iras ps formed fp corp and directed their new iras to use rolled-over cash to purchase of fp corp ’s newly issued stock ps used fp corp to acquire the assets of afs corp ps personally guaranteed loans of fp corp that arose out of the asset pur- chase in and ps undertook to roll over the fp corp stock from their traditional iras to roth iras including in ps’ income the value of the stock rolled over in those years in after the fp corp stock had significantly appreciated in value ps directed their roth iras to sell all of the fp stock ps’ personal guaranties on the loans of fp corp persisted up to the stock sale in r contends that ps’ personal guaranties of the fp corp loan were prohibited_transactions and as a result the gains realized in and from the sales of fp stock should be included in ps’ income held each of ps’ personal guaranties of the fp corp loan was an indirect extension of credit to the iras which is a prohibited_transaction and under sec_408 the accounts that held the fp corp stock ceased to be iras held further the gains realized on the sale of the fp corp stock are included in ps’ income held further ps are liable for the accuracy-related_penalty under sec_6662 sheldon harold smith for petitioners shawn p nowlan e abigail raines and john q walsh jr for respondent verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie peek v commissioner gustafson judge pursuant to sec_6212 sec_1 the internal_revenue_service irs issued statutory notices of deficiency to petitioners lawrence f peek and sara l peek on date and to petitioners darrell g fleck and kimberly j fleck on date determining the following deficiencies in income_tax and accuracy-related pen- alties under sec_6662 for tax years and taxpayers year deficiency penalty sec_6662 peek fleck dollar_figure big_number big_number big_number dollar_figure dollar_figure dollar_figure dollar_figure the issues for decision in these consolidated cases are i whether mr fleck’s and mr peek’s personal guaranties of a loan to fp company were prohibited_transactions under sec_4975 and ii whether the flecks and the peeks owe accuracy-related_penalties under sec_6662 findings_of_fact these cases were submitted by the parties fully stipulated under rule for decision without trial and the stipu- lated facts are incorporated herein by this reference unless otherwise indicated all section references are to the internal_revenue_code u s c and all rule references are to the tax_court rules_of_practice and procedure because we hold that the loan guaranties were prohibited_transactions we need not and do not reach the additional questions of whether prohib- ited transactions occurred i when fp company made payments of wages to mr fleck and mr peek which the irs contends were prohibited trans- actions under sec_4975 or ii when fp company made pay- ments of rent to an entity owned by mrs fleck and mrs peek which the irs contends were prohibited_transactions under sec_4975 we also need not consider whether those issues constitute new_matter see note below furthermore because our holding that the loan guaran- ties were prohibited_transactions resolves the income_tax issues in favor of the irs and against the petitioners we need not reach the question whether mr fleck and mr peek would in the alternative owe excise_tax for excess_contributions to their successor iras under sec_4973 the burden_of_proof is generally on the taxpayer see rule a and the submission of a case as fully stipulated under rule does not alter that burden see 95_tc_82 continued verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie united_states tax_court reports abbot fire safety inc in mr fleck identified abbott fire safety inc afs as an attractive business opportunity afs special- ized in providing alarms and fire protection hood suppres- sion systems sprinkler systems backflow inspections fire extinguishers and emergency lights for businesses afs also engaged in government-mandated compliance testing related to fire suppression and safety mr fleck contacted a j hoyal co a j hoyal the brokerage firm through which afs was offered for sale while mr fleck originally hoped to purchase afs with a family_member as partner that relative was unable to join the venture instead mr peek an attorney who had provided legal services to mr fleck in the past approached mr fleck about joining the venture mr and mrs fleck are not related to mr and mrs peek the iacc a j hoyal introduced mr fleck to christian blees a cer- tified public accountant c p a at a colorado springs accounting firm mr fleck later introduced mr blees to mr peek neither mr fleck nor mr peek knew mr blees pre- viously mr fleck and mr peek engaged mr blees and his firm to assist in structuring the purchase of afs’s assets and to perform due diligence on the transaction mr blees presented to mr fleck and mr peek information on a strategy he identified as the iacc on date mr blees gave to mr fleck and mr peek documents aff ’d 943_f2d_22 8th cir however the burden_of_proof can be shifted when the commissioner’s position implicates new_matter that was not in the notice_of_deficiency petitioners point out that whereas the notice_of_deficiency determined that they had engaged in prohibited trans- actions forbidden in sec_4975 and f -involving furnishing of goods services etc and receipt of consideration in connection with a transaction involving the income or assets of a plan -the commissioner now relies on sec_4975 which prohibits indirect exten- sion of credit we note that the notices of deficiency make no mention of the loan guaranties to the extent that this issue would require different evidence it could constitute new_matter however we need not resolve that question see 136_tc_263 since the material facts are not actually in dispute and we can resolve the case by a mere preponderance_of_the_evidence verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie peek v commissioner that described the iacc plan this strategy called for the participant to establish a self-directed individual_retirement_account ira transfer funds into that ira from an existing ira or sec_401 plan account set up a new cor- poration sell shares in the new corporation to the self- directed ira and use the funds from the sale of shares to purchase a business_interest in addition to describing the plan the iacc documents included an extensive discussion and an opinion letter from mr blees about prohibited_transactions under sec_4975 which state that such transactions would be detrimental to the iacc plan’s tax objectives the documents warned that the taxpayer could not engage in transactions with the ira that the irs would determine to be ‘prohibited trans- actions’ also included in the documents was a letter from the accounting firm which instructed an important distinction to always recognize is that any actions you take on behalf of the corporation must be taken by you as an agent for the corporation and not by you personally any business done by the cor- poration must be done in its status as a corporation and realizing that you are acting as an agent of the corporation only the corporation should exercise care to hold itself out at all times to the public as a cor- poration and not as some other type of entity or as an extension of you personally failure to properly manage the corporations sic affairs or to conduct business in any manner other than at arms length could result in adverse effects to the corporation your ira and to you personally this might include but is not limited to the assessment of additional income taxes penalties and interest from various taxing authorities none of the iacc documents indicate that mr fleck or mr peek informed their accountant that they might guarantee loans for the new corporation as part of their planned acquisition of afs’s assets and the documents included no advice to the effect that an extension of credit or personal guaranty between petitioners and the new corporation would not be considered prohibited_transaction for purposes of sec_4975 mr peek completed and submitted an iacc application and in response received the iacc plan for fp company a document that outlined a plan for the purchase of afs’s assets mr fleck and mr peek subsequently implemented verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie united_states tax_court reports this plan and compensated mr blees and his firm for struc- turing the purchase and performing due diligence both mr fleck and mr peek were aware of the compensation implementing iacc with fp company mr fleck and mr peek each established at vista bank accounts intended to be self-directed iras over which they each retained all discretionary authority and control con- cerning investments mr fleck rolled over funds on date into his ira the fleck vista ira from an existing account maintained for his benefit at the allied domesq k retirement_plan mr peek rolled over funds on date into his ira the peek vista ira from an existing account maintained for his benefit at charles schwab neither mr fleck nor mr peek contributed to the other’s ira on date the articles of incorporation for fp company inc fp company were filed with the colorado secretary of state at formation mr fleck and mr peek intended that fp company would purchase the assets of afs and engage in the retail_sale of fire suppression systems on date each ira purchased big_number shares of newly issued stock in fp company for dollar_figure and thereby acquired a interest in fp company the peek vista ira made its purchase at mr peek’s direction and the fleck vista ira made its purchase at mr fleck’s direction in so doing mr peek and mr fleck both intended that fp company would purchase the assets of afs at the time of purchase both mr peek and mr fleck also intended to serve as corporate officers and directors of fp company in a transaction closed in mid-date but with an agreed effective date of date fp company acquired most of afs’s assets for a price of dollar_figure con- sisting of a dollar_figure in cash derived from i a dollar_figure bank loan to fp company from a credit_union and ii dollar_figure of the proceeds of the sale of fp company’s stock to the iras b a dollar_figure promissory note from fp com- pany to a j hoyal the broker and c a dollar_figure promis- sory note from fp company to the sellers secured_by per- sonal guaranties from mr fleck and mr peek verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie peek v commissioner as part of mr fleck’s and mr peek’s personal guaranties a deed_of_trust on their personal residences was recorded in el paso county colorado on date mr fleck and mr peek were grantors and leslie and carol heinrich the shareholders of the corporation selling afs’s assets were the grantees of the deed_of_trust the guaranties remained in effect until the sale and merger of fp company in operation of fp company d b a abbott on date fp company filed a statement of change_of registered officer or registered agent with the colorado secretary of state which named mr peek as the new registered agent of fp company also on september fp company filed two certificates of assumed or trade_name indicating that it would hereafter do business as abbott fire safety inc and abbott fire extinguisher company inc from until the sale mr fleck and mr peek were the only persons to serve as corporate officers and directors of fp company subsequent transactions involving the fleck and peek iras in mr fleck and mr peek’s accountants informed them that vista bank was terminating its services as custo- dian of the fleck vista ira and the peek vista ira con- sequently they transferred the fleck vista ira and the peek vista ira to first trust co of onaga to become the fleck onaga ira and the peek onaga ira each man intended the new account to be self-directed in each new ira the sole asset was the shares of fp company previously held in the vista iras in mr fleck converted half of the fleck onaga ira to a roth_ira at the same bank the fleck roth_ira and mr peek converted half of the peek onaga ira to a roth_ira the peek roth_ira in each transferred the remaining half of his onaga ira into his roth_ira so that thereafter each roth_ira owned of the stock of fp com- pany mr fleck and mr peek each reported the fair market values of the converted portions of their accounts as taxable_income for and verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie united_states tax_court reports sale and merger of fp company in the roth iras sold fp company to xpect first aid co each roth_ira received payments on the following dates and in the following amounts for it sec_50 interest in fp com- pany date payment dollar_figure big_number big_number big_number big_number total big_number following these payments neither the fleck roth_ira nor the peek roth_ira owned any interest in fp company and neither mr fleck nor mr peek had any involvement with fp company or xpect first aid co administrative actions both the flecks and the peeks timely filed federal_income_tax returns on form sec_1040 u s individual_income_tax_return for the years and the irs examined those returns adjusted petitioners’ income to include capital_gain from the sale of fp company stock and in the alter- native imposed excise_tax for excess_contributions to mr fleck’s and mr peek’s roth iras during the irs issued statutory notices of deficiency to the peeks on date and to the flecks on date the peeks timely mailed their petition to this court on date and the flecks timely mailed their petition to this court on date at the time they filed their petitions both the flecks and the peeks resided in colorado i iras and prohibited_transactions opinion a taxpayer who invests his money in the hope of making a gain over a period of years-whether to fund his retirement as a result of the increased income the irs also made computational adjustments to exemption amounts student interest deductions for the flecks only itemized_deductions and self-employment_tax verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie peek v commissioner or for any other purpose-normally must pay tax on that gain as he realizes it sec_1001 c his payment of the tax from time to time diminishes the size of his investment and thereby to some extent diminishes his future gains however a taxpayer may create an individual_retirement_account which is exempt from tax under sec_408 and in which his investment can therefore increase until his retirement without being diminished by income_tax_liability as long as the account qualifies as an ira the taxpayer- investor is not liable for income_tax on the gains so that the undiminished investment account can earn maximum returns until the time comes for payout when the taxpayer will finally owe income_tax on those greater gains under sec_408 the benefit of the traditional_ira is thus deferral of income_tax_liability on retirement investment gains mr fleck and mr peek therefore used iras to make their investments in fp company with the intention of deferring until retirement their income_tax_liability on the gain they hoped for and did experience from that investment however iras are subject_to special rules including the provision in sec_408 that an account ceases to qualify as an ira if the individual for whose benefit any individual_retirement_account is established engages in any transaction prohibited by sec_4975 the irs con- tends that under that provision the fleck vista ira the peek vista ira and their successor iras ceased to qualify as iras as of the first day of through because mr fleck and mr peek made loan guaranties that were prohib- to the extent mr fleck and mr peek attempted to use roth iras under sec_408a their desired tax_benefit was slightly different a tax- payer investing through a roth_ira does not exclude qualifying contribu- tions to the roth_ira from income but once in the roth_ira investments grow tax free and qualifying distributions from the roth_ira are not sub- ject to tax see sec_408a because the iras ceased to qualify before the attempted roth conversion the roth_ira rules of sec_408a have no ap- plication in these cases sec_408 provides if during any taxable_year of the indi- vidual for whose benefit any individual_retirement_account is established that individual or his beneficiary engages in any transaction prohibited by sec_4975 with respect to such account such account ceases to be an individual_retirement_account as of the first day of such taxable_year verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie united_states tax_court reports ited transactions under sec_4975 the irs therefore concludes that the iras’ assets are under sec_408 deemed to have been distributed to mr fleck and mr peek who both therefore owe income_tax on the gain on sale in and petitioners dispute the irs’s contention that any prohibited_transactions occurred and instead contend that the iras remained qualified as such and therefore remained exempt from tax under sec_408 ii loan guaranties as prohibited_transactions the irs argues that mr fleck’s and mr peek’s personal guaranties of the dollar_figure promissory note from fp com- pany to the sellers of afs in as part of fp company’s purchase of afs’s assets were prohibited_transactions sec- tion c b prohibits any direct or indirect lending of money or other extension of credit between a retirement_plan and a disqualified_person emphasis added petitioners counter that mr fleck’s and mr peek’s personal guaranties were not prohibited_transactions because they did not involve the plan ie in this case the iras whereas the extension of credit prohibited under sec_4975 is between a plan and a disqualified_person emphasis added they acknowledge that a loan guaranty sec_4975 enumerates categories of prohibited_transactions in- cluding any direct or indirect- b lending of money or other exten- sion of credit between a plan and a disqualified_person sec_408 provides in any case in which any account ceases to be an individual_retirement_account by reason of subparagraph a as of the first day of any taxable_year paragraph of subsection d applies ie any amount_paid or distributed shall be included in gross in- come by the payee or distributee as if there were a distribution on such first day in an amount equal to the fair_market_value on such first day of all assets in the account on such first day sec_4975 defines disqualified_person as a fiduciary which is itself defined in sec_4975 as any person who exer- cises any discretionary authority or discretionary control respecting man- agement of such plan or exercises any authority or control respecting man- agement or disposition of its assets see 106_tc_76 ndollar_figure the parties stipulated that mr fleck and mr peek each retained all authority and control_over his vista ira and its successor iras and that each used this discretion to direct their iras to invest in fp company thus mr fleck and mr peek were disqualified_person s as to their iras for purposes of this section verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie peek v commissioner can fall within the prohibition because though it is not a direct extension of credit ie a loan it is an indirect exten- sion of credit see 101_tc_518 an individual who guarantees repayment of a loan extended by a third party to a debtor is although indirectly extending credit to the debtor but petitioners argue that the prohibition applies only to an extension of credit that whether direct like a loan or indirect like a loan guaranty is between a plan and a disqualified_person the loan guaranties at issue were between disqualified persons mr fleck and mr peek and an entity other than the plans-ie fp company an entity owned by the iras rather than the iras themselves this reading of the statute however would rob it of its intended breadth sec_4975 prohibits any direct or indirect extension of credit between a plan and a disqualified_person emphasis added the supreme court has observed that when congress used the phrase any direct or indirect in sec_4975 it thereby employed broad language and showed an obvious intention to prohibit something more than would be reached without it 508_us_152 as the commissioner points out if the statute prohibited only a loan or loan guaranty between a disqualified_person and the ira itself then the prohibition could be easily and abusively avoided simply by having the ira create a shell subsidiary to whom the disqualified per- son could then make a loan that however is an obvious evasion that congress intended to prevent by using the word indirect the language of sec_4975 when given its obvious and intended meaning prohibited mr fleck and mr peek from making loans or loan guaranties either directly to their iras or indirectly to their iras by way of the entity owned by the iras iii tax consequences of the guaranties on the sale of stock the irs’s two notices of deficiency issued to petitioners for and are similar and the one issued to the flecks asserted the prohibited_transaction triggered a liquidation of the iras in the sic following that liquidation the stock of fp company inc is treated verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie united_states tax_court reports as owned by the sic fleck and another individual ie mr peek personally consequently fleck and the other individual are taxed personally on any gain on the sale of such stock petitioners seem to argue that the irs’s notices of deficiency issued for and are somehow too late because the loan guaranties were made in and that in the absence of an earlier notice_of_deficiency the iras remained exempt petitioners suggest that if the iras did not lose their exemp- tion until then petitioners would have realized ordi- nary income in that year rather than the capital_gain deter- mined in the notices and they argue that since the notices did not make that particular adjustment the notices are somehow inadequate to support an assessment of tax based on capital_gains this argument either misconstrues the tax consequences to an individual who engages in prohibited_transactions with respect to an ira or perhaps exaggerates the importance of the wording of the notices the notices determined deficiencies for and on the basis of a prohibited_transaction that took place in we now redetermine those and deficiencies and decide whether the accounts that held the fp company stock were iras in when the stock was sold we hold they were not when they ceased to be iras and therefore exempt from income_tax we hold in and the tax con- sequences of their non-exemption we hold mr fleck and mr peek are liable for tax on the capital_gains realized in and from the sale of the fp company stock the loan guaranties were not a once-and-done transaction with effects only in but instead remained in place and constituted a continuing prohibited_transaction thus pre- venting mr fleck’s and mr peck’s accounts that held the fp company stock from being iras in subsequent years on date it remained true that mr fleck and mr peek guaranteed the loan to fp company if fp company defaulted they would pay by its nature the loan guaranty that each man made put him and his account in an indirect since the guaranties ie the prohibited_transactions continued through the time of the sale of fp company stock in we do not ad- dress what if any requirements there are to subsequently reform or resus- citate an ira that pursuant to the provisions in sec_408 has ceased to be an individual_retirement_account verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie peek v commissioner lending relationship that would persist until the loan was paid off consequently under sec_408 each original account holding the fp company stock ceased to qualify as an ira in in and when mr fleck and mr peek established roth iras those accounts ceased to be roth iras when they funded the accounts with fp company stock because the prohibited_transactions continued as to those accounts see sec_408a except as provided in this section a roth_ira shall be treated for purposes of this title in the same manner as an individual_retirement_plan for the same reasons the accounts holding the fp company stock when the stock was sold in were not roth iras and the gains from the sale realized in and were not exempt from tax the tax_liability from the gain is prop- erly attributable to mr fleck and mr peek as the creators and beneficiaries of the accounts that sold the fp company stock see sec_671 sec_408 e a i petitioners have not challenged the irs’s calculation of gain on the sale or asserted that they were entitled to a higher basis in the stock than what the irs allowed they were therefore liable for tax on the gains realized in the sale transaction as deter- mined in the notices of deficiency iv accuracy-related_penalties a substantial understatements the irs determined that the flecks and the peeks are liable for a accuracy-related_penalty because their underpayments were substantial_understatement s of income_tax under sec_6662 by definition an understatement of income_tax is substantial if it exceeds the greater of dollar_figure or of the tax required to be shown on in the alternative the irs agues that mr fleck and mr peek owe excise_tax on the excess_contributions to their successor iras under sec_4973 while sec_4973 imposes an excise_tax equal to of the ex- cess contribution made to a traditional roth_ira this tax is imposed only for each subsequent year in which the excess_contribution remains in the ira under our holding here that when the iras engaged in prohibited_transactions they ceased to be iras and the value of the iras’ assets con- stituted deemed distributions to mr peek and mr fleck personally any excessive contribution to a new ira was self-corrected and no excise_tax would be due we therefore do not address further this alternative theory verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie united_states tax_court reports the return sec_6662 pursuant to sec_7491 the commissioner bears the burden of producing sufficient evidence showing that the imposition of the penalty is appro- priate in a given case 116_tc_438 he has met this burden of showing substantial understatements of income_tax for since the adjust- ments for in the notices of deficiency result in defi- ciencies that exceed the requisite amounts the same cannot be said for the deficiencies consequently the commis- sioner also maintains that both the and underpay- ments in these cases were attributable to negligence or dis- regard of rules or regulations sec_6662 b negligence or disregard the term for purposes of sec_6662 ‘negligence’ includes any failure to make a reasonable attempt to comply with the provisions of this title ie u s c sec_6662 negligence is defined as a lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances 85_tc_934 the term disregard includes any careless reckless or intentional disregard of the rules or regulations sec_6662 the underpayments in these cases result from petitioners’ failures to report capital_gain income that they realized from the sale of fp company stock instead petitioners con- tended that iras held the fp company stock when the stock was sold and therefore the realized gains were not taxable however mr fleck and mr peek were well aware that prohibited_transactions listed in sec_4975 could be fatal to their ira arrangements because both the iacc informa- tion they received and an opinion letter from their account- ant discussed sec_4975 in detail the iacc information expressly stated the taxpayer could not engage in trans- actions with the ira that the irs would determine to be ‘prohibited transactions’ sec_4975 clearly provides that any indirect lending of money or other extension of credit between a plan and a disqualified_person is a prohibited_transaction as we have held mr fleck’s and mr peek’s personal guaranties to fp company were indirect extension s verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie peek v commissioner of credit to their iras and were prohibited_transactions see janpol v commissioner t c pincite and no one advised them otherwise given mr fleck’s and mr peek’s knowledge about the hazards of prohibited_transactions and their per- sonal involvement with the fp company transactions in particular their personal guaranties we conclude that peti- tioners were negligent when they failed to report income from the sales of fp company stock after mr fleck and mr peek had engaged in a prohibited_transaction c reasonable_cause and good_faith is once the commissioner meets this burden the taxpayer must come forward with persuasive evidence that the commissioner’s determination incorrect rule a higbee v commissioner t c pincite petitioners argue that even if they owe tax on the gain from the sale of fp company they acted with reasonable_cause and in good_faith when they failed to report the capital_gains at issue because they relied on advice provided by mr blees the c p a see sec_6664 accuracy-related_penalty is not due with respect to any portion of an underpayment if it is shown that there was reasonable_cause and taxpayer acted in good_faith with respect to that portion however as mr fleck and mr peek knew mr blees was himself not a disinterested professional but rather an active promoter of the iacc a promoter is ‘an adviser who participated in structuring the transaction or is otherwise related to has an interest in or profits from the transaction ’ 136_tc_67 quoting tigers eye trading llc v commissioner t c memo aff ’d 684_f3d_84 d c cir what they received from mr blees was not advice so much as a sales pitch because of mr blees’s role as promoter mr fleck and mr peek could not reasonably and in good_faith rely on that advice see ltd v commissioner t c pincite pro- moters take the good-faith out of good-faith reliance as the parties have stipulated mr blees sold to mr fleck and mr peek the iacc plan which was later used to structure the purchase of afs’s assets mr blees was thus a promoter and mr fleck and mr peek could not reasonably and in good_faith rely on his advice to adopt the iacc verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie united_states tax_court reports moreover there is no indication that mr fleck and mr peek informed their accountant of their intention to person- ally guarantee fp company loans or that mr blees gave them any advice that their personal guaranties would not be a prohibited_transaction under sec_4975 rather they were warned not to engage in any transactions that the irs would determine to be a ‘prohibited transaction’ since mr blees’s advice did not address the issue of per- sonal guaranties we conclude that petitioners did not rely on their accountant’s advice with regard to the prohibited trans- actions in these cases and did not have reasonable_cause or act in good_faith in failing to report the capital_gains in these cases we therefore sustain the imposition of the accuracy-related_penalty under sec_6662 for both years in issue in both cases to reflect the foregoing decisions will be entered under rule f verdate nov jul jkt po frm fmt sfmt v files bound vol without crop marks b v peek jamie


internal_revenue_service number release date index number -------------------------- ------------------------- ----------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc corp plr-135660-05 date date ------------------------ -------------------------- -------------------------------- ------------------------------------ ------------------------------------- legend distributing --------------------------------------------------------------- -------------------------------------------------- x controlled shareholder business a business b dear -------------- federal_income_tax consequences of a proposed transaction the information submitted in that request and in later correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process moreover no information provided by the taxpayer has been reviewed and no determination has been made regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the this letter responds to your date letter requesting rulings on certain ----------------------------------- plr-135660-05 distributing or controlled_corporation or both see sec_355 of the internal_revenue_code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing or controlled_corporation sec_355 and sec_1_355-7t summary of facts distributing is an s_corporation which is wholly owned by shareholder distributing is engaged in business a and business b financial information submitted by distributing indicates that business a and business b have each had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years proposed transaction i distributing will change its name to x and form controlled for what is represented to be a valid business_purpose distributing has proposed the following transaction to separate its business a from business b the proposed transaction distributing will transfer all of the assets of business b to controlled in exchange for all of controlled’s stock and controlled’s assumption_of_liabilities the contribution distribution controlled will elect to be an s_corporation pursuant to sec_1362 on the first available date after the distribution iii distributing will distribute all the stock of controlled to shareholder the ii representations the taxpayer has made the following representations regarding the contribution and distribution a no part of the consideration distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a distributing shareholder b the five years of financial information submitted on behalf of distributing’s business a and business b represents the present operations of each business and regarding each business there have been no substantial operational changes since the date of the last financial statements submitted plr-135660-05 c following the distribution distributing and controlled will each continue the active_conduct of its business independently and with its separate employees d the distribution is being carried out for the following business_purpose to significantly enhance the protection of the business a assets the distribution is motivated in whole or substantial part by this corporate business_purpose e the distribution is not used principally as a device for the distribution of the earnings or profits of distributing controlled or both f the total adjusted_basis and the fair_market_value of the assets transferred to controlled by distributing in the contribution will each equal or exceed the sum of the liabilities assumed as determined under sec_357 g the liabilities assumed as determined under sec_357 by controlled in the contribution will have been incurred in the ordinary course of business and will be associated with the assets transferred h no intercorporate debt will exist between distributing and controlled at the time of or after the distribution i no two parties to the proposed transaction are investment companies as defined in sec_368 and iv j payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length k the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7t pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation l for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing 50-percent or more of the total combined voting power of all classes of distributing stock entitled to vote or 50-percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution plr-135660-05 m for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing 50-percent or more of the total combined voting power of all classes of controlled stock entitled to vote or 50-percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution n the total fair_market_value of the assets of distributing transferred to controlled will equal or exceed the aggregate adjusted_basis of the transferred assets rulings the contribution followed by the distribution will qualify as a no gain_or_loss will be recognized by controlled on the contribution distributing will recognize no gain_or_loss on the contribution sec_357 based solely on the information submitted and the representations set forth above we rule as follows on the contribution and distribution reorganization under sec_368 distributing and controlled will each be a_party_to_a_reorganization under sec_368 and sec_361 sec_1032 the contribution will equal the basis of that asset in the hands of distributing immediately before its transfer sec_362 contribution will include the period distributing held that asset sec_1223 sec_361 the income of shareholder upon the receipt of controlled stock sec_355 the hands of shareholder immediately after the distribution will equal shareholder's the aggregate basis of the distributing stock and the controlled stock in the basis that controlled has in each asset received from distributing in no gain_or_loss will be recognized by and no amount will be included in no gain_or_loss will be recognized by distributing on the distribution the holding_period of each asset received by controlled in the plr-135660-05 aggregate basis in the distributing stock held immediately before the distribution such aggregate basis will be allocated between the distributing stock and the controlled stock in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 and c the holding_period of the controlled stock received by shareholder will include the holding_period of the distributing stock on which the distribution is made provided such stock is held as a capital_asset on the date of the distribution sec_1223 controlled will be made in accordance with sec_312 and sec_1_312-10 the proposed transaction will not cause controlled to have an ineligible shareholder for any portion of its first taxable_year under sec_1361 if controlled otherwise meets the requirements of a small_business_corporation under sec_1361 controlled will be eligible to be a sub chapter s_corporation under sec_1362 for its first taxable_year distributing’s momentary ownership of the stock of controlled as part of a proper allocation of earnings_and_profits between distributing and caveats no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the distribution is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both see sec_355 and sec_1_355-2 and iii whether the distribution and an acquisition or acquisitions are part of a plan or series of related transactions under sec_355 and iv whether distributing is a valid s_corporation and as to whether controlled is otherwise eligible to be an s_corporation procedural statements this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent each taxpayer involved in the proposed transaction should attach a copy of this ruling letter to the taxpayer’s federal_income_tax return for the taxable_year in which the proposed transaction is completed letter is being sent to your authorized representative in accordance with the power_of_attorney on file with this office a copy of this plr-135660-05 sincerely richard k passales richard k passales senior counsel branch office of associate chief_counsel corporate plr-135660-05 cc ------------------------------- ---------------------------------- ------------------------------- ---------------------------------- ------------------------------- ---------------- -------------------------


t c summary opinion united_states tax_court wilfred omoloh petitioner v commissioner of internal revenue respondent docket no 26556-12s filed date wilfred omoloh pro_se moenika n coleman for respondent summary opinion carluzzo special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not 1unless otherwise indicated subsequent section references are to the continued reviewable by any other court and this opinion shall not be treated as precedent for any other case in a notice_of_deficiency dated date notice respondent determined a dollar_figure deficiency in petitioner’ sec_2010 federal_income_tax and imposed a dollar_figure sec_6662 accuracy-related_penalty according to a birth certificate secured_by petitioner apparently with much difficulty and issued more than years after the event it records petitioner was born on date according to various other records generated in response to information that he apparently provided petitioner was born on date more often than not people would like to be younger here at least as far as petitioner’ sec_2010 federal_income_tax liability is concerned it would be to his advantage to be as old as the above-referenced birth certificate shows him to be this is so because after concessions one of the issues that we must decide is whether certain distributions from qualified retirement accounts iras are subject_to the sec_72 additional tax if petitioner is as old as the birth certificate suggests then he is not liable for the additional tax if he was born on a date continued internal_revenue_code in effect for the year in issue rule references are to the tax_court rules_of_practice and procedure shown in various other documents then he was not yet years old as of the dates of the distributions and he is liable for the sec_72 tax as respondent determined we must also decide whether petitioner is liable for the sec_6662 accuracy-related_penalty according to helen hayes age is not important unless you’re a cheese maybe so but petitioner’s age and the age of his former spouse as of the dates the distributions were made pretty much determines the issues remaining in dispute background some of the facts have been stipulated and they are so found at the time that the petition was filed and at all other times relevant here petitioner resided in texas petitioner who was born in the republic of kenya married debra ombwara in or around they divorced sometime before the trial in this case 2before trial in preliminary proceedings on date and date petitioner represented on the record that he was born on date that date of course would have supported the imposition of the sec_72 additional tax here in dispute upon that realization during the date proceedings petitioner quickly corrected his representation to claim date as his date of birth in petitioner received distributions totaling dollar_figure from an ira that he maintained at bank of america also in ms ombwara received distributions totaling dollar_figure from an ira that she maintained at bank of america collectively distributions petitioner and ms ombwara’s joint federal_income_tax return was timely filed the income reported on that return does not include the distributions furthermore the federal_income_tax liability shown on the return does not include the additional tax imposed by sec_72 in the notice respondent determined that the distributions are includable in petitioner’s income determined that the sec_72 additional tax is applicable with respect to the distributions and imposed a sec_6662 accuracy-related_penalty upon the ground that the underpayment_of_tax required to be shown on petitioner’s return is a substantial_understatement_of_income_tax petitioner now concedes that the distributions are includable in hi sec_2010 income he offers no explanation for the omissions petitioner’s texas driver’s license shows his date of birth as date as does his certificate of naturalization issued on date other documents in the record that show his date of birth as date include a form iap-66a certificate of eligibility for exchange visitor j-1 status certified by his sponsor on date a form iap-66a certified by his sponsor on date a form iap-66a certified by his sponsor on date a form iap-66a certified by his sponsor on date a form iap-66a certified by his sponsor on date a form i-687 application_for status as a temporary resident dated date a form i-688 temporary resident card issued on date a resident_alien card a transcript of academic record from the university of georgia printed on date a federal bureau of investigation fingerprint card dated date a form i-698 application to adjust status from temporary to permanent resident dated date a form i-697a change_of address card for legalization dated date a form n- application_for naturalization dated date and a petition for name change filed with the u s district_court granted on date his recently acquired birth certificate reflecting information he apparently provided to the issuing agency shows his date of birth as date 3some of the documents referenced in this list show petitioner’s date of birth as date which we assume is a juxtaposition of the day and month discussion generally the commissioner’s determinations made in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous see rule a 290_us_111 i sec_72 additional tax sec_72 imposes an additional tax on an early distribution from a qualified_retirement_plan equal to of the portion of the amount that is includable in gross_income a qualified_retirement_plan includes an ira see sec_408 sec_4974 the additional tax does not apply to certain distributions including as relevant here distributions made to an individual who is age or older as of the date of the distribution see sec_72 as noted petitioner now agrees that the distributions are includable in income for he argues that he is not liable for the sec_72 additional tax because he and if only by implication his former spouse were over year sec_4petitioner does not claim and the record does not show that the provisions of sec_7491 are applicable and we proceed as though they are not sec_7491 and sec_6751 do not apply to sec_72 see 144_tc_140 of age at the time the distributions were made to each of them relying upon all indications of petitioner’s age other than his birth certificate respondent disagrees petitioner’s certificate of naturalization driver’s license numerous other records referenced above and prior representations made in proceedings before trial all suggest that he was not older than years of age at the time the distributions were made his birth certificate shows otherwise respondent agrees that petitioner’s recently acquired birth certificate is authentic but questions its accuracy we share respondent’s concerns with the accuracy of the information shown on the birth certificate information petitioner apparently provided to the issuing kenyan agency during the pendency of this case after consideration of all of the evidence regard petitioner’s age we are reluctant to make any finding regarding the date of birth of petitioner or his former spouse that being so petitioner has failed to establish that respondent’s imposition of the additional tax in the notice is erroneous ii accuracy-related_penalty sec_6662 imposes an accuracy-related_penalty of of any portion of an underpayment_of_tax that is attributable to a substantial_understatement of 5there is no credible_evidence in the record that would support a finding with respect to the age of petitioner’s former spouse at the time the distributions to her were made income_tax sec_6662 d an understatement of income_tax is substantial if it exceeds the greater of dollar_figure or of the tax required to be shown on the taxpayer’s return sec_6662 ignoring conditions not relevant here for purposes of sec_6662 an understatement is defined as the excess of the amount of the tax required to be shown on the taxpayer’s return over the amount of the tax which is shown on the return sec_6662 respondent bears the burden of production with respect to the imposition of the penalty here in dispute see sec_7491 and that burden has been satisfied because the understatement of income_tax which equals the deficiency exceeds dollar_figure see sec_6211 sec_6662 sec_6664 the accuracy-related_penalty does not apply to any part of an underpayment_of_tax if it is shown the taxpayer acted with reasonable_cause and in good_faith with respect to that portion sec_6664 the determination of whether a taxpayer acted in good_faith is made on a case-by-case basis taking into account all the pertinent facts and circumstances sec_1_6664-4 income_tax regs petitioner bears the burden of proving that he had reasonable_cause and acted in good_faith with respect to the underpayment see 116_tc_438 petitioner offered no explanation for his failure to include the distributions in the income shown on hi sec_2010 return neither has he persuaded us that he in good_faith believed himself old enough to have avoided the imposition of the sec_72 additional tax accordingly respondent’s imposition of an accuracy- related penalty is sustained to reflect the foregoing decision will be entered for respondent


gryficant index no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division oct tep 2a ar re substitute mortality_table ruling taxpayer plan r ein plan no other plans in controlled_group plans plan x plan w plan p ein plan no ein ein plan no plan no ein plan no dear this letter is to inform you that your request to use substitute mortality tables for making computations under sec_430 of the internal_revenue_code the code for plan r has been granted with respect to the populations specified in this letter subject_to the conditions below effective for a period of plan years beginning with the plan_year commencing january sec_430 of the code and sec_303 of the employee_retirement_income_security_act_of_1974 your request has been granted in accordance with specifically this approval applies to the following populations e e plan r - male participants annuitants and nonannuitants including disabled participants plan r - female participants annuitants and nonannuitants including disabled participants based on the information provided by the taxpayer the following populations do not have credible mortality experience and therefore the standard mortality tables will be used for calculations under sec_430 of the code e plan p - all participants the taxpayer is also requesting approval for substitute mortality tables for plans s x and w which will be addressed in separate ruling letters in granting this approval we have only considered whether the substitute mortality rates were developed correctly in accordance with sec_1_430_h_3_-2 of the treasury regulations regulations and revproc_2017_55 accordingly we are not expressing any opinion as to the accuracy or acceptability of any calculations or other material submitted with your request permission is hereby granted to use the substitute mortality rates shown in the table below for plan r approved for use beginning with the plan_year commencing january substitute mortality tables base_year male annuitants female annuitants and nonannuitants and nonannuitants o o ’ k a n w n a a m n r m o s a a h w b n a e o o o a _ male annuitants and nonannuitants female annuitants and nonannuitants age - male annuitants and nonannuitants female annuitants and nonannuitants age male annuitants female annuitants and nonannuitants and nonannuitants age the above rates were developed based on an experience study period from date through date with a base_year of the rates were calculated by adjusting the applicable standard mortality tables in sec_1_430_h_3_-1 of the regulations indicated in the table below using the mortality ratio and credibility weighting factor determined by aggregating male and female experience as shown in the table below mortality credibility population standard base mortality_table ratio factor male participants female participants male combined annuitant nonannuitant mortality female combined annuitant nonannuitant mortality - the internal_revenue_service has reviewed the substitute mortality rates and supporting information and has determined that based on the information submitted the rates were correctly developed in accordance with sec_1_430_h_3_-2 of the regulations and revproc_2017_55 the above rates must be applied on a generational basis as provided i in sec_1_430_h_3_-2 of the regulations your attention is called to sec_430 of the code and sec_1 h - d of the regulations which describe the circumstances in which the use of the substitute mortality_table will terminate before the end of the 10-year period described above in general the substitute mortality tables can no longer be used as of the earliest of for a plan using a substitute mortality_table for only one gender the first plan_year for which there is full or partial credible mortality information with respect to the other gender that had lacked credible mortality information unless an approved substitute mortality_table is used for that gender the first plan_year in which the plan fails to satisfy the requirements of paragraph h -2 c of the regulations regarding the requirement that other plans and populations in the controlled_group must also use substitute mortality tables unless it can be demonstrated that they do not have credible mortality information taking into account the transition_period for newly affiliated companies in sec_1_430_h_3_-2 of the regulations the second plan_year following the plan_year for which there is a significant change in individuals covered by the plan as described in sec_1_430_h_3_-2 of the regulations the plan_year following the plan_year in which a substitute mortality_table used for a plan population is no longer accurately predictive of future mortality of that population as determined by the commissioner or as certified by the plan's actuary to the satisfaction of the commissioner or the date specified in guidance published in the internal_revenue_bulletin pursuant to a replacement of mortality tables specified under sec_430 of the code and h -1 of the regulations other than annual updates to the static mortality tables issued pursuant to h - a of the regulations or changes to the mortality improvement rates pursuant to sec_1_430_h_3_-1 of the regulations in particular since the number of individuals in the population is already less than of the number of the average number of individuals reflected in the experience study used to construct the substitute mortality tables and therefore has experienced a significant change as described in paragraph above plan r’s actuary will be required to certify in writing that the substitute mortality tables used for plan r continue to be accurately predictive of the future mortality of that plan this certification is required each year as long as either the number of individuals in the population is less than percent or more than percent of the average number of individuals included in the experience study see sec_1_430_h_3_-2 of the regulations and or _ the number of individuals covered by the substitute mortality_table for the plan_year is less than percent or more than percent of the number of - individual covered by the substitute mortality_table in a plan_year for which a certification described in the previous paragraph was made see sec_1_430_h_3_-2 of the regulations therefore in order to continue using the substitute mortality tables for making computations under sec_430 of the code the following information must be provided by october after the end of each plan_year that the above conditions apply in addition to any other information required under sec_1_430_h_3_-2 of the regulations the number of actual deaths during the experience study period used to develop the substitute mortality tables and the beginning and ending dates of the experience study period a table showing the number of expected deaths and actual deaths reported separately for each year beginning with deaths during through the year preceding the most recent actuarial valuation and in total a table similar to the stability demonstration required under section of revproc_2017_55 showing the average number of participants in the population included in the experience study and the number of participants in the population as of the end of each plan_year aggregated for male and female participants annuitants and nonannuitants beginning with date through the date immediately preceding the most recent actuarial valuation expressed both as a headcount and as a percentage of the average number of participants in the experience study a table showing a comparison of i the average ages and ii percentage of the population as of the end of the year immediately preceding the most recent actuarial valuation and the population included in the experience study the table should show this comparison by the following monthly single_life_annuity brackets under dollar_figure between dollar_figure and dollar_figure between dollar_figure to dollar_figure between dollar_figure to dollar_figure between dollar_figure and dollar_figure and dollar_figure and over the table ‘should also show the average age and average benefit amount for the group in total for both the experience study data and at the end of the plan_year immediately preceding the most recent actuarial valuation_date an explanation of any material changes in the population and a certification by the enrolled_actuary for the plan as to whether the substitute mortality_table is accurately predictive along with any additional demographic or other information to substantiate this claim a certification signed by the enrolled_actuary stating that a the enrolled_actuary is current with educational requirements set forth by the joint board for the enrollment of actuaries as well as any other actuarial designations asserted b the enrolled_actuary was personally involved in the determination that the c substitute mortality_table is still accurately predictive and provides the actuary’s best estimate for the plan in determining that the substitute mortality_table is still his or her best estimate the enrolled_actuary took into consideration the effect of business combinations plan mergers or spinoffs and settlements other risk transfers and other events that would have similar effects on the relevant populations and d the enrolled_actuary has the specific knowledge and experience to make the judgements set forth above and attests to these representations this information must be provided to david m ziegler or to another individual designated by the service by fax at or to the following address internal_revenue_service attn mr david m ziegler te_ge se t ep ra t a2 nca-629 constitution ave nw washington dc failure to provide the required information by the due_date will mean that the standard mortality tables must be used for purposes of sec_430 of the code beginning with the plan_year following the year during which the deadline for providing this information is missed this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan years for which the substitute mortality tables are used please note the information that is required to be attached to schedule sb actuarial information in accordance with the instructions to that form we have sent a copy of this letter to your authorized representatives pursuant to a power_of_attorney on file in this office and to the manager ep classification in columbus ohio and to the manager ep compliance unit in chicago illinois if you require further assistance in this matter please contact id at sincerely cc david m ziegler manager employee_plans actuarial group


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b01-100356-02 date date legend x y z date dear this letter responds to your letter dated date on behalf of x requesting a ruling that x be granted an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file an election to be treated as a disregarded_entity for federal_income_tax purposes under sec_301_7701-3 facts based on the information submitted and representations made within x is a foreign_subsidiary corporation of y y is a member of a consolidated_group of corporations owned by z a domestic_corporation x intended to file a form_8832 entity classification election seeking to be treated as a disregarded_entity effective date x inadvertently failed to file the form_8832 x represents that an entity classification election has never been previously been filed for x and that an extension to file a form_8832 would not prejudice the interests of the government plr-100356-02 law and analysis sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if a foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the internal_revenue_bulletin sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts and the representations submitted we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of sixty days from the date of this letter to file a corrected form_8832 effective date with the appropriate service_center a copy of this letter should be attached to the election a copy is enclosed for that purpose except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provision of the code specifically we express no opinion as to x’s eligibility to request treatment as a disregarded_entity in accordance with sec_301 this ruling is directed only to the taxpayer s requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent plr-100356-02 in accordance with the power_of_attorney on file with this office a copy of this ruling will be sent to the taxpayer sincerely s paul f kugler associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------------- ----------------------------- ------------------------ ------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no -------------- telephone number ---------------------- refer reply to cc psi b01 plr-115100-14 date date x y z ---------------------------------------------------------------------------------------------------------------------------- ---------------- ------------------------------------ country ---------- date date date year -------------------------- ---------------------------------------------------------------------------------------------------------------------------- ------- ---------------------------------------------------------------------------------------------------------------------------- --------- --------------------------------------------------------------------------------------------------------- dear ------------------- this letter responds to a letter dated date and subsequent information submitted on behalf of x by its authorized representatives requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes the information submitted provides that x was organized under the laws of country on date x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes however x failed to timely file form_8832 entity classification election to be treated as a disregarded_entity effective date plr-115100-14 sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes unless the entity elects otherwise a foreign eligible_entity is treated as an association if all members have limited_liability a foreign eligible_entity with a single owner may elect to be treated as a disregarded_entity pursuant to the rules under sec_301_7701-3 a foreign eligible_entity with two or more members is treated as a partnership if at least one member does not have limited_liability a foreign eligible_entity with two or more members may elect to be treated as a partnership pursuant to the rules under sec_301_7701-3 sec_301_7701-3 provides that an eligible_entity may make an entity classification election by filing form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the effective date specified on form_8832 cannot be more than days prior to the date on which the election is filed sec_301_9100-1 provides that the commissioner in exercising the commissioner's discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards by which the commissioner will determine whether to grant an extension of time to make an election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 describes the conditions under which the commissioner will grant requests for relief that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 as a result we grant x an extension of time of one hundred twenty days from the date of this letter to file plr-115100-14 form_8832 with the appropriate service_center to elect to be classified as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 this ruling is contingent on x and the owners of x filing all required federal_income_tax and information returns consistent with the requested relief being effective date before the earlier of the expiration of the statute_of_limitations of any_tax year affected by the granting of the requested relief or days from the date of this letter because x is requesting relief effective date to elect to treat x as a disregarded_entity pursuant to sec_301_7701-3 x is deemed to liquidate on date therefore pursuant to sec_1 b the calendar_year tax_return ending date of y x’s owner on date must include in income as a deemed_dividend the all_earnings_and_profits_amount as defined sec_1 d with respect to its stock in x these tax returns must also include all required forms information_return of u s persons with respect to disregarded entities for x in addition y must include a form_8865 return of u s persons with respect to certain foreign_partnerships in their year federal_income_tax return that reflects its contribution of x classified as a disregarded_entity to z a copy of this letter should be attached to any such returns except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item either discussed or referenced in this letter the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination plr-115100-14 we are directing the ruling only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives sincerely associate chief_counsel passthroughs special industries by ____________________________ bradford r poston senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number --------------------------------------------------------- ------------------------------------------ ------------------------------------------ ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------------ telephone number ---------------------- refer reply to cc psi plr-135421-18 date date legend x ---------------------------------------------- -------------------------------------- y ------------------------------------- country -------------- date ---------------------- dear ----------------- this ruling is in response to your request dated date submitted by x on behalf of y requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a disregarded_entity for federal_income_tax purposes facts according to the information submitted x is a united_states limited_liability_company on date x's wholly owned foreign_subsidiary y was formed under the laws of country x represents that it intended y to elect to be treated as a disregarded_entity effective date however y failed to timely file a valid form_8832 entity classification election to elect to be treated as a disregarded_entity for federal tax purposes x represents that it consistently reported income treating y as a disregarded_entity x also represents that granting relief will not prejudice the interests of the government and that hindsight is not involved in seeking relief to file a late election x further represents that such relief would not result in a lower tax_liability in the aggregate for all years to which the request applies finally x represents that it acted reasonably and in good_faith plr-135421-18 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single member having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result y is granted an extension of time of days from the date of this letter to file a form plr-135421-18 with the appropriate service_center to elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter should be attached to the form_8832 this ruling is contingent on the owner of y filing within days of this letter all required returns for all open years consistent with the requested relief these returns may include but are not limited to the following forms i forms information_return of u s persons with respect to certain foreign_corporations and ii forms information_return of u s persons with respect to foreign disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as specifically set forth above no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the ruling in this letter is based on information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x's authorized representatives sincerely associate chief_counsel passthroughs special industries by laura c fields laura c fields senior technician reviewer branch passthroughs and special industries enclosures copy of letter copy of letter for sec_6110 purposes