t c memo united_states tax_court earnest mack petitioner v commissioner of internal revenue respondent docket no 18133-16l filed date earnest mack pro_se david a indek and nancy m gilmore for respondent memorandum opinion lauber judge in this collection_due_process cdp case petitioner seeks review pursuant to sec_6320 and sec_6330 of the determination by the internal_revenue_service irs or respondent to uphold the filing of a notice of federal_tax_lien nftl for respondent has moved for summary_judgment under rule contending that there are no disputed issues of material fact and that his determination to sustain the proposed collection action was proper as a matter of law we agree and accordingly will grant the motion background the following facts are based on the parties’ pleadings and respondent’s motion including the attached affidavit and exhibits petitioner resided in mary- land when he filed his petition petitioner was an information_technology consultant during do- ing business through a sole_proprietorship called axiom theory group in he filed delinquent federal_income_tax returns for those years reporting on each return a balance due respondent assessed the tax as reported plus additions to tax under sec_6651 and and sec_6654 in an effort to collect these unpaid liabilities the irs filed on date an nftl reflecting aggregate liabilities of dollar_figure petitioner timely re- quested a cdp hearing indicating that he desired an installment_agreement ia could not pay the balance due wanted the irs to withdraw the nftl and did not 1all statutory references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure we round all monetary amounts to the nearest dollar believe he should be responsible for the additions to tax his request was assigned to a settlement officer so in irs appeals upon receiving petitioner’s case the so reviewed the administrative file and confirmed that his tax_liabilities for had been properly assessed and that all other requirements of applicable law and administrative procedure had been met on date the so sent petitioner a letter scheduling a hearing for date and requesting that he provide form 433-a collection infor- mation statement for wage earners and self-employed individuals and a written_statement to support his request for nftl withdrawal after several reschedulings the so held an initial telephone conference with petitioner on date petitioner thereafter submitted form 433-a and form_656 offer_in_compromise oic in which he offered to settle his liabilities for dollar_figure representing that his monthly income was only dollar_figure he asked that the irs waive the dollar_figure processing fee and the down- payment ordinarily required for oics he also requested that the irs consider his oic under its effective tax_administration guidelines representing that he had a serious medical_condition the so forwarded petitioner’s offer to an oic specialist in oklahoma city using third-party reporting information the oic specialist determined that peti- tioner had understated his income on the form 433-a and did not qualify to have the processing fee and downpayment waived the oic specialist accordingly asked that petitioner submit an amended oic accurately reflecting his income and that he pay the applicable processing fee and downpayment while petitioner was preparing his amended oic the irs issued him no- tices of deficiency for he did not contest the notices for and and the irs subsequently assessed additional liabilities for those years he timely contested the notice_of_deficiency for see mack v commissioner t c dkt no the oic specialist noted that filing and informed peti- tioner that if he wished he could have his additional liability folded into his oic by dropping the tax_court case petitioner thereafter conceded the irs’ determinations for and we entered a decision in that case on date in date petitioner submitted an amended oic this oic covered tax_year sec_2012 and sec_2013 as well as proposed a total_payment of dollar_figure and changed the basis for the compromise from effective tax administra- tion to doubt as to collectibility he also submitted updated financial information the oic specialist evaluated petitioner’s assets concluding that he had dollar_figure of realizable equity after making applicable reductions most of this eq- uity was attributable to a td ameritrade account with a balance of dollar_figure comparing petitioner’s monthly income with his monthly expenses the oic specialist determined that his net_income was dollar_figure per month in performing that calculation the oic specialist generally used irs national and local standards to determine petitioner’s allowable expenses the oic specialist suggested that pe- titioner increase his offer to at least dollar_figure dollar_figure dollar_figure representing the amount he could pay over a 12-month_period he rejected this option and the oic specialist sent the case back to the so for further consideration after his case was returned to appeals petitioner contended that his monthly expenses exceeded the amounts the oic specialist had allowed the oic specialist had overvalued his retirement account by dollar_figure he was en- titled to additional expenses of dollar_figure per month for dependent care and he was entitled to a face-to-face cdp hearing the so rejected each contention deter- mining that petitioner was not entitled to expenses for housing utilities food or clothing in excess of the applicable local standards the oic specialist had 2reasonable collection potential rcp is generally calculated by multiply- ing a taxpayer’s monthly income available to pay taxes by the number of months remaining in the statutory period for collection and adding realizable equity in as- sets see 136_tc_475 aff’d 502_fedappx_1 d c cir the oic unit apparently agreed to a shorter 12-month_period because of petitioner’s medical_condition correctly valued petitioner’s td ameritrade account at dollar_figure the figure shown on the account statement petitioner had supplied the oic specialist had already factored in the additional dependent care expenses petitioner claimed and petitioner was not entitled to a face-to-face hearing the so informed petition- er of her conclusions by letter and proposed a telephone conference during the telephone conference the so explained why she had rejected pe- titioner’s amended oic and suggested that he enter into an ia petitioner declined to do so the so invited him to submit amended returns and a statement support- ing his request for abatement of the additions to tax but he submitted none of these documents in response to petitioner’s request for nftl withdrawal the so reviewed the circumstances under which the nftl could be withdrawn and deter- mined that none applied on date the so closed the case and issued a notice_of_determination sustaining the nftl filing petitioner timely petitioned this court for review on date re- spondent filed a motion for summary_judgment petitioner did not respond to the motion discussion a summary_judgment the purpose of summary_judgment is to expedite litigation and avoid costly time-consuming and unnecessary trials fla peach corp v commissioner 90_tc_678 under rule b we may grant summary_judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law 98_tc_518 aff’d 17_f3d_965 7th cir in deciding whether to grant summary judg- ment we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party ibid however the nonmoving party may not rest upon the mere allegations or denials in his pleadings but instead must set forth specific facts showing that there is a genuine dispute for trial rule d see sundstrand corp t c pincite because petitioner did not respond to the motion for summary_judgment the court could enter a decision against him for that reason alone see rule d we will nevertheless consider the motion on its merits we conclude that there are no material facts in dispute and that this case may be adjudicated summarily b standard of review neither sec_6320 nor sec_6330 prescribes the standard of re- view that this court should apply in reviewing an irs administrative determina- tion in a cdp case but our case law tells us what standard to adopt where the validity of a taxpayer’s underlying tax_liability is properly at issue we review the irs’ determination de novo 114_tc_176 where the taxpayer’s underlying liability is not properly at issue we re- view the irs’ decision for abuse_of_discretion only ibid a taxpayer may dispute his underlying tax_liability in a cdp case if he did not receive a notice_of_deficiency or otherwise had no prior opportunity to contest the liability see sec_6330 the liabilities for which the irs filed the nftl were petitioner’s self-reported liabilities for he was entitled to contest those liabilities at his cdp hearing if he wished see ibid 122_tc_1 the so informed petitioner that he could contest the liabilities shown on the nftl by filing amended returns for and by submitting a request justi- 3petitioner did have a prior opportunity to challenge the additional liability for in his previous deficiency case at dkt no see eg kyereme v commissioner tcmemo_2012_174 in any event those additional lia- bilities are not covered by the nftl and thus are not the subject of any collection action in this case fying abatement of the additions to tax because petitioner submitted none of these documents he did not properly challenge his underlying tax_liabilities see lunnon v commissioner tcmemo_2015_156 110_tcm_182 aff’d 652_fedappx_623 10th cir sec_301_6320-1 q a-f3 proced admin regs since petitioner’s underlying liabilities for are thus not before us we will review the so’s determination for abuse_of_discretion only see eg 135_tc_344 abuse of dis- cretion exists when a determination is arbitrary capricious or without a sound basis in fact or law 125_tc_301 aff’d 469_f3d_27 1st cir c analysis in deciding whether the so abused her discretion we consider whether she properly verified that the requirements of any applicable law or administrative procedure had been met considered any relevant issues petitioner raised and considered whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of petitioner that any collection action be no more intrusive than necessary see sec_6330 petitioner first challenges the so’s rejection of his oic under sec_7122 and the regulations thereunder the irs may compromise an outstanding tax_liability on three grounds doubt as to liability doubt as to collectibility or the promotion of effective tax_administration see sec_301_7122-1 proced admin regs the irs may execute a compromise based on doubt as to collectibility--the ground petitioner advanced in his amended oic--where the taxpayer’s assets and income make it unlikely that the irs will be able to collect the entire balance id subpara the irs will generally reject an offer where the taxpayer’s reasonable collection potential rcp exceeds the amount he proposes to pay revproc_2003_71 sec_4 2003_2_cb_517 see 136_tc_475 aff’d 502_fedappx_1 d c cir in reviewing the so’s determination we do not make an independent evalu- ation of what would be an acceptable collection alternative 140_tc_173 murphy t c pincite lipson v com- missioner tcmemo_2012_252 104_tcm_262 rather our re- view is limited to determining whether the so abused her discretion--that is whether her decision to reject petitioner’s offer was arbitrary capricious or with- out sound basis in fact or law thompson t c pincite murphy t c pincite the so determined petitioner’s rcp by subtracting his monthly expenses from his monthly income pursuant to congress’ directive the irs has published national and local allowances to ensure that taxpayers entering into collection alternatives have adequate means to provide for basic living_expenses sec_7122 and a this court has upheld the irs’ use of such standards to determine basic living_expenses when evaluating proposed collection alternatives see 124_tc_165 aff’d 454_f3d_782 8th cir allowable expenses are those that are necessary to provide for a tax- payer’s health and welfare and or production_of_income see internal reve- nue manual irm pt date as directed by the irm the so allowed petitioner the lesser_of the applic- able local standards or the amounts that he actually paid monthly for expenses see irm pt date date deviations are permitted only upon a showing that the standard amounts are inadequate to pro- vide for a specific taxpayer’s basic living_expenses see id pt date the taxpayer bears the burden of providing sufficient information to jus- tify a deviation from local standards see thomas v commissioner tcmemo_2015_182 110_tcm_282 although petitioner disputes the so’s reliance on these standards he submitted no evidence that these amounts were inadequate to provide for his basic living_expenses we accordingly hold that the so did not abuse her discretion in determining petitioner’s rcp as she did see lunnon t c m cch pincite sec_301_6320-1 q a-f3 proced admin regs petitioner also contends that the so improperly denied his request for a face-to-face hearing the regulations provide that a cdp hearing may but is not required to consist of a face-to-face meeting sec_301_6320-1 q a-d6 d q a-d6 proced admin regs we have repeatedly held that the irs is not required to afford a taxpayer a face-to-face hearing and that a hearing conducted by telephone correspondence or document review will suffice see eg 115_tc_329 williamson v commissioner tcmemo_2009_188 98_tcm_110 stockton v commissioner tcmemo_2009_186 98_tcm_103 finding that the so did not abuse her discretion in any respect we will grant respondent’s motion for summary_judgment and sustain the proposed collec- 4petitioner asserts that the oic specialist improperly persuaded him to con- cede hi sec_2011 tax_court case the record reflects that the oic specialist properly advised petitioner of an available option it was petitioner’s decision to pursue that option in any event the nftl that is the subject of this case covered only peti- tioner’s self-assessed liabilities for not the additional_amounts shown on the subsequently issued notices of deficiency tion action we note that petitioner is free to submit to the irs for its consideration and possible acceptance an ia or a new oic to compromise his outstanding liabilities to reflect the foregoing an appropriate order and decision will be entered


office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b05 jblovelace postf-139972-15 uilc date march to donna l crosby senior attorney san diego large business international from william a jackson branch chief branch income_tax accounting john b lovelace general attorney branch income_tax accounting subject limitation on the exclusion for discharges of qualified_real_property_business_indebtedness this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend taxpayer -------------------------------------- property a -------------------------- property b ------------------------ debt c -------------------------------- debt d ------------------------------- dollar_figurea ----------------- dollar_figureb ----------------- dollar_figurec --------------- dollar_figured --------------- dollar_figuree ----------------- dollar_figuref --------------- postf-139972-15 dollar_figureg ------------ issues you have asked whether in determining the net fair_market_value of real_property under the qualified_real_property_business_indebtedness qrpbi exclusion of sec_108 the exclusion_limitation formula in sec_108 and sec_1_108-6 takes into account all real_property held by a taxpayer with respect to which there is some qrpbi and all debts that are qrpbi with respect to any item of real_property held by the taxpayer the taxpayer and the field disagree over the proper interpretation of the net fair_market_value formula in the qrpbi exclusion_limitation of sec_108 the taxpayer takes the position that the starting point for this calculation described in the code as the fair_market_value of the real_property described in paragraph a is the fair_market_value of the single item of real_property for which the discharged debt is qrpbi the field interprets this clause to refer to the fair_market_value of all items of real_property held by the taxpayer with respect to which any debt is qrpbi and not just the single item of property for which the discharged debt is qrpbi the taxpayer and the field agree that the net fair_market_value formula in the qrpbi exclusion_limitation requires the fair_market_value be reduced by the total of all other debts that are qrpbi with respect to any item of real_property held by the taxpayer conclusions the formula for the qrpbi exclusion_limitation in sec_108 and sec_1_108-6 begins with the total fair_market_value of the single item of real_property to which the discharged debt is qrpbi and then reduces that total by the sum of all other debts that are secured_by and qrpbi with respect to that item of real_property the alternative view advanced by the taxpayer that the net fair_market_value is the fair_market_value of the single item of real_property to which the discharged debt is qrpbi reduced by the amount of other debt secured_by such property but that is qrpbi with respect to any item of real_property held by the taxpayer is in error the field’s interpretation which aggregates all of the real_property with respect to which some debt is qrpbi to determine the fair_market_value and then subtracts the aggregate of all qrpbi from that amount to obtain the net fair_market_value is also in error postf-139972-15 facts the taxpayer owns two items of real_property used in a trade_or_business property a and property b at the time of the of the debt forgiveness at issue property a had a fair_market_value of dollar_figurea and was security on debt c with a principal_amount of dollar_figureb at the same time property b had a fair_market_value of dollar_figurec and was security on debt d with a principal_amount of dollar_figured debt d was also secured_by property a and debt c was secured_by property b the proceeds from debt c were used to improve property a and were not used for property b the proceeds from debt d were used to construct or improve property b and not used for property a debt c was reduced to dollar_figuree reflecting a discharge amount of dollar_figuref in its calculation of the maximum exclusion amount under sec_108 the taxpayer has reduced the fair_market_value of property a by debt d without also adding the value of property b to property a on this basis the taxpayer has excluded the entire amount of debt c that was discharged neither debt c nor debt d were incurred or assumed before date law sec_108 provides that gross_income does not include discharged amounts if the indebtedness discharged is qualified_real_property_business_indebtedness sec_108 defines qualified_real_property_business_indebtedness to mean indebtedness which- a was incurred or assumed by the taxpayer in connection with real_property used in a trade_or_business and is secured_by such real_property b was incurred or assumed before date or if incurred or assumed on or after such date is qualified_acquisition_indebtedness and c with respect to which such taxpayer makes an election to have this paragraph apply qualified_acquisition_indebtedness is defined in sec_108 which provides for purposes of paragraph b the term qualified_acquisition_indebtedness means with respect to any real_property described in paragraph a indebtedness incurred or assumed to acquire construct reconstruct or substantially improve such property sec_108 limits the amount excluded under sec_108 it provides the amount excluded under subparagraph d of subsection a with respect to any qualified_real_property_business_indebtedness shall not exceed the excess if any of - the outstanding principal_amount of such indebtedness immediately i before the discharge over postf-139972-15 the fair_market_value of the real_property described in paragraph a ii as of such time reduced by the outstanding principal_amount of any other qualified_real_property_business_indebtedness secured_by such property as of such time sec_1_108-6 provides in part with respect to any qualified_real_property_business_indebtedness that is discharged the amount excluded from gross_income under sec_108 concerning discharges of qualified_real_property_business_indebtedness shall not exceed the excess if any of the outstanding principal_amount of that indebtedness immediately before the discharge over the net fair_market_value of the qualifying real_property as defined in sec_1 c immediately before the discharge for purposes of this section net fair_market_value means the fair_market_value of the qualifying real_property notwithstanding sec_7701 reduced by the outstanding principal_amount of any qualified_real_property_business_indebtedness other than the discharged indebtedness that is secured_by such property immediately before and after the discharge sec_1_1017-1 provides in part furthermore for basis reductions under sec_108 a taxpayer must reduce the adjusted_basis of the qualifying real_property to the extent of the discharged qualifying real_property business indebtedness before reducing the adjusted bases of other depreciable real_property the term qualifying real_property means real_property with respect to which the indebtedness is qualified_real_property_business_indebtedness within the meaning of sec_108 analysis to understand the qrpbi exclusion_limitation it is necessary to look at each element of it in the context of the entire qrpbi exclusion_limitation provision the qrpbi exclusion_limitation in sec_108 consists of four different elements divided up as follows the amount excluded under subparagraph d of subsection a with respect to any qualified_real_property_business_indebtedness shall not exceed the excess if any of- i the outstanding principal_amount of such indebtedness immediately before the discharge over ii the fair_market_value of the real_property described in paragraph a as of such time postf-139972-15 reduced by the outstanding principal_amount of any other qualified_real_property_business_indebtedness secured_by such property as of such time the amount excluded under subparagraph d of subsection a with respect to any qualified_real_property_business_indebtedness shall not exceed the excess if any of- the first element is the introductory language that provides the amount excluded under subparagraph d of subsection a with respect to any qualified_real_property_business_indebtedness shall not exceed the excess if any of-- for debt amounts to be excluded they must first be discharged thus this introductory phrase refers to the amount of the discharged debt that is qrpbi with respect to a single item of real_property i the outstanding principal_amount of such indebtedness immediately before the discharge over the second element of the qrpbi exclusion_limitation provides i the outstanding principal_amount of such indebtedness immediately before the discharge over the amount referred to in this element is the principal_amount of the debt referred to in the introductory language ie the discharged debt that is qrpbi with respect to a single item of real_property accordingly the same real_property referenced in the first element is implicitly referenced in the second element ii the fair_market_value of the real_property described in paragraph a as of such time the third element of the qrpbi exclusion_limitation provides ii the fair_market_value of the real_property described in paragraph a as of such time paragraph a is the first requirement of three in the definition of qualified_real_property_business_indebtedness in sec_108 ie sec_108 this requirement is that debt be incurred or assumed by the taxpayer in connection with real_property used in a trade_or_business there are two permissible interpretations of the real_property described in paragraph a under the first interpretation the real_property described in paragraph a refers to all real_property held by a taxpayer for which there is some debt that is qrpbi when a taxpayer has two items of real_property each with its own associated qrpbi the fair_market_value of both properties would under this interpretation be taken into account in determining the qrpbi exclusion_limitation under the second interpretation the real_property described in paragraph a refers to the single item of real_property with respect to which the discharged debt referenced postf-139972-15 in the first two elements is qrpbi when a taxpayer has two items of real_property each with its own associated qrpbi the fair_market_value of only the item of real_property with respect to which the discharged debt is qrpbi would be taken into account in determining the qrpbi exclusion_limitation the proposed_adjustment aggregates the values of the taxpayer’s real_property and thus relies on the first interpretation the taxpayer’s position takes into account only the value of the single item of real_property with respect to which the discharged debt is qrpbi and thus relies on the second interpretation the taxpayer’s interpretation of the third element is the better of the two on its face the property described in paragraph a refers to a single item of property literally the property were congress to have intended the property to refer to more than one property it would have made more sense to use the term any property or even more clearly all properties an unmodified singular term used in combination with the article the usually refers to a single item rather than all items of that type this interpretive principle is at work in the immediately following fourth element where the code draws in more than one debt through use of the qualifying word any before other qualifying real_property business indebtedness secured_by such property while any as used in the fourth element is arguably unnecessary its use makes it quite clear that the fair_market_value of the real_property is to be reduced more than one debt the absence of a similar qualifier in front of the word property in the third element suggests that the property refers to the single item of real_property for which the discharged debt is qrpbi more support for this can be found in sec_108 which imposes a second overall_limitation on the amount that may be excluded under the qrpbi discharge exclusion sec_108 provides the amount excluded under subparagraph d of subsection a shall not exceed the aggregate adjusted bases of depreciable real_property determined after any reductions under subsections b and g held by the taxpayer immediately before the discharge other than depreciable real_property acquired in contemplation of such discharge here the singular term depreciable real_property does refer to more than one item of depreciable real_property but this is made clear by the use of the terms aggregate and bases which draw together the bases of all depreciable real_property held by a taxpayer to establish the overall_limitation thus elsewhere in this provision where the code refers to more than one item of real_property by using the singular property the language contains a modifier to make it clear that the code is referring to more than one item of real_property where the code does not do this the better interpretation is that congress intended property to refer to one and only one item of real_property postf-139972-15 the regulations also support the interpretation under which the real_property described in paragraph a is the real_property to which the discharged debt is qrpbi sec_1_108-6 provides in part with respect to any qualified_real_property_business_indebtedness that is discharged the amount excluded from gross_income under sec_108 concerning discharges of qualified_real_property_business_indebtedness shall not exceed the excess if any of the outstanding principal_amount of that indebtedness immediately before the discharge over the net fair_market_value of the qualifying real_property as defined in sec_1 c immediately before the discharge for purposes of this section net fair_market_value means the fair_market_value of the qualifying real_property notwithstanding sec_7701 reduced by the outstanding principal_amount of any qualified_real_property_business_indebtedness other than the discharged indebtedness that is secured_by such property immediately before and after the discharge in these regulations the real_property described in paragraph a is referred to as the qualifying real_property as defined in sec_1_1017-1 sec_1 c provides in part furthermore for basis reductions under sec_108 a taxpayer must reduce the adjusted_basis of the qualifying real_property to the extent of the discharged qualifying real_property business indebtedness before reducing the adjusted bases of other depreciable real_property the term qualifying real_property means real_property with respect to which the indebtedness is qualified_real_property_business_indebtedness within the meaning of sec_108 accordingly the the real_property described in paragraph a is the real_property with respect to which the indebtedness is qualified_real_property_business_indebtedness within the meaning of sec_108 the indebtedness here refers to the indebtedness described in the immediately preceding sentence ie the discharged indebtedness the qualifying real_property then is the item of real_property for which the discharged debt is qrpbi and does not include any other items of real_property with respect to which debts other than the discharged debt are qrpbi reduced by the outstanding principal_amount of any other qualified_real_property_business_indebtedness secured_by such property as of such time the fourth and last element of the qrpbi exclusion_limitation provides reduced by the outstanding principal_amount of any other qualified_real_property_business_indebtedness secured_by such property as of such time such property at the end of the clause refers to the same item of real_property as the third element which as previously discussed is the single item of real_property with respect to which the discharged debt is qrpbi the other important piece of the fourth element is the phrase any other qualified_real_property_business_indebtedness both the taxpayer and the field interpret this phrase to refer to any debt that qualifies as qrpbi with respect to any item of real_property held postf-139972-15 by a taxpayer whether or not that item of real_property is the item of real_property referred to directly or indirectly in the first three elements and such property of the fourth element there is however a second better interpretation of this clause a ny other qualified_real_property_business_indebtedness could refer to all debts other than the discharged debt that are qrpbi with respect to the same item of real_property referred to in the first three elements and such property of the fourth element the term qualified_real_property_business_indebtedness used here in the fourth element is a term that is defined in part by the same paragraph a that is used to describe the real_property with respect to which the discharged debt is qrpbi if as is most likely the language real_property described in paragraph a in the third element refers only to the item of real_property to which the discharged debt is qrpbi the only consistent reading of the fourth element’s use of the term qualified_real_property_business_indebtedness - a term whose definition incorporates paragraph a -- is that it refers only to debts that are qrpbi with respect to the same item of real_property of the third element as described above the proceeds of debt c were used to improve property a and were not used for property b consequently debt c is qualified_acquisition_indebtedness within the meaning of sec_108 only for property a and not property b thus debt c is qrpbi only with respect to property a similarly the proceeds of debt d were used to construct or improve property b and were not used for property a debt d is qualified_acquisition_indebtedness only for property b and thus is qrpbi only with respect to property b and not property a the only qrpbi with respect to property a is debt c because debt c is the debt discharged the fair_market_value of property a is not reduced by any amount under the formula for the net fair_market_value in sec_1_108-6 under the qrpbi exclusion_limitation the taxpayer may exclude no more than the amount by which the principal_amount of debt c dollar_figureb exceeds the net fair_market_value of property a dollar_figurea consequently the taxpayer may exclude dollar_figureg of the amount of debt c that was discharged dollar_figuref case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uniform issue list number release date jul t ep-ra t3 legend decedenta individual b companyc companyd date h date i date j date k date l amount m amount n amount p state q ira x ira y page dear this is in response to a request dated date submitted by your authorized representative for a ruling to waive the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code with respect to decedent a correspondence dated date date and date supplemented the request under penalty of perjury you have submitted the following facts and representations you represent that decedent a who wa sec_80 years old at the time of his death received distributions from ira x and ira y totaling amount p amount m plus amount n you assert that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to an error made by company c in failing to follow decedent a’s instructions which led to amounts m and n being placed into a non-ira account you further represent that amounts m and n have remained in the non-ira account and have not been used for any other purposes at the beginning of decedent a maintained ira x and ira y at company c decedent a suffered from a medical_condition which impaired his ability to make financial decisions and died in date l you are the executors of the estate of decedent a decedent a was the owner of ira x and ira y company c managed iras x and y as well as two non-ira accounts for decedent a on date h decedent a and individual b his spouse sent a written request to company c to transfer all assets in_kind including ira x and ira y to company d however company c never complied with the request and never transferred any of the accounts to company d on date i decedent a and individual b made a subsequent written request to company c but only for the transfer of the non-ira accounts to company d again company c did not comply with this request on date j decedent a sent another letter again asking that company c transfer only the non-ira accounts to company d on date k company c contrary to decedent a’s instructions transferred all of the accounts including amount m and amount n from ira x and ira y respectively and the non-ira accounts to company d decedent a never noticed the error in transferring amount m and amount n condition his subsequent death prevented him from correcting the error you as executor of the estate of decedent a now wish to roll over amount m and amount n to an individual_retirement_arrangement you represent that under state law you as executors of the estate of decedent a have the authority to establish a qualified rollover account on behalf of decedent a into a non-jra account due to his deteriorating medical page based on the foregoing you request that the internal_revenue_service waive the 60-day rollover requirement with respect to the distribution of amounts m and n from iras x and y and that amounts reported by company c as taxable will not be treated as taxable sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to'any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 d from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code sec_401 provides for required distributions from a qualified_plan and sec_408 provides that similar rules shall apply to individual_retirement_accounts after the employee dies the timing of these required distributions depends on whether distributions had already begun whether the account had a designated_beneficiary and whether the designated_beneficiary is the decedent’s spouse sec_401 defines designated_beneficiary for purposes of sec_401 as any individual designated as a beneficiary by the employee sec_1_401_a_9_-4 q a-4 further provides that i n order to be a designated_beneficiary an individual must be a beneficiary as of the date of death revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 d page the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by you is consistent with your assertion that decedent a’s failure to accomplish a timely rollover was caused by a mistake made by company c which led to amounts m and n being placed into a non-ira account accordingly based on the above and subject_to the restrictions noted below pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to amounts m and n you are granted a period of days from the issuance of this ruling letter to contribute amounts m and n less amounts described below into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution the contributions of amounts m and n will be considered a rollover_contribution within the meaning of sec_408 of the code however it is noted that the service will not treat any beneficiary named by you as executor as a designated_beneficiary under sec_401 sec_1_401_a_9_-4 q a- provides that a designated_beneficiary must be a beneficiary as of the date of death thus for purposes of sec_401 the rollover ira will have no designated_beneficiary finally the scope of the executor’s powers is a matter of state law this ruling assumes that your actions in contributing amounts m and n into an ira set up in decedent a’s name is in accordance with the laws of state q and taken pursuant to your authority as executors this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code this letter only authorizes the rollover of the amounts distributed from ira x and ira y amounts m and n and does not authorize the rollover of any interest attributable to such amounts 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 that may be applicable thereto this letter 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 a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office page if you wish to inquire about this ruling please contact please address all correspondence to se t ep ra t3 id sincerely yours rances v sloan employee_plans t enclosures deleted copy of ruling letter notice of intention to disclose cc


department of the treasury washington dc person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 - plr-115160-11 date date internal_revenue_service number release date index number -------------------- ------------- --------------------------------------- -------------------- ---------------------------- re ---------------------- ------------------------------ ------------------------ legend legend wife husband child child child child child child trust trust trust trustee state state date date date date state statute state statute years years -------------------------- -------------------------------- ---------------------- ---------------------------- ----------------------- ----------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- --------------------- 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-------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------- plr-115160-11 dear -------------- this letter responds to the letter dated date and subsequent correspondence submitted by your authorized representative requesting rulings concerning the income and generation-skipping_transfer gst tax consequences of a proposed division and subsequent combination of certain trusts the facts and representations submitted are summarized as follows prior to date wife established trust on date and husband established trust on date and trust on date all three trusts were irrevocable when established wife and husband are still living husband now has six children child through child from a previous marriage and child through child from his marriage to wife trust under article a of trust during the lives of wife and husband the trustee is to hold the trust estate as the principal of a_trust for the primary benefit of child child child and any children subsequently born of the marriage of wife and husband primary beneficiaries the trustee is to pay to any one or more of the primary beneficiaries so much of the net_income and principal including all and in such shares as the trustee in his absolute discretion shall deem advisable on the death of the last to die of wife and husband the trustee shall divide the remaining principal and accumulated income into shares as provided in article b article b provides that the trustee shall divide any property into equal shares one share for each then living primary beneficiary and one share for each primary beneficiary not then living but who has then living descendants each share set apart for any then living primary beneficiary who has not attained the age of years shall be held as a separate trust for the primary benefit of that primary beneficiary from each separate trust the trustee shall pay to the primary beneficiary so much of the net_income and principal including all as the trustee in his absolute discretion shall determine the trustee shall distribute to the primary beneficiary one-half of the principal of the beneficiary’s separate trust when the primary beneficiary reaches age and the remainder of the trust when the primary beneficiary reaches age if the primary beneficiary dies before reaching age the trustee shall distribute the then principal of the separate trust and any accumulated income to the then living descendants of the primary beneficiary in equal shares per stirpes or in default of any such descendant the trustee shall divide and administer the principal as provided in article b any share set apart for any then living primary beneficiary age or plr-115160-11 above shall be distributed to that primary beneficiary any share set apart for a primary beneficiary who is not then living but who has then living descendants shall be distributed to those descendants in equal shares per stirpes article iv provides that if any trust created under the agreement establishing trust has not terminated by the 21st anniversary of the death of the last to die of wife and the children of husband who were living on the date of the agreement that trust shall terminate on that anniversary and be distributed to the person for whose primary benefit the trust was created trust names an individual as trustee and under article vi provides that at any time the trustee may appoint any individual or any corporation as successor or additional trustee of that trust provided that there shall never be more than two trustees of any trust and during wife’s life an individual who is related or subordinate to wife within the meaning of sec_672 shall not be eligible to serve as trustee child child and child were born after the execution of the trust agreement currently trust is being held for the benefit of child through child the primary beneficiaries trust was created and funded prior to date it is represented that no additions have been made to trust since date accordingly trust an irrevocable_trust is exempt from gst tax under sec_26_2601-1 trust article i a of trust provides that the trustee shall hold the trust estate as the principal of a_trust for the primary benefit of child the beneficiary and pay to the beneficiary or any child of his so much of the principal in such shares as the trustee in his absolute discretion deems advisable the trustee may terminate the trust at anytime by distributing the entire principal to the beneficiary if the trustee in his sole discretion believes that to be in the best interests of the beneficiary on the death of the beneficiary the trustee shall distribute the principal of the trust to the then living descendants of the beneficiary in equal shares per stirpes or in default of any such descendant to the then living descendants of husband in equal shares per stirpes or in default of any such descendant to husband’s distributees defined below article i a further provides that in each calendar_year of the trust in which any gifts are made or deemed under federal gift_tax laws to have been made to the trust the beneficiary shall have the right to demand distribution to him of the lesser_of i dollar_figure or percent of the value of the principal of the trust on december of such calendar_year whichever is greater and ii the amount of such gifts article i b states that if a child or children are born to husband and wife after the date of the trust agreement and husband or any person transfers any property to the trustee for the benefit of any such child the trustee shall hold such property as plr-115160-11 principal of a separate trust for the primary benefit of such child on the same terms and conditions as the trust created for the benefit of child pursuant to the provisions of article i a article vi a provides that whenever on the occurrence of any event any property is required under trust to be distributed to the distributees of any individual such property shall be distributed to the persons who would be entitled thereto and in the shares to which such person would be entitled under the laws of state then in effect if such individual had died immediately after the occurrence of such event predeceased by husband intestate and domiciled in state and such property had constituted his entire net distributable estate_trust names an individual as trustee and under article iv d provides that at any time wife or if she is not living the trustee or trustees may appoint any individual or any corporation as successor or additional trustee of a_trust created under the trust agreement there shall never be more than two trustees of any trust and during husband’s life no individual who is related or subordinate to husband within the meaning of sec_672 shall be a trustee under trust under the terms of trust three separate trusts were created trust a to benefit child trust b to benefit child and trust c to benefit child the terms of trust govern trusts a b and c trust a was created and initially funded before date after that date in years through and years through husband and wife made additions to trust a and elected to gift split on form sec_709 united_states gift and generation-skipping_transfer_tax returns accordingly the portion of trust a which is attributable to pre-date transfers is exempt from gst tax under sec_26_2601-1 it is represented that the portion of trust a attributable to the post-date additions has a zero inclusion_ratio trust b was created and initially funded before date after that date in year and years through and through husband and wife made additions to trust b and elected to gift split on form sec_709 accordingly the portion of trust b which is attributable to the pre-date transfers is exempt from gst tax under sec_26_2601-1 it is represented that the portion of trust b attributable to the post-date additions has a zero inclusion_ratio trust c was created and initially funded after date husband and wife made additions to trust c in year sec_1 and and years through it is represented that trust c has a zero inclusion_ratio trust plr-115160-11 under article a of trust during husband’s life the trustee is to hold the trust estate as the principal of a_trust for the primary benefit of all of husband’s children including any born after the agreement was executed the trustee is to pay to any one or more of husband’s children or descendants so much of such principal including all and in such shares as the trustee in his absolute discretion shall deem advisable in each calendar_year of the trust in which any gifts are made or deemed under federal gift_tax laws to have been made to the trust each then living child of husband and descendant of husband shall have the right to demand distribution to him or her of the lesser_of i dollar_figure or twice the amount of the federal gift_tax annual exclusion if that is greater ii dollar_figure or percent of the value of the principal of the trust on december of such calendar_year whichever is greater and iii the amount of each such gift divided by the number of such children and descendants living on the date of such gift article i a further provides that at husband’s death the trustee shall divide the trust for husband’s descendants who survive him in equal shares per stirpes each share for a child of husband shall be held as a separate trust for the primary benefit of that child the trustee of each separate trust is to pay to the beneficiary child or any descendant of his so much of the principal including all as the trustee in his absolute discretion deems advisable on the death of the beneficiary child the trustee shall distribute the principal of the trust to the beneficiary child’s then living descendants in equal shares per stirpes or in default of such descendant to the then living descendants of husband in equal shares per stirpes or in default of any such descendant to husband’s distributees provided however that any share distributable to a descendant of husband for whose primary benefit a_trust exists under trust shall be added to the principal of such trust each share set apart for any other descendant of husband shall be distributed to that descendant article i b provides that if any trust created under the agreement establishing trust has not terminated by the 21st anniversary of the death of the last to die of the descendants of husband’s father who were living on the date of that agreement the trust shall terminate on that anniversary and be distributed to the person for whose primary benefit the trust was created article vi a provides that whenever on the occurrence of any event any property shall be required to be distributed to the distributees of any individual such property shall be distributed to the persons who would be entitled thereto and in the shares to which such person would be entitled under the laws of state then in effect if such individual had died immediately after the occurrence of such event predeceased by husband’s wife intestate and domiciled in that state and such property had constituted his entire net distributable estate_trust names an individual as trustee and under article iv d provides that at any time wife or if she is not living the trustee or trustees may appoint any individual or any corporation as successor or additional trustee of a_trust created under the plr-115160-11 agreement there shall never be more than two trustees of any trust and during husband’s life no individual who is related or subordinate to husband within the meaning of sec_672 shall be a trustee under trust trust is being held for the benefit of child through child trust was created and initially funded before date after that date in year sec_1 through and years and husband and wife made additions to the trust and elected to gift split on form sec_709 accordingly the portion of trust which is attributable to pre-date transfers is exempt from gst tax under sec_26_2601-1 it is represented that the portion of trust attributable to the post-date additions has a zero inclusion_ratio proposed division and combination trust trust and trust each provide that the trusts created under the respective trust agreement shall be administered construed and the validity and effect of the provisions of the agreement shall be determined in accordance with the laws of state effective as of date the trustees of trust trusts a b and c and trust resigned and appointed trustee as sole successor trustee trustee is located in state accordingly state law applies to the administration of trust sec_1 and trust trusts a b and c and trust will be referred to collectively as the family trusts trustee proposes to divide and combine the family trusts to create separate trusts for each of child through child it is represented that the transaction will allow each separate trust to have its own distribution and investment policy for the child who is the beneficiary after receiving a favorable letter_ruling from the internal_revenue_service trustee will execute a memorandum of division and combination of trusts memorandum to set forth the terms of the division and combination and effectuate the transaction memorandum states that the trustee has determined it would be administratively convenient and would not impair the rights of child through child to modify the structure and administration of the family trusts through the division and combination trustee proposes to divide trust sec_1 and into six separate and equal shares one share for each of child through child immediately after the division the separate shares of trust sec_1 and will be combined into six trusts each held for the benefit of one of child through child child through child trusts in addition trust a will merge into child trust trust b will merge into child trust and trust c will merge into child trust trustee will give notice of the division and combination to all six children the effective date of the division and combination will be days after the date of the notice under paragraph of memorandum an equal one-sixth share of each and every asset in the family trusts will be distributed to each child’s trust to the extent plr-115160-11 mathematically possible odd shares will be sold for cash and equal one-sixth shares of the proceeds will be distributed to each child’s trust paragraph states that upon the effective date and subject_to memorandum questions of administration within the meaning of restatement second of conflict of laws sec_271 of each child’s trust shall be governed by primary reference to trust to the greatest extent possible all other non-administrative matters ie distribution timing vesting etc for each pro-rata portion of each child’s trust that is attributable respectively to trust trust or trust will be governed by the respective original trust agreement for trust trust or trust paragraph provides that the pro-rata portion of each child’s trust that is attributable respectively to trust trust or trust shall terminate as provided for in the respective original trust agreement state statute provides that after notice to the qualified beneficiaries a trustee may combine two or more trusts into a single trust or divide a_trust into two or more separate trusts if the result does not impair the rights of any beneficiary or adversely affect achievement of the purposes of the trust under state statute a qualified_beneficiary is a beneficiary who is currently entitled to distributions of income or principal from the trust trustee has requested the following rulings the division and combination of the family trusts into child through child trusts as provided in memorandum will not cause the family trusts or child through child trusts to become subject_to chapter no gain_or_loss will be recognized for federal_income_tax purposes under sec_61 and sec_1001 by the family trusts or any of the beneficiaries as a result of the division and combination of the family trusts the assets of child through child trusts will have the same basis under sec_1015 and holding_period under sec_1223 both before and after the division and combination ruling sec_2601 of the internal_revenue_code imposes a tax on every generation- skipping transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip sec_2631 as effect in years provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 as in effect in years provides that the dollar_figure amount under sec_2631 is to be adjusted for inflation for calendar years after and before plr-115160-11 sec_2631 as in effect for years provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 as in effect for years provides that the gst_exemption amount for any calendar_year is equal to the applicable_exclusion_amount under sec_2010 for each calendar_year under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is defined as the excess if any of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of the gst_exemption allocated to the trust and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip under a of the tax_reform_act_of_1986 the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the generation-skipping_transfer_tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 the tax does not apply to any generation-skipping_transfer under a_trust that was irrevocable on date and no addition actual or constructive was made to the trust after that date sec_26_2601-1 provides that any trust in existence on date will be considered irrevocable unless the settlor held a power that would have caused inclusion of the trust in the settlor's gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides that if an addition is made to an irrevocable_trust that is excluded from chapter by reason of paragraph b of this section the trust is thereafter deemed to consist of two portions a portion not subject_to chapter the non-chapter portion and a portion subject_to chapter the chapter portion each with a separate inclusion_ratio as defined in sec_2642 the non-chapter portion represents the value of the assets of the trust as it existed on date the applicable_fraction as defined in sec_2642 for the non-chapter portion is deemed to be and the inclusion_ratio for such portion is the chapter portion of the trust represents the value of all additions made to the trust after date the inclusion_ratio for the chapter portion is determined under sec_2642 sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 or will not cause the trust to lose its exempt status the regulation provides that the rules contained in the paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the plr-115160-11 trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy b i a b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 example considers a situation in which in grantor established an irrevocable_trust for the benefit of his two children a and b and their issue under the terms of the trust the trustee has the discretion to distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate on the death of the last to die of a and b the trust principal is to be distributed to the living issue of a and b per stirpes in the appropriate local court approved the division of the trust into two equal trusts one for the benefit of a and a's issue and one for the benefit of b and b's issue the trust for a and a's issue provides that the trustee has the discretion to distribute trust income and principal to a and a's issue in such amounts as the trustee deems appropriate on a's death the trust principal is to be distributed equally to a's issue per stirpes if a dies with no living descendants the principal will be added to the trust for b and b's issue the trust for b and b's issue is identical except for the beneficiaries and terminates at b's death at which time the trust principal is to be distributed equally to b's issue per stirpes if b dies with no living descendants principal will be added to the trust for a and a's issue the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the two partitioned trusts resulting from the division will not be subject_to the provisions of chapter sec_26_2601-1 example considers a situation where in the grantor established an irrevocable_trust for grantor's child and the child's issue in grantor's spouse also established a separate irrevocable_trust for the benefit of the same child and issue the terms of the spouse's trust and grantor's trust are identical in the appropriate local court approved the merger of the two trusts into one trust to save administrative costs and enhance the management of the investments the merger of the two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the merger in addition the merger plr-115160-11 does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the example concludes that the trust that resulted from the merger will not be subject_to the provisions of chapter in the present case trust is exempt from gst tax under sec_26_2601-1 portions of trust a_trust b and trust which are attributable to pre-date transfers are also exempt from gst tax under sec_26_2601-1 it is represented that portions of trust a_trust b and trust which are attributable to post-date transfers have a zero inclusion_ratio and therefore are not subject_to gst tax trust c was funded after date it is represented that trust c has a zero inclusion_ratio and therefore is not subject_to gst tax as noted above the rules in sec_26_2601-1 apply in the case of trusts that are exempt from gst tax because the trusts were in existence and irrevocable prior to date no guidance has been issued concerning modifications that may affect the status of chapter trusts that are exempt from gst tax because sufficient gst_exemption was allocated to the trusts to result in an inclusion_ratio of zero at a minimum a modification that would not affect the gst status of a non-chapter trust should similarly not affect the exempt status of a chapter trust the present case involves facts that are similar to example sec_5 and in sec_26_2601-1 the beneficiaries of the child through child trusts are the same as the beneficiaries of trust sec_1 and the distribution timing vesting and termination provisions for each pro-rata portion of each child’s trust that is attributable respectively to trust trust or trust will be governed by the respective original trust agreement for trust trust or trust based on the facts presented and the representations made we conclude that the division and combination of the family trusts into child through child trusts as described above will not shift any beneficial_interest in the trusts to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in addition the division and combination of the family trusts into child through child trusts as described above will not extend the time for vesting of any beneficial_interest in the trusts beyond the period provided for in trust trust or trust accordingly based on the facts submitted and representations made we conclude that the division and combination of the family trusts into child through child trusts will not cause the family trusts or child through child trusts to become subject_to chapter ruling sec_61 states that unless otherwise provided gross_income means all income from whatever source derived under sec_61 gross_income includes gains derived from dealings in property plr-115160-11 sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1001 provides that except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property must be recognized sec_1_1001-1 of the income_tax regulations provides that except as otherwise provided in subtitle a the gain_or_loss realized from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained under sec_1_1001-1 the severance of a_trust occurring on or after date is not an exchange of property for other_property differing materially either in_kind or in extent if i an applicable_state_statute or the governing instrument authorizes or directs the trustee to sever the trust and ii any non-pro rata funding of the separate trusts resulting from the severance whether mandatory or in the discretion of the trustee is authorized by an applicable_state_statute or the governing instrument an exchange of property results in the realization of gain_or_loss under sec_1001 if the properties are materially different 499_us_554 properties exchanged are materially different if the properties embody legal entitlements different in_kind or extent or if the properties confer different rights and powers id pincite in cottage savings the court held that mortgage loans made to different obligors and secured_by different homes embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans id pincite in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent id pincite in revrul_56_437 1956_2_cb_507 the service concluded that a partition of jointly owned property is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result thereof thus neither gain nor loss is realized on the partition the proposed division and combination of the family trusts into child through child trusts as provided in memorandum is authorized by state statute paragraph of memorandum provides that equal one-sixth shares of each and every asset in the family trusts will be distributed to each child’s trust to the extent mathematically possible odd shares will be sold for cash and equal one-sixth shares of the proceeds will be distributed to each child’s trust accordingly consistent with plr-115160-11 sec_1_1001-1 and revrul_56_437 the pro_rata division and distribution of assets from the family trusts into child through child trusts is a not a realization event based on the facts provided and the representations made we conclude that no gain_or_loss will be recognized for federal_income_tax purposes under sec_61 and sec_1001 by the family trusts or any of the beneficiaries as a result of the division and combination of the family trusts into child through child trusts as provided in memorandum ruling sec_1015 provides that the basis in property acquired by a transfer in trust is the same as it would be in the hands of the grantor with adjustments for gain and loss recognized sec_1_1015-2 provides that in the case of property acquired after date by a transfer in trust other than a transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased by the amount of gain or decreased in the amount of loss recognized to the grantor under the law applicable to the year in which the transfer was made sec_1_1015-2 applies the uniform basis principles in sec_1_1015-1 for determining the basis_of_property where more than one person acquires an interest in property by transfer in trust under sec_1_1015-1 property acquired by gift has a single uniform basis although more than one person may acquire an interest in the property the uniform basis of the property remains fixed subject_to proper adjustment for items under sec_1016 and sec_1017 sec_1223 provides that in determining the period for which the taxpayer has held property however acquired there shall be included the period for which such property was held by any other person if under this chapter such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in his hands as it would have in the hands of such other person in this case sec_1001 and sec_61 do not apply to the proposed transaction thus based upon the facts provided and the representations made we conclude that the assets of each child’s trust will have the same basis under sec_1015 and holding_period under sec_1223 both before and after the division and combination of the family trusts into child through child trusts as provided in memorandum the rulings contained in this letter are based upon information and representations submitted by the taxpayers and accompanied by a penalty of perjury plr-115160-11 statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs and special industries by ______________________________ lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


t c memo united_states tax_court george p brown petitioner v commissioner of internal revenue respondent docket no filed date george p brown pro_se reginald r corlew for respondent memorandum opinion dinan special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year in issue all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in petitioner's federal_income_tax for in the amount of dollar_figure the issues for decision are whether petitioner is entitled to claim head_of_household filing_status and whether petitioner is entitled to a casualty_loss deduction some of the facts have been stipulated and are so found the stipulations of fact and the attached exhibits are incorporated herein by this reference petitioner resided in miami florida on the date the petition was filed in this case petitioner works as a bus driver for the metropolitan dade county transit agency during petitioner rented a house in the miami area he lived there with his wife and his two children tawana and xavier until date when he and his wife separated the house that petitioner rented was destroyed when hurricane andrew struck the miami area in he sustained a loss of nearly all of his personal_property petitioner did not have renter's insurance coverage at the time of the loss the first issue for decision is whether petitioner is entitled to claim head_of_household filing_status for in the statutory_notice_of_deficiency respondent determined that petitioner's proper filing_status for is married filing separate respondent's determinations in the statutory_notice_of_deficiency are presumed to be correct and petitioner bears the burden of proving otherwise rule a 290_us_111 in pertinent part an individual may be considered a head of a household if and only if such individual is not married at the close of his taxable_year sec_2 an individual who is legally_separated from his spouse under a decree of divorce or of separate_maintenance shall not be considered as married sec_2 a in pertinent part an individual is treated as not married at the close of the taxable_year if such individual's spouse was not a member of such individual's household during the last months of the taxable_year sec_2 b petitioner testified that he and his wife were never legally_separated but that they lived apart from date until since he was not legally_separated and his wife was a member of his household during july and date we find that petitioner was married at the close of his taxable_year accordingly we hold that petitioner is not entitled to claim head_of_household filing_status for respondent's determination on this issue is sustained the second issue for decision is whether petitioner is entitled to a casualty_loss deduction petitioner claimed a casualty_loss in the amount of dollar_figure on his amended_return after accounting for certain limitations petitioner claimed a casualty_loss deduction in the amount of dollar_figure respondent disallowed the claimed deduction in the statutory_notice_of_deficiency deductions are strictly a matter of legislative grace and petitioner bears the burden of proving his entitlement to any deductions claimed rule a 503_us_79 292_us_435 petitioner's burden includes the requirement that he substantiate any deductions claimed 65_tc_87 affd per curiam 540_f2d_821 5th cir sec_165 allows as a deduction any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise in the case of an individual's nonbusiness property the deduction is limited to losses that arise from fire storm shipwreck or other_casualty or from theft sec_165 sec_165 provides that any casualty_loss deduction of an individual is allowed only to the extent that the amount of the loss arising from each casualty exceeds dollar_figure sec_165 further limits the deduction to the amount that the aggregate of the losses for the taxable_year in excess of the sec_165 limitation of dollar_figure per casualty exceeds percent of the individual's adjusted_gross_income for the taxable_year the proper measure of the amount of the loss sustained is the difference between the fair_market_value of the property immediately before and after the casualty not to exceed its adjusted_basis 305_us_468 70_tc_391 sec_1 b income_tax regs since petitioner's adjusted_gross_income for is dollar_figure he is entitled to a casualty_loss deduction only if he proves that he sustained a loss in excess of dollar_figure petitioner submitted a number of photographs as evidence of the damage caused to his home by hurricane andrew based on these photographs we are convinced that petitioner sustained a casualty_loss during however petitioner failed to substantiate the amount of the loss claimed on his return he submitted no receipts showing the value of his damaged property in the event that a taxpayer establishes that he has incurred a deductible loss but is unable to substantiate the precise amount of the loss we may estimate the amount of the deductible loss bearing heavily against the taxpayer whose inexactitude in substantiating the amount of the loss is of his own making 39_f2d_540 2d cir see eg daniel v commissioner tcmemo_1997_328 in order to make such an estimate the taxpayer must present evidence sufficient to provide some rational basis upon which an this amount includes the sec_165 limitation of dollar_figure and the sec_165 limitation of dollar_figure dollar_figure x estimate may be made 85_tc_731 petitioner compiled a list of items that were destroyed by hurricane andrew the list contains petitioner's own estimates of their values at trial petitioner testified that several of the items on the list were owned by his landlord in addition he admitted that much of his property was several years old when it was destroyed finally he did not include on the list the automobiles claimed on his amended_return as a loss after reviewing petitioner's list and considering his testimony we estimate petitioner's loss from hurricane andrew to be dollar_figure after taking into account the sec_165 limitations petitioner's allowable casualty_loss deduction is dollar_figure since petitioner has not claimed any other itemized_deductions we hold that he is only entitled to the standard_deduction for an individual filing as married filing separate which is greater than his allowable casualty_loss deduction to reflect the foregoing decision will be entered for respondent


department of the treasury internal revenue servce tege eo examinations commerce street mc dallas tx tax_exempt_and_government_entities_division number release date date -mar person to contact identification_number contact telephone number telephone ein certified mail- return receipt requested dear this is a final revocation letter as to your exempt status under sec_501 c of the internal_revenue_code our favorable determination_letter to you dated september 19xx recognizing you as an organization described in sec_501 is hereby revoked effective january 20xx the revocation of your exempt status was made for the following reasons sec_1 c -1 d l ii provides that an organization is not operated exclusively for exempt purposes unless it serves a public rather than a private interest you are operated for the benefit of private interests of a particular and specified_individual as such you failed to meet the requirements of sec_50l c and sec_1 c -l d l ii in that you have not demonstrated that you are operated exclusively for exempt purposes within the meaning of internal_revenue_code sec_50l c contributions to your organization arc no longer deductible under sec_170 of the internal_revenue_code citcetive january 20xx you arc required to file federal_income_tax returns on form_1120 because you are a private roundation as of the effective date or revocation you are considered to be a taxable private_foundation until you terminate your private_foundation_status umkr of the code in addition to your income_tax return you must also continue to file r onn 990-pf by the 15th day or the fitth month after the end of your annual_accounting_period processing of income_tax returns and assessment of anv taxes due vvill not be delayed should a petition for declaratory_judgment be filed under sec_7428 or the internal_revenue_code j i 'you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court or the tjnited states for the district of columbia before the st day a her the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment please contact the clerk of the respective court for rules and the appropriate forms regarding filing petitions for declaratory_judgment by referring to the enclosed publication plea ' c note that the united stales rax court is the only one of these courts where a declaratory_judgment action can be pursued vithout the services or a lawyer you may v rrite to the courts at the following addresses united_states tax_court second street n w washington dc us court of federal claims madison place nw washington ijc u s district_court for the district of columbia constitution ave n w washington dc you also have the right to contact the oflice of the taxpayer_advocate however you should first contact the person whose name and telephone number arc shown above since this person can access your tax information and can help you get answers taxpayer_advocate assistance cannot be used as a substitute for established ir procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states rax court the taxpayer_advocate can however sec that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service local taxpayer_advocate if you have any questions please contact the person whose name and telephone number arc shown in the heading of this letter sincerely yours enclosures publication i nvelope margaret von lienen director eo examinations internal_revenue_service tax_exempt_and_government_entities_division exempt_organizations examinations town country commons room chesterfield mo department of the treasury date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax manager's name id number manager's contact number response due_date certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 c of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action- sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_501 c after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies letter rev catalog number 34809f effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn't apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn't a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you letter rev catalog number 34809f thank you for your cooperation enclosures report of examination form_886 form_6018 publication publication sincerely stephen a martin acting director eo examinations letter rev catalog number 34809f form 886-a rev date name of taxpayer explanations of items tax identification_number schedule number or exhibit year period ended 20xx issue should the revenue code c as a public charity continue to be exempt from federal_income_tax under internal facts the support from governmental_unit or general_public as a public charity statu sec_170 a vi exempt_organization is recognized as a sec_501 and receiving the exempt organization's primary exempt_purpose listed on their 20xx form_990 tax_return and is to provide child care for low income families form_1023 application the corporation was formed for the following purpose as an independent child care center committed to serving children ages six weeks through five year of age organization and it did not provide or administer any scholarship benefits student aid etc also indicated that organization was a child care the education help prepare children to succeed in school and in life and to help families achieve goals website mission is to help provide high quality early childhood care and in reviewing their child_care_facility sold and distributed their physical assets to other exempt_organizations the organization had not terminated the organization books_and_records for 20xx the exempt_organization had closed in review for low income families and to help raise funds to support its mission and goals the resale store was opened in april 20xx the offering upscale home furnishings to the public to support the organization's mission subsequent 20xx tax_year was no longer providing child care a nonprofit consignment resale store sec_501 c of the internal_revenue_code defines as an organization_exempt_from_taxation under sec_501 a as corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or to foster national or international amateur sports competition but only if no part of its activities involve the provision of athletic_facilities or equipment or for the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation except as otherwise provided in form 886-a catalog number 20810w page_1_ publish no irs gov department of the treasury-internal revenue service form 886-a rev date name of taxpayer explanations of items tax identification_number schedule number or exhibit year period ended 20xx subsection h and which does not participate in or intervene in including the publishing or distribution of statements any political campaign on behalf of or in opposition to any candidate for public_office sec_1 c -1 a of the regulations prescribes the requirements for exempt under sec_501 c of the internal_revenue_code in order to be exempt as an organization described in sec_501 c an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt the term exempt_purpose or purposes as used in this section means any purpose or purposes specified in sec_501 of the internal_revenue_code as defined and elaborated in paragraph d of this section sec_1 c -1 c of the regulations provides that an organization will not be regarded as operated exclusively for exempt purposes if more than an insubstantial part of its activities is not in furtherance of exempt purposes sec_1_501_c_3_-1 of the regulations provides an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose revproc_90_27 1990_1_cb_514 date provides that a ruling or determination_letter recognizing exemption may be revoked or modified by a notice to the trust to whom the ruling or determination_letter originally was issued enactment of legislation or ratification of a tax_treaty a decision of the united_states supreme court issuance of temporary or final regulations or issuance of a revenue_ruling revenue_procedure or other statement published in the internal_revenue_bulletin the revocation or modification may be retroactive if the organization omitted or misstated a material fact operated in a manner materially different from that originally represented or in the case of organizations to which sec_503 applies engaged in a prohibited_transaction with the purpose of diverting corpus or income of the organization from its exempt_purpose and such transaction involved a substantial part of the corpus or income of such organization where there is a material_change inconsistent with exemption in the character the purpose or the method of operation of an organization revocation or modification will ordinarily take effect as of the date of such material_change in cases where a ruling or determination_letter was issued in error or is no longer in accord with the holding of the service when sec_7805 relief is granted see sec_15 and of rev_proc retroactivity of the revocation or modification ordinarily will be limited to a date not earlier than that on which the original ruling or determination_letter is modified or revoked taxpayer's position the taxpayer is being presented with this report at this time and their position is unknown at this time on the issue form 886-a catalog number 20810w page_2_ publish no irs gov department of the treasury-internal revenue service form 886-a rev date name of taxpayer explanations of items tax identification_number schedule number or exhibit year period ended 20xx government's position should revenue code code sec_501 c as public charity continue to be exempt from federal_income_tax under the internal no longer qualifies for exemption from federal_income_tax under code sec_501 c organization is not be regarded as operated exclusively for exempt purposes if more than an insubstantial part of its activities is not in furtherance of exempt purposes child_care_facility in which it was given exempt status no longer provides child care for low income families and longer operates a offering upscale home furnishings to the public is now doing business as a nonprofit consignment resale store conclusion the care facility was granted exemption in 19xx as a c public charity as a child the donations and consignments now doing business as a resale store accepting the government contends in its position that the income_tax should be revoked back to the tax period january 20xx exemption from federal the correction the organization needs to file form_1120 u s_corporation income_tax return should be filed for the tax periods ending december 20xx and december 20xx form 886-a catalog number 20810w page_3_ publish no irs gov department of the treasury-internal revenue service