t c summary opinion united_states tax_court gerry m griggs petitioner v commissioner of internal revenue respondent docket no 839-04s filed date gerry m griggs pro_se portia n rose for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 in effect when the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority 1unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for the year an addition_to_tax under sec_6651 in the amount of dollar_figure an addition_to_tax under sec_6651 and an addition_to_tax under sec_6654 in the amount of dollar_figure in the answer respondent conceded the sec_6651 addition_to_tax and pursuant to sec_6214 claimed an increase in the sec_6651 addition_to_tax of dollar_figure in a trial memorandum respondent conceded the sec_6654 addition_to_tax the issues for decision are whether petitioner is entitled to claim a deduction for miscellaneous legal expenses on schedule a itemized_deductions in an amount exceeding what was allowed by respondent whether petitioner is entitled to claim deductions for various trade_or_business_expenses disallowed by respondent for two business activities of petitioner reported on separate schedules c profit or loss from at the time the notice_of_deficiency was issued petitioner had not filed his federal_income_tax return for the year at issue the notice_of_deficiency is based upon information returns filed by third-party payers for nonemployee compensation wages and interest_paid to petitioner petitioner does not challenge these determinations after the notice_of_deficiency was issued as stated in respondent’s brief petitioner provided respondent with his individual_income_tax_return for the taxable_year respondent further stated on brief petitioner has never provided an explanation as to why his return was filed late that statement appears to indicate that petitioner’s return was processed as a filed return petitioner does not challenge the income determinations in the notice_of_deficiency and the issues essentially involve two trade_or_business activities and itemized_deductions business whether petitioner is entitled to a schedule a deduction for the writeoff of unsold inventory that belonged to a discontinued trade_or_business activity and whether petitioner is liable for the sec_6651 addition_to_tax some of the facts were stipulated and those facts are so found at the time the petition was filed petitioner was a legal resident of houston texas although petitioner was an employee during the year at issue the principal issues in this case arise from two self- employed trade_or_business activities petitioner was engaged in that year petitioner claimed losses from both of these activities that respondent challenges petitioner has an m b a degree from harvard university and is a certified_public_accountant since he has been involved in various business ventures as an investment and sec_7491 shifts the burden_of_proof to the commissioner with regard to any factual issue relevant to ascertaining the taxpayer’s liability sec_7491 limits application of this rule to an issue or issues for which the taxpayer has complied with the requirements for substantiation of any item has maintained all records with respect to such items and has cooperated with reasonable requests by the secretary for witnesses information documents and interviews etc regarding matters at issue in this case the burden_of_proof does not shift to respondent because petitioner’s failure to cooperate with respondent’s counsel in submitting records as to the matters at issue resulted in the issuance of an order by the court on date ordering the parties to stipulate and exchange documents with each other to enable this case to proceed to trial as to the additions to tax the burden of production is on respondent sec_7491 merchant banker in petitioner was employed by advanced energy technologies aet as vice president and chief financial officer cfo he was also on the board_of directors of aet until date aet terminated petitioner from his position as cfo in date in date petitioner returned to aet as cfo and was again terminated in date the first issue is petitioner’s claim to schedule a deductions of dollar_figure for miscellaneous legal expenses petitioner paid legal fees in connection with litigation against his former employer aet for breach of his employment contract and for the recovery_of retirement benefits petitioner also paid legal fees in connection with litigation against two other corporations over the purchase of certain film rights and assets another legal action involved a malpractice claim against one of his former attorneys of the dollar_figure claimed by petitioner for miscellaneous legal expenses on schedule a of his return respondent concedes petitioner’s entitlement to a deduction of dollar_figure for legal expenses leaving at issue dollar_figure based on the evidence presented at trial the court is satisfied that petitioner is entitled to an additional deduction of dollar_figure for legal expenses this consists of dollar_figure which is shown as a credit on a statement presented at trial from one of the law firms that represented petitioner and dollar_figure represented by three checks payable to one of the other law firms that represented petitioner therefore of the dollar_figure claimed by petitioner as miscellaneous legal expenses on his return petitioner is entitled to a deduction of the dollar_figure conceded by respondent and dollar_figure based on the evidence presented at trial this leaves a balance of dollar_figure which the court finds has not been substantiated and therefore holds is not allowable as a deduction as stated earlier the income_tax return submitted by petitioner at trial included two schedules c with respect to trade_or_business activities engaged in by petitioner one of these activities was described as media content and entertainment and songs with a business name of kirshner content and related entities the schedule c reported gross_income of zero and various expenses the activity was described at trial as an activity of petitioner and another individual robert thurmond thurmond as partners petitioner and thurmond referred to their affiliated activity as the equisource group petitioner’s other schedule c involves an activity called frexie respondent made adjustments to that activity and those adjustments are addressed later in this opinion since kirshner content was represented to be an activity of petitioner and thurmond the court assumes that the numbers on the schedule c represent petitioner’s allocable portion of the expenses sometime in petitioner and thurmond were approached by don kirshner kirshner a noted song publisher entertainment promoter and agent to exploit rights kirshner had to various entertainment assets kirshner had been the host and creator of a weekly rock concert program on national television called don kirshner’s rock concert rock concert from to and possessed rights to about to hours of programming from the rock concert as well as don kirshner’s comedy hour that had never been rebroadcast or licensed petitioner thurmond and kirshner agreed to establish business entities that would obtain a license from kirshner to exploit rights to don kirshner’s rock concert the name don kirshner and his likeness together with extensive entertainment memorabilia these tangible and intangible properties were collectively known as the kirshner properties beginning with the license from kirshner for the kirshner properties as a base the various kirshner entities were also envisioned as a base for acquiring managing producing and distributing entertainment software in various forms on or about date kirshner and the equisource group petitioner and thurmond signed a venture agreement to form_6 according to petitioner the various kirshner entities were known collectively as kirshner content which is not to be confused with the don kirshner content inc one of the entities see infra kirshner global inc kirshner global kirshner and equisource were listed as founding partners under the terms of the venture agreement equisource was to obtain interim financing of dollar_figure million within a 60-day period or kirshner would have the option of terminating the agreement similar terms were also provided for permanent financing within a 120-day period the interim financing proceeds would have been used in part to pay the founding partners for out-of-pocket expenses_incurred on kirshner global’s behalf prior to the interim financing under the venture agreement the execution of other documentation within a 15-day period subject_to interim financing was also required the documents included an employment agreement a stockholders’ agreement an equisource financial advisory agreement a licensing agreement and a subscription agreement once this was accomplished and kirshner global was formed petitioner and thurmond would be named as directors on kirshner global’s board_of directors on or about date the don kirshner content co inc kirshner content was formed with the specific intention of acquiring the rock concert license from kirshner and maintaining an aggressive plan of strategic acquisitions of other entertainment assets as the managing director of the equisource as noted petitioner and thurmond would be entitled to reimbursement as founding partners only through equisource group petitioner was listed as a member of the support team responsible for organizing and obtaining financing for kirshner content on or about date state street capital markets corp offered a confidential private_placement memorandum for the purpose of raising capital for kirshner content investors would invest a maximum of dollar_figure million for units which would be convertible into a promissory note common_stock and common_stock purchase warrants in kirshner content petitioner was listed as the executive vice president chief financial officer treasurer and director of kirshner content on or about date in connection with an attempt to obtain interim financing kirshner content issued a promissory note in the amount of dollar_figure to c c partners llc a new york limited_liability_company which petitioner and thurmond personally guaranteed petitioner and thurmond’s guaranties were subject_to four separate conditions another guaranty was made on date by martin licht secretary and counsel for kirshner content under the terms of the promissory note it the record sometimes refers to c c investments in connection with the promissory note for this purpose c c investments and c c partners llc are treated as one and the same although not specified in the record licht apparently was a business_associate of kirshner was payable together with interest no later than date kirshner content defaulted on the promissory notedollar_figure in a confidential business plan dated date kirshner content proposed the issuance of stock in a public offering for at least dollar_figure million as the managing director of equisource petitioner was named as a member of the support team participating in the organization and financing of kirshner content on or about date c c partners filed suit in texas against petitioner and thurmond for payment of the dollar_figure promissory note due to kirshner content’s default petitioner and thurmond retained the law firm baker botts l l p in houston to represent them in the ensuing litigationdollar_figure as previously stated on the schedule c that petitioner submitted with respect to kirshner content petitioner reported zero gross_income for the activity and claimed deductions for various expenses related to the activity a bad_debt in the amount of dollar_figure legal and professional fees in the amount on or about date c c partners llc filed suit in new york state court against petitioner thurmond and licht the three guarantors and a month later the case was removed to federal district_court with respect to petitioner and thurmond the case was removed to texas the case against licht in new york continued in that court_proceeding judgment was entered in favor of c c partners llc in date the record is not clear with respect to the ultimate resolution of the texas case involving petitioner and thurmond of dollar_figure supplies of dollar_figure travel_expenses of dollar_figure and deductible meals and entertainment of dollar_figure the schedule c listed the kirshner content and related entities as the business name and the activity was listed as media content and entertainment and songs respondent did not agree to deductions for these expenses petitioner argues he is entitled to claim the dollar_figure as a bad_debt deduction as it relates to various expenses that were incurred in and in connection with the attempted financing for the various kirshner entities the expenses were for travel meals and entertainment although not explicitly stated as the court understands petitioner believed he had a contractual right to be reimbursed for these expenses from kirshner global kirshner content and or other kirshner entities since he was never reimbursed for these expenses petitioner contends his claim for reimbursement is an uncollectible bad_debt respondent contends the expenses were not created or incurred in connection with a trade_or_business and questions whether petitioner had the right to be reimbursed for such expenses and if so whether the debts became uncollectible in sec_166 allows a taxpayer a deduction for any business debt which becomes wholly or partially worthless during the taxable_year sec_166 d a a bona_fide debt is one that arises from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money sec_1_166-1 income_tax regs a business_bad_debt deduction is allowable if the taxpayer among other requirements establishes he was engaged in a trade_or_business and the acquisition or worthlessness of the debt was proximately related to the conduct of such trade_or_business 405_us_93 sec_1_166-5 income_tax regs for a debt to be considered a business debt it must have a proximate relation to the taxpayer’s trade_or_business in determining whether a proximate relationship exists the proper measure is the taxpayer’s dominant motivation for incurring the debt a significant motivation is not sufficient united_states v generes supra pincite petitioner bears the burden of proving that the amounts in question constituted business_debts and that such debts became worthless in the year in which the deduction is claimed rule a 290_us_111 at the outset respondent disputes that expenses were incurred in connection with petitioner’s trade_or_business petitioner argues that he was in the trade_or_business of investment and merchant banking the facts support petitioner on that argument petitioner and thurmond credibly testified that they were in the trade_or_business of investment and merchant banking the totality of the circumstances shows that they sought to obtain financing in return for obtaining a percentage interest in various kirshner entities multiple kirshner documents show that petitioner was described as the managing director of equisource group and responsible for obtaining financing as well as pursuing possible acquisitions petitioner was also slated to be on the board_of directors of kirshner global once financing was completed he was listed as executive vice president chief financial officer treasurer and director of kirshner content in the date confidential private_placement memorandum the court concludes that these activities were not merely investment activities or the management of petitioner’s investment but were part and parcel of petitioner’s trade_or_business thus the court finds that petitioner was engaged in a trade_or_business with respect to these expenses with respect to the claimed bad_debts petitioner must establish that the debts had some value at the beginning of and became worthless by the end of the year 106_tc_184 affd in part revd in part on other grounds and remanded 318_f3d_924 9th cir the issue rests on the particular facts and circumstances of each case although generally the year of the worthlessness is fixed by identifiable events that form the basis of reasonable grounds for abandoning any hope of recovery id pincite see also estate of mann v united_states 731_f2d_267 5th cir 14_tc_1282 petitioner argues that under the venture agreement for the formation of kirshner global he was entitled to reimbursement for out-of-pocket costs petitioner testified that the venture agreement was one of several such agreements that provided for the formation of kirshner entities according to petitioner these kirshner entities received interim financing in addition petitioner contends he submitted a claim for reimbursement and it was approved by kirshner petitioner contends that his business relationship with kirshner and the kirshner-related entities effectively ended in thus entitling him to a bad_debt deduction for that year respondent strongly disagrees with that contention and instead argues the relationship ended in or petitioner testified when kirshner decided not to do business any more with us and go on and do business with someone else then there was no hope of getting paid it was over and that was in the year petitioner contends that all activity on the kirshner deal ended in the year due to litigation against kirshner by an outside investor who had been brought in by petitioner up to that point petitioner contends he had continued to try to raise capital reform kirshner content and repay the outstanding debt petitioner offered the testimony of his business partner thurmond with respect to the claimed deduction however thurmond was uncertain when the business relationship definitively ended he admitted that the actual attempt to fund and operate kirshner content ended a long time ago but was unable to fix an exact date other than it was in the late 1990s at trial thurmond stated it was either in or dollar_figure while thurmond believed that several kirshner entities received interim financing he could not positively state that kirshner global received any interim financing thurmond’s testimony does not convince the court that the business relationship ended in the year moreover the court is not satisfied from the evidence that there even was a bona_fide debt much less a debt that became wholly worthless in for the following reasons thurmond also stated at one point that it was in but immediately corrected himself to provide that it was either or before respondent argues that there was no debt that would qualify for the bad_debt deduction in particular respondent contends that petitioner did not show that he was entitled to reimbursement for the various expenses at issue respondent asserts that a precondition for obtaining out-of- pocket expenses from kirshner global was not fulfilled in that petitioner failed to show that he obtained interim financing within the time period specified in the venture agreement at trial petitioner claimed that his entitlement to reimbursement for expenses was not contingent on obtaining interim financing the totality of the record satisfies the court that respondent is correct there is no documentation or other evidence that establishes the existence of a bona_fide debt owing to petitioner by either kirshner global or kirshner content petitioner’s schedule c activity that qualified for a bad_debt deduction also there is no evidence to support a finding that petitioner was contractually entitled to be reimbursed for the various kirshner expenses that are characterized as a bad_debt on schedule c of petitioner’s tax_return with respect to kirshner global the language of the venture agreement supports respondent’s position in a subsection entitled interim financing kirshner global was required through the equisource group to obtain interim financing that would be used to pay among other things out-of-pocket costs of the founding partners ie equisource and kirshner thus obtaining interim financing was a precondition to petitioner’s entitlement to reimbursement for his out-of-pocket expenses petitioner did not establish that interim financing was obtained that kirshner global was formed or that he became a director on kirshner global’s board_of directors while petitioner claimed that licensing employment and financial advisory agreements were executed in connection with kirshner global there is no evidence that this came about thus the court cannot conclude that petitioner had a right of reimbursement through kirshner global for reimbursement of his expenses the record shows that kirshner content had a more tangible existence because it apparently obtained interim financing from c c partners however kirshner content as well as petitioner thurmond and licht all became involved in a lawsuit after kirshner content defaulted on the promissory note receipt of the interim financing and the corporate default both occurred in kirshner content does not appear to have been active after that year other than to participate in various lawsuits petitioner’s witness thurmond confirmed that the financing for kirshner content had not been completed moreover there is no evidence that kirshner content contractually agreed to reimburse petitioner’s expenses petitioner points to the existence of an date reimbursement form signed by kirshner as proof that petitioner was entitled to reimbursement the court disagrees the document is indicative at most that kirshner approved petitioner’s expenses related to identifying acquisition investment opportunities for kirshner content et al that were incurred in without any corporate identification on the reimbursement form or an identification of petitioner’s status as a person requesting reimbursement the record does not support a finding that petitioner had the contractual right to reimbursement with respect to kirshner content and or any other kirshner-related entity thus the court cannot conclude that there was an actual bona_fide debt with respect to the dollar_figure claimed as a bad_debt on schedule c of petitioner’s income_tax return the court further notes that petitioner incurred these expenses over a 3-year period and did not seek reimbursement during that time the claimed expenses were still outstanding years later there is nothing in the record that adequately explains petitioner’s delay in seeking reimbursement if in fact petitioner had incurred such expenses and was entitled to reimbursement even if petitioner was entitled to reimbursement for expenses but was in fact not reimbursed he is not allowed a deduction for such expenses a taxpayer is not entitled to a deduction for expenses to the extent that the taxpayer is entitled to reimbursement where the taxpayer does not claim reimbursement 212_f2d_552 5th cir affg a memorandum opinion of this court 181_f2d_451 7th cir see also 79_tc_1 56_tc_936 affd without published opinion 456_f2d_1335 2d cir 40_tc_345 affd per curiam 326_f2d_760 2d cir 24_tc_21 20_bta_919 moreover if there was a bona_fide debt owing to petitioner he provided no evidence that the debt became worthless during the year at issue sec_1_166-2 income_tax regs petitioner offered only his unsupported opinion as to when the debt became worthless a taxpayer’s unsupported opinion that a debt became worthless in a particular year by itself will not normally be accepted as proof of worthlessness 53_tc_491 affd 467_f2d_47 9th cir respondent is sustained on this issue another deduction claimed on schedule c of petitioner’s income_tax return for was dollar_figure for legal and professional services this amount represented a payment by petitioner on date to a houston texas law firm baker botts the memorandum line on the check issued for payment of these services indicates that the payment was for c c litigation respondent does not dispute that petitioner paid the legal expenses but contends there is no evidence that the payments were related to petitioner’s trade_or_business respondent argues that the expenses should instead be claimed as an itemized_deduction on schedule a of petitioner’s return the record shows that the litigation expenses related to c c partners arose out of the default on the debt of kirshner content that petitioner had guaranteed as a result petitioner thurmond and licht were all required to satisfy guarantees that they had given in connection with the interim financing for kirshner content petitioner and thurmond credibly testified that the litigation continued until at least and that they still owed money to the law firm accordingly the court finds that the litigation was proximately related to petitioner’s trade_or_business and holds that the fees for legal and professional services are allowable as a business_expense deduction and not as a schedule a deduction petitioner is sustained on this issue petitioner testified that until the first half of he was still trying to raise other funds get other investors get kirshner back in the fold deal with this investor that was having an issue with kirshner according to petitioner these expenses consisting of office supplies meals and travel were all incurred on behalf of the entire kirshner enterprise during the year petitioner’s schedule c of his federal_income_tax return included the following other expenses supplies dollar_figure dollar_figure travel dollar_figure meals and entertainment deductible portion dollar_figure total dollar_figure as to meals entertainment and travel_expenses sec_274 imposes stringent substantiation requirements for deductions related thereto for travel_expenses including meals_and_lodging a taxpayer must substantiate the amount of such expense the time and place such expense was incurred and the business_purpose for which such expense was incurred sec_1_274-5t temporary income_tax regs fed reg date sec_274 specifically bars a taxpayer from claiming a deduction on the basis of any approximation or the unsupported testimony of the taxpayer sec_1_274-5t temporary income_tax regs fed reg date thus sec_274 overrides 39_f2d_540 2d cir which allows the court in some circumstances to estimate a deductible expense see 50_tc_823 affd per curiam 412_f2d_201 2d cir sec_1_274-5t temporary income_tax regs supra although petitioner offered into evidence numerous receipts in support of his travel meals and entertainment_expenses he did not provide the additional documentation necessary to substantiate these expenses in particular the receipts did not show the business_purpose behind the trips or meals in short there was no documentation or rationale behind such expenses other than petitioner’s unsupported testimony that the court declines to accept sec_1_274-5t temporary income_tax regs supra respondent is sustained on this issue on a separate schedule c of petitioner’s income_tax return petitioner claimed a deduction for expenses relating to another activity called frexie this was the name petitioner ascribed to his purchase of the right to use a luxury suite at minute maid park in houston texas the home field for the houston astros major league baseball team for a 3-year period for dollar_figure the frexie activity involved the selling or letting by petitioner of the use of the suite during houston astros baseball games in exchange for a commitment to purchase or use time in the suite petitioner offered pricing incentives to two corporations nabisco and chicago title the two companies agreed to the deal with petitioner the sole expense at issue in this case is a claimed deduction of dollar_figure relating to the activitydollar_figure it appears that the expense in question was incurred at one event which was attended by petitioner and representatives of nabisco and chicago title the evidence satisfies the court that the representatives of nabisco and chicago title who attended the game were not there for purposes of entertainment but were there solely for their evaluation and consideration of how the facility would be used to further the business interests of nabisco and chicago title and petitioner was there to show the facility and address whatever questions the corporate representatives may have had petitioner paid for the food and beverages consumed at the event which amounted to dollar_figure while conceding that petitioner substantiated the expenses and was entitled to claim the dollar_figure paid for food and beverages on schedule c of his return as a business_expense respondent contends that the expense was subject_to the 50-percent limitation of sec_274 petitioner argued that section petitioner claimed the dollar_figure item as returns and allowances on schedule c for the trade_or_business activity frexie at trial petitioner clarified that the item was mischaracterized and was properly a claimed business_expense of the schedule c frexie activity n was inapplicable because the expenditure was not incurred for entertainment petitioner claims that the dollar_figure was expended as performance on a contract with nabisco and chicago title in that he was required to pay for catering services regardless of whether business was discussed in the luxury suite thus the court construes petitioner’s argument to be that the 50-percent limitation for food and beverages found in sec_274 does not apply to the expense at issue because the dollar_figure represented goods and services sold by petitioner in a bona_fide consideration for an adequate_and_full_consideration in money or money’s worth sec_274 accordingly petitioner argues he was not entertaining guests under sec_274 any amount allowable as a deduction for any expense for food or beverages in connection with a trade_or_business activity is generally limited to percent of the amount of the expense that would otherwise be allowable however sec_274 provides an exception to the 50-percent limitation of sec_274 for expenses for goods or services which are sold by the taxpayer in a bona_fide transaction for an adequate_and_full_consideration in money or money’s worth sec_274 sec_1_274-2 income_tax regs provides any expenditure by a taxpayer for entertainment or for use of a facility in connection therewith to the extent the entertainment is sold to customers in a bona_fide transaction for an adequate_and_full_consideration in money or money’s worth is not subject_to the limitations on allowability of deductions provided for in paragraphs a through e of this section thus the cost_of_producing night club entertainment such as salaries paid to employees of night clubs and amounts paid to performers for sale to customers or the cost of operating a pleasure cruise_ship as a business will come within the sec_274 exception thus despite the fact that a facility might meet the definition of an entertainment_facility and be subject_to the general_rule of sec_274 expenses relating to its operation will not constitute entertainment_expenses if that facility is legitimately involved in selling entertainment additionally sec_1_274-2 income_tax regs provides that expenses exclusive of operating costs and other expenses referred to in sec_1_274-2 income_tax regs incurred at the time of an entertainment activity even though in connection with the use of a facility for entertainment purposes such as expenses for food and beverages or expenses for catering or expenses for gasoline and fishing bait consumed on a fishing trip shall not be considered to constitute expenditures with respect to a facility used in connection with entertainment in 115_tc_279 affd 307_f3d_423 6th cir this court held that a racetrack operator’s expenses for hosting press parties winners’ parties and other entertainment events did not qualify for the sec_274 exception to the 50-percent limitation rule_of sec_274 because the expenses were not part of producing the taxpayer’s entertainment product and the taxpayer provided the parties free of charge to its guests the court agrees with petitioner that the dollar_figure expense at issue is excluded from sec_274 by virtue of sec_274 the guests entertained by petitioner were representatives of two corporations that had contracts with petitioner in a bona_fide transaction for adequate_and_full_consideration for the subsequent business uses of these corporations petitioner incurred the expenses in question as part of his business respondent agrees that the claimed expenses were substantiated thus the court holds that the food and beverages were sold in a bona_fide transaction for adequate_and_full_consideration in money or money’s worth sec_274 see also sec_1_274-2 sec_1_274-2 income_tax regs accordingly the court holds that the dollar_figure expense is not subject_to the 50-percent limitation of sec_274 and is fully deductible at trial petitioner claimed other expenses in connection with the frexie activity he presented a number of receipts for ticket purchases fedex deliveries and miscellaneous items such as programs scorecards a baseball cap and a t-shirt there were also other receipts related to food from aramark in the amount of dollar_figure mission burritos carillon for dollar_figure and frankie b mandola’s for dollar_figure some of the receipts had no dollar figures and the connection of these expenses if any with frexie is largely unexplained the court holds that these expenses have not been adequately substantiated and therefore are not deductible on schedule a for the year petitioner claimed a deduction of dollar_figure for the writeoff of old inventory petitioner testified that he had been in the water filter business in prior years after the business was discontinued he had on hand an inventory of unsold water filter units petitioner presented at trial a copy of a schedule c relating to the activity that reflected an inventory_valuation of dollar_figure in connection with an environmental equipment sales business petitioner testified that he reported his income and expenses from that activity on schedule c of his income_tax return petitioner testified that the business languished for a long period of time and was discontinued presumably sometime after he had inventory remaining from the business that was never sold he had received an offer to sell the inventory in date for cents on the dollar which he declined petitioner testified that in the year the water filters became inoperable and thus were of no value respondent contends that petitioner provided no documentation to show that he purchased utilized and disposed of the water filter inventory respondent further contends that petitioner’s schedule c for petitioner’s tax_year standing alone is insufficient to demonstrate that petitioner was in a business activity for the sale of environmental equipment respondent further argues that there is no proof that petitioner filed a return for the record does not show that petitioner either purchased or held a water filter inventory and if he did what was the cost of that inventory the court rejects petitioner’s entitlement to a deduction on this issue the court next addresses the addition_to_tax under sec_6651 for failure_to_file a timely income_tax return sec_6651 provides for an addition_to_tax for failure_to_file a timely federal_income_tax return unless the taxpayer shows that such failure was due to reasonable_cause and not willful neglect 469_us_241 84_tc_859 81_tc_806 affd without published opinion 767_f2d_931 9th cir the addition_to_tax under sec_6651 is based on respondent’s determination that petitioner failed to file an income_tax return for petitioner’s income_tax return was due to be filed on or before date he had requested timely and was granted an extension to file his tax_return by date he never filed the return until the statutory_notice_of_deficiency was issued at trial petitioner claimed that he had filed his tax_return timely no evidence however was presented to support that claim respondent is sustained on this issue petitioner’s federal_income_tax return for that was submitted at trial included a schedule d capital_gains_and_losses on which petitioner claimed a dollar_figure short-term_capital_loss and a long-term_capital_loss of dollar_figure on the stipulation of facts that was filed by the parties a basis for settlement was agreed to with regard to petitioner’s schedule d reviewed and adopted as the report of the small_tax_case division decision will be entered under rule


internal_revenue_service index nos number release date cc dom it a plr-121303-98 date ein attn dear taxpayer this is in reference to a form_1128 application to adopt change or retain a tax_year submitted on behalf of the above- named taxpayer requesting permission to change its accounting_period for federal_income_tax purposes from a taxable_year ending july to a taxable_year ending june effective for the tax_year beginning date and ending date the taxpayer has requested that the form_1128 be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations the taxpayer's form_1128 requesting a change in accounting_period to a tax_year ending june was due on or before date information furnished indicates that the taxpayer intended to file the form on a timely basis but due to an error or misunderstanding the form was not timely filed however the form was filed within days of the due_date the late filing was not due to any lack of due diligence or prompt action on the part of the taxpayer sec_1_442-1 of the income_tax regulations provides that in order to secure the commissioner's consent to a change in accounting_period the taxpayer must file an application on form_1128 with the commissioner on or before the 15th day of the second calendar month following the close of the short_period sec_301_9100-3 of the regulations provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government based on the facts and information submitted and the representations made it is held that the taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case and taxpayer’s late filed form_1128 requesting permission to change to a tax_year ending june effective for the tax_year beginning date is considered timely filed pursuant to revproc_93_23 1993_1_cb_538 a user_fee is required in order to process the form_1128 the user_fee will be requested in a separate correspondence we will begin processing the taxpayer’s application after the user_fee is submitted the ruling contained in this letter is based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as part of an examination process this ruling addresses the granting of sec_301_9100-3 relief only no opinion is expressed regarding the tax treatment of the instant transaction under the provisions of any other sections of the code or regulations that may be applicable thereto or regarding the tax treatment of any conditions existing at the time of or effects resulting from the instant transaction specifically no opinion is expressed as to whether the taxpayer is permitted under the code and applicable regulations to change to the tax_year requested in the subject form_1128 this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel income_tax and accounting s irwin a leib by _______________________ irwin a leib deputy assistant chief_counsel enclosures copy of this letter copy for sec_6110 purposes


cca-73114-14 id uilc number release date third party communication date of communication month dd yyyy from ---------------- sent to -------------------------------------------------------- cc ----------------------------------------------------------------------------------------------------------------- bcc subject re appeals officer question re refund claim i'm writing in response to your question about whether appeals can allow the tp claim after the years limitation to file suit has run it should first be noted that ccas do not have precedential value further the cca the taxpayer cites to does not address the sec_6514 question at hand here in answer to your question appeals cannot allow a claim_for_refund after the 2-year period for filing suit has expired although this is not consistent with 314_f3d_944 8th cir in a subsequent action on decision our office determined we would only acquiesce to that decision in the 8th circuit 314_f3d_944 8th cir action on dec date please let -------------------know if you have any questions or wish to discuss further best ---------- --- ------------------ --------------------------------------------------------- --------------- --------------------


internal_revenue_service number release date index number ---------------------------- ------------------- -------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ---------------- ----------------- telephone number ---------------------- refer reply to cc intl b02 plr-119723-14 date date ty ------- legend taxpayer firm stock exchange merchant bank central bank investment bank company company fc1 fc2 accountant accounting firm year year year year year year country x country y x y z ----------------------- ------------------ ------------------------------------- -------------------------------------- ----------------------------- ---------------------------------- ------------- ---------------------------- ----------------- ----------------------- -------------------------- --------------------- ----------------------------------- ------- ------- ------- ------- ------- ------- ------------ ----------------------- ---- ---- -- plr-119723-14 dear -------------- this is in response to a letter dated date submitted by taxpayer’s authorized representative that requested the consent of the commissioner of the internal_revenue_service commissioner for taxpayer to make a retroactive qualified_electing_fund qef election under sec_1295 of the internal_revenue_code code and sec_1_1295-3 with respect to taxpayer’s investment in fc1 the ruling contained in this letter is based upon information and representations submitted on behalf of taxpayer by his authorized representative and accompanied by a penalties of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of this request_for_ruling such material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts taxpayer is a u s citizen and a key_employee of firm an investment banking firm in country x firm is an active financial services business and is not a passive_foreign_investment_company pfic in year merchant bank in country y and firm’s employees took over firm in year firm was listed on stock exchange and merchant bank and firm’s employees sold down their ownership interests following a financial crisis in year firm was delisted underwent a recapitalization and was put up for sale in year company and company acquired firm at book_value in order to retain firm employees company and company structured a retention program in which key employees were offered the opportunity to co-invest in firm for administrative purposes company established two country x companies fc1 and fc2 as investment vehicles to raise capital from key employees to co-invest in firm simultaneously and at the same terms as company and company in year firm acquired investment bank in year taxpayer invested in fc in year company sold its entire holding in firm to company as a result of the restructuring fc1 and fc2 together owned x percent less than percent of firm company owned y percent and the former investment bank owners held z percent the promoters of the transaction did not seek u s tax_advice because most of the investors in fc1 are foreign taxpayers fc1’s only asset was its less than percent by value ownership_interest in firm it was therefore ineligible to look through to firm’s underlying income and assets pursuant to sec_1297 in determining whether fc1 was a pfic because fc1’s only asset was its passive investment in firm fc1 held only passive_assets from year to year plr-119723-14 for year taxpayer engaged accountant for preparation of his individual u s tax_return accountant a certified_public_accountant for more than years has significant experience advising on u s federal_income_tax matters including advising u s persons on u s federal_income_tax matters relating to owning stock in foreign_corporations taxpayer made available to accountant all information requested by accountant to provide tax_advice and to prepare taxpayer’s tax returns in year firm retained accounting firm in country x as an external advisor during a review of the tax consequences of the potential restructuring a senior officer of accounting firm raised the question of whether fc1 could be considered a pfic for u s tax purposes upon further review accounting firm informed taxpayer that fc1 is a pfic taxpayer has submitted an affidavit under penalties of perjury describing the events that led to the failure to make a qef election by the election due_date including the roles of accountant and accounting firm accountant has submitted an affidavit corroborating the representations made by taxpayer with respect to the failure to identify fc1 as a pfic taxpayer represents that as of the date of the request_for_ruling the pfic status of fc1 has not been raised by the irs on audit for any of the taxable years at issue ruling requested taxpayer requests the consent of the commissioner to make a retroactive qef election with respect to fc1 under sec_1_1295-3 retroactive to year law sec_1295 provides that a pfic will be treated as a qef with respect to a taxpayer if an election by the taxpayer under sec_1295 applies to such pfic for the taxable_year and the pfic complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company under sec_1295 a qef election may be made for any taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations such an election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic plr-119723-14 under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united_states government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe the events that led to the failure to make a qef election by the election due_date the discovery of such failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with taxpayer’s ruling_request we conclude that taxpayer has satisfied sec_1_1295-3 accordingly consent is granted to taxpayer to make a retroactive qef election with respect to fc1 for year provided that taxpayer complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any transaction or item discussed or referenced in this letter this private_letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this plr-119723-14 requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely jeffery g mitchell chief branch office of associate chief_counsel international


internal_revenue_service number release date index number ---------------------- -------------------------------------- ----------------------------- in re ----------------------------- ----------------------------- -------------------- --------------------------- department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b07 - plr-112436-04 date date ---------------------- ---------------------- -------------------- ----------------------- ----------------------------- legend x --------------------------------------------------- y z date date date date a dear ---- ----------- correspondence requesting relief under sec_1362 of the internal_revenue_code facts corporation effective date on date x transferred a shares of x to each of y and z on or about date x determined that due to its treatment of y’s and z’s shares and this letter responds to your letter dated date and subsequent according to the information submitted x elected to be treated as an s -------------------------- ------------------- ----- x represents that it did not intend to create a second class of stock as soon as sec_1361 provides that the term s_corporation means with respect to plr-112436-04 the terms of shareholder agreements entered into with y x may have inadvertently created a second class of stock in violation of the one class of stock requirement in sec_1361 on date x reacquired the shares transferred to z x realized the problem x amended its current shareholder agreement with y and undertook other corrective measures the amended shareholder agreement restricts the transferor of y’s shares and provides for a repurchase of the shares based upon the book_value of the shares the amended agreement does not restrict the shareholder’s rights to distributions x and its shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation as might be required by the secretary law and analysis any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for the year sec_1361 provides that for purposes of subchapter_s the term small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not among other things have more than one class of stock sec_1_1361-1 of the income_tax regulations provides that a corporation is generally treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds outstanding shares of stock confer identical rights to distribution and liquidation proceeds is made based on the corporate charter articles of incorporation bylaws applicable state law and binding agreements relating to distribution and liquidation proceeds collectively the governing provisions a commercial contractual agreement such as a lease employment agreement or loan agreement is not a binding agreement relating to distribution and liquidation proceeds and thus is not a governing provision unless a principal purpose of the agreement is to circumvent the one class of stock requirement although a corporation is not treated as having more than one class of stock so long as the governing provisions provide for identical distribution and liquidation rights any distributions including actual constructive or deemed distributions that differ in timing or amount are to be given appropriate tax effect in accordance with the facts and circumstances shareholders agreements restricting the transferability of stock and redemption agreements are disregarded in determining whether a corporation’s outstanding shares of stock confer identical rights unless a principal purpose of the agreement is to sec_1_1361-1 provides that buy-sell agreements among sec_1_1361-1 provides that the determination of whether all sec_1_1361-1 provides that bona_fide agreements to redeem or plr-112436-04 circumvent the one class of stock requirement and the agreement establishes a purchase_price that at the time the agreement is entered into is significantly in excess of or below the fair_market_value of the stock agreements that provide for the purchase or redemption of stock at book_value or at a price between fair_market_value and book_value are not considered to establish a price that is significantly in excess of or below the fair_market_value of the stock and thus are disregarded in determining whether the outstanding shares of stock confer identical rights purchase stock at the time of death divorce disability or termination of employment are disregarded in determining whether a corporation’s shares of stock confer identical rights sec_1362 provides that an election under sec_1362 will be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that the termination shall be effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such corporation shall be treated as an s_corporation during the period specified by the secretary conclusion that x’s s_corporation_election may have terminated on date because x may have had more than one class of stock however we conclude that if x’s s election was terminated the termination was inadvertent within the meaning of sec_1362 further we conclude that the amended shareholder agreement does not create a second class of stock under sec_1361 consequently we conclude that x will be treated as an s_corporation from date and thereafter unless x’s s_corporation_election otherwise terminates under sec_1362 based on the facts represented and the information submitted by x we conclude pursuant to the power_of_attorney on file with this office we are sending a copy of the rulings contained in this letter are based upon information and except as specifically set forth above no opinion is expressed or implied plr-112436-04 representations submitted by the taxpayer and accompanied by a perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination concerning the federal tax consequences of the facts described above under any other provision of the code in particular no opinion is expressed on whether x’s original s_corporation_election was a valid election under sec_1362 this letter to x and x’s second authorized representative the code provides that it may not be used or cited as precedent s david r haglund enclosures copy of this letter copy for sec_6110 purposes cc david r haglund senior technician reviewer branch associate chief_counsel passthroughs and special industries this ruling is directed only to the taxpayer requesting it sec_6110 of sincerely


internal_revenue_service department of the treasury number release date index number washington dc person to contact malcolm funn telephone number refer reply to cc te_ge eb hw-plr-113360-00 date date legend taxpayer state township statute dear this is in reply to a ruling_request dated date submitted on the taxpayer’s behalf concerning the federal_income_tax treatment of payments received as disability retirement the taxpayer a police officer was injured while working at the township target range his request for a work-related disability pension was approved by the township’s governing body sec_706 of the statute provides a if an officer is permanently disabled from performing police work for the township as a result of a service-connected disability then the officer shall receive a disability pension that is seventy-five percent of average monthly salary at the time of the determination that the disability plr-113360-00 is permanent offset by any payment for such disability under workmen’s compensation and further offset dollar-for-dollar by any income earned in excess 0f dollar_figure per year by the disabled officer from other employment subsequent to the commencement of the disability pension benefit this pension shall continue to be paid until a determination is made that the member is no longer permanently disabled or until the member’s death whichever occurs first sec_706 of the statute provides that any member of the township police department who shall suffer a service connected disability so as to render the member permanently disabled from performing police work for the township may upon application or on the application of one acting in the member’s behalf or upon application of the chief of police be retired on disability pension if the physician s designated by the board_of supervisors after a medical and or psychiatric examination certify to the board_of supervisors that the member is physically or mentally disabled from performing police work for the township and that the member should be retired sec_61 of the internal_revenue_code provides that except as otherwise provided by law gross_income means all income from whatever source derived including compensation_for services sec_104 of the code provides with certain exceptions not relevant in the instant case that gross_income does not include amounts received under workmen’s compensation acts as compensation_for personal injuries or sickness sec_1_104-1 of the income_tax regulations provides that sec_104 of the code excludes from gross_income amounts received by an employee under a workmen’s compensation act or a statute in the nature of a workmen’s compensation act that provides compensation to employees for personal injuries or sickness incurred during employment however sec_104 does not apply to a retirement pension or annuity to the extent that it is determined by reference to the employee’s age or length of service or the employee’s prior contributions even though the employee’s retirement is occasioned by an occupational injury or sickness the fact that the amount received as a disability retirement pension is computed with regard to the employee’s salary prior to retirement does not disqualify the pension from being in the nature of workmen’s compensation see revrul_85_104 1985_2_cb_52 revrul_75_500 1975_2_cb_44 and revrul_68_10 1968_1_cb_50 sec_706 and of the statute limit benefits to police officers who suffer service-connected disability and the benefits are not determined on the basis of age plr-113360-00 length of service or prior contributions thus sec_706 and are statutes in the nature of workmen’s compensation acts accordingly based on the representations made and authorities cited above we conclude that amounts received by the taxpayer under sec_706 and of the statute are excludable from his gross_income under sec_104 of the code except as specifically ruled above no opinion is expressed as to the federal_income_tax consequences of the transaction described under any other section of the code this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 of the code provides that it may not be used or cited as precedent sincerely felix zech assistant chief health welfare branch office of division counsel associate chief_counsel tax exempt government entities enclosure copy for sec_6110 purposes


office_of_chief_counsel department of the treasury internal_revenue_service washington d c date number info release date conex-104207-09 uil the honorable howard l berman member u s house of representatives hamlin street suite van nuys ca dear congressman berman this letter responds to your inquiry dated date on behalf of your constituent ----------------------------------- ------------------asked about the tax treatment of investor losses arising from ----------------------------------------------------------------------------- --------- in particular he asked whether we will allow taxpayers to amend returns in closed years to claim refunds of taxes paid on income reported from these investments ----------------was allegedly operating a large scale ponzi scheme if this allegation is true investors may qualify to claim a theft_loss deduction generally the law considers investor losses from a ponzi scheme as arising from theft theft generally includes the taking of money or property through blackmail burglary embezzlement extortion kidnapping for ransom larceny robbery fraud or misrepresentation the taking of property must be illegal under the law of the state where it occurred and carried out with criminal intent we are closely following developments relating to the allegations against --------------- we are aware of questions about the ability of taxpayers to amend returns to remove previously reported phantom earnings as further information develops we will be in a better position to advise ------------------on the tax consequences of these issues in the meantime the rules for reporting losses arising from theft are in publication casualties disasters and thefts for your convenience i am enclosing a copy of the publication conex-104207-09 i hope this information is helpful if you have further questions please call me or -------- --------------------- at ----- ------------- sincerely john p moriarty chief branch income_tax and accounting enclosure


internal_revenue_service number release date index number ------------------------------- ---------------------------------------------------- -------------------------------------------- ------------------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-111365-11 date date legend legend x y --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ----------------------- country ------ date ------------------- dear ---- ------------ this responds to a letter dated date submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a disregarded_entity the information submitted states that x was formed as a company under the laws of country and is wholly-owned by y x represents that as a foreign eligible_entity x intended to elect to be treated as a disregarded_entity effective date however x inadvertently failed to timely file a form_8832 entity classification election sec_301_7701-3 of the income_tax regulations provides that an eligible_entity with at least two members may elect to be classified as either an association and thus a corporation under sec_301_7701-2 or as a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 further provides that so long as a business_entity is not classified as a corporation under sec_301_7701-2 or an eligible_entity it may elect its classification for federal tax purposes plr-111365-11 sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days following the date of this letter to file form_8832 and to elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose this ruling is contingent on the owner of x filing within days of this letter all required returns and amended income_tax returns consistent with the requested relief being effective date to the extent appropriate these returns must include but are not limited to forms information_return of u s persons with respect to disregarded plr-111365-11 entities such that these forms and returns reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely associate chief_counsel passthroughs and special industries ________________________________ by melissa c liquerman chief branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc intl br2-plr-113781-98 date date legend a country b date c date d date e date f date g this is in response to a letter dated date submitted by a’s authorized representative requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of lawful permanent u s resident status did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code additional information was submitted in letters dated date and date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination a was born in country b on date c a moved to the united_states in date d a became a lawful permanent resident_of_the_united_states in date e a moved back to country b on date f and has lived there ever since a relinquished his u s lawful plr-113781-98 permanent resident status expatriated on date g a and a’s parents were born in country b on the date of a’s expatriation a’s net_worth exceeded the net_worth required under sec_877 sec_877 generally provides that a citizen who loses u s citizenship or a u s long- term resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be subject_to the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long-term_resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former u s citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_27_irb_30 modifying notice_97_19 1997_1_cb_394 a former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_97_19 because he is described in two categories of individuals eligible to submit ruling requests first on the date of a’s expatriation a was and continues to be a resident fully liable to income_tax in country b the country where a was born second a is eligible to submit a request because on the date of his expatriation a was and continues to be a resident fully liable to tax in country b the country where his parents were born a submitted all the information required by notice_97_19 as modified by notice_98_34 plr-113781-98 including any additional information requested by the service after review of the submission accordingly based solely on the information submitted and the representations made it is held that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 therefore a will not be presumed to have as one of his principal purposes for expatriating the avoidance of u s taxes however because the information submitted does not clearly establish the existence or lack of a principal purpose to avoid taxes under subtitle a or b of the code no opinion is expressed as to whether a’s expatriation had for one of its principal purposes the avoidance of such taxes while this ruling rebuts the presumption of tax_avoidance under sec_877 it is not conclusive as to whether a subsequently may be found to have a principal purpose of tax_avoidance under sec_877 sec_2107 and sec_2501 based on all the facts and circumstances see sec_877 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a’s u s tax_liability for taxable periods prior to his loss of permanent residence status or for taxable periods after his loss of permanent residence status under sections of the code other than sec_877 sec_2107 and sec_2501 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a’s authorized representative sincerely _______________________ allen goldstein office of the associate chief_counsel international


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b02-plr-112770-01 date date x y a b c d e f court trust trust trust trust plr-112770-01 trust trust trust trust trust trust trust trust trust trust trust state z d e f year plr-112770-01 year year g h i j accountant busine sec_1 busine sec_2 dear this is in reply to your letter dated date and prior correspondence submitted on behalf on x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x a state z corporation was incorporated on d x is engaged in busine sec_1 x owns percent of the issued and outstanding_stock of y a state z corporation engaged in busine sec_2 the current shareholders of x are a_trust trust trust trust trust trust trust trust trust trust trust trust trust trust and trust prior to e x and y joined in filing a consolidated federal_income_tax return on f x filed a timely form_2553 election by a small_business_corporation for the purpose of treating x as an s_corporation effective e also on f x timely filed a form_966 corporate dissolution or liquidation pursuant to notice_97_4 1997_1_cb_351 for the purpose of treating y as a qualified_subchapter_s_subsidiary qsub within the meaning of sec_1361 effective e prior to year the shareholders of x included a b c and d and trust sec_1 - which respectively benefitted seven members of a’s family in year x’s counsel d drafted trusts - for the same seven beneficiaries respectively trusts -14 were funded with x stock in year and year plr-112770-01 shortly before the filing of x’s s_corporation_election and the qsub election for y accountant and x asked e an attorney and advisor to x to review the chart accountant had prepared to verify that it represented e’s understanding of the ownership of x as of both h the day before the s_corporation_election was to be effective and as of i the date such verification was requested e verified in writing that the chart was accurate as a result when accountant prepared the form_2553 for x it believed that there were only seven trusts that were shareholders in x b the trustee of trust sec_1 - signed the consent statement to the form_2553 seven times for the trusts referencing only the beneficiary of each trust on the consent statement in addition seven electing_small_business_trust esbt elections were filed x and its shareholders reviewed the election forms and believed them to be accurate as a result of having made the s_corporation and esbt elections income_tax returns were required to be filed for the trusts for x’s taxable_year ending g this was the first time that these trusts were required to file income_tax returns because x had never declared dividends while x was a c_corporation and the trusts had no assets other than x stock in april of year while preparing the tax returns for trusts accountant realized for the first time that the trusts had been drafted as separate entities and should file separate tax returns and advised x of this determination a hired an attorney f to look at the trusts in light of this issue after a review of the trusts f determined that trust sec_1 - were separate legal entities under state z law and discovered various scrivener errors with trusts - that were in need of correction on j court issued an order correcting the scrivener errors upon further review of x’s s_corporation and esbt elections accountant discovered various additional errors described in the request a as x’s president represents that at all times since e x has treated itself as an s_corporation and treated y as a qsub a represents that the invalid s_corporation_election was inadvertent and was not motivated by tax_avoidance or hindsight a further represents that x intended to be an s_corporation effective e and that x intended for y to be a qsub effective as of e x and its shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary with respect to the period specified by sec_1362 sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that for purposes of subchapter_s the term small_business_corporation means a domestic_corporation that is not an ineligible plr-112770-01 corporation and that does not have as a shareholder a person other than an estate and other than a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for purposes of sec_1361 the term ineligible_corporation means any corporation which is a a financial_institution which uses the reserve_method of accounting for bad_debts described in sec_585 b an insurance_company subject_to tax under subchapter_l c a corporation to which an election under sec_936 applies or d a disc or former_disc sec_1361 provides that except as provided in regulations prescribed by the secretary for purposes of title_26 i a corporation which is a qualified_subchapter_s_subsidiary shall not be treated as a separate corporation and ii all assets liabilities and items of income deduction and credit of a qualified_subchapter_s_subsidiary shall be treated as assets liabilities and such items as the case may be of the s_corporation sec_1361 provides that for purposes of sec_1361 the term qualified_subchapter_s_subsidiary means any domestic_corporation which is not an ineligible_corporation as defined in sec_1361 if i percent of the stock of such corporation is held by the s_corporation and ii the s_corporation elects to treat such corporation as a qualified_subchapter_s_subsidiary sec_1361 provides that for purposes of sec_1361 and except as provided in sec_1361 the term electing_small_business_trust means any trust if-- i such trust does not have as a beneficiary any person other than i an individual ii an estate or iii an organization described in paragraph or of sec_170 which holds a contingent_interest and is not a potential_current_beneficiary ii no interest in such trust was acquired by purchase and iii an election under sec_1361 applies to such trust in notice_97_12 1997_1_cb_385 the service provided guidance regarding esbt elections in particular the trustee of an esbt must file the esbt election within the time requirements prescribed in sec_1_1361-1 of the income_tax regulations for filing qualified_subchapter_s_trust elections generally within the 16-day-and-2- month period beginning on the day that the stock is transferred to the trust sec_1362 provides that an election under sec_1362 will be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that any termination under sec_1362 shall be effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined plr-112770-01 without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in such ineffectiveness or termination was inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary based solely on the information submitted and the representations made we conclude that x's s_corporation_election was ineffective for the taxable_year beginning on e we also conclude that the ineffectiveness of x's s_corporation_election was an inadvertent invalid election within the meaning of sec_1362 pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation effective e and thereafter and y will be treated as a qsub effective e and thereafter provided that apart from the events and errors described above x's s_corporation_election was otherwise valid and is not otherwise terminated under sec_1362 and the qsub election for y was otherwise valid and not terminated under sec_1361 in addition trust sec_1 though will be treated as shareholders of x for the period effective e trust sec_1 through will be treated as electing small_business trusts under sec_1361 beginning on e x’s shareholders must include their pro_rata share of the separately and nonseparately computed items of x as provided in sec_1366 make any adjustments to stock basis as provided in sec_1367 and take into account any distributions made by x to shareholders as provided in sec_1368 if x or its shareholders fail to treat x as described above this ruling will be null and void these rulings are conditioned on x within days of the date of this letter filing a new form_2553 with the appropriate service_center with an effective date of e furthermore an esbt election for each of trust sec_1 - pursuant to the procedures set forth in notice_97_12 must be filed with the appropriate service_center within days of the date of this letter_ruling a copy of this letter should be attached to the new form_2553 and the esbt elections except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code plr-112770-01 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter will be sent to x’s authorized representative sincerely yours matthew lay senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number u i l no washington dc person to contact telephone number refer reply to cc dom p si plr-108856-99 date date number release date legend company state a corp x a b c this letter responds to a letter dated date requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a under the laws of state company made an election to be an s_corporation effective for its tax_year beginning on b company currently has several shareholders all of whom company represents are eligible s_corporation shareholders on c company acquired in a taxable purchase all of the assets of corp x for a purchase_price set in the corporations’ asset purchase agreement in addition to the stated purchase_price sec_3_7 of the agreement provided that shares of company stock are to be issued to corp x’s controlling shareholder a as additional consideration for the purchase of the assets accordingly company transferred shares of its stock to the individual shareholder of corp x as part of the asset purchase plr-108856-99 price in connection with a recent refinancing transaction company learned of the effect of the transfers on its s election company then began preparing its request for inadvertent termination relief company represents that there was no tax_avoidance or retroactive tax planning involved in the termination in addition company represents that the termination occurred because of the lack of knowledge of the shareholder eligibility rules for s_corporations sec_1361 defines the term s_corporation as with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect sec_1361 defines a small_business_corporation as a domestic_corporation that is not an ineligible_corporation and that among other requirements does not have as a shareholder a person other than an estate and other than a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1362 provides that an election to be an s_corporation shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation sec_1362 provides that the termination shall be effective on or after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary for that period then notwithstanding the circumstances resulting in termination the corporation shall be treated as an s_corporation during the period specified by the secretary after applying the relevant law to the facts submitted and the representations made we conclude that company’s s_corporation_election terminated on c as a result of the transfer of company stock to corp x we also conclude that the termination was inadvertent within the meaning of sec_1362 we further conclude that under the provisions of sec_1362 company will be treated as an s_corporation on c and thereafter provided company had a valid s plr-108856-99 corporation election and that election was not otherwise terminated under sec_1362 a will be treated as the shareholder of company for the shares held momentarily by corp x during the termination period accordingly all shareholders of company in determining their respective income_tax liabilities must take into account their pro_rata shares of the separately and nonseparately computed items of company under sec_1366 makes adjustments to stock basis under sec_1367 and take into account any distributions made by company under sec_1368 if company or the shareholders fail to treat company as described above this ruling shall be null and void except as specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing facts specifically we express no opinion on whether company otherwise qualifies as an s_corporation this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours jeff erickson assistant to the chief branch office of the assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes