internal_revenue_service national_office technical_advice_memorandum date number release date index uil no case mis no tam-107878-99 cc dom it a b3 district_director taxpayer’s name taxpayer’s address taxpayer’s identification no years involved date of conference legend tribe tax_year law x issue whether benefits provided to tribal members through various programs administered by the education department of the tribal government of tribe are taxable to the recipients and subject_to income_tax_withholding under sec_3402 of the internal_revenue_code conclusion benefits provided to tribal members through various programs administered by the education department of the tribal government of tribe are not per capita payments and are not subject_to income_tax_withholding under sec_3402 of the code facts tribe is a federally recognized indian_tribe under law the members of tribe are governed by an elected tribal council election terms responsibilities and duties of the tribal council are set forth in the tribe’s constitution and by-laws which can be amended only by a two-thirds vote of eligible voters in the tax_year at issue the tribe had approximately x enrolled members tam-107878-99 tribe operates various commercial enterprises including a casino tribe conducts both class ii and class iii gaming operations pursuant to the indian gaming regulatory act u s c et seq igra generally income from the casino is the primary source of funding for tribe’s government tribe provides basic government services consistent with those provided by state and local governments those services include education public safety including police and fire protection tribal court system social services public works health services housing authority parks and recreation cultural resources and a museum tribe’s education department provides essential educational and developmental services to its members through multiple educational programs these programs are designed by tribe to meet the varying educational needs of the members and are administered without regard to the financial needs of the student tribe received several federal grants that covered a portion of the costs of the programs at issue the relevant programs administered by tribe’s education department are child development center-tribe’s child development center provides age-appropriate education for tribal children from infancy through kindergarten the infant toddler program is centered on sensorial experiences and the environment is structured to provide a variety of motor and sensory experiences the pre-kindergarten and kindergarten programs integrate cognitive physical and affective development these programs provide math language science and social studies along with media to build visual auditory and motor skills and to develop memory the center also provides programs for special needs children within its existing programs after completing kindergarten most tribal children enter public elementary schools in the surrounding communities some children are enrolled at the center by order of the tribe’s child protective service temporary educational instructors-tutoring programs are available to tribal youth and adult members to provide remedial instruction these programs were developed due to the large number of tribal members who had not completed their formal education tutoring and adult education are available to help members obtain a high school general equivalency degree ged college preparatory assistance after-school tutoring and life skills classes summer youth program-tribe maintains a program for tribal children which began as a safe house with 24-hour supervision for children age sec_5 to who are in need of care or who have been removed from their homes for their protection as part of that program some children are taken to the mountains during the summer many of the children in the program formerly resided in an inner-city environment the program provides a stable environment recreational activities and the opportunity for the individual child to develop a sense of self-worth respect for others and leadership skills the summer program was within the scope of a johnson-o’malley grant administered by the bureau of indian affairs u s c sec_452 et seq tam-107878-99 room and board at residential schools-during tax_year payments of room and board were made to two secondary schools on behalf of several tribal youths the schools specialized in providing highly structured residential living for students with learning disabilities and other special needs upon audit the revenue_agent took the position that the amounts paid_by tribe for the above programs were distributions of net_revenues of class ii or iii gaming activities subject_to_withholding by tribe in accordance with sec_3402 of the code law sec_2703 of igra classifies gaming activities conducted by indian tribes class i gaming activities are social games solely for prizes of minimal value or traditional forms of indian gaming engaged in as part of tribal ceremonies class ii gaming activities generally are bingo_games similar to bingo eg pull tabs punch boards tip jars and instant bingo and card games either explicitly authorized by the state or not explicitly prohibited by the state played at any location in the state and conducted in conformity with any state regulations regarding periods of operation or wagering limitations class ii gaming activities do not include any banking card games eg baccarat chemin de fer or blackjack slot machines or any electronic or electromagnetic facsimiles of games of chance class iii gaming activities are all forms of gaming that are not classified as class i or class ii section b b of igra provides a listing of authorized uses of the net_revenues from class ii and class iii gaming activities conducted by indian tribes i to fund tribal government operations or programs ii to provide for the general welfare of the indian_tribe and its members iii to promote tribal economic development iv to donate to charitable organizations or v to help fund operations of local_government agencies section d section b of igra provides that the net_revenues from class ii and class iii gaming activities may be used to make per capita payments to members of the indian_tribe only if the indian_tribe has prepared a plan to allocate revenues to uses authorized by paragraph b section b also provides that per capita payments are subject_to federal taxation and the tribes must notify members of such tax_liability when payments are made section d sec_3402 of the internal_revenue_code provides- every person including an indian_tribe making a payment to a member of an indian_tribe from the net_revenues of any class ii or class iii gaming activity conducted or licensed by such tribe shall deduct and withhold from such payment a tax in an amount equal to such payment’s proportionate share of the annualized_tax tam-107878-99 sec_3402 was added to the internal_revenue_code by the uruguay round agreements act pub_l_no sec_701 house of representatives report no part 103rd cong 2d sess 1995_1_cb_250 which accompanied the act states present law net revenue from certain gaming activities conducted or licensed by an indian_tribe may be used to make taxable_distributions to members of an indian_tribe the tribe must notify it members of the tax_liability at the time the payments are made u s c b and d the tribe is not required to withhold on such payments except to the extent backup withholding rules apply under sec_3406 reasons for change distributions of net_revenues from gaming activity by an indian_tribe may result in significant tax_liability to the tribe’s members establishing withholding on such payments will more closely match estimated_tax payments to ultimate tax_liability for some tribal members this change may eliminate the need to make quarterly estimated_tax payments for others it will reduce the likelihood that they will face penalties for underpayment_of_tax at the time of tax filing sec_7701 of the code provides the term indian_tribal_government means the governing body of any tribe band community village or group of indians or if applicable alaska natives which is determined by the secretary after consultation with the secretary of the interior to exercise governmental functions analysis tribe’s programs at issue child development center temporary education instructors summer youth program and room and board at residential schools are all administered by its education department and are part of the department’s educational_services to tribal members the facts presented show that tribe provides the programs to meet educational needs of tribal members nothing indicates that tribe provides the programs to distribute net_revenues from gaming to tribal members generally direct distributions are not made under these programs to tribal members nor are these educational benefits provided under a constructive distribution program for example where tribal members select benefits that tribe pays for tribe’s position is that its educational_services including the programs at issue are basic governmental services and provide substantially_similar benefits to those provided by federal state and local tam-107878-99 government educational programs after review of the facts with respect to these programs we agree sec_7701 of the code defines indian tribal governments as governing bodies of indian tribes and recognizes that these bodies exercise governmental functions in general where indian tribal governments act in this capacity to provide the types of benefits traditionally provided by a government to its citizens for example as in the present case providing a full array of educational benefits to the children of the community tax treatment should be analogous section b of igra lists authorized uses by indian tribes of the net_revenues from class ii and class iii gaming activities section b and section d of igra provide that net_revenues from class ii and class iii gaming activities may be used to make per capita payments to members of the indian_tribe only if the tribe has prepared a plan to allocate revenues to uses authorized by section b b including funding tribal government operations or programs section b and section d state that per capita payments are subject_to federal taxation and that the tribe must notify members of their tax_liability for per capita payments when such payments are made sec_3402 of the internal_revenue_code requires the tribe to withhold income_tax on such per capita payments h_r rep no part 103rd cong 2d sess 1995_1_cb_250 these provisions which are intended to ensure adequate withholding on taxable benefits arising from the distribution of net_revenues from class ii or class iii gaming activities are not intended to and do not operate to extend the scope of what is taxable thus withholding under sec_3402 is not imposed merely by reason of the benefits being sourced in class ii or class iii gaming activities but rather by reason of the benefits being taxable_income in the form of a payment described in sec_3402 because the described benefits are neither but are rather the type of benefit routinely provided by government entities and are being provided in the present case by the indian_tribal_government in its governmental capacity they do not result in income to the recipients or give rise to withholding under sec_3402 caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 4-plr-113119-03 date august re legend decedent date date date date dear this responds to your letter dated date on behalf of decedent’s estate requesting an extension of time under sec_301_9100-1 of the procedure and administration regulations to make an alternate_valuation election under sec_2032 of the internal_revenue_code the facts are submitted and represented to be as follows decedent died on date and the co-executors of decedent’s estate timely filed form_706 united_states estate and generation-skipping_transfer_tax return on date however the executors did not make the election under sec_2032 to value the estate as of the alternate_valuation_date on date the tax_return_preparer of form_1041 u s income_tax return for estates and trusts for the decedent’s estate reviewed the form_706 and determined that the election under sec_2032 should have been made on the return by affidavit the tax_return_preparer of the form_706 stated that he failed to consider the effect of the election for alternate_valuation by the estate at the time he prepared the return and did not discuss the election with either co-executor at any time prior to the return being filed subsequently the co-executors were advised that the election under plr-113119-03 sec_2032 should have been made on the original form_706 a supplemental form_706 reflecting the value of all assets included in the gross_estate as of the applicable alternate_valuation_date was received on date more than months after the due_date of the original form_706 thus the supplemental form_706 was not filed in time to take advantage of the automatic 6_month extension provided under sec_301_9100-2 the filing was however within one year of the due_date of the original form_706 the value of the gross_estate and the amount of federal estate_tax due are less than the value of the gross_estate and the amount of federal estate_tax due on the original form_706 sec_2032 provides that the value of the gross_estate may be determined if the executor so elects by valuing all the property included in the gross_estate as follows in the case of property distributed sold exchanged or otherwise_disposed_of within months after the decedent's death such property shall be valued as of the date of distribution sale exchange or other_disposition in the case of property not distributed sold exchanged or otherwise_disposed_of within months after the decedent's death such property shall be valued as of the date months after the decedent's death any interest or estate which is affected by mere_lapse_of_time shall be included at its value as of the time of death instead of the later date with adjustment of any difference in its value as of the later date not due to mere_lapse_of_time sec_2032 provides that no election may be made under sec_2032 with respect to an estate unless such election will decrease the value of the gross_estate and the sum of the tax imposed under chapter of the internal_revenue_code and the tax imposed by chapter with respect to property includible in the decedent's gross_estate reduced by credits allowable against such taxes sec_2032 provides that an election under sec_2032 shall be made by the executor on the return of tax imposed by sec_2001 such election once made shall be irrevocable under sec_2032 no election may be made under sec_2032 if such return is filed more than year after the time prescribed by law including extensions for filing such return under sec_301_9100-1 of the procedure and administration regulations 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 if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer has acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 plr-113119-03 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made the standards of sec_301_9100-1 and sec_301_9100-3 have been satisfied consequently an extension of time for making the alternate_valuation election under sec_2032 is granted until date the date the supplemental form_706 was received a copy of this letter should be attached to a copy of the supplemental form_706 and sent to the internal_revenue_service center cincinnati oh except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer 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 heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes cc


internal_revenue_service number release date index number - ---------------------------------------------------------- ------------------------------------------------------------ -------------------- --------------------------- ----------------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------ telephone number -------------------- refer reply to cc tege eoeg teb presp-144257-06 date date dear ---------------- pursuant to sec_54 of the internal_revenue_code the code and notice_2005_98 2005_52_irb_1211 and after review of your application submitted on date including supplements thereto we have determined that the projects described in appendix a attached hereto are qualified for purposes of sec_54 and will be owned by one or more qualified borrowers we allocate authority to ----------------- -------------------------------------------------- the issuer a qualified issuer under sec_54 to issue up to dollar_figure------------- of clean renewable energy bonds crebs bonds issued pursuant to this allocation must be designated by the issuer as bonds for purposes of sec_54 for the projects described in appendix a up to the amount allocated for each project described in appendix a bonds so designated must be issued on or before date please be aware that in order for bonds to be crebs the applicable_requirements of the code including without limitation sec_54 notice_2005_98 and notice_2006_7 2006_10_irb_559 must be met please note that creb proceeds may be used to reimburse capital expenditures paid_by qualified borrowers for qualified projects only if the provisions of sec_54 are met if you have any questions with respect to this allocation please contact --------------------- ------------------------------------------------------------------------------------------------------------------- - -------- or ----------------------------of the office of division counsel associate chief_counsel tax-exempt and government entities on --------------------- not a toll-free call 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 presp-144257-06 for purposes of the renewable_electricity_production_credit under sec_45 of the code no inference may be drawn from this allocation that any project listed in appendix a is a qualified_facility or that electricity to be produced at such project s is electricity from a qualified_energy resource at a qualified_facility within the meaning of sec_45 this determination is directed only to the applicant named above sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any form 8038-g information_return for tax- exempt governmental obligations filed for bonds issued pursuant to this allocation the allocation contained in this letter is based upon information and representations submitted by the applicant for the creb allocation 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 application_for an allocation it is subject_to verification on examination sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-144257-06 borrower name appendix a project type project location --------------------------------- ------------------------- solar_energy_facility --------------------------------- ------------------------- solar_energy_facility --------------------------------- ------------------------- solar_energy_facility --------------------------------- ------------------------ solar_energy_facility -------------------------------- ------------------ -------------------------------- ----------------------------- -------------------------------- ---------------- -------------------------------- ----------------------------- amount allocated dollar_figure----------- dollar_figure----------- dollar_figure----------- dollar_figure------------- total dollar_figure---------------


internal_revenue_service national_office technical_advice_memorandum date number release date third party contact index uil no case-mis no director field operations ------------------------ tam-171120-03 cc ita b03 taxpayer's name taxpayer's address taxpayer's identification no years involved date of conference ------------------------------------ ------------------------------------ ------------------------------- ---------------- ------- ------------------ legend -------------------------------------------- taxpayer subsidiary -------------------------------------------------------- businesses --------------------------- a b c year year year year date date date date date date date date date date ------- ----------------------- ---------------------- ------- ------- ------- ------- ---------------------- --------------- ---------------------- ----------------------- --------------------------- ----------------------- ---------------------- ---------------------- ----------------------- ----------------------- tam-171120-03 date date date employee amount a amount b amount c amount d amount e amount f amount g amount h amount i amount j amount k amount l amount m amount n amount o amount p amount q amount r amount s amount t amount u amount v amount w amount x amount y -------------------- --------------------------- ------------------------ -------------------- ---------------- ----------------- ------------------ ---------------- ---------------- ---------------- ---------------- ------------------ -------- -------------- ---------------- ------------------ ------------------ ----------------- ----------------- ------------------ -------------- ------------------ ------------------ ------------------ ------------------ ---------- ------------------ ----------------- ------------------ issues whether any portion of a lump-sum settlement payment made to settle claims arising under the false claims act u s c constitutes a nondeductible fine or penalty within the meaning of sec_162 of the internal_revenue_code whether any portion of a lump-sum settlement payment made to settle claims arising under the false claims act constitutes compensatory_damages attributable to costs incurred by the government while investigating and settling the alleged false claims eg investigation costs amounts paid to relator and pre-settlement interest tam-171120-03 conclusions under the facts and circumstances of this case amount s constitutes a on date employee of subsidiary filed a qui tam action against subsidiary under the facts and circumstances of this case no portion of the lump-sum during the years at issue taxpayer’s subsidiary owned and operated numerous nondeductible fine or penalty pursuant to sec_162 settlement payment in excess of amount y constitutes compensatory_damages facts businesses which performed a wide range of tests on a and b in year the united_states began to suspect that subsidiary and other businesses had billed the united_states for unauthorized and unnecessary c as a result the united_states began an investigation of subsidiary under the false claims act u s c fca under the fca two other qui tam actions were filed subsequently against subsidiary and were consolidated with the first qui tam action after each qui tam action was filed the government widened the scope of its investigation to a series of new claims that had not been part of its original investigation letter setting out the framework for these settlement discussions attorneys for the government provided an initial estimate of the government’s damages for losses_incurred by one federal_agency of amount a and stated that they settle false claims act cases prior to litigation for a sum equal to triple damages with appropriate penalties the letter then provided detailed descriptions of the amount and types of the government’s estimated actual damages from date to date subsidiary’s attorneys met with attorneys and investigators for the united_states at least monthly in a the fca encourages private citizens to assist in the detection of fraud against the government by providing that a private citizen with knowledge of fraud may file suit against the wrongdoer on the government’s behalf and to retain a portion of any recovery whether or not the government intervenes and takes over prosecution of the action u s c d the qui tam plaintiff’s share of any recovery is calculated based on a sliding scale of to of the settlement or judgment proceeds depending on whether the qui tam plaintiff was an original source of information the amount of assistance he or she provided to the government in the investigation or prosecution of the case and whether or not the government intervenes and takes over prosecution of the action see u s c d a person who files a qui tam lawsuit under the act is called a relator the fca allows the government to recover multiple damages--three times the amount of its actual damages plus a fixed penalty of not less than dollar_figure and not more than dollar_figure per claim and its costs u s c a amounts in excess of the government’s actual damages are referred to in this ruling as multiple damages on date the government and subsidiary began settlement discussions in a tam-171120-03 series of settlement meetings representatives of the agencies that had been billed for allegedly unauthorized and unnecessary c attended these meetings and also participated in the government’s investigation to determine the amount of their actual damages during a meeting on date the government reiterated its initial estimate of actual damages amount a and subsidiary countered with a settlement proposal of amount b representing subsidiary’s own estimate of the government’s actual damages by date the government increased its actual damages estimate slightly to amount c and included in this amount estimated actual damages sustained by other agencies that had also been harmed by subsidiary’s conduct during a date meeting the government reduced its total settlement demand actual damages trebled in accordance with the recovery allowed by statute for the first time from amount d to amount e on date the government further reduced its total settlement demand to amount f during the next month the parties reached a preliminary oral agreement on a total settlement figure of amount g during this time period the government circulated a spreadsheet detailing how the amount g settlement proceeds would be allocated between compensatory and punitive_damages according to this spreadsheet amount h in compensatory_damages would be allocated to the agencies harmed by subsidiary’s conduct and the balance of the proposed settlement proceeds represented multiple damages of amount i times the amount of compensatory_damages on each category of claims according to a letter written by the attorney who negotiated the settlement on behalf of the federal government this spreadsheet was prepared before the settlement amount was finalized in order to obtain the consent of the affected agencies because these agencies would only be entitled to receive reimbursement of the compensatory_damages allotted to them in the settlement it was important for each affected agency to approve the total settlement amount and its respective share of compensatory_damages during the process of obtaining agency approval of the proposed settlement amount the government realized that its actual damages estimate was based on figures for periods before date the government brought this issue to subsidiary’s attention and over the next several months the parties negotiated an additional_amount j to resolve claims arising after date the parties agreed that amount j represented compensatory_damages only with no additional_amount for multiple damages the additional_amount j brought the total settlement figure to amount k on date the government including each harmed agency subsidiary and the relators signed a settlement agreement and release reflecting the oral agreement reached on date pursuant to this settlement agreement subsidiary agreed to pay the amount k in exchange for the government’s release of all present and future liability for all of the conduct underlying the government’s fca investigation the settlement agreement provides that subsidiary specifically denied any wrongdoing or liability in connection the parties never discussed the issue of the separate per-claim fixed penalty and the settlement agreement does not appear to include any allotment for such a penalty the settlement funds of amount k had been placed in a court-supervised tam-171120-03 with the claims asserted by the government it further does not allocate the lump sum payment of amount k between the government’s specific claims nor characterize it for purposes of the internal_revenue_code interest-bearing escrow account pending final execution and court approval of the settlement agreement while the settlement proceeds were held in this escrow account they earned interest and the fund increased from amount k to amount l on date the court ordered disbursement of the settlement proceeds including the earned interest the government disbursed a total of amount m plus interest to the affected agencies including several state agencies a dispute had arisen between the government and two of the relators regarding their appropriate share of the settlement proceeds this issue was litigated and ended with a separate settlement agreement under which the government agreed to pay these relators a total of amount n the balance of the settlement proceeds amount o was placed in an account for future law enforcement usage taxpayer deducted the full amount k settlement payment on its consolidated_income_tax_return for year taxpayer contends that the full amount k is deductible under sec_162 of the internal_revenue_code as an ordinary and necessary business_expense the field argues that amount p of the settlement payment is not deductible because this amount represents multiple damages and constitutes a fine or other similar penalty within the meaning of sec_162 law and analysis sec_162 and sec_162 sec_162 allows a deduction for all ordinary and necessary expenses paid_or_incurred by a taxpayer in carrying_on_a_trade_or_business an amount expended by a taxpayer engaged in a trade_or_business to settle litigation may be deductible as an ordinary and necessary business_expense see e g 302_f2d_481 2d cir 37_tc_845 acq 1962_2_cb_5 because deductions are a matter of legislative grace a taxpayer must show that it comes squarely within the terms of the law conferring the benefit sought 503_us_79 prohibits the deduction of any fine or other similar penalty paid to the government for the violation of any law sec_1_162-21 defines a fine or other similar penalty to include any amount i paid pursuant to a conviction or a plea of nolo contendre for a crime in a criminal proceeding ii paid as a civil penalty imposed by federal state or local law iii paid in settlement of the taxpayer’s actual or potential liability for a fine or penalty civil or criminal or iv forfeited as collateral posted in sec_162 must be read in conjunction with sec_162 however which sec_162 enacted in was intended to codify the public policy grounds tam-171120-03 connection with a proceeding which could result in imposition of such a fine or penalty the regulations further provide that compensatory_damages paid to a government do not constitute a fine or penalty sec_1_162-21 previously used by courts to deny deductions for fines_or_penalties if allowing the deduction would frustrate a sharply defined national or state policy joint_committee_on_internal_revenue_taxation general explanation of the tax reform act of pincite jcs-16-70 date 356_us_30 denying trucking company’s claimed deduction for payment of penalties for violating state maximum weight laws because such a deduction would frustrate a sharply defined state policy to protect its highways from damage and to insure the safety of all persons using them the purpose of this public policy doctrine was to prevent favorable tax treatment from blunting the sting of a validly imposed penalty by allowing the taxpayer a deduction for federal_income_tax purposes 36_tc_173 thus the service and the regulations follow the prior case law adopting the public policy doctrine and distinguish between punitive and compensatory payments when a civil settlement payment is at issue it is first necessary to determine whether the payment constitutes a fine or penalty or some other type of damages if the payment does constitute a fine or penalty then the purpose of the payment must be analyzed to determine whether it is punitive or remedial in nature because only punitive fines fall within the scope of sec_162 t he congress by use of the word similar as in fine or other similar penalty was not intending to distinguish between criminal and civil sanctions but rather was intending to make a distinction between different types of civil penalties if a civil penalty is imposed for purposes of enforcing the law and as punishment for the violation thereof its purpose is the same as a fine exacted under a criminal statute and it is similar to a fine however if the civil penalty is imposed to encourage prompt compliance with a requirement of the law or as a remedial measure to compensate another party for expenses_incurred as a result of the violation it does not serve the same purpose as a criminal fine and is not similar to a fine within the meaning of sec_162 s pac transp co v commissioner 75_tc_497 thus under the punitive vs remedial test a payment imposed for purposes of enforcing the law or as punishment for its violation is not deductible while a payment tam-171120-03 imposed as a remedial measure to compensate the government or another party is deductible even if it is labeled as a fine or penalty see eg 116_f3d_382 9th cir 708_f2d_1043 6th cir 72_tc_1136 revrul_88_46 1988_1_cb_76 nonconformance penalty assessed by the environmental protection agency falls outside of the scope of sec_162 because it is not punitive in nature in order to determine the purpose of a payment under the punitive vs remedial test courts first look to legislative intent including the language of the statute or ordinance in question its legislative_history and other court decisions construing the statute or ordinance mason and dixon lines inc v united_states f 2d pincite 80_tc_804 if it is unclear whether a statute imposing a penalty serves punitive or compensatory purposes or if the statue serves both purposes it is necessary to determine which purpose the payment was intended to serve talley indus inc v commissioner f 3d pincite 73_tc_1226 middle atlantic distributors v commissioner t c pincite in order to evaluate the parties’ intent courts and the service look to the facts and circumstances of the specific payment at issue and the manner in which it was calculated talley indus inc f 3d pincite s b restaurant inc t c pincite middle atlantic distributors t c pincite in order to evaluate the deductibility of a settlement payment it is necessary to examine the origin and character of the liability giving rise to the claim see eg 77_tc_608 that is the character of the claim from which the settlement arose is examined to determine whether it arose in connection with a business matter and if so whether it is ordinary and necessary within the meaning of sec_162 here conduct underlying the fca claims arose from subsidiary’s business of providing c to the federal government and others subsidiary’s settlement payment would ordinarily be deductible under sec_162 unless all or a portion of it constitutes a fine or penalty within the meaning of sec_162 in order to determine whether any portion constitutes a fine or other similar penalty we must determine whether the multiple damages provision of the fca serves a compensatory or punitive purpose or both false claims act the fca allows the government to recover damages from those who make or cause to be made false claims for money or property upon the united_states or who the characterization of a payment under sec_162 depends on the origin of the liability giving rise to the payment not the taxpayer’s motive for making the payment or the character of the assets used to satisfy the claim thus it does not matter if a taxpayer denies liability for any wrongdoing or if a taxpayer makes a payment in order to avoid further investigation see 372_us_39 756_f2d_44 6th cir tam-171120-03 submit false information in support of those claims u s c the government is authorized to recover three types of damages under the act a civil penalty of at least dollar_figure and not more than dollar_figure for each false claim three times the amount of actual damages sustained reducible to double damages for cooperative defendants and costs of investigating and prosecuting any alleged violation of the act u s c a this statute was originally enacted in to combat rampant fraud in civil war defense contracts senate rep no 99th cong 2d sess pincite the first major amendments to the act in general occurred in when the congress revised the liability standard burden_of_proof qui tam provisions and expanded the damages available to the government in response to concerns that fraud in government procurement was severe and on the rise id pincite prior to the amount of the per- claim fixed penalty was dollar_figure and the government was entitled to recover only double damages the legislative_history of the amendments contains several references to the damages provision stating that increasing the damages available is necessary both to make the government completely whole for all of its losses and to deter fraudulent conduct senate rep no 99th cong 2d sess pincite date h_r rep no 99th cong 2d sess pincite date thus according to the legislative_history the multiple damages provision serves both punitive and compensatory purposes fca serve dual purposes of compensation and deterrence 423_us_303 in bornstein the court noted that the then double damages provision was intended to make sure that government would be made completely whole and was also intended to deter fraudulent conduct id pincite quoting 317_us_537 and has stated that the current version of the fca authorizing treble_damages imposes damages that are essentially punitive in nature 529_us_765 the court stated t he very idea of treble_damages reveals an intent to punish past and to deter future unlawful conduct not to ameliorate the liability of wrongdoers id pincite however several years later the court refined its essentially punitive observation in 538_us_119 in chandler the court considered whether the multiple damages provision is compensatory or punitive in order to determine whether a local_government may be a person subject_to a qui tam action under the fca cook county argued that it could not be such a person in light of the fact that the multiple damages provision is punitive in nature and municipalities may not be subjected to punitive_damages treble damage sec_5 the statutory penalty is adjusted upward for inflation and is currently dollar_figure to dollar_figure u s c c f_r sec_85 a the court has recently examined the multiple damages provisions in more detail the supreme court has long held that the multiple damages provisions of the tam-171120-03 are mandatory under the fca if the government sustains any actual damages id the court rejected cook county’s argument admonishing it is important to realize that treble_damages have a compensatory side serving remedial purposes in addition to punitive objectives id pincite the court continued w hile the tipping point between payback and punishment defies general formulation being dependent on the workings of a particular statute and the course of particular litigation the facts about the fca show that the damages multiplier has compensatory traits along with the punitive we interpret the chandler decision to stand for the proposition that because id for example the court noted that some portion of a multiple damages award might be used to compensate the government for the costs delays and inconveniences occasioned by fraudulent claims which are outside the category of actual damages including pre-judgment interest consequential damages and the possibility of diverting up to of the government’s award to a relator who began the action id pincite thus the court concluded that while the fca’s treble_damages remedy is punitive in that recovery will exceed full compensation in some cases the force of its punitive nature is not as robust as if it were a pure penalty in all cases id pincite treble damage awards may sometimes compensate the government for its losses and costs beyond the actual damages allowed by the fca the multiple damage provision is not a pure penalty like classic punitive_damages because chandler refines stevens without overruling it however the court’s position is that the treble_damages provision is punitive but not purely or automatically so and in some instances may serve compensatory purposes payment because the treble_damages provision of the fca may serve either a compensatory or punitive purpose or both it is necessary to determine which purpose s the parties to the settlement intended the payment to serve talley indus inc v commissioner f 3d pincite 9th cir s b restaurant inc t c pincite ordinarily the language of the settlement document is the most important factor in making this determination middle atlantic distributors t c pincite language in the settlement document indicating that the payment was compensatory would be highly significant as would language indicating that the payment was attributable to a fine or penalty or intended to serve a deterrent purpose see revrul_80_334 1980_2_cb_61 the next step is to apply these holdings in the context of a lump-sum settlement where an agreement is silent or ambiguous concerning the compensatory or deterrent nature of a settlement payment an investigation into the facts and circumstances surrounding the settlement may indicate the parties’ intent concerning the character of the payment correspondence between the government and the tam-171120-03 taxpayer in the settlement negotiation as well as various other documents or testimony by individuals involved in the negotiation may help to evidence the purpose of the settlement payment surrounding facts and circumstances may also be indicative of an appropriate methodology for allocating settlement amounts see revrul_75_230 1975_1_cb_93 pursuant to revrul_75_230 we will use the best evidence available to determine the intent of the parties at the time they reached the settlement agreement although it pre-dates both the stevens and chandler decisions the 116_f3d_382 9th cir decision provides a comprehensive example of how to analyze a lump-sum settlement payment in a fca case in talley the lump-sum payment was dollar_figure million and the parties stipulated that dollar_figure million of the payment representing the government’s estimated actual losses was deductible under sec_162 less dollar_figure that the tax_court found to be nondeductible criminal restitution id pincite the parties disagreed as to characterization of the remaining dollar_figure of the settlement payment the taxpayer contended that it represented additional compensation to the government and the government contended that it was a fine or similar penalty within the meaning of sec_162 id the ninth circuit held that the damages provision of the fca serves dual purposes of compensation and deterrence f 3d pincite because the parties had offered conflicting evidence concerning their respective intent as to the purpose of the disputed portion of the settlement payment the ninth circuit remanded the intent issue for a factual determination instructing the tax_court to engage in a two-step inquiry id first to determine whether the dollar_figure was intended to represent compensation to the government for its losses if so it was not a fine or similar penalty second if the payment was intended to represent double damages then the tax_court was to determine whether the parties intended for the double damages to provide additional compensation_for the government deductible or to punish and deter the taxpayer not deductible id characterized the payment as punitive during the settlement negotiations because the burden is on the taxpayer to demonstrate ‘entitlement to a particular deduction ’ id quoting 939_f2d_874 9th cir the court warned i f evidence to establish a deduction is lacking the taxpayer not the government suffers the consequence id pincite finally the court concluded that the fact that the contested portion of the payment was less than double the amount of estimated actual damages did not mean that it was compensatory the court noted that in a settlement the government might have bargained away the maximum amount of damages it could have recovered at trial id pincite the ninth circuit also held that the government was not required to show it at the time of the talley decision the fca provided for the recovery_of double not treble_damages on remand the tax_court determined that the parties intended the settlement tam-171120-03 amount to include double damages because their various offers and counteroffers repeatedly referred to the settlement as including double damages tcmemo_1999_2000 the court then turned to the determination of whether the purpose of the dollar_figure double damages payment was to compensate the government for its losses or to punish and deter the taxpayer it found that the parties did not agree as to the characterization of the amount in dispute the taxpayer had characterized its settlement offers as compensation only and the government had rejected those characterizations and had characterized its counteroffers as including double damages for punitive purposes in its internal documents concerning the settlement negotiations although it had never communicated those characterizations to the taxpayer the parties never clarified the purpose of the payment during their communications with each other and they signed a settlement agreement that was silent on the issue under the ninth circuit’s mandate that the taxpayer suffer the consequences if the evidence failed to establish entitlement to a deduction the tax_court held that the taxpayer had failed to carry its burden_of_proof and disallowed a deduction for the dollar_figure in dispute in the instant case we are faced with evaluating a lump-sum settlement payment facts and circumstances where the settlement agreement is silent concerning whether any portion of the payment was meant to constitute multiple damages and if so whether there was a punitive or compensatory purpose behind those multiple damages because the agreement is silent as to the intended purpose of the payment we look to the facts and circumstances surrounding the parties’ settlement negotiations in order to determine whether any portion of amount k is a nondeductible fine or other similar penalty we use the best evidence available to determine the proper allocation of this lump-sum settlement payment revrul_85_98 1985_2_cb_51 concluding that the ratio of punitive to compensatory_damages sought in the plaintiff’s complaint was the best evidence of how to allocate a lump-sum settlement payment where there was no other evidence concerning how the allocation should be made according to the field the government initially estimated its actual damages to be amount a the government communicated this estimate to subsidiary in a letter dated date this letter also contained the warning about the government’s settlement position w e settle false claims act cases prior to litigation for a sum equal to triple damages with appropriate penalties during the settlement meetings that occurred during the winter of year and year the government’s internal documents indicated that its total estimated actual damages were approximately amount c the government’s minutes from a date settlement meeting indicate that subsidiary has also been previously apprised of the government’s position that the government’s total figure represents one-third of subsidiary’s final civil liability thus beginning with the government’s settlement tam-171120-03 demand of amount d that was pending on date the government’s total settlement demand included an amount representing multiple damages although subsidiary repeatedly argued that the government’s actual damages were far less than amount c it did not question the government’s entitlement to multiple damages in fact in a letter dated date counsel for subsidiary stated we are of course aware of the penalty calculation methodology set forth in the civil false claims act further after subtracting the additional_amount j payment the final settlement amount of amount g was approximately amount q over any of the government’s estimates of its actual damages during its investigation and during the settlement negotiations after examining the correspondence between the parties as well as the government’s internal documents there is ample evidence that the government’s purpose in ensuring that the settlement figure included multiple damages was to punish subsidiary for its wrongdoing not to obtain additional compensation_for the harm caused by subsidiary’s conduct taxpayer contends it did not intend any portion of the settlement payment to constitute punitive_damages it intended solely to compensate the government fully for its losses which includes amounts in excess of the government’s estimated actual damages taxpayer has not provided any correspondence between the parties affidavits or statements of any persons involved in the settlement negotiations or any other evidence in support of its assertion in fact the correspondence provided to us belies that assertion as taxpayer conceded it understood that the government was seeking multiple damages and that taxpayer was aware of the penalty calculation methodology in the fca in a letter written by its counsel during the settlement negotiations even if taxpayer had provided such evidence then the evidence concerning the parties’ intent would be conflicting because the field has supplied documents evidencing the government’s intent that a portion of the settlement would serve a punitive purpose under the holding in talley a taxpayer who cannot establish that both parties intended for a fca settlement payment to be purely compensatory suffers the consequences and is not entitled to a deduction for any disputed portion allocation between compensatory and punitive purposes having determined that a portion of the amount k settlement payment is a nondeductible fine or penalty we now turn to the issue of what amount is nondeductible we start with the assumption that amount j is deductible as the field has conceded that this amount negotiated for post-date claims after the global_settlement had been reached on all other claims represented compensatory_damages taxpayer’s position is based in part on its claim that the amount of the government’s estimated actual damages were higher than amount c we address this contention below in the allocation analysis tam-171120-03 only with no multiplier thus the remaining amount g must be allocated between compensatory and punitive_damages the field contends that amount p the amount in excess of what was eventually disbursed to the harmed agencies is the nondeductible portion of the settlement payment taxpayer contends that no portion is nondeductible because the government’s estimated actual damages were higher than amount c the number contained in the spreadsheet attached to the minutes of the date settlement meeting and the balance of the settlement payment was intended to compensate the government for relator fees pre-settlement interest and other investigation costs we do not believe either position is correct first we agree with taxpayer that under talley and s b restaurants the relevant inquiry is the parties’ intent at the time the settlement agreement was reached it is clear from the documents provided to us that the government spent a considerable amount of time and resources investigating the claims against subsidiary and attempting to quantify the amount of its actual losses caused by subsidiary’s conduct as discussed above representatives of the federal agencies allegedly harmed by subsidiary’s conduct actively participated in the investigation and in the monthly settlement meetings with subsidiary during several of the settlement meetings the government provided detailed spreadsheets to subsidiary outlining estimates of its actual damages organized by category of claim during the winter of year and year the lowest estimated actual damages amount was amount r and the highest amount was amount c on date the government reduced its total settlement demand from amount d to amount e and then reduced it again to amount f we note that the amount d figure is approximately three times an estimated actual damages figure of amount c taxpayer claims that the government based this reduction entirely on multiple damages concessions-it agreed to accept less than treble_damages on some categories of claims thus according to taxpayer the government’s estimated actual damages figure remained constant while it conceded only the multipliers estimate prior to the final settlement during two date settlement meetings subsidiary’s settlement figure climbed and the government’s dropped until the parties reached a tentative oral agreement to settle all claims for amount g in preparation for its formal acceptance of a settlement offer the government prepared a spreadsheet detailing how the proceeds would be allocated between compensatory and multiple damages detailed by category of claim according to this spreadsheet amount h would be allocated to the defrauded agencies in compensation_for their actual losses and the remaining amount s represented multiple damages amount i times the amount of each category of actual damages based on the allocations in this final pre- we have been provided with two spreadsheets dated date and date as well as an earlier outline of the parties’ respective settlement positions outlining actual damages by category of claim dated date the latter document was apparently prepared by subsidiary however there is evidence that the government decreased its actual damages taxpayer contends that the government’s estimated actual damages were tam-171120-03 settlement spreadsheet the government accepted subsidiary’s settlement offer of amount g we believe that the final pre-settlement spreadsheet dated date is the best evidence of the government’s intent concerning how it intended the settlement payment to be allocated between compensatory and punitive_damages because it was drafted contemporaneously with the oral settlement agreement see revrul_80_334 1980_2_cb_61 revrul_75_230 1975_1_cb_93 prior to the final pre-settlement spreadsheet the spreadsheet closest in time to date was dated date which was over six weeks before the agreement and which was drafted during a time when the government’s total settlement demand was amount d based on the allocations in this final pre-handshake spreadsheet amount h represents compensatory_damages and amount s represents the punitive or deterrent portion of the settlement amount t after the conclusion of the date settlement meeting and that it relied on this estimate in reaching the agreement to settle for amount g amount t is based on a spreadsheet prepared by the government that was apparently used during a date not a date settlement meeting this spreadsheet actually shows amount r in estimated actual damages it contains various handwritten notes of various figures and percentages and taxpayer apparently relied on these handwritten notes in reaching the amount t figure we are unable to substantiate the amount t figure we do note however that the minutes summarizing the date settlement meeting state that the government advised subsidiary that the estimated actual damages for a particular agency were amount u and the actual damages for all other federal programs would be an additional_amount v of that figure based on these statements the government’s estimated actual damages could have been as high as amount w as of date even if these documents support the proposition that the government’s estimated actual damages were as high as amount t or amount w this spreadsheet was prepared at least six weeks before the parties reached a settlement agreement the parties had numerous settlement meetings during those six weeks and the parties’ settlement offers and counter-offers changed dramatically during that time it is clear that both parties had deviated substantially from their respective date settlement positions by the time they reached a final agreement government’s representations concerning the amounts required to reimburse the harmed agencies the representation at issue is taxpayer’s claim that the government’s estimated actual damages were as high as amount t during the course of the settlement negotiations there are several problems with taxpayer’s contention first the spreadsheet taxpayer relies on to support this figure is not close in time to when the parties actually reached an agreement second the documents provided to us show that subsidiary and not the government requested that the parties switch from analyzing the government’s losses on an issue-by-issue basis to negotiating a on the issue of reliance taxpayer contends it should be entitled to rely on the taxpayer also attempts to use the fact that the parties stipulated that the taxpayer’s final contention on the issue of the amount of the government’s actual tam-171120-03 settlement based on a single comprehensive number taxpayer cannot now claim it did not understand the government’s intent concerning how much of the settlement would be allocated to compensatory vs punitive_damages when subsidiary was the party responsible for switching to negotiating based on a lump-sum figure third the documents provided to us also establish that during the settlement negotiations subsidiary’s attorneys understood that subsidiary and the government had differing views on the penalty calculations stating that the settlement might end up being an agreed number with each side seeing the rationale differently additional_amount j consisted solely of compensatory_damages to support its position that the parties also intended for the entire amount g settlement payment to consist solely of compensatory_damages we believe it supports the opposite position that is if the parties had shared an understanding that the amount g settlement payment was to be allocated only to compensatory_damages then there would be no need to specify that the additional_amount j would also be compensatory the fact that a stipulation was necessary for amount j supports the position that the amount g payment was to be allocated to both compensatory and punitive_damages damages is that it intended for any amounts in excess of amount t to compensate the government for relator fees pre-settlement interest and the government’s investigatory costs we agree with taxpayer in theory that such amounts could constitute compensatory_damages under the supreme court’s holding in chandler however as we did when considering the parties’ intent concerning the purpose of the settlement payment we must evaluate taxpayer’s claim as of the time the parties agreed to settle taxpayer has not provided any evidence in this case that either party intended for a portion of the settlement payment to be allocated to such items there is no mention of pre-settlement interest reimbursement of investigatory costs or relator fees in any of the correspondence or summaries of settlement meetings that have been provided to us the settlement agreement does not allocate any of the settlement proceeds for any of these items because there is no evidence concerning the parties’ intent and because taxpayer signed a settlement agreement that is silent on this issue it has failed to establish it is entitled to a deduction for these amounts damages should be calculated solely with reference to the amount actually disbursed by the government to the harmed federal and state agencies the field contends that amount m representing the government’s disbursements to the harmed agencies constitutes its actual damages this calculation leaves amount p as the nondeductible further the only evidence of the government’s intent regarding the relator fees is from a later time period when the government and the relators were battling over the amount of those fees in a separate lawsuit clearly the government’s post-settlement intent was not to pay the relators a fee at all finally we turn to the field’s position that the amount of the government’s actual tam-171120-03 punitive_damages portion of the settlement amount as discussed above the final pre- settlement spreadsheet prepared by the government shows that it intended to allocate amount h to the harmed agencies as compensation_for actual losses the harmed agencies concurred in this calculation and signified their agreement to it by signing the settlement agreement as it turned out when the government actually disbursed the funds nearly one year later the harmed agencies received amount m approximately amount x more than the amount contemplated by the final pre-settlement spreadsheetdollar_figure we do not believe that the government’s actual use of the settlement proceeds is relevant in this case to determine its intent concerning the purpose of the payment at the time of the settlement because there is more contemporaneous information available in the form of the final pre-handshake spreadsheet nor would our conclusion be different if the government had disbursed less to the harmed agencies since the proper allocation depends on intent at the time the settlement was reached not on events occurring after that time that a portion of the settlement amount represented multiple damages and that the purpose of those multiple damages was to punish subsidiary accordingly the portion of the settlement amount that constitutes multiple damages is a nondeductible fine or penalty within the meaning of sec_162 based on the facts and circumstances of the settlement negotiations the government intended for amount y to constitute compensatory_damages and for amount s to constitute multiple damages at the time it agreed to the total settlement amount of amount kdollar_figure further taxpayer has failed to establish entitlement to a deduction for any portion of amount s accordingly we conclude that in this case based on the facts and circumstances presented amount y is deductible as an ordinary and necessary business_expense pursuant to sec_162 and amount s constitutes a nondeductible fine or penalty pursuant to sec_162 based on our review of the facts and circumstances in this case we conclude caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent the amount x difference is net of amount j the additional_amount negotiated separately for post-date claims amount y is the sum of amount h the initial settlement amount and amount j the additional_amount negotiated for claims arising after date


internal_revenue_service number release date index no department of the treasury washington dc person to contact telephone number refer reply to cc intl br1 plr-103641-03 date date a date b country c dear this is in response to your letter received requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of u s long- term residence will not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination the information submitted for consideration is substantially as set forth below a is a former u s long-term_resident who relinquished such status on date b a returned with his spouse to country c the country in which he was born 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 taxed under sec_877 and 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 plr-103641-03 page 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 or former long term-resident 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 notice_98_34 1998_2_cb_29 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 submitted all the information required by notice_98_34 including any additional information requested by the service after review of the submission a’s net_worth exceeded the sec_877 amount on date b a is eligible to request a ruling because a became a resident fully liable to income_tax in the country in which he was born section iv notice_98_34 based solely on the information submitted and the representations made we conclude 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 under sec_877 to have as one of his principal purposes for expatriating the avoidance of u s taxes it is further concluded that a will not be treated under sec_877 as having one of his principal purposes of expatriation the avoidance of u s taxes 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 her loss of permanent residence status or for taxable periods after her loss of permanent residence status under sections of the code other than sec_877 sec_2107 and sec_2501 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 requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-103641-03 page in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a sincerely yours ______________________________ w edward williams senior technical reviewer branch office of the associate chief_counsel international cc


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uniform issue list apr legend taxpayer a taxpayer b company c amount d amount e amount f amount g amount h account v ira w ira x ira y ira z dear this is in response to a ruling_request submitted by you on jn which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the following facts and representations have been submitted in support of your request taxpayer a had two individual_retirement_accounts with company c ira w and ira x taxpayer b also had two iras ira y and ira z with company c in addition account v was maintained for the benefit of taxpayer b in a former employer' sec_401 plan on taxpayer b received distributions of less than a week after the above distributions the mother of amount e from ira z and amount f from account v on taxpayer b received a distribution of amount d from ira y on taxpayer a received a distribution of amount g from ira w and a distribution of amount h from ira x taxpayer a became very ill was diagnosed with hospitalized for surgery on _ a short time later taxpayer a’s mother was released from the hospital although her condition was stabilized she remained in critical condition taxpayer a cared for her mother in a hospice care facility until her mother's death on _ taxpayer b also cared for taxpayer a’s father who was devastated by the loss of his wife and taxpayer b cared for their two small children and also managed the family business that taxpayers a and b previously managed together due to the sudden and unexpected illness and subsequent death of the mother of taxpayer a and the confusion and trauma her family suffered during this time taxpayers a and b were unable to complete the rollovers as they intended within the required period the funds received in the distributions have been maintained in a savings account pending this ruling_request in addition during this time taxpayer a and based on the above facts and representations you request that the service waive the 60-day rollover requirement with respect to the distributions described in this request because the failure to waive such requirement would be against equity or good conscience sec_402 of the internal_revenue_code provides in general that any amount actually distributed to any distributee by any employees’ trust described in sec_401 which is exempt from tax under sec_501 shall be taxable to the distributee in the taxable_year of the distributee in which distributed under sec_72 relating to annuities in general sec_402 provides that if an eligible_rollover_distribution is sec_402 of the code provides rules applicable to rollovers from exempt trusts transferred to an eligible_retirement_plan such as an ira or a qualified_trust the distribution to the extent so transferred shall not be includible in gross_income for the taxable_year in which paid sec_402 of the code provides that the term eligible_rollover_distribution means any distribution to an employee of all or any portion of the balance_to_the_credit of the employee in a qualified_trust except that such term shall not include a any distribution which is one of a series of substantially_equal_periodic_payments not less frequently than annually made- i ii for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and the employee's designated_beneficiary or for a period of ten years or more w o b any distribution to the extent such distribution is required under sec_401 ax and c any distribution which is made upon the hardship of the employee sec_402 of the code requires that an eligible_rollover_distribution from a qualified_retirement_plan must be transferred to an eligible_retirement_plan no later than the day after the day of receipt in order to avoid having to include that distribution in the distributee’s gross_income for that year sec_402 of the code provides in part that an eligible_retirement_plan includes an ira a qualified sec_401 a_trust and certain other designated plans sec_402 of the code provides that the secretary may waive the 60-day requirement under sec_402 where the failure to waive such requirement would be against equity or good conscience sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the jra is maintained if i the entire amount received including money or any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money or any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary_of_the_treasury may waive the 60-day requirement under sec_408 and d of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under section d i of the code revproc_2003_16 2003_4_irb_359 provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented by the taxpayers indicates that the confusion caused by the illness and death in the family resulted in the transactions not being carried out in accordance with the taxpayers’ intent therefore pursuant to sec_402 of the code the service hereby waives the 60-day rollover requirement with respect to the part of amount f that constitutes an eligible_rollover_distribution pursuant to sec_402 of the code an eligible_rollover_distribution can consist only of pre-tax amounts and earnings and does not include after-tax contributions or distributions required by sec_401 of the code furthermore the service waives the 60-day rollover requirement in sec_408 with respect to the distribution of amounts d e g and h taxpayers a and b are hereby granted a period of days from the issuance of this ruling letter to contribute amounts d e g and h in cash into one or more iras or in the case of the part of amount f that constitutes an eligible_rollover_distribution into either one or more iras or into an eligible_retirement_plan as defined in sec_402 of the code provided all other requirements of sec_402 and sec_408 of the code except the 60-day rollover requirement are met with respect to such contributions these amounts will be considered rollover_contributions within the meaning of sec_402 and sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations that may be applicable hereto this ruling is directed solely to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you have any questions regarding this ruling you may contact at sincerely yours is j bena we krithejhe donzell littlejohn manager employee_plans technical group enclosures notice of intention to disclose deleted copy of letter