internal_revenue_service national_office technical_advice_memorandum number release date date third party communication none date of communication not applicable index uil no case-mis no 263a tam-138531-09 attorney cc lm rfp chi 2m taxpayer’s name taxpayer’s address taxpayer's identification no year s involved date of conference ------------------------------------------ ---------------------- ------------------------------ ---------------- ---------- ------------------------ legend taxpayer date one date two date three date four a date five date six date seven letter_ruling date eight f ------------------------------------------ ---------------------------- ------- ------- ------- ------- --- --------------------- -------------------------- ------------------------- ------------------------------------------------------------------ -------------------------- --------------- tam-138531-09 issues whether taxpayer’s costs attributable to cardboard boxes dividers foam packaging plastic wrapping heavy plastic bags and other materials packaging material_costs are required to be capitalized as handling costs under sec_263a of the internal_revenue_code because these costs are not costs attributable to pick and pack activities inside a storage or warehousing facility whether letter_ruling permitted taxpayer to change its method_of_accounting for the packaging material_costs by reducing the amount of additional sec_263a costs contained in the numerator of the simplified production absorption ratio in the amount of the packaging material_costs that taxpayer treated as costs attributable to pick and pack activities that are not required to be capitalized under sec_263a if we conclude that taxpayer’s packaging material_costs are required to be capitalized under sec_263a whether we should apply ruling prospectively conclusions the packaging material_costs are required to be capitalized as handling costs under sec_263a because the packaging material_costs are handling costs and these costs are not attributable to pick and pack activities inside a storage or warehousing facility letter_ruling permitted taxpayer to change its method_of_accounting for the packaging material_costs by reducing the amount of additional sec_263a costs contained in the numerator of the simplified production absorption ratio in the amount of the packaging material_costs that taxpayer treated as costs attributable to pick and pack activities that are not required to be capitalized under sec_263a taxpayer has satisfied the conditions for sec_7805 relief and accordingly ruling will be applied prospectively facts taxpayer an s_corporation is engaged in the business of manufacturing wholesaling and retailing ----------- taxpayer’s federal tax returns for the date one date two date three and date four taxable years are currently under examination taxpayer’s overall_method_of_accounting is the accrual_method taxpayer owns and operates numerous retail stores from which taxpayer- manufactured ----------- is sold the ----------- that taxpayer produces whether or not built-to-order is distributed to unrelated retailers stores owned by third parties but licensed by taxpayer or to stores owned by taxpayer tam-138531-09 taxpayer manufactures ----------- by using an assembly-line process --------------- -----------------------------is bagged placed on a cardboard tray and heat treated to shrink the bags to better conform to the ----------- wooden ----------- is boxed which may include placing the ----------- in styrofoam before boxing it once packaged the -------- ----------- goes into a warehouse located within the manufacturing_facility for storage if the ----------- item is preordered it is stored in the warehouse until the entire order is completed at which time the item of inventory is moved to the loading area and placed in a trailer for shipment the taxpayer expenses shipping supplies such as tape pallets and cellophane rolls used to hold boxes together during shipment as these supplies are used approximately a percent of the ------------manufactured by taxpayer is built-to- order that is the ----------- is manufactured after a customer has ordered the specific ---- ----------- taxpayer treated only a percent of its packaging material_costs as pick_and_pack_costs after the ----------- is manufactured it is packaged using cardboard boxes dividers foam packaging plastic bags and or other materials as necessary for placement on racking in taxpayer’s warehouses generally taxpayer’s manufacturing facilities and warehouses are single integrated facilities when ready to be shipped taxpayer’s built-to-order ----------- is removed from the racking and loaded onto delivery trucks ------------ that has been ordered by an individual at one of taxpayer’s retail stores is first transported to the retail store after delivery to the retail store and prior to delivery to the customer who has ordered the ----------- all packaging materials are removed from the ----------- the packaging materials are discarded the ----------- is loaded onto a delivery truck without the packaging materials and title to the ----------- passes to the customer after the ----------- has been received inspected and accepted by the customer at the customer’s home ------------ that has been ordered by an unrelated retailer is delivered to the retail store operated by the unrelated retailer and is typically shipped with the packaging materials remaining on the ----------- when ----------- is shipped to unrelated retail stores or licensed stores title to the ----------- does not transfer to taxpayer’s customer in this case the unrelated retailer until the ----------- has been received inspected and accepted by the unrelated retailer all ----------- that is manufactured whether or not preordered is packaged with the necessary packaging material thus all ------------is packaged in the same identical packaging whether or not built-to-order taxpayer had included the costs that it had capitalized under its standard_cost_method in taxpayer’s sec_471 costs for purposes of the simplified production tam-138531-09 method calculation under sec_263a prior to changing its method_of_accounting discussed below during date five taxpayer filed a form_3115 change in accounting_method to change its method_of_accounting for among other items certain packaging and repackaging costs beginning with taxpayer’s week taxable_year beginning date six taxpayer requested permission to change its accounting for these packaging costs from capitalizing the costs under sec_263a to deducting the costs as costs attributable to pick and pack activities under sec_1_263a-3 of the income_tax regulations on date seven the service granted taxpayer’s request to change its method_of_accounting for the items subject_to taxpayer’s form_3115 including the packaging costs taxpayer sought to deduct as pick_and_pack_costs on date eight the service issued letter_ruling which superseded the letter_ruling issued on date seven letter_ruling contained the following representation made by taxpayer the pick_and_pack_costs that taxpayer seeks to deduct relate to packaging and repackaging material consisting of heavy plastic bags that are designed to protect the goods during the distribution process and that the pick_and_pack_costs also related solely to goods that have been ordered at the time production is complete taxpayer has elected to use the simplified_production_method without the historic absorption ratio for computing the additional sec_263a costs allocable to eligible_property remaining on hand at the end of the taxable_year as part of taxpayer’s simplified_production_method without the historic absorption ratio for the date one taxable_year taxpayer included packaging material purchases in the amount of dollar_figuref in the absorption ratio as a negative additional sec_263a cost resulting in a negative absorption ratio law and analysis costs attributable to pick and pack activities taxpayer concedes that the packaging material_costs are handling costs taxpayer however argues that these costs are deductible as costs attributable to pick and pack activities inside a storage or warehousing facility accordingly we will address whether the packaging material_costs constitute costs attributable to pick and pack activities under sec_1_263a-3 we express no opinion with respect to whether the packaging material_costs are handling costs as defined elsewhere in sec_1_263a-3 sec_1_263a-3 provides that generally handling costs incurred inside a storage or warehousing facility must be capitalized however costs attributable to pick and pack activities inside a storage or warehousing facility are not required to be capitalized pick and pack activities are activities undertaken in preparation for imminent tam-138531-09 shipment to a particular customer after the customer has ordered the specific goods in question examples of pick and pack activities include i moving specific goods from a storage location in preparation for shipment to the customer ii packing or repacking those goods for shipment to the customer and iii staging those goods for shipment to the customer sec_1_263a-3 provides that activities that are not pick and pack include i unloading goods that are received for storage ii checking the quantity and quality of goods received iii comparing the quantity of goods received to the amounts ordered and preparing the receiving documents iv moving the goods to their storage location eg bins racks containers etc and v storing the goods taxpayer’s packaging material_costs are not costs attributable to pick and pack activities first the packaging materials in question are applied to all ------------------------ ----------------------------------------------------------------------------------------------produced by taxpayer all ----------- produced by taxpayer is packaged in the same identical packaging whether or not built-to-order thus the packaging material_costs are not undertaken in response to an order from a particular customer this fact argues against taxpayer’s position that the packaging material_costs are attributable to pick and pack activities taxpayer’s packaging activities are not undertaken in preparation for imminent shipment to a particular customer the same packaging material_costs are necessary for ----------- produced without a preorder packaging that taxpayer uniformly applies to all of its manufactured ------------does not become a pick and pack activity by reason of a customer order the treatment of pick_and_pack_costs as an exception to the general_rule in the sec_263a regulations that handling costs must be capitalized is based on the determination that such costs are like distribution costs and is illustrated by the following example a book reseller stores several hundred books boxed by title in its warehouse a particular customer places an order for several different titles upon receipt of the tam-138531-09 order an employee of the book reseller retrieves the requested titles from several boxes stored in the warehouse applies plastic wrap to the books and places the books in a shipping box the labor and materials used within the reseller’s warehouse upon receipt of the customer order constitute pick and pack activities that are not required to be capitalized under sec_263a accordingly taxpayer’s packaging material_costs are required to be capitalized as handling costs under sec_263a because taxpayer concedes that the packaging material_costs are handling costs and taxpayer’s packaging material_costs are not attributable to pick and pack activities inside a storage or warehousing facility negative amounts included in additional sec_263a costs the second issue is whether letter_ruling permitted taxpayer to change its method_of_accounting for the packaging material_costs by reducing the amount of additional sec_263a costs contained in the numerator of the simplified production absorption ratio in the amount of the packaging material_costs that taxpayer treated as costs attributable to pick and pack activities that are not required to be capitalized under sec_263a we find that it did in light of our conclusion however that the packaging material_costs are required to be capitalized under sec_263a because these costs are not the result of pick and pack activities inside a storage or warehousing facility taxpayer must include these amounts in the numerator of the simplified production absorption ratio sec_7805 relief the third issue is whether taxpayer should be granted relief under sec_7805 with regard to the treatment of packaging materials as pick_and_pack_costs rather than as costs that must be capitalized under sec_263a sec_7805 provides that the secretary may prescribe the extent if any to which any ruling including any judicial decision or any administrative determination other than by regulation relating to the internal revenue laws shall be applied without retroactive effect section dollar_figure of revproc_2010_2 2010_1_irb_90 provides that a technical_advice_memorandum tam may be used to seek revocation or modification of a private_letter_ruling plr see section dollar_figure of revproc_2010_1 2010_1_irb_1 with respect to revocation or modification of plrs under sec_601_204 of the statement of procedural rules the written permission by the national_office to a change in a taxpayer's accounting_method is a letter_ruling generally a tam that revokes or modifies a letter_ruling will not be applied retroactively if the applicable law has not changed the taxpayer directly involved in the letter_ruling relied in good_faith on it and revocation or modification would be detrimental to the taxpayer tam-138531-09 however the tam will be applied retroactively to the taxpayer whose tax_liability was directly involved in the letter_ruling if controlling facts have been misstated or omitted or the facts at the time of the transaction are materially different from the controlling facts on which the letter_ruling was based in the instant case the applicable law has not changed since issuance of letter_ruling moreover no evidence has been presented to suggest that taxpayer failed to rely on letter_ruling in good_faith that taxpayer misstated or omitted controlling facts or that the facts at the time of the transaction are materially different from the controlling facts on which letter_ruling was based finally modification of letter_ruling would result in increased tax_liability for taxpayer’s date one through date four taxable years accordingly ruling will be applied prospectively however the service may exercise its authority to modify the year_of_change if taxpayer does not file a form_3115 to change its treatment of the packaging materials for the taxable_year immediately succeeding the taxable_year in which the sec_7805 relief ends a copy of this technical_advice_memorandum is to be given to taxpayer sec_6110 of the code provides that it may not be used or cited as precedent


office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b04 ---------- postf-125720-12 third party communication none date of communication not applicable uilc date date to associate area_counsel small_business self employed area from chief branch office of associate chief_counsel income_tax accounting subject ------------------------------------ postf-125720-12 this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend ------------------------------------ -------------------- ------- ------- ------- ------- ------- -------------------------- ----------------------- ----------- taxpayers promoter year year year year year date date state state statute -------------------------------------------------- t u v w x ----------- --------------- --------------- ------------------ ------------- postf-125720-12 ----------- ------------- y z issues whether a payment in year of tax_liabilities penalties and interest for year through year in the amount of dollar_figurex pursuant to a closing_agreement with the service under the gsi is deductible by taxpayers in year in the amount of dollar_figurez whether a settlement payment in the amount of dollar_figurey received in year by taxpayers from promoter an accounting firm accused of negligence in providing tax_advice to taxpayers is included in their year gross_income or is excluded from gross_income as a return_of_capital conclusions taxpayers may not deduct the tax penalties and interest they paid pursuant to a closing_agreement with the service taxpayers may not exclude from their year gross_income as a return_of_capital the settlement payment received from promoter facts taxpayers h w are married taxpayers who used the cash_receipts_and_disbursements_method of accounting they filed joint income_tax returns for calendar_year through year h operated an automobile dealership which he reported on his schedule c form_1040 as an unincorporated sole_proprietorship h’s participation in an abusive management s_corporation employee_stock_ownership_plan esop during year through year resulted in his voluntary participation in the global_settlement initiative gsi to resolve federal tax_liabilities related penalties and statutory interest taxpayers executed the closing_agreement under the gsi on date and made the settlement payment in the amount of dollar_figurex on that same date as set forth in the closing_agreement the total gsi payment for year through year is composed of income_tax liabilities for such years in the amount of dollar_figurew penalties in the amount of dollar_figurev and statutory interest in the amount of dollar_figureu in their response to the rar taxpayers state that the year payment was slightly less than dollar_figurez the slightly different numbers however do not affect our conclusions as to the tax treatment the closing_agreement was accepted on behalf of the commissioner on date paragraph of the closing_agreement under the gsi provides that taxpayers are not entitled to any other deductions and or losses relating to the transaction sec_1 except as set forth in the transactions are defined in the closing_agreement as the abusive management s_corporation_esop transaction postf-125720-12 paragraph subparagraph e no transaction deductions or losses are allowed under paragraph subparagraph e for either h or w promoter provided accounting and tax services to taxpayers promoter recommended the abusive esop to taxpayers in year taxpayers sued promoter in a state court for accountant malpractice breach of contract breach of fiduciary duty and violation of state statute in settlement of the lawsuit promoter paid a lump sum of dollar_figurey to taxpayers in year for a general release of all claims the agreement did not allocate the proceeds among the claims settled taxpayers did not include the settlement proceeds in their year gross_income moreover they claimed a schedule c deduction in the amount of dollar_figurez consisting of the year gsi payment in the amount of dollar_figurex reduced by the dollar_figurey settlement payment from promoter taxpayers claim that had promoter prepared and filed the necessary documents with the irs they would have been entitled to certain deductions and exclusions on their income_tax returns for taxable years beginning in year and ending in year taxpayers assert that the basis for this claim is the opinion of a former tege counsel employee promoter’s several failures taxpayers argue caused them to participate in the gsi and to pay more tax ie under the closing_agreement than they would have otherwise owed law and analysis issue - deductions taxpayers assert that they are entitled to a deduction for a loss under sec_165 taxpayers state that the amount of the loss is based upon their unreimbursed additional income_tax_liability from the failed transaction they claim that the amount of the taxes is just a measure of the amount of the loss and the deduction for the loss is not a deduction of federal income taxes however taxpayers cite to no authority permitting a deduction under sec_165 for a loss attributable to payment of federal income taxes penalties and or interest taxpayers’ quotations from 40_bta_333 acq 1957_1_cb_4 are inapposite because that case did not address a loss for purposes of sec_165 and did not address the nondeductibility of federal income taxes later codified in sec_275 by section of the revenue act of publaw_88_272 furthermore to the extent taxpayers argue that the loss is related to the transactions rather than a deduction of federal income taxes paragraph of the closing_agreement precludes any such loss in form and substance taxpayers paid federal income taxes penalties and interest and they are attempting to deduct those federal income taxes penalties and interest under the facts of this case any deduction for payment of federal_income_tax is clearly prohibited by sec_275 also any deduction for payment of accuracy-related_penalties is prohibited we note that the legal opinion dated december year does not address this issue postf-125720-12 under sec_162 sec_212 and sec_165 finally no deduction is allowed under sec_163 for payment of interest under the facts of this case a income_tax sec_261 provides that in computing taxable_income no deduction is allowed in respect of the items specified in part ix of subchapter_b of chapter of the code part ix contains sec_275 sec_275 provides the general_rule that no deduction is allowed for federal income taxes see also sec_1_275-1 and sec_1_164-2 cf sec_164 consequently taxpayers are not entitled to a deduction under sec_165 sec_162 and sec_212 with respect to the payment4 of federal income taxes b penalties taxpayers were liable for and paid penalties under sec_6662 but not for any applicable excise_tax under sec_4973 sections and f of the closing_agreement sec_6662 imposes an accuracy-related_penalty and is part of subchapter_a of chapter of the code sec_165 allows subject_to certain limitations a deduction for a loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise however a deduction is not allowed under sec_165 when it would frustrate a sharply defined public policy revrul_77_126 1977_1_cb_47 the reach of the public policy exception under sec_165 is at least co-extensive and in our opinion broader than the reach of sec_162 905_f2d_667 2d cir it is well settled that sec_162 applies to civil penalties imposed under chapter of the code sec_1_162-21 reid v commissioner tcmemo_1981_677 see also 77_tc_1255 taxpayers are not entitled to a deduction under sec_165 sec_162 and sec_212 with respect to the payment of accuracy-related_penalties c interest sec_163 provides the general_rule that a deduction is allowed for all interest_paid or accrued within the taxable_year on indebtedness sec_163 provides that in the case of a taxpayer other than a corporation no deduction is allowed for personal_interest paid_or_accrued during the taxable_year sec_163 defines the term personal_interest it is well settled that interest_paid on individual tax_liabilities relating to income because it is not critical to the outcome in this case we are not addressing the effect if any of sec_6665 penalties included in references to tax and sec_6601 interest included in references to tax on the scope of sec_275 with respect to a deduction other than under sec_165 taxpayers would need to show that they paid a deductible amount during the tax_year at issue because they use the cash_receipts_and_disbursements_method of accounting sec_461 and sec_1_461-1 similarly no deduction is allowed under sec_212 sec_1_212-1 postf-125720-12 from a sole_proprietorship is treated as nondeductible personal_interest sec_1_163-9t powerstein v commissioner tcmemo_2011_271 and the cases cited therein taxpayers are not entitled to a deduction for the payment of interest issue -- return_of_capital theory except as otherwise provided in the internal_revenue_code a taxpayer must include in gross_income all income from whatever source derived sec_61 the supreme court has long recognized that the definition of gross_income sweeps broadly and reflects congress’ intent to exert the full measure of its taxing power and to bring within the definition of gross_income any accession to wealth 515_us_323 504_us_229 accordingly any receipt of funds by a taxpayer is presumed to be gross_income unless the taxpayer can demonstrate that the accession fits into one of the exclusions created by other sections of the code see 348_us_426 whether the proceeds recovered in a lawsuit or settlement thereof constitute an item_of_gross_income under sec_61 depends on the nature of the claim and the actual basis for settlement revrul_81_277 1981_2_cb_14 if the recovery represents damages for lost profits it is taxed as ordinary_income if the recovery constitutes a replacement of lost capital it is treated as a non-taxable return_of_capital id citing 40_bta_333 acq 1957_1_cb_4 and revrul_57_47 1957_1_cb_23 in clark the taxpayers on the advice of their return preparer made an irrevocable election to file a joint federal_income_tax return rather than separate returns the service subsequently determined a deficiency against taxpayers because the return preparer claimed a larger than permissible deduction for capital losses had the taxpayers filed separate returns their combined tax_liability would have been significantly less than the amount_paid with their joint_return as recompense for his error the tax_return_preparer indemnified the taxpayers for the difference the service included the indemnification payment in the taxpayers’ gross_income under the theory that it constituted payment of taxpayers’ taxes see 279_us_716 the board rejected the service’s treatment stating that the taxpayer paid his own taxes and that the indemnification payment was not qua taxes but compensation_for taxpayer’s loss in the present case taxpayers assert that damages recovered for improper tax_advice constitute a return_of_capital under clark and revrul_57_47 the damages recovered by taxpayers here are distinguishable from the indemnity payments in clark and revrul_57_47 where the tax_return preparer’s error caused the taxpayers to pay more than their minimum proper federal_income_tax liabilities on the underlying transactions the additional federal_income_tax paid pursuant to the closing_agreement was not due to an error made by promoter on taxpayers’ income_tax return but postf-125720-12 on an alleged failure to provide accounting and tax_advice that may have reduced taxpayers’ federal_income_tax liability accordingly the damage recovery does not constitute a non-taxable return_of_capital and must be included in taxpayers’ gross_income case development hazards and other considerations we note that the year schedule c for h includes a deduction of dollar_figuret on line legal and professional services this could be for legal fees related to the litigation against promoter if so such amounts are not deductible on schedule c but are deductible on schedule a because they are not ordinary and necessary expenses of the taxpayer’s trade_or_business see generally sec_162 and sec_212 507_f3d_857 5th cir aff’g tcmemo_2005_250 cf sec_62 such amounts are related to the income arising from the dollar_figurey payment from promoter which is reportable on line of form_1040 not on schedule c please call if you have any further questions


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-116815-03 date march re legend trust decedent spouse cpa firm daughter date date date3 dollar_figurex dollar_figurey dollar_figurez year year year year year year dear this is in response to your authorized representative’s date submission in which an extension of time was requested under sec_301_9100-3 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to allocate decedent’s remaining gst_exemption to a transfer to an irrevocable_life_insurance_trust trust created by decedent plr-116815-03 according to the facts submitted on date decedent created trust for the benefit of spouse and decedent’s descendants the pertinent provisions of trust provide as follows article ii a of trust provides that the trustees may in their discretion purchase and own life_insurance policies on the life of decedent under article iv a during the lifetime of decedent the trustees may in their discretion distribute all or a portion of the income of trust not needed to pay life_insurance premiums on policies owned by the trust to one or more or all of spouse and decedent’s descendants under article iv a upon decedent’s death if spouse survives decedent then during the remainder of spouse’s lifetime the trustees are to distribute to spouse or for her benefit so much of the income and corpus of trust as the trustees may deem necessary or advisable for her maintenance in health and reasonable comfort during the lifetime of spouse the trustees are also to distribute to or for the benefit of decedent’s descendants or to spouse for their benefit so much of the remaining income and corpus of trust as trustees may deem necessary or advisable for their education and maintenance in health and reasonable comfort any income not so distributed is to be accumulated and added to the corpus of trust article iv a provides that if spouse survives decedent then after decedent’s death spouse is to have the power by specific reference to an instrument in writing delivered to the trustees during spouse’s lifetime or in spouse’s valid last will to direct the trustees to alter the division of trust as otherwise provided in article iv b among decedent’s descendants and to accelerate the distribution in such manner and such equal or nonequal payments as spouse sees fit article viii c grants certain specified individuals the right to request distributions from the trust with respect to annual contributions to trust in each of year sec_1 and decedent made gifts to trust decedent employed a cpa to prepare and file the federal gift_tax returns form_709 to report the transfers that were made in each of year sec_1 and to trust on each return decedent allocated generation-skipping_transfer_tax_exemption in an amount equal to the total gifts made to trust in each of the five years in year on date decedent also made a gift to trust of dollar_figurez cpa prepared decedent’s federal gift_tax_return for year on the return cpa allocated only dollar_figurex that portion of the gift that exceeded the amount_of_the_gift reported as qualifying for the gift_tax annual exclusion of gst_exemption to the gift made to trust on date cpa states in an affidavit submitted with the ruling_request that the failure to allocate dollar_figurez of gst_exemption to the date transfer was unintentional and inadvertent plr-116815-03 decedent died on date cpa on behalf of decedent requests an extension of time under sec_301_9100-3 to allocate dollar_figurey of decedent’s remaining gst_exemption under sec_2642 to trust cpa requests that such allocation is to be made based on the federal gift_tax value of the property transferred to trust as of date sec_2601 imposes a tax on every generation-skipping_transfer a generation-skipping_transfer gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any gst transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is generally defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of gst_exemption under sec_2631 allocated to the trust or to property transferred in a direct_skip and the denominator is the value of the property transferred to the trust or involved in the direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by the individual or his executor to any property with respect to which the individual is the transferor sec_2631 provides that any allocation under sec_2631 once made is irrevocable sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor's lifetime other than in a direct_skip is made on form_709 sec_26_2632-1 provides that the executor may allocate gst_exemption with respect to a lifetime_transfer by a decedent of property that is not included in the transferor’s gross_estate on a form_709 sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election plr-116815-03 under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but 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_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin notice_2001_50 2001_34_irb_189 provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government 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 we conclude that the requirements of sec_301_9100-3 have been satisfied cpa is granted an extension of time until days after the date of this letter to allocate dollar_figurey of decedent’s remaining available gst_exemption to decedent’s year transfer to trust the allocation will be effective as of the date in year that the transfer to trust was made and the gift_tax value of the transfer to trust will be used in determining the inclusion_ratio with respect to trust 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 plr-116815-03 by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent the allocations of gst_exemption for decedent should be made on a supplemental form_709 the supplemental form_709 is to be filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the supplemental form_709 a copy is enclosed for this purpose sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


t c memo united_states tax_court farid farhoumand and sonya s farhoumand petitioners v commissioner of internal revenue respondent docket no 12540-08l filed date arthur h boelter for petitioners melissa l hilty for respondent memorandum opinion marvel judge pursuant to sec_6330 petitioners seek review of respondent’s determination to proceed with the collection of their federal_income_tax liability this matter was submitted fully stipulated under rule on date subsequently on date respondent filed a motion to dismiss for lack of jurisdiction which remains before the court and which if granted could eliminate the need for any further ruling on the merits pursuant to the rule submission the issues for decision are whether the court has jurisdiction to consider petitioners’ challenge to the sec_6654 addition_to_tax for failure to pay estimated_tax for sec_6654 addition_to_tax whether petitioners are entitled to a waiver of the sec_6654 addition_to_tax for and whether respondent abused his discretion when he sustained the proposed levy background as noted above the parties submitted this case fully stipulated under rule we incorporate the stipulated facts herein by this reference petitioners resided in indiana when they filed their petition farid farhoumand is a stockbroker and investment consultant his wife sonya s farhoumand does not work outside the home 1unless otherwise indicated section references are to the internal_revenue_code code for the relevant period and rule references are to the tax_court rules_of_practice and procedure at various times throughout mr farhoumand purchased and sold stocks his stock transactions generated a net_loss of approximately dollar_figure million when mr farhoumand met with a tax adviser to have petitioners’ return prepared he discovered that they could deduct only dollar_figure of the capital losses against ordinary_income because of the limitations on claiming capital losses see sec_1211 on date petitioners filed their joint form_1040 u s individual_income_tax_return for reporting income of dollar_figure and tax due of dollar_figure petitioners’ total estimated income_tax for was dollar_figure to be paid in quarterly installments of dollar_figure each on april june and date and date petitioners failed to make any of those payments the form_4340 certificate of assessments payments and other specified matters for petitioners’ tax account for shows the following assessments and payments or credits as of date date explanation assessments payments credits --- --- --- --- prompt assessment dollar_figure sec_6651 addition_to_tax dollar_figure sec_6654 addition_to_tax dollar_figure interest dollar_figure overpaid credit applied --- dollar_figure overpaid credit applied --- dollar_figure overpaid credit applied --- dollar_figure payment --- dollar_figure overpayment applied --- dollar_figure sec_6651 addition_to_tax abated big_number sec_6651 addition_to_tax dollar_figure --- dollar_figure dollar_figure total --- although petitioners’ tax account appears fully paid as of date we infer from the record that respondent’s assessment of the addition_to_tax under sec_6651 for failure to pay the amount shown as tax on the return sec_6651 addition_to_tax for was only a partial assessment of the sec_6651 addition_to_tax due from petitioners on date respondent assessed an additional sec_6651 addition_to_tax for of dollar_figure respondent did not send petitioners a notice_of_deficiency on date petitioners mailed respondent a letter requesting that respondent waive the sec_6654 addition_to_tax of dollar_figure plus interest under sec_6654 in the attached memorandum petitioners explained that they had failed to pay the required installments of estimated_tax because the losses from mr farhoumand’s stock trades were attributable to one of the most extraordinary collapses in the history of the stock market that the losses continued throughout the year and that they believed that because of these losses they could not possibly owe any income_tax for petitioners also explained that they had no money to pay installments of estimated_tax on date respondent mailed to petitioners a letter final notice_of_intent_to_levy and notice of your right to a hearing for final notice the final notice showed that respondent had assessed the sec_6651 addition_to_tax of dollar_figure and interest and that the total amount due was dollar_figure petitioners timely submitted a form request for a collection_due_process or equivalent_hearing in their request petitioners acknowledged that they owed income taxes for but explained that they had requested a waiver of the sec_6654 addition_to_tax which if accepted would have reduced the tax due to approximately dollar_figure they also requested additional time to borrow money to pay their overdue taxes 2the final notice shows the assessed balance of dollar_figure accrued interest of dollar_figure and a credit with respect to the sec_6651 addition_to_tax of dollar_figure for the total amount of dollar_figure we infer from the record that as of date the date of the form_4340 additional interest of dollar_figure had accrued but had not yet been assessed on date settlement officer joyce a daniels mailed petitioners a letter scheduling a telephone hearing for date she requested that petitioners provide a completed form 433-a collection information statement for wage earners and self-employed individuals or form 433-b collection information statement for businesses petitioners’ attorney arthur h boelter who resides and practices in seattle washington requested that the case be transferred to the appeals_office in seattle for a face-to-face hearing which he wanted to attend on their behalf having determined that a face-to-face hearing could take place only at the appeals_office closest to petitioners’ place of residence the internal_revenue_service irs transferred the case file to indiana on date settlement officer mark l grzesiowski mailed petitioners a letter scheduling a telephone hearing for date which was subsequently rescheduled to date settlement officer grzesiowski requested that petitioners provide a completed form 433-a or form 433-b and proof of estimated_tax payments for on march and mr boelter faxed letters to settlement officer grzesiowski reiterating the request for a face-to-face hearing in seattle petitioners did not submit the requested financial information before the hearing explaining to settlement officer grzesiowski that they were prepared to pay the remaining liability once the irs waived the sec_6654 addition_to_tax on date settlement officer grzesiowski informed mr boelter that a face- to-face hearing could be held only at an appeals_office in indiana where petitioners resided on date a telephone conference was held between mr boelter and settlement officer grzesiowski during the hearing mr boelter raised only the issue of the waiver of the sec_6654 addition_to_tax on date respondent sent petitioners a notice_of_determination concerning collection action s under sec_6320 and or for in the notice_of_determination the appeals_office determined that petitioners did not qualify for the waiver of the sec_6654 addition_to_tax and that it was appropriate to collect the unpaid tax_liability by levy petitioners timely petitioned this court petitioners then filed a motion for partial summary_judgment which we denied after the court held a conference call with the parties respondent filed a motion to dismiss for lack of jurisdiction see infra pp at any relevant time petitioners had not attained age or become disabled petitioners paid an addition_to_tax of dollar_figure for failing to pay estimated_tax for discussion i sec_6330 sec_6330 provides that no levy may be made on any property or right to property of any person unless the secretary has notified such person in writing of the right to a hearing before the levy is made if the person requests a hearing a hearing shall be held before an impartial officer_or_employee of the irs appeals_office sec_6330 at the hearing a taxpayer may raise any relevant issue including appropriate spousal defenses challenges to the appropriateness of the collection action and collection alternatives sec_6330 a taxpayer may contest the existence or amount of the underlying tax_liability at the hearing if the taxpayer did not receive a notice_of_deficiency for the tax_liability or did not otherwise have an earlier opportunity to dispute the tax_liability sec_6330 see also 114_tc_604 following a hearing the appeals_office must determine whether the proposed levy action may proceed the appeals_office is required to take into consideration verification presented by the secretary3 that the requirements of applicable law and administrative procedure have been met relevant issue sec_3the term secretary means the secretary_of_the_treasury or_his_delegate sec_7701 raised by the taxpayer and whether the proposed levy action appropriately balances the need for efficient collection_of_taxes with a taxpayer’s concerns regarding the intrusiveness of the proposed levy action sec_6330 sec_6330 grants this court jurisdiction to review the determination made by the appeals_office in connection with the sec_6330 hearing where the validity of the underlying tax_liability is properly at issue the court will review the matter on a de novo basis sego v commissioner t c pincite 114_tc_176 where the underlying tax_liability is not in dispute the court will review the determination of the appeals_office for abuse_of_discretion sego v commissioner t c pincite goza v commissioner t c pincite an abuse_of_discretion occurs if the appeals_office exercises its discretion arbitrarily capriciously or without sound basis in fact or law 112_tc_19 before reviewing the notice_of_determination we shall consider respondent’s motion 4the parties addressed the issue described herein upon the court’s invitation to do so ii respondent’s motion to dismiss for lack of jurisdiction a the parties’ arguments in his motion to dismiss respondent contends that this court lacks jurisdiction to review the notice_of_determination with respect to the sec_6654 addition_to_tax because he issued the final notice only with respect to the sec_6651 addition_to_tax in respondent’s view because the only liability that he can collect and with respect to which he issued the final notice was the sec_6651 addition_to_tax the only relevant issue in the sec_6330 proceeding and in this court is the collection of the sec_6651 addition_to_tax respondent believes that for this reason the waiver of the sec_6654 addition_to_tax was not validly raised during the sec_6330 hearing and therefore the court has no jurisdiction to consider any issues regarding the waiver respondent also contends that as of the date of the final notice petitioners had paid the sec_6654 addition_to_tax and owed no taxes for rendering any potential collection of the sec_6654 addition_to_tax moot and under 126_tc_1 the court has no jurisdiction to consider the sec_6654 addition_to_tax on the ground of mootness respondent requests the court to uphold the notice_of_determination and allow respondent to proceed with the levy petitioners contend that the entire liability for the taxable_year is the subject of the collection proceeding rather than what the final notice shows they also contend that it is irrelevant that a component of the total liability for the taxable_year has been paid because a waiver of the sec_6654 addition_to_tax is a method of paying the liability shown in the final notice petitioners distinguish greene-thapedi on the ground that a portion of the liability for the tax_year remains unpaid b analysis the tax_court is a court of limited jurisdiction and we may exercise jurisdiction only to the extent expressly authorized by congress see sec_7442 greene-thapedi v commissioner t c pincite our jurisdiction under sec_6330 depends upon the issuance of a valid notice_of_determination and the filing of a timely petition for review see 123_tc_1 aff’d 412_f3d_819 7th cir 117_tc_122 respondent issued a notice_of_determination and petitioners timely 5respondent’s request to uphold the notice_of_determination is inconsistent with his motion to dismiss for lack of jurisdiction we construe respondent’s request to uphold the notice_of_determination as an alternative position filed a petition accordingly we have jurisdiction to review the notice_of_determination under greene-thapedi we may dismiss a case when the proposed levy for the taxpayer’s tax_liability is moot in greene-thapedi v commissioner t c pincite the proposed levy was moot because the commissioner acknowledged that there was no unpaid liability for the determination_year upon which a levy could be based and that he was no longer pursuing the levy respondent contends that this case is similar to greene-thapedi because petitioners paid the sec_6654 addition_to_tax and respondent is not pursuing collection of that liability we disagree the proposed levy is not moot because respondent assessed the sec_6651 addition_to_tax issued a final notice and a notice_of_determination which addressed the sec_6654 addition_to_tax waiver and intends to proceed with the levy petitioners are raising an issue which if we address it could result in a determination that the levy may not proceed because the collection of the tax_liability for remains unresolved we shall not dismiss the case as moot although respondent styled his motion a motion to dismiss for lack of jurisdiction the core of his position is that we may not consider a challenge to the sec_6654 addition_to_tax because it is not the liability that respondent assessed and is attempting to collect by levy and petitioners raise no argument that we may properly consider we disagree for several reasons first petitioners raise an issue that is relevant to the unpaid tax and the proposed levy sec_6330 allows the taxpayer to raise any relevant issue relating to the unpaid tax or the proposed levy during the sec_6330 hearing in 125_tc_14 we stated that congress intended a broad construction of what issues a taxpayer was entitled to raise in a sec_6330 hearing petitioners’ argument that they are not liable for an addition_to_tax that respondent had assessed and they had paid even if different from the one shown in the final notice is a relevant issue because it affects the amount of tax that respondent is entitled to collect for the determination_year cf id pincite second we view petitioners’ request for a waiver of the sec_6654 addition_to_tax as a challenge to the underlying tax_liability which we may review de novo because they did not receive a notice_of_deficiency for see sego v commissioner t c pincite although sec_6330 and regulations thereunder sec_6330 provides several examples of such relevant issues such as appropriate spousal defenses challenges to the appropriateness of the collection actions offers of collection alternatives and under certain circumstances challenges to the existence or amount of the underlying liability do not define the phrase underlying tax_liability in 122_tc_1 we interpreted it as a reference to the amounts that the commissioner assessed for a particular tax period because the underlying tax_liability refers to any amounts assessed for the relevant tax period the liability not shown in the final notice is a component of the underlying tax_liability and can be properly challenged in a sec_6330 proceeding id accordingly we conclude that petitioners may raise an argument regarding the liability not shown in the final notice as follows from the foregoing we shall deny respondent’s motion to dismiss for lack of jurisdiction iii review of the notice_of_determination we now address petitioners’ argument that they are not liable for the sec_6654 addition_to_tax the parties agree that petitioners did not receive a notice_of_deficiency for accordingly we review respondent’s determination de novo see sego v commissioner t c pincite 7although in 122_tc_1 the precise issue was different from the issue in this case the facts relevant to the issue at hand are similar in montgomery the taxpayers not only challenged the dollar_figure amount specified in the final notice but they also contended that they had overpaid their taxes by dollar_figure see id pincite n wells j concurring accordingly both in montgomery and in the case at hand the challenged liability concerns an amount not specified in the final notice generally sec_7491 provides that the commissioner bears the burden of production in any court_proceeding with respect to the liability of any individual for any penalty addition_to_tax or additional_amount to satisfy the burden of production the commissioner must produce evidence that imposing the relevant penalty or addition_to_tax is appropriate see 118_tc_358 respondent introduced evidence establishing that petitioners were required to pay estimated_tax but failed to do so this satisfies respondent’s burden of production under sec_7491 accordingly petitioners bear the burden of introducing evidence establishing that the imposition of the addition_to_tax is not appropriate see 116_tc_438 sec_6654 imposes an addition_to_tax for underpayment of a required_installment of estimated_tax each required_installment of estimated_tax is equal to of the required_annual_payment which in turn is equal to the lesser_of of the tax shown on the taxpayer’s return for that year or if no return is filed of his or her tax for such year or if the taxpayer filed a return for the immediately preceding_taxable_year of the tax shown on that return sec_6654 and b the addition_to_tax is imposed regardless of whether 8the parties stipulated that petitioners had an dollar_figure federal_income_tax liability for there was reasonable_cause for the underpayment sec_1_6654-1 income_tax regs the addition_to_tax under sec_6654 may be waived if the secretary determines that by reason of casualty disaster or other unusual circumstances the imposition of such addition_to_tax would be against equity and good conscience sec_6654 petitioners contend that they qualify for a waiver under sec_6654 they claim that they had negative cashflow every quarter and had no money to pay estimated_tax they claim that the bursting of the dot-com bubble in which was one of the most momentous collapses in stock market history qualifies as an unusual circumstance within the meaning of sec_6654 petitioners state that although they had taxable_income o n a profit and loss basis their losses exceeded their income by dollar_figure because they had continuous losses they assumed that they had no income and would not owe any income_tax for however during the return preparation process petitioners found out that they were permitted to deduct only dollar_figure of their capital lossdollar_figure 9the parties stipulated that petitioners do not qualify for any of the other exceptions to the estimated_tax addition_to_tax under sec_6654 sec_1211 provides that losses from sales or exchanges of capital assets are allowed only to the extent of the gains from such sales or exchanges plus the lower_of dollar_figure or the excess of such losses over the gains petitioners also contend that the imposition of the addition_to_tax would be against equity and good conscience although petitioners recognize that sec_6654 contains no reasonable_cause exception they contend that several cases acknowledge that an honest mistake as to tax_liability qualifies as reasonable_cause for the sec_6651 addition_to_tax and the sec_6662 penalty and therefore the imposition of the sec_6654 addition_to_tax would be against equity and good conscience we disagree even if petitioners did not know about the limitations on deductibility of capital losses under sec_1211 as of the time when each payment of estimated_tax was due they did not know whether they would have income or a loss for the full year they had no way of predicting whether they would be able to recoup their losses by yearend and mr farhoumand continued his investment activity presumably with the hope of a market turnaround we also reject petitioners’ argument that they had no money to pay estimated_tax because they used money to pay for stock losses petitioners did not pay for stock losses as they claim they incurred losses upon selling shares they owned yet they continued to purchase other stocks instead of using the sale proceeds to pay estimated taxdollar_figure in addition petitioners’ estimate that they owe no tax for the taxable_year is irrelevant because the code does not provide for the reasonable_cause defense for the sec_6654 addition_to_tax see eg wolfgram v commissioner tcmemo_2010_69 nor would the imposition of the sec_6654 addition_to_tax be against equity and good conscience under the circumstances of this case lastly we disagree that the stock market volatility is an unusual circumstance accordingly we conclude that petitioners do not qualify for a waiver under sec_6654 during the hearing petitioners did not offer collection alternatives and in this proceeding they have not pursued any argument or presented any evidence that would allow us to conclude that the determination to sustain the levy was arbitrary capricious without foundation in fact or law or otherwise an abuse_of_discretion the appeals_office verified that all requirements of applicable law or administrative 11petitioners’ select stock purchases show that they had sufficient funds to continue to buy stocks on date the week that petitioners’ first installment of estimated_tax of dollar_figure was due they purchased several blocs of shares of cisco systems inc and shares of rydex series trust the cost of one bloc of shares of cisco systems inc was dollar_figure later sold at a loss for dollar_figure on date around the time when the second installment of dollar_figure was due petitioners purchased two blocks of stock of profunds ultraotc invs for dollar_figure and dollar_figure sold later in for dollar_figure and dollar_figure respectively on date around the time the third installment of dollar_figure was due petitioners bought stock of rambus inc for dollar_figure later sold at a loss for dollar_figure procedure were met the appeals_office concluded that the levy balanced the need for efficient collection_of_taxes with petitioners’ concerns that the collection action be no more intrusive than necessary accordingly we conclude that respondent did not abuse his discretion in sustaining the levy we have considered all of the arguments raised by either party and to the extent not discussed above we find them to be irrelevant moot or without merit to reflect the foregoing an appropriate order denying respondent’s motion to dismiss for lack of jurisdiction will be issued and decision will be entered for respondent


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 pa apjp b02 plr-157800-04 date date legend decedent corporation date date date a b c d e f g h i ----------------------- ---------------------------- ---------------- ----------------------- ------- ------- -------- ---- -------- ------- ------------------- --------------- ------------------ -------- plr-157800-04 dear --------------- this letter responds to your request for a ruling dated date regarding three issues first you asked whether the retention of s stock by a_trust during the extension period will disqualify corporation’s s status next you asked whether the interest rate remains constant during the payment period finally you asked whether under the facts described below the provisions of sec_6166 are necessary to qualify for the ownership test of sec_6166 facts decedent died on date as of the date of death decedent through her grantor_trust trust dated date owned a voting shares of corporation which constitutes b percent of corporation corporation is a family-owned s_corporation corporation has c shareholders one of whom is decedent’s brother who owns d percent of corporation e shares decedent’s gross_estate is estimated to be valued at dollar_figuref of which dollar_figureg is attributable to corporation stock decedent plans to elect under sec_645 to treat trust as part of the estate likewise decedent plans to elect to pay the estate_tax affiliated with corporation in installments pursuant to sec_6166 the governing document for trust provides that upon decedent’s death and after satisfaction of debts expenses and gifts trust is to be distributed outright or if under the age of in trust to decedent’s nieces and grandnephews beneficiaries rulings requested on the basis of the above facts and representations the following rulings have been requested whether the retention of s stock by trust during the extended period over which the estate_tax may be paid under sec_6166 will disqualify corporation’s s status whether the interest rate under sec_6601 sec_6601 and sec_6166 changes periodically or is determined as of the due_date of an estate_tax_return and remains constant throughout the period which the tax is being paid under sec_6166 whether the election to use the provisions of sec_6166 is necessary to qualify for the stock ownership test of sec_6166 and if so whether it increases the gross_estate only for purposes of qualifying under the rule and not for gross_estate tax purposes plr-157800-04 relevant authorities 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 the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that a permitted s_corporation shareholder includes a_trust with respect to stock transferred to it pursuant to terms of a will but only for the year period beginning on the day on which such stock is transferred to it sec_1_1361-1 of the income_tax regulations provides that a testamentary_trust is a_trust other than a qualified_subpart_e_trust an electing qsst or an esbt to which s_corporation stock is transferred pursuant to the terms of an electing trust as defined in sec_1_645-1 during the election_period as defined in sec_1 b or deemed to be distributed at the close of the last day of the election_period pursuant to sec_1_645-1 but in each case only for the 2-year period beginning on the day the stock is transferred or deemed distributed to the trust sec_1361 provides that a permitted s_corporation shareholder includes an electing_small_business_trust esbt sec_1361 provides that an esbt is any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 or or iv an organization described in sec_170 which holds a contingent_interest in such trust 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 sec_1_1361-1 provides the requirements for filing an esbt election sec_645 provides that if both the executor if any of an estate and the trustee of a qualified_revocable_trust qrt elect the qrt shall be treated and taxed as part of the related estate and not as a separate trust for all taxable years of the estate ending after the decedent’s death and before the applicable_date sec_645 provides that a qrt is any trust or portion thereof which was treated under sec_676 as owned by the decedent by reason of a power in the grantor determined without regard to sec_672 plr-157800-04 sec_1_645-1 provides that an electing trust is a qrt for which a valid sec_645 election has been made sec_1_645-1 defines the sec_645 election_period as the period of time during which an electing trust is treated and taxed as part of the related estate sec_1_645-1 provides that if there is an executor an electing trust is treated during the election_period as part of the related estate for all purposes of subtitle a of the internal_revenue_code including the subchapter_s shareholder requirements of sec_1361 sec_645 provides that the applicable_date if a form_706 is required to be filed by the estate is the date that is months after the date of final_determination of liability for the estate_tax sec_1_645-1 provides that solely for purposes of determining the applicable_date under sec_645 the date of final_determination of liability is the earliest of the following-- a the date that is six months after the issuance by the internal_revenue_service of an estate_tax closing letter unless a claim_for_refund with respect to the estate_tax is filed within_12_months after the issuance of the letter b the date of a final disposition of a claim_for_refund that resolves the liability for the estate_tax unless suit is instituted within six months after the final disposition of the claim c the date of execution of a settlement agreement with the internal_revenue_service that determines the liability for the estate_tax d the date_of_issuance of a decision judgment decree or other order by a court of competent jurisdiction resolving the liability for the estate_tax unless a notice of appeal or a petition for certiorari is filed within days after the issuance of a decision judgment decree or other order of court or e the date of expiration of the period of limitations for assessment of the estate_tax provided in sec_6501 sec_1_645-1 provides that on the close of the last day of the election_period the electing trust is deemed to be distributed to a new trust in a distribution to which to which sec_661 and sec_662 apply sec_1_641_b_-3 provides that a_trust does not automatically terminate upon the happening of the event by which the duration of the trust is measured a reasonable period of time is permitted after such event for the trustee to perform the duties necessary to complete the administration of the trust revrul_76_23 1976_1_cb_264 holds that when the sole purpose for retaining stock in an s_corporation in an estate of a deceased shareholder is to facilitate the payment of the estate_tax under sec_6166 of the code the administration of the estate will not be considered unreasonably prolonged and the estate will continue to be an eligible s_corporation shareholder for the period during which the estate complies with the provisions of sec_6166 plr-157800-04 sec_6166 provides in part that if the value of an interest_in_a_closely_held_business which is included in determining the gross_estate of a decedent who was at the date of his death a citizen or resident_of_the_united_states exceed sec_35 percent of the adjusted_gross_estate the executor may elect to pay part or all of the tax imposed by sec_2001 in two or more but not exceeding ten equal installments sec_6166 of the code provides in relevant part that the term ainterest in a closely_held_business means stock in a corporation carrying_on_a_trade_or_business if-- i percent or more in value of the voting_stock of such corporation is included in determining the gross_estate of the decedent or ii such corporation had or fewer shareholders sec_6166 of the code provides in part that all stock held by the decedent or by any member of his family within the meaning of sec_267 shall be treated as owned by the decedent sec_267 states that the family of an individual shall include only his brothers and sisters whether by whole or half blood spouse ancestors and lineal_descendants the attribution_rules in sec_6166 apply for purposes of determining whether a corporation ha sec_45 or fewer shareholders within the meaning of sec_6166 the attribution_rules do not apply for purposes of the test of sec_6166 the test in sec_6166 and sec_6166 or the formula used in determining the maximum amount of tax that may be paid in installments set forth in sec_6166 sec_6166 provides that for purposes of sec_6166 any nonreadily-tradable stock treated as owned by the decedent after the application of sec_6166 will be treated as included in determining the value of the decedent’s gross_estate sec_6166 defines nonreadily-tradable stock as stock for which at the time of a decedent’s death there was no market on a stock exchange or on an over-the- counter market to obtain the benefits of sec_6166 the executor must specifically elect its application note however that if elected the payment period for the estate_tax due cannot exceed years and the special interest provision in sec_6601 will not apply sec_6601 requires that a taxpayer pay interest if any amount is not paid on or before the last date prescribed for payment at the underpayment rate established under sec_6621 sec_6621 provides that the underpayment rate is the federal_short-term_rate plu sec_3 percentage points the secretary determines the federal_short-term_rate the first month in each calendar_quarter sec_6621 plr-157800-04 sec_6601 provides that if the time for payment of the chapter tax of the code has been extended pursuant to sec_6166 interest is charged at a different rate the amount of the tax that is the 2-percent_portion is charged at a rate of percent and the remainder of the tax is charged at a rate equal to percent of the annual rate provided by sec_6601 sec_6601 and b analysis issue provided that a valid sec_645 election is or has been made for trust trust will be treated as part of decedent’s estate and a permitted shareholder of corporation during the sec_645 election_period decedent’s estate will be treated as the shareholder of corporation with respect to the stock of corporation held by trust for purposes of sec_1361 sec_1366 sec_1367 and sec_1368 the sec_6166 election will not affect the date on which trust’s sec_645 election_period terminates upon the termination of the sec_645 election_period as provided by sec_1 h i and sec_1_1361-1 trust will be treated as having been distributed to a new trust new trust that qualifies as a testamentary_trust new trust will continue to be a permitted shareholder of corporation for the two year period beginning on the day following the termination of the sec_645 election_period with respect to corporation stock held by new trust during the period that corporation is treated as a testamentary_trust decedent’s estate will be treated as the shareholder of corporation for purposes of sec_1361 and new trust will be treated as the shareholder of corporation for purposes of sec_1366 sec_1367 and sec_1368 see sec_1_1361-1 additionally new trust may elect esbt treatment at any time during the two year period that new trust is treated as a testamentary_trust or the day and two month period beginning on the date after the end of the two year period if an esbt election is not made for new trust effective on or before the end of the two year period that new trust is treated as a testamentary_trust new trust will cease to be a permitted shareholder of corporation at the end of the two year period if an esbt election is made for new trust beneficiaries will be treated as the shareholders of corporation stock held by new trust for purposes of sec_1361 and new trust will be taxed as provided in sec_641 further provided that the sole purpose for retaining corporation stock in trust and new trust is to facilitate the payment of the estate_tax under sec_6166 the administration of trust and new trust following the death of decedent will not be considered unreasonably prolonged for purposes of sec_1_641 b - b issue plr-157800-04 as stated above sec_6601 provides that if the time for payment of the chapter tax of the code has been extended pursuant to sec_6166 interest is charged at a different rate the amount of the tax that is the 2-percent_portion is charged at a rate of percent and the remainder of the tax is charged at a rate equal to percent of the annual rate provided by sec_6601 sec_6601 and b the 2-percent_portion is the lesser_of the amount of the chapter tax being extended under sec_6166 or the amount of tax determined under sec_2001 that is equal to the sum of dollar_figure and the applicable sec_2010 exclusion amount reduced by the sec_2010 credit sec_6601 and ii when determining the 2-percent amount the dollar_figure is increased by the cost-of-living adjustment determined under sec_1 sec_6601 for an estate of a decedent who died in calendar_year date the 2-percent_portion is dollar_figureh instead of dollar_figure see section dollar_figure of revproc_2003_85 2003_2_cb_1184 aside from the interest rate reduction pursuant to sec_6601 there is no authority that limits the interest rate the estate will pay on outstanding chapter tax that exceeds the 2-percent_portion absent an express limitation on the interest rate in the code the estate is liable for percent of the interest rate charged in sec_6621 accordingly when the federal_short-term_rate changes in a quarter the interest rate on chapter tax that exceeds the 2-percent_portion will change to reflect the new interest rate issue to qualify for sec_6166 treatment the value of an interest_in_a_closely_held_business which is included in determining the gross_estate of a decedent must exceed percent of the adjusted_gross_estate sec_6166 an interest in a corporation carrying_on_a_trade_or_business is considered an interest_in_a_closely_held_business if i percent or more of the voting_stock of the corporation is included in determining the gross_estate or ii the corporation had or fewer shareholders sec_6166 in this case there are c shareholders thus the only way the estate can qualify for sec_6166 treatment is if it meets the percent test decedent meets the percent test because pursuant to sec_6166 her brother’s e shares may be attributed to her those shares represent d percent of the voting_stock of corporation that amount coupled with decedent’s b percent will be included in determining the value of the gross_estate sec_6166 because that amount i percent exceeds percent decedent is deemed to have an interest_in_a_closely_held_business for purposes of sec_6166 the d percent however will not be included in determining the tax due but for the attribution_rules of sec_6166 decedent’s estate would not qualify for sec_6166 treatment because however the attribution_rules are necessary to qualify for the minimum threshold or more of the value of voting_stock plr-157800-04 decedent’s estate is limited to the treatment in sec_6166 and will therefore have years to pay the estate_tax further the estate is not entitled to the favorable interest rate see sec_6166 conclusions based on the information provided and the representations made we conclude as follows provided that a valid sec_645 election is or has been made for trust trust will be treated as part of decedent’s estate and a permitted shareholder of corporation during the sec_645 election_period decedent’s estate will be treated as the shareholder of corporation with respect to the stock of corporation held by trust for purposes of sec_1361 sec_1366 sec_1367 and sec_1368 the sec_6166 election will not affect the date on which trust’s sec_645 election_period terminates periodically throughout the period which the tax is being paid under sec_6166 the interest rate under sec_6601 sec_6601 and sec_6166change sec_3 the estate qualifies for an extension of time for payment of the estate_taxes attributable to corporation pursuant to sec_6166 the d percent of attributed ownership will not be included in determining the amount of tax due this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter_ruling should be attached to decedent s federal estate_tax_return if you have any questions please contact sincerely charles a hall senior technician reviewer cc pa apjp b02


t c memo united_states tax_court garrett lawrence bailey petitioner v commissioner of internal revenue respondent docket no 6164-04l filed date garrett lawrence bailey pro_se aely k ullrich for respondent memorandum findings_of_fact and opinion marvel judge pursuant to sec_6330 petitioner seeks review of respondent’s determination to proceed with the collection of petitioner’s and federal_income_tax liabilities 1all section references are to the internal_revenue_code in effect at all relevant times findings_of_fact some of the facts have been stipulated we incorporate the stipulated facts into our findings by this reference petitioner resided in pasadena california when his petition in this case was filed petitioner is a lawyer authorized to practice law in the state of california who during the years at issue was employed as an associate in a law firm and tax_liabilities petitioner filed form_1040 u s individual_income_tax_return for and on each return petitioner reported his filing_status as married filing separate and claimed three personal exemptions one for himself one for his wife and one for his dependent son petitioner also claimed schedule c profit or loss from business or profession sole_proprietorship business_expenses of more than dollar_figure on each of his and returns in date respondent notified petitioner of changes to petitioner’s return as a result of an examination the changes included the disallowance of two of three personal exemptions and all of the schedule c business_expenses claimed on petitioner’s return for lack of substantiation in date petitioner sent letters to respondent requesting audit_reconsideration and or an appeals_conference regarding the examination changes petitioner’s case was assigned to examiner l valenzuela ms valenzuela after ms valenzuela reviewed documentation furnished by petitioner she prepared a revised examination_report for and mailed it to petitioner with a letter dated date offering petitioner an appointment to present any additional information he wished to submit by letter dated date petitioner advised respondent that he did not agree with the adjustments in the revised examination_report and requested a hearing with respondent’s appeals_office by letter dated date respondent informed petitioner that an appointment had been scheduled for date petitioner did not appear for the appointment and did not contact respondent to explain his failure to appear on date respondent issued and served on petitioner a summons requiring petitioner to appear on date and to produce various documents pertaining to petitioner’s return petitioner did not appear on date and he did not produce the requested documentation 2petitioner also requested reconsideration of examination changes but the examination_report was not issued until date by letter dated date respondent advised petitioner that changes had been made to his return as described in a report of income_tax examination changes enclosed with the letter on date respondent mailed by certified mail a notice_of_deficiency with respect to petitioner’s and taxable years to petitioner’s last_known_address pincite florecita lane altadena ca petitioner did not file a petition in this court to contest the notice_of_deficiency on date respondent assessed the income_tax deficiencies additions to tax and penalties set forth in the notice_of_deficiency and statutory interest on a date that does not appear in the record petitioner again asked respondent to reconsider petitioner’s and tax_liabilities by letter dated date respondent advised petitioner that he would need to provide respondent with documentation before respondent could grant an audit_reconsideration for and respondent requested that petitioner provide the documentation by date petitioner did not provide the requested documentation so petitioner’s request was denied by letter dated date respondent explained to petitioner why a conference had not been granted as requested by petitioner petitioner subsequently sent to respondent copies of one registration form and one check with no explanation of the nature or business_purpose of the expenses reflected in the documents by letter dated date respondent notified petitioner that he had completed the audit_reconsideration of petitioner’s tax_liability with no change in the letter respondent stated that the information you have furnished to date including to the district_office does not establish that any of the claimed expenses were ordinary and necessary and incurred in the course of a trade_or_business respondent also notified petitioner that he could request an appeals_conference if he disagreed with respondent’s decision by letter dated date petitioner appealed respondent’s findings petitioner’s appeal was assigned to appeals officer willard a stone mr stone by letter dated date mr stone advised petitioner that he had scheduled a conference for date and that petitioner should bring certain enumerated documents to the conference at petitioner’s request the conference was rescheduled for date petitioner did not attend the date conference and did not supply the requested documentation by letter dated date mr stone notified petitioner that petitioner had not established his entitlement to any of the deductions disallowed in the notice_of_deficiency that petitioner’s case would be returned to the service_center for further processing and that collection activity would recommence tax_liabilities petitioner filed his federal_income_tax return on date petitioner reported an income_tax_liability of dollar_figure and withheld income_tax of dollar_figure and claimed an overpayment however because the return was filed late respondent assessed interest and a late filing addition_to_tax on date the tax_liability at issue in this case consist sec_3various collection notices including a notice of intention to levy had been sent to petitioner with respect to his and tax_liabilities before petitioner filed his appeal in date 4on his return petitioner claimed total_tax payments for of dollar_figure consisting of withholding credits of dollar_figure and estimated_tax payments and or an amount applied from his return of dollar_figure a total_tax liability of dollar_figure and an overpayment of dollar_figure although respondent credited the withheld income_tax of dollar_figure against petitioner’s reported tax_liability of dollar_figure for respondent did not credit any estimated_tax payments or any overpayment from against petitioner’s tax_liability because the parties did not include a copy of petitioner’s return in the record we cannot ascertain whether petitioner claimed an overpayment for we note however that the form_4340 certificate of assessments payments and other specified matters for that was admitted into evidence by stipulation shows an overpayment credit of dollar_figure from that was applied to reduce petitioner’s tax_liability on date we assume therefore that petitioner claimed an overpayment on his return that was allowed at least in part as a credit against his tax_liability petitioner does not assert that respondent failed to give him credit for his overpayment nor did he introduce any evidence to prove that respondent incorrectly applied petitioner’s tax_payments primarily of the assessed interest and addition_to_tax resulting from the late filing of petitioner’s return on date respondent issued petitioner a final notice_of_intent_to_levy with respect to petitioner’s and tax_liabilities petitioner’s health problems during in late and throughout petitioner suffered from a liver ailment in date petitioner’s doctor recommended that petitioner obtain a liver transplant consultation in date petitioner was placed on the ucla liver transplant list during petitioner underwent several surgeries including a liver transplant although petitioner experienced pain and some loss of function from his liver condition during the period of his illness he continued to work at the law firm and to make court appearances except for a 6-month period in connection with his surgeries sec_6330 hearing on date petitioner timely filed a request for a collection_due_process_hearing sec_6330 hearing for 5form for reveals that respondent assessed an income_tax_liability of dollar_figure in connection with the filing of petitioner’s return the record does not explain why the assessed income_tax_liability of dollar_figure is higher than petitioner’s reported income_tax_liability of dollar_figure however petitioner offered no evidence at trial that the assessment was incorrect and the request stated that petitioner disagreed with the amounts of the assessed deficiencies and that he wished to submit an offer-in-compromise because he was unable to satisfy the tax_liability due to his health and financial conditions on date respondent sent petitioner an offer-in- compromise package to fill out and bring to his sec_6330 hearing by letter dated date appeals officer zane janish mr janish contacted petitioner regarding his sec_6330 hearing request mr janish stated that petitioner needed to complete and submit the enclosed form 433-a collection information statement for individuals and his delinquent and federal_income_tax returns by date in order for petitioner’s offer-in-compromise to be considered mr janish also warned petitioner that if petitioner did not submit the requested documents by date petitioner’s sec_6330 hearing will consist of a review of the information in petitioner’s request and case file petitioner failed to submit the form 433-a and hi sec_2001 and sec_2002 tax returns6 to mr janish 6petitioner did not file hi sec_2001 and sec_2002 tax returns until date notice_of_determination and tax_court petition on date respondent sent petitioner a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination for tax years and in the notice_of_determination respondent determined the following all legal and procedural requirements for proceeding with collection have been met petitioner was properly precluded from submitting an offer-in-compromise because he did not submit form 433-a and his delinquent and tax returns as required and because petitioner was not current with his filing obligations petitioner was properly precluded from challenging his and income_tax liabilities because respondent had issued a notice_of_deficiency for and and petitioner had not provided any evidence to prove that petitioner did not receive the notice_of_deficiency petitioner failed to submit any evidence to substantiate that the income_tax_liability reported on his return was incorrect and petitioner failed to submit any evidence to establish that the proposed levy does not balance the need for efficient collection_of_taxes with the legitimate concern that any collection action be no more intrusive than necessary petitioner filed a timely petition contesting respondent’s determination petitioner disputes the validity of the deficiencies and alleges that the proposed collection action is more intrusive than necessary opinion sec_6330 provides that no levy may be made on any property or right to property of any person unless the secretary has notified such person in writing of the right to a hearing before the levy is made if the person makes a timely request for a hearing a hearing shall be held by the internal_revenue_service office of appeals sec_6330 the administrative hearing must be conducted pursuant to sec_6330 d and e the taxpayer may raise any relevant issue to the collection action at the hearing including spousal defenses challenges to the appropriateness of the collection action and offers of collection alternatives such as offers-in-compromise sec_6330 additionally the taxpayer may contest the validity of the underlying tax_liability but only if he did not receive a notice_of_deficiency or otherwise have an opportunity to dispute the tax_liability sec_6330 the phrase underlying tax_liability includes the tax_deficiency any penalties and additions to tax and statutory interest 115_tc_329 following a hearing the appeals_office must determine whether the proposed levy action may proceed sec_6330 in so doing the appeals_office is required to take into consideration the verification presented by the secretary the issues raised by the taxpayer and whether the proposed collection action appropriately balances the need for efficient collection_of_taxes with concerns regarding the intrusiveness of the proposed collection action id the taxpayer may petition the tax_court or in limited cases a federal district_court for judicial review of the appeals office’s determination sec_6330 if the taxpayer files a timely petition for judicial review the applicable standard of review depends on whether the underlying tax_liability is properly at issue where the underlying tax_liability is properly at issue the court reviews any determination regarding the underlying tax_liability de novo 114_tc_604 the court reviews any other administrative determination regarding the proposed collection action for abuse_of_discretion id i petitioner’s challenge to the underlying tax_liabilities a mailing and delivery of notice of deficiency--1995 and tax_liabilities petitioner argues that because he did not receive the notice_of_deficiency that respondent issued for and he should not have been precluded from challenging the validity of his and tax_liabilities petitioner stipulated that a notice_of_deficiency for and issued by the office of the internal_revenue_service at los angeles california was mailed to the petitioner on date petitioner also stipulated that his address at the time the notice_of_deficiency was mailed was the same address used to mail the notice_of_deficiency and that the notice_of_deficiency was not returned as undeliverable there is a strong presumption in the law that a properly addressed letter will be delivered or offered for delivery to the addressee 75_tc_318 affd without published opinion 673_f2d_1332 7th cir see also sego v commissioner supra pincite in the absence of clear evidence to the contrary the presumptions of official regularity and of delivery justify the conclusion that the statutory notice was sent and that attempts to deliver were made in the manner contended by respondent proper mailing of the notice_of_deficiency places the risk of nondelivery on the taxpayer figler v commissioner tcmemo_2005_230 barrash v commissioner tcmemo_1987_592 affd without published opinion 862_f2d_872 5th cir petitioner does not dispute that the notice_of_deficiency was mailed to his last_known_address and he does not unequivocally deny that he received it the only evidence petitioner has produced to rebut the presumption of delivery is his testimony that he didn’t recall receiving it and he did not document the receipt of it petitioner admits that respondent mailed the notice_of_deficiency to the proper address and petitioner received several other items of correspondence mailed by respondent to the same address both before and after the notice_of_deficiency was issued because petitioner has not produced any convincing evidence to rebut the presumption of delivery we find that petitioner received the notice_of_deficiency b other opportunity to dispute and tax_liabilities petitioner also argues that he did not have an opportunity to dispute his and tax_liabilities because he was suffering from severe health problems that began in late and continued through sec_6330 provides that a taxpayer may dispute the existence or amount of unpaid tax_liability if he did not receive a notice_of_deficiency or otherwise have an opportunity to dispute such tax_liability the opportunity to dispute such tax_liability includes a conference with the appeals_office either before or after the tax_liability is assessed sec_301_6330-1 q a-e2 proced admin regs even if we assume that petitioner did not receive the notice_of_deficiency mailed by respondent on date the record establishes that petitioner had several opportunities between date and date to dispute his and tax_liabilities administratively for example in when petitioner was feeling normal and up to par health wise mr stone scheduled and then rescheduled a conference with petitioner to discuss respondent’s decision upholding the disallowance of petitioner’s exemptions and schedule c expenses petitioner did not attend the conference or submit any of the requested documentation because petitioner failed to prove that he did not receive the statutory_notice_of_deficiency that was mailed to him on date with respect to his and tax_liabilities and because petitioner otherwise had an opportunity over a 3-year period to dispute his and tax_liabilities we hold that petitioner was properly precluded under sec_6330 from challenging the existence and amount of his and tax_liabilities in his sec_6330 proceeding c tax_liability respondent concedes that no notice_of_deficiency was sent to petitioner for the tax_year and that petitioner was not precluded from challenging his tax_liability at his sec_6330 hearing however although petitioner made a blanket 7petitioner does not argue that the opportunity to dispute language in sec_6330 refers to an opportunity to dispute a tax_liability in court nor does he challenge respondent’s interpretation of sec_6330 in sec_301_6330-1 q a-e2 proced admin regs statement in his petition that he was contesting the validity of all the tax_liabilities at issue in this case petitioner did not argue at trial or in his posttrial briefs that respondent’s determination for was incorrect petitioner also failed to introduce any evidence at trial regarding his tax_liability accordingly we conclude that petitioner has abandoned his challenge to his tax_liability see eg 100_tc_367 91_tc_524 ndollar_figure ii petitioner’s challenge to respondent’s determination to proceed with the collection action in addition to his argument that respondent’s proposed collection action is overly intrusive because the assessments of petitioner’s tax_liabilities are incorrect petitioner argues that he should have been allowed to submit an offer-in- compromise we review respondent’s determination to proceed with collection for abuse_of_discretion sego v commissioner t c pincite 8even if we had concluded that petitioner could challenge the validity of his and tax_liabilities in this proceeding petitioner would still not have prevailed the documentation in the record upon which petitioner relied to substantiate his schedule c expenses was not sufficient to prove that the expenses were deductible petitioner paid most of the expenses in connection with his efforts to start several new businesses during and startup expenses resulting in an active trade_or_business generally are not deductible for a year earlier than the one in which such business begins sec_195 petitioner’s car expenses also were not deductible because petitioner failed to satisfy the substantiation requirement of sec_274 the commissioner will not process an offer-in-compromise where the information provided is insufficient to allow the commissioner to evaluate its acceptability sec_301 d proced admin regs the commissioner will not process an offer-in-compromise if the taxpayer has not filed all required tax returns or completed the required forms administration internal_revenue_manual cch sec_5 a d at big_number mr janish provided petitioner with a list of required paperwork that petitioner needed to submit in order for an offer- in-compromise to be processed and he sent petitioner a blank form 433-a petitioner did not submit any of the required forms for an offer-in-compromise including form 433-a or file hi sec_2001 and sec_2002 tax returns by the deadline set by mr janish he did not request an extension of the deadline or otherwise communicate with mr janish petitioner did not provide mr janish with any evidence of his alleged inability to pay at trial petitioner did not offer any credible_evidence to support his position that mr janish did not properly evaluate his collection information in fact the record demonstrates that the determination by mr janish was entirely appropriate mr janish verified from the information available to him that all legal and procedural requirements had been met mr janish also gave petitioner the opportunity to submit the necessary documents to make an offer-in-compromise petitioner did not submit the necessary paperwork or any other information that might have influenced mr janish’s determination because of petitioner’s consistent failure to communicate with mr janish mr janish committed no abuse_of_discretion sustaining the proposed levy as an appropriate collection action under the circumstances iii conclusion we hold that the appeals_office did not abuse its discretion in determining that respondent may proceed with the proposed collection action we have considered the remaining arguments of both parties for results contrary to those discussed herein and to the extent not discussed above conclude those arguments are irrelevant moot or without merit to reflect the foregoing decision will be entered for respondent