internal_revenue_service uil number info release date mar dear on date you forwarded to constituents your constituents asked you to support s the highway tax equity and simplification act of and expressed concern that more guidance is needed regarding the taxability of certain vehicles two letters from your as requested we responded directly to your constituents a copy of our letter is enclosed if you need further assistance please contact me or cynthia mcgreevy identification_number of my staff at sincerely assistant chief_counsel passthroughs and special industries by richard a kocak chief branch enclosure department of the treasury internal_revenue_service washington d c mar dear i am responding to your letters of date and date to asking him to support s the highway tax equity and simplification act of by letter dated date asked me to respond directly to you the internal_revenue_service has issued both regulations and revenue rulings interpreting sec_4051 of the internal_revenue_code without additional information about the vehicles that concern you i can not provide you with specific citations to the applicable authorities however i can provide you with general information concerning sec_4051 and guidance on how to request a private_letter_ruling to obtain a definite reply based on a specific set of facts there is a percent excise_tax on the first_retail_sale of certain articles including automobile truck chassis and bodies including in each case parts or accessories sold on or in connection therewith or with the sale thereof the tax does not apply to automobile truck chassis and bodies suitable for use with a vehicle that has a gross vehicle weight of big_number pounds or less the sale of an automobile truck is considered the sale of a chassis and body see sec_4051 and d under sec_145_4051-1 of the temporary excise_tax regulations a chassis or body is taxable under sec_4051 only if it is sold for use as a component part of a highway vehicle as described in sec_48_4061_a_-1 of the manufacturers and retailers excise_tax regulations these regulations define a highway vehicle as any self-propelled vehicle or any trailer or semitrailer designed to perform a function of transporting a load over public highways whether or not also designed to perform other functions but does not include a vehicle described in sec_48_4061_a_-1 the regulations specifically exempt certain specially designed mobile_machinery certain vehicles specially designed for offhighway transportation and certain stationary shelters from the definition of a highway vehicle generally the sale of a chassis or body shall be taxable if the chassis or body is in any sense suitable for use as a component part of a highway vehicle however chassis or bodies that are actually sold for use or for resale for use as a component part of a vehicle that is not a highway vehicle as defined in sec_48_4061_a_-1 are excepted if you would like definitive guidance on whether tax is imposed on a particular vehicle you may request a private_letter_ruling by following the provisions of revproc_2000_1 2000_1_irb_4 i have enclosed a copy of the revenue_procedure for your use i hope this information is of help to you if you have any questions or require further assistance please contact me or cynthia mcgreevy identification_number at sincerely assistant chief_counsel passthroughs and special industries by richard a kocak chief branch enclosure


internal_revenue_service number release date index number -------------------------- ---------- ------------------------------------------------------------ ---------------------------- ------------------------------ --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ---------------- telephone number -------------------- refer reply to cc tege eoeg eo1 plr-145218-14 date date trust city state x dear -------------- ----------------- ----------------- ----------------- ----------------- ----------------- --------------- ---------------- ----------------- ----------- ------ this letter responds to a letter from your authorized representative dated date and subsequent correspondence submitted on behalf of the trust requesting a ruling that the trust’s income is excludable from gross_income under internal_revenue_code irc sec_115 the trust represents the facts as follows facts the city is a political_subdivision of the state through the trust the city provides a length of service incentive plan that benefits its volunteer firefighters each firefighter who participates in the plan accrues a benefit equal to x multiplied by his or her years of credited service there are no general limitations on the amount of creditable service the trust assets will be used for the exclusive purpose of providing the incentive benefit payments to active and former volunteer firefighters and their beneficiaries who are eligible to receive such payments under the terms of the trust and for paying reasonable and necessary expenses under the terms of the trust an eligible plr-145218-14 firefighter may elect to receive his or her benefits for life or the firefighter can elect to receive a reduced benefit for his or her life plus certain additional benefits for his or her beneficiary upon the firefighter’s death seven trustees consisting of three selected by a committee representing the fire stations in the city one councilmember selected by the city’s city council the city’s manager or designee the city’s financial services director or designee and one citizen of the city who is appointed by the city’s mayor manage and administer the assets of the trust the trustees will employ an investment manager or managers to manage some or all of the assets of the trust the trustees are responsible for holding investing and reinvesting the trust’s assets and for making payments from the trust neither active or former volunteer firefighters nor their respective beneficiaries have any preferred claim in or any beneficial_ownership interest in any asset of the trust the trust may be terminated by the city however upon termination of the trust any remaining assets will be used to provide the incentive benefits under the terms of the trust any assets remaining in the trust after satisfying all benefit obligations must be returned to the city law and analysis sec_115 provides that gross_income does not include income derived from any public_utility or the exercise of any essential_governmental_function and accruing to a state or any political_subdivision thereof revrul_77_261 1977_2_cb_45 holds that income generated by an investment fund that is established by a state to hold revenues in excess of the amounts needed to meet current expenses is excludable from gross_income under sec_115 because such investment constitutes an essential_governmental_function the ruling explains that the statutory exclusion is intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of an entity engaged in the operation of a public_utility or the performance of some governmental function that accrues to either a state or political_subdivision of a state the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and that are within the ambit of a sovereign to conduct revrul_90_74 1990_2_cb_34 holds that the income of an organization formed funded and operated by political subdivisions to pool various risks eg casualty public plr-145218-14 liability workers’ compensation and employees’ health is excludable from gross_income under sec_115 because the organization is performing an essential_governmental_function the revenue_ruling states that the income of such an organization is excludable from gross_income so long as private interests do not participate in the organization or benefit more than incidentally from the organization the benefit to the employees of the insurance coverage obtained by the member political subdivisions was deemed incidental to the public benefit through the trust the city provides length of service incentive benefits to active and former volunteer firefighters and their beneficiaries providing these incentive benefits constitutes the performance of an essential government function within the meaning of sec_115 see revrul_90_74 and revrul_77_261 the trust’s income accrues to the city no private interests will participate in or benefit from the operation of the trust other than the benefit to the firefighters or as providers of goods or services the benefit to active or former volunteer firefighters and their beneficiaries is incidental to the public benefit see revrul_90_74 except for the benefit to the firefighters and for paying reasonable and necessary expenses in no event including dissolution will the trust’s assets be distributed or revert to any entity or person that is not a state a political_subdivision of a state or another entity the income of which is excludable from its gross_income by application of sec_115 based solely on the facts and representations submitted by the trust we conclude that because the income of the trust derives from the exercise of an essential_governmental_function and will accrue to a state or a political_subdivision thereof the trust’s income is excludable from gross_income under sec_115 except as expressly provided herein no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the irc specifically no opinion is expressed as to the taxation of plan participants and beneficiaries under sec_457 sec_402 sec_83 and the economic_benefit_doctrine furthermore no opinion is expressed as to the application of federal_insurance_contributions_act fica_taxes including social_security_tax and medicare_tax and federal_income_tax withholding to the city the trust or participants and beneficiaries it should be noted that the incentive plan component of the trust for the city’s volunteer firefighters fails the annual dollar_figure accrual limit of sec_457 and therefore does not qualify for the exception from treatment as a deferred_compensation plan subject_to sec_457 to the extent the incentive plan is a deferred plr-145218-14 compensation plan subject_to sec_457 involves the use of a nonexempt employees’ trust under sec_402 results in a transfer of property under sec_83 as a transfer of an interest in a_trust or results in application of the economic_benefit_doctrine the value of a participant’s benefits under the plan is includible in the participant’s gross_income at the time the rights to those benefits are attained and no longer subject_to a substantial_risk_of_forfeiture regardless of whether vested benefits have yet been paid furthermore the fact that a participant may be called a volunteer does not determine his or her status as an employee or an independent_contractor for federal tax purposes to the extent that a participant is a current or former employee of the city and is not covered under a state retirement_system within the meaning of sec_3121 or alternatively is covered under both a state retirement_system and an agreement under sec_218 of the social_security act social_security_tax would generally apply also to the extent that a participant is a current or former employee of the city medicare taxes would generally apply employee or former employee of the city income_tax_withholding obligations may apply to the extent that the arrangement involves the use of a nonexempt employees’ trust under sec_402 results in a transfer of property under sec_83 as a transfer of an interest in a_trust or results in application of the economic_benefit_doctrine to the extent that a participant is a current or former employee of the city the amount included in income would generally be subject_to form_w-2 reporting obligations under sec_6051 in addition any social_security wages medicare wages and income_tax_withholding would be required to be reported on form_w-2 in addition if the participant is an the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-145218-14 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely kenneth m griffin branch chief tax exempt government entities cc


number release date id office uilc cca_2010102614333637 ---------- from ------------------- sent tuesday date pm to --------------------- cc ----------------------------------------------------- subject re amended sec_6201 and sec_301_6201-1 allow assessment on any_tax shown on a return this includes any amount on an amended_return sec_301 a -1 last sentence and sec_6213 sec_6213 and sec_301_6213-1 allow assessment of any amount_paid before or after the issuance of a notice_of_deficiency thus we may assess the amount included on the amended form_1042 and paid with that form we need not open a proceeding to assess and collect


internal_revenue_service number release date index number --------------------- -------------------------- ----------------------------------------------------- -------------------------------------- ------------------------- ---------------------------- in re --------------------------------- ------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc corp b02 plr-144055-13 date date legend parent --------------------------------- ----------------------------------------------------------------------------- --------------------------------------------------------------------- ----------------------------- bank -------------------------------------------------------------------------- --------------------------------------------------------------------- agency date date date date date x agency tax professional ----------------------------------------------------- --------------------------- -------------------- --------------------------- ---------------------------- ------------------- -- ---------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ -------------------------------- plr-144055-13 dear ------------ this letter responds to a letter dated date submitted by agency as agent of the consolidated_group of which parent is the common parent the parent group requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election in particular agency is requesting an extension of time for the parent group to elect an extended carryback period the election for a consolidated_net_operating_loss cnol the material information submitted for consideration is summarized below parent is the common parent of the parent group of which bank is a member on date bank was closed and agency was appointed receiver on date pursuant to sec_301_6402-7 agency was authorized by the internal_revenue_service to act as an agent of the carryback_year group the loss_year group or any other group of which bank is a member for any matter pertaining to the determination of the refund or tentative_carryback_adjustment for the carryback and loss years of the parent group the parent group incurred a cnol in the taxable_year ending date the year cnol agency on behalf of the parent group seeks to carry back the year cnol x years to the parent group’s taxable_year ending on date under sec_172 of the internal_revenue_code the parent group was required to file the election in order to carry back the year cnol to its taxable_year ending on date and to obtain the benefit of sec_56 the election was due on date but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election agency has represented that the parent group is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 sec_172 generally permits a taxpayer to carry back a net_operating_loss nol to each of the taxable years preceding the taxable_year of the nol sec_172 permits a taxpayer to elect to carry back an applicable net_operating_loss applicable nol to each of the or taxable years preceding the taxable_year of the applicable nol in lieu of the 2-year period provided by sec_172 sec_172 provides that an applicable nol is the taxpayer’s nol for a taxable_year ending after date and beginning before date plr-144055-13 sec_172 provides that the election under sec_172 shall be made by the due_date including extension of time for filing the return for the taxpayer’s last taxable_year beginning in the election is irrevocable and in general may be made only with respect to one taxable_year sec_1502 provides that the secretary shall prescribe such regulations as he may deem necessary in order that the tax_liability of any affiliated_group_of_corporations making a consolidated_return and of each corporation in the group both during and after the period of affiliation may be returned determined computed assessed collected and adjusted in such manner as clearly to reflect the income_tax_liability and the various factors necessary for the determination of such liability and in order to prevent avoidance of such tax_liability in carrying out the preceding sentence the secretary may prescribe rules that are different from the provisions of chapter that would apply if such corporations filed separate returns sec_1_1502-21 of the income_tax regulations provides that losses taken into account in determining a cnol may be carried to other taxable years whether consolidated or separate only under paragraph b of sec_1_1502-21 sec_1_1502-21 provides that nol carryovers and carrybacks to a taxable_year are determined under the principles of sec_172 and sec_1_1502-21 sec_1_1502-21t provides that a consolidated_group may elect an extended carryback period pursuant to sec_172 with regard to a cnol arising in a taxable_year ending after date and beginning before date revproc_2009_52 2009_49_irb_744 provides when and how a taxpayer may make an election under sec_172 sec_4 of revproc_2009_52 provides that the common parent of a consolidated_group makes the election for the group sec_4 and of revproc_2009_52 permit the election to be made for consolidated taxpayers by attaching a statement to the original or amended consolidated_return for the taxable_year of the applicable cnol by attaching a statement to the taxpayer’s amended consolidated_return applying the applicable cnol to the carryback_year or by attaching a statement to a claim for a tentative_carryback_adjustment on form_1139 corporation application_for tentative refund sec_4 b and b of revproc_2009_52 require the election regardless of the manner in which made to be filed no later than the due_date including extensions for filing the return for the taxpayer’s last taxable_year beginning in under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than plr-144055-13 six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 the election by a consolidated_group to extend the carryback period under sec_172 for a cnol is a regulatory election therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for the parent group to file the election provided the parent group establishes to the satisfaction of the commissioner that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by agency and agency tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the affidavits submitted and the representations made we conclude that the parent group acted reasonably and in good_faith that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and that granting relief will not prejudice the interests of the government accordingly provided that and to the extent that the parent group qualifies substantively to file the election we grant an extension of time under sec_301_9100-3 until sixty days from the date on this letter for the parent group to file the election this letter does not extend the period of time described in sec_6511 by which a taxpayer is required to file a claim for credit or refund of an overpayment_of_tax the parent group may file the election under sec_172 to carry back the year cnol to its taxable_year ending on date on form 1120x amended u s_corporation income_tax return for the taxable_year ending either date or date according to the procedures set forth in revproc_2009_52 a copy of this letter must be attached to the form 1120x if the parent group files form 1120x electronically the parent group may satisfy the requirement of attaching a copy of this letter by attaching a statement to the parent group’s amended_return that provides the date and control number plr-144055-13 of this letter_ruling plr-144055-13 the above extension of time is conditioned on the parent group’s tax_liability if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money we express no opinion as to the parent group’s tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any item discussed or referenced in this letter in particular we express no opinion with respect to whether the parent group qualifies substantively to make the election in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the internal_revenue_code or regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in this letter for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made under penalty of perjury by agency and agency tax professional the director however should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable continue to apply this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely ken cohen acting chief branch office of associate chief_counsel corporate


internal_revenue_service number release date index number ----------------------------------------------- ----------------------------- ------------------------ ----------------------- -------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no --------------- ---------------- telephone number -------------------- refer reply to cc psi plr-138160-14 date date legend x y country date date ------------------------------------------------------------------------------------------------ ----------------------------- ------------------------------------------------------------------------------------------------ ------------------------------- ----------- ------------------------ --------------------- dear -------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a partnership for federal tax purposes facts the information submitted states that x was formed under the laws of country on date y is the sole member of x x represents that as of date it was a foreign_entity eligible to elect to be disregarded as an entity separate from its owner however x failed to timely file a form_8832 entity classification election electing to treat x as a disregarded_entity for federal tax purposes effective date x represents that y consistently filed personal u s tax returns with the intent to treat x as a disregarded_entity x also represents that granting relief will not prejudice the interests of the government and that hindsight is not involved in seeking relief to file a late election x further represents that such relief will not lower x’s aggregate tax_liability for tax years affected by the election finally x represents that it acted reasonably and in good_faith plr-138160-14 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single member having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and no more than months after the date the election is filed sec_301_7701-3 provides that if an eligible_entity classified as an association elects to be disregarded as an entity separate from its owner the following is deemed to occur the association distributes all of its assets and liabilities to its single owner in liquidation of the association sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic_extension of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for the regulatory elections that do not meet the requirements of sec_301_9100-2 under plr-138160-14 sec_301_9100-3 a request for relief will be granted when a taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonable and in good_faith and granting relief will not prejudice the interests of the government conclusions based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly x is granted an extension of time of one hundred twenty days from the date of this letter to file form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter is attached for that purpose this ruling is contingent on the owner of x filing within days of this letter all required returns for all open years consistent with the requested relief these returns may include but are not limited to the following forms i forms information_return of u s persons with respect to certain foreign_corporations and ii forms information_return of u s persons with respect to foreign disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as expressly set forth herein no opinion is expressed or implied concerning the federal tax consequences any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representatives sincerely associate chief_counsel passthroughs special industries by david r haglund david r haglund branch chief branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court james e ruth l norris petitioners v commissioner of internal revenue respondent docket no filed date james eb norris pro_se roy wulf for respondent memorandum opinion goldberg special_trial_judge respondent determined a deficiency in petitioners’ federal_income_tax for in the amount of dollar_figure unless otherwise indicated section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure after concessions by the parties ’ the sole issue for decision is whether payments under the federal employees retirement_system fers received during the tax_year are excludable from gross_income under sec_104 adjustments to social_security income are computational and will be resolved by the court’s holding on the issue in this case some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time of filing the petition petitioners resided in tacoma washington petitioners are husband and wife references to petitioner in the singular are to james e norris petitioner has a 4-year degree in social sciences from central washington university with a minor in aviation studies he also holds a master’s degree in criminal justice administration and has completed year of law school petitioner served for approximately years in the united_states air force and left at a rank of captain in after a few t petitioners concede that they failed to report interest_income of dollar_figure received by ruth l norris from peoples bank and trust in petitioners further concede that they failed to report gambling winnings of dollar_figure earned by petitioner in because petitioner incurred gambling_losses in excess of his gambling income dollar_figure will be deductible on schedule a itemized_deductions respondent concedes an accuracy-related_penalty under sec_6662 and d of dollar_figure as determined in the notice_of_deficiency different jobs petitioner was employed by the department of transportation federal aviation administration faa as a pilot examiner from until date petitioner’s first years_of_service with the faa passed without incident in after petitioner’s immediate supervisor left the faa petitioner began to have problems with his new supervisors petitioner became severely depressed and alleged that his depression resulted from discrimination from other faa supervisors and employees petitioner was placed on medical light duty with the faa in date due to the claimed unstable work environment petitioner sought psychiatric treatment beginning in on date petitioner received a 30-day notice of employment termination and subsequently on date the faa terminated petitioner’s employment prior to petitioner’s termination petitioner filed claims on date with the social_security administration ssa and the office of personnel management opm for disability retirement annuity payments pursuant to fers petitioner was approved for social_security disability on date and fers disability retirement on date concurrent with filing claims with ssa and opm petitioner also filed a claim with the united_states department of labor dol pursuant to the federal employees’ compensation act feca u s c ch petitioner believed that he suffered from an emotional psychiatric injury as a result of harassment and racial discrimination in his workplace petitioner’s request was denied on date petitioner disagreed with the opm decision denying that request and obtained a rehearing on date ina decision dated date the date decision was affirmed petitioner requested reconsideration of the date decision and on date opm denied modification of the date decision petitioner regquested further reconsideration of the date decision and again opm denied merit review of the case in a decision dated date petitioner continued to appeal unfavorable decisions through opm’s appeals process on date the employment compensation appeals board ecab of the dol rendered a final appeals decision finding that petitioner had not established that his emotional condition arose out of the performance of duty and further that the office of workers’ compensation programs properly denied petitioner’s request for reconsideration on date petitioner filed a complaint with the united_states district_court for the western district of petitioner has filed unsuccessfully a total of six appeals of prior unfavorable decisions from through washington seeking compensation_for an emotional injury allegedly sustained as a result of discrimination by the faa petitioner sought relief under the federal tort claims act ftca u s c secs but asserted that jurisdiction was appropriate under feca this action was subsequently dismissed without prejudice based upon petitioner’s failure_to_exhaust_administrative_remedies prior to bringing suit under ftca and petitioner’s failure to allege a constitutional claim under feca on their federal_income_tax return petitioners reported total pension and annuity income in the amount of dollar_figure none of which was included in their gross_income for that year petitioner received from opm form 1099-r statement of annuity paid for showing a gross annuity amount of dollar_figure petitioners included an attachment to their return stating although the total personal injury disability annuity listed on the opm form no csa-1099-r lists the total annuity as dollar_figure sic only dollar_figure was for tax_year petitioner further disclosed the pending worker’s compensation claim in the notice_of_deficiency respondent determined that no portion of payments from opm paid to petitioners during was excludable from gross_income and increased petitioners’ taxable_income in the amount of dollar_figure respondent contends that petitioners may not exclude fers payments received during the year in issue from gross_income because the amounts were not received under a worker’s compensation act pursuant to sec_104 or a statute in the nature of a worker’s compensation act pursuant to sec_1_104-1 income_tax regs petitioners contend that the disability pension amounts received should be paid under feca rather than fers the parties agree that had the payments been made under feca they would be excludable under sec_104 this court is a court of limited jurisdiction as specifically authorized by congress see sec_7442 94_tc_1 although we have jurisdiction to redetermine the income_tax deficiency under sec_6213 the court does not have jurisdiction to decide employee benefit entitlement issues that fall within the purview of various departments and agencies of the united_states government see sec_7442 merker v commissioner tcmemo_1997_277 steines v commissioner tcmemo_1991_588 affd without published opinion 12_f3d_1101 7th cir the record is clear that petitioner’s numerous requests to transform the payor of the disability payments from fers to feca have been consistently denied further all payments at issue in this case are disability payments pursuant to fers therefore the issue before us is whether such disability payments are exempt under sec_104 sec_61 provides that gross_income includes all income from whatever source derived certain income however may be specifically excluded from gross_income see sec_61 under sec_104 worker’s compensation amounts are excluded from gross_income however such exclusions have been strictly construed so as to conform with the general_rule that all income is taxable unless it is specifically excluded mcdowell v commissioner tcmemo_1997_500 see 804_f2d_553 9th cir affg 82_tc_630 sec_104 excludes from gross_income amounts received under workmen’s compensation acts as compensation_for personal injuries or sickness sec_1_104-1 income_tax regs interprets sec_104 to exempt amounts received under a worker’s compensation act or under a statute in the nature of a workmen’s compensation act which provides compensation to employees for personal injuries or sickness incurred in the course of employment workmen’s compensation act is defined as a statute which requires as a precondition to eligibility for benefits that the injury be incurred in the course of employment take v commissioner supra pincite a statute is not considered to be in the nature of a workmen’s compensation act if it allows for disability payments for any reason other than on-the-job injuries see 78_tc_864 affd per curiam 709_f2d_1206 8th cir if the statute does not qualify then the fact that the taxpayer’s injury was work related is irrelevant see 806_fsupp_932 n d ala affd per curiam 3_f3d_389 llth cir disability retirement payments received under fers are not workmen’s compensation payments see merker v commissioner supra wham v commissioner tcmemo_1985_625 affd without published opinion 812_f2d_1402 4th cir although petitioner suffers from a disability which may have arisen in the course of his employment with the faa a federal_agency that alone is insufficient to meet the requirements of sec_104 petitioner received his disability annuity under fers u s c ch under fers an employee shall be considered disabled only if the employee is found by opm to be unable because of disease or injury to render useful and efficient service in the employee’s position u s c sec a b disability under fers does not distinguish between injuries occurring on the job or elsewhere rather the focus is on whether the employee is able to perform the tasks of his employment ina useful and efficient manner see merker v commissioner supra because petitioner received disability retirement payments under fers which is not in the nature of a workmen’s compensation statute petitioners are not entitled to exclude these payments from their gross_income under sec_104 we have considered all of the other arguments made by petitioners and to the extent we have not addressed them find them to be without merit to reflect the foregoing decision will be entered under rule


t c memo united_states tax_court lawrence j polidori petitioner v commissioner of internal revenue respondent docket no filed date sherwin c peltin for petitioner j paul knap for respondent memorandum findings_of_fact and opinion wright judge respondent determined deficiencies in and additions to petitioner's federal_income_tax as follows 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure deficiency additions to tax sec_6661 sec_6653 b dollar_figure big_number big_number big_number big_number big_number big_number -- -- dollar_figure big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number big_number year after concessions the issues for decision are whether certain deposits to a foreign bank account constitute unreported income to petitioner we hold that they do whether petitioner is liable for additions to tax for fraud under sec_6653 for and under sec_6653 and for through and under sec_6653 and b for with respect to taxable years through we hold that he is with respect to taxable years and we hold that he is not whether petitioner is liable for the addition_to_tax under sec_6661 for a substantial_understatement in income_tax for taxable years and to the extent provided for herein we hold that he is whether the period of limitations has expired for assessment and collection of the deficiencies in and additions to petitioner's federal_income_tax for any year at issue with respect to taxable years through we hold that it has not with respect to taxable years and we hold that it has findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and attached exhibits are incorporated herein at the time the petition was filed petitioner resided in ozona florida petitioner and his former spouse2 were husband and wife throughout the years at issue they filed joint federal individual income_tax returns for taxable years and despite being married petitioner filed his federal individual_income_tax_return using the filing_status of head_of_household petitioner was a practicing dentist throughout the years at issue during that period both he and his former spouse were co-owners of a foreign bank account the foreign_account located in the bahamas from time to time petitioner opened subsidiary accounts within the foreign_account for various investment purposes neither petitioner nor his former spouse made withdrawals from the foreign_account prior to on date petitioner opened a second foreign_account with the same bahamian bank unlike the first foreign_account 2petitioner's former spouse fern m polidori is not a party in this case 3the parties have stipulated that neither petitioner nor his former spouse withdrew funds from the foreign_account prior to the account records however indicate that at least one cash withdrawal was made on date in the amount of dollar_figure however petitioner was the sole owner of this second account the first foreign_account was closed in date during the years at issue petitioner made deposits to the foreign_account many intra-account transfers were also made the aggregate annual deposits to the foreign_account were as follows year number of deposits amount deposited dollar_figure big_number big_number big_number big_number big_number big_number more specifically individual deposits to the foreign_account were as follows taxable_year date deposit sec_2 total dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure 4throughout the remainder of this opinion no distinction is made between these two foreign accounts 5some pages of the account records are partially illegible and asterisks are used where figures could not be determined taxable_year date total deposits dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure big_number dollar_figure dollar_figure dollar_figure taxable_year date total deposits dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure taxable_year date deposit sec_1 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure total 1dollar_figure 1the parties stipulated that deposits to the foreign_account in totaled dollar_figure but a review of the account records indicates that their stipulation failed to account for the dollar_figure deposit on taxable_year date total deposits dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure taxable_year date total deposits dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure taxable_year date total deposits dollar_figure dollar_figure the account records indicate that most of the deposit transactions involved the deposit of multiple checks during the years at issue the foreign_account earned the following amounts of interest year interest earned dollar_figure big_number big_number big_number big_number big_number big_number in petitioner also realized a short-term_capital_gain in the amount of dollar_figure from assets contained in the foreign_account petitioner used a professional accountant to prepare his tax returns for each year at issue he did not however provide the accountant with information pertaining to the existence of the foreign_account consequently the accountant did not include and petitioner did not report on his returns for any taxable_year at issue either the interest earned on the foreign_account or the short-term_capital_gain realized in petitioner 6similarly petitioner did not file a form report of foreign bank and financial_account with regard to the foreign_account for any taxable_year at issue reported the following amounts of gross_income for the taxable years at issue year gross_income dollar_figure big_number big_number big_number big_number big_number big_number the tax returns petitioner filed for each taxable_year at issue include a schedule b each schedule b specifically inquires as to whether petitioner maintained a foreign bank account at any time during the corresponding taxable_year instructions contained on each schedule b require the answer to this inquiry to be indicated by marking a box labeled either yes or no petitioner left the blocks corresponding to this inquiry blank on his returns for each taxable_year at issue except years and with respect to taxable years and petitioner explicitly indicated on each schedule b that he did not maintain a foreign bank account at any time during the year on date petitioner in accordance with a plea agreement pleaded guilty to and was convicted of filing false individual income_tax returns for taxable years and in 7respondent states on brief that petitioner's returns for and did not specifically make this inquiry however an examination of those returns shows respondent to be in error violation of sec_7206 count one of the plea agreement reads as follows that on or about date in the state and eastern district of wisconsin petitioner the defendant herein who during the calendar_year was a resident of franksville wisconsin did willfully make and subscribe a joint federal_income_tax return form_1040 on behalf of himself and his then- wife fern polidori for the calendar_year which return was verified by a written declaration that it was made under the penalties of perjury and was filed with the internal_revenue_service which return the defendant did not believe to be true and correct as to every material matter in the following respects the defendant falsely indicated on the return that he did not have any financial accounts in foreign countries during whereas in fact as the defendant well knew he and his then-wife had an account at the swiss bank corporation overseas ltd located in nassau bahamas in which at various times during he had deposits exceeding dollar_figure the defendant falsely indicated on the return that he and his then-wife had total income during the year of only dollar_figure whereas as the defendant well knew he and his wife had total income substantially in excess of the amount stated because the defendant and his wife had earned substantial additional income during on their deposits at the swiss bank corporation overseas ltd nassau bahamas which income was not reported on the return and the defendant falsely indicated on the return that he and his then-wife had interest_income during of only dollar_figure whereas as the defendant well knew he and his wife had interest_income in excess of the amount stated all in violation of title_26 united_states_code sec_7206 respondent determined that petitioner fraudulently omitted from income the interest on the foreign bank accounts for each taxable_year at issue she also determined that petitioner made the deposits to the foreign_account using unreported income and that petitioner failed to report the short-term_capital_gain realized in respondent thereafter issued the notice_of_deficiency reflecting those determinations on date opinion petitioner concedes that he failed to report gross_income from both the interest earned on the foreign_account and the short-term_capital_gain that he realized in he maintains however that respondent is precluded from assessment and collection of the deficiencies in and additions to tax determined in the notice_of_deficiency because the statute_of_limitations has expired for each year at issue respondent disagrees contending that each limitations_period remains open because petitioner filed fraudulent tax returns for the corresponding taxable years respondent further maintains that petitioner has not established a nontaxable source for the deposits that he made to the foreign_account and as a result such deposits constitute unreported income taxable to him petitioner disagrees and contends that he has established a nontaxable source for the deposits at issue for reasons discussed herein we conclude that except as to taxable years and the statute_of_limitations does not preclude assessment and collection of the deficiencies in and additions to tax determined by respondent we further conclude that petitioner has failed to establish a nontaxable source for the deposits that he made to the foreign_account issue bank_deposits bank_deposits are prima facie evidence of income and petitioner must show that the funds deposited into the foreign_account were not obtained from a taxable source rule a 87_tc_74 in order to satisfy his burden petitioner contends that he had ample resources from the liquidation of real_estate and other assets to provide the funds needed to make the deposits at issue he contends that a sale of real properties in a receipt of several periodic installment and balloon payments the collection of a mortgage and a real_property sale in provided him with the means needed to make the deposits at issue he then contends that this clearly credible_evidence satisfies his burden and shifts the burden of coming forward to respondent we disagree apparently petitioner fails to appreciate the extent of his burden_of_proof moreover he has fallen far short in his attempt to shift the burden of coming forward to respondent petitioner has indeed presented the court with evidence suggesting that he possessed the financial resources needed to make the deposits at issue however despite his alleged ability to make said deposits petitioner has not convinced the court that the deposits were made using proceeds that he received from the real_estate transactions he cites petitioner has simply identified a possible source of funds from which the deposits at issue may have been made yet merely identifying a possible source of funds does not satisfy petitioner's burden in order to refute respondent's determination petitioner must establish that the bank_deposits at issue were made from a nontaxable source of funds rule a 31_tc_690 affd 295_f2d_336 5th cir 28_tc_1228 petitioner's testimony about his having made the deposits at issue using proceeds that he received from various real_estate transactions is questionable and we reject it as such although petitioner's testimony was not contradicted at trial this court is not required to accept a taxpayer's uncontradicted testimony if we find such testimony improbable unreasonable or questionable 456_f2d_145 6th cir affg tcmemo_1970_335 450_f2d_1239 5th cir affg tcmemo_1970_89 see also tokarski v commissioner supra furthermore the size and frequency of the deposits at issue render petitioner's argument suspect of the total deposits or percent were for less than dollar_figure were for less than dollar_figure additionally most deposits consisted of multiple checks this means that the denominations of the checks used to make the deposits were less than the amounts indicated in the account records as being the total amount of each transaction petitioner has not attempted to explain this peculiar pattern of predominantly small deposits while it is conceivable that petitioner deposited the proceeds that he allegedly received from the real_estate transactions into some unidentified account and then periodically deposited checks drawn against that account into the foreign_account we hesitate to reach this conclusion because petitioner has neither argued nor proved it it is equally conceivable that the deposits at issue were made using a source of funds wholly unrelated to the transactions petitioner cites all that is certain is that several real_estate transactions occurred during the years at issue and predominantly small deposits were made throughout the course of the 7-year period before the court nothing in the record however other than petitioner's self-serving testimony links these facts while the exhibits petitioner relies upon may in fact indicate his financial ability to make the deposits at issue they do not indicate or even remotely suggest that such 8for example the account records indicate that deposits made in consisted of separate checks deposits were made using proceeds derived from the transactions described in those exhibits by not attempting to trace the subject proceeds to a single deposit or even a particular year petitioner has left a hole in his argument tracing the proceeds from the underlying transactions to the deposits at issue should not have been a difficult task for petitioner to accomplish canceled checks and past bank statements might have been persuasive evidence in this regard petitioner's failure to provide corroborative evidence presumably in his control weighs against him tokarski v commissioner supra 6_tc_1158 affd 162_f2d_513 10th cir having rejected petitioner's questionable testimony and given his failure to explain the size and frequency of the deposits at issue as well as his failure to trace the proceeds derived from the real_estate transactions to such deposits we conclude that petitioner has not established that respondent's determination is erroneous accordingly we resolve this issue in favor of respondent issue additions to tax under sec_6653 respondent contends that petitioner is liable for the addition_to_tax for civil_fraud under sec_6653 for and under sec_6653 and for and and under sec_6653 and b for specifically respondent contends that petitioner fraudulently omitted the interest earned on the foreign_account from income for each taxable_year at issue in contrast petitioner maintains that his failure to report the interest was not fraudulent but rather the result of his failure to appreciate the income_tax reporting requirements governing interest earned on foreign accounts respondent bears the burden of proving fraud by clear_and_convincing evidence sec_7454 rule b the burden that respondent bears in proving fraud under sec_6653 or sec_6501 is one and the same 67_tc_143 respondent must establish that petitioner underpaid his taxes for each taxable_year at issue and that some part of that underpayment was due to petitioner's intent to conceal mislead or otherwise prevent the collection of such taxes 94_tc_654 81_tc_640 fraud is defined as an intentional wrongdoing designed to evade tax believed to be owing effectuated by conduct designed to conceal mislead or otherwise prevent the collection of such tax 394_f2d_366 5th cir affg tcmemo_1966_81 118_f2d_308 5th cir revg 40_bta_424 69_tc_391 61_tc_249 affd 519_f2d_1121 5th cir the issue of fraud presents a factual question which must be decided on the basis of an examination of all evidence contained in the record 328_f2d_147 7th cir affg 37_tc_703 56_tc_213 54_tc_255 modified 54_tc_1351 fraud is never presumed it must be established by independent evidence of fraudulent intent 55_tc_85 fraud may be proved by circumstantial evidence and inferences drawn from the record because direct proof of the taxpayer's intent is rarely available 317_us_492 80_tc_1111 79_tc_995 affd 748_f2d_331 6th cir fraudulent intent may be inferred from a pattern of conduct spies v united_states supra pincite a pattern of consistent underreporting of income especially when accompanied by other circumstances showing an intent to conceal justifies the inference of fraud see 348_us_121 53_tc_96 understatement of income_tax in order for respondent to prove fraud with respect to the taxable years at issue she must establish by clear_and_convincing evidence that an underpayment_of_tax exists with respect to such taxable years parks v commissioner supra hebrank v commissioner supra in establishing the existence of an underpayment however respondent cannot rely on a taxpayer's failure to overcome the normal presumption of correctness attributed to the notice_of_deficiency 53_tc_96 in general for purposes of sec_6653 the term underpayment has the same meaning as the term deficiency as that term is defined in sec_6211 sec_6653 we find that respondent has satisfied this prong of her burden with respect to taxable years through respondent however has not satisfied her burden with respect to the existence of an underpayment for taxable years and as to taxable years through petitioner's stipulation that he failed to report gross_income from interest on the foreign bank accounts during those years establishes that an underpayment exists with respect to each of those years as to taxable years and however respondent has conceded that petitioner is entitled to deductions for charitable_contributions in the amounts of dollar_figure dollar_figure and dollar_figure respectively accordingly we address those years in turn with respect to taxable_year an underpayment_of_tax exists because the amount of unreported interest_income conceded by petitioner exceeds the amount of the additional charitable deduction conceded by respondent with respect to taxable_year respondent has not carried her burden in establishing the existence of an underpayment respondent cannot rely on petitioner's failure to establish a nontaxable source for the bank_deposits discussed earlier in this opinion in order to satisfy her burden otsuki v commissioner supra instead if the bank_deposits are to be considered in determining whether an underpayment exists respondent must establish by clear_and_convincing evidence that such deposits were unreported income she has not done so hence in determining whether an underpayment exists the bank_deposits may not be considered therefore because the amount of the additional charitable deduction conceded by respondent for taxable_year exceeds the unreported interest_income conceded by petitioner for that year we find that respondent has not established by clear_and_convincing evidence that an underpayment exists for taxable_year respondent has also failed to establish the existence of an underpayment for taxable_year as is the case for taxable_year and for the same reasons the bank_deposits cannot be considered when determining whether an underpayment exists for taxable_year accordingly because the amount of the additional charitable deduction conceded by respondent for taxable_year exceeds the unreported interest_income conceded by petitioner for that year we find that respondent has not established by clear_and_convincing evidence that an underpayment exists for taxable_year fraudulent intent after establishing the existence of an underpayment the second prong of respondent's burden requires that she establish that some part of that underpayment was due to petitioner's intent to conceal mislead or otherwise prevent the collection of such taxes parks v commissioner supra hebrank v commissioner supra over the years courts have developed a nonexclusive list of factors that demonstrate fraudulent intent these badges_of_fraud include understating income maintaining inadequate records failing to file tax returns implausible or inconsistent explanations of behavior concealment of income or assets failing to cooperate with tax authorities engaging in illegal activities an intent to mislead which may be inferred from a pattern of conduct lack of credibility of the taxpayer's testimony filing false documents and dealing in cash see 899_f2d_164 2d cir 796_f2d_303 9th cir affg tcmemo_1984_601 394_f2d_366 5th cir affg tcmemo_1966_81 91_tc_874 although no single factor is necessarily sufficient to establish fraud the combination of a number of factors constitutes persuasive evidence 732_f2d_1459 6th cir affg per curiam tcmemo_1982_603 55_tc_85 some conduct and evidence can be classified under more than one factor the sophistication education and intelligence of the taxpayer are relevant to this determination 99_tc_202 several of these indicia of fraud are present in this case petitioner's sophistication and experience the sophistication and experience of a taxpayer are relevant in determining whether fraud exists id see also 465_f2d_299 7th cir affg tcmemo_1970_274 19_tc_631 this includes the taxpayer's educational background 422_f2d_340 4th cir affg tcmemo_1968_298 here petitioner is an intelligent educated man in addition to practicing dentistry during the years at issue petitioner was significantly involved in the real_estate market leasing and selling various properties moreover the account statements for petitioner's foreign bank account indicate that he was an active investor in securities specifically u s treasury bills having observed petitioner at trial and considering the record we cannot accept his claim of naivete it is unlikely that petitioner as a result of his failure to report the foreign interest_income would not have realized his income_tax liabilities were consistently and substantially underreported for each year at issue consistent and substantial understatements of income consistent and substantial understatements of income may be strong evidence of fraud 70_tc_562 affd without published opinion 621_f2d_439 5th cir moreover a pattern of consistent underreporting of income when accompanied by other circumstances indicating an intent to conceal income justifies the inference of fraud 348_us_121 this case involves a 7-year period during which petitioner failed to report interest earned on his foreign bank account moreover the amount of unreported income for each year at issue is substantial in comparison with the amount of gross_income petitioner reported for such years the following table illustrates the omitted interest_income as a percentage of petitioner's reported gross_income percentage of income year dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure 1petitioner also did not report a short-term_capital_gain of dollar_figure in the figure in the table above does not include the omitted short-term gain such failure to report substantial amounts of income over a number of years is effective evidence of fraud marcus v commissioner supra petitioner's failure to report the interest_income also presents a consistent pattern from which an inference of fraud may be drawn holland v united_states supra implausible or inconsistent explanations of behavior implausible or inconsistent explanations of behavior may be a badge of fraud bradford v commissioner supra petitioner testified that he did not report the interest earned on the foreign_account because he believed that such income was not reportable until it was physically received instead of merely being credited to his account it was because of this belief petitioner further testified that he did not inform his accountant about the foreign_account or the interest earned thereon this explanation is implausible and in light of petitioner's sophistication we find it to be without merit furthermore this explanation is particularly difficult to accept in light of petitioner's testimony regarding interest_income that he received from domestic sources although petitioner testified that he could not recall what he believed to be the proper tax treatment of domestic interest_income during the years at issue petitioner testified that he relied on his accountant to treat such interest properly when preparing his returns it seems inconsistent to us that petitioner would rely on his accountant to treat his domestic interest_income properly while at the same time preventing his accountant from providing similar treatment to his foreign interest_income concealment of income or assets the concealment of income or assets is an indicium of fraud bradford v commissioner supra pincite petitioner created and maintained an interest bearing foreign bank account to which he made numerous deposits during the years at issue when petitioner filed his tax returns for taxable years and he concealed the existence and content of that account by leaving blank that portion of each schedule b which specifically inquired as to the existence of such assets similarly when he filed his tax returns for taxable years and petitioner concealed the existence and content of the foreign_account by explicitly stating on each schedule b that he did not maintain a foreign_account during the taxable_year through these representations petitioner concealed the interest earned on the foreign_account such concealment is evidence of fraud 796_f2d_303 9th cir additionally petitioner concealed the existence of the foreign_account from his accountant concealment of information from an accountant is evidence of fraud 781_f2d_1566 11th cir affg tcmemo_1985_63 reliance upon an accountant to prepare accurate returns may negate fraudulent intent if the accountant has been supplied with all the information necessary to prepare the returns 67_tc_143 this has not occurred in the instant case filing false documents fraud may also be inferred when a taxpayer files false documents bradford v commissioner supra petitioner's return for taxable_year explicitly states that he did not maintain a foreign bank account during the taxable_year petitioner contends however that it was never his intention to make such an express representation instead petitioner claims that he cannot explain why his schedule b for states that he did not maintain a foreign bank account during the taxable_year petitioner blames his accountant for the statement on the return contending that the accountant or someone under his control is responsible for making it without petitioner's authority or direction we do not accept petitioner's argument regarding this statement on the return moreover although petitioner's accountant testified that the statement in question might be the result of an error on his part we attribute little weight to his testimony as we found it to be lacking in credibility lack of credibility of taxpayer's testimony a taxpayer's incredible testimony also supports an inference of fraud bradford v commissioner supra we have difficulty accepting as credible much of petitioner's testimony for the most part it is self-serving and implausible conclusion petitioner primarily argues that he misunderstood the income_tax reporting requirements for foreign interest_income at issue here however is not simply a case involving a taxpayer's misunderstanding of the tax law rather it involves a tax_evasion scheme that spans a multi-year period during which petitioner consistently and substantially understated his income petitioner advances a dubious argument that is more likely a belated and convenient fabrication designed to facilitate his evasion scheme than a sincere claim of naivete coupling the consistent pattern of substantial underreporting with the previously discussed circumstances all of which indicate an intent to conceal income justifies the inference of fraud holland v united_states u s pincite accordingly we conclude that respondent has shown by clear_and_convincing evidence that petitioner has underpaid his taxes for each taxable_year at issue except and and that some part of each underpayment was due to petitioner's intent to conceal mislead or otherwise prevent the collection of such taxes see parks v commissioner t c pincite hence as to each taxable_year at issue except and we resolve this issue in respondent's favor as to taxable years and we resolve this issue in favor of petitioner other matters petitioner objects to the introduction into evidence of his plea agreement contending that it lacks relevancy and fosters a prejudicial inference although petitioner's conviction for willful falsification under sec_7206 is not dispositive on the issue of intent to evade tax it is a fact to be considered in a trial on the merits 84_tc_636 moreover petitioner's criminal conviction is admissible and may be relevant to prove motive opportunity intent preparation plan knowledge identity or absence of mistake or accident fed r evid b to be relevant evidence must have some tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence fed r evid although we have found that respondent failed to prove an underpayment in petitioner's income taxes for and the criminal conviction and plea agreement are of some relevance to other taxable years at issue because we have found that the petitioner's evasion scheme originated in and continued in succeeding years see 43_tc_407 ndollar_figure modified 44_tc_408 see also 92_tc_661 61_tc_249 affd 519_f2d_1121 5th cir even excluding consideration of petitioner's plea agreement there is ample evidence in the record to sustain respondent's determination for each year at issue except and because respondent has established petitioner's fraudulent intent for such years by other convincing evidence issue additions to tax under sec_6661 respondent determined that petitioner is liable for the addition_to_tax pursuant to sec_6661 for taxable years through due to a substantial_understatement_of_income_tax for such taxable years this determination is benefited by a presumption of correctness rule a a substantial_understatement is one that exceeds the greater of percent of the tax required to be shown on the return or dollar_figure sec_6661 if a taxpayer has substantial_authority for the tax treatment of any item on the return the understatement is reduced by the amount attributable to such authority sec_6661 similarly the amount of the understatement is reduced for any item adequately disclosed either on the taxpayer's return or in a statement attached to the return sec_6661 petitioner concedes that he is not entitled to an adjustment pursuant to sec_6661 for any taxable_year at issue accordingly if after performing the rule computation petitioner's understatement in tax for any year at issue is substantial as defined by sec_6661 then the addition_to_tax under sec_6661 will apply to that year issue statute_of_limitations respondent has established fraud against petitioner for taxable years through accordingly the period of limitations for assessment and collection of the tax remains open for such years sec_6501 respondent however has not established fraud against petitioner with respect to taxable years or accordingly because the notice_of_deficiency was issued on date the periods of limitations for taxable years and have expired sec_6501 to reflect the foregoing decision will be entered under rule


office_of_chief_counsel internal_revenue_service memorandum number release date cc psi b03 ------------ gl-101596-08 third party communication none date of communication not applicable uilc date september to associate area_counsel small_business self employed -------------------------- -------------------------------------------------------------------------- ------------------------------------------ from mary beth carchia senior technician reviewer branch passthroughs special industries subject ------------------- ------------------------ this chief_counsel_advice responds to your request for assistance dated date in which you asked us to review your memorandum on the issue of who is liable for employment_taxes following the administrative dissolution of a corporation in state this memorandum has been coordinated with the procedure and administration division and the tax_exempt_and_government_entities_division this chief_counsel_advice may not be used or cited as precedent legend x ---------------------------------------- state --------------- h w business periods --------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- gl-101596-08 ------------------------------------------------------------------------------------------------- --------------------------- ------------------- --------------------- ------- ------- ------- a b c d e issue for purposes of federal employment_taxes who is the employer with respect to wages paid to employees of an entity x whose corporate status was administratively dissolved under the laws of state a community_property_state conclusion after its corporate dissolution x is a disregarded_entity and w and h as husband and wife community_property owners are sole proprietors of the business and thus the employers for purposes of federal employment_taxes facts x was incorporated on a under the laws of state a community_property_state h and w who are husband and wife were equal shareholders of x x is engaged in the business of business which was formerly operated by w as a sole_proprietorship x was administratively dissolved by state on b for failure_to_file an initial report with state’s secretary of state x was never reinstated as a corporation by state in c the service audited x and h and w to determine their federal_income_tax liability for taxable years d through e x never filed form_1120 u s_corporation income_tax return for taxable years d through e the service asserted deficiencies in income_tax_liability against x and h and w for those taxable years during the audit x filed form_1120s u s income_tax return for an s_corporation for each of taxable years d through e though there is no evidence that x ever made an s_corporation_election in addition x petitioned the united_states tax_court for review of the deficiencies in income_tax_liability asserted against it by the service h and w filed an amended form_1040 u s individual_income_tax_return for each of taxable years d through e on which they as sole proprietors reported on gl-101596-08 schedule c profit or loss from business all receipts and expenses relating to the business operated by x also in c the service separately investigated the liability for unpaid federal employment_taxes incurred on wages paid in the business the employment_taxes at issue are for specified periods periods after x’s administrative dissolution the service concluded that x no longer existed as a corporation operating the business therefore the employment_taxes were assessed against w as the employer in a sole_proprietorship law and analysis a classification of x the core test of corporate existence for purposes of federal income_taxation is always a matter of federal_law whether an organization is to be taxed as a corporation under the internal_revenue_code code is determined by federal not state law 865_f2d_73 3d cir citing 305_f2d_844 ct_cl under federal_law sec_301_7701-1 of the procedure and administration regulations provides that the code prescribes the classification of various organizations for federal tax purposes whether an organization is an entity separate from its owners for federal tax purposes is a matter of federal tax law and does not depend on whether the organization is recognized as an entity under local law sec_301_7701-1 through are referred to as the check-the-box_regulations sec_301_7701-2 provides that for purposes of sec_301_7701-2 and sec_301_7701-3 a business_entity is any entity recognized for federal tax purposes including an entity with a single owner that may be disregarded as an entity separate from its owner under sec_301_7701-3 that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the code a business_entity with two or more members is classified for federal tax purposes as either a corporation or a partnership a business_entity with only one owner is classified as a corporation or is disregarded if the entity is disregarded its activities are treated in the same manner as a sole_proprietorship branch or division of the owner sec_301_7701-2 provides in part that for federal tax purposes the term corporation means a business_entity organized under a federal or state statute or under a statute of a federally recognized indian_tribe if the statute describes or refers to the entity as incorporated or as a corporation body corporate or body politic or an association as determined under sec_301_7701-3 thus the check-the-box_regulations confer automatic corporate status on organizations established under designated domestic_corporation statutes a per_se_corporation gl-101596-08 sec_301_7701-2 provides that for federal tax purposes the term partnership means a business_entity that is not a corporation under sec_301_7701-2 and that has at least two members sec_301_7701-2 provides in part that for federal tax purposes except as otherwise provided in sec_301_7701-2 a business_entity that has a single owner and is not a corporation under sec_301_7701-2 is disregarded as an entity separate from its owner sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides a default classification for an eligible_entity that does not make an election thus elections are necessary only when an eligible_entity chooses to be classified initially as other than the default classification or when an eligible_entity chooses to change its classification an entity whose classification is determined under the default classification retains that classification regardless of any changes in the members’ liability that occurs at any time during the time that the entity’s classification is relevant as defined in sec_301_7701-3 until the entity makes an election to change that classification under sec_301_7701-3 sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is- i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner under revproc_2002_69 2002_2_cb_831 a qualified_entity may be classified for federal tax purposes as either a disregarded_entity or a partnership a qualified_entity is a business_entity that is wholly owned by a husband and a wife as community_property under the laws of a state a foreign_country or a possession_of_the_united_states has no person other than one or both spouses considered an owner for federal tax purposes and is not treated as a corporation under sec_301_7701-2 if the qualified_entity and the husband and wife as community_property owners treat the entity as a disregarded_entity for federal tax purposes the service will accept the position that the entity is a disregarded_entity for federal tax purposes if the qualified_entity and the husband and wife as community_property owners treat the entity as a partnership for federal tax purposes and file the appropriate partnership returns the service will accept the position that the entity is a partnership for federal tax purposes your memorandum indicates that under state law a corporation that fails to file its initial report or its annual report when it is due or to pay the annual license fees or gl-101596-08 penalties when they become due may be administratively dissolved by state’s secretary of state in addition an administratively dissolved corporation continues its corporate existence but may not carry on any business except that necessary to wind up and liquidate its business affairs in a manner consistent with state law moreover amendments to the state business corporations act abolished the de_facto corporation and the corporation-by-estoppel doctrines thus under the laws of state an administratively dissolved corporation is no longer recognized as an operating corporate body unless reinstated in this case x was incorporated in state on a after the effective date of the check-the-box_regulations by filing articles of incorporation with state’s secretary of state because x was a business_entity organized under a state statute no check-the- box election was required and x was classified as a per_se_corporation under sec_301_7701-2 for federal tax purposes x operated for approximately six months as a corporation under state law however x never submitted its required initial report and thus was administratively dissolved by state on b as a result x was no longer recognized as a corporate entity under state law consequently x‘s status as a per_se_corporation for federal tax purposes terminated on b and x became an eligible_entity for purposes of sec_301_7701-3 as an eligible_entity x determines its entity classification under the check-the- box regulations x made no check-the-box election pursuant to sec_301_7701-3 to be classified as either an association or a partnership accordingly x’s entity classification is determined by the default classification rules under sec_301_7701-3 under the default classification rules x ordinarily would be a partnership because it has two members however x was owned solely by a husband and wife h and w as community_property under the laws of state and was not treated as a corporation under sec_301_7701-2 thus x and h and w fall within the scope of revproc_2002_69 relevant to revproc_2002_69 x has been wholly owned by h and w husband and wife as community_property under the laws of state since x’s incorporation no other person has been considered an owner for federal tax purposes after x was administratively dissolved x made no check-the-box election to be an association under sec_301_7701-3 thus x constituted a qualified_entity for purposes of revproc_2002_69 and at the choice of h and w could be classified for federal tax purposes as either a disregarded_entity or a partnership x and h and w as community_property owners did not treat x as a partnership and file partnership returns after x’s administrative dissolution thus x is not a partnership for federal tax purposes instead x filed no returns until c when x filed form_1120s for each of taxable years d through e however there is no evidence that x ever made an election to be treated as an s_corporation either before or after its administrative dissolution by state gl-101596-08 during their audit for federal income taxes h and w submitted an amended form_1040 for each of taxable years d through e on those amended returns h and w reported all receipts and expenses from x’s business on schedule c as sole proprietors thus h and w as community_property owners of x chose to treat x as a disregarded_entity for federal tax purposes in accordance with revproc_2002_69 the service should accept that position taken by h and w consequently after x’s administrative dissolution on b x should be treated as a disregarded_entity owned by h and w who are the sole proprietors of the business b employer with respect to wages paid to x’s employees employment_taxes consist of the federal_insurance_contributions_act tax fica the federal_unemployment_tax_act tax futa and the collection of income_tax at the source on wages_income_tax_withholding imposed under chapter sec_21 sec_23 and sec_24 of subtitle c of the code respectively in general the code imposes liability for employment_taxes on the employer an employer_generally is required to withhold and pay over applicable taxes from employee’s wages pay employer taxes make timely tax deposits file employment_tax returns and issue wage statements to employees for purposes of income_tax_withholding the employer is defined as the person for whom an individual performs any service as the employee of such person sec_3401 the term person includes an individual a_trust estate partnership_association company or corporation sec_7701 sec_31_3401_d_-1 of the employment_tax regulations provides that the term employer may mean an individual or other unincorporated organization group or entity the employer is required to withhold income taxes from wages paid to the employee and remit those taxes to the government sec_3402 fica_taxes are imposed on wages paid to employees with respect to employment sec_3121 sec_3101 requires the employer to pay the employer share of fica and sec_3102 requires the employer to deduct the employee share of fica from wages paid to the employee every person is an employer for fica tax purposes if he employs one of more employees sec_31_3121_d_-2 an employer may be an individual or other incorporated organization group or entity sec_31_3121_d_-2 for futa purposes an employer is defined as any person who a during any calendar_quarter in the calendar_year or the preceding year paid wages of dollar_figure or more or b on each of some days during the calendar_year or during the preceding calendar_year each day being in a different calendar_week employed at least one individual in employment for some portion of the day sec_3306 in the case of a corporation the service does not generally assert direct employment_tax liability against corporate officers the reason for such treatment is that the corporation is recognized under federal tax law as a separate legal entity which gl-101596-08 is primarily liable for employment_taxes on wages paid to its own employees however in the instant case the corporation has been dissolved by state following such dissolution the business_entity continued to operate as a disregarded_entity the activities of a disregarded_entity are treated in the same manner as a sole_proprietorship branch or division of the owner sec_301_7701-2 unlike a corporation a sole_proprietorship branch or division of the owner is not recognized as a separate legal entity under federal tax law the owner of a disregarded_entity is therefore primarily liable for employment_taxes on wages paid to its own employees see eg 484_f3d_372 6th cir mcnamee v department of treasury internal_revenue_service f 3d 2nd cir in this case x was jointly owned and operated by h and w as husband and wife in a community_property_state and treated as a disregarded_entity pursuant to sec_301_7701-2 and revproc_2002_69 accordingly h and w are the employers liable for employment_taxes on wages paid to employees of x case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call this office at if you have any further questions


internal_revenue_service number release date index number ------------------------ --------------------------- ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no -------------- telephone number ---------------------- refer reply to cc intl b02 plr-104429-13 date date ty ------- legend taxpayer fc country a year year year ------------------------ ------------------ -------------------------------------------- ------------ ------- ------- ------- tax firm b -------------------------------------- tax firm c --------------------------------------- tax firm d ------------------------------------- dear ------------------------ this is in response to a letter dated date and supplemental documentation submitted by taxpayer’s authorized representative that requested the consent of the commissioner of the internal_revenue_service commissioner for taxpayer to make a retroactive qualified_electing_fund qef election under sec_1295 of the internal_revenue_code code and sec_1_1295-3 with respect to taxpayer’s investment in fc plr-104429-13 the ruling contained in this letter is based upon information and representations submitted on behalf of taxpayer by his authorized representatives and accompanied by a penalties of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of this request_for_ruling such material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts taxpayer is a u s citizen who owns an interest in fc a publicly-traded foreign_corporation incorporated in country a that constitutes a pfic within the meaning of sec_1297 of the code taxpayer initially acquired his interest in fc in year taxpayer also acquired additional shares in fc since his initial acquisition from year to year taxpayer engaged tax firm b for the preparation of his u s tax_return since year taxpayer has engaged tax firm c for the preparation of his u s tax_return tax firm b and tax firm c are qualified to provide tax_advice on international tax matters including issues related to pfics tax firm b and tax firm c advised taxpayer with regard to u s federal_income_tax matters including with respect to taxpayer’s ownership of fc taxpayer relied on tax firm b and tax firm c to provide advice with respect to filing and reporting requirements in general as well as any elections or statements that would be necessary to elect specific tax treatment neither tax firm b nor tax firm c identified fc as a pfic and as such did not advise taxpayer regarding any potential pfic reporting requirements or available elections in year another shareholder in fc contacted taxpayer about the potential pfic status of fc which led him to consult further with tax firm c after discussing the issue with his tax advisors taxpayer retained tax firm d to help him come into compliance based on the determination that fc had likely been a pfic since before year taxpayer requested tax firm d to submit a private_letter_ruling request on his behalf to make a retroactive qef election with respect to fc under sec_1_1295-3 retroactive to year taxpayer has submitted an affidavit under penalties of perjury describing the events that led to the failure to make the qef election by the election due_date including the roles of tax firm b and tax firm c taxpayer provided information regarding his ownership of fc to tax firm b and tax firm c and tax firm b and tax firm c had access to all relevant information with respect to fc taxpayer represents that in the relevant years fc was not identified as a pfic and taxpayer did not receive any advice regarding the availability of a qef election with respect to fc taxpayer has submitted an affidavit from tax firm c corroborating the representations made by taxpayer with respect to the discovery of fc’s pfic status taxpayer has also submitted an affidavit describing why he is unable to obtain an affidavit from tax firm b plr-104429-13 taxpayer has paid an amount sufficient to eliminate any prejudice to the united_states government as a consequence of an inability to file amended returns in accordance with a closing_agreement between taxpayer and the commissioner further taxpayer filed an amended_return for each of his subsequent taxable years affected by the retroactive election if any taxpayer represents that as of the date of this request_for_ruling the pfic status of fc has not been raised by the irs on audit for any of the taxable years at issue ruling requested taxpayer requests the consent of the commissioner to make a retroactive qef election with respect to fc under sec_1_1295-3 retroactive to year law sec_1295 of the code provides that a pfic will be treated as a qef with respect to a taxpayer if an election by the taxpayer under sec_1295 applies to such pfic for the taxable_year and the pfic complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company under sec_1295 a qef election may be made for any taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations such an election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united state sec_3 government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel plr-104429-13 international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe the events that led to the failure to make a qef election by the election due_date the discovery of such failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with taxpayer’s ruling_request we conclude that taxpayer has satisfied sec_1_1295-3 accordingly consent is granted to taxpayer to make a retroactive qef election with respect to fc for year provided that taxpayer complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election we will accordingly approve a closing_agreement with taxpayer with respect to those issues affecting his tax_liability on the basis set forth above the necessary closing_agreement for taxpayer has been prepared in triplicate and is enclosed in pursuance of our practice with respect to such agreements the agreement contains a stipulation to the effect that any change or modification of applicable statutes enacted subsequent to the date of this agreement and made applicable to the taxable_period involved will render the agreement ineffective to the extent that it is dependent upon such statutes except as specifically set forth above no opinion is expressed or implied concerning the u s federal tax consequences of the facts described above under any other provision of the code this private_letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling plr-104429-13 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer’s authorized representative sincerely jeffery g mitchell branch chief branch international