t c memo united_states tax_court synergy environmental inc petitioner v commissioner of internal revenue respondent docket no 9376-12l filed date paul e kent for petitioner lisa r woods and bryant smith for respondent memorandum opinion haines judge this case was originally submitted on a stipulated record pursuant to rule and in synergy envtl inc v commissioner t c memo unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code as amended and in effect at all relevant times amounts are rounded to the continued we remanded the case to the irs appeals_office appeals for a supplemental hearing on date respondent issued his supplemental notice_of_determination concerning collection action s under sec_6320 and or supplemental notice rejecting petitioner’s offer-in-compromise and sustaining the filing of the notice_of_federal_tax_lien we must determine whether respondent abused his discretion in rejecting petitioner’s offer-in-compromise and sustaining the filing of the notice_of_federal_tax_lien background petitioner a defunct corporation maintained its principal_place_of_business in california when the petition was filed on date respondent received an offer-in-compromise august oic from petitioner offering dollar_figure to compromise unpaid federal_income_tax liabilities totaling more than dollar_figure million for tax years ending date and years at issue respondent rejected the august oic in date respondent issued a notice to petitioner indicating that a notice_of_federal_tax_lien lien notice had been filed with respect to its outstanding tax continued nearest dollar liabilities for the years at issue and informing it that it was entitled to a hearing under sec_6320 in late date petitioner appealed the rejection of the august oic to appeals a few days later petitioner timely requested a sec_6320 hearing regarding the lien notice with appeals in the lien notice hearing request petitioner proposed an offer-in-compromise as a collection alternative the august oic was not considered as a collection alternative at petitioner’s sec_6320 hearing with appeals and in synergy envtl inc v commissioner tcmemo_2014_140 we remanded the case to appeals for a supplemental hearing on date appeals officer sylvester fernando ao fernando held the supplemental hearing with petitioner’s attorney over the telephone petitioner’s attorney also provided ao fernando updated financial information on date ao fernando requested clarification regarding the updated financial information ao fernando and petitioner’s attorney agreed that the additional information would be provided by date ao fernando was out of the office on unplanned medical leave on date when petitioner’s counsel faxed to appeals approximately pages of documents to clarify the updated financial information because it was unclear when ao fernando would return to work the case was reassigned to settlement officer linda cochran so cochran so cochran had no prior involvement with this matter on the basis of the supplemental hearing and her review of the administrative file transcripts and additional documents that petitioner submitted so cochran found that the requirements of any applicable law or administrative procedure had been met in this case the august oic which was submitted solely on doubt as to collectibility was considered as a collection alternative for the years at issue petitioner was calculated to owe dollar_figure as of date considering petitioner’s current financial information and filing compliance the facts and circumstances of the case and the offer of dollar_figure to compromise petitioner’s tax_liability so cochran determined that petitioner’s offer-in-compromise met the criteria for rejection in accordance with irs policy statement p-5-89 and internal_revenue_manual irm pt date the supplemental notice was issued on date it states based on the taxpayer’s current financial information the taxpayer shows no income no assets and no ability to make payment towards the past due amounts the taxpayer’s current financial information and its current filing compliance as well as the taxpayer’s overall facts circumstances and case history were considered based on the taxpayer’s case history and fact pattern the taxpayer meets criteria for offer-in-compromise rejection in accordance with irs policy statement p-5-89 taken as a totality the taxpayer shows a pattern of moving or eliminating its assets all the while hotly contesting tax issues during the prolonged year audit and tax_court processes the taxpayer therefore meets offer-in- compromise rejection criteria as per internal_revenue_manual irm the supplemental notice goes on to state that t he settlement officer’s attempt to balance the taxpayer’s concerns with efficient collection must be weighed in favor of the government with respect to the lien issue on date the court filed petitioner’s amended petition discussion when any person liable to pay any_tax neglects or refuses to do so after notice_and_demand a lien is imposed in favor of the united_states on all property and rights to property that belong to that person sec_6321 the lien arises at the time the assessment is made and continues until the liability is satisfied or becomes unenforceable sec_6322 generally in order for the lien to be valid against third parties the secretary must file a lien notice with certain state or local authorities where the taxpayer’s property is situated sec_6323 f lindsay v commissioner tcmemo_2001_285 aff’d 56_fedappx_800 9th cir the secretary must furnish the taxpayer with a written notice of the filing of a lien notice and of the taxpayer’s right to a hearing concerning the lien sec_6320 if the taxpayer timely requests a hearing the hearing is to be conducted by an officer_or_employee of appeals who has had no prior involvement with respect to the unpaid taxes sec_6320 c the taxpayer may raise at the hearing any relevant issue relating to the unpaid tax or the lien including offers of collection alternatives such as an offer-in-compromise sec_6320 sec_6330 petitioner’s collection alternative the august oic was an offer of dollar_figure to compromise its liability exceeding dollar_figure million we have jurisdiction to review appeals’ determinations sec_6320 sec_6330 because the underlying tax_liability is not at issue this court’s review is for abuse_of_discretion see 114_tc_604 114_tc_176 the court do es not conduct an independent review of what would be an acceptable offer_in_compromise 125_tc_301 aff’d 469_f3d_27 1st cir the extent of our review is to determine whether appeals’ decision to reject the august oic as a collection alternative was arbitrary capricious or without sound basis in fact or law see id the notice_of_determination sets forth appeals’ findings and decisions sec_301_6320-1 q a-e8 proced admin regs the notice_of_determination will state whether the irs met the requirements of any applicable law or administrative procedure respond to any offers by the taxpayer for collection alternatives and address whether the continued existence of the filed notice_of_federal_tax_lien represents a balance between the need for the efficient collection_of_taxes and the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary id the supplemental notice states that so cochran found that the requirements of any applicable law or administrative procedure had been met the supplemental notice also found that t he settlement officer’s attempt to balance the taxpayer’s concerns with efficient collection must be weighed in favor of the government with respect to the lien issue we cannot find that so cochran failed to satisfy either of these requirements accordingly we must turn to the decision to reject the offer-in-compromise as a collection alternative a taxpayer’s liability may be compromised where doubt as to collectibility exists sec_7122 sec_301_7122-1 proced admin regs doubt as to collectibility exists in any case where the taxpayer’s assets and income are less than the full amount of the liability sec_301_7122-1 proced admin regs however the decision to accept or reject an offer to compromise is left to the secretary’s discretion id para c proced admin regs the determination whether to accept or reject an offer to compromise will be based upon consideration of all the facts and circumstances including whether the circumstances of a particular case warrant acceptance of an amount that might not otherwise be acceptable under the secretary’s policies and procedures id irs policy statement p-5-89 states that i f the acceptance of an offer might in any way be detrimental to the government’s interests it may be rejected even though it is shown conclusively that the amounts offered are greater than could reasonably be collected in any other manner irm pt dollar_figure date irm pt allows offers to be rejected on the basis of irs policy statement p-5-89 and outlines the criteria for rejecting offers-in-compromise on such grounds for example an offer-in-compromise may be rejected on the basis of a public policy decision in a situation where t he taxpayer engaged in a pattern of conduct suggesting intentional dissipation of assets id pt so cochran considered the facts and circumstances of this case and determined that the august oic could be rejected pursuant to irs policy statement p-5-89 and irm pt the supplemental notice states in part that t aken as a totality the taxpayer shows a pattern of moving or eliminating assets we find that so cochran did not abuse her discretion by rejecting an offer of dollar_figure to compromise over dollar_figure million and find that she did not abuse her discretion in sustaining the filing of the notice_of_federal_tax_lien see sec_301_6320-1 q a-e8 proced admin regs in reaching our decision we have considered all arguments made and to the extent not mentioned above we conclude they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-145129-02 date date legend company owners foreign_country date date dear this letter responds to a letter dated date and subsequent correspondence requesting a ruling under sec_301_9100-3 of the procedure and administration regulations to file an election for company to be treated as a partnership for federal tax purposes facts according to the information submitted company was formed in foreign_country on date company is owned by owners who are all considered to have limited_liability under the laws of foreign_country and company is considered to be an entity plr-145129-02 under the laws of foreign_country at all times after the formation of company owners intended company to be treated as a partnership for federal tax purposes and owners filed their u s tax returns consistent with company being treated as a partnership for federal tax purposes in date it was discovered that a form_8832 entity classification election inadvertently had not been filed law and application 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 elections are necessary only when an eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that unless the entity elects otherwise a foreign eligible_entity is classified as an association if all its members have limited_liability 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 a 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 on the election form the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed 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 six months except in the case of a taxpayer who is abroad under all subtitles of the 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 an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-145129-02 conclusion based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly company is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center with an effective date of date a copy of this letter should be attached to the election and is enclosed for this purpose except for the specific ruling above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts of this case under any other provision of the internal_revenue_code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent under a power_of_attorney on file with this office we are sending the original of this letter to you and a copy to company sincerely s heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


id office uilc cca-115635-12 ---------- number release date from ------------------- sent thursday date am to ----------------- cc subject fw injunctive relief question ----------- hi ------- your email has been forwarded to me to answer--------- handles these issues injunctions under a for unpaid employment_taxes there is certainly no dollar theshold that chief_counsel applies in reviewing these employment_tax cases and it is not necessary for the taxpayer to have operated more than one entity i am aware of no dollar theshold that ro's apply or any requirement that the taxpayer have opened and closed businesses and if there were such requirements i believe i would have heard about them it's a case-by-case determination the dollar amounts we've seen in reviewing the referral letters to doj are always quite substantial but there is no focus on the amount per quarter--it's the total amount that everyone focuses on for the record though the version of irm that ---------- quotes is no longer current as of it say sec_5 standards for injunctive relief under sec_7402 an interim guidance memo was issued date stating that effective date monthly filing and special deposit procedures will become obsolete seesbse-05-1211-090 i attach a copy of that memo -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------- let me know if this doesn't answer your question or you have more attachment redacted


department of the treasury internal_revenue_service washington d c tax exempt and es government entiti division a rom lip te yul o - ow yrfll -o7 live pate au sec_28 employer_identification_number contact person identification_number telephone number tika bey i d o o f t t g y u o p d z z o e s o v o d n a t w t l t x dear sir or madam we have considered m’s ruling_request dated date wherein m requests approval of a proposed set-aside of funds to be treated as qualifying distributions under sec_4942 of the internal_revenue_code for its taxable_year ending date m is exempt from federal_income_tax as an organization described in sec_501 c of the code it has also been classified as a private_foundation under code sec_509 m requests approval of a set-aside in the amount of dollar_figurex for its taxable_year ending date amounts to be set_aside will be paid to n a sec_501 c organization whose primary purpose is to support the goals and objectives of o a state history museum and a division of p the latter entity as stated in a determination_letter from the internal_revenue_service is a wholly owned state_agency of a political_subdivision of a state and thus is automatically exempt from federal_income_tax under sec_1 a of the code the set-aside will be used specifically to provide funding for q an exhibit gallery and for the r exhibit both q and r will be located in s supporting p’s development and construction of s m will pay the set-aside to n over a period of four years upon satisfaction of the criteria contained in the proposed grant agreement included with your submission p is developing s within the t state capitol complex and n is q is an big_number square foot exhibit gallery within s it is estimated that q will be complete by june at a cost of approximately dollar_figurex the use of a set-aside is necessary to provide p with a funding commitment while permitting m to retain control_over the distribution of its funds to ensure that construction progresses as planned funding from a planned issuance of t bonds are used for the specified purpose and contributions from m are used for the specified purpose the grant agreement provides that funding by m will be conditioned upon completion of progress reports by p the building housing q is scheduled to be completed in december however the exhibits in q will not be completed until june p must provide m with a progress report every six months containing information regarding the progress of development and construction of q until p spends all grant funds each advance from m is contingent upon completion of q and the use of grant funds for q exhibits not the building the grant agreement has recently been revised to provide that in the event that q and sdollar_figure are complete and open to the public prior to date then m will pay n the balance of the amount that remains payable as soon as practicable following m’s determination that the requirements in the grant agreement have been satisfied m's commitment represents a portion about one-eighth of the total funds required for q it is important to m that its support for the construction of q be used for that purpose m does not want its contribution spent on other parts of s or for the general operating budget of p m believes that a set-aside is the only mechanism that ensures that the proper use of m’s funds especially in this case where the facility will be owned and operated by a state_agency concerning the latter point t’s fiscal crisis has put completion of s in jeopardy because of the budget crisis there have been severe cuts to practically every state_agency m is concerned that if funding for s is inadequate an unrestricted contribution by m could be reallocated or applied in ways that are not intended inasmuch as the t legislature failed to appropriate additional funding for s the legislature authorized the issuance of additional bonds to finance the project in may however a recent decision by the highest court in t declared that the state commission that was authorized to issue bonds is unconstitutional although the commission has been reorganized this event has caused great uncertainty regarding the ability of the state to issue bonds in a timely manner which adds an element of substantial risk to the project s is a dollar_figurex project that involves the construction of a big_number square foot museum and research facility located in the t capitol complex q which contains approximately big_number square feet in s will incorporate nine broad subject areas from t history that have affected both the internal and external images culture and history of t construction of q has not yet commenced the current projection is that q will be complete and open to the public by june the grant agreement requires that n shall provide recognition to m by naming the q gallery and the r exhibit after m and its founder b subject_to the terms and conditions stated in paragraph a digital video presentation on the history and heritage of m and its founder paragraph in addition m and b will be recognized on the donor wall which will incorporate provides in part that n may identify that m has awarded a grant to n the amount of the grant and the purpose of the grant n shall use the m name trademarks service marks logos commercial symbols or other identification to identify m as a sponsor donor or contributor the dollar_figurex that will be set_aside for purposes of q will actually be paid within the four year payment period specified in the grant agreement this payment period will end no later than months after the date of the first set-aside sec_4942 of the code imposes on the undistributed_income_of_a_private_foundation for any taxable_year which has not been distributed before the first day of the second or any succeeding taxable_year following such taxable_year if such first day falls within the taxable_period a tax equal to percent of the amount of such income remaining undistributed at the beginning of such second or succeeding taxable_year section-4942 c defines the term undistributed_income as the amount by which the distributable_amount for such taxable_year exceeds the qualifying distributions made before such time out of such distributable_amount sec_4942 of the code provides that the term distributable_amount means with respect to any foundation for any taxable_year an amount equal to the sum of the minimum_investment_return plus the amounts described in subsection f c reduced by the sum of the taxes imposed on such private_foundation for the taxable_year under subtitle a and sec_4940 sec_4942 of the code defines a qualifying_distribution as a any amount_paid to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled by the foundation or one or more disqualified persons or ii a private_foundation which is not an operating_foundation except as otherwise provided or b any amount_paid to acquire an asset used directly in carrying out one or more purposes described in sec_170 é sec_4942 of the code provides that for all taxable years beginning on or after date an amount set_aside for a specific project which comes within one or more purposes described in sec_170 may be treated as a qualifying_distribution if the requirements of subparagraph b of sec_4942 it meets sec_4942 of the code provides that an amount set_aside for a specific project may be treated as a qualifying_distribution if at the time of the set-aside the foundation establishes to the satisfaction of the secretary that the amount will be paid for the specific project within five years and the project is one which can be better accomplished by such set- aside rather than by immediate payment of funds the suitability test’ sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations provides that an amount set_aside for a specific project that is for one or more of the purposes described in sec_170 or b of the code may be treated as a qualifying_distribution in the year in which set_aside if the requirements of that section and sec_4942 are satisfied the foundation must establish that the amount set_aside will be paid for the specific project within months after it is set_aside and the set-aside satisfies the suitability test or the foundation satisfies the cash distribution test sec_53_4942_a_-3 of the regulations provides that the suitability test is satisfied if the foundation establishes that the specific project is one in which relatively long-term grants or expenditures must be made in order to assure the continuity of particular charitable projects or program-related investments the proposed set-aside for m’s taxable_year ending date is in furtherance of m’s charitable purposes the funds to be set_aside will be used to help fund a gallery q which will include various subject areas from the history of t q is housed ina museum o which is part of the state capitol complex the funds will clearly be used to advance an educational purpose within the meaning of sec_501 of the code thus the set-aside will be used to accomplish a purpose described in sec_170 as required by sec_4942 m has also established to our satisfaction that the project outlined above can be better accomplished by such set-aside rather than by the immediate payment of funds m has assured us that the funds to be set_aside in its taxable_year ending date will actually be paid prior to the expiration of months from the date of the set-aside based on the foregoing we rule that the set-aside of 250x dollars on m’s books_and_records for its taxable_year ending date satisfies the requirements of sec_4942 of the code and sec_53_4942_a_-3 of the regulations the suitability test accordingly the proposed set-aside may be treated as qualifying distributions for m’s taxable_year ending date we direct your attention to sec_53_4942_a_-3 of the regulations entitled evidence of set-aside this section provides that a set-aside approved by the internal_revenue_service shall be evidenced by the entry of a dollar amount on the books_and_records of a private_foundation as a pledge or obligation to be paid at a future date or dates further any amount which is set_aside shall be taken into account for purposes of determining the foundation’s minimum_investment_return see sec_53_4942_a_-2 and any income attributable to such set-aside shall be taken into account in computing adjusted_net_income see sec_53_4942_a_-2 this ruling is based on the understanding that there will be no material changes in the facts upon which it is based any changes that may have a bearing upon your tax status should be reported to the tax exempt and government entities te_ge customer service office which deals with exempt_organizations matters the mailing address is internal_revenue_service te_ge customer service p o box we are sending a copy of this ruling to the te_ge office because this letter could help resolve any questions about your tax status you should keep it with your permanent records lf you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter -5- this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent thank you for your cooperation sincerely debra j kawecki acting manager exempt_organizations technical group


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 b04 plr-121067-08 date october date of death ------------------ date of death ------------------ date ---------------------- decedent ----------------------- ------------------------------------- trust ------------------ date spouse -------------------- daughter --------------------- law firm --------------------------------------- date date a b c company ---------------------------------------------- ----------- ------------- ------------- ------------------------------------------------------------------------------------------------- ---------------- dear ---------- this responds to your representative’s letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to sever a_trust into an exempt and nonexempt trust for purposes of generation-skipping_transfer gst tax and to make a reverse qualified_terminable_interest_property qtip_election under sec_2652 of the internal_revenue_code with respect to the exempt trust the facts submitted and representations made are as follows plr-121067-08 on date decedent created trust a revocable_trust on date decedent died whereupon trust became irrevocable decedent was survived by spouse and daughter article of trust provides that if decedent predeceases spouse then upon decedent’s death the trustee shall divide the trust estate into two trusts the marital trust is to consist of the minimum amount necessary to reduce the federal estate_tax to zero the family_trust is to consist of the balance of the trust estate article of trust contains the provisions of the marital trust subsection a of article provides for distributions of income and principal to spouse during her lifetime subsection b provides that if the executor of decedent’s estate makes an election under sec_2652 the trustee may divide the corpus of the marital trust into two fractional share trusts the share for which the election is made is to consist of the amount of gst_exemption allocated to the marital trust and the other share is to consist of the remaining portion of the trust subsection d provides spouse with a testamentary special_power_of_appointment to appoint the remaining balance of the marital trust to or for the benefit of one or more of decedent’s issue upon the death of spouse the marital trust shall terminate and its remaining balance after the exercise by spouse of spouse’s special_power_of_appointment shall be distributed as provided in article of trust article of trust provides that upon the death of spouse the unappointed balance of the marital trust and family_trust shall be divided into as many equal shares as there are children of decedent then living and children of decedent then deceased but leaving issue then living shares for each child then living shall be held in further trust pursuant to article of trust and shares for the then living issue of each of those children then deceased shall be distributed in fee simple per stirpes and free of trust article of trust provides that for each separate share created pursuant to article the trustee may distribute income and principal as the trustee deems advisable to provide for the support maintenance health and education of the child of decedent for whom the share was created and the issue of that child the child of decedent for whom the share was created has a testamentary special_power_of_appointment to appoint the remaining balance of the separate trust to or for the benefit of any one or more persons corporations or other entities other than to the child the child’s estate the child’s creditors or the creditors of the child’s estate upon the death of the child the separate trust shall terminate and its remaining balance after the exercise by the child of the child’s special_power_of_appointment shall be distributed in fee simple per stirpes and free of trust to the child’s then living issue article of trust provides that before any trust with an inclusion_ratio between one and zero as defined in sec_2642 is funded the trustee may divide the trust into two plr-121067-08 separate trusts one trust shall have an inclusion_ratio of zero and one trust shall have an inclusion_ratio of one spouse as co-executor of the estate engaged law firm to prepare and assist her in the timely filing of decedent’s united_states estate and generation-skipping_transfer_tax return form_706 the form_706 was timely filed on date on schedule m bequests etc to surviving_spouse the estate made the election under sec_2056 to treat the property of the marital trust as qualified terminal interest property qtip the form_706 reflects that the marital trust was funded with a total of dollar_figurea in assets on schedule r generation-skipping_transfer_tax dollar_figureb of decedent’s gst tax exemption was allocated to the family_trust the form_706 reflects that the family_trust was funded with a total of dollar_figurec in assets an amount less than dollar_figureb accordingly to the extent the amount allocated exceeded the amount necessary to obtain an inclusion_ratio of zero with respect to family_trust the allocation was void see sec_26 b i of the generation-skipping_transfer_tax regulations law firm failed to advise spouse how to fully utilize decedent’s gst tax exemption by severing the marital trust into a gst exempt marital trust and a gst nonexempt marital trust and by making an election under sec_2652 a reverse_qtip_election to treat all of the property in the gst exempt marital trust as if the election to be treated as qtip had not been made for purposes of chapter on date company was appointed as the successor trustee of the family_trust and the marital trust company reviewed the trust instrument and decedent’s form_706 and discovered the incorrect allocation of decedent’s gst_exemption company also realized that the marital trust should have been severed into a gst exempt marital trust and a gst nonexempt marital trust and that the remaining balance of decedent’s gst_exemption should have been allocated to the exempt trust in accordance with the relevant provisions of trust company in its capacity as trustee of the marital trust has requested the following rulings the successor trustee is granted an extension of time under sec_301_9100-3 to sever the marital trust under sec_26_2654-1 of the generation-skipping_transfer_tax regulations into a gst exempt marital trust and a gst nonexempt marital trust the decedent’s estate is granted an extension of time under sec_301_9100-3 to file a supplemental form_706 making a reverse_qtip_election under sec_2652 with respect to the gst exempt marital trust plr-121067-08 the automatic allocation rules of sec_2632 will operate to cause the unused portion of decedent’s gst_exemption to be allocated to the gst exempt marital trust sec_2001 of the internal_revenue_code imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse sec_2056 provides in pertinent part that no deduction shall be allowed under sec_2056 where on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur an interest passing to the surviving_spouse will terminate or fail sec_2056 provides that in the case of qualified_terminable_interest_property the entire property shall be treated as passing to the surviving_spouse for purposes of sec_2056 and no part of such property shall be treated as passing to any person other than the surviving_spouse for purposes of sec_2056 sec_2056 defines the term qualified_terminable_interest_property as property i which passes from the decedent ii in which the surviving_spouse has a qualifying_income_interest_for_life and iii to which an election under sec_2056 applies sec_2056 provides that an election under sec_2056 with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 and that such an election once made shall be irrevocable sec_2601 imposes a tax on every gst a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 defines the term applicable_rate with respect to any gst as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a gst is generally defined as the excess of over the applicable_fraction with respect to a gst that is not a direct_skip the applicable_fraction is generally defined under sec_2642 as a fraction the numerator of which is the amount plr-121067-08 of the gst_exemption under sec_2631 allocated to the trust and the denominator of which is the value of the property transferred to the trust under sec_2631 as in effect on date for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed under sec_26_2632-1 of the generation-skipping_transfer_tax regulations an allocation of a decedent’s available gst_exemption by the executor of the decedent’s estate is made on the estate_tax_return filed on or before the date prescribed for filing the return by sec_6075 including any extensions granted an allocation of gst_exemption with respect to property included in the gross_estate of a decedent is effective as of the date of death under sec_2632 and sec_26_2632-1 a decedent’s unused gst_exemption is automatically allocated on the due_date for filing the form_706 to the extent not otherwise allocated by the decedent’s executor on or before that date the unused exemption is allocated a first to property which is the subject of a direct_skip occurring at such individual’s death and b second to trusts with respect to which such individual is the transferor and from which a taxable_distribution or a taxable_termination might occur at or after such individual’s death however no automatic allocation of gst_exemption is made to a_trust that will have a new transferor with respect to the entire trust prior to the occurrence of any gst with respect to the new trust under sec_2652 and sec_26_2652-1 the transferor of the property for gst tax purposes is the individual with respect to whom the property was last subject_to federal estate or gift_tax however under sec_2652 in the case of a_trust for which a deduction was allowed under sec_2056 the decedent’s estate may elect to treat all of the property in the trust as if the sec_2056 election had not been made for purposes of the gst tax this election is referred to as a reverse_qtip_election accordingly the decedent and not the surviving_spouse is treated as the transferor of the property for gst tax purposes the reverse_qtip_election is irrevocable and is not effective unless it is made with respect to all of the property in the trust to which the qtip_election applies under sec_26_2652-2 the reverse_qtip_election is made on the return of tax on which the qtip_election is made plr-121067-08 under sec_26_2654-1 the severance of a_trust that is included in the transferor's gross_estate into two or more trusts is recognized for purposes of chapter if the governing instrument does not require or otherwise direct severance but the trust is severed pursuant to discretionary authority granted either under the governing instrument or under local law and a the terms of the new trusts provide in the aggregate for the same succession of interests and beneficiaries as are provided in the original trust and b the severance occurs prior to the date prescribed for filing the federal estate_tax_return including extensions actually granted for the estate of the transferor and c either the new trusts are severed on a fractional basis or if the severance is required by the terms of the governing instrument to be made on the basis of a pecuniary amount the pecuniary payment is satisfied in a manner that would meet the requirements of sec_26_2654-1 if it were paid to an individual if severed on a fractional basis the separate trusts need not be funded with a pro_rata portion of each asset held by the undivided trust the trusts may be funded on a non pro_rata basis provided funding is based on either the fair_market_value of the assets on the date of funding or in a manner that fairly reflects the net appreciation or depreciation in the value of the assets measured from the valuation_date to the date of funding under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election plr-121067-08 in this case because a qtip_election was made on decedent's form_706 the assets of marital trust will be included in spouse's gross_estate pursuant to sec_2044 spouse will become the transferor of such property for gst tax purposes thereby precluding the allocation of any of decedent's gst_exemption to marital trust however if decedent's_estate is granted an extension of time to sever marital trust into a gst exempt marital trust and a gst nonexempt marital trust and to make a reverse_qtip_election with respect to the gst exempt marital trust decedent will be treated as the transferor of the gst exempt marital trust for gst tax purposes based on the facts and representations made we have determined that the standards of sec_301_9100-1 and sec_301_9100-3 have been met therefore an extension of time is granted until days from the date of this letter to sever marital trust into a gst exempt marital trust and a gst nonexempt marital trust effective retroactively to decedent's date of death and to make a reverse_qtip_election with respect to the assets of the gst exempt marital trust as a result of the severance and the reverse_qtip_election with respect to the gst exempt marital trust decedent’s remaining gst_exemption after the previous allocation to the family_trust will be allocated to the gst exempt marital trust under sec_2632 therefore provided that the trusts are funded as described in sec_26_2654-1 the family_trust and the gst exempt marital trust will have an inclusion_ratio of zero and the gst nonexempt marital trust will have an inclusion_ratio of the reverse_qtip_election should be made on a supplemental form_706 the supplemental form_706 should be filed on behalf of decedent’s estate with the internal_revenue_service center cincinnati oh a copy of this letter should be attached the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-121067-08 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely curt g wilson deputy associate chief_counsel passthroughs special industries enclosure copy for sec_6110 purposes


t c memo united_states tax_court adrio michael baur petitioner v commissioner of internal revenue respondent docket no filed date adrio michael baur pro_se e abigail carlson for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined a deficiency in and an accu- racy-related penalty under sec_6662 on petitioner’s federal_income_tax tax for his taxable_year of dollar_figure and dollar_figure respectively all section references are to the internal_revenue_code code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure the issues for decision for petitioner’s taxable_year are is petitioner entitled to deduct as alimony under sec_215 certain payments that he made in excess of the amount of payments that respondent concedes is deductible_alimony we hold that he is not is petitioner liable for the accuracy-related_penalty under sec_6662 we hold that he is findings_of_fact some of the facts have been stipulated and are so found petitioner resided in illinois at the time he filed the petition on date petitioner married judith l baur during their marriage petitioner and judith l baur had three children ab jb and sb at a time not established by the record petitioner and judith l baur decided to end their marriage on date the circuit_court of cook county illinois cook county circuit_court issued a final judgment titled judgment for dissolution of marriage dissolution judgment in the dissolution judgment the cook county circuit_court found in pertinent part the parties hereto have entered into a written marital settlement agreement dated date concerning the questions of the maintenance and medical requirements of the parties custody sup- port visitation the medical and educational requirements of the parties’ children attorney’s fees and costs and the respective rights of each party in and to the property income or estate which either of them now owns or may hereafter acquire including a divi- sion of all marital and non-marital property and other matters which agreement has been attached hereto and incorporated herein and presented to this court for its consideration in the dissolution judgment the cook county circuit_court ordered adjudged and decreed inter alia that the marriage between petitioner and judith l baur be dissolved the dissolution judgment also ordered adjudged and decreed all of the provisions of the marital settlement agreement between the petitioner judith l baur and the respondent petitioner dated date are expressly ratified confirmed approved and adopted as the orders of this court to the same extent and with the same force and effect as if said provisions were in this paragraph set forth verbatim as the judgment of this court each of the parties hereto shall perform under the terms of said agreement the marital settlement agreement dated date settlement agreement to which the above-quoted order in the dissolution judgment referred provided in pertinent part marital settlement agreement this agreement made and entered into this 20th day of february in the city of chicago county of cook and state of illinois by and between judith baur hereinafter referred to as judith and adrio baur hereinafter referred to as adrio whereas witnesseth g both parties expressly state that they have freely and voluntarily entered into this agreement of their own volition free from any duress or coercion and with full knowledge of each and every provision contained in this agreement and the consequences thereof now therefore in consideration of the mutual and several promises and undertakings contained herein and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged the parties do freely and voluntarily agree to each and every term and provision set forth in this marital set- tlement agreement unallocated maintenance child_support article ii commencing date adrio shall pay judith as and for unallocated maintenance and child_support the sum of three thousand seven hundred fifty dollars dollar_figure per month payments shall be made on a bi-weekly basis at the rate of one thousand seven hundred thirty dollars and seventy seven cents dollar_figure per payment the payments shall be withheld from adrio’s paycheck and sent directly to judith or by way of direct deposit in an account in judith’s name this amount is based upon adrio’s current gross base income of dollar_figure per month in addition adrio shall pay forty five percent of any and all net bonuses he receives within thirty days of receipt and he shall tender proof of bonuses and commissions within one week of receipt this amount and bonus percentage shall be reviewed in two years without the necessity of filing a petition to review the payments set forth in this article shall terminate upon the first to occur of any of the following events a b c the death of judith the death of adrio the remarriage of judith d the cohabitation by judith with a non- related_person on a resident continuing conjugal basis in the event that sb is emancipated and jb is living independently or outside judith’s residence without any financial support from judith for any essentials or living_expenses including clothing personal care room board schooling and the like then the unallocated support shall be modified to maintenance and adrio shall pay to judith one thousand eight hundred dollars dollar_figure per month subject_to review if either party files a petition to review this amount is based upon adrio’s current earnings the sums paid_by adrio to judith pursuant to this article are acknowledged to be paid incident to the judgment for dissolution of marriage and in discharge of adrio’s legal obliga- tion to support judith said sums shall be includable in the gross income of judith and deductible from the gross_income of adrio within the meaning and intent of sec_71 and sec_215 of the united_states internal_revenue_code_of_1986 the tax reform acts of and as amended or of any identical or comparable provision of a federal revenue code hereinafter enacted or modified pursuant to paragraph of the settlement agreement during peti- tioner made to judith l baur payments of dollar_figure or a total of dollar_figure paragraph payments as unallocated maintenance and child_support around date petitioner received a net bonus of dollar_figure although paragraph of the settlement agreement required petitioner to pay to judith l baur percent of the net amount of that bonus he did not do so during petitioner filed form_1040 u s individual_income_tax_return for his taxable_year return in the return petitioner claimed an alimony deduction under sec_215 for dollar_figure claimed alimony deduction of the paragraph payments on date respondent issued to petitioner a notice_of_deficiency notice with respect to his taxable_year in that notice respondent disal- lowed dollar_figure of the claimed alimony deduction and allowed dollar_figure of that according to petitioner he mistakenly claimed in hi sec_2010 return an alimony deduction under sec_215 for dollar_figure of the paragraph payments instead of a deduction for the entire amount of dollar_figure deduction in the notice respondent also determined that petitioner is liable for his taxable_year for the accuracy-related_penalty under sec_6662 on date after respondent issued the notice to petitioner the cook county circuit_court issued an order date order that provided in pertinent part this matter coming to be heard on respondent’s petition to clarify intent of the judgment for dissolution of marriage the court hereby finds t hat the provision in the judgment for dissolu- tion of marriage concerning unallocated support is intended to be maintenance for the support of judith baur all payments made from adrio baur to judith baur from the date the judgment for dissolution of marriage was entered that is dollar_figure per month plu sec_45 of any bonuses from date to the present date have been and continue to be maintenance to judith baur until further order of court it was the intent of the court that all payments made from adrio baur to judith baur from date to the present date as referenced in the finding of the second paragraph are to be includible in income to judith baur and deductible for income_tax purposes for adrio baur and shall terminate upon the death of adrio the death of judith judith’s remarriage or the respondent concedes on brief that pursuant to paragraph of the settlement agreement during petitioner paid a total of dollar_figure to judith l baur as unallocated maintenance and child_support and that petitioner is entitled for his taxable_year to an alimony deduction of dollar_figure and not dollar_figure as respondent determined in the notice cohabitation of judith on a resident conjugal basis or further order of court paragraph of the judgment is a scrivener error and should be vitiated nunc_pro_tunc in the date order the cook county circuit_court ordered all payments made to judith baur from adrio baur pursuant to sec_2_1 of the judgment for dissolution of marriage entered date specifically the dollar_figure per month and of net bonuses were intended and shall be mainte- nance to judith baur as such all payments are includible in judith baur’s income and deductible from adrio baur’s income for income_tax purposes said payments shall be reviewable pursuant to sec_504 and of the imdma illinois marriage and dissolution of marriage act and shall terminate upon further order of court judith’s death adrio’s death judith’s remar- riage or judith residing on a conjugal basis with another person paragraph of the judgment for dissolution was not intended to be part of the judgment for dissolution and was a scriv- ener error accordingly paragraph of the judgment for dissolu- paragraph of the settlement agreement quoted above provided in the event that sb is emancipated and jb is living independently or outside judith’s residence without any financial support from judith for any essentials or living_expenses including clothing personal care room board schooling and the like then the unallocated support shall be modified to maintenance and adrio shall pay to judith one thousand eight hundred dollars dollar_figure per month subject_to review if either party files a petition for review this amount is based upon adrio’s current earnings see supra note tion of marriage is vitiated nunc_pro_tunc as if it never had any legal effect opinion petitioner bears the burden of establishing that the determinations in the notice that remain at issue are erroneous see rule a 290_us_111 we turn initially to the issue presented under sec_215 it is petitioner’s position that the entire amount ie dollar_figure of the paragraph payments that he made during to judith l baur constitutes alimony deductible under sec_215 it is respondent’s position that dollar_figure of those payments constitutes alimony deductible under that section sec_215 allows an individual to deduct an amount equal to the alimony or separate_maintenance payments paid during such individual’s taxable_year sec_215 defines the term alimony or separate_maintenance pay- ment for purposes of sec_215 to mean any alimony or separate_maintenance the difference between the entire amount ie dollar_figure of the paragraph payments that petitioner maintains constitutes alimony deductible under sec_215 and the amount ie dollar_figure of those payments that respondent maintains constitutes alimony deductible under that section is dollar_figure payment as defined in sec_71 which is includible in the gross_income of the recipient under sec_71 sec_71 provides the following definition of the term alimony_or_separate_maintenance_payment sec_71 alimony and separate_maintenance payments b alimony or separate_maintenance payments defined --for purposes of this section-- in general --the term alimony_or_separate_maintenance_payment means any payment in cash if-- a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income under this section and not allow- able as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate mainte- nance the payee spouse and the payor spouse are not mem- bers of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse sec_71 provides that g ross income includes amounts received as alimony or separate_maintenance payments sec_71 provides that sec_71 shall not apply to that part of any payment which the terms of the divorce_or_separation_instrument fix in terms of an amount of money or a part of the payment as a sum which is payable for the support of children of the payor spouse the supreme court of the united_states has held that the allocations to child_support made therein in a divorce_or_separation_instrument must be ‘specifi- cally designated’ and not left to determination by inference or conjecture 366_us_299 sec_71 provides that if any amount specified in a divorce_or_separation_instrument is to be reduced upon the occurrence of a contingency specified in that instrument relating to a child eg attaining a specified age marrying dying leaving school or a similar contingency or at a time that can clearly be associated with that kind of contingency an amount equal to the amount of such reduction is to be treated for purposes of sec_71 as an amount fixed as payable for the support of children of the payor spouse respondent argues that because of paragraph of the settlement agree- ment sec_71 requires that a part of the paragraph payments be treated see supra note under sec_71 as a sum which is payable for the support of children of the payor spouse petitioner petitioner counters that the cook county circuit court’s date order retroactively vitiated paragraph of the settlement agreement for tax purposes we must determine what if any effect we should give to that purported nunc_pro_tunc order in making that determination we have in mind that the definition of alimony for federal_income_tax purposes turns on a fulfillment of the statutory test in sec_71 and not on the intent of the parties to a divorce proceeding or of the court overseeing that proceeding 123_tc_258 we also have in mind what we stated in 70_tc_525 state court adjudications retroactively redesignating divorce- related payments as alimony and not child_support or vice versa are generally disregarded for federal_income_tax purposes if the order retroactively changes the rights of the parties or the legal status of the payments an exception to this rule is made when a retroactive judg- ment corrects a divorce decree that mistakenly failed to reflect the true intention of the court at the time the decree was rendered citations omitted in the dissolution judgment the cook county circuit_court inter alia adopted all of the provisions of the settlement agreement as part of that judgment and ordered petitioner and judith l baur to comply with all of those provisions as if said provisions were in this paragraph set forth verbatim as the judgment of this court that agreement which by its terms was freely and voluntarily entered into by petitioner and judith l baur with full knowledge of each and every provision contained in this agreement and the consequences thereof and which the cook county circuit_court adopted and made part of the divorce judgment unambiguously provided in paragraph for a reduction in the payments required under paragraph of that agreement upon the occurrence of certain contingencies relating to sb and jb on the record before us we reject the statement in the cook county circuit court’s date order that p aragraph of the judgment for dissolution was not intended to be part of the judgment for dissolution and was a scrivener error on that record we find that petitioner and judith l baur as in the divorce judgment the cook county circuit_court ordered all of the provisions of the marital settlement agreement between the petitioner judith l baur and the respondent petitioner dated date are expressly ratified confirmed approved and adopted as the orders of this court to the same extent and with the same force and effect as if said provisions were in this paragraph set forth verbatim as the judgment of this court each of the parties hereto shall perform under the terms of said agreement see supra note black’s law dictionary 9th ed refers the user to the term clerical_error for the definition of the term scrivener’s error that dictionary continued well as the cook county circuit_court intended that paragraph be part of the settlement agreement and the dissolution judgment at the time that court entered that judgment the cook county circuit_court issued its date order only after respondent issued on date the notice to petitioner for his taxable_year in which respondent determined because of paragraph of the settlement agreement to disallow as deductible_alimony certain pay- ments that he had made to judith l baur on the record before us we find that the inclusion of paragraph in the settlement agreement and the dissolution judgment was not a mistake by petitioner and judith l baur or by the cook county circuit_court on that record we conclude that the cook county circuit court’s date order did not correct a mistake in the dissolution judgment on the record before us we conclude that we will give no effect to the purported nunc_pro_tunc date cook county circuit_court order continued provides the following definition of the term clerical_error an error resulting from a minor mistake or inadvertence esp in writing or copying something on the record and not from judicial reasoning or determination id pincite for reasons set forth in the text we conclude that paragraph of the settlement agreement was not as the cook county circuit_court indicated in its date order a scrivener error based upon our examination of the entire record before us we sustain respondent’s position on brief that dollar_figure of the paragraph payments totaling dollar_figure does not constitute alimony deductible under sec_215 we turn next to the issue presented under sec_6662 sec_6662 imposes an accuracy-related_penalty of percent on the underpayment to which sec_6662 applies sec_6662 applies to the portion of any underpayment which is attributable to inter alia negligence or disregard of rules or regula- tions sec_6662 or a substantial_understatement of tax sec_6662 the term negligence in sec_6662 includes any failure to make a reasonable attempt to comply with the code sec_6662 negligence has also been defined as a failure to do what a reasonable person would do under the circumstances see 963_f2d_907 6th cir aff’g tcmemo_1991_179 91_tc_686 aff’d 893_f2d_656 4th cir the term negligence also includes any failure by the taxpayer to keep adequate books_and_records or to substantiate items properly sec_1_6662-3 income_tax regs the term disregard includes any careless reckless or intentional disregard sec_6662 for purposes of sec_6662 an understatement is equal to the excess of the amount of tax required to be shown in the tax_return over the amount of tax shown in the return sec_6662 an understatement is substantial in the case of an individual if the amount of the understatement for the taxable_year exceeds the greater of percent of the tax required to be shown in the tax_return for that year or dollar_figure sec_6662 the accuracy-related_penalty under sec_6662 does not apply to any portion of an underpayment if it is shown that there was reasonable_cause for and that the taxpayer acted in good_faith with respect to such portion sec_6664 the determination of whether the taxpayer acted with reasonable_cause and in good_faith depends on all the pertinent facts and circumstances including the taxpayer’s efforts to assess the taxpayer’s proper tax_liability the knowledge and experience of the taxpayer and the reliance on the advice of a professional such as an accountant sec_1_6664-4 income_tax regs respondent bears the burden of production with respect to the accuracy- related penalty under sec_6662 see sec_7491 116_tc_438 to satisfy respondent’s burden of production respondent must come forward with sufficient evidence indicating that it is appropriate to impose the penalty see higbee v commissioner t c pincite although respondent bears the burden of production with respect to the penalty under sec_6662 respondent need not introduce evidence regarding rea- sonable cause or similar provisions the taxpayer bears the burden_of_proof with regard to those issues see id we have found that petitioner is not entitled for his taxable_year to deduct dollar_figure as alimony under sec_215 as a result there is an underpayment_of_tax for petitioner’s taxable_year respondent argues that that underpayment is attributable to a substantial_understatement of tax in peti- tioner’ sec_2010 return and that therefore the accuracy-related_penalty under sec_6662 should be imposed on petitioner petitioner’s only argument with respect to the accuracy-related_penalty under sec_6662 is that there was no under- payment of tax in hi sec_2010 return on the record before us we conclude that the accuracy-related_penalty under sec_6662 will be imposed if the computations under rule result in an understatement_of_tax for petitioner’s taxable_year that exceeds the greater of percent of the tax required to be shown in hi sec_2010 return or dollar_figure see sec_6662 respondent does not argue on brief that the underpayment for petitioner’s taxable_year was attributable to negligence or disregard of rules or regulations under sec_6662 nor does petitioner claim that that underpayment was not due to negligence or disregard of rules or regulations because neither party advances any argument under sec_6662 we do not address whether the underpayment for petitioner’s taxable_year was due to continued we have considered all of the contentions and arguments of the parties that are not discussed herein and we find them to be without merit irrelevant and or moot to reflect the foregoing decision will be entered under rule continued negligence or disregard of rules or regulations however on the record before us we find that petitioner has failed to show that there was reasonable_cause for and that he acted in good_faith with respect to the underpayment for his taxable_year


t c memo united_states tax_court sharif m and amal battikhi petitioners v commissioner of internal revenue respondent docket no filed date sharif m battikhi and amal battikhi pro_se gretchen a kindel for respondent memorandum opinion colvin judge this matter is before the court on respondent's motion for summary_judgment for reasons stated below we grant respondent's motion respondent determined a deficiency in petitioners' federal_income_tax for of dollar_figure and determined that petitioners are liable for the accuracy-related_penalty for negligence under sec_6662 in the amount of dollar_figure neither party requested a hearing and we conclude that none is necessary to decide respondent's motion references to petitioner are to sharif m battikhi unless otherwise indicated all 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 background petitioners are married and lived in san diego california when they filed their petition in the notice_of_deficiency respondent determined that petitioner received dollar_figure in unreported income in after concessions respondent now contends that petitioner received dollar_figure in unreported income in about months before trial we served the parties with notice setting this case for trial at a session in san diego soon thereafter respondent asked petitioners to provide information and invited them to attend a pretrial conference petitioners did not respond to that letter respondent also gave petitioners a copy of their monthly bank statements for and a copy of the revenue agent's bank_deposits analysis showing how the agent reconstructed petitioners' income respondent invited petitioners to attend pretrial conferences three other times petitioners did not attend any of them instead petitioners gave affidavits to respondent to support their position petitioners contended that some of the bank_deposits were nontaxable because petitioners wired the amounts to orphans in the middle east however petitioners gave no documents to respondent to corroborate this claim and the affidavits were inconsistent with the bank statements in amounts and dates the bank statements did not show that any of the amounts had been wired respondent filed a request for admissions and mailed it to petitioners about months before the case was calendared for trial paragraph sec_1 through requested admissions about petitioner's self-employment residence tax_return and bank account activity and an admission that they made no nontaxable deposits in their bank accounts other than those identified by respondent paragraph sec_27 through requested admissions about the total amount that petitioners deposited in all of their bank accounts that the total amount was compensation to petitioner and that petitioners failed to report compensation due to negligence petitioners did not respond to respondent's request for admissions each statement in a request for admissions served on a party is deemed admitted unless a response is served on the requesting party within days after service of the request rule c thus petitioners are deemed to have admitted respondent's requests for admission petitioners moved without explanation to withdraw the deemed admissions more than months after respondent filed and served the request and about month before trial petitioners' accountant helped them to prepare their motion petitioners did not deny receiving the request for admissions in their motion petitioners admitted paragraph sec_1 through of respondent's request for admissions and denied paragraph sec_27 through petitioners offered no explanation for their admissions or denials we denied petitioners' motion in the request for admissions respondent stated that petitioner is self-employed as a cheikh or man of the cloth at a mosque in san diego california petitioners admitted the truth of that statement petitioners did not attend the calendar call a petitioners' deemed admissions discussion petitioners did not respond to respondent's request for admissions within days after respondent served the request for admissions or explain why they did not rule c provides c response to request each matter is deemed admitted unless within days after service of the request or within such shorter or longer time as the court may allow the party to whom the request is directed serves upon the requesting party a written answer specifically admitting or denying the matter involved in whole or in part or asserting that it cannot be truthfully admitted or denied and setting forth in detail the reasons why this is so or an objection stating in detail the reasons therefor the response shall be signed by the party or the party's counsel and the original thereof with proof of service on the other party shall be filed with the court a denial shall fairly meet the substance of the requested admission and when good_faith requires that a party qualify an answer or deny only a part of a matter such party shall specify so much of it as is true and deny or qualify the remainder an answering party may not give lack of information or knowledge as a reason for failure to admit or deny unless such party states that such party has made reasonable inquiry and that the information known or readily obtainable by such party is insufficient to enable such party to admit or deny a party who considers that a matter of which an admission has been requested presents a genuine issue for trial may not on that ground alone object to the request such party may subject_to the provisions of paragraph g of this rule deny the matter or set forth reasons why such party cannot admit or deny it an objection on the ground of relevance may be noted by any party but it is not to be regarded as just cause for refusal to admit or deny petitioners' responses in their motion to withdraw deemed admissions did not comply with rule c because they were late and parts of their blanket denial of request sec_27 through are inconsistent with their admission of request sec_1 through for example petitioners admit the total amount they deposited in each bank account but deny the total for all bank accounts they admit that exhibit a is a copy of their income_tax return but deny the amount they report on schedule c which is attached to exhibit a petitioners did not explain why they responded to the requests for admissions late and inconsistently we deemed petitioners to have admitted each matter in respondent's request for admissions rule c f petitioners admit the following facts petitioner is a self-employed cheikh or man of the cloth in san diego california during he received compensation_for his services in that capacity during petitioners had checking and savings accounts at wells fargo bank petitioners also had a checking account at bank of america in they had no other bank accounts we deem the following facts to be admitted petitioners deposited in their bank accounts a total of dollar_figure all of which was compensation to petitioner for his services in petitioners received but did not report dollar_figure in interest_income in petitioners reported gross_receipts of dollar_figure from petitioner's business on schedule c of petitioners' income_tax return for b summary_judgment we may grant summary_judgment if the pleadings answers to interrogatories depositions admissions affidavits and any other acceptable materials show that there is no genuine issue of material fact and a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir 90_tc_753 summary_judgment is appropriate where as a result of facts deemed admitted under rule c there is no genuine issue of material fact marshall 1the record does not describe petitioner's position further v commissioner 85_tc_267 81_tc_644 we conclude that there are no genuine issues of material fact and that respondent is entitled to a decision as a matter of law on the issue of petitioners' unreported income rule b we sustain the determination reduced as conceded by respondent and hold that petitioners received but did not report dollar_figure as income for petitioner's services as a religious official in c whether petitioners are liable for the accuracy-related_penalty under sec_6662 respondent determined that petitioners are liable for the accuracy-related_penalty for negligence for under sec_6662 taxpayers are liable for a penalty equal to percent of the part of the underpayment to which sec_6662 applies sec_6662 for purposes of sec_6662 negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code sec_6662 the accuracy-related_penalty under sec_6662 does not apply to any part of an underpayment if the taxpayer shows that there was reasonable_cause for that part and that the taxpayer acted in good_faith sec_6664 petitioners did not argue that they are not liable for the accuracy-related_penalty in their response to respondent's motion for summary_judgment we treat this as a concession by petitioners 90_tc_488 31_tc_690 affd 295_f2d_336 5th cir also respondent asked petitioners to admit that they were negligent with respect to the entire underpayment in their motion to withdraw deemed admissions which was filed more than months after respondent filed and served the request for admissions petitioners denied they were negligent however we deem admitted that petitioners were negligent with respect to the entire underpayment we conclude that petitioners are liable for the accuracy- related penalty for under sec_6662 for negligence and that all of the deficiency is due to negligence to reflect respondent's concession and the foregoing an appropriate order and decision will be entered for respondent


- x y internal_revenue_service number release date index number ------------------------------ ---------------------------------------------------- ----------------------------------------------- ------------------------ --------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-145675-05 date date --------------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------------- ------------------------ country --------------- ---------------------- this responds to a letter dated date and subsequent d1 dear ----------------- correspondence submitted on behalf of x by its authorized representative requesting that the service grant x an extension of time pursuant to ' of the procedure and administration regulations for x to file an election to be classified as a disregarded_entity for federal tax purposes the information submitted states that x was formed under the laws of country x represents that it is eligible to be treated as a disregarded_entity for federal tax purposes y the indirect owner of x intended for x to be treated as a disregarded_entity effective d1 however x did not timely file a form_8832 entity classification election sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 plr-145675-05 sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 with the designated service_center sec_301_7701-3 provides that an entity classification election must be file on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed under ' c the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i sec_301_9100-1 defines a regulatory election to include 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 an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government based solely on the information submitted we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center to and elect to be treated as a disregarded_entity effective d1 a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent plr-145675-05 pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative enclosures copy of this letter copy for sec_6110 purposes sincerely heather c maloy associate chief_counsel passthroughs special industries


index no control no tam-118440-97 nov s97 internal_revenue_service national_office technical_advice_memorandum district_director taxpayer’s name taxpayer’s address we taxpayer’s identification no quarters involved conference held sou u legend taxpayer issue siig o op gy of be usage invent i po as sng _ costco af whether taxpayer a position_holder of finished gasoline and undyed diesel_fuel in a terminal is liable for the tax imposed by sec_4081 of the internal_revenue_code upon the removal of that fuel from the terminal at the terminal rack facts taxpayer a taxable_fuel registrant made pipeline purchases of finished gasoline and undyed diesel_fuel the taxable_fuel taxpayer timely provided all of the sellers of this fuel with a notification certificate as described in sec_48_4081-5 of the manufacturers and retailer excise_tax regulations the position_holder with respect to this fuel when the fuel was later removed from terminal at the terminal rack taxpayer was when taxpayer bought the fuel it asked each seller to charge taxpayer tax on the sale of the fuel to taxpayer sellers honored this request and others did not fuel that a seller sold taxpayer at a tax-excluded price taxpayer paid tax to the government based on its pipeline purchases and not on the removal of the fuel from the terminal with respect to fuel that a seller sold taxpayer at a tax- some with respect to included price taxpayer neither reported the fuel on its quarterly excise_tax return nor paid any_tax on this fuel applicable law sec_4081 a imposes a tax on i the removal of a taxable_fuel from any refinery fuel from any terminal any taxable_fuel for consumption use or warehousing and iv the sale of a taxable_fuel to any person who is not registered under sec_4101 unless there was a prior taxable removal or entry of such fuel the entry into the united_states of the removal of a taxable iii ii sec_4081 b exempts from tax removals or entries of taxable_fuel transferred in bulk to a terminal or refinery if the person removing or entering the taxable_fuel and the operator of such terminal or refinery are registered under sec_4101 sec_48_4081-2 provides that the position_holder with respect to taxable_fuel is liable for the tax imposed on the removal of fuel from a terminal at the terminal rack sec_4081 provides that if any person who paid the tax on taxable_fuel imposed by sec_4081 establishes to the satisfaction of the internal_revenue_service that a prior tax was paid to the government and not credited or refunded with respect to any such taxable_fuel person shall be allowed as a refund without interest to such person in the same manner as imposed by sec_4081 then an amount equal to the tax paid_by such it were an overpayment of the tax if ration tax is imposed on the removal of taxable_fuel from the the position_holder with respect terminal at the terminal rack sec_40_6151_a_-1 of the to that fuel is liable for the tax excise_tax procedural regulations provides that this tax must be paid to the government by the last day of the first calendar month following the quarter in which the liability was incurred a removal at the terminal rack is not exempt from tax simply because the position_holder bought the fuel at a tax-included price - because taxpayer was a taxable_fuel registrant when it see sec_4081 a iv tax was not imposed on the sale of the fuel to bought the fuel taxpayer respect to fuel taxpayer bought at a tax-included price the sellers were not liable for tax government would be an erroneous payment rather than a tax payment under sec_4081 tax payment to which sec_4081 would apply that an erroneous payment would be an overpayment under sec_6402 any such payment would not be a first note however this is true even with any amount they paid to the because se for which the seller may claim a credit or refund provided that the claim is timely filed and the provisions of met sec_6416 are nclusi taxpayer a position_holder of finished gasoline and undyed diesel_fuel in a terminal is liable for the tax imposed by sec_4081 on the removal of that fuel from the terminal at the terminal rack a copy of this technical_advice_memorandum is to be given to sec_6110 provides that it may not be the taxpayer used tr cited as precedent names addresses and taxpayer identifying numbers have been deleted in accordance with sec_6110 - end -


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 fip b02 plr-129557-10 date date legend taxpayer ------------------------------------------------------------ ----------------------------------------------- corporation country type x company date index a b c d e f ----------------------------------------------------- ---------------------- -------------------------- --------------- ---------------------------------------------------------------- --------------- ------------------------------ ---- -------------------------------------------- -- -------- g ------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------- h ---- plr-129557-10 dear -------------------- this is in response to a letter dated date and subsequent correspondence requesting rulings that income from the commodity-linked note described in this letter constitutes qualifying_income under sec_851 of the internal_revenue_code_of_1986 as amended the code and income earned by taxpayer from an investment in its wholly-owned subsidiary that qualifies as a controlled_foreign_corporation cfc constitutes qualifying_income under sec_851 of the code facts taxpayer is a series of corporation corporation is registered as an open-end management investment_company under the investment_company act of u s c 80a-1 et seq as amended the act and its securities are registered under the securities act of taxpayer intends to elect and qualify as a regulated_investment_company ric under subchapter_m of the code taxpayer uses an accrual_method of accounting and a fiscal_year ending date commodities-linked note taxpayer intends to invest in a commodities-linked note having the following terms and conditions the note the note will be issued at its par_value of dollar_figurea its payout formula will be determined with reference to index the term of the note will be b taxpayer as holder of the note will have the right to put the note to the issuer at the calculated redemption price based upon the closing index value as of the end of the next business_day after notification to the issuer or as of the same day closing value if notice is made by ten o’clock in the morning eastern standard time in addition if the index value falls to a level that is equal to or less than c of the initial index value on any day the note will knockout and automatically redeem at the calculated redemption price based upon the closing index level on the following trading day a trading day is a day on which the relevant exchanges for all index constituents are open for trading during their regular trading sessions the note will pay a monthly coupon in arrears the coupon for each coupon period will be based on d in the case of a mandatory prepayment event or an early redemption at the option of the holder or issuer each an early redemption event taxpayer will receive the accrued coupon on the applicable early redemption event maturity_date plr-129557-10 the repayment obligation upon early redemption knockout or at maturity is calculated under a formula that provides for an amount equal to the face_amount of the note plus or minus an adjustment the adjustment is calculated by multiplying the face_amount of the note by a leverage factor of e times the index return the index return is the percentage of the increase or decrease of the initial index level compared to the closing index level for the applicable_period decreased by an adjustment factor greater of f or g based on the number of days the note is outstanding the index return will also include an adjustment for the reversal of the interest rate factor included in the total return computation taxpayer makes the following representations with respect to the note the issuer of the note will receive payment for the note substantially contemporaneously with the delivery of the note while holding the note taxpayer will not be required to make any additional payments to the issuer of the note in addition to the purchase_price paid for the note whether as margin settlement payment or otherwise during the life of the note or at maturity the issuer of the note is not subject by the terms of the note to mark-to- market margining requirements of the commodities exchange act u s c as amended the cea and the note is not marketed as a contract of sale of a commodity for future delivery or option on such a contract subject_to the cea controlled_foreign_corporation corporation intends to form a wholly-owned subsidiary of taxpayer subsidiary incorporated as a type x company under the laws of country under the laws of country a type x company provides for limited_liability for all holders of shares a shareholder's liability is limited to the amount if any unpaid with respect to the shares acquired by the shareholder subsidiary will file an election on form_8832 entity classification election to be taxed as a corporation pursuant to sec_301_7701-3 of the procedure and administration regulations taxpayer represents that although subsidiary will not be registered as an investment_company under the act subsidiary will comply with the requirements of section f of the act investment_company act release no and related sec guidance pertaining to asset coverage with respect to commodity futures and other transactions in derivatives plr-129557-10 taxpayer may invest up to h of its total assets in subsidiary subject_to the diversification limitations set forth in sec_851 of the code subsidiary is expected to invest primarily in commodity-linked derivative instruments including swap agreements commodity options futures and options on futures subsidiary will also invest in fixed income instruments some of which are intended to serve as margin or collateral for its derivatives positions subsidiary may invest in derivative instruments linked to the value of a particular commodity or commodity futures contracts or a subset of commodities or commodity futures contracts including swaps on commodity futures subsidiary’s investments in commodity-linked derivative instruments may specify exposure to commodity futures with different roll dates reset dates or contract months than those specified by a particular commodity index taxpayer represents that subsidiary will be a cfc within the meaning of sec_957 of the code it is expected that all of the income of subsidiary will be subpart_f_income within the meaning of sec_952 law and analysis sec_851 of the code provides that a corporation shall not be considered a ric for any taxable_year unless it meets an income test the qualifying_income requirement under this test at least percent of its gross_income must be derived from certain enumerated sources a corporation that is a partner in a partnership other than a qualified_publicly_traded_partnership must look through such partnership for purposes of meeting the qualifying_income requirement sec_851 defines qualifying_income in relevant part as - dividends interest payments_with_respect_to_securities_loans as defined in sec_512 and gains from the sale_or_other_disposition of stock_or_securities as defined in sec_2 of the act or foreign_currencies or other income including but not limited to gains from options futures or forward contracts derived with respect to the ric's business of investing in such stock securities or currencies sec_2 of the act defines the term security as - any note stock treasury_stock security future bond debenture evidence_of_indebtedness certificate of interest or participation in any profit-sharing agreement collateral-trust certificate preorganization certificate or subscription transferable share investment contract voting-trust certificate certificate of deposit for a security fractional undivided_interest in oil gas or other mineral rights any put call straddle option or privilege on any security including a certificate of deposit or on any group or index of securities including any interest plr-129557-10 therein or based on the value thereof or any put call straddle option or privilege entered into on a national securities exchange relating to foreign_currency or in general any interest or instrument commonly known as a security or any certificate of interest or participation in temporary or interim certificate for receipt for guarantee of or warrant or right to subscribe to or purchase any of the foregoing sec_2 of the cea provides that the cea is not applicable to a hybrid instrument that is predominantly a security sec_2 of the cea provides that a hybrid instrument shall be considered to be predominantly a security if - a the issuer of the hybrid instrument receives payment in full of the purchase_price of the hybrid instrument substantially contemporaneously with the delivery of the hybrid instrument b the purchaser or holder of the hybrid instrument is not required to make any payment to the issuer in addition to the purchase_price paid under subparagraph a whether as margin settlement payment or otherwise during the life of the hybrid instrument or at maturity c the issuer of the hybrid instrument is not subject by the terms of the instrument to mark-to-market margining requirements and d the hybrid instrument is not marketed as a contract of sale of a commodity for future delivery or option on such a contract subject_to the cea sec_2 of the cea provides in part that for purposes of sec_2 of the cea mark-to-market margining requirements do not include the obligation of an issuer of a secured debt_instrument to increase the amount of collateral held in pledge for the benefit of the purchaser of the secured debt_instrument to secure the repayment obligations of the issuer under the secured debt_instrument in addition the flush language of sec_851 of the code provides that for purposes of sec_851 there shall be treated as dividends amounts included in gross_income under sec_951 or sec_1293 for the taxable_year to the extent that under sec_959 or sec_1293 as the case may be there is a distribution out of the earnings_and_profits of the taxable_year which are attributable to the amounts so included sec_957 of the code defines a cfc as any foreign_corporation in which more than percent of the total combined voting power of all classes of stock entitled to vote or the total value of the stock is owned by united_states_shareholders on any day during the corporation's taxable_year a united_states_shareholder is defined in sec_951 as a united_states_person who owns percent or more of the total plr-129557-10 combined voting power of all classes of voting_stock of a foreign_corporation taxpayer represents that percent of the voting power of the stock of subsidiary will be owned by taxpayer and that taxpayer is a united_states_person taxpayer therefore represents that subsidiary will qualify as a cfc under these provisions sec_951 of the code provides that if a foreign_corporation is a cfc for an uninterrupted period of days or more during any taxable_year every person who is a united_states_shareholder of this corporation and who owns stock in this corporation on the last day of the taxable_year in which the corporation is a cfc shall include in gross_income the shareholder's pro_rata share of the cfc's subpart_f_income for the taxable_year sec_952 of the code defines subpart_f_income to include foreign_base_company_income determined under sec_954 under sec_954 foreign_base_company_income includes foreign_personal_holding_company_income determined under sec_954 under sec_954 foreign_personal_holding_company_income includes among other things dividends interest royalties rents and annuities gains in excess of losses from transactions in commodities including futures forward and similar transactions but excluding certain hedging_transactions and certain active business gains and losses and subject_to certain exceptions net_income from notional_principal_contracts subsidiary’s investments may generate foreign_personal_holding_company_income under sec_954 which is subpart_f_income taxpayer will therefore include in income its pro_rata share of subsidiary’s subpart_f_income for the taxable_year in accordance with sec_951 conclusion based on the facts as represented we rule that income and gain arising from the note constitutes qualifying_income to taxpayer under sec_851 of the code we further rule that subpart_f_income of subsidiary attributable to taxpayer is income derived with respect to taxpayer’s businesses of investing in the stock of subsidiary and thus constitutes qualifying_income to taxpayer under sec_851 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed with regard to whether taxpayer qualifies as a ric under subchapter_m of the code this ruling is directed only to the taxpayer requesting it and is limited to the facts as represented by the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent plr-129557-10 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely david b silber david b silber chief branch office of associate chief_counsel financial institutions products