t c memo united_states tax_court walter c minnick and a k lienhart petitioners v commissioner of internal revenue respondent docket no filed date tim alan tarter for petitioners anne ward durning and michael r harrel for respondent memorandum findings_of_fact and opinion morrison judge in walter c minnick gave to charity a conservation_easement on his 74-acre parcel of land in the foothills near boise idaho on their joint income-tax returns minnick and his wife a k lienhart claimed a charitable-contribution deduction of dollar_figure for and carryover charitable-contribution deductions of dollar_figure and dollar_figure respectively for and in a notice_of_deficiency for years and the irs disallowed the carryover deductions the notice determined deficiencies in federal_income_tax for and of dollar_figure and dollar_figure respectively and accuracy-related_penalties under sec_6662 as increased to under sec_6662 of dollar_figure and dollar_figure respectively the respondent is referred to here as the irs the petitioners are referred to as minnick and lienhart all references to sections are to the internal_revenue_code_of_1986 as amended and in effect at the relevant times findings_of_fact minnick and lienhart resided in idaho at the time they filed their petition on date u s bank recorded a mortgage on the 74-acre parcel of land on date the board_of ada county commissioners permitted minnick to subdivide the land into seven single-family residential lots on date minnick granted a conservation_easement on the land to the charitable_organization land trust of treasure valley inc the land trust the terms of the easement prohibited minnick and any subsequent owner from building on or altering the portions of the land outside the areas designated as building envelopes for each lot the portions of the land thus restricted by the easement constituted of the 74-acre parcel the conservation_easement stated grantor ie minnick warrants that he owns the property in fee simple and has conveyed it to no other person and that there are no outstanding mortgages tax_liens encumbrances or other interests in the property that have not been expressly subordinated to the easement contrary to this warranty provision u s bank’s mortgage was not then subordinated to the conservation_easement the conservation_easement also provided that minnick and the land trust could amend the terms of the easement if circumstances arose under which an amendment would be appropriate when minnick and lienhart filed their original income-tax return they did not claim a charitable-contribution deduction for the grant of the conservation_easement minnick had not yet received a written appraisal of the easement on or about date minnick and lienhart filed an amended income-tax return for on the amended_return they reported that the value of the easement was dollar_figure this value was taken from an appraisal by g joseph corlett who had been hired by minnick the amended_return reported that the charitable-contribution deduction for the grant of the easement was limited to dollar_figure for the amended_return was prepared by bruce stratton a certified_public_accountant c p a both stratton and minnick intended that corlett’s appraisal be attached to the amended_return for but for some reason the amended_return the irs received did not have the appraisal attached to it minnick never asked stratton whether he was entitled to the dollar_figure deduction and stratton did not tell him that he was minnick had worked for a few months as a lawyer near the beginning of his career spending some time in tax law he later went into the building-supply business lienhart was uninvolved in determining whether the conservation_easement gave rise to a charitable-contribution deduction on their and returns minnick and lienhart claimed carryover charitable-contribution deductions of dollar_figure and dollar_figure respectively for the grant of the conservation_easement the irs issued the notice_of_deficiency on date the reason given by the notice_of_deficiency for disallowing the carryover deductions was lack of documentation of the value of the contribution the irs no longer challenges the deductions for lack of documentation on date minnick and leinhart timely filed a petition with this court on date minnick and u s bank executed an agreement under which u s bank subordinated its mortgage to the conservation_easement the effect of this subordination agreement is that the conservation_easement will remain in force if u s bank becomes the owner of the land by foreclosure the irs’s date pretrial memorandum asserted that no carryover charitable-contribution deductions should be allowed for the grant of the conservation_easement it asserted the following reasons the grant of the conservation_easement was a condition of receiving permission from the county to subdivide the land the conservation_easement was not protected in perpetuity because a the terms of the easement allowed minnick and the land trust to amend the easement by agreement b u s bank’s mortgage on the land was not subordinated at the time of the grant and c the easement failed to provide for the allocation of proceeds to the land trust in the event the easement was extinguished minnick and lienhart’s deduction for the contribution of the easement is limited to the basis allocated to the easement and the easement was overvalued this case was tried in boise idaho on date at trial the irs moved to amend its answer the court took the motion under advisement on date the court granted the motion allowing the irs to amend its answer to assert that the claimed deductions are not permitted because the requirements of sec_170 and the corresponding regulations have not been satisfied and because minnick and lienhart have not established that the value of the easement was dollar_figure opinion because u s bank’s mortgage was not subordinated to the conservation_easement when it was granted no deduction is permitted for the grant of the conservation_easement a contribution of a conservation_easement is deductible only if the requirements of sec_1_170a-14 are met see sec_170 b iii sec_1_170a-14 sec_1_170a-14 requires that the easement be contributed to a qualified_organization exclusively for conservation purposes sec_1_170a-14 provides that no deduction will be permitted under this section ie sec_1_170a-14 for an interest in property which is subject_to a mortgage unless the mortgagee subordinates its rights in the property to the right of the qualified_organization to enforce the conservation purposes of the gift in perpetuity because u s bank had a mortgage on minnick’s land that was not subordinated to the conservation_easement when the easement was granted the irs contends minnick and lienhart cannot deduct the value of the conservation_easement granted to the land trust this contention about the mortgage was not raised by the irs in the notice_of_deficiency it was raised in the amended answer and therefore the irs has the burden_of_proof regarding all factual issues underlying the contention see tax ct r pract proc a minnick and lienhart argue that the date subordination agreement with u s bank satisfies the subordination requirement in the regulation the argument is unavailing in 138_tc_324 we held that a subordination agreement must be in place at the time that the conservation_easement is granted minnick and lienhart argue that mitchell is distinguishable because the warranty provision in the easement demonstrates that minnick intended that the mortgage be subordinated at the time he granted the conservation_easement they also contend that u s bank would have been willing to freely subordinate its mortgage at the time the conservation_easement was granted we are not persuaded by these attempts to distinguish mitchell intention and willingness are not what matters the regulation required a subordination agreement without a subordination agreement u s bank would have been able to seize the land in the event of default on the mortgage thus owning the land free of the conservation_easement see id pincite for the sake of completeness we add that we do not agree with minnick and leinhart that the warranty provision demonstrates that minnick intended that the mortgage be subordinated when he granted the conservation_easement the warranty provision means only that minnick falsely-- although we think unintentionally--represented to the land trust that the u s bank mortgage had been subordinated to the conservation_easement at the time he granted the easement we also cannot agree with minnick and lienhart that u s bank would have been willing to agree to freely subordinate its mortgage in there are two reasons we do not make such a finding first minnick and lienhart failed to propose this as a finding of fact in their opening brief as required by our rules of procedure tax ct r pract proc e second the idea that u s bank would have subordinated its mortgage in is contradicted by the record a loan manager at u s bank testified that shortly before trial minnick asked him to sign a letter stating that u s bank would have been willing to agree to subordinate its mortgage to the conservation_easement in had it known about the conservation_easement the loan manager refused to sign such a statement and he did not make the statement under oath when he testified furthermore the bank required minnick to pay down a portion of the loan as consideration for the bank signing the subordination agreement in thus the bank did not freely subordinate its mortgage in this suggests that it would not have freely subordinated its mortgage in minnick and lienhart argue that mitchell is inapposite because it did not consider the effect of the uniform conservation_easement act act idaho code ann secs to they contend that the act imposes the doctrine_of cy pres on all conservation easements in idaho and that the cy pres doctrine has the effect of subordinating the u s bank mortgage to the conservation_easement the act does not support this theory the act allow sec_1the operation of the cy pres doctrine has been summarized as follows if property is given in trust to be applied to a particular charitable purpose and it is or becomes impossible or impracticable or illegal to carry out the particular purpose and if the settlor manifested a more general intention to devote the property to charitable purposes the trust will not fail but the court will direct the application of the property to some charitable purpose which falls within the general charitable intention of the settlor restatement trust sec_2d sec the operation of the cy pres doctrine can be illustrated by the following example a person bequeathed property in trust to establish a hospital in a particular town before the hospital could be built a similar hospital was established in the same town no useful purpose would be accomplished by having two hospitals cy pres would require a court to direct the trust funds to some other way of assisting the town’s sick--if the person who made the bequest had a general intent to provide for the town’s sick id cmt k thus the cy pres doctrine allows the property owned by a_trust to be directed to a use different from that directed by the instrument that established the trust the continued actions regarding conservation easements to be brought in court idaho code ann sec an action affecting a conservation_easement may be brought but once an action was brought u s bank’s mortgage would have been protected for idaho code ann sec --part of the act--provides an interest_in_real_property in existence at the time a conservation_easement is created is not impaired by it unless the owner of the interest is a party to the conservation_easement or consents to it u s bank’s mortgage on minnick’s land is an interest_in_real_property that was in existence at the time minnick created the conservation_easement see eg suchan v suchan p 2d idaho a mortgage interest can exist in real_property capable of being transferred u s bank was not a party to the conservation_easement when it was created and it did not consent to the easement therefore under idaho code ann sec the mortgage was not impaired by the conservation_easement minnick and lienhart also contend that there was only a remote possibility that minnick would default on the u s bank loan but we held in mitchell v continued doctrine does not expand the property interests owned by the trust thus it is difficult to see how the cy pres doctrine if it somehow governed the easement on minnick’s land would defeat u s bank’s mortgage on the same land commissioner t c pincite that the likelihood of default is irrelevant further the factual allegation that there was only a remote possibility that minnick would default on the u s bank loan was not set forth in minnick and lienhart’s proposed findings_of_fact we do not make a finding that the allegation is correct see tax ct r pract proc e the value of the conservation_easement is not deductible as a charitable_contribution because minnick and lienhart failed to meet the subordination requirement set forth in the regulation we therefore need not reach the irs’s alternative arguments for denying the deduction ie that the easement did not serve conservation purposes that the conservation_easement was not protected in perpetuity because it could be amended by agreement of minnick and the land trust that the land trust would not receive a proportionate share of the proceeds if the easement was extinguished and that any charitable deduction is limited to the amount of basis of the land allocated to the easement minnick and lienhart are liable for penalties sec_6662 imposes an accuracy-related_penalty if any part of an underpayment_of_tax required to be shown on a return is due to among other things negligence or disregard of rules or regulations hereinafter referred to without distinction as negligence a substantial_understatement_of_income_tax or a substantial_valuation_misstatement sec_6662 and b and the penalty is of the portion of the underpayment_of_tax to which the section applies sec_6662 in the case of a gross_valuation_misstatement sec_6662 increases the penalty to sec_6664 provides a reasonable-cause exception to the accuracy- related penalty generally under sec_6664 no penalty is imposed under sec_6662 with respect to any portion of an underpayment if it is shown that there was reasonable_cause for such portion and that the taxpayer acted in good_faith with respect to such portion in determining whether such a showing has been made the most important factor is the extent of the taxpayer’s effort to assess the taxpayer’s proper tax_liability sec_1_6664-4 reliance on a professional tax-return preparer or an appraiser can constitute reasonable_cause and good_faith if under all the circumstances such reliance was reasonable and the taxpayer acted in good_faith id under sec_7491 the irs bears the burden of production with regard to penalties and must come forward with sufficient evidence indicating that it is proper to impose penalties 116_tc_438 however once the irs has met the burden of production the burden_of_proof remains with the taxpayer including the burden of proving that the penalties are inappropriate because of reasonable_cause id pincite minnick and lienhart argue that the irs has the burden_of_proof with respect to the subordination requirement to the extent it relates to penalties the irs does not take a position on which party has the burden_of_proof we base our findings regarding penalties on the preponderance_of_the_evidence therefore we need not determine which party has the burden_of_proof the irs had initially determined that on account of its disallowance of minnick and lienhart’s carryover charitable-contribution deductions for the grant of the conservation_easement to the land trust they underpaid the tax required to be shown on their and returns and were liable for the accuracy- related penalty on one or more of three grounds negligence substantial_understatement_of_income_tax or substantial_valuation_misstatement and liable for the section-6662 h increase in the penalty from to for a gross_valuation_misstatement this determination was reflected in the notice_of_deficiency the irs now concedes that if petitioners’ claimed deduction fails to satisfy the legal requirements of sec_170 or the regulations thereunder or both respondent concedes that neither of these substantial_valuation_misstatement or gross_valuation_misstatement penalties would apply as we hold here the deductions fail to satisfy the subordination requirement this means that the irs does not assert that the substantial_valuation_misstatement and gross_valuation_misstatement components of the accuracy-related_penalty apply negligence for section-6662 purposes is the lack of due care or the failure to do what a reasonably prudent person would do under like circumstances 98_tc_695 negligence includes failing to make a reasonable attempt to comply with the provisions of the internal revenue laws or to exercise ordinary and reasonable care in the preparation of a tax_return sec_1_6662-3 see also sec_6662 the irs contends that minnick and lienhart were negligent because they should have known that a deduction would not be allowed for an easement to which u s bank’s mortgage was not subordinated minnick and lienhart respond that minnick followed a model conservation-easement form given to him by the land trust that minnick discussed with his c p a the legal requirements for a conservation_easement and that he hired an expert appraiser to appraise the conservation_easement minnick also contends that he should not be held to the standard of an experienced tax attorney because he worked only for a few months as an attorney and that he spent only a fraction of his time practicing tax law it is true that minnick’s experience as a lawyer did not include substantial tax work he worked as a lawyer for only nine months during which only a portion of his work involved tax law after that he operated a business selling building supplies it is against this background that his efforts should be evaluated his wife lienhart was uninvolved in determining whether the conservation_easement gave rise to a charitable-contribution deduction in determining whether the grant of the conservation_easement gave rise to a charitable-contribution deduction minnick did not exercise reasonable care he did not seek to subordinate u s bank’s mortgage to the conservation_easement until his failure to comply with the subordination requirement found in the regulation appears to stem from his failure to solicit advice from his c p a about the deductibility of the conservation_easement and the failure of the c p a to give such advice the c p a explained to minnick that the value of a conservation_easement is deductible under the code however he did not tell minnick that the particular conservation_easement minnick granted to the land trust wa sec_2minnick was also a politician--he served a term in the u s house of representatives from date to date--but the details of his political career are not in the record deductible in the absence of such advice minnick could not have reasonably relied on the c p a when he claimed a deduction for the conservation- easement contribution minnick should have been alerted by the warranty provision in the conservation_easement that there might be a problem with the lack of subordination the easement contained a warranty from minnick that there was no unsubordinated mortgage on the land it is true that the form minnick used to grant the easement was a model but that does not matter this model easement form was not suited to minnick’s particular parcel of land although minnick hired an appraiser to determine the value of the property this does not contstitute reasonable_cause to avoid imposition of the accuracy- related penalty the appraiser’s job was to determine the value of the conservation_easement not to determine whether other requirements for deducting the 3note the c p a ’s careful response to the following question from minnick and lienhart’s counsel q a did you advise mr minnick as to whether the conservation_easement was deductible or not i advised him that a conservation_easement the donation of a conservation_easement is deductible as a charitable_contribution and is specifically provided for in the code we infer that the c p a declined to tell minnick the grant of the particular easement was deductible and that minnick should have recognized this contribution of the easement--for example the subordination requirement--had been met we determine that the underpayments of tax for and resulting from the disallowance of the charitable deduction carryovers were due to negligence we need not determine whether the underpayments were also due to substantial understatements of income_tax in contending that they have a good-faith-and-reasonable-cause defense minnick and lienhart reiterate the steps that minnick took to determine that he was entitled to a deduction ie using the model form for granting an easement hiring an appraiser and consulting a c p a they also contend that minnick’s failure to secure a subordination agreement was inadvertent this was one of the reasons the taxpayer in mitchell was held to have a good-faith-and-reasonable-cause defense mitchell v commissioner t c pincite but unlike the taxpayer in mitchell minnick was put on notice by the warranty provision in the conservation_easement that the unsubordinated mortgage posed a problem for the deductibility of the conservation-easement contribution furthermore minnick failed to get an opinion from his c p a that he was entitled to a deduction there is no indication that there was such a failure in mitchell id we have already explained why we think minnick and lienhart did not exercise reasonable care to evaluate the deductibility of the easement the same reasons support our view that minnick and lienhart did not have reasonable_cause for claiming a charitable-contribution deduction we hold that minnick and lienhart are liable for the accuracy-related_penalties the penalty amounts for which they are liable are equal to of the underpayments attributable to the carryover charitable-contribution deductions or half the penalty amounts that were calculated in the notice_of_deficiency using a rate therefore the amounts for which minnick and lienhart are liable are dollar_figure for and dollar_figure for evidentiary matters the parties executed a stipulation of facts stating that all exhibits attached to the stipulation may be accepted as authentic and are incorporated in this stipulation and made a part hereof provided however that either party has the right to object to the admission of any such exhibits in evidence on the grounds of materiality and relevancy the parties agree that the stipulation did not waive hearsay objections to the attached exhibits among the documents attached to the stipulation were exhibits 9-j 10-j 11-j 14-j through 34-j and r 42-r 43-r and 45-r at the beginning of the trial minnick and lienhart objected to these documents on the ground that they were relevant to irs theories that had not been asserted in the notice_of_deficiency the court took the objections under advisement the court later allowed the irs to amend its answer to assert these theories as we describe minnick and lienhart also objected to exhibits r 42-r 43-r and 45-r on grounds other than relevancy exhibits 41-r 42-r r and 45-r are appraisals of the land by sam langston for u s bank dated date date date and date respectively minnick and lienhart objected to these exhibits on hearsay grounds they also objected that the exhibits are in substance expert reports and that they were not exchanged under tax_court rule_of practice and procedure they also objected that the documents were not exchanged days before trial as required by the court’s pretrial order the court took these objections to exhibits 41-r r 43-r and 45-r under advisement minnick and lienhart clarified that they did not object to these four exhibits to the extent they support findings_of_fact other than the value of the conservation_easement such as u s bank’s state of mind during trial the irs introduced exhibit 49-r an indemnification 4minnick and lienhart objected to exhibit 44-r during trial there is not a 44-r there is a 43-r and a 44-j they really meant to object to exhibit 43-r agreement between minnick and u s bank minnick and lienhart objected on the ground that it is relevant to irs theories other than those raised in the notice_of_deficiency the court also took this objection under advisement minnick and lienhart’s relevancy objections lost their force when the court permitted the irs to amend its answer to assert its new theories however we agree with minnick and lienhart that langston’s opinion on the value of the conservation_easement which is reflected in exhibits 41-r 42-r 43-r and 45-r should not serve as the basis for our decision for it to do so would contravene tax_court rule_of practice and procedure which requires that expert opinions be brought before the court in the form of an expert report and that the expert report be exchanged with the other party before trial we therefore admit exhibits 41-r r 43-r and 45-r but we do not rely on these appraisals to the extent they opine on the value of the conservation_easement we admit exhibits 9-j 10-j 11-j 14-j through 34-j and exhibit 49-r without any conditions conclusion in reaching our holdings 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


t c memo united_states tax_court carnell specks and cheryl specks petitioners v commissioner of internal revenue respondent docket no filed date carnell specks pro_se sara w dalton and paul c feinberg for respondent memorandum findings_of_fact and opinion kroupa judge respondent determined a dollar_figure deficiency and a dollar_figure accuracy-related_penalty under sec_6662 a with respect to petitioners’ 1all monetary amounts are rounded to the nearest dollar 2all section references are to the internal_revenue_code in effect for and all rule references are to the tax_court rules_of_practice and procedure unless continued federal_income_tax for respondent also asserts an increased deficiency and accuracy-related_penalty after concessions we are asked to decide three issues the first issue is whether amounts third parties paid to petitioner carnell specks mr specks for performing security services as an off-duty police officer are subject_to self-employment_tax under sec_1401 the resolution of this issue turns on whether mr specks had an employee or independent_contractor relationship with the third parties we hold that mr specks had an independent_contractor relationship with the third parties and therefore further hold that the amounts paid to him by the third parties were subject_to self-employment_tax the second issue is whether a loss petitioners claimed from a rental real_estate activity is a passive_activity_loss subject_to limitation under sec_469 we hold that it is the final issue is whether petitioners are liable for the accuracy-related_penalty we hold that they are continued otherwise indicated 3petitioners timely filed a petition to contest respondent’s determinations in the deficiency_notice findings_of_fact some of the facts have been deemed stipulated under rule f and are so found the stipulation of facts with accompanying exhibits is incorporated by this reference petitioners resided in texas when they filed the petition i background during mr specks was employed as a police officer for the houston police department hpd and worked approximately big_number hours for hpd that year mr specks also provided security services for citation oil gas corporation citation john m o’quinn and associates pllc o’quinn and finger furniture collectively third parties during off-duty hours mr specks provided security to the third parties as needed mr specks wore an hpd uniform and carried his personal firearm when performing the security services the third parties did not train supply or equip mr specks however the record is unclear regarding the scope of the security services mr speck provided or the discretion he maintained in performing those services he had an at-will relationship with each of the third parties citation and o’quinn paid mr specks on an hourly basis for his services citation paid mr specks dollar_figure for hours of security services o’quinn paid mr specks dollar_figure for approximately big_number hours of security services finger furniture paid mr specks dollar_figure for security services all of the third parties reported the amounts paid to mr specks on forms 1099-misc miscellaneous income petitioners owned and rented several properties during rental_activity mr specks spent less than hours on the rental_activity petitioner cheryl specks had a full-time job and did not participate at all in the rental_activity ii tax_return a return preparer completed the joint individual_income_tax_return petitioners filed for petitioners reported the amounts mr specks received from the third parties as other income petitioners also reported on the return that they were engaged in rental_real_estate_activities and claimed a dollar_figure loss rental loss from those activities opinion we need to decide whether mr specks a police officer who provided services to the third parties during off-duty hours is an employee or an independent_contractor of the third parties we also must decide whether mr specks is a real_estate_professional taking into account the amount of time he spent in the rental_activity finally we need to address whether petitioners are liable for the accuracy-related_penalty i worker classification we first address respondent’s determination that amounts mr specks received from the third parties were subject_to self-employment_tax generally the commissioner’s determinations are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a 290_us_111 this principle applies to the commissioner’s determinations of worker classification as an employee or independent_contractor 77_f3d_236 8th cir 117_tc_263 the burden_of_proof shifts to the commissioner in certain situations under sec_7491 petitioners do not argue that the burden_of_proof shifts to respondent and have not shown that the threshold requirements have been met therefore the burden_of_proof remains with petitioners petitioners contend that mr specks was an employee of the third parties and thus the amounts paid to him by the third parties were not subject_to self- employment_tax a tax is imposed on a taxpayer’s self-employment_income sec_1401 self-employment_income consists of gross_income derived by an individual from any trade_or_business carried on by the individual sec_1402 the self-employment_tax however does not apply to compensation paid to an employee sec_1402 whether an individual is an employee or an independent_contractor is a question of fact determined by applying common_law principles sec_1402 sec_3121 503_us_318 89_tc_225 aff’d 862_f2d_751 9th cir kaiser v commissioner tcmemo_1996_526 aff’d without published opinion 132_f3d_1457 5th cir sec_31_3401_c_-1 employment_tax regs relevant factors in determining whether a worker is an employee or an independent_contractor include the degree of control exercised by the principal over the details of the work which party invests in the facilities used in the work the opportunity of the individual for profit and loss whether the principal has the right to discharge the individual whether the work is part of the principal’s regular business the permanency of the 4we note petitioners conceded at trial and in their post-trial brief that the security services mr specks performed for the third parties were not part of his employment as a hpd police officer relationship and the relationship the parties believe they are creating weber v commissioner 103_tc_378 aff’d 60_f3d_1104 4th cir rosato v commissioner tcmemo_2010_39 right to control an employment relationship is indicated when the service_recipient has the right to control the details and means by which the worker performs the services sec_31_3401_c_-1 employment_tax regs in contrast independent_contractor status is indicated where the opposite is true id this factor is generally critical in determining the nature of a working relationship see 538_us_440 104_tc_140 weber v commissioner t c pincite petitioners did not demonstrate that the third parties maintained the requisite right to control mr specks in the performance of the security services consequently this factor weighs in favor of independent_contractor status investment in facilities independent_contractor status is indicated when a worker provides his or her own tools or supplies used for work ewens miller inc v commissioner t c pincite citing 900_f2d_49 5th cir mr specks wore his hpd uniform and carried his personal firearm when performing the security services for the third parties additionally the record does not reflect that the third parties trained supplied or equipped mr specks this factor weighs in favor of independent_contractor status opportunity for profit or loss the opportunity for profit or loss indicates independent_contractor status 64_tc_974 earning an hourly wage or fixed salary indicates an employment relationship see weber v commissioner t c pincite kumpel v commissioner tcmemo_2003_265 citation and o’quinn paid mr specks an hourly wage for his services the record does not reflect whether finger furniture paid mr specks an hourly wage or under some other arrangement accordingly there is no evidence that he otherwise had any opportunity for profit or risk of loss in the services he provided this factor weighs in favor of employee status right to discharge the principal’s retaining the right to discharge a worker indicates an employment relationship see weber v commissioner t c pincite colvin v commissioner tcmemo_2007_157 aff’d 285_fedappx_157 5th cir the third parties retained the right to discharge mr specks at will this factor weighs in favor of employee status integral part of business an employment relationship is indicated when the worker is an essential part of the taxpayer’s normal business see simpson v commissioner t c pincite rosemann v commissioner tcmemo_2009_185 the record does not reflect that the security services mr specks provided to the third parties were an essential part of their business this factor weighs in favor of independent_contractor status permanency of the relationship a continuing relationship indicates an employment relationship while a transitory relationship may indicate independent_contractor status ewens miller inc v commissioner t c pincite the extended working relationships mr specks had with citation and o’quinn weigh in favor of employee status the record is unclear how much time mr specks spent performing security services for finger furniture the court infers however that it was a short duration because the amount_paid to mr specks was small accordingly this factor weighs in favor of independent_contractor status with respect to finger furniture relationship contemplated by the parties providing benefits such as health insurance life_insurance paid vacations and retirement plans indicates an employment relationship weber v commissioner t c pincite the record does not reflect that the third parties provided employee_benefits to mr specks during additionally the record reflects that the third parties did not withhold employment_taxes from the amounts paid to mr specks and issued him forms 1099-misc for his services thus even if mr specks did not consider himself an independent_contractor the third parties did the record also does not reflect that mr specks ever attempted to correct the third parties’ classification of him as an independent_contractor indicating that mr specks viewed himself as an independent_contractor this factor weighs in favor of independent_contractor status weighing of the employee classification factors the relationships between mr specks and the third parties have some aspects characteristic of an employer-employee relationship and others characteristic of a principal-independent contractor relationship after weighing the above factors giving greater weight to the right of control factor we conclude that petitioners failed to meet their burden_of_proof to establish mr specks’ status as an employee with respect to the third parties accordingly we sustain respondent’s determination that mr specks is liable for self-employment_tax on the amounts the third parties paid to him ii real_estate_professional classification we now address respondent’s contention that the claimed rental loss for is subject_to the passive_activity_loss limitations under sec_469 the deduction of passive_activity_losses is generally suspended sec_469 a passive_activity_loss is the excess of the aggregate losses from all passive activities over the aggregate income from all passive activities for the taxable_year sec_469 a passive_activity includes the conduct of any trade_or_business in which the taxpayer does not materially participate sec_469 a rental_activity generally is treated as a per se passive_activity sec_469 a taxpayer may however avoid having his or her real_estate activity classified as a per se passive_activity if the taxpayer is a qualifying real_estate_professional and satisfies the material_participation requirements of sec_469 a taxpayer will qualify as a real_estate_professional if more than one-half of the personal services performed in trades_or_businesses by the taxpayer 5respondent first raised the rental loss issue in the answer and therefore bears the burden_of_proof see rule a 290_us_111 during the taxable_year are performed in real_property trades_or_businesses in which the taxpayer materially participates and such taxpayer performs more than hours_of_service during the taxable_year in real_property trades_or_businesses in which the taxpayer materially participates sec_469 a taxpayer’s material_participation is determined separately with respect to each rental property unless the taxpayer makes an election to treat all interests in real_estate as a single rental real_estate activity sec_469 sec_1 e income_tax regs see jafarpour v commissioner tcmemo_2012_165 respondent concedes that for petitioners may treat their rental properties as a single activity a taxpayer may establish his or her participation in an activity by any reasonable means sec_1_469-5t temporary income_tax regs fed reg date this court has acknowledged that reasonable means is interpreted broadly and that the temporary regulations may not provide precise guidance goshorn v commissioner tcmemo_1993_578 nevertheless a postevent ballpark guesstimate will not suffice see lee v commissioner tcmemo_2006_193 goshorn v commissioner tcmemo_1993_578 where as here a joint_return has been filed the foregoing real_estate_professional requirements are satisfied if either spouse separately satisfies those requirements sec_469 petitioners concede that ms specks was not involved with the rental_activity during thus petitioners’ rental_activity is not per se passive and the normal passive_activity_loss rules of sec_469 will apply only if mr specks meets the foregoing requirements we now consider whether mr specks qualifies as a real_estate_professional mr specks stipulated that he worked less than hours in the rental_activity mr specks also stipulated that he worked dollar_figure hours as an hpd officer and dollar_figure hours for citation accordingly mr specks cannot satisfy either prong of the test consequently the rental_activity was per se passive we therefore hold that the rental loss is subject_to the passive_activity_loss limitations under sec_469 6even if taxpayers fail to qualify as real_estate professionals under sec_469 and must therefore treat losses from their rental properties as passive_activity_losses they may still be eligible to deduct a portion of their losses under sec_469 a taxpayer who actively participates in a rental real_estate activity may deduct a maximum loss up to dollar_figure per year related to the activity sec_469 the deduction is phased out as adjusted_gross_income modified by sec_469 exceeds dollar_figure with a full phaseout occurring when modified_adjusted_gross_income equals dollar_figure sec_469 respondent concedes that in mr specks actively participated in the real_estate activity and is entitled to deduct a portion of the rental loss to the extent allowed under sec_469 iii accuracy-related_penalty finally we address respondent’s determination that petitioners are liable for an accuracy-related_penalty under sec_6662 for a taxpayer is liable for an accuracy-related_penalty on any part of an underpayment attributable to among other things a substantial_understatement_of_income_tax see sec_6662 and b and sec_1_6662-2 and income_tax regs there is a substantial_understatement_of_income_tax if the amount of the understatement exceeds the greater of either of the tax required to be shown on the return or dollar_figure sec_6662 b d a sec_1_6662-4 and b income_tax regs see jarman v commissioner tcmemo_2010_285 the commissioner has the burden of production with respect to the accuracy-related_penalty sec_7491 rule a see 116_tc_438 we find that respondent has met his burden of production if rule_155_computations show petitioners have a substantial understatement of income_tax for see higbee v commissioner t c pincite jarman v commissioner tcmemo_2010_285 a taxpayer is not liable for an accuracy-related_penalty however if the taxpayer acted with reasonable_cause and in good_faith with respect to any portion of the underpayment sec_6664 sec_1_6664-4 income_tax regs the determination of whether a taxpayer acted with reasonable_cause and in good_faith depends on the pertinent facts and circumstances including the taxpayer’s efforts to assess his or her proper tax_liability the knowledge experience and education of the taxpayer and the reliance on the advice of a professional sec_1_6664-4 income_tax regs generally the most important factor is the extent of the taxpayer’s effort to assess the proper tax_liability id the taxpayer has the 7respondent determined in the alternative that petitioners are liable for the accuracy-related_penalty on the portion of the underpayment attributable to negligence or disregard of rules or regulations negligence includes the failure to make a reasonable attempt to comply with provisions of the code as well as any failure by the taxpayer to keep adequate books_and_records or to substantiate deductions and credits claimed on the return see sec_6662 sec_1_6662-3 income_tax regs the term disregard includes any careless reckless or intentional disregard see sec_6662 petitioners failed to substantiate mr specks’ status as an independent_contractor of the third parties and their entitlement to the rental loss we find therefore that respondent has satisfied his burden of production for imposing the accuracy-related_penalty for negligence or disregard of rules or regulations burden of proving the reasonable_cause and good-faith exception applies sec_7491 rule a see higbee v commissioner t c pincite petitioners assert they relied on a return preparer to complete their joint individual_income_tax_return for we have found that reliance on a tax professional demonstrates reasonable_cause when a taxpayer selects a competent tax adviser supplies the adviser with all relevant information and consistent with ordinary business care and prudence relies on the adviser’s professional judgment as to the taxpayer’s tax obligations sec_6664 115_tc_43 aff’d 299_f3d_221 3d cir all facts and circumstances are considered in determining whether a taxpayer reasonably relied in good_faith on professional advice including the taxpayer’s education sophistication and business experience sec_1_6664-4 and b income_tax regs petitioners did not establish that the return preparer was a competent professional with significant expertise to justify reliance or that petitioners provided the return preparer all relevant information we therefore do not find that petitioners have shown that it was reasonable to rely on the return preparer furthermore petitioners failed to otherwise show that their underpayment was due to reasonable_cause and was in good_faith based on the entire record we find that petitioners failed to establish that they acted with reasonable_cause and in good_faith with respect to the underpayment for accordingly petitioners are liable for the accuracy-related_penalty on the underpayment for as reflected in the rule computation we have considered all arguments the parties made in reaching our holding and to the extent not mentioned we find them irrelevant or without merit to reflect the foregoing and respondent’s concession that petitioners are entitled to deduct a portion of the rental loss to the extent allowed under sec_469 decision will be entered under rule


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc tege eb qp2-plr-126429-01 date date legend shareholders company esop law firm this responds to your letter requesting a ruling on behalf of the above-named shareholders regarding their substantial compliance with the requirements of sec_1042 of the internal_revenue_code_of_1986 code and the applicable regulations in connection with the sale of qualified_securities of the company to the employee_stock_ownership_plan esop maintained by the company the shareholders owned shares of common_stock of the company a domestic c_corporation that has never had any stock outstanding that was readily_tradable on an established_securities_market the company maintains an esop which qualifies under sec_401 and meets the requirements of sec_4975 of the code eligible employees of the company are participants in the esop on date the shareholders sold big_number shares of common_stock of the company to the esop as a result of the sale the shareholders realized a capital_gain the shareholders had held the common_stock for more than years prior to the esop sale and had not received the stock in a distribution from a plan described in sec_401 or in a transfer pursuant to an option or other right to acquire stock to which sec_83 sec_422 or sec_423 applied the shareholders invested the proceeds from the sale in securities issued by plr-126429-01 domestic operating companies on date the shareholders made their only purchase of securities that they intended to constitute qualified_securities as defined in sec_1042 in connection with the esop transaction the shareholders received input from law firm law firm advised the esop and the esop trust in the transaction as a courtesy to the shareholders law firm explained in writing to the shareholders and their investment advisors and certified_public_accountant the conditions necessary to secure the deferral of recognition of gain under sec_1042 however the shareholders inadvertently did not complete a notarized statement of purchase with respect to the securities that they purchased on date and that they intended to constitute qualified_replacement_property within days after the date of purchase the shareholders completed the notarized statement of purchase for the purchase of qualified_replacement_property on date immediately after discovering their lapse and before the expiration of the replacement_period the shareholders completed notarized statements of purchase for the intended qualified_replacement_property prior to the timely filing of such notarized statements of purchase with the shareholder’s joint income_tax return for the shareholders are cash_basis taxpayers and filed their joint income_tax return in a timely manner by the due_date including any applicable extensions the shareholders elected under sec_1042 to defer recognition of gain from the sale of qualified_securities to the esop the shareholders submitted the following documents with their income_tax return a statement of election as described in q a-3 of sec_1_1042-1t of the temporary income_tax regulations a notarized statement of purchase with respect to the qualified_replacement_property purchased on date as described in q a-3 of sec_1_1042-1t of the temporary income_tax regulations and a verified written_statement of the company consenting to the application of sec_4978 and sec_4979a as required in sec_1042 the shareholders’ joint income_tax return is not under audit by the internal_revenue_service you have requested a ruling that based on the specific facts of this case the shareholders have substantially complied with the requirements for an election to defer recognition of gain under sec_1042 of the code and that the election will be treated as satisfying the requirements of sec_1042 and sec_1_1042-1t q a-3 of the temporary income_tax regulations sec_1042 of the code provides that a taxpayer or executor may elect in certain cases not to recognize long-term_capital_gain on the sale of qualified_securities to an esop as defined in sec_4975 or eligible worker owned cooperative if the taxpayer purchases qualified_replacement_property as defined in sec_1042 within the replacement_period of sec_1042 and the requirements of sec_1042 and sec_1_1042-1t of the temporary income_tax regulations are plr-126429-01 satisfied a sale of qualified_securities meets the requirements of sec_1042 if the qualified_securities are sold to an esop as defined in sec_4975 or an eligible worker owned cooperative the plan or cooperative owns after application of a immediately after the sale at least percent of - a each class of outstanding_stock of the corporation other than stock described in sec_1504 which issued the securities or b the total value of all outstanding_stock of the corporation other than stock described in sec_1504 the taxpayer files with the secretary a verified written_statement of the employer whose employees are covered by the esop or an authorized officer of the cooperative consenting to the application of sec_4978 and sec_4979a with respect to such employer or cooperative and the taxpayer’s holding_period with respect to the qualified_securities is at least years determined as of the time of the sale for taxable years beginning after date sec_1042 provides that the term qualified_securities means employer_securities as defined in sec_409 which are issued by a domestic c_corporation that has no stock outstanding that is readily_tradable on an established_securities_market and were not received by the taxpayer in a distribution from a plan described in sec_401 or in a transfer pursuant to an option or other right to acquire stock to which sec_83 sec_422 or sec_423 applied the taxpayer must purchase qualified_replacement_property within the replacement_period which is defined in sec_1042 as the period which begin sec_3 months before the date on which the sale of qualified_securities occurs and end sec_12 months after the date of such sale sec_1042 defines qualified_replacement_property qrp as any security issued by a domestic operating_corporation which did not for the taxable_year preceding the taxable_year in which such security was purchased have passive_investment_income as defined in sec_1362 in excess of percent of the gross_receipts of such corporation for such preceding_taxable_year and is not the corporation which issued the qualified_securities which such security is replacing or a member of the same controlled_group_of_corporations within the meaning of sec_1563 as such corporation sec_1_1042-1t q a-3 of the temporary income_tax regulations states that the election shall be made in a statement of election attached to the taxpayer’s income_tax return filed on or before the due_date including extensions of time for the taxable_year in which the sale occurs sec_1_1042-1t q a-3 of the temporary income_tax regulations states that the statement of election shall provide that the taxpayer elects to treat the sale of securities as a sale of qualified_securities under sec_1042 and shall contain the plr-126429-01 following information a description of the qualified_securities sold including the type and number of shares the date of the sale of the qualified_securities the adjusted_basis of the qualified_securities the amount_realized upon the sale of the qualified_securities the identity of the esop or worker-owned cooperative to which the qualified_securities were sold if the sale was part of a single interrelated transaction under a prearranged agreement between taxpayers involving other sales of qualified_securities the names and taxpayer identification numbers of the other taxpayers under the agreement and the number of shares sold by the other taxpayers sec_1_1042-1t q a-3 of the temporary income_tax regulations further provides that if the taxpayer has purchased qualified_replacement_property at the time of the election the taxpayer must attach as part of the statement of election a statement of purchase describing the qualified_replacement_property the date of the purchase and the cost of the property and declaring such property to be qualified_replacement_property with respect to the sale of qualified_securities the statement of purchase must be notarized no later than days after the purchase literal compliance with procedural directions in treasury regulations on making elections is not always required see 67_tc_736 acq in result 1979_1_cb_1 regulatory requirements that relate to the substance or the essence of the statute on the other hand must be complied with strictly the shareholders received the advice of tax professionals concerning the requirements necessary to complete the sec_1042 election in a timely and correct manner promptly upon discovering that the statements of purchase were not notarized in a timely manner the shareholders completed a notarized statement of purchase for the qualified_replacement_property therefore based on the specific facts of this case and representations made by the shareholders we conclude that the shareholders have substantially complied with the requirements for an election to defer recognition of gain under sec_1042 of the code and that the election will be treated as satisfying the requirements of sec_1042 and sec_1_1042-1t q a-3 of the temporary income_tax regulations plr-126429-01 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 no opinion is expressed regarding whether the securities purchased by the shareholders constitute qualified_replacement_property as defined in sec_1042 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer s the rulings contained in this letter are based upon information and representations submitted by the taxpayer s 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 enclosures copy of this letter copy for purposes sincerely yours robert d patchell acting chief qualified_plans branch division counsel associate chief_counsel tax exempt and government entities


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 b01 plr-117587-12 date july legend x ------------------------------------------ ------------------------------- state ------------- dear ---------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting a ruling under sec_7704 of the internal_revenue_code facts x is a limited_partnership organized under the laws of state x is a publicly_traded_partnership within the meaning of sec_7704 x intends to acquire and operate a facility that processes ethane and propane ngls into olefins through a cracking process the facility uses a gas fired cracking furnace which applies heat and pressure to decrease the size of the ngl molecules by removing hydrogen atoms olefins are produced as a byproduct of the cracking process and are sold to third parties for use as feedstocks in the production of chemical derivatives x also intends to acquired and operate olefin storage facilities and pipelines to transport olefins x will then provide olefin storage and transportation services to third parties x represents that olefins produced and sold by the facility will not be sold to users at the retail level x requests a ruling that income derived from its processing of ngls into olefins will constitute qualifying_income under sec_7704 plr-117587-12 law and analysis sec_7704 provides that except as provided in sec_7704 a publicly_traded_partnership will be treated as a corporation sec_7704 provides that the term publicly_traded_partnership means any partnership if interests in that partnership are traded on an established_securities_market or interests in that partnership are readily_tradable on a secondary market or the substantial equivalent thereof sec_7704 provides that sec_7704 does not apply to a publicly_traded_partnership for any taxable_year if such partnership meets the gross_income requirements of sec_7704 for the taxable_year and each preceding_taxable_year beginning after date during which the partnership or any predecessor was in existence sec_7704 provides in relevant part that a partnership meets the gross_income requirements of sec_7704 for any taxable_year if percent or more of the gross_income of the partnership for the taxable_year consists of qualifying_income sec_7704 provides that the term qualifying_income includes income and gains derived from the exploration development mining or production processing refining transportation including pipelines transporting gas oil or products thereof or the marketing of any mineral_or_natural_resource including fertilizer geothermal_energy and timber conclusion based solely on the facts submitted and the representations made we conclude that income derived by x from processing ngls into olefins will constitute qualifying_income within the meaning of sec_7704 we further conclude that income derived by x from marketing transporting and storing olefins will constitute qualifying_income within the meaning of sec_7704 except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether x meets the percent gross_income requirement of sec_7704 in any taxable_year for which this ruling may apply 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-117587-12 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 laura c fields laura c fields senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c november number release date uil --------------------------------- -------------------------------- --------------------------------- --------------------------- cc ita b04 genin-128888-18 ------------------ --------------------- dear this letter responds to your request for information dated date written on behalf of your business clients who provide alzheimer dementia adult and family care and mental health and residential support services specifically you asked about the tax treatment of social_security personal care services funding and medicaid waiver payments received by these clients under a program by the division of social services via a network of oversight groups you referred to notice_2014_7 2014_4_irb_445 which concludes that certain medicaid waiver payments received by an individual care provider are excludable from gross_income under sec_131 of the internal_revenue_code the code as difficulty_of_care_payments the text of the notice is available on our website at www irs gov irb 4_irb ar06 html notice_2014_7 specifically addresses payments made under c of the social_security act act relating to home and community-based services waivers and does not specifically address the tax treatment of other state medicaid programs whether the internal_revenue_service irs will treat payments received under a state program other than a program under of c of the act as difficulty_of_care_payments depends on the nature of the payments and the purpose and design of the program see q a1 at www irs gov individuals certain-medicaid-waiver-payments-may-be- excludable-from-income if your clients would like the irs to address whether payments described in your letter or other similar payments are excludible from gross_income under sec_131 of the code they may request a private_letter_ruling revproc_2018_1 2018_1_irb_1 and the first revenue_procedure of each year provides the procedures and fees for a taxpayer to request a private_letter_ruling genin-128888-18 this letter has called your attention to certain general principles of the law it is intended for informational purposes only and does not constitute a ruling see revproc_2018_1 sec_2 2018_1_irb_9 date if you have any additional questions please contact our office at --------------------- sincerely angella l warren chief branch office of associate chief_counsel income_tax accounting


internal_revenue_service number release date index number ------------------------------------------------- ------------------------------------ ----------------------- ------------------------------------ legend 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-146202-10 date february taxpayer ------------------------------------------------------------ ------------------------------------- e f g -- ---- ---- dear ------------- this is in reply to your letter dated date requesting rulings on behalf of taxpayer in a letter_ruling dated date plr-108655-10 the prior letter_ruling this office granted taxpayer a ruling that the issuance of two classes of shares with different distribution fees will not in itself result in dividends_paid by taxpayer with respect to its shares being preferential dividends within the meaning of sec_562 you have requested rulings to supplement the prior letter_ruling that the class-specific allocation of class expenses described below will not in itself result in dividends_paid by taxpayer with respect to its shares being preferential dividends within the meaning of sec_562 of the internal_revenue_code and the class-specific allocation of the performance component of the advisory fee described below will not in itself result in dividends_paid by taxpayer with respect to its shares being preferential dividends within the meaning of sec_562 facts legend terms not defined in this ruling have the meanings assigned to them in the prior letter_ruling plr-146202-10 in the prior letter_ruling taxpayer proposed to issue two classes of its common_stock one class of shares would be subject_to an a selling commission paid at the stockholder level and subject_to waiver and a b annual distribution fee paid at the taxpayer level the distribution fee the second class of shares would not be subject_to any selling commission or any allocation of the distribution fee in the current letter_ruling request taxpayer confirms that in its initial_public_offering taxpayer is offering two classes of its common_stock class a shares and class w shares each a class the class a shares are subject_to the distribution fee and the class w shares are not taxpayer also provides the information below regarding class-specific fees and expenses each class may be allocated and pay a different share of fees and expenses such as transfer agent fees and any other class-specific fees and expenses disclosed in a supplement or amendment to taxpayer’s registration_statement and incorporated into the charter by reference not including fees and expenses related to the management of taxpayer’s assets if these expenses are actually incurred in a different amount for each class in addition as compensation_for its services provided pursuant to the advisory agreement between taxpayer and advisor taxpayer will pay advisor an advisory fee comprised of two separate components a fixed amount per day equal to 365th of c percent of taxpayer’s nav payable quarterly in arrears and a performance fee component the performance fee calculated for each class on the basis of the total return on that class in that calendar_year payable annually the performance fee will be calculated such that for any calendar_year in which the total return defined for each class as the change in nav per share for such class plus distributions per share for such class exceeds e percent advisor will receive g percent of that excess provided that in no event will the performance fee exceed f percent of the aggregated total return for such year the same performance fee formula will be applied separately to the class a and class w shares in the event taxpayer’s nav per share for a class decreases below dollar_figuref the performance fee will not be earned on any increase in nav back up to dollar_figuref per share with respect to that class advisor will not be obligated to return any portion of the performance fee paid based on taxpayer’s subsequent performance because the class-specific allocation of the distribution fee will cause the yields on the class a and class w shares to vary advisor may be entitled to receive a performance fee with respect to one class but not the other law and analysis the prior letter_ruling discusses revproc_99_40 1999_2_cb_565 which describes conditions under which distributions made to a shareholder of a regulated plr-146202-10 investment_company ric may vary and nevertheless be deductible as dividends under sec_562 one requirement of revproc_99_40 is that the advisory fee must not be charged at different rates for different groups of shareholders however the groups of shareholders may be allocated and may pay a different advisory fee to the extent that any difference in amount_paid is the result of the application of the same performance fee provisions in the advisory contract to the different investment performance of each group of shareholders taxpayer as a reit is not within the scope of revproc_99_40 however the prior letter_ruling notes that congress and the service have acknowledged the similarity between rics and reits in many areas and have afforded them similar treatment in many situations the ruling then states that the distributions payable to each class will differ only by reason of the special_allocation of the distribution fee as permitted under revproc_99_40 with respect to rics the prior letter_ruling also describes the numerous securities exchange commission state and financial industry regulatory authority inc restrictions regulations and oversight required with respect to its stock offerings operations and rights of its stockholders the ruling also notes that taxpayer’s offering is subject_to a merit review that is specifically targeted at ensuring that stockholders are treated fairly the class specific allocation of class expenses and the class-specific allocation of the performance fee described in this letter are also consistent with the requirements for rics in revproc_99_40 based on the law and analysis relied upon in the prior letter_ruling we conclude that the class-specific allocation of class expenses described in this letter will not in itself result in dividends_paid by taxpayer with respect to its shares being preferential dividends within the meaning of sec_562 and the class-specific allocation of the performance fee will not in itself result in dividends_paid by taxpayer with respect to its shares being preferential dividends within the meaning of sec_562 except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences relating to the facts herein under any other provision of the code specifically we do not rule whether taxpayer otherwise qualifies as a reit under part ii of subchapter_m of chapter of the code this ruling is directed only to the taxpayer requesting it taxpayer should attach a copy of this ruling to each tax_return to which it applies sec_6110 of the code provides that this ruling may not be used or cited as precedent plr-146202-10 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely susan thompson baker____ susan thompson baker senior technician reviewer branch office of associate chief_counsel financial institutions products


number release date id office uilc cca_2012041608524437 ---------- from ------------------- sent monday date am to ------------------ cc ----------- subject re retroactive statement the designation of a member-manager as tmp on the partnership return is valid under the regulations thus the designation of ----------should be valid it is unclear to me if you think there is any doubt as to this designation it is irrelevant who the tmp is of ---------- any documents that ---------- signs would have to be signed by its current manager under state law rather than by its own tmp the tmp of a state law entity has no power as tmp to sign any document for the state law entity so a current officer of --------- must sign retroactively is not an issue since it does not matter who used to be an officer of the tmp the tmp is a creature of statute whose powers are defined by statute while a tmp has certain powers vis a vis the partners of the tefra partnership such as extending their period for assessment he generally has no power under the tmp statutory provisions to sign any document for the tefra entity itself


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 b1 plr-111935-09 date date legend taxpayer --------------------------- -------------------------------------------------------------- year ------- dear ------------- this responds to a letter dated date submitted by your authorized representative on your behalf requesting a ruling that you be granted an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_469 of the internal_revenue_code and sec_1_469-9 of the income_tax regulations to treat all interests in rental real_estate as a single rental real_estate activity facts according to the information submitted taxpayer represents that in year he was in a real_property business as defined by sec_469 and was qualified under sec_469 to make an election to treat all interests in rental real_estate as a single rental real_estate activity however taxpayer filed his return for year without the statement required under sec_1_469-9 plr-111935-09 law and analysis under sec_469 the term passive_activity generally includes any rental_activity sec_469 provides a limited exception to this rule for taxpayers in a real_property business specifically sec_469 indicates that if a taxpayer meets the requirements of sec_469 the taxpayer's rental real_estate activity will no longer be presumptively passive by its terms the exception under sec_469 is to be applied as if each interest of the taxpayer in rental real_estate were a separate activity however a taxpayer may elect to treat all interests in rental real_estate as a single activity sec_1_469-9 provides that a qualifying taxpayer makes the election to treat all interests in rental real_estate as a single rental real_estate activity by filing a statement with the taxpayer's original income_tax return for the taxable_year sec_1_469-9 describes the information that must be contained in the statement under sec_301_9100-1 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 subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards that 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 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 the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a 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 the taxpayer will be deemed to have acted reasonably and in good_faith plr-111935-09 conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result taxpayer is granted an extension of time of sixty days from the date of this letter but in no event later than the authorized period for filing an amended_return for year to make an election under sec_469 to treat all his interests in rental real_estate as a single rental real_estate activity effective year the election must be in the form of the statement required by sec_1_469-9 and attached to an amended_return for year a copy of this letter should be attached to the election except as specifically provided herein no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether taxpayer satisfies the requirements under sec_469 or whether taxpayer materially participates in any activity this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative enclosures copy of this letter copy for sec_6110 purposes sincerely curt g wilson curt g wilson associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index numbers -------------------------------- ------------------------ ---------------------- ---------------------------- ---------------------- 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 b2 plr-101128-10 date july legend x d country ------------------------ ---------------------- ----------------------- ----------------------- dear ---------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed under the laws of country x intended to be treated as a disregarded_entity for federal tax purposes effective d however x inadvertently failed to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can plr-101128-10 elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 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 internal_revenue_code except subtitles e g h and i section b defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that 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 rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a disregarded_entity for federal tax purposes effective d x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form this ruling is contingent on the owner of x filing within days of this letter all required returns and amended income_tax returns consistent with the requested relief being effective d to the extent appropriate these returns must include but are not limited to the following forms i forms information_return of u s persons with respect plr-101128-10 to certain foreign_corporations ii forms return of u s persons with respect to certain foreign_partnerships and iii forms information_return of u s persons with respect to disregarded entities such that these forms reflect the consequences of the relief granted in this letter 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 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representatives sincerely associate chief_counsel passthroughs and special industries by __________________ richard probst branch reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc