internal_revenue_service number release date index number -------------------- -------------------------------- ------------------------------- in re -------------------------------- -------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------ id no ----------------- telephone number --------------------- refer reply to cc psi b04 plr-147287-10 date date legend legend grantor daughter trust state law state law date court state dear -------------- ------------------- ---------------------- -------------------------------------------------------------------------- ------------------------------------------------------ ----------------------------------------------------- -------------------------- ------------------------------------------------ -------- this letter responds to a letter dated date and other correspondence requesting rulings regarding the income estate gift and generation- skipping transfer gst tax consequences of a proposed division of an irrevocable_trust the facts submitted and representations made are as follows on date a date prior to date grantor created an irrevocable_trust trust for the benefit of daughter’s issue it is represented that no additions have been made to trust since date daughter has three children all adults and one minor grandchild now living and no deceased children section dollar_figure of trust provides that the primary beneficiaries of trust are daughter’s children section dollar_figure provides subject_to sec_3 that the trustee is to distribute all of the net_income of trust to daughter’s children and the descendants of any deceased child of daughter at least annually sec_3 provides that the trustee may in the trustee’s discretion withhold all or any part of the net_income plr-147287-10 withheld income may be accumulated and added to principal set_aside for future distribution in any subsequent annual period or in whole or in part distributed to or for the benefit of the beneficiaries then entitled to the income of trust under sec_3 in such proportions or amounts as the trustee may from time to time determine sec_3 provides that in exercising this power to withhold and accumulate or distribute the trustee is to consider the current needs and other income and resources of the beneficiaries including those for health medical_care support and education the trustee is also to consider the beneficiary’s accustomed standard of living without regard to the availability of income from trust section dollar_figure provides that one year after daughter’s death trust will terminate and principal and any accumulated income are to be distributed in equal shares per stirpes to daughter’s children section dollar_figure provides that when trust terminates if a child predeceased daughter without leaving surviving descendants that child’s share is to be reallocated to the child’s siblings and their descendants per stirpes if daughter is not survived by descendants the principal and any accumulated income are to be allocated in equal shares to other trusts created by grantor for the children of daughter’s siblings section dollar_figure provides that if at the time of any distributions a beneficiary is under the age of such beneficiary’s share will be held by the trustee for the benefit of such beneficiary until the beneficiary attains age such beneficiary’s share will be distributed to the beneficiary on the date the beneficiary attains age the trustee shall apply for such beneficiary’s use so much of the income of such beneficiary’s share as the trustee deems necessary for the beneficiary’s education support and maintenance and may accumulate income to provide for such uses if the beneficiary dies prior to attaining age the separate share will be distributed to the beneficiary’s intestate heirs section dollar_figure provides that the terms child children grandchildren descendant or heirs includes legally adopted children section dollar_figure provides that the trustee has the discretion to distribute trust principal to provide for a child of daughter’s proper care education and support taking into consideration his or her station in life and the other_property and income available to such child and in particular cases of severe or protracted illness or great necessity the trustee may as a condition of payment require that such advances or any part thereof are to be restored from future income section dollar_figure provides that if trust is not terminated as provided under sec_3 trust shall terminate upon the date which i sec_21 years after the death of the last survivor of a class consisting of grantor grantor’s children and grantor’s plr-147287-10 grandchildren who are living on date in which event the beneficiaries shall all be presumed to have attained the necessary age to and shall be entitled to immediate distributions of principal in order to make unequal distributions to children while ensuring that the ultimate distribution of trust’s assets is equitable and to allow the trustee to pursue different investment objectives with respect to each child’s interest in trust the trustee proposes to divide trust into three separate trusts hereinafter subtrust or subtrusts one for the benefit of each of daughter’s three children and his or her descendants the trustee will fund each subtrust with a pro_rata share of each asset held in trust it has been represented that the terms of each subtrust will be the same as trust except that each subtrust will be held exclusively for the benefit of the child and his or her descendants for whom the subtrust was created in addition each subtrust will have a provision to the effect that if daughter gives birth to or adopts another child after-born child prior to the termination of the subtrusts all of the subtrusts then held for a child of daughter will be reallocated to create a new subtrust for the after-born child this new subtrust will receive a fraction of the aggregate value of the subtrusts then existing the numerator of the fraction will be one and the denominator will be one plus the number of subtrusts held for daughter’s children immediately before the birth or adoption each existing subtrust will contribute to the new subtrust for the after-born child in proportion that its value bears to the aggregate value of all of such subtrusts if a child and all descendants of the child die before the termination of the subtrusts the deceased child’s subtrust will be reallocated so as to be added to or used to fund the subtrusts held for that child’s siblings or their descendants or if there are no other descendants of daughter then living will remain in existence until the termination of the subtrusts with the income being payable to any after-born child or to the descendants of any deceased after-born child or accumulated if there is no after- born child or descendant of a deceased after-born child state law provides that an irrevocable_trust may be terminated or its dispositive provisions modified by the court with the consent of all of the beneficiaries if continuance of the trust on the same or different terms is not necessary to carry out a material purpose state law provides that on petition by a trustee or beneficiary the court may divide a_trust into two or more separate trusts whether or not their terms are similar if the court determines that dividing the trust is in the best interest of the beneficiaries and will not defeat or substantially impair the accomplishment of the trust purposes or the rights of the beneficiaries to facilitate the division the trustee may divide the trust assets in_kind by pro_rata or non-pro rata division or by any combination of the methods plr-147287-10 the following representations have been made i the trustees will initiate a judicial proceeding in court to divide trust as described above ii daughter’s children will be given notice of the proceeding and iii daughter’s children will act for any minor unborn or contingent beneficiaries including daughter’s minor grandchild pursuant to state’s virtual representation statute the trustee has requested the following rulings the division of trust into subtrusts will not cause trust or any of the subtrusts to lose their status as exempt from the gst tax or otherwise become subject_to the gst tax the subtrusts will be treated as separate trusts for federal_income_tax purposes the division of trust into subtrusts will not cause trust or any of the subtrusts or their beneficiaries to recognize any gain_or_loss from a sale_or_other_disposition of property under sec_61 sec_662 or sec_1001 the tax basis of the assets the subtrusts receive from trust will be the same as the tax basis of trust in such assets the holding_period of the subtrusts in each asset received from trust will include the holding_period of trust in that asset the division of trust into subtrusts will not cause any portion of the assets of trust or any subtrust to be includible in the gross_estate of any beneficiary of trust or any subtrust and neither the division of trust into subtrusts nor the pro_rata allocation of the assets of trust among the subtrusts will constitute a transfer by any beneficiary that will be subject_to federal gift_tax under sec_2501 law and analysis ruling sec_2601 of the internal_revenue_code code imposes a tax on each generation-skipping_transfer which is defined under sec_2611 as a taxable_distribution taxable_termination or a direct_skip under a of the tax_reform_act_of_1986 act the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 of the generation-skipping plr-147287-10 transfer_tax regulations the tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date under sec_26_2601-1 any trust in existence on date will be considered irrevocable unless the grantor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the grantor had died on date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status the regulation provides that the rules contained in the paragraph are generally applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 provides that for purposes of this section a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a generation-skipping_transfer or the creation of a new generation-skipping_transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred will not be considered to shift a beneficial_interest in the trust sec_26_2601-1 example illustrates a situation where a_trust that is otherwise exempt from the gst tax is divided into two trusts the facts set forth in example are as follows in grantor established an irrevocable_trust for the benefit of his two children a and b and their issue under the terms of the trust the plr-147287-10 trustee has the discretion to distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate on the death of the last to die of a and b the trust principal is to be distributed to the living issue of a and b per stirpes in the appropriate local court approved the division of the trust into two equal trusts one for the benefit of a and a's issue and one for the benefit of b and b's issue the trust for a and a's issue provides that the trustee has the discretion to distribute trust income and principal to a and a's issue in such amounts as the trustee deems appropriate on a's death the trust principal is to be distributed equally to a's issue per stirpes if a dies with no living descendants the principal will be added to the trust for b and b's issue the trust for b and b's issue is identical except for the beneficiaries and terminates at b's death at which time the trust principal is to be distributed equally to b's issue per stirpes if b dies with no living descendants principal will be added to the trust for a and a's issue the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the two partitioned trusts resulting from the division will not be subject_to the gst tax in this case trust is exempt from the gst tax because it was irrevocable before date and it is represented that no additions have been made to trust since date a date prior to date the proposed division of trust is similar to the facts set forth in example of sec_26_2601-1 thus based upon the facts submitted and the representations made and assuming the proposed division is approved by court we rule that the proposed division of trust into subtrusts will not cause trust or any of the subtrusts to lose their status as exempt from the gst tax or otherwise become subject_to the gst tax ruling sec_643 provides that under regulations prescribed by the secretary two or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries and the principal purpose of such trusts is the avoidance of the tax_imposed_by_chapter_1 of the code section b of the act provides that in the case of a_trust which was irrevocable on date sec_643 shall apply only to that portion of the trust which is attributable to a contribution to corpus after date in this case the subtrusts created upon the division of trust will be separately managed and administered by the trustee while the subtrusts have the same grantor they will have different primary beneficiaries therefore based on the facts submitted plr-147287-10 and the representations made we rule that the subtrusts will be treated as separate trusts for federal_income_tax purposes under sec_643 ruling sec_3 and sec_61 provides that gross_income includes gains derived from dealings in property sec_661 provides that in any taxable_year a deduction is allowed in computing the taxable_income of a_trust other than a_trust to which subpart b applies for the sum of the amount of income for such taxable_year required to be distributed currently and any other_amounts_properly_paid_or_credited_or_required_to_be_distributed for such taxable_year but such deduction shall not exceed the distributable_net_income of the estate_or_trust sec_1_661_a_-2 of the income_tax regulations provides that gain_or_loss is realized by the trust or estate or the other beneficiaries by reason of a distribution_of_property in_kind if the distribution is in satisfaction of a right to receive a distribution of a specific dollar amount of specific property other than that distributed or of income as defined under sec_643 and the applicable regulations if income is required to be distributed currently sec_662 provides that there shall be included in the gross_income of a beneficiary to whom an amount specified in sec_661 is paid credited or required to be distributed by an estate_or_trust described in sec_661 the sum of the following amounts the amount of income_for_the_taxable_year_required_to_be_distributed_currently to such beneficiary whether distributed or not and all other_amounts properly paid credited or required to be distributed to such beneficiary for the taxable_year sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized under sec_1001 the entire amount of gain_or_loss must be recognized except as otherwise provided sec_1_1001-1 provides that except as otherwise provided in subtitle a the gain_or_loss realized from the exchange of property for cash or for other_property differing materially either in_kind or in extent is treated as income or loss sustained sec_1015 provides that if property is acquired after date by a transfer in trust other than by a transfer in trust by a gift bequest or devise the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized by the grantor on such transfer plr-147287-10 sec_1_1015-2 provides that in the case of property acquired after date by transfer in trust other than by a transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer under the law applicable to the year in which the transfer was made if the taxpayer acquired the property by a transfer in trust this basis applies whether the property be in the hands of the trustee or the beneficiary and whether acquired prior to termination of the trust and distribution of the property or thereafter sec_1223 provides that in determining the period for which a taxpayer has held property however acquired there shall be included the period for which such property was held by any other person if under chapter of subtitle a the property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in his or her hands as it would have in the hands of such other person see also sec_1_1223-1 revrul_56_437 1956_2_cb_507 holds that the conversion of a joint_tenancy in stock to a tenancy_in_common in order to eliminate the survivorship feature and the partition of a joint_tenancy in stock are not sales or exchanges similarly divisions of trusts are also not sales or exchanges of trust interests where each asset is divided pro_rata among the new trusts see revrul_69_486 1969_2_cb_159 pro_rata distribution of trust assets not a sale_or_exchange in this case trust’s assets will be distributed in_kind on a pro_rata basis among the three subtrusts accordingly based upon the facts submitted and the representations made we rule that the proposed division of trust will not result in the realization of gain_or_loss by trust or any of the subtrusts or their beneficiaries under sec_61 and sec_1001 because sec_1001 does not apply to the division of the trust’s assets we rule that under sec_1015 the basis of the trust’s assets will be the same after the division as the basis of those assets before the division since the basis of each asset in the hands of the subtrust is the same as the basis of that asset in the hands of trust we rule that the holding_period of each asset in the hands of a subtrust will be the same as the holding_period of that asset in the hands of trust immediately before the distribution to the subtrust pursuant to sec_1223 finally since the proposed division will not result in the realization of gain_or_loss under sec_61 and sec_1001 and because the creation of the subtrusts is a modification of trust for federal_income_tax purposes the subtrusts are treated as a continuation of trust therefore we rule that the transfer of assets from trust to the subtrusts will not be treated as a distribution or termination under sec_661 plr-147287-10 ruling sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2037 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceeds five percent of the value of such property sec_2038 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power either by the decedent alone or in conjunction with any person to alter amend revoke or terminate or where the decedent relinquished any such power during the 3-year period ending on the date of the decedent's death in order for sec_2036 through to apply the decedent must have made a transfer of property or any interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth under which the decedent retained an interest in or power over the income or corpus of the transferred property in the present case the proposed division of trust does not constitute a transfer within the meaning of sec_2036 through the beneficiaries of the subtrusts will have the same interest after the division as they had as beneficiaries before the division therefore based upon the facts submitted and the representations made we rule that the proposed division will not cause the interest of any beneficiary of trust or the subtrusts to be includible in the beneficiary's gross_estate under sec_2036 through plr-147287-10 ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during the calendar_year by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if the gift is made in property the value thereof at the date of the gift is considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than an adequate_and_full_consideration in money_or_money's_worth then the amount by which the value of the property exceeded the value of the consideration is deemed to be a gift and is included in computing the amount of gifts made during the calendar_year in this case the beneficiaries of the subtrusts will have the same beneficial interests in the subtrusts after the proposed division that they had as beneficiaries under trust accordingly based upon the facts submitted and the representations made we rule that the proposed division of trust and the pro_rata allocation of trust’s assets among the subtrusts is not a transfer direct or indirect of property that will be subject_to the gift_tax imposed by sec_2501 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative 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 plr-147287-10 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely lorraine e gardner ____________________________ lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


t c summary opinion united_states tax_court james timothy harris and latonya mechael harris petitioners v commissioner of internal revenue respondent docket no 10104-11s filed date james timothy harris and latonya mechael harris pro sese amber b martin for respondent summary opinion wells judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant 1unless otherwise indicated section references are to the internal revenue continued to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case the issue we must decide is whether petitioners are entitled to the first-time_homebuyer credit fthbc pursuant to sec_36 background some of the facts and certain exhibits have been stipulated the parties’ stipulations of facts are incorporated in this opinion by reference and are found accordingly petitioners are husband and wife who resided in mississippi at the time they filed their petition during petitioner husband moved into a st louis missouri residence st louis property owned by catherine barton on date ms barton executed a quitclaim_deed in favor of petitioner husband and herself for the st louis property in connection with a refinancing of the mortgage from to ms barton maintained her principal_residence at the st louis property petitioner husband and ms barton had a son k j h who also lived at the st louis property as his principal_residence from his birth to continued code of as amended and rule references are to the tax_court rules_of_practice and procedure in either january or date petitioner husband moved to gadsden alabama because of the requirements of his work in date petitioner husband married ms barton who continued to reside in missouri at the st louis property during petitioner husband moved to memphis tennessee because of his work for the job corps program and as of date he began to reside in southaven mississippi southaven residence at the time of petitioner husband’s move he and ms barton were already separated after his move to memphis petitioner husband periodically returned to st louis to visit k j h and provided financial support for his family however petitioner husband neither provided ms barton with financial support to maintain or repair the st louis property nor received mail at the st louis property on date petitioner husband applied for a driver’s license from the state of mississippi listing the southaven residence as his home address petitioner husband and ms barton jointly filed form sec_1040 u s individual_income_tax_return for their and tax years for their and tax years petitioner husband and ms barton’s joint returns listed the st louis property as their home address and showed deductions for home mortgage interest and real_estate_taxes associated with the st louis property petitioner husband and ms barton claimed a refund due to overpayment of taxes for their and tax years petitioner husband did not himself receive any refunded taxes and the record does not disclose whether ms barton received any refunded taxes during petitioner husband received a form_w-2 wage and tax statement listing the southaven residence as his address during petitioner husband received a form_w-2 listing the st louis property as his address petitioner husband and ms barton signed the final decree of divorce and property settlement agreement divorce decree on date the chancery court of desoto county mississippi filed the divorce decree on date the divorce decree granted ownership of the st louis property to ms barton however record title to the st louis property continues in the names of both ms barton and petitioner husband petitioners married on date on date petitioner wife purchased a residence in olive branch mississippi olive branch property petitioner wife did not own any residence at any time from date until the purchase of the olive branch property after the purchase petitioners moved into and continue to live at the olive branch property for their tax_year petitioners filed a form_1040 with the filing_status married_filing_jointly on their form_1040 petitioners claimed a sec_36 credit of dollar_figure discussion generally the commissioner’s determination_of_a_deficiency is presumed correct and the taxpayer has the burden of proving it incorrect rule a 290_us_111 sec_7491 provides an exception that shifts the burden_of_proof to the commissioner as to any factual issue relevant to a taxpayer’s liability for tax if the taxpayer introduces credible_evidence with respect to that issue and the taxpayer satisfies certain other conditions including substantiation of any item and cooperation with the government’s requests for witnesses documents other information and meetings sec_7491 see also rule a the taxpayer bears the burden of proving that the taxpayer has met the requirements of sec_7491 135_tc_471 aff’d 668_f3d_888 7th cir because we decide the factual issues in the instant case on the preponderance_of_the_evidence the allocation of the burden_of_proof is immaterial see 131_tc_185 sec_36 allows a credit for a first-time_homebuyer of a principal_residence a first-time_homebuyer is any individual if such individual and if married such individual’s spouse had no present ownership_interest in a principal_residence during the 3-year period ending on the date of the purchase of the principal_residence to which this section applies sec_36 petitioners are eligible as first-time homebuyers if neither petitioner wife nor petitioner husband had an ownership_interest in a principal_residence after date and before date see 138_tc_51 for purposes of the fthbc sec_36 provides that the term principal_residence has the same meaning as in sec_121 whether a taxpayer uses a property as his or her principal_residence depends upon all the facts and circumstances see sec_1_121-1 income_tax regs ordinarily the taxpayer’s principal_residence is the property the taxpayer uses during most of the year see id sec_1_121-1 income_tax regs provides principal_residence in addition to the taxpayer’s use of the property relevant factors in determining a taxpayer’s principal_residence include but are not limited to-- i the taxpayer’s place of employment ii the principal_place_of_abode of the taxpayer’s family members iii the address listed on the taxpayer’s federal and state tax returns driver’s license automobile registration and voter registration card iv the taxpayer’s mailing address for bills and correspondence v the location of the taxpayer’s banks and vi the location of religious organizations and recreational_clubs with which the taxpayer is affiliated respondent contends that petitioner husband was not a first-time_homebuyer because after date petitioner husband held an ownership_interest in the st louis property and used the st louis property as his principal_residence petitioners do not dispute that petitioner husband had record title to the st louis property in his joint name with ms barton at least until his divorce from ms barton in but contend that the st louis property ceased to be his principal_residence when he moved to the southaven residence which was before date in petitioner husband moved to the memphis tennessee area so that he could continue his work for the job corps program in memphis as of date petitioner husband began to reside in the memphis suburb of southaven 2we note that sec_36 expands the scope of the fthbc by making it available to individuals who have owned and lived in the same residence for at least five consecutive years during the eight years before purchasing a new principal_residence according to respondent it is likely that petitioner husband would have qualified for the fthbc under sec_36 however para was not enacted until and does not apply for the tax_year see worker homeownership and business assistance act of pub_l_no sec_11 sec_123 stat pincite consequently petitioners cannot avail themselves of sec_36 mississippi and no longer resided at the st louis property petitioner husband only periodically returned to st louis primarily to visit his son k j h and not ms barton from whom petitioner husband separated when he moved and whom he ultimately divorced in petitioner husband provided ms barton with financial support for k j h but not for the upkeep of the st louis property additionally after moving to the memphis area petitioner husband ceased to receive mail at the st louis property and listed his address as the southaven residence on his application_for a mississippi driver’s license consequently petitioner husband worked in memphis limited his family involvement in st louis only to interactions with k j h changed his mailing address from the st louis property to the southaven residence and received a mississippi driver’s license listing his address as the southaven residence the evidence which includes his credible testimony indicates that petitioner husband stopped residing at the st louis property when he moved to the southaven residence during accordingly we conclude that the st louis property ceased to be petitioner husband’s principal_residence before date respondent contends that petitioner husband’s form sec_1040 for his and tax years prove that the st louis property was his principal_residence during those years respondent points to the fact that petitioner husband and ms barton jointly filed form sec_1040 for their and tax years and on both form sec_1040 they listed the st louis property as their home address and deducted home mortgage interest3 and real_estate_taxes associated with the st louis property however at trial petitioner husband testified that ms barton prepared the form sec_1040 and that he signed them without questioning her because he wanted to get out from under that entire umbrella with as little issue of problems as possible we accept petitioner husband’s testimony as credible it is consistent with other facts that persuade us that the st louis property was not his actual residence when he signed the return petitioner husband and ms barton did in fact face marital problems as evidenced by their separation in and ultimate divorce in furthermore although petitioner husband and ms barton claimed a refund due to overpayment of taxes for their and tax years he did not receive any of 3respondent appears to be arguing that petitioners’ position that they qualify for the fthbc is inconsistent with petitioner husband and ms barton’s position on their and joint returns that the st louis property was treated as a principal_residence for purposes of the interest_deduction under sec_163 respondent has not convinced us that those positions are necessarily inconsistent in particular respondent has failed to address the effect of the cross- reference in sec_163 to sec_121 inasmuch as sec_121 might suggest that ms barton was entitled to claim the st louis property as her principal_residence with regard to her sole use of that property for purposes of claiming an interest_deduction under sec_163 on her joint_return with petitioner husband the refund payment limiting his personal benefit from the deductions additionally petitioner husband’s form_w-2 for his tax_year listed his address at the southaven residence indicating that he regarded the southaven residence to be his residence for federal tax purposes respondent also points to petitioner husband’s continued record ownership of the st louis property despite the separation and divorce from ms barton as evidence that it was his principal_residence during when the divorce decree granted ownership of the st louis property to ms barton record title to the st louis property continued to be in the names of both ms barton and petitioner husband petitioner husband contends that he allowed his name to remain on the deed to the st louis property to accommodate ms barton so that she would not face the risk of losing the st louis property in a potential refinancing a result that would force additional transition and stress upon k j h who was already in a delicate situation due to his parents’ separation and divorce we are persuaded by petitioner husband’s testimony that he intended to financially support his son k j h 4we are aware that during petitioner husband received a form_w-2 listing the st louis property as his address however as petitioner husband testified at trial we believe that to be an error because the previous form_w-2 for listed his correct address at the southaven residence and he received no mail correspondence at the st louis property after he moved during when he decided not to take any_action to remove his name from the record title on the st louis property on the basis of the foregoing we hold that the st louis property was not petitioner husband’s principal_residence after date therefore pursuant to sec_36 petitioners qualify as first-time homebuyers that are entitled to the fthbc in reaching the foregoing holdings we have considered all the parties’ arguments and to the extent not addressed herein we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered for petitioners


t c memo united_states tax_court ann powers f k a melanie ann studinger petitioner v commissioner of internal revenue respondent docket no filed date ann powers pro_se kimberly j webb for respondent memorandum findings_of_fact and opinion armen special_trial_judge respondent determined a deficiency in petitioner's federal_income_tax for the taxable_year in the amount of dollar_figure respondent’s deficiency determination is attributable solely to the disallowance of the earned_income_credit claimed by petitioner on her income_tax return respondent disallowed the earned_income_credit on the ground that petitioner did not have any earned_income in accordingly the issue for decision is whether petitioner had earned_income in we hold that she did not findings_of_fact most of the facts have been stipulated and they are so found petitioner resided in michigan at the time that her petition was filed with the court in petitioner received payments in the form and in the amounts as follows form of payment amount of payment aid to families with dependent_children afdc dollar_figure supplemental securi- ty income ssi social_security dis- ability benefit sec_5 gifts big_number total big_number petitioner was not issued any form_w-2 wage and tax statement for the taxable_year other than the payments ' respondent did not determine nor did respondent contend at trial that petitioner is not otherwise entitled to an earned_income_credit set forth in the table above petitioner did not receive any income in on or about date petitioner filed an income_tax return form_1040 for on the return petitioner indicated her filing_status as head_of_household and claimed two dependency_exemptions on line of form_1040 petitioner reported wages in the amount of dollar_figure this amount consisted of the afdc and ssi payments the social_security disability benefits and the gifts as set forth in the table above petitioner reported no other items of income inserting the word none on each and every line other than line of the income portion of form_1040 specifically on line business income or loss petitioner inserted the word none on page of form_1040 petitioner claimed the standard_deduction applicable to her indicated filing_status dollar_figure and the dollar value of exemptions dollar_figure thereby reporting taxable_income of -0o- petitioner did not claim any gifts are excluded from gross_income and welfare benefits such as afdc and ssi may also be excluded therefrom see sec_102 88_tc_1293 acknowledging the general welfare doctrine_of income exclusion cf notice_99_3 1999_2_irb_10 withholding or estimated_tax payments but she did claim an earned_income_credit in the amount of dollar_figure and requested that such amount be refunded to her ass an overpayment_of_tax for the maximum allowable_amount of the earned_income_credit was dollar_figure see sec_32 and b opinion petitioner bears the burden_of_proof in this case see rule a 503_us_79 290_us_111 cf sec_7491 as effective for court proceedings arising in connection with examinations commencing after date in order to be entitled to an earned_income_credit petitioner is therefore obliged to prove that she had earned_income in sec_32 provides for an earned_income_credit in order to be entitled to an earned_income_credit the taxpayer must satisfy a number of requirements one of the requirements is that the taxpayer have earned_income see sec_32 without earned_income there is no earned_income_credit all section references are to the internal_revenue_code in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure the notice_of_deficiency in this case was issued on date accordingly sec_7491 has no application to this case sec_32 provides in relevant part that there shall be allowed as a credit against the tax imposed by this subtitle for the taxable_year an amount equal to the credit percentage of continued the term earned_income is defined to mean wages salaries tips and other employee compensation plus the amount of the taxpayer’s net_earnings_from_self-employment see sec_32 a see also sec_1_32-2 income_tax regs earned_income does not include welfare_payments such as afdc and ssi nor does earned_income include social_security disability benefits or gifts see sec_32 a see also sec_1 c income_tax regs the legislative_history of sec_32 provides further support for our conclusion thus the legislative_history demonstrates that the earned_income_credit was originally created as an employment inducement and an offset to the social_security_tax for low-income taxpayers under present law an individual is not regquired to pay income_tax unless his income exceeds the amount of the minimum standard_deduction plus the sum of available personal exemptions social_security_taxes however are paid on all covered earnings by workers regardless of how small the amount of earnings it 1s appropriate to use the income_tax system to offset the impact of the social_security_taxes on low-income persons by adopting a refundable income_tax_credit against earned_income continued so much of the taxpayer’s earned_income for the taxable_year as does not exceed the earned_income amount emphasis added despite the complexity of this language it is apparent that if a taxpayer has no earned_income then there is no earned_income_credit however the most significant objective of the provision should be to assist in encouraging people to obtain employment reducing the unemployment rate and reducing the welfare rolls s rept c b part ii to accompany the tax reduction act of publaw_94_12 89_stat_26 sec at trial petitioner testified that she was physically disabled and should therefore be deemed to have earned_income pursuant to a special rule that assumes an earned_income of dollar_figure per month for one qualifying person and an earned_income of dollar_figure per month for two or more qualifying persons this special rule however serves to ameliorate the earned_income limitation on the amount of a taxpayer’s employment-related_expenses for purposes of the child_care_credit under sec_21 this special rule does not apply in determining the amount of a taxpayer’s earned_income for purposes of the earned_income_credit under sec_32 see sec_21 petitioner also testified at trial that she is an inventor implying that her power or ability to invent is a trade_or_business however petitioner did not allege much less prove that she had net_earnings from any such trade_or_business finally petitioner testified at trial that she received under dollar_figure miscellaneous income from my sister and a friend of mine apparently for doing legal correspondence anda lot of correspondence petitioner’s contention is belied however by the insertion of the word none on line business income or loss of form_1040 the parties’ stipulation that petitioner received no income in other than afdc and ssi payments social_security disability benefits and gifts and the absence of any documentary or third party testimony see 99_tc_202 6_tc_1158 affd 162_f2d_513 10th cir regardless the record does not reveal whether the under dollar_figure amount represents gross_receipts or as is required for purposes of the earned_income_credit net_earnings conclusion in view of the foregoing we hold that petitioner did not have any earned_income in and is therefore not entitled to an earned_income_credit for that year to reflect our disposition of the disputed issue decision will be entered for respondent


tcmemo_1996_13 united_states tax_court southern boiler sales service inc petitioner v commissioner of internal revenue respondent docket no filed date mathew e bates for petitioner amy dyar seals for respondent memorandum findings_of_fact and opinion parker judge respondent determined deficiencies in petitioner's corporate federal_income_tax and an addition_to_tax and penalty as follows taxable_year addition_to_tax penalty ending deficiency sec_6653 sec_6662 dollar_figure dollar_figure -- big_number -- dollar_figure unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable years before the court and all rule references are to the tax_court rules_of_practice and procedure the issues for decision are the fair market rental value of the property leased by petitioner from its president and sole shareholder whether some further adjustment to petitioner's gross_receipts is required and whether petitioner is liable for the addition_to_tax for negligence under sec_6653 for the taxable_year and for the penalty for negligence under sec_6662 for the taxable_year findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the exhibits attached thereto are incorporated herein by this reference petitioner was located in pleasant garden north carolina at the time it filed its petition in this case petitioner is in the business of selling installing and maintaining boilers boiler parts and supplies the business began in and was incorporated on date luther ray berry berry is petitioner's president and 100-percent shareholder on date berry organized a new corporation southern boiler sales and service no inc no to expand into the business of installing and maintaining pipes berry owned percent of this corporation as well however the expansion did not materialize and the business and activity of no was the same as that of petitioner the parties now agree that petitioner and no are really one corporation and the notice_of_deficiency generally has combined the gross_receipts costs of sales income and deductions reported on the corporate tax returns of the two petitioner had seven employees five of whom including berry were technicians the technicians worked at the customers' sites since its inception petitioner has leased property owned by berry and his wife the property for its offices and parts department prior to petitioner's use of the property it had served as the berrys' personal_residence the property consists of a big_number square-foot house and two storage sheds and square feet respectively on three-quarters of an acre of land petitioner stored pipefittings and insulation in the two sheds welding equipment and a pipe rack stood outside the gravel driveway was large enough to park nine vehicles including a van and a 1-ton truck generally four or five vehicles would be parked there for some period during a normal business_day petitioner had no identifying signs on the property other than those on the truck when it was parked there the property had a well and septic system and was not served by city water or sewer the property is located on neelley road in pleasant garden north carolina during the years at issue pleasant garden was a rural community that was becoming increasingly suburban with the nearby city of greensboro as its focus however the limited availability of public water and sewer lines and the unsuitability of the soil for septic tanks in parts of pleasant garden restricted residential development the immediate neighborhood of the property was a well-established residential area with some new development within a mile of the property behind the property but not part of the property was a pasture for grazing cows the property is in an area that was and as of the time of the trial continued to be zoned residential-agricultural the zoning designation was ra-40 residential-agricultural the guilford county zoning ordinance described the ra-40 zoning district as a district in which the principal use of the land is for general suburban-residential and agricultural purposes one of the stated intents of this zoning was to prohibit scattered commercial and industrial uses of land regardless of the zoning one neighborhood resident operated an accounting business from his home another resident conducted a construction and repair business using his home for the office functions and performing the construction work at the customers' sites a third resident had a commercial dumpster and several vehicles parked at his home one of the houses in the neighborhood was used exclusively as a dental office petitioner's use of the property as an office violated the local zoning ordinance despite the zoning violations by petitioner and other residents the overall appearance of the neighborhood was that of a residential community the record does not establish how much rent petitioner and or no actually paid the berrys for leasing the property the firm of a f bookkeepers a f prepared the corporate tax returns of petitioner and no for the years at issue petitioner provided a f with check stubs bank statements and other paperwork in order for it to perform these functions the owner of a f bill anderson held himself out as a public accountant no representative of a f appeared or testified at the trial or provided any other evidence petitioner filed federal corporate_income_tax returns for its taxable years ending date and date reporting the following item fye fye gross_receipts costs of sales interest_income other deductions rental expense depreciation dollar_figure big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number as an attachment to respondent's trial memorandum there is a schedule of rent paid to shareholder that schedule was never authenticated or offered into evidence and thus is not part of the evidentiary record of this case there is no evidence in the record to support the ex_parte statements contained in that schedule or in respondent's post-trial brief however the court deems respondent to have conceded that petitioner and no paid the berrys at least the amounts of rental expense allowed by respondent in the notice_of_deficiency dollar_figure and dollar_figure for fye and fye respectively no filed corporate tax returns for its taxable years ending date and date reporting the following item fye fye gross_receipts costs of sales interest_income other deductions rental expense depreciation dollar_figure big_number big_number big_number big_number -0- -0- -0- dollar_figure -0- -0- berry gave petitioner's returns and no 2's returns only a cursory review prior to signing and filing them on audit respondent determined that petitioner and no were one business and combined their gross_receipts costs of sales income and expense items it is not clear from the notice_of_deficiency the record in this case or the parties' arguments as to exactly how or on what basis accrual actual receipt and or overlapping of fiscal years the gross_receipts costs of sales income and expense items were combined petitioner has agreed that petitioner and no are one corporation and has conceded most of the adjustments in the deficiency_notice we note that the first months of no 2's fye overlapped the last months of petitioner's fye and the last months of no 2's fye overlapped the first months of petitioner's fye however no 2's gross_receipts costs of sales income and deduction items apparently were not allocated one-fourth to petitioner's fye and three-fourths to petitioner's fye the method of allocation used by respondent and accepted by petitioner is not disclosed by the record no filed only two tax returns during its brief existence respondent disallowed portions of the rental expenses claimed for the years at issue the notice_of_deficiency states that it is determined that your rents are dollar_figure and dollar_figure instead of dollar_figure and dollar_figure as shown on your income_tax returns for the tax years and respectively therefore your taxable_income is increased in the amounts of dollar_figure and dollar_figure for the tax years ended date and date respectively the record does not establish how much rent petitioner and no actually paid to berry see supra note no deducted dollar_figure rental expense on its return for its taxable_year ended date and this amount was not mentioned in the notice_of_deficiency in total the notice_of_deficiency adjusted petitioner's income as follows item fye fye gross_receipts cost of sales interest_income other deductions rental expense depreciation dollar_figure big_number big_number dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number the notice_of_deficiency increased petitioner's gross_receipts by dollar_figure for its taxable_year ended date respondent's counsel insists that respondent actually allowed petitioner rental expense deductions of dollar_figure each year rather than the dollar_figure and dollar_figure see supra note perhaps this matter can be clarified in the parties' rule_155_computations and by dollar_figure for its taxable_year ended date for total gross_receipts of dollar_figure for and dollar_figure for petitioner stipulated to the additional gross_receipts for each year the dollar_figure plus the dollar_figure totals dollar_figure which includes the full dollar_figure of no 2's gross_receipts plus dollar_figure respondent determined that dollar_figure of gross_receipts deposited in petitioner's bank account during august of should be removed from petitioner's taxable_year ended date and included in its taxable_year ended date the deficiency_notice shows that the gross_receipts for the taxable_year ended date were reduced by dollar_figure the deficiency_notice allocated the dollar_figure of no 2's costs of sales to petitioner dollar_figure to its taxable_year ended date and dollar_figure to its taxable_year ended date the record does not indicate the basis for the allocation that adjustment increased petitioner's deductions for costs of sales from dollar_figure to dollar_figure and from dollar_figure to dollar_figure for those years respectively petitioner has not challenged that adjustment of the dollar_figure of interest_income no reported on its return for taxable_year ending date the deficiency_notice allocated dollar_figure to petitioner's income for its taxable_year ended date and dollar_figure to its taxable_year ended date thus increasing petitioner's total interest_income to dollar_figure and dollar_figure for those respective years the record does not explain the basis of the allocation between the years petitioner stipulated to those additional_amounts of interest_income of the other deductions of dollar_figure no deducted for its taxable_year ended date and dollar_figure for its taxable_year ended date the deficiency_notice increased petitioner's other deductions by dollar_figure for a total of dollar_figure for its taxable_year ended date and by dollar_figure for a total of dollar_figure for its taxable_year ended date these total increased other deductions of dollar_figure exceed no 2's claimed total other deductions by an amount of dollar_figure the record does not explain the source of these additional deductions but neither party has challenged this adjustment petitioner deducted depreciation of dollar_figure for its taxable_year ended date and dollar_figure for its taxable_year ended date no claimed no depreciation_deductions respondent disallowed dollar_figure of petitioner's claimed depreciation each year the portion relating to a chrysler new yorker automobile and a boat petitioner has conceded that adjustment respondent determined an addition_to_tax for negligence under sec_6653 for the taxable_year ended date and a penalty for negligence under sec_6662 for the taxable_year ended date respondent determined the addition and penalty on the full amounts of the deficiencies taking into account the tax shown on the tax returns filed by petitioner for taxable years ending date and date the notice_of_deficiency apparently did not consider any part of the dollar_figure in tax_shown_on_the_return filed by no for its taxable_year ended date respondent determined overpayments of tax for petitioner's taxable years and the former due to a loss carryback from resulting from the dollar_figure reduction in gross_receipts for on date petitioner filed a motion for leave to amend petition which the court denied due to petitioner's failure to state what issue or issues it wished to raise with respect to the and taxable years see rule b and petitioner had proposed to amend its petition to add the commissioner erred in failing to correctly determine the extent to which changes to petitioner's tax_liability for its taxable years ended date and date affected petitioner's tax_liability for the taxable years ended date and date petitioner alleged no specific supporting facts only that re-determinations of petitioner's tax_liabilities for its taxable years ended date and date or changes which the commissioner should have made but failed to make to said taxable years will affect petitioner's tax_liabilities for the years over which the court has jurisdiction being the fiscal years ending date and date in denying petitioner's motion for leave to amend the court's order of date stated the proposed amendment to petition is extremely vague and fails to state what issue or issues petitioner wishes to raise in regard to the and taxable years petitioner has never clarified any such issues in preparation for trial both parties caused the rental property to be appraised petitioner's appraiser did not appear at the trial and his report was not received into evidence although berry testified regarding the property's description and use petitioner offered no evidence of the property's fair market rental value respondent's expert daniel g barker barker appraised the fair market rental value of the leased property at dollar_figure per year respondent served a copy of barker's report on petitioner on date petitioner did not dispute barker's qualifications as an expert witness or his methodology respondent's trial memorandum indicated that she would move to amend the pleadings to conform to the proof and request an increased deficiency barker based his appraisal on the highest_and_best_use of the property as residential property he considered the property too small to rent for agricultural use the only other use permitted by the zoning using the market comparison approach barker considered four residential rental properties three of which were located within greensboro city limits as comparables according to barker the neelley road property was in better condition slightly larger in size and in a more attractive neighborhood that any of the comparable properties however barker believed that properties located in or near greensboro would be in greater demand because of proximity to employment shopping and services and thus would command higher rents than those in pleasant garden adjusting for location size and condition barker calculated the comparables' annual rents to be dollar_figure dollar_figure dollar_figure and dollar_figure to corroborate this method barker also used the cost approach of valuation using the mid-range of the sales prices of four lots facing neelley road dollar_figure and valuing the improvements to the property according to the marshall swift residential cost handbook dollar_figure barker determined a total property value of dollar_figure to this value barker applied a discount rate of percent which he derived from listings of lease-to-own residential properties to reach a rent of dollar_figure this value was within the range of rents calculated under the market comparison approach using the comparable rents as the most reliable indicator of fair market rental barker appraised the annual rental value of the property at dollar_figure after trial respondent filed a motion for leave of court to file amendment which the court granted respondent's amended answer to the petition asserted dollar_figure as the yearly fair market rental value of the property and increased petitioner's deficiencies in income_tax to dollar_figure and dollar_figure for fye and fye respectively the addition for taxable_year to dollar_figure and the penalty for taxable_year to dollar_figure given that the original notice_of_deficiency allowed rents of dollar_figure and dollar_figure for the taxable years and respectively the disproportionate increases in the deficiencies dollar_figure and big_number indicate that respondent may not have used dollar_figure in recalculating petitioner's taxable_income or may have relied on her contention that respondent had allowed rents of dollar_figure each year see supra note the proper deficiency amounts can be calculated in the rule proceedings opinion fair market rental value sec_162 provides that a taxpayer may deduct all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business including rentals or other_payments required to be made as a condition to the continued use or possession for purposes of the trade_or_business of property to which the taxpayer has not taken or is not taking title or in which he has no equity sec_162 by its terms does not limit deductions for rental payments to a reasonable amount but when the lessor and lessee have a close relationship and no arm's-length dealing between them an inquiry into what constitutes reasonable rental is necessary to determine whether the sum paid exceeds what the lessee would have been required to pay had he dealt at arm's length with a stranger 458_f2d_631 9th cir affg tcmemo_1970_74 17_tc_199 affd per curiam 199_f2d_373 6th cir the taxpayer must establish that the sums paid were in fact rentals that he would have been required to pay in an arm's-length deal to do so he must show the amounts paid were reasonable place v commissioner supra pincite the fair_market_value of a property must reflect the highest_and_best_use of the property on the relevant valuation_date 865_f2d_960 8th cir affg tcmemo_1987_302 87_tc_389 the highest_and_best_use is the reasonable and probable use that supports the highest present_value 87_tc_892 the fair_market_value is not affected by whether the property is put to its highest_and_best_use the realistic objective potential uses control its valuation stanley works subsidiaries v commissioner supra if existing zoning restrictions preclude a more profitable use ordinarily such use should not be considered 259_f2d_41 2d cir if the possibility of a zoning reclassification is a reasonable one however this is an element that can be taken into account id 98_tc_554 petitioner's position is that the amounts of dollar_figure and dollar_figure deducted as rental expenses on its and returns respectively were reasonable respondent asserts through her amended answer that the fair market rental value of the property was dollar_figure per year that petitioner's rental deductions should be limited to this value and that respondent is entitled to increased deficiencies and additions penalties presumably petitioner concedes the dollar_figure in rent deducted on the return filed as no see supra note sec_1 petitioner in its brief has questioned whether the court should have allowed respondent to amend her answer to conform to the proof after the conclusion of the trial petitioner can claim no surprise or prejudice the fair market rental value of the property has always been at issue respondent continued generally the notice_of_deficiency is presumed to be correct and petitioner has the burden of showing otherwise rule a 290_us_111 however where respondent has asserted an increased deficiency she has the burden_of_proof on that increase rule a the effect of respondent's amended answer thus is that respondent has the burden of showing that the fair market rental value of the property was less than that allowed in the notice_of_deficiency while petitioner must show it was greater see supra note sec_1 petitioner argues that barker's valuation is so close to the figures in the notice_of_deficiency that his expert report should be excluded from evidence on the basis that it is immaterial petitioner hopes that the court after excluding this report will accept berry's testimony as proof that the rents of dollar_figure and dollar_figure were reasonable berry did not testify about the rental deductions and petitioner offered no proof as to the fair market rental value of its property this court is the trier of the facts the judge of the credibility of witnesses and of the weight of the evidence and the drawer of appropriate inferences hamm v commissioner continued served a copy of her expert's report on petitioner well in advance of the trial and respondent's trial memorandum made reference to the possibility of filing just such a motion katz v commissioner tcmemo_1989_191 see 59_tc_551 under these circumstances it was appropriate for the court to grant respondent leave to amend her answer f 2d 8th cir affg tcmemo_1961_347 the determination of fair_market_value is a question of fact 44_tc_801 such a factual determination is one that is entitled to be made on all the elements of the particular case 538_f2d_927 2d cir quoting 199_f2d_193 8th cir affg tcmemo_1974_285 an expert's opinion may be of assistance to the court but the court may reach a determination of value based upon its own analysis of all the evidence in the record silverman v commissioner supra pincite barker's report explains his methodology and the factual basis for his conclusions in compliance with the requirements of rule f regarding expert witness reports we admitted barker's report into evidence and do not choose to disregard it as petitioner seems to suggest petitioner has accepted barker as an expert in real_estate appraisal and has not contested the substance of his testimony berry testified only to a description of the property and that it served as petitioner's offices and storage space in spite of its noncompliance with local zoning the evidence suggests no possibility of rezoning during the years at issue or in the foreseeable future petitioner has offered no evidence of the property's fair market rental value we find the fair market rental value of the property to be dollar_figure per year gross_receipts a date bank_deposits of dollar_figure this issue was not raised in the assignment of errors in the petition nor in petitioner's trial memorandum or supplemental trial memorandum and the issue probably should be treated as conceded by petitioner rule b however without objection from respondent it was raised in petitioner's opening statement at the beginning of the trial and will be treated as tried by consent of the parties petitioner requests the court to make an ultimate finding of fact that respondent erroneously increased its income for its taxable_year ended date by this dollar_figure amount the parties agree that dollar_figure in checks were deposited in petitioner's bank account in august of were reported as part of gross_receipts for its taxable_year ended date and on audit by respondent were removed from that year and included as gross_receipts for the taxable_year ended date there agreement ends the parties disagree as to whether petitioner is a cash_basis or an accrual basis taxpayer at trial in response to the court's direct question respondent's counsel advised the court that petitioner was a cash_basis taxpayer the court was not advised otherwise thereafter during the trial in its post-trial brief petitioner argues that as a c_corporation it necessarily had to be on the accrual_method of accounting citing sec_448 however sec_448 provides an exception for c corporations with gross_receipts of less than dollar_figure the record does not establish whether petitioner is a cash_basis or an accrual basis taxpayer berry petitioner's president and sole shareholder was not asked about the matter while petitioner characterizes the issue as whether or not petitioner was an accrual basis taxpayer it seems to be simply a matter of constructive receipt of income berry testified that he deposited the corporation's checks in the bank and that in his view the funds were not available to his corporation until he made such deposits if prior to august berry had in his possession checks in payment of work performed by the corporation prior to august the fact that he did not deposit such checks into the bank account until early august would be irrelevant the income would have been constructively received by the corporation prior to august whether petitioner was a cash_basis or an accrual basis taxpayer we hold that petitioner has not established that respondent erred in shifting the gross_receipts of dollar_figure from its taxable_year ended date to its taxable_year ended date indeed as will be discussed below petitioner has in effect stipulated to this adjustment b any date bank_deposits to be shifted from fye to fye while no issue was raised in the petition as to the dollar_figure date bank_deposits petitioner did assign as error respondent's failure to make a similar adjustment for date bank_deposits in paragraph h of its petition to the court petitioner assigned as error the following the commissioner erred in failing to reduce gross_receipts for petitioner's taxable_year ended date to by amounts deposited to petitioner's bank account during august of which represent payment of work performed by the petitioner during its fiscal_year ended date to bracketed material added by the court respondent denied that allegation in the answer and at trial asserted that petitioner had never submitted any substantiation as to any such date bank_deposits that should be shifted petitioner still has not submitted any substantiation at trial petitioner presented berry's testimony and proffered no 2's bank statement for august of no 2's date bank statement merely showed that deposits of dollar_figure were made that month and that deposits of dollar_figure were made during the first days of that month the days about which petitioner's counsel questioned berry nothing in that bank statement served to show the date petitioner received the checks or when the work was performed petitioner called berry as its witness as petitioner's president and sole shareholder berry is the individual who should have personal knowledge as to when work was performed when payment for such work was received and when the payment checks were deposited in the bank he was not asked about these matters in any meaningful way neither berry's testimony nor the bank statement established that there was any amount that should be shifted out of the taxable_year ended date as petitioner asserts the court then declined to receive no 2's date bank statement into evidence the document had no probative value moreover while alleging error for its taxable_year ended date petitioner failed to address the fact that under its theory if gross_receipts were taken out of that taxable_year they would have to be included in the preceding_taxable_year ended date to when the work was performed for its taxable_year ended date petitioner reported on its corporate tax_return gross_receipts of dollar_figure and for its taxable_year ended date reported gross_receipts of dollar_figure petitioner admitted in paragraph a of its petition that it had those gross_receipts for each of those years for its taxable_year ended date to petitioner's assignment of error pet par h its supplemental trial memorandum first identifying the date bank_deposits as a factual dispute for trial and its post-trial brief consistently treat this issue as bank_deposits made in date for work performed during fye to we note that in par h of the petition where petitioner alleged facts in support of its assignment of error rule b there is some confusion as to the fiscal_year or years from which and to which petitioner seeks to shift gross_receipts the last sentence of par h seems to suggest that the date bank_deposits represent income for the taxable_year ended date in any event berry was not questioned about any work performed and or paid for during fye or during fye no was not organized until date moreover the parties' stipulation of facts accounts for all gross_receipts of both petitioner and no no reported gross_receipts of dollar_figure and for its taxable_year ended date to reported zero gross_receipts in the notice_of_deficiency respondent combined the gross_receipts of petitioner and no respondent increased petitioner's gross_receipts for its fiscal_year ended date from dollar_figure to dollar_figure for an increase of dollar_figure and for its fiscal_year ended date increased petitioner's gross_receipts from dollar_figure to dollar_figure for an increase of dollar_figure petitioner stipulated to these additional gross_receipts in the amounts of dollar_figure and dollar_figure for those respective years the increased gross_receipts of dollar_figure for the taxable_year ended date and dollar_figure for the taxable_year ended date to which petitioner stipulated total dollar_figure that total amount exceeds no 2's gross_receipts of dollar_figure by exactly dollar_figure while the record does not show how or on what basis no 2's gross_receipts of dollar_figure were allocated between the two taxable years ending date and it is clear that the additional gross_receipts to which petitioner stipulated included all of no 2's gross_receipts plus the dollar_figure date bank_deposits that were shifted from petitioner's taxable_year ended date to its taxable_year ended date the parties' stipulation of facts covers all of the gross_receipts of both petitioner and no the court holds petitioner to the stipulation and is not persuaded that there is any further amount of gross_receipts that should be shifted to or from any of the years negligence addition and penalty if any part of any underpayment_of_tax required to be shown on a return is due to negligence or disregard of rules or regulations sec_6653 imposes an addition_to_tax equal to percent of the entire underpayment sec_6653 defined underpayment for this purpose for purposes of sec_6653 the term negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code sec_6653 respondent has determined that petitioner's deficiency for taxable_year ended date was due to negligence sec_6662 imposes a penalty on any portion of an underpayment_of_tax attributable to negligence or disregard of rules or regulations sec_6662 and b for purposes of sec_6662 just as for sec_6653 negligence includes any failure to make a reasonable attempt to comply with the internal revenue laws sec_6662 sec_6664 defines underpayment petitioner has never asked to be relieved of the stipulation but instead argued that the stipulation merely combined the gross_receipts of petitioner and no that is not correct while petitioner did not cooperate during the pretrial period and has never submitted any substantiation for any amount of gross_receipts that should be shifted from one year to another respondent's counsel offered at trial to consider any documentation petitioner submitted respondent's counsel no doubt would again extend her gracious offer during the rule proceedings for the purpose of this penalty however no penalty will apply with respect to any portion of an underpayment if it is shown that there was a reasonable_cause for such portion and that the taxpayer acted in good_faith with respect to such portion sec_6664 respondent has determined the entire amount of petitioner's deficiency for the taxable_year ended date was due to negligence petitioner has provided no evidence of its efforts to comply with the applicable internal revenue laws other than it used a bookkeeping service to prepare its federal_income_tax returns and it made available its check stubs bank statements and other paperwork to that service use of an accountant alone does not constitute reasonable reliance on that professional's advice 70_tc_158 the taxpayer must establish that the correct information was provided to the accountant and that the items incorrectly claimed or reported in the return were the result of the accountant's error id pincite 57_tc_781 petitioner's deficiencies stemmed from several sources filing separate returns for no inclusion of dollar_figure of gross_receipts in an incorrect taxable_year and improper depreciation and rental expense deductions as to the improper depreciation claimed on the chrysler new yorker automobile and the boat each year the excessive rental expense deductions each year and the dollar_figure gross_receipts issue for petitioner has not demonstrated that it supplied adequate information to a f regarding any of these items nor that any portion of those deficiencies was the result of an error on the part of a f thus for the taxable_year ended date some part of the deficiency was attributable to negligence and the negligence addition applies to the entire underpayment for the taxable_year ended date the negligence_penalty also applies to the portions of the underpayment attributable to the depreciation and rental expense items as well as to the dollar_figure gross_receipts itemdollar_figure however most of the adjustments in the notice_of_deficiency flowed from the fact that respondent combined the gross_receipts costs of sales interest_income and other deductions of petitioner and no the court is satisfied that when berry organized no he had to have had legal advice and assistance to do so and with the organization of no filing separate corporate returns flowed as a natural consequence no really only filed one return the one for its taxable_year ended date the one for its taxable_year ended date just reported a few deduction items totaling dollar_figure in its petition to this court petitioner acting through its present counsel asserted that it and no were separate corporations and that in each instance the court means underpayment as properly defined in sec_6653 and sec_6664 respectively we note that no reported tax of dollar_figure on its return filed for fye that respondent apparently has not taken into consideration in computing the negligence addition penalty each had properly reported the various items separately shortly before trial petitioner conceded that the two were really a single corporation and stipulated to or never challenged the adjustments in the notice_of_deficiency for gross_receipts costs of sales interest_income and other deductions thus the experiment with no was brief and the court cannot conclude that it was originally unreasonable or done in bad faith that petitioner's legal position has now been abandoned and that petitioner has now conceded it and no were essentially a single corporation do not automatically mean that petitioner was negligent or that there was not a reasonable_cause for and that petitioner did not act in good_faith in taking its original positiondollar_figure accordingly to the extent that any underpayment properly defined for the taxable_year ended date is attributable to combining the gross_receipts costs of sales interest_income and other deductions of petitioner and no the court does not sustain respondent's determination of a negligence_penalty see however supra note if petitioner were contending that some part of the reported gross_receipts for the taxable_year ended date should be reduced by no 2's date bank_deposits allegedly representing payment for work performed during fye the court would conclude otherwise on the negligence_penalty issue no was not even organized until date the court does not think that petitioner could in good_faith have thought that income earned by petitioner during fye to could be treated as no 2's gross_receipts however the court has not found that any part of no 2's date bank_deposits represent gross_receipts to be shifted to another fiscal_year so the court's concern becomes moot however the court sustains the negligence_penalty for any underpayment for that year attributable to the dollar_figure of gross_receipts that respondent properly shifted from the taxable_year ended date to taxable_year ended date depreciation_deductions disallowed for the automobile and boat and the excessive portion of the rental_expense_deduction based upon the stipulations and the above holdings decision will be entered under rule