department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person telephone number identification_number employer_identification_number number release date se t eo ra t date date uil legend m o dear ------------------ letter_ruling that your formation of a single member limited_liability_company llc for the purpose of fostering more local community involvement in your mission to improve the qualify of life for residents in your state will not affect your tax exempt status under sec_501 of the internal_revenue_code or your status as an entity that is not a private_foundation under sec_509 of the code in addition you requested rulings that the single member llc will be treated as a disregarded_entity for federal_income_tax purposes and that none of the income attributable to the llc will result in unrelated_business_income_tax under sec_511 through code by virtue of being an organization described in sec_501 you have also been classified as a publicly_supported_organization described in sec_509 and sec_170 you were created for charitable purposes including the promotion of social welfare in furtherance of your exempt purposes you conduct independent nonpartisan public policy research and report on various regional and statewide issues affecting the quality of life in your community you are headquartered in the state capital and have branch offices in three principal geographical areas appropriate way to enhance your charitable mission is to broaden your geographical reach to do this you propose to form multiple single member llcs throughout the state to serve the unique needs of each region each of these llcs will enter into a shared governance structure you have been recognized as exempt from federal_income_tax under sec_501 of the this is in response to your letter of september1 in which you requested a private following an extensive review by your governance committee you decided the most with a local educational or civic organization which has charitable purposes similar to yours and which has a strong established presence in the region to be served you believe this new structure will encourage and foster local community involvement while maintaining and institutionalizing your traditional standards of excellence of your state you will be the sole member of the llc with the following reserved powers rights and responsibilities your first project will involve the formation of o an llc to serve the southwestern region exclusive right to receive authorized distributions from the llc power to nominate and elect two of the board members power to remove with or without cause all board members ownership of your brand and all intellectual_property created under the your brand such power to terminate the llc upon termination to receive and direct all distributions within the geographic area as manuscripts software processes and data in whatever form stored sole approval power over all amendments to the operating_agreement that relate to your served by the llc reserved powers under the shared management agreement m will appoint all but two board members o will enter into a shared management agreement with m located in the southwestern by reserving these powers rights and responsibilities you indicate that you can ensure that the llc furthers your charitable purposes while maintaining your high standards of excellence and professionalism region of your state m is exempt under sec_501 of the code and shares your charitable purposes on a more limited geographic scale by aligning with m in this manner you indicate that o will receive the advantages and support of an organization that has direct first hand experience with the developmental needs of the region while avoiding the unnecessary waste of charitable assets resulting from potential duplication of services and personnel under your state law this will not make m a member of o you will be the sole member owner of o you believe that allowing m to appoint the majority of board members will result in a strong incentive for m to lend its expertise and development initiatives to o m will also oversee the ministerial functioning of o and will assume responsibility for the selection of staff and personnel establishing the operating budget and overseeing the establishment and maintenance of regional alliances and programs designed to effectuate the charitable mission of o you indicate that this shared governance structure will allow you to better serve the southwestern region of your state at this juncture only o has entered into a shared management agreement with another charitable_organization any charitable_organization that may be selected in the future to join in such a structure will be required to enter into a shared management agreement similar to the in addition to o you plan to form operating llcs in at least three other areas of your state sec_1_501_c_3_-1 of the income_tax regulations provides that the term an organization described in sec_170 and sec_509 of the code is one sec_501 of the code provides in part that an organization is exempt from federal one with m preserving your fundamental control_over the relationship and ultimately ensuring that the llc furthers your charitable purposes income_tax if it is organized and operated exclusively for charitable purposes and if no part of the net_earnings of the organization inures to the benefit of any private_shareholder_or_individual charitable is used in sec_501 of the code in its generally accepted legal sense and includes the advancement of education as well as relieving the poor distressed or underprivileged lessening the burdens of government and promotion of social welfare by organizations designed to lessen neighborhood tensions eliminate prejudice and discrimination defend human and civil rights secured_by law or combat community deterioration and juvenile delinquency which a is referred to in sec_170 and b normally receives a substantial part of its support exclusive of income received in the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption under sec_501 from a governmental_unit referred to in sec_170 or from direct or indirect_contributions from the general_public sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 including those described in sec_501 sec_512 of the code defines unrelated_business_taxable_income as the gross_income an organization derives from any unrelated_trade_or_business defined in sec_513 it regularly carries on less allowable deductions with certain modifications sec_513 of the code defines unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the organization's need for funds or the use it makes of the profits derived to the organization's exercise or performance of the purpose or function constituting the basis for its exemption under sec_501 exempt purposes in the relevant sense only where the conduct of the business activities has causal relationship to the achievement of exempt purposes other than production_of_income and it is substantially related only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those exempt purposes sec_1_513-1 of the regulations provides that gross_income derived from charges for the performance of exempt functions does not constitute gross_income from the conduct of an unrelated_trade_or_business sec_1_513-1 of the regulations provides that trade_or_business is related to you indicate that neither o nor any other single member llc you may create will elect to the check the box regulations at sec_301 of the procedure and administration regulations allow certain organizations to choose treatment as either a partnership or a corporation or to be treated as a disregarded_entity for federal tax purposes announcement 1999_43_irb_545 confirms that a single member limited_liability_company llc is presumed to be a disregarded_entity where the sole member is a tax-exempt_organization described in sec_501 the llc is treated as an activity of the tax-exempt_organization an organization that accomplishes its charitable purposes through a program of educating the public on subjects useful to the individual and beneficial to the community qualify as exempt charitable organizations for example revrul_76_455 1976_2_cb_150 holds that an organization that conducts studies into the quality utilization and effectiveness of health care qualifies for exempt status promotion of social welfare is also recognized as a proper charitable purpose organizations whose purposes are to combat urban problems improve the environment and lessen neighborhood tensions qualify as charitable organizations that promote social welfare be treated as a corporation accordingly both o and additional single member llcs you create for the same purposes will be treated as disregarded entities and their activities will be treated as your own pursuant to announcement and sec_301 of the regulations purpose of expanding your charitable mission to a wider geographical area does not change the nature of your activities or their purposes since you continue to operate for the promotion of social welfare you continue to be described in sec_501 of the code in addition as long as your funding sources continue to meet the criteria set forth in sec_170 b a vi and a you will continue to be classified as an organization that is not a private_foundation because your proposed activities will contribute importantly to the accomplishment of your exempt purposes within the meaning of sec_1_513-1 of the regulations they will not be considered unrelated_trade_or_business within the meaning of sec_513 and the income derived from these activities will not be considered unrelated_business_taxable_income under sec_512 of the code facts upon which it is based any changes that may have a bearing on your tax status should be reported to the service after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used this ruling will be made available for public inspection under sec_6110 of the code this ruling is based on the understanding that there will be no material changes in the your formation of o and your shared management services agreement with m for the if you have any questions about this ruling please contact the person whose name and or cited by others as precedent telephone number are shown in the heading of this letter enclosure notice sincerely debra j kawecki manager exempt_organizations technical group


internal_revenue_service national_office technical_advice_memorandum date number release date index uil no case mis no 6050i tam-117855-01 cc pa apjp b1 sbse area director of compliance first taxpayer’s name taxpayer’s address taxpayer’s identification no second taxpayer’s name taxpayer’s address taxpayer’s identification no year involved date of conference legend corporation x corporation y issue whether corporation x and corporation y are required to file information returns in accordance with sec_6050i of the internal_revenue_code code conclusion yes corporation x and corporation y are required to file information returns in accordance with sec_6050i of the code facts corporation x and corporation y each own and manage a fleet of taxicabs that they lease to taxi drivers the taxi drivers generally use part of their daily cash receipts to pay corporation x or corporation y for the rental of the taxicabs a driver usually keeps all monies collected during the shift minus the taxicab rental fee in addition a taxi driver may choose to purchase fuel from a fleet owner generally the taxicab drivers lease the taxicabs in hour shifts each driver signs one lease agreement regardless of the number of times a driver leases a taxi the lease is kept in a file maintained by the fleet owner according to the lease cars are dispatched for hours and drivers are responsible for full lease fees once a car is dispatched to them by the fleet owner the lease also states steady drivers failing to come in or call will be charged for the shift the terms of the lease also state that in no event may this agreement be continued in effect for more than five months from the date hereof the drivers submit daily trip tickets which include information pertaining to the driver mileage and information surrounding each trip including the fare corporation x and corporation y argue that each lease is an individual and separate transaction unrelated to any other lease as such the corporations assert they never receives more than dollar_figure in cash from any one driver for a taxi in a month period as a result neither corporation x nor corporation y have filed information returns for pursuant to sec_6050i the internal_revenue_service service has applied a failure_to_file_penalty under sec_6721 because no reasonable_cause exists for the failure_to_file the required returns law and analysis sec_6050i of the code provides that any person who is engaged in a trade_or_business and who in the course of such trade_or_business receives more than dollar_figure in cash in one transaction or or more related transactions shall make the return described in sec_6050i with respect to such transaction or related transactions at such time as the secretary may by regulations prescribe form_8300 is the form required to comply with this provision in addition sec_1_6050i-1 of the regulations for procedure and administration regulations requires reporting of cash in excess of dollar_figure received by a person for the account of another thus for example a person who collects delinquent accounts_receivable for an automobile dealer must report with respect to the receipt of cash in excess of dollar_figure from the collection of a particular account even though the proceeds of the collection are credited to the account of the automobile dealer ie where the rights to the proceeds from the account are retained by the automobile dealer and the collection is made on a fee-for-service basis sec_1_6050i-1 stipulates that the receipt of multiple cash deposits of cash installment payments or other similar payments or prepayments on or after date relating to a single transaction or two or more related transactions is reported as set forth in sec_1_6050i-1 through b sec_1_6050i-1 continues that if the initial payment is in excess of dollar_figure the recipient must report the initial payment within days of its receipt sec_1_6050i-1 adds that if the initial payment does not exceed dollar_figure then the recipient must aggregate the initial payment and subsequent payments made within one year of the initial payment until the aggregate amount exceeds dollar_figure and report with respect to the aggregate amount within days after receiving the payment that causes the aggregate amount to exceed dollar_figure sec_1_6050i-1 states that in addition to any other required report a report must be made each time that previously unreportable payments made within the month period with respect to a single transaction or two or more related transactions individually or in the aggregate exceed dollar_figure sec_1_6050i-1 defines the term transaction as the underlying event precipitating the payer’s transfer of cash to the recipient the term transaction includes a rental of real or personal_property a transaction may not be divided into multiple transactions in order to avoid reporting under sec_6050i sec_1_6050i-1 defines related transactions as any transaction conducted between a payer or its agent and a recipient of cash in a 24-hour period additionally transactions conducted between a payer or its agent and a cash recipient during a period of more than hours are related if the recipient knows or has reason to know that each transaction is one of a series of connected transactions corporation x and corporation y make several arguments for why the hour taxicab leases are not subject_to the filing_requirements of sec_6050i first_corporation x and corporation y argue that the hour leases are not a series of related transactions for which a corporation would know or have reason to know that the leases are one continuous transaction however the corporations acknowledge it is possible that a specific driver may lease a car for more than one hour shift in succession where the aggregate lease payments would exceed dollar_figure the corporations argue that the lease arrangements with the drivers do not require any firm or extended commitment by the drivers the corporation or the driver may terminate the lease agreement at any time therefore each lease is considered a separate and unrelated to any prior or subsequent lease as stated above sec_6050i requires that any person engaged in a trade_or_business who receives more than dollar_figure cash in one transaction or two or more related transactions shall file information returns sec_1_6050i-1 of the regulations defines the term transaction as including the rental of personal_property as a result the lease or rental of a taxicab is a transaction related transactions include transactions conducted between a payer and a cash recipient during a period of more than hours if the recipient knows or has reason to know that each transaction is one of a series of connected transactions sec_1_6050i-1 in this case the lease itself contains language indicating that the hour shifts are related transactions first the lease uses the phrase steady driver second the lease contains a clause that the agreement will not exceed five months in addition the driver signs only one lease regardless of the number of times the driver leases a taxi the driver then submits daily trip tickets which all relate to the one lease agreement on file all of the above facts indicate the parties’ intent to establish a continuous relationship accordingly the corporation x and corporation y know or have reason to know that the leases are connected transactions corporation x and corporation y also argue that sec_6050i does not apply to them because the primary purpose of sec_6050i was to prevent transactions involving large quantities of cash from assisting smugglers and drug dealers in laundering profits from illegal activities however according to the legislative_history sec_6050i was added to the code to increase income_tax reporting and to reduce debt for the service estimated that taxpayers filing returns failed to report dollar_figure billion of income and non- filers failed to report dollar_figure billion see deficit_reduction_act_of_1984 s rep no v pincite these numbers reduced revenue receipts by dollar_figure billion of that number dollar_figure billion resulted from unreported income connected with illegal activities id therefore while congress enacted sec_6050i to aid in preventing money laundering the main purpose of sec_6050i was to increase income_tax reporting finally corporation x and corporation y argue that tracing cash at this stage would not assist in the reporting of taxi driver’s income however the reporting of cash received from drivers may lead to more accurate reporting by the drivers therefore accomplishing the purpose based on the above analysis corporation x and corporation y are subject_to the filing_requirements of sec_6050i of the code a copy of this technical_advice_memorandum is to be given to the taxpayers sec_6110 of the code provides that it may not be used or cited as precedent


internal_revenue_service number release date index number ---------------------- ------------------------- ------------- --------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc intl b02 plr-121277-11 date may ty ------- ty ------- legend taxpayer country a date date date date year country b dear ------------- -------------------- ------------------------ ---------------- ---------------------- ------------------ -------------------- ---------------------- ------- --------- this is in response to a letter received in this office on date requesting consent to reelect the foreign_earned_income_exclusion under sec_911 before the sixth taxable_year after revocation of that election for tax_year and subsequent tax years 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 taxpayer worked in country a from date to date while working in country a taxpayer elected the foreign_earned_income_exclusion on date taxpayer returned to the united_states and remained there until date after taxpayer returned to the united_states taxpayer included a statement revoking his election to exclude his foreign_earned_income with his federal_income_tax return taxpayer erroneously plr-121277-11 thought he had to revoke his election because he no longer had any foreign_earned_income on date taxpayer returned overseas to country b and would like to again elect the foreign_earned_income_exclusion under sec_911 it has been less than years since taxpayer revoked his election to exclude his foreign_earned_income sec_911 permits certain taxpayers to elect to exclude from gross_income their foreign_earned_income and housing cost amounts the election applies to the taxable_year for which it is made and for all subsequent taxable years unless revoked by the taxpayer sec_911 provides that once revoked the election may not be made again by the taxpayer until the sixth taxable_year after the year in which the revocation was made however sec_1_911-7 provides that if an individual revokes an election under sec_1_911-7 and desires to reelect the same exclusion within the next five years the individual must obtain permission by requesting a ruling the service may permit the taxpayer to reelect the foreign_earned_income_exclusion before the sixth year after considering all of the facts and circumstances accordingly based solely on the information and representations set forth above taxpayer may reelect the sec_911 foreign_earned_income_exclusion for year and subsequent tax years this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely jeffery g mitchell branch chief branch international


t c memo united_states tax_court kenneth m and delores j hairston petitioners v commissioner of internal revenue respondent docket no filed date wylie joseph neal for petitioners c glenn mclauglin for respondent memorandum findings_of_fact and opinion thornton judge for taxable years and respondent determined deficiencies of dollar_figure and dollar_figure respectively in petitioners’ federal income taxes the primary issue for decision is whether petitioners’ equipment rental_activity constitutes a passive_activity under sec_469 unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable years in issue findings_of_fact the parties have stipulated some of the facts which are so found when they filed their petition petitioners resided in tulsa oklahoma since petitioners have owned and operated hairston inc hairston a subchapter_c_corporation engaged in the business of leasing heavy construction equipment to third parties during and petitioners were employed full time by hairston during through petitioners purchased in their names eight pieces of heavy construction equipment petitioners’ equipment they leased this equipment to hairston which subleased petitioners’ equipment to its customers end users petitioners entered into a written lease agreement with hairston reflecting the lease of petitioners’ equipment to hairston the lease agreement petitioners’ equipment was essentially the same type of heavy construction equipment that also was owned directly and leased by hairston to its end users throughout and petitioners’ equipment was stored in and subleased from hairston’s rental equipment storage yard where petitioners’ equipment was commingled with hairston’s eguipment as consideration for leasing their equipment to hairston the lease agreement states that petitioners may be paid_by hairston up to percent of hairston’s basic end-user lease ' the entire lease agreement between petitioners and hairston inc provided as follows bquipment lease agreement ken and delores hairston may from time to time purchase equipment by check or personal bank loan and may lease that equipment to hairston inc dba a i m equipment rental a i m rental will assume all responsibility for the leased equipment providing insurance collecting and paying appropriate taxes etc ken and delores may be paid up to of the basic rental rate only excludes tax fuel delivery and p u charges repairs to maintain the equipment may be charged against the amount_paid to ken and delores hairston payments may be paid each quarter or when sufficient revenues have been collected ken and delores will calculate and maintain records and will be responsible for loan re-payments and personal income taxes q4e- charge consequently as compensation_for subleasing petitioners’ equipment to end users hairston was entitled to retain at least percent of the basic rental charge to the end users in addition hairston retained percent of additional end-user fees such as taxes and charges for delivery and fuel pursuant to the lease agreement hairston assumed all responsibility for petitioners’ equipment hairston was required to service and maintain the equipment to provide insurance and to collect and pay any taxes on the equipment hairston was to make or arrange for all repairs and to charge petitioners for the repair costs by subtracting them from the 40-percent portion of the end-user lease payments hairston might otherwise pay to petitioners during and hairston charged petitioners only minimal amounts for repairs on petitioners’ equipment the officers and employees of hairston including petitioners were responsible for supervising and performing maintenance and repairs on petitioners’ equipment and on the equipment owned by hairston for dealing with the end users and for billing and collecting lease payments from end users of the equipment occasionally after hours or on weekends petitioners would check on the status of the equipment they personally owned - - the sublease agreements between hairston and the end users typically had terms of dollar_figure days in and dollar_figure days in all of petitioners’ equipment was leased to end users in the name of and under lease agreements with hairston not with petitioners on their and joint federal_income_tax returns with regard to the lease of their equipment petitioners claimed schedule c ordinary deductions under sec_162 reported rental income from hairston and claimed net losses after depreciation as follows sec_162 year bxpenses rental income net losses dollar_figure dollar_figure dollar_figure big_number big_number ' on audit for respondent charged petitioners with an additional dollar_figure in unreported income from the lease of their equipment to which additional income petitioners agree opinion sec_469 limits the deductibility of losses from certain passsive activities of individual taxpayers generally a passive_activity includes the conduct_of_a_trade_or_business in which the taxpayer does not materially participate in addition rental_activity except certain rental_activity involving real_estate is generally treated as a passive_activity without regard to whether the taxpayer materially participates see sec_469 - - rental_activity is defined as any activity where payments are principally for_the_use_of tangible_property see sec_469 sec_1_469-1t temporary income_tax regs fed reg date petitioners contend that under the applicable temporary regulations their equipment rental_activity qualifies for two exceptions from the above definition of rental_activity first rental_activity will not be treated as such for purposes of sec_469 where the average period of customer use of the property i sec_30 days or less and where significant_personal_services are provided by or on behalf of the owner of the property in connection with making the property available for use by customers see sec_1_469-1t b temporary income_tax regs fed reg date second otherwise passive rental_activity will not be treated as such for purposes of sec_469 where extraordinary_personal_services are provided by or on behalf of the owner of the property in connection with renting the property to customers without regard to the average period of customer use see sec_1_469-1t c temporary income_tax regs fed the temporary regulations provide additional exceptions to the definition of rental_activity but petitioners do not claim that their equipment rental_activity qualifies for any of the additional exceptions see sec_1_469-1t d eb and f temporary income_tax regs fed reg date reg date for this purpose extraordinary_personal_services are provided only if performed by individuals and the customers’ use of the property is incidental to their receipt of the services see sec_1_469-1t v temporary income_tax regs fed reg date the lease agreement had an indefinite term and extended over a number of years petitioners’ equipment was maintained in the equipment yard of hairston and was available for use and sublease by hairston at all times throughout each year under sec_1_469-1 a and d income_tax regs hairston’s right to use petitioners’ equipment is properly treated as one period of customer use extending for the entirety of each taxable_year petitioners contend that they had an agency not a lease relationship with hairston and that they individually should be regarded as the lessors of their equipment to end users for average periods of customer use of less than days petitioners’ contention is contrary to the evidence and is rejected in light of the form of the lease agreement and the course of conduct between petitioners and hairston under oklahoma law the arrangement with regard to petitioners’ equipment constituted a lease from petitioners to hairston ée a transfer of the right of possession and use of property for a term in return for consideration see okla stat tit 12a sec_2a-103 and k --- - accordingly we conclude that the average period of use by hairston of petitioners’ equipment exceeded days on this score alone petitioners fail to satisfy the requirements of the first exception described above moreover the evidence does not establish that petitioners in their individual capacities provided either significant or extraordinary_personal_services in connection with making their equipment available for use either by petitioners’ customer namely hairston or for use by hairston’s customers under the subleases under the terms of the lease agreement between petitioners and hairston petitioners individually had little or no responsibility for upkeep and maintenance of the equipment rather hairston assumed all responsibility for the equipment the services of petitioners as officers and employees of hairston in maintaining all of the equipment and in handling subleases of the equipment to end users do not qualify as services of petitioners or as services rendered on behalf of petitioners as owners of the equipment under the lease agreement with hairston petitioners were not obligated as owners of the equipment to provide any services to hairston or end users any services that petitioners might have performed as hairston officers or employees were unrelated to petitioners’ obligations as owners of the equipment --- - in any event no credible_evidence supports petitioners’ contention that significant or extraordinary services were performed either by them or on their behalf as owners of the equipment personal services were not a dominant or significant aspect of either the equipment rental relationship between petitioners and hairston or of the relationship between hairston and end users see frank v commissioner tcmemo_1996_177 the evidence does not establish that the type frequency and value of the services that were provided to end users by petitioners as owners of the equipment or as officers and employees of hairston were significant in comparison to the value of the use of the equipment by end users see sec_1 1t e iv and v temporary income_tax regs fed reg date petitioners cite a portion of the legislative_history of sec_469 which describes a short-term rental of automobiles as not constituting a rental_activity under sec_469 where the lessor furnishes significant services see s rept at -- - 1986_3_cb_1 this legislative_history provides petitioners little support as previously discussed petitioners provided no significant services in their capacities as lessors to hairston or as owners of the equipment moreover their property rentals were not short term since their lease of their heavy construction equipment to hairston was for an indefinite term petitioners’ equipment rental_activity constitutes a passive rental_activity subject_to the loss limitations of sec_469 decision will be entered for respondent the senate report states in pertinent part for example an activity consisting of the short- term leasing of motor vehicles where the lessor furnishes services including maintenance of gas and oil oil changing and lubrication and engine and body repair is not treated as a rental_activity by contrast furnishing a boat under a bare boat charter or a plane under a dry lease 1ie without pilot fuel or oil constitutes a rental_activity under the passive loss rule because no significant services are performed in connection with providing the property s rept pincite 1986_3_cb_1


significant index no department of the treasury internal_revenue_service washington d c tax exempt and government entities apr el rat al in re hospital dear this letter constitutes notice that with respect to the above-named defined benefit pension_plan we have granted a conditional waiver of the minimum_funding_standard for the plan_year ended date the conditional waiver for the plan_year ended date has been granted in accordance with sec_412 of the internal_revenue_code the code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the waived amount is the contribution which would otherwise be required to reduce the balance in the funding_standard_account to zero as of the end of the plan_year for which this conditional waiver has been granted the hospital is a small independent facility with no affiliations in the hospital had a significant decrease in operating cash_flow primarily due to decreased patient volume following the movement of one its three general surgeons to its nearest competitor in response the hospital began a lengthy process of reviewing referral patterns with its medical staff and the reasons for the non-use of its current surgeons and specialists these efforts have shown some success as the hospital in was able to partially reverse the decrease in patient volume it experienced in in addition in the hospital expects to receive permission to use funds in a sinking_fund for capital improvements which will in effect further improve operating cash_flow as of date the value of the assets of the plan was equal to of the plan’s current_liability because the prospects for recovery are uncertain and because the plan is under-funded we are granting this waiver subject_to the following conditions the contributions required to satisfy the minimum_funding_standard for the plan years ending date and date shall be timely made within the meaning of sec_412 of the code without a waiver being granted for such years ome the waiver of the minimum_funding_standard for the plan_year ended date shall be secured within twelve months of the date of this letter ina manner acceptable to the pension_benefit_guaranty_corporation lf these conditions are not satisfied the waiver is retroactively null and void you agreed to these conditions in a letter dated date your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that any amendment to other retirement plans maintained by the company or to the company’s profit sharing plan to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan_year ended date the date of this letter should be entered on schedule b actuarial information a copy of this letter is being sent to your authorized representative in accordance with a power_of_attorney form on file a copy of this letter is also being sent to the manager employee_plans classification in the enrolled_actuary for the plan a copy of this letter should be furnished to if you have any questions on this ruling letter please contact sincerely carol gold director empioyee plans e h t


t c memo united_states tax_court phillip lee allen and carolyn f allen petitioners v commissioner of internal revenue respondent docket no filed date jeri gartside and joseph mudd for petitioners andrew lee for respondent memorandum opinion gerber judge petitioners by motion under sec_7430 and rule ' seek the award of litigation costs incurred in this controversy where they have shown that respondent’ sec_1 unless otherwise stated all section references are to the internal_revenue_code in effect for the taxable years in issue and all rule references are to the tax_court rules_of_practice and procedure determination was in error in allen v commissioner tcmemo_1998_406 filed date we found that a settlement paid to petitioners by their homeowners’ insurance_company was for compensatory and not punitive_damages accordingly the settlement payment was not taxable and no deficiency resulted our findings_of_fact in allen v commissioner supra are incorporated by this reference a tax litigant may recover the reasonable litigation fees and costs incurred in connection with the litigation only if the four elements of sec_7430 are present see sec_7430 those elements are the fees or costs requested were incurred in an administrative or court_proceeding in connection with the determination collection or refund of a tax administrative remedies have been exhausted the proceedings have not been unreasonably protracted by the taxpayer and the taxpayer was the prevailing_party in the action see id the taxpayer will not be treated as the prevailing_party if respondent establishes that respondent’s position was substantially justified to be taxpayer bill of right sec_2 publaw_104_168 110_stat_1463 modified sec_7430 by striking the requirement that the party seeking an award must prove that the united states’ position was not substantially justified in order to recover the amendment for purposes of this case provides that a party shall not be treated as the prevailing_party ina proceeding to which subsection a applies if the united_states establishes that the position_of_the_united_states in the proceeding was substantially justified thus the amendment effectively shifted the burden_of_proof on the issue of continued treated as the prevailing_party the taxpayer must show that the taxpayer substantially prevailed with respect to the amount in controversy or the main issues and has met the net_worth limits see sec_7430 b if respondent’s position was substantially justified the taxpayer cannot be considered a prevailing_party and therefore cannot meet the requirements of sec_7430 the supreme court has interpreted substantially justified to mean justified to a degree that could satisfy a reasonable person 487_us_552 the united states’ position need not be correct to be substantially justified it need only have a reasonable basis in law and fact id pincite n the determination of reasonableness is made on the basis of all the facts and circumstances and the fact that the government eventually loses the case is not determinative see 83_tc_822 vacated and remanded on another issue 787_f2d_637 d c cir in their motion for fees petitioners contend that they have met all elements for an award under sec_7430 conversely continued the government’s substantial justification from the party seeking the award to the government the amendment applies to proceedings commenced after date the petition was filed after date making the amended sec_7430 applicable respondent argues that although petitioners substantially prevailed with respect to the issues and amounts in controversy petitioners are not the prevailing_party because respondent was substantially justified in maintaining his position respondent also argues that all administrative remedies were not exhausted that petitioners unreasonably protracted the proceedings and that the fees requested are unreasonable if we determine that respondent was substantially justified we need not address the other aspects raised by respondent respondent contends that the evidence that was available prior to trial substantially justified the position that petitioners’ settlement included payment for punitive_damages petitioners counter that the evidence they provided to respondent regarding the expenses of rehabilitating their home rendered respondent’s position on the taxability of the settlement unreasonable and without justification in seeking to recover from their insurance_company petitioners made a series of demands for reimbursement as the repairs progressed and the amount of damage grew due to subsequent discoveries of damage after a few payments to petitioners the insurance_company disputed petitioners’ estimates and refused to honor petitioners’ demands petitioners brought suit over this refusal and alleged delay by the insurance_company in their complaint petitioners set forth several grounds for relief and or damages including bad faith and punitive_damages in the settlement of the suit petitioners released any rights they may have had for all claims stated and for possible future claims arising from their relationship with the insurance_company on this matter the terms of the settlement did not specify any particular grounds for which the payment was made in pursuing the question of whether the settlement was taxable petitioners seemed to focus on the fact that the cost of repair approximated the total recovery from all sources when respondent questioned whether the amount received was for punitive_damages petitioners presented the appeals officer with repair receipts in an effort to demonstrate that they had spent the funds received for repairs to the home petitioners have continued this approach in disputing the deficiency and emphasize this aspect in their present motion conversely respondent has focused on the fact that petitioners’ claims and settlement with their insurance_company may have been for punitive_damages ’ the parties’ arguments have gone off on different tangents respondent did argue about the expenditures as a secondary matter respondent questioned whether some of the expenditures by petitioners were improvements rather than replacement and repairs in the court’s analysis we found that there were some improvements as respondent contended but we found them to be de_minimis for example petitioners added air conditioning to their replacement heating unit this aspect adds some justification for respondent’s position petitioners attribute their success to their evidence that the settlement funds were spent on repairs this evidence however does not address the threshold element of the two sec_1033 prerequisites to nonrecognition treatment to gualify under sec_1033 the payment must have been received as compensation_for an involuntary_conversion of the taxpayer’s property see sec_1033 having established that then it must be shown that the money was expended within a specified period of time for the replacement of the converted property with similar_property see sec_1033 a and b only after the threshold question whether the amount received was compensatory has been answered is it necessary to consider the issue of how the funds were spent although an explanation of both prongs of sec_1033 was given in our opinion petitioners have persisted in their single-minded focus on the repair and replacement aspect tf the character is not clear on the face of a settlement the characterization of settlement proceeds becomes a factual inguiry dependent on the payor’s intent when the proceeds were paid see hentzel v commissioner tcmemo_1991_277 w hen respondent receives conflicting evidence of the payor’s intent respondent does not act unreasonably by insisting upon an explanation to clear up the conflict id where unexplained facts support respondent’s position and the court must consider the credibility of witnesses and probative value of evidence respondent’s position may be substantially justified see creske v commissioner tcmemo_1990_318 affd 946_f2d_43 7th cir in the case before us the taxability of petitioners’ settlement was dependent on the weight of the evidence presented and our subsequent interpretation of the settlement agreement throughout the pretrial process and up to the date trial respondent possessed conflicting information about the purpose of the settlement even though allstate insurance co ’s allstate counsel charles siegal advised respondent’s counsel on date that allstate did not pay punitive_damages respondent possessed evidence supporting the position that the payment was made in settlement of multiple claims including bad faith and or punitive_damages that evidence included the complaint against allstate the settlement documents and two letters from petitioners’ prior representative all referenced recovery for personal injury and or punitive_damages respondent also points out that the allstate underwriter involved in petitioners’ claim had advised that the settlement was made for punitive or bad faith damages it was only days before trial when the underwriter called respondent’s counsel to advise that she could not testify to her prior statement because she had not attended the settlement conference and may not have remembered the situation correctly petitioners’ amended_return and attachment the complaint against the insurance_company and settlement agreement and accompanying memorandum were sufficient to create substantial doubt regarding whether petitioners’ settlement included punitive_damages even though respondent had the opportunity to consider the credibility of the witnesses a witness’ testimony is not necessarily conclusive as to the outcome of a factual issue see williams v united_states cl_ct that is especially so where as here there is contradictory evidence respondent could have reasonably decided to go to trial in the hope that the court would have found the documentary_evidence supporting respondent’s view more persuasive than the contrary oral testimony supporting petitioners’ view additionally there is no indication that the evidence relied on by respondent was unusually scanty or unworthy of belief or that respondent had taken his position for any purpose other than to prevail in the litigation 91_tc_367 nor did respondent offer a novel or unsupported interpretation of the law or unreasonably rely upon a statutory interpretation that already had been rejected by this or another court williams v united_states supra pincite2 respondent’s position was substantially justified in light of the facts and circumstances presented in this case an appropriate order and decision will be entered


t c memo united_states tax_court urve v moyer incompetent calvin l moyer next friend commissioner of internal revenue respondent petitioner v docket no filed date calvin l moyer specially recognized for petitioner harry j negro and jason m kuratnick for respondent memorandum findings_of_fact and opinion morrison judge the respondent the irs issued a notice_of_deficiency to the petitioner urve v moyer for the tax_year determining an income-tax deficiency of dollar_figure a failure-to-file penalty under sec_6651 of dollar_figure a failure-to-pay penalty under sec_6651 of dollar_figure and an estimated-tax penalty under sec_6654 of dollar_figure urve moyer timely filed a petition under sec_6213 for redetermination of the deficiency and the penalties we have jurisdiction under sec_6214 urve moyer concedes she is liable for the sec_6651 sec_6651 and sec_6654 penalties the only remaining issues for resolution are whether urve moyer is entitled to a deduction for tax-preparation fees of dollar_figure for taxable_year we hold that she is not whether urve moyer is entitled to deduct certain items as business_expenses under sec_162 we hold that she is not findings_of_fact some facts are stipulated and are so found the stipulation of facts is incorporated by this reference 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure all dollar amounts are rounded to the nearest dollar 2urve moyer resided in delaware when she filed her petition therefore an appeal of our decision in this case would go to the u s court_of_appeals for the third circuit unless the parties designate the court_of_appeals for another circuit see sec_7482 and urve moyer’s husband calvin moyer was educated as a chemist in he joined dupont where he worked chiefly in human relations as part of his duties he trained dupont employees in a variety of human-relations topics in dupont outsourced much of its human-relations training calvin moyer took an early retirement from dupont in date at the age of after years_of_service sometime after calvin moyer retired but before both calvin moyer and urve moyer began receiving pensions from dupont they also both began receiving social_security_benefits in after retiring from dupont calvin moyer and four other retired dupont employees started a business to provide dupont with human-relations- training services as an outside contractor they provided services similar to those they had provided when they worked at dupont they ultimately disagreed on the strategy for the business and amicably agreed to cease doing business together in in calvin moyer and andrew a moyer no relation formed strategic learning systems inc sls sls elected s_corporation status for federal-tax purposes sls provided human-relations training as a contractor it provided in-class human-relations training on a variety of topics and created several brochures marketing its training services these trainings were structured as one- day workshops initially dupont was sls’s only client dupont remained sls’s primary client and constituted at least to of sls’s total business for a time in andrew moyer separated from sls calvin moyer became the sole owner of sls he ran sls himself in sls lost dupont as a client sls did not have other regular clients sls did not print any marketing brochures after sls had no gross_receipts for or sls neither kept contemporaneous books_or_records nor maintained a budget the sole owner and operator of sls calvin moyer did not use books_or_records to evaluate the financial performance of sls nor did he timely file a tax_return for sls for the or taxable_year sls filed delinquent returns for these years on forms 1120s u s income_tax return for an s_corporation in connection with previous tax_court cases this was in which was not only after the due dates for the returns but also after the irs had issued notices of deficiency to him as the shareholder of sls or to his wife because she signed a joint_return with him as calvin moyer acknowledged in his testimony the preparation of the forms 1120s in was the first occasion on which he ever determined the annual expenses of the s_corporation for tax purposes or any other purpose neither urve moyer nor calvin moyer timely filed a federal_income_tax return for the taxable_year nor did sls on date the irs mailed urve moyer a substitute for return sfr and a notice_of_deficiency for her taxable_year the notice_of_deficiency used the married-filing-separately filing_status and determined a deficiency of dollar_figure along with penalties pursuant to sec_6651 sec_6651 and sec_6654 urve moyer timely filed a petition with this court on date urve moyer and calvin moyer submitted to the irs a joint federal_income_tax return for the taxable_year on form_1040 u s individual_income_tax_return this return included itemized_deductions on schedule a itemized_deductions calvin moyer also submitted to the irs an income_tax return for sls on form_1120s for the taxable_year calvin moyer was the sole owner of sls during the taxable_year he admitted in his testimony that sls has not earned a profit since at least the losses reported on the forms 1120s for and prior years were as follows year gross_receipts expenses dollar_figure big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number loss dollar_figure big_number big_number big_number big_number big_number on the form_1040 the moyers reported wage income of dollar_figure total taxable retirement distributions of dollar_figure and total gross social_security_benefits of dollar_figure on that form_1040 they claimed a deduction for a passthrough loss of dollar_figure from sls for the taxable_year they also claimed a deduction for tax-preparation fees of dollar_figure on the schedule a the irs examined the moyers’ late-filed joint_return for it disallowed the claimed deductions for tax-preparation fees of dollar_figure and the dollar_figure passthrough loss from sls after filing her form_1040 late urve moyer provided the irs an assortment of receipts invoices and order confirmations and asserted that these documents substantiated the business_expenses of sls for the taxable_year she introduced these documents at trial this assortment of documents indicated that calvin moyer or sls paid for the following items computer sec_2 monitor sec_2 speaker sec_5 wireless mice microphone sec_4 webcams printer sec_5 boxes of blank dvd sec_150 cooler bag sec_1 folding table digital camera various other ordinary electronic and office supplies the documentation also included information about a monthly cable television charge and a family talk telephone plan with four telephone numbers before trial the parties agreed that the following are the correct amounts of various tax items reported on urve moyer’s joint_return for item wages interest_income retirement distribution social_security gross ira deduction total exemption_amount schedule a taxes paid schedule a interest_paid schedule a charitable gifts total payments and credits per return dollar_figure big_number big_number big_number big_number big_number big_number per exam as agreed dollar_figure big_number big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number big_number the parties also stipulated that urve moyer is liable for penalties pursuant to sec_6651 sec_6651 and sec_6654 for the taxable_year at issue remains whether urve moyer is entitled to a deduction on schedule a for tax-preparation fees and whether she is entitled to deduct the claimed passthrough loss from sls the irs argues that she did not substantiate the tax-preparation fees the irs does not dispute that the expenses stemming from the passthrough loss were incurred but it asserts that none of the expenses were ordinary and necessary expenses of an active trade_or_business for the taxable_year opinion the taxpayer generally has the burden of proving that the determinations in the notice_of_deficiency are incorrect rule a 290_us_111 urve moyer does not contend that the conditions set forth in sec_7491 for shifting the burden_of_proof to the irs have been satisfied nor does the record show that the conditions have been satisfied thus the burden remains on her for all remaining issues see rule a 292_us_435 tax-preparation fees urve moyer’s only posttrial brief her opening brief she did not file an answering brief despite being granted several extensions of time to do so does not address the issue of the deductions she claimed on her schedule a for tax- 3in a case involving a deficiency determination with respect to urve moyer’s tax_year we held that she was entitled to a dollar_figure deduction for expenses passed through from sls to her husband moyer v commissioner tcmemo_2015_45 at for the year as with the year she filed a joint_return with her husband and therefore had a tax_liability based on her and her husband’s combined gross_income including his income and losses passed through to him by sls see sec_1_6013-4 income_tax regs see also sec_1366 in the case the irs did not question sls’s status as a trade_or_business it does in this case preparation fees issues that are not addressed in the opening brief are considered conceded see rule e and 92_tc_661 89_tc_46 therefore she has waived any arguments regarding the deductibility of her tax-preparation fees see rule 117_tc_117 n accordingly we hold that she is not entitled to an itemized_deduction on schedule a for her tax-preparation fees active trade_or_business sec_162 allows a deduction for all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business the irs asserts that calvin moyer’s alleged business conducted through sl sec_4 was an activity_not_engaged_in_for_profit and therefore was not an active trade_or_business within the meaning of sec_183 and that the deductions attributable to that activity should be limited accordingly see sec_183 and b whether an activity is engaged in for profit for purposes of sec_162 and sec_212 i sec_4the sls activity was calvin moyer’s not urve moyer’s he owned sls and conducted the activity reported by sls on its form_1120s but urve moyer filed a joint_return with calvin moyer although the return was filed late it established a joint liability against urve moyer for the income_tax on the couple’s combined income see sec_1_6013-4 income_tax regs this combined income is calculated by including calvin moyer’s passthrough loss from sls see sec_1366 determined under sec_183 see 116_tc_198 sec_183 defines an activity_not_engaged_in_for_profit as any activity other than one with respect to which deductions are allowable for the taxable_year under sec_162 or under paragraph or of sec_212 if an activity is not engaged in for profit sec_183 allows only those deductions that are not dependent upon a profit_motive and those deductions that would otherwise be permitted if the activity was engaged in for profit but only to the extent that the gross_income derived from the activity exceeds the deductions that are not dependent upon a profit_motive whether a taxpayer is engaged in an activity for profit turns on whether the taxpayer has an actual and honest objective of making a profit 78_tc_642 aff’d without published opinion 702_f2d_1205 d c cir a reasonable expectation of profit is not required as long as the taxpayer has an actual and honest objective of making a profit sec_1_183-2 income_tax regs see also dreicer v commissioner t c pincite 72_tc_411 aff’d without published opinion 647_f2d_170 9th cir whether the taxpayer had the requisite profit_motive is a question of fact to be determined on the basis of the entire record engdahl v commissioner t c the taxpayer’s motive regarding his or her profit objective must be determined by an analysis of all the surrounding objective facts with greater weight given to such objective facts than to the taxpayer’s mere statement of intent sec_1_183-2 and b income_tax regs see also 68_tc_696 sec_1_183-2 and b income_tax regs sets forth relevant factors derived from caselaw that may be considered in determining whether an activity is engaged in for profit 66_tc_312 63_tc_375 the regulations provide that no one factor is conclusive and that a decision is not reached merely by counting the factors that support each position sec_1_183-2 income_tax regs we will deal with the entire record in the context of the parties’ arguments see 88_tc_464 although human-relations training is not the type of activity involving personal pleasure or recreation that is often associated with sec_183 questions sec_183 is not limited to so-called hobby_losses for example the profit-objective analysis of sec_183 applies to tax_shelter investments 85_tc_557 and to putative trades_or_businesses 90_tc_960 aff’d without published opinion 899_f2d_18 9th cir on the basis of all of the facts and circumstances we conclude that calvin moyer did not engage in the activity for which he filed the form_1120s with an actual and honest objective of making a profit during the year in issue the record as a whole indicates that the moyers used sls as a vehicle to claim various personal living or family_expenses as business deductions though our holding considers only whether calvin moyer had an actual and honest objective of making a profit and not whether he actually engaged in his alleged business activity we are skeptical than any such activity took place during the year in issue in determining whether calvin moyer had an actual and honest objective of making a profit we first consider whether he conducted sls’s alleged activity in a businesslike manner a factor described in sec_1_183-2 income_tax regs calvin moyer testified that he did not attempt to determine the expenses of sls until after the irs issued notices of deficiency he also failed to keep accurate books_and_records at trial calvin moyer testified that he is not good at keeping records sls neither kept contemporaneous_records nor maintained a budget because sls did not keep contemporaneous books_and_records calvin moyer had no books from which he could evaluate sls’s profitability moreover sls did not file income_tax returns for the through taxable years in the normal course of business sls filed returns only in connection with tax_court cases several years after the due dates at trial when asked whether failing to timely file income_tax returns is a good business practice calvin moyer responded it certainly isn’t all of these facts indicate a failure to conduct the activity in a businesslike manner which in turn indicates the lack of a profit_motive calvin moyer was solely responsible for sls despite losing dupont as a client and having dwindling gross_receipts since and no gross_receipts from through nothing in the record suggests that he expended much time and effort in attempting to make sls profitable see id subpara during the tax_year in issue calvin moyer had no human-relations-training work and did not spend any time or effort developing new business the type of expenses sls attempts to deduct for the year are not obviously anything but personal expenses another indication that calvin moyer did not have an actual and honest profit objective was the fact that from through the year in issue sls did not report any gains on its form_1120s but instead reported a sizable loss for each year sls reported a loss for each of the years through see supra pp for each of these years sls reported expenses far exceeding its gross_receipts as calvin moyer admitted sls had no gross_receipts for or a record of losses over several years is persuasive evidence that the taxpayer did not have the requisite profit objective see sec_1_183-2 and income_tax regs although calvin moyer may have originally had a profit objective when he incorporated sls in we find that this was no longer the case during the year in issue by sls was merely a convenient device by which the moyers could try to deduct otherwise nondeductible personal expenses even though calvin moyer did not have an actual and honest profit objective urve moyer could still take those deductions that would be permitted if the activity was engaged in for profit but only to the extent of the gross_income reported from the activity see sec_183 since sls had no gross_income for the taxable_year urve moyer is not entitled to deduct any of the dollar_figure loss reported by sls in reaching our holdings we considered all arguments made and to the extent not mentioned we conclude that they are moot irrelevant or without merit 5urve moyer argues that sls’s lack of operating profits should be overlooked because sls retains value in its intellectual_property see sec_1 b income_tax regs we find this argument without merit because urve moyer failed to show that sls actually owns the rights to any intellectual_property moreover nothing in the record indicates that calvin moyer could recapture losses by selling sls or any intellectual_property to reflect the foregoing 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 psi b01-plr-105032-01 date date legend x state date date date date a this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts the information submitted discloses that x incorporated under state law and elected s_corporation status effective date on date x transferred to a a common_stock purchase warrant warrant for x stock on date it was determined that the issuance of the warrant created a second class of stock terminating x’s s_corporation_election when x discovered that it had issued a second class of stock x took immediate steps to modify the terms of the warrant and submitted this request for a ruling x represents that an amendment agreement revising the warrant so that it does not cause x to have a second class of stock was finalized on date x further represents that the issuance of the warrant was not motivated by tax_avoidance and that x was unaware that issuance of the warrant would create a second class of stock law and analysis sec_1361 defines an s_corporation as a small_business_corporation for plr-105032-01 which an election under sec_1362 is in effect sec_1361 defines small_business_corporation as a domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders b have as a shareholder a person other than an estate other than a_trust described in sec_1361 and other than an organization described in c who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1362 of the code provides that an election to be treated as an s_corporation terminates whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation the termination is effective on and after the date the s_corporation ceases to meet the requirements of a small_business_corporation sec_1362 sec_1362 in relevant part provides that if an election to be treated as an s_corporation was terminated under sec_1362 the secretary determines that the termination was inadvertent no later than a reasonable period of time after discovery of the event resulting in the termination steps were taken so that the corporation is once more a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make any adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to the period then notwithstanding the terminating event the corporation shall be treated as continuing to be an s_corporation during the period specified by the secretary s rep no 97th cong 2d sess 1982_2_cb_718 in discussing sec_1362 of the code provides in part as follows if the internal_revenue_service determines that a corporation’s subchapter_s_election is inadvertently terminated the service can waive the effect of the terminating event for any period if the corporation timely corrects the event and if the corporation and the shareholders agree to be treated as if the election had been in effect for such period the committee intends that the internal_revenue_service be reasonable in granting waivers so that corporations whose subchapter_s eligibility requirements have been inadvertently violated do not suffer the tax consequences of a termination if no tax_avoidance would result from the continued subchapter_s treatment in granting a waiver it is hoped that taxpayers and the government will work out agreements that protect the revenues without undue_hardship to taxpayers it is expected that the waiver may be made retroactive for all years or retroactive for the period plr-105032-01 in which the corporation again became eligible for subchapter_s treatment depending on the facts conclusions based upon the information submitted and the representations set forth above we conclude that the termination of x’s s_corporation_election was inadvertent within the meaning of sec_1362 pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided that x’s subchapter_s_election is not otherwise terminated under sec_1362 except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the above-described facts under any other provision of the code in particular no opinion is expressed or implied concerning whether x’s election was valid under sec_1362 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative s david r haglund sincerely senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c no united_states tax_court estate of mary k wetherington deceased mary louise ripple personal representative petitioner v commissioner of internal revenue respondent docket no filed date r extended the time for p to pay estate_tax under sec_6161 i r c p filed a request for further extension_of_time_to_pay_tax under sec_6161 i r c which is now pending with the commissioner p moved to delay entry of decision until an extension_of_time_to_pay_tax under sec_6161 i r c no longer applies held under the rationale of 81_tc_949 we will delay entry of decision until p's extension_of_time_to_pay_tax under sec_6161 i r c is no longer in effect debra k smietanski for petitioner james f kearney for respondent opinion colvin judge this matter is before the court on petitioner's motion to stay proceedings in the motion petitioner asks the court to postpone entry of decision until either an extension of time to pay petitioner's federal estate_tax under sec_6161 is no longer in effect and any appeal of respondent's denial of an extension is final or petitioner fully pays its outstanding federal tax_liability and related interest whichever happens first the parties agree that if we grant the motion petitioner may deduct interest that it would not be allowed to deduct if we had entered a decision sec_6512 we conclude that it is appropriate to delay entry of decision until an extension of time for the payment of petitioner's estate_tax under sec_6161 is no longer in effect and any administrative appeal of respondent's denial of such an extension is final or until petitioner fully pays its federal tax_liability and related interest whichever occurs first this is a case of first impression however in a related context we delayed entry of decision where the taxpayer elected to defer payment of estate_tax for years under sec_6166 81_tc_949 section references are to the internal_revenue_code as amended rule references are to the tax_court rules_of_practice and procedure background mary k wetherington decedent died on date her estate consisted almost exclusively of agricultural real_property in hillsborough county florida petitioner filed decedent's_estate tax_return on date petitioner paid federal estate_tax of dollar_figure on date and dollar_figure on date on date petitioner sold part of decedent's real_property petitioner paid estate_taxes of dollar_figure on date under sec_6161 the secretary may extend the time in which a taxpayer must pay estate_tax for up to months under sec_6161 the secretary may grant an extension for reasonable_cause up to years from the due_date of the return respondent extended the time for petitioner to pay estate_tax under sec_6161 for year and possibly for a second year because petitioner's assets were not liquid and petitioner could not pay the balance due petitioner applied for a further extension under sec_6161 which is pending as of date respondent determined a deficiency in estate_tax petitioner filed a petition to contest that determination the parties have settled all issues in this case except those in the motion before us petitioner had no deficiency or overpayment petitioner owed dollar_figure of the tax_shown_on_the_return plus interest of dollar_figure when petitioner filed this motion discussion a background sec_6161 and sec_6166 a taxpayer generally may deduct interest on unpaid federal and state estate_taxes from the gross_estate as an expense of administration sec_2053 interest may accrue on unpaid estate_taxes because the estate has an extension_of_time_to_pay_tax under sec_6166 or sec_6161 an executor may elect to pay estate_tax in equal installments starting at the end of a 5-year period during which only interest is payable if a closely_held_business constitutes more than percent of the adjusted_gross_estate sec_6166 petitioner did not make an election under sec_6166 the secretary may extend the time in which a taxpayer is required to pay estate_tax up to months if there is reasonable_cause under sec_6161 and the accompanying regulations under sec_6161 the sec_6161 provides continued secretary may grant an extension for reasonable_cause up to years from the due_date of the return interest which arises because the secretary permitted a deferred payment of federal estate_tax under sec_6161 is deductible from the gross_estate as an administrative expense under sec_2053 68_tc_74 court reviewed continued sec_6161 extension of time for paying tax a amount determined by taxpayer on return general_rule the secretary except as otherwise provided in this title may extend the time for payment of the amount of the tax shown or required to be shown on any return or declaration required under authority of this title or any installment thereof for a reasonable period not to exceed months months in the case of estate_tax from the date fixed for payment thereof such extension may exceed months in the case of a taxpayer who is abroad estate_tax the secretary may for reasonable_cause extend the time for payment of-- a any part of the amount determined by the executor as the tax imposed by chapter or b any part of any installment under sec_6166 including any part of a deficiency prorated to any installment under such section for a reasonable period not in excess of years from the date prescribed by sec_6151 for payment of the tax or in the case of an amount referred to in subparagraph b if later not beyond the date which i sec_12 months after the due_date for the last installment deduction of interest_paid on estate_taxes deferred under sec_6166 a taxpayer may not deduct interest_paid or incurred after entry of a decision sec_6512 estate of bailly v commissioner t c pincite unless sec_7481 discussed below applies the taxpayer in estate of bailly v commissioner supra elected to pay estate_tax in annual installments under sec_6166 we delayed entry of decision in that case to allow the taxpayer to deduct interest on the tax id pincite sec_6512 would have prevented the taxpayer from deducting interest it paid after our decision became final in estate of bailly v commissioner supra we said that we were troubled by the harshness of sec_6512 with respect to estate_tax cases we agreed in the interest of fairness and justice to postpone entry of decision until the final installment of the estate_tax liability is due or paid whichever is earlier sec_7481 was enacted in in response to estate of bailly v commissioner supra technical_and_miscellaneous_revenue_act_of_1988 publaw_102_647 sec 100_stat_3342 under sec_7481 a taxpayer may move to reopen a case to which an extension of time to pay estate_tax under sec_6166 applies to ask the court to modify the amount of the estate's deduction for interest see rule b contentions of the parties petitioner asks the court to postpone entry of decision until an extension of time to pay petitioner's federal estate_tax under sec_6161 is no longer in effect and appeal of respondent's denial of an extension is final or petitioner pays estate_tax and interest it owes whichever is earlier petitioner contends this situation is analogous to that in estate of bailly v commissioner supra respondent contends this case is not like estate of bailly because no extension_of_time_to_pay_tax is now in effect granting petitioner's motion would prevent respondent from reviewing the facts and circumstances to determine whether a hardship under sec_6161 is present and congress considered sec_6161 when enacting sec_7481 but did not provide a remedy for petitioner's situation respondent points out that if we delay entry of decision petitioner can deduct interest the deduction of which would otherwise be precluded by entry of decision under sec_6512 neither party questions the court's power to postpone entry of decision in this case effect of the fact that petitioner's request to continue to defer tax under sec_6161 is pending with the commissioner respondent contends this situation is unlike that in estate of bailly v commissioner supra because no extension_of_time_to_pay_tax under sec_6161 is now in effect we disagree respondent has previously granted an extension under sec_6161 according to our record petitioner's request for a further extension is now pending respondent contends that we should not delay entry of decision because it would enable petitioner to deduct interest that it could not otherwise deduct we disagree with respondent's view that such a result is improper sec_6161 like sec_6166 can result in an extension of time for a taxpayer to pay estate_tax we believe the situation in this case is analogous to that in estate of bailly v commissioner supra we distinguish this case from estate of nevelson v commissioner tcmemo_1996_361 because there petitioners asked the court to delay entry of decision more than years past the date the parties had agreed to file a stipulated decision here the parties have not agreed to a date to file a stipulated decision whether granting petitioner's motion would interfere with respondent's exercise of discretion under sec_6161 sec_6161 gives the commissioner discretion to grant a taxpayer's request for extension of time to pay taxes respondent contends that granting petitioner's motion would eliminate that discretion we disagree our granting of this motion would not affect respondent's discretion to act on a taxpayer's request to defer payment of tax under sec_6161 congressional intent respondent contends that we should deny petitioner's motion because congress considered sec_6161 extensions when enacting sec_7481 but did not provide a remedy for petitioner's situation we disagree there is no indication in the conference_report accompanying the enactment in of sec_7481 that congress considered much less rejected extending it to sec_6161 h conf rept pincite 1988_3_cb_473 respondent points to no other authority for that assertion c conclusion we will not enter decision until an extension of time for the payment of petitioner's estate_tax under sec_6161 is no longer in effect and any administrative appeal of respondent's denial of petitioner's request for an extension is final see sec_20_6161-1 estate_tax regs or until petitioner fully pays its outstanding federal tax_liability and related interest whichever occurs first the parties shall report to the court when those conditions are met an appropriate order will be issued


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 corp b04 plr-129260-09 date date legend taxpayer date date -------------------------------------------------- -------------------------- -------------------------- tax professional ----------------------------------------------------------- company official ------------------------------------------------------------------------------------ ------------------------------------------------------ company official ------------------------------------------------------------------------------------ ----------------- company official ------------------------------------------------------------------------------------ ------------------------------------------------------ dear --------------- this letter responds to your letter dated date submitted on behalf of taxpayer requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_1_382-9 not to have the provisions of sec_382 apply to an ownership_change in a title_11_or_similar_case the election additional information was received in a letter dated date the material information submitted in the request and the later correspondence is summarized below plr-129260-09 on date taxpayer a loss_corporation underwent an ownership_change as defined by sec_382 immediately before the ownership_change on date taxpayer was under the jurisdiction of a court in a title_11_case then on date taxpayer underwent a second ownership_change sec_382 provides that if certain requirements are met sec_382 shall not apply to the ownership_change if sec_382 applies certain limitations are placed on a corporation sec_382 provides that a new_loss_corporation may elect subject_to terms and conditions as the secretary may prescribe not to have the provisions of sec_382 apply if a new_loss_corporation wishes to elect out of sec_382 such election must be made by the due_date including extensions of time of the loss corporation’s tax_return for the taxable_year which includes the change_date sec_1_382-9 the election was required to be filed by the due_date including any extensions of time of taxpayer’s tax_return for the taxable_year which includes date but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted by taxpayer under sec_301_9100-3 for an extension of time to file the election under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making 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 sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_382-9 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for taxpayer to file the election provided taxpayer acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government the information affidavits and representations submitted or otherwise provided by taxpayer tax professional company official company official and company official explain the circumstances that resulted in the failure to timely file a valid plr-129260-09 election the information establishes that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service see sec_301_9100-3 the information also establishes that taxpayer reasonably relied on a qualified_tax professional who failed to make or advise taxpayer to make the election see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that taxpayer has established that it acted reasonably and in good_faith in failing to timely file the election the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for taxpayer to file the election the above extension of time is conditioned on taxpayer’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to taxpayer’s tax_liability for the years involved a determination thereof will be made upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that taxpayer’s tax_liability is lower sec_301_9100-3 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 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling 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 ______________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate