departmentofthetreasury internal_revenue_service washington d c jul tax_exempt_and_government_entities_division uil numbers and legend trustee a employer b plan c administrator d individual e financial_institution f financial_institution g financial_institution h administrator i amount amount amount amount4 amount amount amount amount dear this is in response to a request dated date as supplemented by correspondence dated april23 and date submitted by your authorized representative on your behalf concerning the characterization and tax consequences of certain proposed payments to a defined_contribution_plan the following facts and representations in support of your request have been submitted under penalties of perjury plan c is a profit sharing plan maintained by employer b for the benefit of its employees plan c was established effective date and is intended to be qualified under sec_401 a of the code the adoption_agreement for plan c provides that trustee a is the trustee of plan c and employer b is the plan_administrator for plan c trustee a is the sole_proprietor of employer b and a participant in plan c prior to date contributions to plan c consisted of discretionary employer contributions effective date plan c executed an adoption_agreement for a non-standardized prototype k profit sharing plan that had received an egtrra opinion letter from the internal_revenue_service service dated date effective date plan c also provided elective_deferrals and matching_contributions the assets of plan c are invested in a pooled investment account participants in plan c do not direct any investments from through late trustee a experienced knee and back problems and chronic pain trustee a had six surgeries in mid-2012 and late and was prescribed painkillers to help relieve the pain during this time trustee a gradually became addicted to the painkillers in employer b hired administrator d to administer plan c employer represents that administrator d through its principal individual e was responsible for allocating employer contributions to participant accounts as well as maintaining records for all transactions pertaining to plan c in the department of labor dol contacted trustee a regarding an investigation into fraudulent activity with respect to plan c and individual e the ensuing dol investigation revealed that individual e wrongfully diverted approximately amount from plan c during the period from date through date into her personal accounts and for her personal_use in addition the dol investigation revealed that from date through date individual e knowingly made false statements and concealed facts in violation of title i of the employee retirement income security act of erisa upon learning of the results of the dol investigation trustee a as trustee and named fiduciary for plan c took several steps to protect the interests of plan c participants and to recover the misappropriated plan assets trustee a filed a civil claim against financial institutions f g and h alleging that the financial institutions allowed the fraudulent deposits to individual e's personal accounts and corresponding debits from plan c accounts despite invalid endorsements employer and financial institutions f g and h entered into a settlement agreement pursuant to which trustee a recovered a total of amount for plan c trustee a also filed a claim under plan c's surety bond policy and secured a payment of amount federal criminal charges were brought against individual e as part of her plea agreement to settle the charges of theft or embezzlement from an employee_benefit_plan and for false statements and concealments in erisa documents individual e agreed to return amount to plan c trustee a represents that amount sec_2 and have been deposited into plan c's pooled investment account employer represents that although the dol could have pursued fiduciary breach actions against trustee a or employer and that it did bring charges against other unrelated employee_benefit_plan trustees from which individual e had misappropriated funds the dol has elected not to pursue fiduciary breach charges against trustee a or employer b employer states that the dol's decision is a result of employer b's agreement to restore any and all losses to plan c participants that could not be recovered from third parties employer informed plan c participants of its intention in an effort to forestall participant lawsuits against trustee a and employer for breach of fiduciary duties to plan c employer hired administrator i to administer plan c and to calculate the total losses to plan c as a result of individual e's actions net of the restorative payments already made to plan c amount sec_2 and administrator i determined that there were affected participants including trustee a although administrator i lacked the - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - information necessary to determine the losses for year sec_2002 and it calculated that the total principal loss to plan c from through equals amount administrator i calculated the lost earnings on amount determined through date as an amount equal to amount earnings were calculated based on plan c's actual earnings rate beginning with the year through date with the total estimated loss equal to amount trustee a represents that the information regarding the losses_incurred by plan c were conveyed to the united_states probation office in regard to individual e employer b proposes to make a restorative payment of amount to plan c to resolve any potential claims against employer b and trustee a employer b represents that amount when added to amount sec_2 and will restore plan c participant accounts to where they would have been had the misappropriations not occurred employer b represents that the restorative payments will be allocated to all affected participants including trustee a's account of the affected plan c participants as determined by employer b and as calculated independently by administrator i based on the preceding facts and representations your authorized representative has requested the following rulings on your behalf the restorative payments from third parties and employer b will not constitute employer contributions or amounts subject_to provisions of sec_404 sec_415 or sec_4972 of the internal_revenue_code code the restorative payments from third parties and employer b will not adversely affect the qualified status of the plan under sec_401 a of the code the restorative payments from third parties and employer b will not when made to plan c result in taxable_income to plan c participants the restorative payments from employer b will be deductible in full pursuant to sec_162 of the code as an ordinary and necessary business_expense with respect to ruling requests and sec_401 a of the code provides generally that the contributions or benefits provided under a qualified_plan may not discriminate in favor of highly compensated employees sec_402 of the code generally provides that any amount actually distributed to any distributee by an employees' trust described in sec_401 a which is exempt from tax under sec_501 a shall not be taxable to a participant until actually distributed to the participant sec_404 of the code generally provides that contributions paid_by an employer to or under a stock bonus pension profit-sharing or annuity plan if otherwise deductible are deductible under sec_404 subject_to the limitations under sec_404 sec_415 of the code provides in part that a_trust which is part of a pension profit-sharing or stock_bonus_plan shall not constitute a qualified_trust under sec_401 a if in the case of a defined_contribution_plan contributions and other additions under the plan with respect to any participant for any taxable_year exceed the limitations of sec_415 sec_1 c -1 b i of the federal_income_tax regulations regulations provides that the term annual_additions includes employer contributions credited to the participant's account for the limitation_year sec_1_415_c_-1 b ii c of the regulations provides that a restorative payment that is allocated to a participant's account does not give rise to an annual_addition for any limitation_year it further provides that restorative payments are payments made to restore losses to a plan resulting from actions by a fiduciary for which there is reasonable risk of liability for breach of a fiduciary duty under title i of erisa or under other applicable federal or state law where plan participants who are similarly situated are treated similarly with respect to the payments generally payments to a defined_contribution_plan are restorative payments only if the payments are made in order to restore some or all of the plan's losses due to an action or a failure to act that creates a reasonable risk of liability for such a breach of fiduciary duty other than a breach of fiduciary duty arising from failure to remit contributions to the plan sec_4972 of the code imposes on an employer a ten percent excise_tax on the amount of the nondeductible_contributions made to any qualified_employer_plan including a plan qualified under sec_401 a sec_4972 of the code defines nondeductible_contributions as the excess if any of the amount contributed for the taxable_year by the employer to or under such plan over the amount allowable as a deduction under sec_404 for such contributions determined without regard to subsection e thereof and the amount determined under subsection c for the preceding year reduced by the sum of the portion of the amount so determined returned to the employer during the taxable_year and the portion of the amount so determined deductible under sec_404 for the taxable_year determined without regard to subsection e thereof - - - - - - - - - - - - - - - - - - - - - - - - - - - - - revrul_2002_45 2002_2_cb_116 rev_rul applies a facts_and_circumstances_test to determine whether a payment to a plan qualified under sec_401 a of the code is a restorative payment or a contribution to the plan under revrul_2002_45 payments made merely to replenish a participant's account in a defined_contribution_plan after investment losses are to be treated as contributions however payments that are made to restore some or all of the account's losses due to an action or failure to act that creates a reasonable risk of liability are restorative payments in addition in order to be a restorative payment the payment does not need to be the result of legal action it only needs to be made as a result of a reasonable determination that there is a reasonable risk of liability revrul_2002_45 also provides that the amount of a restorative payment cannot exceed the amount lost including appropriate adjustments for earnings a restorative payment is not taken into account under sec_410 sec_415 or401 k or m in addition a restorative payment is not subject_to the provisions of sec_404 or sec_4972 applying the reasoning of rev rut in this case employer b has made a reasonable determination that there was a reasonable risk of liability for breach of fiduciary duty as a result of the losses sustained by plan c through the fraudulent action of administrator d and individual e in addition the payments which employer b intends to make to plan c are designed to ensure that the affected plan c participants' accounts are restored further employer b has indicated that the dol conditioned its decision not to pursue fiduciary_liability claims against employer b or trustee a on the making of the restorative payments and that the dol had pursued claims against fiduciaries of other unrelated plans with funds misappropriated by individual e but for the promised restorative payments it is reasonably likely that either the dol or plan c participants would pursue fiduciary breach actions against employer b and trustee a based on the above it is reasonable to characterize this payment as a restorative payment rather than as a plan contribution or as an annual_addition employer b represents that the restorative payments will be allocated to all affected participants including trustee a's account according to the value of the accounts of the affected plan c participants as determined by employer b and as calculated independently by administrator i employer b proposes that all affected plan c participants including trustee a will be treated similarly and all plan c accounts will be restored based on the foregoing we conclude that the restorative payments pursuant to the proposed transaction will not constitute a contribution or other payment subject_to the provisions of either sec_404 or sec_4972 of the code will not adversely affect the qualified status of plan c pursuant to either sec_401 a or of the code and will not when made result in taxable_income to affected plan c participants or beneficiaries under sec_402 of the code however in no case will amount sec_2f l44002 paid in excess of the amount lost including appropriate adjustments to reflect lost earnings be considered restorative payments with respect to ruling_request sec_162 of the code provides that there shall be allowed as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business in general the service views payments made in settlement of lawsuits or potential lawsuits as deductible if the acts that gave rise to the litigation or potential litigation were performed in the ordinary conduct of the taxpayer's business see - revrul_80_119 revrul_78_210 1978_1_cb_39 revrul_73_226 1973_1_cb_62 this view is consistent with a series of cases holding that payments to settle litigation or threatened litigation including for claims of fiduciary breach are ordinary and necessary business_expenses and therefore deductible if the threatened litigation arises out of the taxpayer's business and the corresponding payments are made to protect a taxpayer's business from the liability of a possible lawsuit added legal fees and damages to the taxpayer's business see 17_tc_675 acg 1952_1_cb_1 27_tc_464 acq 1966_2_cb_2 37_tc_845 acq 1962_2_cb_5 in this case administrator d was hired to perform certain ordinary and necessary administrative tasks for plan c which is sponsored by employer b for the benefit of its employees individual e acting as principal of administrator d misappropriated plan c assets during the course of performing these functions and the losses_incurred by plan c arose in the ordinary conduct of employer b's business employer b has represented that the proposed restorative payments will be made to forestall litigation that might potentially arise as a result of individual e's actions accordingly with respect to ruling_request four we conclude that the proposed restorative payments made by employer b would be ordinary and necessary business_expenses deductible under sec_162 of the code this ruling is based on the assumption that plan c otherwise meets the requirements of sec_401 a of the code and that its related trust is tax-exempt within the meaning of sec_501 a of the code no opinion is expressed as to the federal_income_tax consequences of the transactions described above under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_611 o k of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to the taxpayer's authorized representative if you wish to inquire about this ruling please contact please address all correspondence to se t ep ra t1 sincerely yours carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc


t c summary opinion united_states tax_court eric a amegankpoe and nasmath a amegankpoe petitioners v commissioner of internal revenue respondent docket no 4706-13s filed date eric a amegankpoe and nasmath a amegankpoe pro sese jeremy j eggerth and john schmittdiel for respondent summary opinion marvel judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed unless otherwise indicated all section references are to the internal_revenue_code code in effect during the year at issue and all rule references are to the tax_court rules_of_practice and procedure some monetary amounts are continued pursuant 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 respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax for and an accuracy-related_penalty of dollar_figure under sec_6662 after concessions by respondent the issues for decision are whether petitioners are entitled to deduct expenses that they reported on a schedule c that they attached to their joint form_1040 u s individual_income_tax_return for return and whether petitioners are liable for an accuracy-related_penalty under sec_6662 and b background some of the facts have been stipulated and are so found the stipulated facts and the facts drawn from stipulated exhibits are incorporated herein by this reference petitioners resided in minnesota when they petitioned this court continued rounded respondent concedes that petitioners are not liable for self-employment_tax of dollar_figure allowed a deduction on schedule c profit or loss from business of dollar_figure for travel_expenses see infra part iv b allowed a schedule c deduction for a dollar_figure expense for tickets to a seminar in date see infra part iv c allowed a schedule c deduction of dollar_figure for open meeting tickets see infra part iv c and not liable for an accuracy-related_penalty under sec_6662 for an underpayment attributable to a substantial_understatement_of_income_tax approximately years ago eric and nasmath amegankpoe immigrated to the united_states from the republic of benin mr amegankpoe has since earned a bachelor’s degree from the university of saint thomas and a master’s degree in public health from the university of minnesota during mr amegankpoe was employed as a chemical engineer and environmental scientist with 3m and mrs amegankpoe was employed as a registered nurse in addition to their regular employment petitioners engaged in an amway distributorship business petitioners did not keep contemporaneous_records with respect to their amway business petitioners prepared a summary of their amway-related expenses in their summary petitioners recorded their amway-related vehicle mileage on a monthly and not on a per trip basis petitioners submitted their summary to an h_r block tax_return_preparer on their timely return petitioners reported wages of dollar_figure and a business loss of dollar_figure on a schedule c attached to their return petitioners reported gross_receipts total expenses and a net_loss of dollar_figure dollar_figure and dollar_figure respectively their reported expenses included car and truck expenses travel_expenses and other expenses of dollar_figure dollar_figure and dollar_figure respectively respondent issued a notice_of_deficiency to petitioners fully disallowing their claimed schedule c deductions for car and truck expenses travel_expenses and other expenses the deficiency_notice explained that petitioners had failed to properly substantiate that they paid these expenses and that the expenses were ordinary and necessary business_expenses the notice_of_deficiency also imposed an accuracy-related_penalty under sec_6662 discussion i burden_of_proof generally the taxpayer bears the burden of proving his or her entitlement to any claimed deduction see rule a 503_us_79 this includes the burden of substantiation see sec_6001 65_tc_87 aff’d per curiam 540_f2d_821 5th cir sec_1_6001-1 e income_tax regs if a taxpayer produces credible_evidence with respect to any factual issue relevant to ascertaining the taxpayer’s liability for any_tax imposed by subtitle a or b of the code and satisfies the requirements of sec_7491 the burden ‘credible evidence is the quality of evidence which after critical analysis the court would find sufficient upon which to base a decision on the issue if no contrary evidence were submitted without regard to the judicial presumption of irs correctness ’ 116_tc_438 quoting h_r conf rept no pincite 1998_3_cb_747 of proof on any such issue shifts to the commissioner see sec_7491 we decide this case however without regard to the allocation of the burden_of_proof we therefore need not decide whether petitioners satisfied the requirements of sec_7491 see 394_f3d_1030 8th cir aff’g tcmemo_2003_212 131_tc_185 ii deductions generally sec_162 permits a taxpayer to deduct ordinary and necessary expenses paid_or_incurred in carrying_on_a_trade_or_business see 403_us_345 a trade_or_business expense is ordinary for purposes of sec_162 if it is normal or customary within a particular trade business or industry and it is necessary if it is appropriate and helpful for the development of the business 320_us_467 generally sec_262 disallows deductions for personal living or family_expenses see also sec_1_162-17 income_tax regs a taxpayer ordinarily must maintain adequate_records to substantiate the amounts of his or her income and entitlement to any deductions or credits claimed sec_6001 sec_1_6001-1 income_tax regs when a taxpayer establishes that he or she paid_or_incurred a deductible expense but does not establish the amount of the expense we may estimate the amount allowable in some circumstances cohan_rule see 39_f2d_540 2d cir there must be sufficient evidence in the record however to permit us to conclude that the taxpayer paid_or_incurred a deductible expense in at least the amount allowed see 245_f2d_559 5th cir 85_tc_731 in estimating the amount allowable we bear heavily upon the taxpayer who failed to maintain required records and to substantiate deductions as the code requires see cohan v commissioner f 2d pincite for certain kinds of business_expenses sec_274 overrides the cohan_rule see 50_tc_823 aff’d per curiam 412_f2d_201 2d cir under sec_274 a taxpayer must satisfy strict substantiation requirements before a deduction is allowable these strict substantiation requirements apply to any traveling expense including meals_and_lodging away from home any item with respect to an activity in the nature of entertainment or the use of listed_property as defined in sec_280f including passenger automobiles to deduct these expenses the taxpayer must substantiate by adequate_records or by sufficient evidence corroborating the taxpayer’s own statement the amount of the expense or other item the time and place of travel entertainment or use of the property the business_purpose of the expense or other item and the business relationship of the taxpayer to the persons entertained or using the property see sec_274 with respect to the use of listed_property the taxpayer must establish the amount of business use and the amount of total use see sec_1_274-5t temporary income_tax regs fed reg date substantiation by adequate_records requires the taxpayer to maintain an account book a diary a log a statement of expense trip sheets or a similar record prepared contemporaneously with the use or expenditure and documentary_evidence eg receipts or bills of certain expenditures see sec_1 c iii income_tax regs sec_1_274-5t temporary income_tax regs fed reg date substantiation by other_sufficient_evidence corroborating the taxpayer’s statement requires a statement by the taxpayer specifically detailing the required elements and the production of corroborative evidence in support of the taxpayer’s statement see sec_1_274-5t temporary income_tax regs fed reg date in general corroborative evidence of an element must be direct evidence or documentary_evidence see id subdiv i b fed reg if the element is either the business relationship to the taxpayer of persons entertained or the business_purpose of an expenditure or use however corroborative evidence may include circumstantial evidence see id iii petitioners’ recordkeeping practices before addressing the substantive issues in this case we first consider whether petitioners’ summary of amway-related expenses was a contemporaneous record of those expenses mr amegankpoe testified that he had contemporaneously recorded the amway-related travel_expenses and mileage in a notebook and later transferred the information from the notebook to a spreadsheet that he maintained on a laptop computer at his home mr amegankpoe further testified that he had lost the notebook during a move and lost all of the data on the laptop computer in another incident in or around we decline to accept mr amegankpoe’s incredible testimony regarding petitioners’ recordkeeping practices which we find to be as believable as a student’s assertion that his dog twice ate his homework see 240_f3d_668 7th cir instead we find that petitioners prepared the summary mr amegankpoe testified that the summary of amway-related expenses that petitioners submitted to their return preparer was a printout of that spreadsheet of their amway expenses shortly before they submitted the summary to their return preparer to use in preparing their return iv petitioners’ claimed deductions a car and truck expenses on the schedule c attached to their return petitioners claimed a deduction of dollar_figure for car and truck expenses these car and truck expenses are subject_to the strict substantiation requirements of sec_274 petitioners did not keep contemporaneous_records relating to their claimed deduction for car and truck expenses see supra part iii they also did not introduce any other credible_evidence to substantiate the claimed car and truck expense deduction we cannot estimate under the cohan_rule petitioners’ allowable car and truck expenses see sec_274 sanford v commissioner t c pincite accordingly petitioners are not entitled to a deduction for car and truck expenses for b travel_expenses on the schedule c attached to their return petitioners claimed a deduction of dollar_figure for travel_expenses in the summary of expenses that they submitted to their return preparer petitioners claimed to have paid lodging air travel and car rental expenses of dollar_figure dollar_figure and dollar_figure respectively these travel_expenses are subject_to the strict substantiation requirements of sec_274 on the basis of a receipt for a hotel stay in date that petitioners introduced into evidence respondent concedes that petitioners paid a deductible lodging expense of dollar_figure for that month however petitioners did not introduce any other credible_evidence to substantiate the claimed travel expense and we cannot estimate under the cohan_rule petitioners’ allowable lodging_expenses see sec_274 sanford v commissioner t c pincite accordingly petitioners are not entitled to a deduction greater than the amount that respondent conceded for travel_expenses for c other expenses on the schedule c attached to their return petitioners claimed a deduction of dollar_figure for other expenses on their schedule c petitioners listed the following expenses as included in their reported other expenses expense amount training and seminars support materials communication dollar_figure big_number big_number training and seminars in the summary of expenses that they submitted to their return preparer petitioners claimed to have paid seminar expenses of dollar_figure in particular petitioners claimed to have paid the following seminar expenses in dollar_figure for tickets to the indianapolis winter conference in january dollar_figure for tickets to a business building seminar in march dollar_figure for tickets to the kansas city spring leadership conference in april dollar_figure for tickets to the cincinnati summer conference in june dollar_figure for tickets to a business building seminar in july dollar_figure for tickets to the richmond free enterprise day in september dollar_figure for tickets to the springfield free enterprise day in october and dollar_figure for tickets to a business building seminar in december on the basis of ticket stubs that petitioners introduced into evidence respondent concedes that petitioners paid a dollar_figure expense for tickets to the indianapolis winter conference in date and a dollar_figure expense for tickets to the building business seminar in date respondent concedes that petitioners are entitled to a deduction for the tickets to the indianapolis winter conference but does not concede that petitioners are entitled to a deduction for the the summary contains a reference to a dollar_figure seminar expense for june for the cincinnati summer conference that appears to have been omitted from the amount that petitioners reported as an expense on their return tickets to the building business seminar in date or for any of the other seminars petitioners also introduced into evidence copies of emails showing that they made hotel reservations for the kansas city spring leadership conference the cincinnati summer conference and the springfield free enterprise day we are satisfied that petitioners actually paid dollar_figure for tickets to the building business seminar in date and dollar_figure for each of the kansas city cincinnati and springfield events and that the seminars had a business_purpose under sec_162 we therefore allow petitioners a deduction for these expenses however petitioners have introduced no credible_evidence that they actually paid any of the other reported seminar expenses and we sustain respondent’s disallowance of a deduction for those expenses support materials in the summary of expenses that they submitted to their return preparer petitioners claimed to have paid support materials expenses of dollar_figure on the basis of nine dollar_figure ticket stubs that petitioners introduced into evidence respondent concedes that petitioners paid dollar_figure in deductible expenses for tickets to open meetings in petitioners did not produce any credible_evidence establishing that they actually paid the remainder of the support materials expenses we therefore sustain respondent’s disallowance of a deduction for those expenses communications in the summary of expenses that they submitted to their return preparer petitioners claimed to have paid communications expenses totaling dollar_figure in particular petitioners’ summary listed the following items months jan mar may july sept nov feb apr june aug oct dec internet phone cellular phone communikate ibo webspace dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure petitioners did not offer any plausible explanation for why many of their amway- related communications expenses were paid--in whole or in part--only during alternate months additionally petitioners did not maintain the summary contemporaneously see supra part iii we therefore do not find the summary to be credible_evidence with respect to petitioners’ claimed communications expenses petitioners also introduced into evidence copies of bills for cellular telephone service and internet service for however petitioners used these services for personal as well as business purposes and they have not provided us with any credible means of estimating what percentage of these expenses were deductible business_expenses see williams f 2d pincite vanicek v commissioner t c pincite we therefore sustain respondent’s disallowance of a deduction for these expenses v accuracy-related_penalty sec_6662 and b authorizes the commissioner to impose a penalty on an underpayment_of_tax that is attributable to negligence or disregard of rules or regulations the term negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws and the term disregard includes any careless reckless or intentional disregard see sec_6662 sec_1_6662-3 and income_tax regs ‘negligence’ also includes any failure by the taxpayer to keep adequate books_and_records or to substantiate items properly sec_1_6662-3 income_tax regs disregard of rules or regulations is ‘careless’ if the taxpayer does not exercise reasonable diligence to determine the correctness of a return position and is ‘reckless’ if the taxpayer makes little or no effort to determine whether a rule_or_regulation exists under circumstances which demonstrate a substantial deviation from the standard of conduct that a reasonable person would observe id subpara see also 85_tc_934 the accuracy-related_penalty does not apply with respect to any portion of the underpayment for which the taxpayer shows that there was reasonable_cause and that he or she acted in good_faith see sec_6664 the decision as to whether a taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all of the pertinent facts and circumstances see sec_1_6664-4 income_tax regs circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of all of the facts and circumstances including the experience knowledge and education of the taxpayer id reliance on a tax professional demonstrates reasonable_cause when a taxpayer selects a competent tax adviser supplies the adviser with all relevant information and relies in good_faith on the adviser’s professional judgment see 115_tc_43 aff’d 299_f3d_221 3d cir the commissioner bears the burden of production with respect to the taxpayer’s liability for the sec_6662 penalty and must produce sufficient evidence indicating that it is appropriate to impose the penalty see sec_7491 116_tc_438 once the commissioner meets his burden of production the taxpayer must come forward with persuasive evidence that the commissioner’s determination is incorrect or that the taxpayer had reasonable_cause or substantial_authority for the position see higbee v commissioner t c pincite the disallowed deductions in this case are directly attributable to petitioners’ failure to maintain adequate_records for their amway business and to comply with applicable regulations petitioners have not shown that they had reasonable_cause for these failures although petitioners used a professional return preparer to prepare their returns the record shows that the return preparer relied on petitioners’ summary of their amway expenses and that the summary was unreliable see neonatology assocs p a v commissioner t c pincite we therefore sustain respondent’s imposition of the accuracy-related_penalty under sec_6662 and b we have considered the parties’ remaining arguments and to the extent not discussed above conclude those arguments are irrelevant moot or without merit to reflect the foregoing and respondent’s concessions decision will be entered under rule


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c december number release date conex-137846-15 uil the honorable rob wittman member u s house of representative sec_401 main street p o box yorktown va attention dear representative wittman -------------------- i am responding to your inquiry dated november on behalf of your constituent --------------------------- --------------------- rule found in internal_revenue_code code sec_132 to private vanpools vanpool of which he is a member he believes he is a member of a privately owned vanpool that should not be subject_to the rule wrote that his employer imposes the rule on the asked a question involving the application of the --------------------- as a general matter we cannot provide binding legal advice to taxpayers unless they request a private_letter_ruling as described in revproc_2015_1 internal_revenue_bulletin however i may provide the following general information gross_income means all income from whatever source derived including compensation_for services including fees commissions fringe_benefits and similar items sec_61 of the code consequently we presume a fringe benefit provided by an employer to an employee to be income to the employee unless another section of the code specifically excludes it from gross_income gross_income does not include any benefit that is a qualified_transportation_fringe sec_132 of the code qualified_transportation fringes include transportation an employer provides to an employee in a commuter_highway_vehicle if the transportation conex-137846-15 is for travel between the employee’s residence and place of employment sec_132 a commuter_highway_vehicle is any highway vehicle that meets the following conditions has a seating capacity of at least adults not including the driver at least percent of the mileage use can reasonably be expected to be for transporting employees between their residences and their place of employment used on trips during which the number of employees transported for such purposes is at least percent of the adult seating capacity not including the driver code sec_132 these requirements are sometimes called the rule the rule does not include a requirement that the employee_use the vanpool at least percent of the time rather it requires that employees in the vanpool fill at least percent of the adult seating capacity not including the driver qualified_transportation fringes also include transit passes sec_132 a transit_pass includes any pass token farecard voucher or similar item entitling a person to transportation or transportation at a reduced price if the transportation is provided by any person in the business of transporting persons for compensation or hire if such transportation is provided in a vehicle in which the seating capacity is at least adults not including the driver sec_132 the treasury regulations explain how the qualified_transportation_fringe rules apply to vanpools employer and employee-operated vanpools as well as private or public transit-operated vanpools may constitute qualified_transportation fringes the types of vanpools are employer-operated vanpool - the employer either purchases or leases vans to enable employees to commute together to the employer’s place of business or the employer contracts with and pays a third party to provide the vans and pays some or all of the costs of operating the vans if an employer-operated van meets the definition of a commuter_highway_vehicle then the value up to the statutory monthly limit of an employer-operated vanpool used by an employee is a nontaxable qualified_transportation_fringe sec_1_132-9 q a-21 b employee-operated vanpool - the employees independent of their employer operate a van to commute to their places of employment if the van meets the definition of a commuter_highway_vehicle then the employer’s cash reimbursement to employees for expenses_incurred in connection with an employee-operated vanpool up to the statutory monthly limit is a nontaxable qualified_transportation_fringe sec_1_132-9 q a-21 c the substantiation rules for cash reimbursements found in sec_1_132-9 q a-16 c apply conex-137846-15 private or public transit-operated vanpool - public transit authorities or a person in the business of transporting persons for compensation or hire owns or operates the vanpool the van must seat at least adults not including the driver if a vanpool is an employer-operated or employee-operated vanpool the van must comply with the rule for the value of the benefit or the employer’s reimbursements of the employee’s costs to qualify as transportation fringes excludable from income and employment_taxes if a vanpool is a private or public transit-operated vanpool the van must seat at least adults not including the driver the rule does not apply to private or public transit- operated vanpools while your constituent indicated he is a member of a private transit-operated vanpool which is a factual question his employer may have concluded that the carpool is an employee-operated vanpool and as such is subject_to the rule in addition while sec_132 does list the requirements necessary for employer_provided transit benefits excluded from income and employment_taxes employers are free to impose additional restrictions see regulation sec_1_132-9 q a i hope this information is helpful if you have any additional questions please contact me or -------------------- ---------------- at sincerely lynne a camillo branch chief employment_tax branch tege associate chief_counsel


t c memo united_states tax_court james h pugh jr and alexis c pugh petitioners v commissioner of internal revenue respondent docket no filed date charles h egerton and jane d callahan for petitioners judith c winkler for respondent memorandum opinion cohen chief_judge respondent determined deficiencies in petitioners' federal_income_tax of dollar_figure and dollar_figure and penalties under sec_6662 of dollar_figure and dollar_figure for the taxable years and respectively after concessions the issues for decision are whether petitioner james h pugh jr petitioner may increase his basis in stock of an s_corporation by the amount of discharge_of_indebtedness income also referred to as cancellation of debt cod income excluded from gross_income under sec_108 and whether petitioners are liable for the accuracy-related_penalties for negligence or disregard of rules or regulations for and respondent has conceded that portion of the penalty for each year that relates to the first issue to be decided in this case unless otherwise indicated all section references are to the internal_revenue_code as in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure this case was submitted fully stipulated pursuant to rule the stipulated facts are incorporated herein by this reference petitioners resided in orlando florida at the time they filed the petition background the first issue in this case concerns petitioner's interest in epoch capital corporation ecc ecc was incorporated in the state of florida on date ecc had properly elected to be treated as an s_corporation pursuant to sec_1362 prior to and such election was effective for ecc's taxable_year ended date ecc realized cod income during in the amount of dollar_figure ecc was liquidated in articles of dissolution were filed with the state of florida on date petitioner did not receive any distributions from ecc upon liguidation petitioner's ecc common_stock became worthless during in completing its form_1120s u s income_tax return for an s_corporation ecc properly excluded the cod income from its income pursuant to sec_108 on petitioner's schedule_k-1 form_1120s shareholder's share of income credits deductions ektc ecc separately_stated the cod income and reported petitioner's pro_rata share in the amount of dollar_figure petitioner increased his basis in his ecc stock in by the dollar_figure petitioner's basis in his ecc stock on date taking into account all adjustments other than that for ecc's cod income was dollar_figure on petitioners' federal_income_tax return they reported a capital_loss with respect to the ecc stock commensurate with petitioner's reported basis in the stock on their return petitioners carried forward and reported capital losses from coopers lybrand a certified public accounting firm prepared petitioners' tax returns for and and ecc's return for respondent disallowed the inclusion of the cod income in petitioner's basis in his ecc stock and reduced mr pugh's loss accordingly respondent also determined increases in petitioners' income in the amounts of dollar_figure and dollar_figure for and respectively for gain on the sale of stock in epoch management inc which sale petitioners failed to report on their returns petitioners have conceded the latter adjustments respondent determined accuracy-related_penalties for and having determined that the underpayments of tax were due to negligence or intentional_disregard_of_rules_and_regulations discussion inclusion of cod income in basis petitioners argue that petitioner was correct in increasing the basis in his ecc stock by his share of the cod income in 110_tc_114 we held that cod income realized and excluded from gross_income under sec_108 does not pass through to shareholders of an s_corporation as an item_of_income in accordance with sec_1366 so as to enable an s_corporation shareholder to increase the basis of his stock under sec_1367 petitioners do not distinguish this case from nelson v commissioner supra they ask us to overrule a recent court-reviewed opinion as being decided incorrectly we decline to do so accordingly we hold that petitioner may not increase the basis in his ecc stock by his share of the cod income accuracy-related_penalties sec_6662 imposes an accuracy-related_penalty of percent on any portion of an underpayment_of_tax that is attributable to items set forth in sec_6662 included in those items is negligence or disregard of rules or regulations sec_6662 sec_6662 provides that for purposes of sec_6662 the term 'negligence' includes any failure to make a reasonable attempt to comply with the provisions of this title and the term 'disregard' includes any careless reckless or intentional disregard the accuracy-related_penalty will not be imposed 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 the determination of whether a taxpayer acted with reasonable_cause and in good_faith depends upon the facts and circumstances sec_1_6664-4 income_tax regs the most important factor is the extent of the taxpayer's effort to determine the taxpayer's proper tax_liability id respondent determined that petitioners' underpayments of tax were due to negligence or intentional disregard of rules or regulations respondent since has conceded the portions of the penalties related to the cod issue the remaining portions of the penalties relate to the income conceded by petitioners ie the gain on the sale of stock in epoch management inc petitioners argue that they were not negligent but merely mistaken in their reporting position with respect to the epoch management inc stock they state in their brief that they concluded they could recover all of their basis before reporting any gain they also allege that their failure to include the gain was inadvertent in view of the amounts of the adjustment resulting from this omission dollar_figure and dollar_figure for and respectively as compared to the total income reported dollar_figure and dollar_figure respectively petitioners have supplied us with no evidence with respect to the epoch management inc stock transaction or with respect to their decision that the gain on the sale of the stock was not includable in income petitioners have the burden_of_proof on this issue rule a 290_us_111 the fact that this case was submitted fully stipulated does not alter the burden_of_proof rule b 109_tc_133 affd _ f 3d __ 11th cir date petitioners have failed to establish that they were not negligent with respect to the underpayments stemming from the omission of the gain from the sale of the epoch management inc stock therefore we hold that they are liable for the portions of the accuracy-related_penalties related to that gain in keeping with the parties' concessions and our holdings as set forth above decision will be entered under rule


internal_revenue_service number release date index number ------------------------- ---------------------- ----------------------------- ------------------------ - - department of the treasury washington dc person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-107624-06 date date ------------------------- ------------ company ----------------------------------------------------------- state shareholders agreement a b dear ------------- ----------------------- ------------------------- ------------------------------------------------------------------------- this letter responds to a letter dated january submitted on behalf of facts company requesting a ruling under ' b d of the internal_revenue_code company was incorporated under the laws of state and filed an s_corporation_election effective for its taxable_year beginning a company its shareholders and its option holders entered into the shareholders agreement effective as of b sec_3 of the shareholders agreement contains provisions relating to minimum distributions to shareholders by company distributions under those provisions are made based on the shareholders’ varying interests in company’s income in the current or immediately preceding_taxable_year or earlier if such earlier year’s taxable_income is adjusted by company or the service varying interests distributions company’s varying interests distributions entail year-end and quarterly distributions that enable shareholders to make timely estimated and final tax_payments the distributions are plr-107624-06 made directly to the shareholders rather than to their respective taxing authorities on behalf of the shareholders in addition to varying interests distributions company declares dividends and makes pro_rata distributions to its shareholders based on the number of shares owned by the shareholders as of the record_date record_date distributions company’s record_date distributions are made in accordance with the corporate laws of state which provides that all shares of the same class are equal the shareholders agreement and applicable corporate laws of state constitute the governing provisions of company law sec_1361 provides that for purposes of the code the term s_corporation means with respect to the taxable_year a small_business_corporation for which an election under sec_1362 is in effect for the year sec_1361 provides that the term small_business_corporation means a domestic_corporation that among other things does not have more than one class of stock accordingly s_corporations may not have more than one class of stock sec_1_1361-1 of the income_tax regulations provides that a corporation that has more than one class of stock does not qualify as a small_business_corporation except as provided in sec_1_1361-1 relating to instruments obligations or arrangements treated as a second class of stock a corporation is treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds sec_1_1361-1 provides in part that the determination whether all outstanding shares of stock confer identical rights to distribution and liquidation proceeds is made based on the corporate charter articles of incorporation bylaws applicable state law and binding agreements relating to distribution and liquidation proceeds collectively the governing provisions although a corporation is not treated as having more than one class of stock so long as the governing provisions provide for identical distribution and liquidation rights any distributions including actual constructive or deemed distributions that differ in timing or amount are to be given appropriate tax effect in accordance with the facts and circumstances sec_1_1361-1 provides that a governing provision does not within the meaning of sec_1_1361-1 alter the rights to liquidation and distribution proceeds conferred by an s corporation’s stock merely because the governing provision provides that as a result of a change in stock ownership distributions in a taxable_year are to be plr-107624-06 made on the basis of the shareholders’ varying interests in the s corporation’s income in the current or immediately preceding_taxable_year if distributions pursuant to the provision are not made within a reasonable_time after the close of the taxable_year in which the varying interests occur the distribution may be recharacterized depending on the facts and circumstances but will not result in a second class of stock conclusion based solely on the facts submitted and the representations made we conclude that company’s governing provisions relating to varying interests distributions and to record_date distributions do not cause company to have more than one class of stock for purposes of sec_1361 except for the specific ruling above we express or imply no opinion concerning the federal_income_tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion regarding company's eligibility to be an s_corporation under a power_of_attorney on file with this office we are sending a copy of this letter to company’s authorized representative this ruling is directed only to the taxpayer who requested it according to ' k this ruling may not be used or cited as precedent sincerely s christine ellison chief branch office of associate chief_counsel passthroughs and special industries copy of this letter for ' purposes enclosure


internal_revenue_service number release date index number -------------------- --------------------- ----------------- ------------------ ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-141747-06 date date -------------------- --------------------- legend x --------------------- ----------------------------------------------------------- h1 ------------------------------------------------------------- w1 ------------------------------------------------------------- trust1 h2 ------------------------------------------------------------- w2 -------------------------------------------------------------- trust2 b ------------------------------------------------------------- trust3 ----------------------- ---------------------- ------------------------------------ ----------------------- -------------------------- t ----------------------------------------------------- ---------------------------------- ---------------------------------------------------- --------------------- ----------------- ------------- plr-141747-06 d1 d2 state dear -------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated under the laws of state x elected to be treated as an s_corporation for federal tax purposes effective d1 on d1 shares of x stock were transferred to trust1 trust2 and trust3 trust1 and trust2 are grantor trusts and eligible s_corporation shareholders under sec_1361 trust3 intended to meet the requirements of a qualified_subchapter_s_trust qsst however due to miscommunication on the part of its professional advisors the qsst election was not filed on behalf of trust3 upon a review of the tax returns for the shareholders in d2 a tax advisor discovered that a qsst election had not been filed for trust3 and therefore trust3 was an ineligible shareholder x represents that trust3 meets the requirements of a qsst h1 and h2 signed form_2553 election by a small_business_corporation in their capacity as grantors and owners for trust1 and trust2 respectively b and t signed the election in their capacity as trustees for trust3 w1 and w2 have community_property interests in trust1 and trust2 but they failed to sign the form_2553 x represents that the failure to have all eligible shareholders consent to the s_corporation_election and the failure_to_file a qsst election were inadvertent and not motivated by tax_avoidance or retroactive tax planning x and x’s shareholders represent that despite the failure to provide all the consents necessary for the s_corporation_election x and x’s shareholders have filed their federal_income_tax returns consistent with the treatment of x as an s_corporation b as the sole beneficiary of trust3 represents that she has been treated as the owner of trust3 since d1 and has reported all income gain_or_loss attributed to the x stock since d1 x and x’s shareholders trust1 trust2 and trust3 the owners of the trusts h1 h2 w1 w2 and b have agreed to make any adjustments that the commissioner may require plr-141747-06 consistent with the treatment of x as an s_corporation law and analysis 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 a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 defines the term small_business_corporation to mean a domestic sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides that an election under sec_1362 shall be valid only if all persons who are shareholders in such corporation on the day on which such election is made consent to such election sec_1_1362-6 of the income_tax regulations provides that in the case of a_trust described in sec_1361 including a_trust treated under sec_1361 as a_trust described in sec_1361 and excepting an electing_small_business_trust described in sec_1361 esbt only the person treated as the shareholder for purposes of sec_1361 must consent to the election when stock of the corporation is held by a_trust both husband and wife must consent to any election if the husband and wife have a community interest in the trust property sec_1362 provides that an election under sec_1362 is effective for the current taxable_year if it is made during the preceding_taxable_year or on or before the 15th day of the third month of the current taxable_year sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder sec_1361 provides that in the case of a qsst with respect to which a beneficiary makes an election under sec_1361 -- a such trust shall be treated as a_trust described in sec_1361 and b for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 provides that a beneficiary of a qsst or his legal_representative may elect to have sec_1361 apply sec_1361 provides that an election under sec_1361 shall be effective up to days and months before the date of the election plr-141747-06 sec_1_1361-1 provides that the current income_beneficiary of the qsst must make the election under sec_1361 by signing and filing with the service_center with which the corporation files its income_tax return the applicable form or a statement including the information listed in sec_1_1361-1 sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or b was terminated under sec_1362 the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or 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 in the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary sec_1_1362-4 provides that the determination of whether a termination was inadvertent is made by the commissioner the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should determine that the termination was inadvertent the fact that the terminating event was not reasonably within the control of the corporation and was not part of a plan to terminate the election or the fact that the event took place without the knowledge of the corporation notwithstanding its due diligence to safeguard itself against such an event tends to establish that the termination was inadvertent sec_1_1362-4 provides that the commissioner may require any adjustments that are appropriate in general the adjustments required should be consistent with the treatment of the corporation as an s_corporation during the period specified by the commissioner in the case of a transfer of stock to an ineligible shareholder that causes an inadvertent termination under sec_1362 the commissioner may require the ineligible shareholder to be treated as a shareholder of an s_corporation during the period the ineligible shareholder actually held stock in the corporation conclusion based solely on the representations made and the information submitted we conclude that x’s intended s_corporation_election was ineffective because the election did not contain consents from w1 and w2 to x’s s_corporation_election in addition x’s election was not effective because trust3 was an ineligible shareholder due to the failure to make a qsst election for trust3 we conclude that the ineffectiveness was inadvertent within the meaning of sec_1362 plr-141747-06 under sec_1362 x will be treated as an s_corporation from d1 and thereafter provided x’s s_corporation_election is not otherwise terminated under sec_1362 all shareholders of x in determining their respective income_tax liabilities must include their pro_rata share of separately and nonseparately computed items of x as provided in sec_1366 make adjustments to stock basis as provided in sec_1367 and take into account any distributions by x as provided by sec_1368 this ruling is conditioned on x making an election to be an s_corporation by filing with the appropriate service_center a new completed form_2553 that contains the proper consents of all of x’s shareholders with an effective date of d1 within days following the date of this letter as a further condition a qsst election for trust3 with an effective date of d1 must be filed with the appropriate service_center within days from the date of this letter a copy of this letter should be attached to the new form_2553 and qsst election this ruling will be null and void if these conditions are not satisfied 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 specifically we express or imply no opinion regarding x’s eligibility to be an s_corporation or the eligibility of trust1 trust2 or trust3 to be s_corporation shareholders this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent being sent to x’s authorized representative in accordance with the power_of_attorney on file with this office a copy of this letter is sincerely s james a quinn senior technician reviewer acting branch office of associate chief_counsel passthroughs and special industries enclosures a copy of this letter a copy for sec_6110 purposes


department of the treasury int ernal revenue service washington d c date o f f i c e o f c h i e f c o u n s e l number release date index number cc tege eoeg et1 spro-121701-01 memorandum for gail lontine site chief ss-8 unit newport vt s c a1 ss8 attn nan a moses from will e mcleod assistant chief employment_tax branch cc tege eoeg et1 subject this is in reply to your request for technical assistance to help you with a very difficult full-time life_insurance agent case the firm requested reconsideration of the determination of worker status you issued to one of the firm’s agents in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent in your determination of date you held that the worker was a statutory_employee of the firm with regard to the income paid to the worker during we believe your determination should be revoked because of the additional information provided by the firm in its letter of date the worker became a full-time life_insurance agent of the firm date from to date the worker was properly treated as a statutory_employee under sec_3121 as a statutory_employee the worker was allowed to participate in various welfare and fringe_benefits plans sponsored by the firm in the worker became disabled as a result of this disability the worker availed himself of the benefits under the firm’s long-term disability insurance_contract consistent with the firm’s longstanding and customary policy towards disabled agents the worker was permitted to periodically renew his contract with the firm known as the one of the provisions of the contract provided that for purposes of the firm’s qualified_plans other fringe_benefits social_security or other laws plans or benefits applicable to full-time life_insurance agent the agent will be treated as an active full-time insurance agent at the end of a given calendar_year in which the agent meets the requirements for a year of qualified_service set forth in the schedule of agent compensation in effect for policies credited in such year any agent who fails to meet such requirements for a given calendar_year shall not be treated as a full-time agent of the firm but will remain under the contract however such agent’s spro-121701-01 business activity will not be deemed to be the solicitation of insurance primarily for the firm the firm explains the reason why the contract continued to be maintained in force following the date of the worker’s disability it was principally done in order to provide the worker with additional years_of_service under the qualified_pension plan generally made available to full time life_insurance agents of the firm the firm had no expectation that the worker would be able to continue his sales activities on behalf of the firm the firm fully recognized that the worker was disabled and unable to continue the worker’s pre-disability sales activities the firm did not consider the worker to be a full time agent based on production rather he qualified for pension benefits based upon the disability waiver provision in the contract the firm indicated that the worker had very little first year commission earning from through furthermore the worker’s wife became an agent of the firm to sell the firm’s products after the worker became disabled according to the firm the first year commission sale in was the result of a sale made by the worker’s wife the worker and his wife persuaded the firm to treat the worker as the payee of the first year commission sec_3121 of the code defines an employee to include an officer of a corporation sec_3121 of the code defines an employee to include any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee sec_3121 of the code defines an employee as any individual other than an individual who is an employee under sec_3121 or d of the code who performs services for remuneration for any person as a full-time insurance salesman if the contract_of_service contemplates that substantially_all of such services are to be performed personally by such individual except that an individual shall not be included in the term employee if such individual has a substantial investment in facilities used in connection with the performance of such service other than in facilities for transportation or if the services are in the nature of a single transaction not part of a continuing relationship with the person for whom the services are performed revrul_54_312 1954_2_cb_327 provides that the entire or principal business activity of an individual is deemed to be devoted to the solicitation of life_insurance or annuity_contracts primarily for one life_insurance_company when pursuant to the terms and conditions of the arrangement with the life_insurance_company or its general agent it is mutually agreed or clearly contemplated by the parties that the individual’s entire or principal business activity is the solicitation of applications for life_insurance or annuity_contracts whether the worker is a full-time life_insurance agent for purposes of sec_3121 depends on whether the service determines that the facts and circumstances apart from the four corners of the contract more fully represents the substance of the spro-121701-01 transaction it is the substance rather than the form of the transaction that governs tax treatment 641_f2d_83 2d cir 58_tc_423 aff’d 489_f2d_197 2d cir cert_denied 417_us_911 324_us_331 293_us_465 it is clear from the facts presented in this case that the parties to the contract for services did not contemplate that the worker’s principal business activity would be the solicitation of life_insurance or annuity_contracts when at the time the parties entered into the contract the parties recognized that the worker was disabled and unable to perform any services as a life_insurance salesperson under these circumstances the service should disregard the form of the transaction and conclude that based on the substance of the transaction that the worker did not qualify as a full-time_life_insurance_salesman under sec_3121 of the code if you have any questions regarding this technical assistance please contact stephen tackney at ______________________ will e mcleod


u34 department of the treasury internal_revenue_service washington d c uniform issue list i dec ter ra tb a govcrnment entities tax exempt and division legend company a companyb company c individual d individuale amount h ira x dear this is in response to your request dated september for a ruling to waive the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ supplemented the request you represent that you received a distribution totaling amount h from ira x you assert that your failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to bad advice given to you by a representative of company c correspondence dated date a under penalty of perjury you have submitted the following facts and representations usa page you maintained ira x with company b your employer company a was suffering financial hardships consequently in order to raise money they offered employees an opportunity to purchase stock in the company you decided to purchase the stock of company a you state that you weighed all of your options for the investment of company a stock and decided that it would be best to utilize ira x you contacted your accountant at company c individual d who advised you to speak to her associate individual e who informed you that you could not roll over the funds to purchase the stock and that your only option was to cash_out ira x and invest in company a stock you were informed of the tax consequences of a withdrawal which included including the distribution in income as well as a premature_distribution penalty knowing this you withdrew amount h from ira x in date and purchased stock of company a approximately three months later in february you were speaking with a co-worker who advised you that he utilized his ira to invest in company a stock without taking a distribution from said ira you immediately contacted individual d who then told you that you could have used the ira x funds to invest in company a stock without taking a distribution you were not told of this option when you withdrew the funds from ira x based on the facts and representations you request that the internal_revenue_service waive the day rollover requirement contained in sec_408 of the code with respect to the distribution of amount h from ira x because the failure to waive such requirement would be against equity or good conscience sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into page such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check ‘whether the check was cashed and the time elapsed since the distribution occurred you have not presented any evidence to the service as to how any of the factors outlined in revproc_2003_16 affected your ability to timely roll over amount h or any portion thereof to an ira you have stated that you withdrew the funds from ira x for the purpose of investing in company a stock you were fully aware of the tax consequences and at the time of distribution had no intention of rolling over the funds distributed from ira x into another ira therefore pursuant to sec_408 of the code the service declines to waive the 60-day rollover requirement with respect to the distribution of amount h thus your contributing amount h distributed from ira x or any portion thereof into an ira will not be considered a valid rollover because the 60-day requirement under sec_408 of the code with respect to such distribution contribution will not be satisfied page no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent ‘if you wish to inquire about this ruling please contact please address all correspondence to se t ep ra‘t id at sincerely yours ances v rances v sloan manager employee_plans téchnical group enclosures deleted copy of ruling letter notice of intention to disclose


internal_revenue_service number release date index number ---------------------------------- -------------------------------- --------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------ telephone number --------------------- refer reply to cc psi b02 plr-104683-08 date date legend x ---------------------------------- ---------------------------- country ------------------------ date ---------------------- dear --------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an entity classification election the information submitted states that x was formed under the laws of country on date x represents that x is a foreign_entity eligible to elect to be treated as a disregarded_entity for federal tax purposes x intended to elect to be treated as a disregarded_entity for federal tax purposes effective on date the election however was not timely filed sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes elections are necessary only when an eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification plr-104683-08 sec_301_7701-3 provides that except for certain existing entities described in sec_301_7701-3 unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single member that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301 b by filing form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code and the regulations thereunder plr-104683-08 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 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 william p o’shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b01-100353-02 date date legend x y z date this letter responds to your letter dated date on behalf of x requesting a ruling that x be granted an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file an election to be treated as a disregarded_entity for federal_income_tax purposes under sec_301_7701-3 facts based on the information submitted and representations made within x is a foreign_subsidiary corporation of y y is a member of a consolidated_group of corporations owned by z a domestic_corporation x intended to file a form_8832 entity classification election seeking to be treated as a disregarded_entity effective date x inadvertently failed to file the form_8832 x represents that an entity classification election has never been previously been filed for x and that an extension to file a form_8832 would not prejudice the interests of the government plr-100353-02 law and analysis sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if a foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the internal_revenue_bulletin sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts and the representations submitted we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of sixty days from the date of this letter to file a corrected form_8832 effective date with the appropriate service_center a copy of this letter should be attached to the election a copy is enclosed for that purpose except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provision of the code specifically we express no opinion as to x’s eligibility to request treatment as a disregarded_entity in accordance with sec_301 this ruling is directed only to the taxpayer s requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent plr-100353-02 in accordance with the power_of_attorney on file with this office a copy of this ruling will be sent to the taxpayer sincerely s paul f kugler associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


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-139833-03 date aug x date dear this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on date the shareholders of x desired that x elect s_corporation treatment effective on date but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective date law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed plr-139833-03 sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date within days from the date of this letter x should submit a properly completed form_2553 effective date with a copy of this letter attached to the relevant service_center except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely david r haglund senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------------- -------------------------------------------------- ------------------------------------- --------------------------------- ------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi plr-157291-04 date date ----------------- -------------------- -------------------------------- ----------------------------------------------- legend prs ------------------------------------------------------------ a -------------------------------------------------------------- trust ------------------------------------------------------------ d1 year state a dear ---------------- correspondence submitted on behalf of prs requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an election under sec_754 of the internal_revenue_code facts a died on d1 on d1 trust owned an a interest in prs all of the assets of trust this responds to a letter dated date together with subsequent ---------- -------- ------- according to the information submitted prs was formed under the laws of state sec_1_754-1 of the income_tax regulations provides that an election plr-157291-04 including the a interest in prs owned by trust were transferred to a’s estate prs relied on prs’s tax advisor to provide prs with tax_advice prs’s tax advisor inadvertently failed to inform prs of the advisability of making an election under sec_754 for year law and analysis sec_754 provides that if a partnership files an election in accordance with the regulations prescribed by the secretary the basis of partnership property is adjusted in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years a transfer of an interest in a partnership on the death of a partner is eligible for the sec_754 election the value of the partnership_interest reported on the estate_tax_return including discounts is the value used to determine the basis of the partnership_interest and the adjustment to basis of partnership property under sec_743 and sec_754 see generally sec_1_1014-3 under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions thereof for filing the return for that taxable_year extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion sec_301_9100-1 provides that the commissioner may grant a reasonable sec_301_9100-3 provides the standards the commissioner will use to based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied plr-157291-04 as a result prs is granted an extension of time of sixty days following the date of this letter to make a sec_754 election effective year the election should be made in a written_statement filed with the applicable service_center a copy of this letter should be attached to the statement filed a copy of this letter is enclosed for that purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely s heather c maloy heather c maloy associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes