department of the treasury washington dc person to contact ---------------------------- id no -------------- ---------------------------------------------------- telephone number -------------------- refer reply to cc psi b04 - plr-113315-18 date date internal_revenue_service number release date index number ------------------------------------ --------------------------------------- --------------------------------- re --------------------------------------------- ------- legend ----------------------- ---------------------------------------------- ----------------------------------------- ----------------- ------------------ --------------------------------------------- ------------------------------------------------- date grantor child individual a individual b individual c individual d personal representative ------------------ trustee power_of_appointment committee ----------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ -------- ------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- lifetime beneficiaries ---------------------------------------------------------- --------------------------------------------------------------------------------------------- trust ---------------------------------------------------------------------- state --------------------------------------------------------- ---------- dear --------------------- plr-113315-18 this letter responds to your authorized representative’s letter of date requesting rulings under sec_671 sec_2501 sec_2514 and sec_2041 of the internal_revenue_code the facts submitted and representations made are as follows on date grantor created trust an irrevocable_trust for the benefit of grantor child individual a individual b individual c and individual d lifetime beneficiaries child is a minor grantor is the only donor of all property contributed to trust a corporate trustee trustee is the trustee of trust grantor represents trust has been a domestic_trust for since the time of its creation and is intended to be a domestic_trust as defined in sec_7701 trusts is sitused in and governed by the law of state article five section dollar_figure of trust provides that during grantor's lifetime trustee must retain all contributions to trust in a single trust for the benefit of the lifetime beneficiaries further pursuant to section dollar_figure of article five trustee must not make any distributions except as appointed by grantor or the power_of_appointment committee committee as follows during grantor’s lifetime grantor may appoint trust principal including the whole thereof outright or in trust to or for the benefit of any one or more of my lifetime beneficiaries as grantor deems advisable at any time and from time to time for the beneficiary’s health education maintenance or support grantor’s sole power grantor may not exercise this power to appoint any interest in trust to grantor grantor's estate grantor’s creditors or the creditors of grantor’s estate grantor holds this power in a non-fiduciary capacity sec_5 b provides that during grantor’s lifetime a majority of the committee members with grantor’s written consent may but are not required to appoint trust income or principal including the whole thereof outright or in trust to or for the benefit of grantor or the lifetime beneficiaries for any purpose at any time and from time to time grantor’s consent power sec_5 b provides that during grantor’s lifetime the committee members other than grantor by unanimous vote may but are not required to appoint trust income or principal including the whole thereof to or for the benefit of any one or more of grantor or the lifetime beneficiaries for any purposes at any time and from time to time unanimous member power section dollar_figure provides that during grantor’s lifetime if at any time the committee ceases to exist trustee may but is not required to distribute income or principal to the lifetime beneficiaries other than grantor as follows a independent_trustee may distribute any portion of trust property outright or in trust to or for the benefit of any lifetime beneficiary as independent_trustee determines advisable for any purpose including distribution of all or part of the trust principal to fund a beneficiary’s business ventures investment ventures or charitable giving an interested trustee must not plr-113315-18 make distributions from trust independent_trustee is defined as any trustee who is not an interested trustee an interested trustee is defined as a trustee who is a transferor or beneficiary is related or subordinate to a transferor or beneficiary can be removed and replaced by a transferor with either the transferor or a party who is related or subordinate to the transferor or can be removed and replaced by a beneficiary with either the beneficiary or a party who is related or subordinate to the beneficiary sec_5 a also provides that any net_income not distributed must be accumulated and added to principal sec_5 d provides that under no circumstances may trustee make any distribution to any beneficiary in a manner that would discharge any of grantor’s legal obligations section dollar_figure provides that upon grantor's death grantor may appoint the balance of trust to any one or more persons or charities qualified under sec_2055 in equal or unequal proportions and on any terms or conditions grantor designates grantor may not exercise this power for the purpose of discharging grantor’s legal obligations or otherwise for grantor’s pecuniary benefit and may not exercise this power to appoint any interest in trust to grantor grantor’s estate grantor’s creditors or the creditors of grantor’s estate grantor’s testamentary_power_of_appointment further grantor may not exercise this power_of_appointment to create another power_of_appointment that under any applicable law can be validly exercised to postpone the vesting of any estate or interest in the property subject_to the power for a period ascertainable without reference to the first power_of_appointment article six section dollar_figure provides that in default of grantor’s exercise of grantor’s testamentary_power_of_appointment trustee must distribute ten percent of the remaining trust property in equal shares to each member of the committee other than grantor trustee shall administer the share for each beneficiary in a separate trust for the benefit of the beneficiary as provided in section in addition trustee must distribute ten percent of the remaining trust property to one or more charities supported by grantor during grantor’s lifetime trustee in trustee’s sole discretion may determine the charities amounts and charitable purposes of such distributions each charitable_organization must be a charity of a type described in sec_2055 finally trustee must allocate the balance of the remaining trust property among grantor’s descendants as provided in section trustee in trustee’s sole discretion may determine the beneficiaries amounts shares and interests of the allocations but must administer the allocation to a descendant as provided in section section dollar_figure of article five also provides that any member of the committee may resign as a member without prior approval of any court or the consent of any person plr-113315-18 however at all times there must be at least three members of the committee in addition to grantor if at any time there are fewer than three members serving on the committee then the committee automatically ceases to exist and all trust distributions are governed under sec_5 further pursuant to sec_5 b and as stated above the committee only has the authority to appoint under the grantor consent power and the committee unanimous member power only during grantor’s lifetime article five sec_5 b provides that the members of the committee include grantor child when child reaches age individual a individual b individual c individual d and personal representative until child reaches age committee will cease to exist upon grantor's death further committee members exercise their powers of appointment in a nonfiduciary capacity article eight section dollar_figure provides that whenever trust authorizes or directs trustee to make a net_income or principal distribution to a beneficiary trustee may apply any property that otherwise could be distributed directly to the beneficiary for their benefit or to some other qualified_trust except to make a discretionary distribution to grantor or any trust where grantor is a beneficiary or to any trust which is a grantor_trust as to grantor under sec_672 through you have requested the following rulings as long as the power_of_appointment committee is serving no portion of the items of income deductions and credits against tax of trust shall be included in computing under sec_671 the taxable_income deductions and credits of grantor or any other member of the committee the contribution of property to trust by grantor is not a completed_gift subject_to federal gift_tax any distribution_of_property by the committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of the committee any distribution_of_property by the committee from trust to any beneficiary of the trust other than grantor will not be a completed_gift by any member of the committee other than grantor no member of the committee upon his or her death will include in his or her estate any property held in trust because such member is deemed to have a general_power_of_appointment within the meaning of sec_2041 over property held in trust plr-113315-18 ruling sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides for purposes of subpart e that the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or the income therefrom if as of the inception of that portion of the trust the value of such interest exceeds five percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to the power in sec_674 regardless of by whom held sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to a power to distribute corpus to or for a beneficiary provided that the power is limited by a reasonably_definite_standard plr-113315-18 under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances attendant to its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor’s spouse held or accumulated for future distribution to the grantor or the grantor’s spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of inclusive subject a grantor of a_trust to treatment as the owner thereof sec_679 provides that a united_states_person who directly or indirectly transfers property to a foreign_trust shall be treated as the owner for his taxable_year of the portion of such trust attributable to such property if for such year there is a united_states_beneficiary of any portion of the trust based solely on the facts and representations submitted we conclude an examination of trust reveals none of the circumstances that would cause grantor to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 sec_677 or sec_679 as long as trust is a domestic_trust and the committee remains in existence and serving because none of the members of committee have a power exercisable by himself to vest trust income or corpus in himself none shall be treated as the owner of trust under sec_678 we further conclude that an examination of trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of grantor under sec_675 thus the circumstances attendant on the operation of trust will determine whether grantor will be treated as the owner of any plr-113315-18 portion of trust under sec_675 this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office with responsibility for such examination ruling sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property a part thereof or interest therein of which the donor has so parted with dominion and control as to leave the donor no power to change its disposition whether for the donor's own benefit or for the benefit of another but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 provides an example where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor's descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained a testamentary_power_of_appointment but had instead provided that the remainder should go to x or his heirs the entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by the donor in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom a trustee as such is not a person having an adverse_interest in the disposition of the trust property or its income plr-113315-18 sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax sec_25_2511-2 does not define substantial adverse_interest sec_25_2514-3 provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer's gift was complete in when he relinquished his right to change the beneficiaries of the trust a’s retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case grantor retains the grantor's consent power over the income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom under sec_25_2514-3 a taker in default has an adverse_interest however the committee members are not takers in default for purposes of sec_25_2514-3 they are merely co-holders of the power under sec_25_2514-3 a co-holder of a power is plr-113315-18 only considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in this case the committee members only have the authority to exercise their powers under the grantor’s consent power and unanimous member power during grantor’s lifetime accordingly the committee members do not have interests adverse to grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore grantor is considered as possessing the power to distribute income and principal to any beneficiary himself because he retained the grantor's consent power if the committee ceases to exist trust provides that an independent_trustee has the power to distribute income or principal to the lifetime beneficiaries however the independent trustee’s power is not a condition_precedent to grantor’s consent power grantor’s consent power over income and principal is presently exercisable and not subject_to a condition_precedent thus the independent trustee’s power to distribute income and principal does not cause the transfer of property to be complete with respect to the income or principal interest in trust for federal gift_tax purposes therefore grantor is considered as possessing the power to distribute income and or principal to any beneficiary himself because he retained the grantor’s consent power grantor also retains the grantor's sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard in this case the grantor's sole power gives grantor the power to change the interests of the beneficiaries even though grantor's power is limited by an ascertainable_standard ie health education maintenance and support grantor's power is not a fiduciary power accordingly the retention of the grantor’s consent power and the grantor's sole power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes further grantor retains grantor's testamentary power to appoint the property to any one or more persons or charities qualified under sec_2055 other than grantor's estate grantor's creditors or the creditors of grantor's estate under sec_25_2511-2 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder in trust for federal tax purposes finally the committee members possess the unanimous member power over income and principal this power is not a condition_precedent to grantor's powers grantor's power over the income and principal is presently exercisable and not subject plr-113315-18 to a condition_precedent grantor retains dominion and control_over the income and principal of trust until the committee members exercise their unanimous member power accordingly the retention of this power does not cause grantor’s transfer of property to trust to be complete for federal gift_tax purposes see 37_tc_897 51_tc_352 accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by grantor is not a completed_gift subject_to federal gift_tax ruling sec_3 and sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor's estate the possessor's creditors or the creditors of the possessor's estate sec_25_2514-1 provides that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor's estate or the creditors of his estate or expressly not exercisable in favor of the possessor or his creditors or possessor’s estate or the creditors of his estate sec_2514 provides that in the case of a power_of_appointment created after october if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor's power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor's plr-113315-18 power sec_25_2514-3 provides in part that a co-holder of a power has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y's death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y sec_25_2514-1 provides that for purposes of sec_25_2514-1 through the term power_of_appointment does not include powers reserved by a donor to himself no provision of sec_2514 or of sec_25_2514-1 through is to be construed as in any way limiting the application of any other section of the code or of these regulations the power of the owner of a property interest already possessed by him to dispose_of his interest and nothing more is not a power_of_appointment and the interest is includible in the amount of his gifts to the extent it would be includible under sec_2511 or other provisions of the code sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 to inclusive under sec_2041 the term general_power_of_appointment is defined in relevant part to mean a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides that in the case of a power_of_appointment created after date which is exercisable by the decedent only in conjunction with another person if the power is not exercisable by the decedent except in conjunction with the creator of the power such power shall not be deemed a general_power_of_appointment plr-113315-18 sec_2041 provides however that in the case of a power_of_appointment created after date if the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the decedent -- such power shall not be deemed a general_power_of_appointment for purposes of sec_2041 a person who after the death of the decedent may be possessed of a power_of_appointment with respect to the property subject_to the decedent's power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent's power sec_20_2041-3 of the estate_tax regulations provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a lifetime appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the decedent's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y's death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y sec_20_2041-1 provides that for purposes of sec_20_2041-1 through the term power_of_appointment does not include powers reserved by the decedent to himself within the concept of sec_2036 to see sec_20_2036-1 to no provision of sec_2041 or of sec_20_2041-1 to is to be construed as in any way limiting the application of any other section of the code or of these regulations the power of the owner of a property interest already possessed by him to dispose_of his interest and nothing more is not a power_of_appointment and the interest is includible in his gross_estate to the extent it would be includible under sec_2033 or some other provision of part iii of subchapter_a of chapter the powers held by the committee members under the grantor's consent power are powers that are exercisable only in conjunction with the creator grantor accordingly under sec_2514 and sec_2041 the committee members do not possess general powers of appointment by virtue of possessing this power further the powers held by the committee members under the unanimous member power are not general powers of appointment for purposes of sec_2514 and sec_2041 as in the examples in sec_25_2514-3 and sec_20_2041-3 the committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than grantor pursuant to the plr-113315-18 exercise of these powers the grantor's consent power and the unanimous member powers are not gifts by the committee members instead such distributions are gifts by grantor further any distribution from trust to grantor is merely a return of grantor's property further any distributions pursuant to grantor’s sole power are gifts by grantor see sec_2511 and sec_25_2514-1 based on the facts submitted and representations made we conclude that any distribution_of_property by the committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of the committee a distribution to grantor is merely a return_of_capital to grantor further we conclude that any distribution_of_property by the committee from trust to any beneficiary of trust other than grantor will not be a completed_gift subject_to federal gift_tax by any member of the committee finally we conclude that the powers held by the committee are not general powers of appointment for purposes of sec_2041 and accordingly no member of the committee upon his or her death will include in his or her estate any property held in trust because such member is deemed to have a general_power_of_appointment within the meaning of sec_2041 over property held in trust however upon grantor’s death the trust property will be includible in grantor’s gross_estate see sec_20_2041-1 and sec_20_2036-1 to except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express no opinion on the trust provisions permitting trustee to distribute income or principal to trustees of other trusts decanting plr-113315-18 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely lorraine e gardner lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


tax exempt ano government entities division date jan ne nnd vll numbers sol s07 494h department of the treasury internal_revenue_service washington d c contact person identification_number we contact number to br sf employer_identification_number egend i m i z g i f g i a i l w n o n o n o w dear applicant this is in response to a letter dated date from f’s authorized representative who has requested rulings to confirm that the intellectual_property owned by f and licensed to the publicly supported charity constitutes an asset used directly in carrying out the f’s exempt_purpose and as such the fair_market_value of the intellectual_property is excludable from the f’s minimum_investment_return base under sec_4942 of the internal_revenue_code the information submitted shows that f is an exempt_private_foundation as described in sec_501 and sec_509 it was incorporated on n exclusively for charitable scientific and educational_purposes within the meaning of sec_501 of the code g was the originator of a series of television programs and in connection with the programs g developed certain intellectual_property which had been used in connection with the programs and other educational_services directed to helping children their families and those who support them and to promoting their healthy emotional social and intellectual development upon g’s death the intellectual_property owned by g was bequeathed to f which seeks to license the same to a publicly supported charity for use in furtherance of its charitable and educational_purposes during g's lifetime he licensed the intellectual_property to h to be used in connection with the programs and other educational_services directed to helping children their families and those who support them and to promoting their healthy emotional social and intellectual development none of the intellectual_property had been used during g’s lifetime for commercial purposes h which was incorporated on j is a k nonprofit corporation it is exempt from federal_income_tax pursuant to sec_501 as an organization described in sec_170 and sec_509 its purpose is the promotion of educational programs dedicated to children and their families up to the time of g’s death he was the chair of h the intellectual_property was used throughout h’s history in the production of programs and products pursuant to prior agreements between g and h h had the right to use the intellectual_property in furtherance of its educational_purposes including the production of programs for nonprofit educational television and the distribution of the products f desires that h continue to produce display and license the programs for distribution or transmission on and to nonprofit educational television and to otherwise produce author and distribute the products in furtherance of h’s educational_purposes and in accordance with the practice of g during his lifetime f has agreed to license the intellectual_property in furtherance of both f’s and h’s exempt educational and charitable purposes h will not pay royalties for_the_use_of the property it will pay any fees and expenses_incurred in connection with protection and defense of the property sec_501 of the code provides for the exemption from federal_income_tax of an organization organized and operated exclusively for among others charitable purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_509 of the code provides for classification of certain organizations described in code sec_501 as private_foundations sec_4942 and sec_4942 of the code provides for taxes on the undistributed_income_of_a_private_foundation code sec_4942 defines the term undistributed_income to mean the excess of the distributable_amount for the taxable years over the qualifying distributions made out of such distributable_amount sec_4942 defines the term distributable_amount to mean the sum of the minimum_investment_return plus amounts described in sec_4942 reduced by the unrelated_business_income and net_investment_income taxes imposed on the foundation sec_4942 of the code defines the term minimum_investment_return as five percent of the aggregate fair_market_value net of acquisition_indebtedness of all assets of a private_foundation other than those used or hetd for use directly in carrying out the foundation’s exempt_purpose sec_4942 of the code defines the term qualifying distributions in general as amounts paid to accomplish exempt purposes or to acquire an asset used or held for use directly in carrying out exempt purposes sec_53_4942_a_-2 of the foundation and similar excise_taxes regulations provides that an asset is used or held for use directly in carrying out the foundation’s exempt purpose’ if the asset is actually used in carrying out the exempt_purpose or if immediate use in carrying out the exempt_purpose is not practical and there are definite plans to commence such use within a reasonable period of time sec_53_4942_a_-2 ii of the regulations illustrates this principle by including as examples of assets which are used or held for use directly in carrying out a foundation’s exempt_purpose the portion of a building used by the foundation directly in its charitable educational or other similar exempt_activities and physical facilities used in such activities such as paintings or other works_of_art owned by the foundation which are on public display research facilities and related equipment revrul_74_498 1974_2_cb_387 holds that a collection of paintings owned by a private_foundation formed to further the arts that are loaned under an active loan program for exhibition in museums universities and similar institutions are being used directly in carrying out the foundation’s exempt_purpose within the meaning of sec_4942 of the code and the value of the paintings is excludable in computing the foundation’s minimum_investment_return revrul_75_207 1975_1_cb_361 held that the value of an island owned by a private_foundation dedicated to preserve the natural ecosystems and historical and archaeological remains of the island may be excluded from a private foundation’s minimum_investment_return under sec_4942 of the code sec_53_4942_a_-2 of the regulations provides that property leased by a foundation in carrying out its charitable educational or other similar exempt purposes at no cost or at a nominal rent to the lessee is an example of an asset which is used or held for use directly in carrying out a foundation's exempt_purpose revrul_69_572 1969_2_cb_119 provides that a lease between two parties both of whom were exempt under sec_501 would be considered as substantially related to the charitable purposes of the lessor where the lease was substantially below market_value and there was a close relation between the purposes and functions of the parties f has requested the following rulings that the intellectual_property will be used or held for use directly in carrying out the f’s exempt purposes within the meaning of sec_4942 and that the expenses and costs incurred in maintaining the intellectual_property for its ultimate charitable use constitute qualifying distributions within the meaning of sec_4942 with respect to the use of the intellectual_property as a charitable use asset f will license the intellectual_property to h to be used in h’s exempt educational activities dedicated to children and families the use which will further the e’s exempt educational and charitable purposes h will pay no royalties to f for its use of the intellectual_property in consideration for the license and rights granted to h under a license agreement between f and h h agreed to assume the responsibility for ensuring the integrity of the intellectual_property h will be responsible for the payment of all fees and expenses associated with the protection and defense of the intellectual_property with regard to whether the expenses and costs incurred in maintaining the intellectual_property for f’s ultimate charitable use constitute qualifying distributions within the meaning of sec_4942 f states that the fees and expenses associated with the maintenance and renewal of registrations for the intellectual_property are costs which are necessary to maintain the intellectual_property on an ongoing basis so that may be used for exempt purposes accordingly based on the facts and circumstances as stated above we rule that f’s intellectual_property will be used or held for use directly in carrying out the f’s exempt purposes within the meaning of sec_4942 the expenses and costs incurred in maintaining the intellectual_property for its ultimate charitable use constitute qualifying distributions within the meaning of sec_4942 this ruling is based on the understanding that there will be no material changes in facts upon which it is based pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to foundation’s authorized representative a copy of this letter should be kept in foundation’s permanent records if there are any questions about this ruling please contact the person whose name and telephone are shown in the heading of this letter this ruling is directed only to the party that requested the ruling sec_6110 of the code provides that it cannot be used or cited as precedent sincerely dep cron joseph chasin acting manager exempt_organizations technical group


internal_revenue_service department of the treasury index no number info release date washington dc person to contact john t sapienza jr id no telephone number refer reply to cc dom it a - cor-111366-00 date date dear commissioner rossotti asked me to respond to your letter concerning obesity and weight-loss programs you asked the internal_revenue_service to issue a revenue_ruling allowing obese individuals to deduct the costs of weight-loss programs as medical_care expenses under sec_213 of the internal_revenue_code the current irs position on weight-loss programs is stated in revrul_79_151 1979_1_cb_116 this ruling holds that if participation in the program was to improve the participant’s appearance general health and sense of well-being the expenses of the program are not for medical_care and therefore are not deductible of course the expenses of a weight-loss program prescribed to treat a specific disease are for medical_care and are deductible we appreciate your suggestion and the references you provided to studies on obesity each year the irs and the department of the treasury review the many suggestions for revenue rulings and other forms of guidance to be published the projects selected are announced in the annual priority guidance plan input such as you have provided is helpful to us in selecting projects for the priority guidance plan i hope this information is helpful please call john t sapienza jr at the number above if you have any questions sincerely deputy assistant chief_counsel income_tax accounting by robert a berkovsky chief branch


internal_revenue_service p o box cincinnati oh release number release date date date legend m state w program name x program name y dollar amount z dollar amount dear department of the treasury employer_identification_number contact person - id number contact telephone number uil you asked for advance approval of your educational grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax our determination we approved your procedures for awarding educational grants based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding educational grants meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable description of your request in conjunction with your scholarship program w you will also operate a program called x x will offer internships for those who have received scholarships through w internships will be offered through local nonprofits government agencies and occasionally appropriate businesses commencing after the completion of the recipient's high school education through their college graduation the purpose of x is improving and enhancing the capacities skills and talents of the recipients by providing opportunities to ii balance the pursuit of academic learning with the opportunity to be immersed in gain practical experience and mentorships through the real-world of community participation and involvement in the work place and areas of civic endeavors i the utilization of their education to a realization how they can be useful citizens and members of their community through leadership and vision iii be aware of the worth and opportunities of working in the nonprofit and government sectors in order to consider this as a viable and vital work career option post-college students who do not qualify under your scholarship program because they do not demonstrate financial need but will benefit in their growth and development of skills from participation in x in addition there are circumstances students might benefit from x but not qualify under your scholarship program for reasons other than not demonstrating financial need the amount of an annual grant is contemplated to be in the range of y dollar to z dollars you will make the existence of x known by communicating it to school officials students school counselors teachers administrators and local nonprofits you may also publicize through the internet and social media to be eligible to apply an applicant a must have attended and graduated from a high school or other secondary school in the state of m b must have been admitted to an accredited and qualifying institution c must not be related to any director or manager of or substantial_contributor to you be employed by any business of which any such person is a significant owner or be a descendant of such an employee or to any other person who could be designated as a disqualified_person and d must have submitted to you a completed application recipients are selected based on the following criteria a must be at least a high school senior on track to graduate with a minimum cumulative and current grade point average anticipated to be at least ora student in good standing at an accredited and qualified degree-granting post- secondary institution with a minimum cumulative and current grade point average anticipated to be at least b a record of community involvement c involved in meaningful participation in extracurricular activities d must submitted a completed application along with academic transcripts letters of recommendations and student essays e provide a detailed description of the planned fellowship project and the results f personal interview on recipients motivation character ability and potential sought and how the opportunity or experience will benefit the applicant's educational experience and or future career plans and x may be renewed for a subsequent year on evidence of satisfactory performance by the recipient in his or her educational program as well as reviewing past participation in the catalog number 58222y letter internship activities having maintained required commination with your staff and have submitted all required narrative financial reports and evaluations each recipient should submit a narrative report at the conclusion of their internship which includes an assessment of the experience and accomplishments with discussion regarding how that end result compares with the initial project description you will also obtain the comments and critique from the supervising person of the recipient grants will be paid either to the organizations where the recipients perform the internships or to the recipients any grants made directly to the ‘fecipients will require a report with receipts you will take all reasonable steps to recover any funds that the grant recipient has used for improper purpose the selection committee will be appointed by you and should consist of two or more qualified persons the selection committee have the sole authority to award x the selection committee will vary from year to year and will consist of individuals whose families are ineligible to receive grants under x relatives of members of the selection committee or your officers directors or substantial contributors are not eligible for the grants basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure e e e the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is - - - ascholarship or fellowship subject_to sec_117 and is to be used for study at an educational_organization described in sec_170 or aprize or award subject_to the provisions of sec_74 if the recipient of the prize or award is selected from the general_public or to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar skill or talent of the recipient to receive approval of its educational grant procedures sec_53_4945-4 requires that a private_foundation show e the grant procedure includes an objective and nondiscriminatory selection process catalog number 58222y letter the grant procedure results in the recipients performing the activities the grants were intended to finance the foundation plans to obtain reports to determine whether the recipients have performed the activities that the grants were intended to finance other conditions that apply to this determination this determination covers only the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request this determination applies only to you it may not be cited as precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes in your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot make grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and must further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have any questions please contact the person listed at the top of this letter sincerely director exempt_organizations letter catalog number 58222y


office_of_chief_counsel internal_revenue_service memorandum number release date cc fip b04 preno-154223-04 uilc date date to tm lmsb f from donald j drees jr acting branch chief cc fip subject deferred and uncollected items legend third party communication none date of communication not applicable_taxpayer ----------------------------------------- ---------------- -------------------------------------------- ----------------------------------------------------------- --------------------------------------------------- state a year year year this chief_counsel_advice is being written concerning a matter involving ------- ------- ------- taxpayer who is in your audit jurisdiction which has come to our attention this advice may not be used or cited as precedent taxpayer is primarily engaged in the business of selling life_insurance and annuity products taxpayer is taxable as a life_insurance_company under part i of subchapter_l of the code and files its form 1120-l u s life_insurance_company income_tax return on a calendar_year basis through year taxpayer recognized the deferred and uncollected premium as reported in its state a statutory annual preno-154223-04 statement and included in its reserves the obligations associated with the deferred and uncollected premiums for federal_income_tax purposes for year taxpayer removed the obligations associated with the deferred and uncollected premiums from the computation of its tax_reserves for federal_income_tax purposes for year taxpayer submitted a form_3115 application_for change in accounting_method requesting a change in method_of_accounting so as to no longer report into underwriting_income deferred and uncollected premiums for federal_income_tax purposes in removing the reserve obligations associated with the deferred and uncollected premiums in year taxpayer claims that this change could be accomplished without securing the consent of the commissioner to a change in method_of_accounting taxpayer based its claim under the authority of sec_807 and revrul_94_74 1994_2_cb_157 which deal with adjustments for changes in computing reserves for purposes of calculating life_insurance taxable_income we disagree it is our view that no change in the methodology of computing taxpayer’s life_insurance_reserves was involved and that the action that taxpayer took in year was subject_to the normal procedures for securing the commissioner’s approval for a change in method_of_accounting thus it was an unauthorized change in addition we believe that taxpayer’s attempt to secure permission to change the deferred and uncollected premiums on the underwriting side for a year change involves the same or integrally related material_item that was involved in the year change relating to deferred and uncollected premiums on the reserve side since we have concluded that taxpayer’s efforts to change the amount of reserves it was reporting in year was an unauthorized change which occurred in a tax_year for which a tax_return has been filed we are referring the matter to your office for whatever action that you deem appropriate if you have any questions concerning this memorandum please call -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- -


internal_revenue_service department of the treasury index no number info release date washington dc person to contact john t sapienza jr id no telephone number refer reply to cc dom it a - cor-111371-00 date date dear commissioner rossotti asked me to respond to your letter concerning obesity and weight-loss programs you asked the internal_revenue_service to issue a revenue_ruling allowing obese individuals to deduct the costs of weight-loss programs as medical_care expenses under sec_213 of the internal_revenue_code the current irs position on weight-loss programs is stated in revrul_79_151 1979_1_cb_116 this ruling holds that if participation in the program was to improve the participant’s appearance general health and sense of well-being the expenses of the program are not for medical_care and therefore are not deductible of course the expenses of a weight-loss program prescribed to treat a specific disease are for medical_care and are deductible we appreciate your suggestion and the references you provided to studies on obesity each year the irs and the department of the treasury review the many suggestions for revenue rulings and other forms of guidance to be published the projects selected are announced in the annual priority guidance plan input such as you have provided is helpful to us in selecting projects for the priority guidance plan i hope this information is helpful please call john t sapienza jr at the number above if you have any questions sincerely deputy assistant chief_counsel income_tax accounting by robert a berkovsky chief branch


t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n number release date uil department of the treasury intern al revenue service washi ng ton d c date person to contact and id number contact telephone number dear this letter responds to your letter dated date to requesting information concerning the treatment of a limited_liability_company llc for federal tax purposes a domestic llc with a single owner or member hereafter owner is disregarded for federal tax purposes unless it elects to be regarded separately from its owner or member in which case it is treated as an association that is taxable as a corporation an llc with two or more owners or members may elect to be treated either as a partnership or as an association that is taxable as a corporation if the sole owner of a disregarded llc is a tax-exempt_organization described in sec_501 of the internal_revenue_code the code then the llc is treated as a component part of the exempt_organization unless it elects to be regarded separately see announcement 1999_43_irb_545 announcement requires the exempt owner of a disregarded llc to treat the operations and finances of the llc as its own in filing an annual information_return as required under sec_6033 of the code as a general_rule a disregarded llc whose sole owner is exempt from federal_income_tax under sec_501 of the code is not required to pay federal taxes or file a federal tax or information_return that is the responsibility of its sole owner the disregarded_entity receives the benefit of its owner’s tax-exempt status an exception applies to employment_taxes for wages paid to employees of a disregarded_entity on or after date the disregarded_entity must file separate employment_tax returns see sec_301_6109-1 and sec_301 c iv of the procedure and administration regulations a disregarded_entity is allowed but generally is not required to obtain its own employer_identification_number ein separate from its owner’s ein it generally cannot use its own ein for federal tax purposes but must use its owner’s ein however the disregarded_entity must use its own name and obtain and use its own ein for reporting and paying employment_taxes or if it becomes recognized as a separate_entity for federal tax purposes ie no longer a disregarded_entity see sec_301_6109-1 of the procedure and administration regulations where an exempt_organization that is the sole member of an llc needs to demonstrate the status of the llc as a disregarded_entity such as to state officials it should consider providing a copy of its annual information_return since that return would include financial and operational information of the disregarded llc in addition an organization may request a private_letter_ruling regarding proposed transactions involving a disregarded llc such as whether such transaction would adversely affect the organization’s tax-exempt status or result in unrelated_trade_or_business taxation see revproc_2013_4 2013_1_irb_126 updated annually a single-owner llc may affirmatively elect to be regarded separately from its sole owner for federal tax purposes by obtaining more than one owner or member filing form_8832 entity classification election and electing classification as an association_taxable_as_a_corporation or claiming tax-exempt status an organization may claim tax-exempt status for purposes of electing to be regarded separately from its sole member or owner for federal tax purposes by filing its own exemption application eg form_1023 or or annual information_return eg form_990 990-pf or 990-ez a disregarded llc that claims its own tax-exempt status is treated as electing status as an association that is taxable as a corporation the rules applicable to llc classification elections are spelled out in sec_301 of the regulations a tax-exempt_organization that is the sole owner of a disregarded llc will not jeopardize its exempt status merely because the organizational documents of the llc do not contain specific language limiting the llc’s purposes to one or more exempt purposes however the exempt status of the owner may be adversely affected if the disregarded llc’s organizational documents provide that the llc will be operated for purposes that are contrary to the tax-exempt purposes of the owner this letter is for informational purposes only and is intended to provide general statements of well-defined law it is not a ruling and may not be relied on as such see revproc_2013_4 2013_1_irb_126 or its successor this letter will be made available for public inspection the internal_revenue_service will delete any name address and other identifying information as appropriate under the freedom_of_information_act see announcement 2000_2_irb_295 if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter david l fish manager exempt_organizations guidance sincerely


t c no united_states tax_court kristine a cluck petitioner v commissioner of internal revenue respondent docket no filed date p is married to e e is not a petitioner in this case e's mother m died in leaving e and his brothers a tract of land g g was sold in p and e have filed joint federal_income_tax returns since p and e claimed net_operating_loss nol deductions on their and returns consisting of unused nol's carried forward from e's and returns and from p and e's joint_return in after a dispute with r regarding the value of g for purposes of m's estate's federal estate_tax liability e and his brothers who each had owned a one-fourth interest in g entered into an agreement with r pursuant to the agreement g was valued at dollar_figure r disallowed the portion of the and nol's on the ground that e had unreported income from the sale of g in sufficient to eliminate the loss p argued that e did not have unreported income in because e's basis in g was dollar_figure which exceeded his amount_realized dollar_figure r argued that p was estopped by the duty_of_consistency from arguing that e's basis was greater than dollar_figure one-fourth the amount e had agreed g was worth as of the date of m's death held p and e are in a sufficiently close legal and economic relationship so that p is estopped by e's representation under the duty_of_consistency held further p cannot increase her and nol for previously unclaimed depreciation and amortization deductions because she has failed to substantiate her entitlement to such deductions held further additions to tax under sec_6651 sec_6653 and sec_6661 i r c are sustained kevin p kennedy and elwood cluck for petitioner steven b bass for respondent parr judge respondent determined deficiencies in and additions to petitioner's federal_income_tax for taxable years and as follows additions to tax sec sec sec sec year deficiency a a a b dollar_figure dollar_figure dollar_figure dollar_figure big_number big_number big_number -- big_number percent of the interest that is computed on the portion of the underpayment which is attributable to negligence or intentional_disregard_of_rules_and_regulations although petitioner filed joint returns with her husband elwood cluck elwood elwood is not a party herein because his liability was determined and discharged in the u s bankruptcy court for the western district of texas cluck v united_states bankr w d tex after concessions the issue sec_1 respondent disallowed a medical_expense_deduction of dollar_figure and a miscellaneous deduction of dollar_figure for tax_year in her continued for decision are whether petitioner is entitled to net_operating_loss nol deductions in the amounts claimed this turns on whether petitioner may claim that her husband had a higher basis in property he inherited from his mother than that stipulated by him as beneficiary transferee in a prior estate case in which an agreed decision was entered in this court estate of cluck v commissioner docket no date we hold she may not whether petitioner is liable for the sec_6651 addition_to_tax because she failed to timely file her and federal_income_tax returns we hold that she is liable whether petitioner is liable for the addition_to_tax for negligence under sec_6653 for the years at issue we hold that she is liable whether petitioner is liable for the substantial_understatement_penalty under sec_6661 for the years at issue we hold that she is liable findings_of_fact continued petition petitioner asserted that these deductions were allowable however petitioner did not address these issues at trial or on brief accordingly we find that petitioner has conceded these issues rule e and 92_tc_661 89_tc_46 all section references are to the internal_revenue_code in effect for the taxable years in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated all dollar amounts are rounded to the nearest dollar some of the facts have been stipulated or deemed stipulated under rule f the stipulated facts and the accompanying exhibits are incorporated into our findings by this reference petitioner kristine a cluck resided in san antonio texas on the date the petition was filed petitioner is still married to elwood who was an attorney representing her in this case although elwood is not a petitioner we have found a number of facts related to him as such facts are germane to the issues presented petitioner and elwood were married on date for the taxable years and elwood filed his federal_income_tax returns as married filing separate the record does not establish whether petitioner filed federal_income_tax returns for either or beginning in and continuing through by order dated date we granted respondent's motion_to_compel_stipulation and directed petitioner to file a response to respondent's proposed stipulation of facts and to show cause why the facts and evidence recited in such proposed stipulation should not be accepted as established for purposes of this case petitioner's response to our show cause order was evasive and not fairly directed at the proposed stipulation or any portion thereof accordingly on date we ordered that respondent's proposed stipulation of facts be deemed stipulated for purposes of this case when a husband and wife file joint federal_income_tax returns sec_6013 imposes joint_and_several_liability upon each spouse the law of joint_and_several_liability permits the internal_revenue_service irs to assess one spouse for the tax_deficiency of the couple and to issue a deficiency_notice to the other spouse when it is unable to satisfy the claim however the irs is allowed to collect this single tax obligation only once 44_tc_420 the years at issue petitioner and elwood filed joint federal_income_tax returns petitioner and elwood also filed amended federal_income_tax returns form sec_1040x for the taxable years and petitioner and elwood claimed an nol deduction of dollar_figure on their joint federal_income_tax return the deduction consisted of unused nol's carried forward from elwood's and federal_income_tax returns and from petitioner's and elwood's joint federal_income_tax return petitioner and elwood reported the calculation of their nol deduction on a schedule attached to their return as follows total dollar_figure big_number big_number big_number big_number petitioner and elwood claimed an nol deduction of dollar_figure on their joint federal_income_tax return the nol deduction consisted of the same losses that make up the nol reduced by dollar_figure which was the amount of income offset by the use of the nol thus petitioner and elwood reported the calculation of their nol deduction on a schedule attached to their return as follows less income total dollar_figure big_number big_number big_number big_number big_number the and nol carryforwards discussed above were incurred in various businesses operated by elwood in elwood entered into a transaction which affects his reported loss and therefore the nol's reported by petitioner and elwood for the years at issue specifically in elwood sold a one-fourth interest in a 67-acre tract of land located in grapevine texas grapevine property elwood had inherited this property from his mother martha cluck who died date elwood's three brothers owned the remaining three-fourths interest in the grapevine property which they too had inherited from their mother in elwood prepared the federal estate_tax_return for the estate of martha cluck estate and he signed it as the estate's personal representative the return included a one-half interest in the grapevine property in the decedent's gross_estate valued at dollar_figure an appraisal attached to the return valued a percent interest in the grapevine property at dollar_figure on date elwood and his brothers entered into a contract for the sale of the grapevine property to joe l wright pursuant to a closing statement dated date the cluck according to elwood's testimony the reason only one-half the value of the grapevine property was included in the decedent's gross_estate was that elwood and his brothers believed that they had inherited a one-half interest in the property in which is the year their father died brothers transferred the grapevine property to joe l wright for a net sale price of dollar_figure each brother's share of the net sale proceeds was one-fourth of dollar_figure or dollar_figure elwood did not report the sale of the grapevine property on his federal_income_tax return on the theory that his basis in the one-fourth interest sold was equal to or exceeded the proceeds he received from the sale on date respondent issued a notice_of_deficiency to the estate of martha k cluck elwood cluck executor estate case in the notice respondent determined that on the date of her death martha cluck owned the entire dollar_figure acres located in grapevine texas rather than a one-half interest as reported in the estate's tax_return respondent further determined that the date of death fair_market_value of the decedent's interest was dollar_figure rather than dollar_figure as reported on the estate's tax_return respondent issued similar notices to each of elwood's three brothers apparently naming each as executor thereafter elwood and each of his brothers timely filed petitions for redetermination with this court in his petition elwood alleged that respondent erred in determining that martha cluck owned the entire dollar_figure acres of land located in grapevine texas he asserted that she owned actually martha k cluck died intestate and her four sons were thus beneficiaries and thus potentially liable as transferees for any unpaid federal estate_tax owed by her estate only a one-half interest in the property on the date of her death and that the fair_market_value was dollar_figure alternatively elwood alleged that in the event the court determined that martha cluck owned the entire legal_interest in the grapevine property at the date of her death the fair_market_value thereof did not exceed dollar_figure on date we consolidated the cases of elwood and his brothers and the consolidated case was set for trial on date elwood and his brothers entered into an agreement with respondent styled stipulation of settled issues the agreement provided among other things that percent of the value of the grapevine property would be included in martha cluck's gross_estate in addition the parties agreed that the fair_market_value of martha cluck's 100-percent interest in the grapevine property on the date of her death was dollar_figure separate decisions were entered in the estate case as to each of the brothers based on the aforementioned agreement this court entered a decision in elwood's case on date petitioner argues that evidence of the agreement between the cluck brothers and respondent is inadmissable under rule e because it was a stipulation which was used in another case although styled as a stipulation the settlement is an agreement between the parties which was deemed stipulated for purposes of this case see supra note furthermore the agreement is relevant and not barred by any evidentiary rule we therefore find that the agreement is admissible in this case 96_tc_18 affd on other grounds 979_f2d_162 9th cir - - opinion issue the nol's for and respondent disallowed dollar_figure of petitioner's claimed nol deduction and the entire nol claimed for more specifically respondent adjusted the and losses that made up the and nol's respondent eliminated the and nol's on the ground that petitioner did not elect to carry such losses forward petitioner has conceded this adjustment respondent also disallowed the carryforward of the loss on the ground that such loss was eliminated by the unreported gain arising from the sale of the grapevine property as discussed below finally respondent reduced the loss by dollar_figure alleging that petitioner had petitioner claimed a net_operating_loss_deduction of dollar_figure for and respondent allowed a net_operating_loss_deduction of dollar_figure petitioner made no arguments regarding her failure to elect to forgo the carrybacks in both and and her returns for those years do not contain such an election since petitioner failed to make such an election as required by sec_172 the and losses must first be carried back to and respectively it appears that elwood had sufficient income in and to absorb the and carrybacks and petitioner has not argued otherwise therefore we find that the portion of petitioner's and net operating losses arising from the and loss carryforwards is not allowable rule e and 92_tc_661 89_tc_46 received unreported income in that amount petitioner conceded this adjustmentdollar_figure after conceding respondent's adjustments to the and nol carryforwards petitioner asserts that the portion of the and nol's arising from the nol carryforward is allowable furthermore petitioner asserts that she had additional unclaimed deductions during the period to which contribute to the nol available in and as a preliminary point we note the well-settled rule that the commissioner may recompute a taxpayer's taxable_income or loss for a year in which the statute_of_limitations would otherwise bar assessment in order to redetermine the amount of the nol deduction claimed in an open_year 56_tc_1083 affd 482_f2d_150 3d cir 40_tc_774 accordingly in determining whether petitioner's and nol's are allowable respondent may recompute the income or loss reported in the tax years which generated the carryforwards claimed by petitioner in and a gain from sale of grapevine property respondent argues that elwood had sufficient unreported gain arising from the sale of the grapevine property in to the amount of unreported income conceded by petitioner exceeds dollar_figure however since respondent has not argued for an increase in the deficiency we treat petitioner's concession as being limited to dollar_figure eliminate elwood's claimed loss for that year accordingly petitioner would not be entitled to claim the nol carryforward as part of her and nol deductions petitioner argues that elwood did not have unreported gain on the sale of the grapevine property so the loss reported in which was carried forward to and was allowable gross_income includes gains derived from dealings in property sec_61 gain derived from the disposition of property is the excess of the amount_realized over the property's adjusted_basis sec_1001 the basis_of_property acquired from a decedent is generally the fair_market_value of the property as of the date of the decedent's death sec_1014 this basis rule parallels the general_rule of the estate_tax for determining the value of property which is included in a decedent's gross_estate under sec_2031 sec_1_1014-1 income_tax regs the parties agree that elwood realized dollar_figure on the sale of the grapevine property but disagree on elwood's basis respondent argues that elwood was bound by a duty_of_consistency to use a basis of dollar_figure when he sold the grapevine propertydollar_figure the dollar_figure amount is one-fourth of dollar_figure the stipulated value in the estate case in the alternative respondent argue sec_11 respondent has conceded that she has the burden_of_proof on this issue because the duty_of_consistency is an affirmative defense rule a that elwood's basis in the grapevine property was dollar_figure which is one-fourth of the value which the appraisal attached to the estate's federal estate_tax_return placed on the grapevine property as of the date of martha cluck's death petitioner argues that the duty_of_consistency is inapplicable in this case and that under all the facts and circumstances of this case she has established that the grapevine property had a fair_market_value of dollar_figure on the date of martha cluck's death and therefore elwood had a basis of dollar_figure when he sold his interest in the grapevine property the duty_of_consistency sometimes referred to as quasi- estoppel applies in this court e g 103_tc_525 72_tc_807 affd 656_f2d_483 9th cir 56_tc_82 affd 456_f2d_622 5th cir the duty_of_consistency is based on the theory that the taxpayer owes the commissioner the duty to be consistent in the tax treatment of items and will not be permitted to benefit from the taxpayer's own prior error or omission lefever v commissioner supra the duty_of_consistency doctrine prevents a taxpayer from taking one position one year and a contrary position in a later year after the limitations_period has run for the first year id pincite a taxpayer gaining governmental benefits on the basis of a representation or an asserted position is thereafter estopped from taking a contrary position in an effort to avoid taxes id pincite there are a number of justifications for the duty_of_consistency the most obvious being that taxpayers should not be able to maintain inconsistent positions to obtain an unfair advantage as stated by the court_of_appeals for the fifth circuit in adjusting values the commissioner in effect represents the interests of all other taxpayers who must bear what the particular taxpayer unjustly escapes it is no more right to allow a party to blow hot and cold as suits his interests in tax matters than in other relationships whether it be called estoppel or a duty_of_consistency or the fixing of a fact by agreement the fact fixed for one year ought to remain fixed in all its consequences unless a more just general settlement is proposed and can be effected 95_f2d_622 5th cir affg 36_bta_402 aside from eliminating the unfair advantage obtained by a taxpayer who maintains inconsistent positions the duty_of_consistency also contributes to our self-reporting system of taxation as this court has noted to allow taxpayers to disavow their prior representations would invite similar intentional deceit on the part of other taxpayers seeking to gain a tax_benefit lefever v commissioner supra pincite furthermore this court has noted that the duty_of_consistency buttresses the values of finality and repose inherent in statutes of limitation and it possesses the administrative virtue of eliminating the fact-finding problems associated with reviewing old transactions when the evidence may be stale and unavailable 54_tc_25 mcmillan v united sates aftr 2d ustc par at big_number s d w va see johnson the taxpayer's duty_of_consistency tax law rev this court has found that the duty_of_consistency applies when the taxpayer has made a representation or reported an item for tax purposes in one year the commissioner has acquiesced in or relied on that act for that year and the taxpayer desires to change the representation previously made in a later year after the statute_of_limitations on assessments bars adjustments for the initial year lefever v commissioner supra pincite quoting 495_f2d_211 8th cir respondent argues that the foregoing triune standard has been satisfied specifically respondent argues elwood made a representation in the stipulation of settled issues that the value of the grapevine property for purposes of computing the estate's federal estate_tax liability was dollar_figure respondent argues that due to the relationship between elwood and petitioner petitioner was bound by this representation respondent relied on this representation allowing such value to be used in computing the estates's federal estate_tax liability finally respondent argues that petitioner is now maintaining a position inconsistent with the prior representation after the decision in the estate case has become final barring subsequent adjustments to the estate accordingly respondent argues that petitioner is estopped from arguing that elwood's basis in the grapevine property was higher than one-fourth of the agreed value of the grapevine property in the stipulation of settled issues petitioner argues that the duty_of_consistency does not apply in this case since she was not a party to the stipulation in analyzing whether the duty_of_consistency applies we note that respondent's initial premise is that the duty_of_consistency would estop elwood from arguing that his basis in the grapevine property was greater than one-fourth of the amount agreed to in the stipulation of settled issues we agree with respondent's threshold premise as it comports with our decision in 103_tc_525 however even assuming the application of the duty_of_consistency against elwood petitioner points out that elwood is not the taxpayer in this case petitioner asserts that she was not a party to and did not enter into the stipulation of settled issues and therefore the first prong of the duty_of_consistency test is not satisfied respondent argues that due to the relationship between elwood and petitioner petitioner was bound by elwood's representation several courts have held that the duty_of_consistency doctrine prevents a beneficiary of an estate from repudiating an estate_tax_value where the beneficiary had been a fiduciary of the estate 495_f2d_211 8th cir griffith v united_states aftr ustc par n d tex mcmillan v united sates supra accord 537_f2d_457 but cf 276_f2d_17 in beltzer griffith and mcmillan the taxpayer beneficiary had been a coexecutor or administratrix of the estate in hess the taxpayer was a testamentary_trust whose trustees had been coadministrators of the estate by contrast in ford where the beneficiaries had not been estate fiduciaries the quasi-estoppel doctrine was rejected by the court this court has not previously addressed this precise issue in ford v united_states supra the decedent was a citizen_of_the_united_states and a resident of brazil at the time of his death the decedent owned stock in a brazilian corporation under brazilian law the stock passed_from_the_decedent to his two minor children the executor of the decedent's_estate used the value established by brazilian appraisers after converting the amount into dollars for federal estate_tax purposes the commissioner contested the method of computing the rate of exchange but not the actual value of the stock the executor acquiesced on this issue although other issues were litigated subsequently after the children reached majority they sold their stock and claimed a basis substantially in excess of that used for estate_tax purposes the u s court of claims held that the duty_of_consistency did not estop the taxpayers from asserting that the stock had a value in excess of that used for estate_tax purposes the court refused to bind the beneficiaries to the estate's valuation of the stock because the taxpayers were minors and had no knowledge of what was being written in their father's estate_tax_return in the united_states id at dollar_figure a number of courts have distinguished ford finding that a taxpayer can under appropriate circumstances be estopped by a representation made by or on behalf of a related_taxpayer e g hess v united_states supra beltzer v united_states supra mcmillan v united sates supra in hess v united_states supra pincite the court distinguished its own decision in ford finding that the representation of an estate bound a testamentary_trust created by the estate in reaching this decision the court found that although the trust and the estate were separate legal entities it was fair and in accord with the spirit of law to require the trust to act in a manner consistent with the estate because the two entities were very closely related id in beltzer v united_states supra pincite the u s court_of_appeals for the eighth circuit held that a beneficiary was bound by an estate's representation distinguishing the ford case in beltzer the taxpayer was a coexecutor of his father's estate the taxpayer inherited stock which had been reported in unlike the situation in 276_f2d_17 petitioner was an adult and married to elwood in when he signed the agreement the estate_tax_return as having a fair_market_value of dollar_figure on the date of his father's death date the time for adjustments and assessments against the estate expired on date on date the taxpayer sold the shares for dollar_figure for purposes of determining his gain on the sale of the stock the taxpayer asserted that the stock actually had a fair_market_value of dollar_figure on the date of his father's death despite the fact that he had signed the estate_tax_return at the lesser figure and had received the benefit of the lower estate_tax the taxpayer argued that he should not be bound by the estate's representation of value because he relied on his coexecutor to handle the estate_tax_return rejecting the taxpayer's nonparticipation argument the court_of_appeals held that the taxpayer was bound by the lower stock value reported by the estate under the duty_of_consistency id pincite the teaching from hess beltzer and the other cases which have found that a taxpayer may be estopped by a prior representation made by or on behalf of another taxpayer is that there must be a sufficiently close relationship between the party making the prior representation and the party to be estopped hess v united_states supra pincite beltzer v united_states supra pincite whether there is sufficient identity between the parties will be dependent upon the facts and circumstances of the particular casedollar_figure in this case we believe there is a sufficiently close relationship between the parties since petitioner and her husband have closely aligned legal and economic interests petitioner and elwood filed a joint federal_income_tax return for each of the tax years in issue and continued to do so for the year in which the stipulation of settled issues was executed by elwood we have previously noted that filing a joint federal_income_tax return generally results in tax savings to the husband and wife 66_tc_1084 affd 592_f2d_1259 5th cir however in accepting the benefit of filing jointly the spouses also assume joint_and_several_liability for the payment of any_tax due sec_6013 by filing a joint income_tax return petitioner and elwood entered into a joint economic arrangement whereby they shared the benefits and burdens associated with filing a joint_return in addition to their economic relationship petitioner and elwood were also in the legal relationship of marriage in when the stipulation was entered here we have two individuals who have elected to be treated as a single taxpaying we believe the flexibility inherent in such an approach comports with the spirit of our duty_of_consistency jurisprudence see 83_tc_640 affd in part and revd in part as to other issues 800_f2d_215 8th cir affd 485_us_212 duty_of_consistency does not require the presence of all the technical elements of estoppel 72_tc_807 to same effect affd 656_f2d_483 9th cir unit petitioner elected to be taxed not on her individual earnings and deductions a treatment she could have chosen but on the income and deductions of both spouses her tax_liability is therefore directly affected by her husband's stipulation in the estate case agreeing to the value of the grapevine property petitioner's husband not she was the one who allegedly incurred the loss if the loss is unavailable to him as a carryforward then it stands to reason that she is no more entitled to the loss than he is under these circumstances we hold that petitioner is bound by the representations contained in that agreement the remaining two elements of the duty_of_consistency standard are met respondent was bound to follow the stipulation of settled issues creating the necessary reliance by respondent the third prong is met because petitioner is maintaining a position in this case which is inconsistent with the stipulation of settled issues to respondent's detriment since all three elements of the duty_of_consistency are satisfied we hold that petitioner is bound to use dollar_figure as elwood's basis in the grapevine property for purposes of determining the amount of gain he realized on the sale of such property we decline petitioner's invitation to redetermine the fair_market_value of the grapevine property as of the date of martha cluck's death in we will not disturb the agreement between respondent and elwood and we will not reexamine the stale evidence regarding the value of the grapevine property see 54_tc_25 we find that elwood had unreported capital_gain of dollar_figure dollar_figure amount_realized over dollar_figure basis the effect of this ruling is that the portion of petitioner's and nol's attributable to the loss carryforwards will be eliminated b additional_depreciation deductions petitioner asserts that she is entitled to increase her claimed and nol's to reflect certain depreciation and amortization deductions that were not claimed during the tax years to respondent contends that petitioner has not substantiated her entitlement to such deductions deductions are strictly a matter of legislative grace and petitioner bears the burden of proving she is entitled to any deductions claimed rule a 292_us_435 a taxpayer is required to substantiate claimed deductions by maintaining the records needed to establish her entitlement to such deductions sec_6001 sec_1_6001-1 income_tax regs sec_167 provides in part for a depreciation deduction with respect to property used in a trade_or_business depreciation allows the taxpayer to recover the cost of the property used in a trade_or_business or for the production_of_income 274_us_295 3_tc_381 affd 148_f2d_879 5th cir to substantiate entitlement to a depreciation deduction the taxpayer must show that the property was used in a trade_or_business or other profit- oriented activity in addition the taxpayer must establish the property's depreciable basis by showing the cost of the property its useful_life and the previously allowable_depreciation e g 28_tc_845 affd in part and remanded in part 267_f2d_39 6th cir to substantiate her entitlement to the additional amortization and depreciation_deductions petitioner presented testimony of her husband elwood and a number of summary schedules according to petitioner the summary schedules which were purportedly prepared by petitioner's accountant substantiate her entitlement to the claimed deductions although petitioner indicated that the original documentation supporting the schedules canceled checks and receipts was in the courtroom she did not offer it as evidence in regard to this documentation the revenue_agent that audited petitioner's returns for the years at issue testified that he had in the company of petitioner's accountant attempted to reconcile the summary schedules with the alleged original documentation according to the agent the original information could not be reconciled with the summary schedules furthermore it appeared to the agent that a number of the claimed depreciation_deductions arose from assets that belonged to another person or entity we are not required to accept the unsubstantiated testimony of petitioner's husband and we decline to do so 87_tc_74 the summary schedules provided by petitioner do not demonstrate her entitlement to the claimed deductions petitioner neither called the accountant who allegedly prepared the schedules to testify nor offered any documentation underlying the schedules this dual failure gives rise to the presumption that the evidence if produced would be unfavorable 6_tc_1158 affd 162_f2d_513 10th cir therefore we hold that petitioner is not entitled to use the claimed depreciation and amortization deductions in the computation of her and nol issue addition to tax--failure to timely file sec_6651 provides for an addition_to_tax for failure_to_file a federal_income_tax return by its due_date determined with regard to any extension of time for filing unless it is shown that such failure is due to reasonable_cause and not due to willful neglect calendar_year individual taxpayers must file their federal_income_tax return by april following the close of the calendar_year sec_6072 the taxpayer bears the burden_of_proof on this issue rule a to demonstrate that petitioner did not timely file her and returns respondent introduced a form_4340 certificate of assessments and payments for both and indicating that petitioner filed her and tax returns on january and date respectively petitioner does not contend at trial or on brief that she timely filed her or federal_income_tax return furthermore she has not attempted to prove reasonable_cause for her failure_to_file timely thus we hold that petitioner is liable for the additions to tax under sec_6651 issue addition to tax--negligence in her notice_of_deficiency respondent determined that petitioner was liable for additions to tax for negligence under sec_6653 and b for and sec_6653 for petitioner asserts that her actions were not negligent and therefore she is not liable for such additions for sec_6653 provides that if any part of the underpayment is due to negligence or disregard of rules or regulations there shall be added to the tax an amount equal to percent of the underpayment also for sec_6653 imposes an addition_to_tax equal to percent of the interest payable under sec_6601 with respect to the portion of the underpayment attributable to negligence for sec_6653 provides that if any part of the underpayment is due to negligence or disregard of rules or regulations there shall be added to the tax an amount equal to percent of the underpayment negligence under sec_6653 is defined as a lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances 85_tc_934 quoting marcello v commissioner 380_f2d_499 5th cir affg in part and remanding in part 43_tc_168 the commissioner's determination that the taxpayer's underpayment was due to negligence is presumed correct and the taxpayer has the burden of proving that the determination is erroneous rule a 58_tc_757 thus petitioner must show that she acted reasonably and prudently and exercised due care in reporting her taxes neely v commissioner supra here petitioner has failed to present any evidence that she was not negligent in claiming the and nol's accordingly she has failed to meet her burden_of_proof therefore we affirm respondent's determination on this issue issue addition to tax--substantial understatement respondent determined that petitioner was liable for additions to tax pursuant to sec_6661 for tax years and sec_6661 provides that if there is a substantial_understatement_of_income_tax there shall be added to the tax an amount equal to percent of the amount of any underpayment attributable to such understatement sec_6661 the taxpayer bears the burden of proving that the commissioner's determination as to the addition_to_tax under sec_6661 is erroneous rule a an understatement is the difference between the amount required to be shown on the return and the amount actually shown on the return sec_6661 92_tc_501 91_tc_88 an understatement is substantial if it exceeds the greater of dollar_figure or percent of the amount required to be shown on the return sec_6661 the understatement is reduced however to the extent it is based on substantial_authority or adequately disclosed in the return or in a statement attached to the return sec_6661 petitioner made no arguments and presented no evidence regarding the substantial_understatement additions to tax therefore petitioner has failed to carry her burden_of_proof as to those items accordingly if the recomputed deficiency under rule attributable to those items satisfies the statutory_percentage or amount petitioner will be liable for such additions to tax to reflect the foregoing opinion and the concessions of the parties decision will be entered under rule