department of the treasury internal_revenue_service washington d c date cc ebeo br7 number release date uilc memorandum for from chief branch office of associate chief_counsel employee_benefits exempt_organizations cc ebeo br7 subject review of advisory opinion concerning ira_distributions this field_service_advice is in response your request for our views regarding your memorandum to chief examination_division field_service_advice is not binding on examination or appeals and is not a final case determination field_service_advice issued to examination or appeals is advisory only and does not resolve service position on an issue or provide the final basis for closing a case this document is not to be relied upon or otherwise cited as precedent legend x y issues whether the service has the authority to waive the 60-day rollover rule_of sec_408 and the early_distribution_tax under sec_72 conclusion the service does not appear to have the authority to waive either the 60-day rollover rule_of sec_408 or the early_distribution_tax under sec_72 under the circumstances of this case facts x an individual doing business under the name y provided accounting services primarily with respect to estate and trust work between and x in addition to providing legitimate accounting services misappropriated funds from clients friends and relatives by convincing them to make investments in either a partnership venture or a mutual bond fund and subsequently embezzling their money many of x’s victims obtained funds for the investment by making withdrawals from qualified_tax deferred accounts such as ira’s and apparently believed that the new investments would receive tax-free_rollover treatment on date after being the target of a criminal tax investigation x pled guilty to mail fraud and income_tax evasion based on the unreported embezzlement income until recently x’s victims were unaware that he had defrauded them after learning of the embezzlement the victims contacted the special_agent on the case regarding the tax consequences stemming from their lost investments it is unknown whether x spent all the embezzled funds or whether a portion of the funds is available to satisfy claims of the defrauded investors law and analysis in your memorandum to the examination_division you conclude that the service should waive the 60-day rollover period for those taxpayers whose funds were embezzled if they replenish their iras with funds from other sources within a reasonable_time in reaching this conclusion you rely upon 93_tc_114 childs v commissioner tcmemo_1996_267 and plr based upon the facts presented the taxpayers’ situation appears to be distinguishable from this authority and we do not believe that the service has the authority to waive the rollover period absent additional facts that bring the taxpayers within the ambit of wood we similarly believe that there is no basis to waive the additional tax for early distributions under sec_72 our reasons are discussed below in wood the taxpayer received a lump sum distribution and stock shares from a profit sharing fund the taxpayer met with an account executive of a national brokerage firm where he had an existing non-ira account in order to establish an ira into which he could roll over the distribution the taxpayer signed we believe that further factual development is necessary to resolve each case for example it is not evident from the information that we have whether x held himself out as a nonbank trustee in addition we do not know whether the taxpayers signed any documents opening an ira or took any other reasonably prudent steps to insure that the rollover was accomplished the burden is on the taxpayer to prove what reasonable steps each took to accomplish the rollover documents to establish the ira and instructed the account executive to deposit the lump-sum_distribution into the ira the taxpayer physically delivered the lump sum distribution check and stock certificates to the account executive at that time the brokerage firm’s records indicated that a portion of the distribution was recorded as having been transferred to the other account that the taxpayer maintained with the brokerage firm four months after the expiration of the 60-day period allowed for rollover the brokerage firm corrected its records to reflect transfer of the remaining portion of the distribution to the ira the court held that under these circumstances the 60-day rollover period of sec_408 was satisfied because the money was delivered to the trustee of a valid ira rollover account and the failure by the brokerage firm to record the transfer was a mere bookkeeping error in childs the taxpayer opened two ira accounts with a bank and deposited a distribution which she later learned was not eligible for tax-free_rollover treatment in order to qualify for relief under sec_408 the taxpayer was required to withdraw the excess_contributions on or before august 15th of the year at issue although the taxpayer verbally instructed the bank to convert her ira account into a non-ira account this request was not completed by the bank until after august 15th the delay was the result of a failure on the part of the taxpayer to complete necessary documentation however the court found that the taxpayer had exercised diligence in phoning the bank and had been misled by a bank employee into believing that it was not necessary to execute any bank documents to convert the account the court held that since the taxpayer took all necessary steps to withdraw the excess funds by the required date relief should be granted plr dealt with the tax consequences of embezzlement by a bank officer the officer had issued worthless certificates of deposit to account holders in exchange for funds the bank reimbursed depositors who could demonstrate that they had made deposits for the purchase of worthless certificates the service ruled that amounts restored to the depositors’ ira’s were not taxable to depositors in our view two facts distinguish the taxpayers at issue from the taxpayers in the cases and ruling cited above first the taxpayers at issue have not established that they were dealing with an individual that they had a reasonable expectation to believe had the authority to establish an ira such as an employee of a bank or a financial_institution although the facts indicate that x provided accounting services there is no mention of his qualifications as an ira trustee in wood childs and plr the taxpayers were each dealing directly with individuals who were employees of financial institutions and therefore would have met the qualifications for ira trustees within the meaning of sec_408 second although the facts indicate that the taxpayers at issue believed that the money would be deposited into accounts that would qualify for tax-free_rollover treatment there is no evidence that they ever took the steps required to set up these accounts rather it appears that the taxpayers merely gave their money to x and requested that he invest it for them this fact distinguishes the taxpayers at issue from the taxpayer in wood who had completed the paperwork necessary to establish the ira rollover account and from the taxpayers in childs and plr who maintained accounts at the institutions that effectuated the transfers although you have drawn an analogy between the instant case and wood we believe that the holding in 110_tc_1 actually controls in schoof the tax_court held that where a taxpayer gives a distribution intended as a rollover to a trustee who is not qualified under sec_408 rollover tax treatment is denied and the taxpayer must include the distribution in income in reaching this decision the court specifically held that wood was distinguishable because it merely involved procedural defects in the execution of the rollover rather than the failure of a fundamental element of the statutory requirements the qualification of the ira trustee schoof pincite the court also held that based upon the legislative_history of sec_408 individuals are per se ineligible to serve as trustees for ira trusts in the present case it is unlikely that x could be considered a qualified trustee since he appears to have acted in an individual capacity even though he did business under the name y accordingly under the holding of schoof the taxpayers who gave him distributions failed to satisfy a fundamental statutory requirement and should be required to include the amount of the distribution in income this result is not changed simply because x embezzled the funds even if x were considered to be a qualified trustee orgera v commissioner tcmemo_1995_575 demonstrates that although a taxpayer may believe that he has done everything necessary to effectuate a rollover the 60-period is nevertheless strictly construed in orgera the taxpayer deposited his pension distribution in a money market account at his company's credit_union and argued that he should receive tax-free_rollover treatment because he believed he was making a qualified ira deposit in orgera as in schoof the court specifically declined to extend the wood rationale and denied rollover treatment since the taxpayer failed to make a timely transfer of the distribution to an ira that met the statutory requirements similarly despite their intentions the taxpayers in the present case failed to meet the statutory requirements necessary to achieve rollover treatment in addition to the above cited cases one private_letter_ruling supports our finding that there is no legal basis for the service to waive the rollover requirements or early_distribution_tax in this case plr involved a taxpayer who gave ira funds to an embezzler with the mistaken expectation that the funds would be deposited to a qualified_retirement_plan within days in this ruling which is directly analogous to the instant case the service denied rollover treatment even though the taxpayer deposited the funds to the plan after they were recovered because the 60-day period was not met in support of its position the service states the code does not provide relief from applicable taxation where the taxpayer intended to rollover funds from one ira to another and in fact fails to do so or places the funds in an investment vehicle other than an ira therefore the transfer of funds to an individual instead of an ira does not constitute a complete and timely rollover in plr the service also ruled with respect to sec_72 that the additional tax applied because none of the exceptions were satisfied we believe that this is the correct conclusion in our view there is no legal basis to waive the additional tax for early distributions under sec_72 in the instant situation unless the taxpayers meet one of the exceptions set forth in the statute although you cite 89_tc_287 and murillo v commissioner tcmemo_1998_13 in support of the theory that sec_72 tax should be waived where a distribution is involuntary the service has specifically declined to adopt the position that sec_72 tax should be waived in instances of involuntary distributions even if the service applied this standard however the fact remains that these taxpayers voluntarily withdrew funds from their ira’s and transferred those funds to x this distinguishes them from the taxpayer in larotonda whose distribution was the result of a levy and the taxpayer murillo who forfeited his ira to the government as part of a plea agreement in summation based on the facts presented we see no legal basis for relief with respect to the rollover issue because the taxpayers’ situation appears to be distinguishable from those cases and private letter rulings that disregard a taxpayer's failure to follow literal statutory requirements in addition the requirements articulated by the court in schoof do not appear to be satisfied the taxpayer’s situation appears similar to orgera where the court declined to grant the service published aod cc-1988-010 on date indicating non-acquiescence with larotonda and stating that the under the rationale of 804_f2d_84 7th cir the premature_distribution tax applies to distributions regardless of whether they are voluntary on date the service published aod cc-1999-002 which withdraws the earlier larotonda aod due to statutory changes to sec_72 brought about by the restructuring and reform act of pub_l_no 112_stat_685 that will be effective for distributions after date however the withdrawal does not alter the service’s position with respect to whether a voluntary involuntary standard should apply on date in aod the service acquiesced in result only in response to murillo v commissioner tcmemo_1998_13 the aod specifically states that although the service will not assess sec_72 tax under the narrow circumstances of murillo in all other cases involving early distributions the service will continue to assess sec_72 tax unless a statutory exception applies relief even though the taxpayer intended to make a tax-free_rollover however if any of the taxpayers are able to prove additional facts that would narrow the distinction between their case and wood we should consider such facts carefully barring such a showing the service must operate within the existing statutory framework if it is to fairly consistently and effectively administer the internal_revenue_code please contact christine keller at with any questions michael j roach


t c summary opinion united_states tax_court lisa r coleman petitioner v commissioner of internal revenue respondent docket nos 12085-07s 16591-07s filed date lisa r coleman pro_se scott b burkholder for respondent dean special_trial_judge these consolidated cases were heard pursuant to the provisions of sec_7463 of the internal_revenue_code code in effect when the petitions were filed pursuant to sec_7463 the decisions to be entered are not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure for and respondent determined deficiencies in petitioner’s federal income taxes of dollar_figure and dollar_figure and accuracy-related_penalties under sec_6662 of dollar_figure and dollar_figure respectively respondent disallowed petitioner’s claimed deductions for schedule a taxes of dollar_figure and her dollar_figure charitable_contribution_deduction for for respondent disallowed petitioner’s claimed dollar_figure theft_loss deduction her dollar_figure mortgage interest_deduction and dollar_figure of her claimed dollar_figure charitable_contribution_deduction for and respondent concedes that petitioner is entitled to deductions for charitable_contributions of dollar_figure2 1petitioner’s dollar_figure charitable_contribution_deduction included a dollar_figure carryover from petitioner neither argued nor established that she had a dollar_figure carryover from petitioner is deemed to have conceded the issue see 89_tc_46 see also stutsman v commissioner tcmemo_1961_109 and cases cited therein 2the dollar_figure figure consists of amounts evidenced by copies of checks numbered and payable to bethel pentecostal church bethel that total dollar_figure copies of checks numbered and payable to bishop martin and sister cascada that total dollar_figure and copies of checks numbered and payable to various persons who performed services for the church that total dollar_figure and dollar_figure and schedule a taxes of dollar_figure and dollar_figure respectively the issues remaining for decision are whether petitioner is entitled to claim charitable_contribution deductions in excess of those respondent allowed entitled to claim a mortgage interest_deduction of dollar_figure for entitled to claim a theft_loss deduction of dollar_figure for and liable for the accuracy-related_penalty for each year background some of the facts have been stipulated and are so found the stipulation of facts and the exhibits received into evidence are incorporated herein by reference when the petitions were filed petitioner resided in california charitable_contributions during the years at issue petitioner was employed as a law enforcement technician with the los angeles county sheriff’s department she also served as the pastor of bethel which is a member church of mount sinai holy church of america inc 3the dollar_figure figure consists of amounts evidenced by copies of checks numbered and payable to bethel that total dollar_figure copies of checks numbered and payable to various charities that total dollar_figure copies of checks numbered and payable to various persons who provided services for bethel that total dollar_figure copies of checks numbered and payable to bishop t martin and thomas martin that total dollar_figure and dollar_figure that was allowed by respondent’s revenue_agent during the examination of petitioner’s return petitioner made expenditures on behalf of bethel by cash or check for example petitioner purchased a 15-passenger van for use by bethel so that she could pick up church members for sunday school and morning worship the van bears bethel’s name and is parked on bethel’s premises but it is titled in petitioner’s name in addition petitioner purchased a foot black rod sic iron fence that runs the perimeter of bethel’s property on petitioner’s schedules a itemized_deductions attached to her form sec_1040 u s individual_income_tax_return petitioner claimed deductions for charitable_contributions of dollar_figure and dollar_figure for and respectively as reflected on petitioner’s schedule a her charitable_contribution_deduction consisted of gifts by cash or check of dollar_figure gifts other than by cash or check of dollar_figure and a dollar_figure carryover from as reflected on petitioner’s schedule a her charitable_contribution_deduction consisted of gifts by cash or check of dollar_figure and gifts other than by cash or check of dollar_figure in the notices of deficiency for and respondent disallowed cash contributions of dollar_figure and dollar_figure respectively respondent disallowed petitioner’s claimed cash contributions because petitioner did not verify that the amounts shown were contributions and paid therefore the amounts are not deductible mortgage interest_deduction on date letters of administration were filed naming petitioner as the legal_representative of her mother’s estate petitioner’s mother lula mae coleman died intestate on date in petitioner made some payments to the entities holding mortgages on her parent’s home at e newfield st petitioner however has lived in her home at e 90th for over years and resided at her e 90th home during on petitioner’s schedule a she claimed an dollar_figure mortgage interest_deduction for the interest_paid with respect to the mortgages on her parent’s home at e newfield st respondent disallowed petitioner’s claimed mortgage interest_deduction because she did not establish that the amount was her interest_expense and that she paid it theft_loss deduction on date petitioner filed an incident report for a burglary at bethel on the incident report the police officer recorded petitioner’s statement that two computers including monitors and printers worth dollar_figure were stolen petitioner also submitted a supplementary loss report on which she claimed a total additional loss of dollar_figure petitioner claimed that the additional loss items consisted of musical equipment chaffing dishes roasters a t v computer equipment food clothes toys and cases of paper on petitioner’s schedule a petitioner described the event as a home burglary in which various household_items with a basis of dollar_figure and a dollar_figure fair_market_value were stolen petitioner claimed a dollar_figure total theft_loss that respondent disallowed because she did not establish that a theft occurred and that she sustained a loss discussion i burden_of_proof the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer bears the burden to prove that the determinations are in error see rule a 290_us_111 but the burden_of_proof on factual issues that affect the taxpayer’s tax_liability may be shifted to the commissioner where the taxpayer introduces credible_evidence with respect to the issue and the taxpayer has satisfied certain conditions see sec_7491 petitioner has not alleged that sec_7491 applies and she has neither complied with the substantiation requirements nor maintained all required records see sec_7491 and b accordingly the burden_of_proof remains on her ii charitable_contribution deductions petitioner testified that bethel was in need of repairs when she received it and that she put a lot of money into the church because i think that that’s my responsibility as the pastor of the church to make sure that the church is functioning and in decent order according to petitioner she had to rent equipment charge things to her home depot account and hire men to perform repairs she had to pay that on behalf of the church because the church did not have a fund in order to do that that’s where her contributions came from unreimbursed expenditures made incident to the rendition of services to a qualifying charitable_organization may constitute a deductible contribution 76_tc_178 affd 676_f2d_35 2d cir mccollum v commissioner tcmemo_1978_435 miller v commissioner tcmemo_1975_279 sec_1_170a-1 income_tax regs but deductions for charitable_contributions are allowed only if verified under regulations prescribed by the secretary sec_170 a monetary contributions of less than dollar_figure in pertinent part sec_1_170a-13 income_tax regs provides that separate contributions of less than dollar_figure are not subject_to the contemporaneous written acknowledgment requirement of sec_170 regardless of whether the sum of the contributions to an organization equals dollar_figure or more rather monetary charitable_contributions of less than dollar_figure must be substantiated by a canceled check a receipt from the organization that shows the name of the donee the date of the contribution and the amount thereof or other reliable written records that show the name of the donee the date of the contribution and the amount thereof sec_1_170a-13 income_tax regs a letter or other communication from the organization that acknowledges the receipt of a contribution and that shows the date and amount thereof constitutes a receipt id sec_1_170a-13 income_tax regs provides that the reliability of other reliable written records is determined on the basis of all of the facts and circumstances factors indicative of reliability include but are not limited to the contemporaneousness of the writing evidencing the contribution the regularity of the taxpayer’s recordkeeping procedures eg a contemporaneous diary entry stating the amount and date of the contribution and the name of the organization that is made by a taxpayer who regularly makes such diary entries and in the case of a de_minimis contribution any written or other evidence from the organization evidencing the contribution that would not otherwise constitute a receipt including a token traditionally associated with the organization and regularly given by the organization to persons making cash donations id petitioner has submitted into evidence a log of the and disputed monetary contributions of less than dollar_figure and copies of the following canceled checks date check no payee amount description cash sparkletts dollar_figure water dollar_figure donation water officemax dollar_figure supplies u s postmaster dollar_figure postage sam’s club dollar_figure supplie sec_2 mr barrueta dollar_figure repair-elec sparkletts dollar_figure water water officemax dollar_figure supplies officemax dollar_figure supplies gas co dollar_figure utilities sparkletts dollar_figure water water sam’s club dollar_figure supplies sparkletts dollar_figure water water sam’s club dollar_figure supplie sec_11 u s postmaster dollar_figure postage bishop batten2 dollar_figure donation pastor johnson2 dollar_figure donation total dollar_figure this contribution was made in and thus is not deductible as a charitable_contribution for see sec_170 respondent’s disallowance thereof is sustained respondent disallowed the deductions for these contributions reasoning that the payments fail the to or for_the_use_of the organization requirement see sec_170 since the checks were deposited into the individuals’ personal banking accounts rather than an account of a charitable_organization since petitioner has not proven that the payments were to or for_the_use_of a charitable_organization rather than for the personal_use of the individuals respondent’s disallowance thereof is sustained see 495_us_472 petitioner’s log also lists the following cash contributions of less than dollar_figure for which respondent disputes date method recipient amount description payment cash los angeles mission dollar_figure gift cash los angeles mission dollar_figure gift cash los angeles mission dollar_figure gift cash los angeles mission dollar_figure gift cash march of dimes dollar_figure gift cash neighborhood curb dollar_figure gift painting cash easter seals dollar_figure gift cash united negro dollar_figure gift college fund cash united negro college fund total dollar_figure gift dollar_figure petitioner has not provided receipts substantiating the foregoing charitable_contributions petitioner’s entitlement to her charitable_contribution deductions therefore hinges on the canceled checks or her other reliable written record the court finds that neither the notations on the canceled checks nor the payees of the canceled checks prove that petitioner paid the expenses on bethel’s behalf indeed the subject matter of the canceled checks indicates that the expenditures might be nondeductible personal expenses see sec_262 with respect to the log it is dated and appears to have been created by petitioner’s return preparer mr applewhite thus petitioner has failed to establish the contemporaneous nature of the log and she has not established that she regularly and contemporaneously recorded her contributions in the log see sec_1_170a-13 and b income_tax regs the court accords little probative weight to the log without other reliable evidence to substantiate her deductions for charitable_contributions of less than dollar_figure for and the court finds that petitioner is not entitled to claim her deductions in addition the court will not apply the cohan_rule to estimate a deductible amount see 39_f2d_540 2d cir see also 100_tc_32 the reporting requirements of sec_1_170a-13 income_tax regs are directory and not mandatory 85_tc_731 an estimate must have a reasonable evidentiary basis without reliable evidence upon which to base an estimate an allowance here would amount to unguided largesse 245_f2d_559 5th cir accordingly respondent’s determinations are sustained b donations of money or property of dollar_figure or more as is relevant here sec_170 provides that no deduction is allowed for all or part of any charitable_contribution of dollar_figure or more unless the contribution is substantiated by a contemporaneous written acknowledgment from the organization see also sec_1_170a-13 income_tax regs a written acknowledgment is contemporaneous if it is obtained by the taxpayer on or before the earlier of the date the taxpayer files the original return for the taxable_year of the contribution or the due_date including extensions for filing the original return for the year sec_170 sec_1_170a-13 income_tax regs the written acknowledgment must state the amount of cash and a description but not necessarily the value of any property other than cash that the taxpayer donated and whether the organization provided any consideration to the taxpayer in exchange for the donation sec_170 and ii sec_1_170a-13 and ii income_tax regs to substantiate the following disputed deductions for charitable_contributions of dollar_figure or more petitioner has submitted into evidence a log of her contributions and certain letters payment_date method recipient amount description various cash bethel dollar_figure various cash bethel dollar_figure van payments cash bethel dollar_figure van insurance property dorothy dollar_figure bags clothing tv household brown school items property dorothy dollar_figure bags brown clothing tv school household_items dollar_figure total to substantiate the following disputed deductions for charitable_contributions of dollar_figure or more petitioner has submitted into evidence a log of her contributions copies of canceled checks certain letters and photographs date payment method recipient amount description mr degado dollar_figure repair-church check no check bishop dollar_figure donation no batten various cash bethel dollar_figure wrought iron black fence various cash bethel dollar_figure tractor mower various cash bethel dollar_figure van payments bethel dollar_figure van insurance property dorothy dollar_figure bags brown clothing tv school total household dollar_figure items although petitioner’s log shows a dollar_figure charitable_contribution for petitioner has provided three letters purporting to substantiate cash contributions of dollar_figure to bethel during a letter from bishop coward dated june 4the log and the letters fail to differentiate between contributions that were below dollar_figure and those of dollar_figure or more in the dollar_figure sum that petitioner alleges that she paid at various intervals during the court notes that such cash contributions would not be deductible even under the less stringent standard of sec_1_170a-13 income_tax regs because the letters do not show the dates of the various contributions or the amounts thereof alleges that petitioner paid dollar_figure in for major repair work on the property a letter from pastor kincy dated date alleges that petitioner made a contribution of dollar_figure in a letter from secretary jackson dated date alleges the same aside from other defects the three letters and the log fail to satisfy the requirement that the organization provide a statement as to whether or not the organization provided any goods or services in consideration for the donation see sec_170 sec_1_170a-13 income_tax regs therefore petitioner’s dollar_figure charitable_contribution_deduction is not allowable see kendrix v commissioner tcmemo_2006_9 disallowing the taxpayer’s charitable_contribution deductions because the requirements of sec_170 were not satisfied since the receipts did not state whether the church provided any goods or services in consideration for the contributions castleton v commissioner tcmemo_2005_58 affd 188_fedappx_561 9th cir 5petitioner testified that the title elder l c kincy is the name that she uses in her pastorage 6specifically the defects include petitioner’s log is not a written acknowledgment from the organization petitioner’s log the bishop coward letter and the secretary jackson letter were not contemporaneous and the pastor kincy letter acknowledging petitioner’s own charitable_contributions is suspect in that it purports to be written by an individual other than petitioner thus the court accords little weight to the pastor kincy letter petitioner cannot deduct the dollar_figure charitable_contribution for a tractor lawnmower that she allegedly donated to bethel because neither the log nor the letter dated date evidencing the contribution satisfies the contemporaneous acknowledgment requirements of sec_1_170a-13 and income_tax regs petitioner cannot deduct the dollar_figure payment to bishop batten because neither the log nor the canceled check evidencing the payment satisfies the acknowledgment requirements of sec_1_170a-13 and income_tax regs in addition since the check was deposited into bishop batten’s personal bank account rather than an account of a charitable_organization petitioner has not proven that the payment was to or for_the_use_of a charitable_organization rather than for the personal_use of the individual see sec_170 495_us_472 petitioner cannot deduct the items donated to the dorothy brown school because the log evidencing the contribution does not satisfy the contemporaneous acknowledgment requirements of sec_1_170a-13 and income_tax regs petitioner submitted no other records and did not present testimony from any other representative of bethel to substantiate her dollar_figure cash contributions her donation of the tractor lawnmower or her dollar_figure payment to bishop batten similarly petitioner provided no other evidence to substantiate her charitable_contributions to the dorothy brown school accordingly the court will not apply the cohan_rule to estimate a deductible amount see williams v united_states f 2d pincite vanicek v commissioner t c pincite see also cohan v commissioner f 2d pincite bond v commissioner t c pincite respondent’s determinations are sustained petitioner has provided a receipt a letter from bethel canceled checks the log and photographs of the old and new fence to substantiate payments of dollar_figure to a mr degado for her purchase of the black wrought iron fence the so-called receipt is dated date and purports to be from juan degado the receipt was not issued by mr degado the receipt was created on date by the new owner of the fencing business based upon information supplied by petitioner and allegedly by one of the workers who installed the fence the court therefore accords little weight to the receipt the letter from bethel concerning the fence is dated date and is signed by elder l c kincy pastor and sis angelique jackson secretary the letter acknowledges a dollar_figure donation for a foot black rod sic iron fence the letter however fails to satisfy the requirement that the 7petitioner did not call the worker as a witness to corroborate her charitable_contribution organization provide a statement as to whether the organization provided any goods or services in consideration for the donation see sec_170 sec_1_170a-13 income_tax regs the canceled checks consist of a dollar_figure payment to mr degado that was drawn on petitioner’s personal account on date and a dollar_figure payment to mr degado that contained the notation iron gates the canceled checks however are not written acknowledgments from the organization see sec_170 8the dollar_figure check was signed by petitioner on date and was drawn on an account titled in her mother’s name cal prob code sec west provides that title to a decedent’s property passes on the decedent’s death to the decedent’s heirs as prescribed by the laws governing intestate_succession as of date title to the account passed to petitioner’s father and certain heirs including petitioner see cal prob code secs and west supp see also 472_us_713 state law determines the nature of property rights federal_law determines the appropriate federal_income_tax treatment of petitioner’s dollar_figure purported contribution united_states v natl bank of commerce supra pincite an estate is a separate taxable entity see sec_641 herter v commissioner tcmemo_1961_19 generally estates are allowed deductions for charitable_contributions if the contributions are paid out of the estate’s gross_income and are made pursuant to the terms of the governing instrument sec_642 because petitioner is not the taxpayer who made the contribution she is not entitled to claim a deduction for the contribution see 257_f2d_798 3d cir 250_f2d_902 5th cir see also stussy v commissioner tcmemo_1997_293 taken together the canceled checks the letter the log and the photographs corroborate petitioner’s claim that she expended some money to purchase the fence on bethel’s behalf although petitioner has not complied with the substantiation requirements of sec_170 and the regulations thereunder the court is satisfied that petitioner made some payments on behalf of bethel--but not dollar_figure putting aside the evidentiary issues the receipt indicates that petitioner made three payments of dollar_figure a dollar_figure payment and a dollar_figure payment the record establishes that petitioner has not provided any other evidence establishing payments over dollar_figure to mr degado in thus petitioner has not proven that she paid the remaining dollar_figure in dollar_figure accordingly the court finds that petitioner is entitled to a dollar_figure charitable_contribution_deduction for the fence for see cohan v commissioner supra pincite estimates of a taxpayer’s deductions bear heavily against the taxpayer whose inexactitude is of his or her own making see also bond v commissioner supra pincite 9see supra note 10petitioner entered into evidence a bank statement for the period jan to showing a dollar_figure payment by draft that bears petitioner’s handwritten notation iron gates putting aside the hearsay matter the court notes that the payment was effective on date and posted on date thus it appears that petitioner would be entitled to this dollar_figure deduction if at all in not see sec_446 sec_461 petitioner cannot deduct the van payments as charitable_contributions since she continues to own the property the contributions therefore consist of less than petitioner’s entire_interest in the property and are not deductibledollar_figure see sec_170 sec_1_170a-7 income_tax regs cf logan v commissioner tcmemo_1994_445 classifying the donee’s rent-free use of the taxpayer’s real_property as a mere right to use property and disallowing a deduction for its fair rental value as a charitable_contribution under sec_170 respondent’s determination is sustained petitioner cannot deduct the insurance premium payments for the van as charitable_contributions petitioner has not shown that bethel was the sole beneficiary of the policy see 343_f2d_553 5th cir in addition neither petitioner’s log nor the letter from the insurance agent dated date satisfies the contemporaneous acknowledgment requirements of sec_1_170a-13 and income_tax regs respondent’s determination is sustaineddollar_figure 11in addition petitioner has not proven that the limited exceptions of sec_170 apply see also sec_1_170a-7 and b income_tax regs 12there is no evidence in the record as to the number of miles petitioner drove in her charitable endeavors that would allow a charitable_contribution_deduction based either on petitioner’s out-of-pocket expenses or on the standard_mileage_deduction see sec_170 sec_1_170a-1 income_tax regs iii mortgage interest_deduction sec_163 allows a deduction for interest_paid or accrued within the taxable_year on indebtedness the indebtedness for purposes of sec_163 must in general be an obligation of the taxpayer and not an obligation of another 604_f2d_34 9th cir affg tcmemo_1976_150 84_tc_889 affd without published opinion 805_f2d_1073 d c cir petitioner was not directly liable on the mortgages for which she claimed a mortgage interest_deduction but petitioner argues that she is entitled to a deduction for mortgage interest that she paid in pursuant to sec_1_163-1 income_tax regs which provides in pertinent part interest_paid by the taxpayer on a mortgage upon real_estate of which he is the legal or equitable owner even though the taxpayer is not directly liable upon the bond or note secured_by such mortgage may be deducted as interest on his indebtedness petitioner claims that she has both a vested and an equitable interest in her mother’s property at e newfield st petitioner testified that she started making the mortgage payments in february when her mother became ill and was no longer able to work state law determines the nature of property rights while federal_law determines the appropriate federal_income_tax treatment of those rights see 472_us_713 363_us_509 thus whatever rights or interests petitioner held in the property is determined pursuant to california law as is relevant here title to the property of a decedent’s estate vests subject_to administration in his or her heirs immediately upon death under california law cal prob code sec olson v toy cal rptr 2d ct app bethel v kerksey in re estate of williams cal rptr ct app when there is an intestate_succession there is an automatic vesting of title in the intestate heirs subject_to administration see also cal prob code secs and such vesting is not contingent on any assent acceptance or election by the heirs taylor v crippled children’s socy in re estate of taylor cal rptr ct app citing martin v mcgrath in re meyer’s estate p 2d cal dist ct app the court considers several factors when determining whether a taxpayer is an equitable or beneficial_owner of the property and thus entitled to mortgage interest deductions see blanche v commissioner tcmemo_2001_63 affd 33_fedappx_704 5th cir as is relevant here the factors include whether the taxpayer had a right to possess the property and to enjoy the use rents or profits thereof whether the taxpayer had a duty to maintain the property whether the taxpayer was responsible for insuring the property whether the taxpayer bore the risk of loss of the property whether the taxpayer was obligated to pay taxes assessments and charges against the property and whether the taxpayer had the right to improve the property without the owner’s consent id several of these factors weigh against petitioner for the period before her mother’s death on date specifically there is no indication that petitioner bore the risk of loss or that she was responsible for maintaining the property insuring the property or paying any taxes assessments or charges and there is no indication that she had the right to make improvements thus the court finds that petitioner was not an equitable or beneficial_owner of the property before her mother’s death on date petitioner is not entitled to mortgage interest deductions for payments she made before date because she was not directly liable on the notes securing the mortgages and she has failed to prove that she was the legal equitable or beneficial_owner of the property before august dollar_figure the property’s legal_title however passed in part to petitioner on date petitioner is entitled to mortgage interest deductions for payments she made from date subject_to the substantiation requirement of sec_6001 see zards v commissioner tcmemo_1995_497 only mortgage interest_paid for the period after the taxpayer becomes the legal or equitable owner of the property is deductible by the taxpayer petitioner provided copies of forms mortgage interest statement to substantiate her mortgage interest deductions the forms show interest payments in of dollar_figure to countrywide home loans countrywide dollar_figure to popa federal credit_union popa and dollar_figure to vodofsky in addition petitioner provided two canceled checks issued in date one to countrywide for dollar_figure and one to popa for dollar_figure petitioner also entered into evidence bank statements from september to date for september petitioner handwrote on the statement hp next to drafts in the sum of dollar_figure for october petitioner handwrote on the 13if a taxpayer pays mortgage interest accrued before the date he became the legal or equitable owner of the mortgaged property the amount must be capitalized as part of his cost of the property see koehler v commissioner tcmemo_1978_381 and cases cited therein statement 2nd with respect to a transfer to coleman lula m loan for dollar_figure for november petitioner handwrote on the statement 2nd with respect to a transfer to coleman lula m loan for dollar_figure and hp for a withdrawal to mrs associates for dollar_figure for december petitioner handwrote on the statement 2nd with respect to a transfer to coleman lula m loan for dollar_figure and hp with respect to withdrawals to countrywide in the sum of dollar_figure and mortgage jit pmt for dollar_figure it is unclear from the record that the september drafts and the payment to mrs associates were in fact mortgage payments in addition it is unclear from the record whether the mortgage jit pmt relates to the three mortgages for which interest deductions were claimed rather than to petitioner’s home at the e 90th address for which no form_1098 was entered into evidence petitioner testified that she makes four mortgage payments one to countrywide one to washington mutual one to vodofsky and one to popa according to petitioner the mortgage jit pmt could be to any one of the other three from the evidence the court finds that petitioner is not entitled to mortgage interest deductions for the vodofsky mortgage because she has not established that she made interest payments from august to date see sec_163 h with respect to the countrywide mortgage petitioner has established that she made interest payments in september and date but she failed to establish that she made interest payments in august october and date consequently the court finds that petitioner is entitled to deductions for mortgage interest_paid to countrywide in september and date see sec_163 h with respect to the popa mortgage petitioner has established that she made interest payments from september to date accordingly the court finds that petitioner is entitled to deductions for mortgage interest_paid to popa from september to date iv theft_loss deduction in general sec_165 and c allows an individual a deduction for any theft sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise among other requirements petitioner must establish that she personally sustained the theft_loss see 15_tc_135 only the owner of the misappropriated property is entitled to a theft_loss deduction because the loss is personal to the owner malik v commissioner tcmemo_1995_204 taxpayer could not claim a theft_loss deduction because he was not the victim of the theft the police officer’s incident report states that the location of the theft was bethel the officer’s narrative explains that unknown person s broke into the interior of bethel and stole computers including monitors and printers worth dollar_figure that were located in an office in the northwest corner of bethel on her form_4684 casualties and thefts loss petitioner described the theft event as a home burglary and described the misappropriated property as various household_items worth dollar_figure petitioner testified that the items were taken from bethel not from her residence petitioner explained that she uses many different things down at bethel but they are my personal items petitioner also testified that she did not have anything to prove that she owned the items according to petitioner she had to take the loss because bethel did not have insurance petitioner has failed to prove that she owned the misappropriated property see also 294_f2d_328 4th cir the court may reject a taxpayer’s uncorroborated self-serving testimony affg 34_tc_845 87_tc_74 same because petitioner has failed to establish that she personally sustained a theft_loss respondent’s disallowance of the theft_loss is sustained see draper v commissioner supra pincite malik v commissioner supra see also 503_us_79 stating that deductions are strictly a matter of legislative grace and taxpayers bear the burden of proving that they are entitled to claim the deduction v accuracy-related_penalty initially the commissioner has the burden of production with respect to any penalty addition_to_tax or additional_amount sec_7491 the commissioner satisfies this burden of production by coming forward with sufficient evidence that indicates that it is appropriate to impose the penalty see 116_tc_438 once the commissioner satisfies this burden of production the taxpayer must persuade the court that the commissioner’s determination is in error by supplying sufficient evidence of reasonable_cause substantial_authority or a similar provision id in pertinent part sec_6662 and b and imposes an accuracy-related_penalty equal to percent of the underpayment that is attributable to negligence or disregard of rules or regulations or a substantial_understatement of income taxdollar_figure sec_6662 defines the term negligence to include any failure to make a reasonable attempt to comply with the provisions of this title and the term disregard to include any careless reckless or intentional disregard negligence 14because the court finds that petitioner was negligent or disregarded rules or regulations the court need not discuss whether there is a substantial_understatement_of_income_tax see sec_6662 fields v commissioner tcmemo_2008_207 also includes any failure by the taxpayer to keep adequate books_and_records or to substantiate items properly sec_1 b income_tax regs sec_6664 provides an exception to the sec_6662 penalty no penalty is imposed with respect to any portion of an underpayment if it is shown that there was reasonable_cause therefor and the taxpayer acted in good_faith sec_1_6664-4 income_tax regs incorporates a facts_and_circumstances_test to determine whether the taxpayer acted with reasonable_cause and in good_faith the most important factor is the extent of the taxpayer’s effort to assess his proper tax_liability id circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of the experience knowledge and education of the taxpayer id the court finds that respondent has met his burden of production and that petitioner was negligent petitioner did not properly substantiate her deductions as required by the code and the regulations petitioner did not establish a defense for her noncompliance with the code’s requirements respondent’s determinations are sustained other arguments made by the parties and not discussed herein were considered and rejected as irrelevant without merit and or moot to reflect the foregoing decisions will be entered under rule


internal_revenue_service department of the ireasury washington dc contact person telephone number in reference to date t ep ra t3 jul uic d vegend taxpayer a taxpayer b individual c individual d ira x ira y company m company n date month month month month paes dear _f this is in response to the letter submitted by your authorized representative in which you request relief under sec_301_9100-3 of the procedure and administration regulations the following facts and representations support your ruling_request taxpayer a who is married to taxpayer b maintained ira x an individual_retirement_arrangement described in code sec_408 during the calendar_year through the agency of company m taxpayer a converted ira x to roth_ira ira y taxpayers a and b’s adjusted_gross_income for exceeded the limit found at sec_408a of the internal_revenue_code on date the internal_revenue_service mailed a notice to taxpayers a and b advising them to report the second installment of the taxable_income from their calendar_year conversion of taxpayer a’s traditional_ira x to her roth_ira y on their calendar_year federal_income_tax return during month taxpayer a received notification from the intemal revenue service by means of a notice that she may have been ineligible to convert her ira x to roth_ira y and that if she was ineligible to convert she had until the end of the calendar_year to recharacterize her roth_ira y to a traditional_ira during month taxpayers a and b took the notice and the notice referenced above to company n enrolled agents and employees of which individuals c and d had prepared their calendar_year federal_income_tax return and had advised taxpayer a that she was eligible to convert her ira x to roth_ira y on this occasion company n advised taxpayers a and b that taxpayer a was in fact ineligible to convert her ira x to roth_ira y taxpayers a and b then authorized individuals c and d the above-named employees of company n to ask the internal_revenue_service to permit taxpayer a to recharacterize her roth_ira y to a traditional_ira the company n employees did so during month however the service refused to grant said request during month individuals c and d sought relief on behalf of taxpayers a and b from the taxpayer advocate’s office of the service such relief was not granted this request for relief under sec_301_9100-3 of the regulations followed shortly thereafter taxpayers a and b timely filed their calendar_year federal_income_tax return based on the above you through your authorized representative request the following letter_ruling ree that pursuant to sec_301_9100-3 of the regulations taxpayer a may recharacterize her roth_ira y to a traditional_ira with respect to your request for relief under sec_301_9100-3 of the regulations sec_408a of the internal_revenue_code and sec_1_408a-5 of the income_tax regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira in a recharacterization the ira contribution is treated as having been made to the transferee ira and not the transferor ira under sec_408a and sec_1_408a-5 this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer’s federal_income_tax returns for the year of contributions sec_1_408a-5 question and answer-6 describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer’s intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer code sec_408a provides in relevant part that an individual with adjusted_gross_income in excess of dollar_figure for a taxable_year is not permitted to make a qualified_rollover_contribution to a roth_ira from an individual_retirement_plan other than a roth_ira during that taxable_year sec_1_408a-4 q a-2 provides in summary that an individual with modified_adjusted_gross_income in excess of dollar_figure for a taxable_year is not permitted to convert an amount to a roth_ira during that taxable_year sec_1_408a-4 q a-2 further provides in summary that an individual and her spouse must file a joint federal tax_return to convert a traditional_ira to a roth_ira and that the modified_adjusted_gross_income subject_to the dollar_figure limit for a taxable_year is the modified agi derived from the joint retum using the couple’s combined income sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the procedure and administration regulations in general provide guidance concerning requests for relief submitted to the service on or after date sec_301_9100-1 of the regulations provides that the commissioner of the internal_revenue_service in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal ree revenue bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 of the regulations generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the temporary regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if its request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 of the temporary regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute_of_limitations before the taxpayer's receipt of a ruling granting relief under this section announcement lr b date provided that a taxpayer who timely filed his her federal_income_tax return would have until date to recharacterize an amount that had been converted from a traditional_ira to a roth_ira announcement lr b date provided that a taxpayer who timely filed his her federal_income_tax retum would have until date to recharacterize an amount that had been converted from a traditional_ira to a roth_ira meee _ taxpayers a and b timely filed their federal_income_tax return asa result taxpayer a was eligible for relief under either announcement or announcement however she missed the deadlines found in said announcements therefore it is necessary to determine if she is eligible for relief under the provisions of sec_301_9100-3 of the regulations in this case taxpayer a was ineligible to convert her ira x to roth_ira y since her and taxpayer b’s adjusted_gross_income for calendar_year exceeded dollar_figure however until she discovered otherwise taxpayer a believed that her ira x had been properly converted to a roth_ira roth_ira y during calendar_year in arriving at this conclusion taxpayer a relied upon the advice of individuals c and d enrolled agents and employees of company n upon discovering that the conversion of ira x to roth_ira y had not been proper taxpayer a requested company n employees of which had advised taxpayer a to make the conversion to seek relief from the internal_revenue_service shortly thereafter company n did so taxpayers a and b filed this request for sec_301 relief shortly after discovering that company n’s attempts on their behalf were not successful furthermore taxpayer a’s ineligibility to convert her ira x to roth_ira y and her failure to timely recharacterize her roth_ira y were not discovered by the service prior to her filing this request for letter_ruling is not a closed tax_year with respect to your request for relief we believe that based on the information submitted and the representations contained herein the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been met and that you have acted reasonably and in good_faith with respect to making the election to recharacterize your roth_ira as traditional iras specifically the service has concluded that you have met the requirements of clause i of sec_301_9100-3 of the regulations therefore with respect to your ruling_request the service concludes as follows that pursuant to sec_301_9100-3 of the regulations taxpayer a is granted a period of time not to exceed six months from the date of this letter tuling to recharacterizate her roth_ira y to a traditional_ira no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayers that requested it section 6100g of the code provides that it may not be used or cited as precedent bey page l é pursuant to a power of attomey on file with this office a copy of this ruling letter is being sent to your authorized representative sincerely yours prince uv ace frances v sloan manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of ruling letter notice of intention to disclose


t c memo united_states tax_court james a ogden and christie e ogden petitioners v commissioner of internal revenue respondent docket no filed date james a ogden and christie e ogden pro sese clint j locke and horace crump for respondent memorandum findings_of_fact and opinion nega judge respondent determined that petitioners were liable for an accuracy-related_penalty under sec_6662 for the sole issue for all section references are to the internal_revenue_code in effect for the year at issue all monetary amounts are rounded to the nearest dollar decision is whether petitioners are liable for the sec_6662 penalty we find that they are findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioners resided in mississippi when their petition was filed petitioners filed a joint federal_income_tax return for reporting taxable_income of dollar_figure most of the income on the return came from petitioner james ogden’s law practice ogden associates attorneys at law pllc a certified_public_accountant c p a prepared the return using information that mr ogden had compiled and provided such as the law firm’s bank statements and invoices mr ogden then reviewed the return to make sure the numbers matched up he did not go into the schedules and pick things apart because he was more concerned with the gross number and the fact that he owe d taxes and how much respondent audited petitioners’ return and the audit revealed that petitioners had deducted dollar_figure for contract labor expenses on part ii of their schedule c profit or loss from business and had also subtracted this amount from gross_receipts as cost_of_goods_sold cogs on part i of the schedule c most of the contract labor expenses reported on part ii of petitioners’ schedule c were taken from wages reported on information returns specifically forms 1099-misc miscellaneous income that mr ogden prepared on behalf of his law firm and provided to his c p a part ii of petitioners’ schedule c reported total contract labor expenses of dollar_figure mr ogden’s law firm summarized the total value of payments reported on the forms 1099-misc as dollar_figure on form_1096 annual summary and transmittal of u s information returns petitioners’ contract labor expenses that were treated as cogs stem from three forms 1099-misc respondent’s audit also revealed that petitioners had failed to report dollar_figure of gross_receipts at trial mr ogden explained that he did not detect the unreported income because it came from a source different from his other law practice compensation in mr ogden’s firm used a_trust to handle most of its revenue the trust then distributed mr ogden’s earnings into his operating account mr ogden argues that the unreported gross_receipts came from his work on a bankruptcy case where the bankruptcy court required him to set up a separate_account to handle his compensation_for services mr ogden stated that as a result his check for services performed on that case was inadvertently deposited directly to his operating account without going through the law firm’s trust account causing his failure to report dollar_figure of gross_receipts respondent determined that petitioners’ correct taxable_income was dollar_figure rather than the dollar_figure reported on their return for on this increase respondent determined a deficiency of dollar_figure and a sec_6662 penalty of dollar_figure petitioners accepted the deficiency and it was assessed petitioners contest the penalty on the grounds that they had reasonable_cause and acted in good_faith with respect to the underpayment_of_tax on their tax_return specifically they argue that they reasonably relied on advice from their c p a to prepare their return and their underpayment was the result of an isolated computational error that went undetected by their c p a at trial a c p a employed by the accounting firm responsible for preparing petitioners’ tax returns testified the c p a who testified was the one who assisted with petitioners’ audit but he did not prepare their return the c p a testified that because the dollar_figure of contract labor expenses treated as cogs was included in a larger total cogs amount it was hard to spot upon cursory review opinion sec_6662 and b and imposes a accuracy-related_penalty upon the portion of any underpayment_of_tax that is attributable to negligence or disregard of rules or regulations or a substantial_understatement_of_income_tax negligence is defined as any failure to make a reasonable attempt to comply with the provisions of the code and disregard means any careless reckless or intentional disregard sec_6662 an understatement is generally the excess of the amount of tax required to be shown on the return over the amount of tax actually shown on the return sec_6662 a substantial_understatement_of_income_tax exists if the understatement exceeds the greater of of the tax required to be shown on the return for a taxable_year or dollar_figure see sec_6662 the commissioner bears the burden of production with respect to a sec_6662 penalty sec_7491 once the commissioner satisfies his burden the burden shifts to the taxpayer to prove that the penalty does not apply 116_tc_438 petitioners concede that they negligently failed to report gross_receipts of dollar_figure and they agree to the tax_deficiency that respondent determined for furthermore the evidence establishes that the understatement for exceeds of the tax required to be shown on the return which is greater than dollar_figure therefore respondent has met the burden of production and the burden_of_proof thus shifts to petitioners the sec_6662 penalty does not apply to any portion of an underpayment if it is shown that there was a reasonable_cause for such portion and that the taxpayer acted in good_faith with respect to it sec_6664 the determination of whether the taxpayer acted with reasonable_cause and in good_faith depends on the pertinent facts and circumstances sec_1_6664-4 income_tax regs relevant factors include the taxpayer’s efforts to assess his or her proper tax_liability the knowledge and experience of the taxpayer and the reliance on the advice of the professional see id reasonable_cause has been found when a taxpayer selects a competent tax adviser supplies the adviser with all the relevant information and consistent with ordinary business care and prudence relies on the adviser’s professional judgment as to the taxpayer’s tax obligations sec_6664 469_us_241 115_tc_43 aff’d 299_f3d_221 3d cir 110_tc_297 petitioners contend that they reasonably and in good_faith relied on their c p a ’s advice in the preparation of their return we disagree on the basis of mr ogden’s testimony at trial we find that his cursory review of petitioners’ return did not constitute proper review petitioners’ negligence in failing to report dollar_figure of gross_receipts was not the only error on their return petitioners also claimed the same contract labor expenses multiple times on different parts of their return even if the error by petitioners’ c p a was an innocent oversight such as an innocent computational or transcriptional error petitioners did not have reasonable_cause for signing an erroneous return see 136_tc_585 petitioners did not call the c p a who prepared their return as a witness and they presented no evidence that this c p a gave advice that they could rely on see id pincite in order to constitute advice under sec_1_6664-4 income_tax regs a communication must reflect the adviser’s analysis or conclusion id pincite at trial neither mr ogden nor the c p a who participated in the audit of petitioners’ return testified sufficiently to this point a reasonable inspection of the return by petitioners would have uncovered both the unreported gross_receipts and the improperly claimed deduction see we need not discuss whether petitioners had reasonable_cause for failing to report dollar_figure of gross_receipts because they stipulated the penalty for this unreported amount viola v commissioner tcmemo_2013_213 cf thrane v commissioner tcmemo_2006_269 holding that the taxpayer had reasonable_cause for failure to report income in part because a reasonable inspection of his return would not have uncovered the sole error on the return although petitioners’ c p a testified that the portion of contract labor expenses treated as cogs on petitioners’ return was hard to spot we believe mr ogden had sufficient knowledge to detect the error on the return because mr ogden prepared the forms 1099-misc for the attorneys at his firm he should have known the total amount of contract labor expenses even so the amount of contract labor expenses reported on petitioners’ return did not remotely match the amount of total contract labor expenses reported on mr ogden’s law firm’s form_1096 this combined with the fact that petitioners did not report dollar_figure of income on their return shows that more diligence was needed on their part to reasonably assess their proper tax_liability accordingly we find that petitioners did not have reasonable_cause for their underpayment of income_tax for we therefore sustain respondent’s determination that petitioners are liable for the sec_6662 penalty for that year we have considered the other arguments of the parties and to the extent not discussed above find those arguments to be irrelevant moot or without merit to reflect the foregoing decision will be entered for respondent


significant index no department of the treasury internal_revenue_service washington d c i tax_exempt_and_government_entities_division dec se t- ef fat in re the plan’ company product this letter constitutes notice that conditional approval has been granted to extend the amortization period for amortizing the unfunded liabilities described in sec_412 of the internal_revenue_code the code and sec_302 of the employee_retirement_income_security_act_of_1974 erisa of the plan the extension is granted for the amortization period for amortizing unfunded liabilities of the plan for the plan_year beginning the particular unfunded_liability for which the extension of the amortization period is granted is the single amortization base of the the existent amortization bases as of b -1 d of the proposed income_tax regulations the remaining amortization period of this single amortization base before extension was dollar_figure years the extension granted to this amortization base is dollar_figure years accordingly the remaining amortization period of this amortization base after extension is dollar_figure years plan creating by combining and offsetting nn in accordance with section the extension of the amortization period of the unfunded liabilities of the plan has been granted in accordance with sec_412 of the code and sec_304 of erisa sec_412 of the code and sec_304 of erisa authorize the secretary of labor to extend the period of time required to amortize any unfunded_liability described in sec_412 of the code and sec_302b of erisa of a plan for a period of time not in excess of years if the secretary of labor determines that such extension would carry out the purposes of erisa and would provide adequate protection for participants under the plan and their beneficiaries and if the secretary of labor determines that the failure to permit such extension would result in a a substantial risk to the voluntary continuation of the plan or b a substantial curtailment of pension benefit levels or employee compensation and be adverse to the interests of plan participants in the aggregate sec_101 of reorganization plan no of 1979_1_cb_480 transferred the authority for issuing rulings under sec_412 of the code and sec_304 of erisa from the secretary of labor to the secretary_of_the_treasury accordingly the amortization period for amortizing the unfunded liabilities of the plan is extended as described above under sec_412 of the code and sec_304 of erisa the plan is a single employer defined_benefit_plan the interest rate applicable for the remaining amortization period of the amortization base for which the extension has been granted is the greater of a percent of the federal_mid-term_rate as in effect under sec_1274 for the first month of such plan_year or b the rate of interest used in determining costs the value of the assets of the plan was approximately equal to as of wp of the plan's current_liability the plan has been frozen since less than forty percent of the company's current employees have accrued_benefits under the plan the company is an employee-owned seller of product that represents that to its knowledge it has never missed a required_contribution negative investment returns experienced by the plan during the plan years the amounts that the company without this extension would be required plan years would result in a substantial risk to the to contribute for the i financial viability of the company however because of a andi and the company has experienced losses in three of the last five years and also seen a decrease in revenues of approximately percent during that period means to spread the costs of the plan over a greater number of employees is not an option in no small part because of the costs of the frozen_plan which of course would provide no benefit to new hires expansion as a the amortization period extension will reduce the company’s pension funding requirements without regard to subsequent gains and losses to a level that will enable the company to remain competitive and thus stem the decrease in revenues that the company has experienced over the last five years however because the prospects for recovery are uncertain and because the plan is under-funded we are granting this extension subject_to the following condition the contributions required to satisfy the minimum_funding account the extension for the plan years ending are to be timely made as defined in sec_412 of the code without a waiver being granted for such years standard taking into and if this condition is not satisfied the extension granted for the plan_year beginning inn is retroactively null and void you agreed to this condition in a letter which was transmitted by facsimile dated date your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting if an extension of time under sec_412 is in effect with respect to the plan please note that any amendment to a profit sharing plan or any other retirement plans covering employees covered by this plan maintained by the company to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa new profit sharing plan or any other retirement_plan by the company covering employees covered by this plan would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa similarly the establishment of a this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan_year ending letter should be entered on the schedule b actuarial information a copy of this letter is being sent to the manager employee_plans classification in a copy should be furnished to the enrolled_actuary for the plan the date of this 2uu510041 if you have any questions on this ruling letter please contact sincerely th g- james e holland jr manager employee_plans technical


t c memo united_states tax_court richard jackson sleeper petitioner v commissioner of internal revenue respondent docket no filed date richard jackson sleeper pro_se alvin a ohm for respondent memorandum opinion goldberg special_trial_judge this case was heard pursuant to sec_7443a and rule sec_180 sec_181 and sec_182 respondent determined deficiencies in petitioner's federal income taxes in the amounts of dollar_figure dollar_figure and dollar_figure for the taxable years and respectively the issue for decision is unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure whether petitioner engaged in tournament fishing for profit during the years in issue some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated by this reference petitioner resided in dallas texas at the time his petition was filed during the years in issue petitioner was employed full time by gourmet award foods as a regional sales manager in duncanville texas petitioner received wage income in the amounts of dollar_figure dollar_figure and dollar_figure in and respectively petitioner also received income from the sale of assets in each of these years in the amounts of dollar_figure dollar_figure and dollar_figure petitioner became interested in tournament fishing sometime in or he had friends who were involved in the activity and he traveled to lakes with them in order to obtain knowledge about fishing to learn about tournament fishing petitioner met other fishermen at these lakes and watched fishing programs on television petitioner had not engaged in fishing prior to this time although he had fished with his father on occasion when he was younger petitioner began to participate in tournaments specifically bass tournaments in or the tournaments in which petitioner fished were conducted within the state of texas petitioner fished in some circuit tournaments including bass and buddy tournaments and angler's choice tournaments and some individual tournaments such as the mcdonald's tournaments typically tournament participants had to be out on the lake by or in the morning and fished until in the afternoon petitioner owned his own boat for fishing petitioner estimated that he competed in to tournaments in each of the years and or tournaments in and and about in generally an entry fee was required in order to participate in tournaments the fees charged varied among tournaments and within some tournaments amateurs and professional paid different fees petitioner found that the largest constraint on his participation in tournament fishing was time generally he was only able to practice and participate in tournaments on the weekends because he worked full time petitioner retained copies of receipts for his expenditures as well as the canceled checks related to tournament fishing in envelopes by year petitioner also maintained log books these books contained information on each of the tournaments in which petitioner participated including such information as what he caught what he used to catch it the weather conditions the temperature the lakes fished and the days on which he fished during the years in issue petitioner earned some gross_income from the tournaments in which he participated however petitioner has never earned_income in excess of his expenses from tournament fishing including years subsequent to those at issue petitioner could not predict when the activity might become profitable at sometime petitioner acquired a corporate sponsor luhr jensen a lure manufacturer the sponsor did not pay petitioner any endorsement fees however he was allowed to purchase lures at a discount petitioner also participated in some seminars on behalf of luhr jensen petitioner's photograph and testimonial were displayed in an advertisement for a video on how to obtain corporate sponsorship however it is unclear whether this occurred during or after the years in issue moreover it does not appear that petitioner received compensation_for this endorsement in petitioner consulted a certified_public_accountant with respect to the preparation of his income_tax returns the accountant informed petitioner that if he were engaged in tournament fishing for profit his related expenses would be deductible on schedule c of his federal_income_tax return for petitioner reported gross_receipts in the amount of dollar_figure and deductions in the amount of dollar_figure from tournament fishing petitioner claimed a loss in the amount of dollar_figure from this activity on his return petitioner reported gross_receipts of dollar_figure less deductions in the amount of dollar_figure for a loss of dollar_figure from this activity for petitioner claimed a loss of dollar_figure from tournament fishing resulting from gross_receipts in the amount of dollar_figure less expenses of dollar_figure in the notice_of_deficiency respondent disallowed petitioner's claimed losses from tournament fishing for each of the years in issue because petitioner had not established that he was involved in the activity for profit and thus the limitation of sec_183 applied as a computational result of these adjustments respondent disallowed a portion of petitioner's itemized_deductions in the amounts of dollar_figure dollar_figure and dollar_figure for and respectively respondent's determinations are presumed correct and petitioner bears the burden of proving them erroneous rule a 290_us_111 sec_183 generally limits allowable deductions attributable to an activity to the extent of gross_income from that activity if the taxpayer engages in such activity without the objective of profit sec_183 defines an activity_not_engaged_in_for_profit as any activity other than one with respect to which deductions are allowable for the taxable_year under sec_162 or under paragraph or of sec_212 whether petitioner was engaged in tournament fishing for profit depends on whether he was so engaged with an ‘actual and honest’ objective of making a profit 90_tc_960 affd without published opinion 899_f2d_18 9th cir 78_tc_642 affd without opinion 702_f2d_1205 d c cir although a reasonable expectation of profit is not required petitioner's profit objective must have been bona_fide 91_tc_371 whether petitioner possessed the necessary objective is a question of fact to be determined based on all facts and circumstances and petitioner bears the burden of proving such objective 88_tc_464 the regulations set forth the following nonexclusive factors to consider in determining whether an activity is engaged in for profit the manner in which the taxpayer carries on the activity the expertise of the taxpayer or his advisers the time and effort expended by the taxpayer in carrying on the activity the expectation that assets used in the activity may appreciate in value the success of the taxpayer in carrying on other activities the taxpayer's history of income or losses with respect to the activity the amount of occasional profit if any which is earned the financial status of the taxpayer and whether elements of personal pleasure or recreation are involved sec_1_183-2 income_tax regs the balance of the relevant factors tends to support respondent's position that petitioner did not engage in tournament fishing for profit petitioner maintained some records however he has not suggested or shown that he did so in order to conduct his activity in a more profitable manner although petitioner was gaining expertise in fishing over the years when he commenced the activity he was a recreational fishermen and he did not consult with any advisers at any time concerning the profitability associated with this type of activity petitioner never earned a profit from tournament fishing nor could he project when he might do so furthermore the losses claimed by petitioner in the years in issue produced a tax_benefit by reducing his income_tax_liability in each year finally petitioner derived personal pleasure from this activity he testified that he chose to compete in bass tournaments as opposed to those for other types of fish because bass are tough and he enjoys challenges on the other hand some evidence favors petitioner petitioner devoted a significant amount of his free time to practicing for and participating in tournament fishing in addition petitioner worked at securing corporate sponsorship however this effort does not appear to have been directed at making a profit because such sponsorship was not financially rewarding petitioner argues that a taxpayer may be engaged in an activity for profit even if losses are sustained for a number of years see eg 94_tc_41 kimbrough v commissioner tcmemo_1988_185 however as stated above whether a taxpayer is engaged in an activity for profit depends upon the specific facts and circumstances of the individual case based on our analysis of the factors we conclude that petitioner did not engage in tournament fishing with the requisite profit objective see connolly v commissioner tcmemo_1994_218 affd without published opinion 58_f3d_637 5th cir respondent is sustained on this issue to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc tege eoeg et1-plr-157284-02 date date key firm worker dear this is in reply to a request for a ruling to determine the federal employment_tax status of the above-named worker with respect to services provided for a federal_agency firm from date to date the federal employment_taxes are those imposed by the federal_insurance_contributions_act fica the federal_unemployment_tax_act futa and the collection of income_tax at source on wages this ruling is based on the information furnished by both the worker and the firm the worker provided his services as a teacher instructor according to the firm the worker was initially hired as a contract worker however a year later he was treated as an employee the worker taught seven classes during an eight-hour work day the worker performed the services on premises of the firm the worker was required to provide the services personally the worker did not perform these services for others the firm represented the worker to its clients as an employee the firm provided the worker with training and or instruction through educational training sessions the worker was required to attend weekly staff meetings with the principal and could be reprimanded for not attending such meetings if substitutes or helpers were needed the firm hired and paid the substitutes or helpers if problems or complaints arose the worker was required to contact his immediate supervisor the principal who was the person responsible for their resolution while the firm claimed that no reports were required of the worker the worker indicated that he was required to report student attendance and student progress reports to the firm all educational plr-157284-02 supplies equipment materials and property needed for the worker to perform his services were provided by the firm the worker was not required to incur any expenses in the performance of his services for the firm according to the firm the worker was entitled to annual and sick leave the relationship between the worker and the firm could be terminated by either party without incurring liability or penalty sec_3121 of the internal_revenue_code the code defines employee as any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee the question of whether an individual is an employee under the common_law rules or an independent_contractor is one of fact to be determined upon consideration of the facts and the application of the law and regulations in a particular case guidance for determining the existence of that status is found in two substantially_similar sections of the applicable employment_tax regulations sec_31_3121_d_-1 relating to the federal_insurance_contributions_act fica and sec_31_3401_c_-1 relating to federal_income_tax withholding sec_31_3121_d_-1 of the regulations provides that generally the relationship of employer-employee exists when the person for whom the services are performed has the right to direct and control the individual who performs the services not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished it is not necessary that the employer actually direct or control the manner in which the services are performed it is sufficient if he or she has the right to do so sec_31_3121_d_-1 of the regulations provides that if the relationship of an employer and employee exists the designation or description of the relationship by the parties as anything other than that of employer and employee is immaterial thus if an employer-employee relationship exists it is of no consequence that the employee is designated as partner coadventurer agent or independent_contractor or the like in determining whether an individual is an employee or an independent_contractor under the common_law all evidence of both control and lack of control or autonomy must be considered in doing so one must examine the relationship of the worker and the business relevant facts generally fall into three categories behavioral controls financial controls and the relationship of the parties behavioral controls are evidenced by facts which illustrate whether the service_recipient has a right to direct or control how the worker performs the specific tasks for which he or she is hired facts which illustrate whether there is a right to control how a worker performs a task include the provision of training or instruction financial controls are evidenced by facts which illustrate whether the service_recipient has a right to direct or control the financial aspects of the worker’s activities these factors include whether a worker has made a significant investment has unreimbursed expenses and makes services available to the relevant market the method of plr-157284-02 payment and the opportunity for profit or loss the relationship of the parties is generally evidenced by the parties’ agreements and actions with respect to each other including facts which show not only how they perceive their own relationship but also how they represent their relationship to others facts which illustrate how the parties perceive their relationship include the intent of the parties as expressed in written contracts the provision of or lack of employee_benefits the right of the parties to terminate the relationship the permanency of the relationship and whether the services performed are part of the service recipient’s regular business activities based on the information submitted it is determined that the services performed by the worker were sufficiently subject_to the direction and control by the firm to establish an employer-employee relationship accordingly it is held that the worker was an employee of the firm and amounts paid to him for services provided were wages subject_to federal employment_taxes and income_tax_withholding sec_3306 of the code pertaining to the futa provides that service performed in the employ of the united_states government are excepted from the definition of employment this ruling is applicable to any individuals engaged by the firm under similar circumstances the firm is responsible for advising all of the affected workers of the results of this ruling this ruling is directed only to the taxpayer s to whom it is addressed sec_6110 of the code provides that it may not be used or cited as precedent sincerely will e mcleod chief employment_tax branch division counsel associate chief_counsel tax exempt and government entities enclosure copy of ruling letter for purposes


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l may number release date gl-128613-00 uil cc pa cbs br1 dmgrogan memorandum for associate area_counsel sb_se area attn jeanne gramling from subject alan c levine chief branch collection bankruptcy summonses foreclosure of federal tax_liens - sale of property by property appraisal and liquidation specialists this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent you requested our views on whether it is legally permissible for a property appraisal and liquidation specialist pals rather than the united_states marshals service u s marshal to conduct a lien foreclosure sale we understand that the service believes that the local pals is better equipped to sell property where the federal_tax_lien has been foreclosed issue whether the pals can sell real_property in a lien foreclosure action either upon the court’s order or after appointment by the u s marshal conclusion there is no legal impediment to the pals’ conducting foreclosure sales however the determination of whether it is advisable for the pals or the u s marshal to conduct the sale will be made by the department of justice which has responsibility for litigating lien foreclosure actions discussion sec_7403 of the internal_revenue_code the code provides that the district_court after determining the merits of the various claims on the property may decree a sale of such property by the proper officer of the court sec_7403 c we have found no case law under sec_7403 addressing who would be a proper officer of the court however the provisions for conducting lien foreclosure sales are found pincite u s c sec_2001 et seq sec_2001 provides gl-128613-00 - - -2- any realty or interest therein sold under any order or decree of any court of the united_states shall be sold as a whole or in separate parcels at public sale at the courthouse of the county parish or city in which the greater part of the property is located or upon the premises or some parcel thereof located therein as the court directs such sale shall be upon such terms and conditions as the court directs u s c sec_2001 emphasis added section sets forth procedures for situations in which the u s marshal cannot complete the sale or execute the deed after the sale because of death removal from office or the expiration of the term of his commission this provision offers the only indication that the u s marshal is the only party permitted to conduct judicial sales because any hypothetical party appointed by the court to conduct a sale might become unable to complete the sale the reference only to the u s marshal might suggest that sales can be conducted only by the u s marshal however whatever inference might be drawn by the failure to refer to any party who might conduct sales other than the u s marshal notwithstanding we note that there is no statutory provision or case law which states that only the u s marshal is authorized to conduct sales under sec_2001 to the contrary as noted above sec_2001 vests in the district courts the discretion to set the terms and conditions of judicial sales in addition case law though not addressing the specific question of who can conduct sales has held that courts have broad discretion regarding the manner of sale see eg 68_f2d_708 2d cir under u s c sec_847 sec_848 the predecessor to u s c sec_2001 the method of conducting a judicial sale rests within the discretion of the district_court 39_fsupp2d_1157 n d iowa in a tax_lien foreclosure action the district_court has broad discretion in setting the terms and conditions of the sale under u s c sec_2001 personal_property sold under court order is sold in the same manner as real_property under sec_2001 unless the court orders otherwise u s c while this may be the only provision which suggests that the u s marshal is the proper party to conduct sales we note that the u s marshal has typically conducted judicial sales see united_states v peters cl_ct the hallmark of a judicial sale is that it is ordered by a court and carried out by someone appointed by the court generally a u s marshal historically the u s marshal has always conducted sales in connection with foreclosed federal tax_liens not only is there nothing in u s c sec_2001 et seq that specifically precludes a party other than the u s marshal from selling property there is similarly nothing contained in the statutory provisions regarding the marshals service u s c sec_561 et seq gl-128613-00 - - -3- we believe that as a general matter a district_court can properly provide in the foreclosure order that the property be sold by the service rather than the u s marshal one caveat would be whether there is any local district_court rule which would prohibit the court from doing so we did not find anything in the local rules for the district_court for the western district of north carolina that would preclude the court from directing the service to sell the property we do not know the extent to which other courts in your area may have local rules which would bar the service from selling property in foreclosure actions although we believe that there may be no legal impediment to a district_court directing the service to sell the property ultimately in a lien foreclosure action litigated by the department of justice the department of justice determines the manner of disposing of the property which will be in the best interests of the united_states at best the service could make its services available to the department of justice finally from informal contacts with sb_se headquarters we believe that sb_se is amenable to the palss conducting foreclosure sales if this remains the case it would be advisable that the internal_revenue_manual be revised to reflect that the service may request that the department of justice ask the court to include in the foreclosure order a provision that the service will sell the property in addition the procedures for such sales should be set forth in the manual if you have any questions or comments regarding the foregoing please contact branch at this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client legally the property could be sold by a pals or a revenue_officer section of the restructuring and reform act of rra bars revenue officers from participating in sales under sec_6335 a foreclosure sale is not a sale under sec_6335 therefore revenue_officer participation would not be barred by the rra however as an administrative matter there appears to be a presumption that the palss will be conducting all sales-sales under sec_6335 as well as sales of perishable goods and acquired property we have no reason to believe that sb_se would treat foreclosure sales differently solely by way of example we note that a local rule for the district_court for the eastern district of california discusses in considerable detail the role of the u s marshal see local rule a-570 gl-128613-00 - - -4- privilege if disclosure becomes necessary please contact this office for our views cc sb_se compliance policy attn karen douglas division counsel sb_se