internal_revenue_service number release date index number ----------------------------------------------- ------------------------------------------------------------ --------------------------------- ---------------------------- ------------------------------------ - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b09 plr-162695-04 date june ------------------------------------------------------------------------ -------------------------- ------------------- ------------------------------------------------------------------------ legend trust ----------------------------------------------------------------------------------------------------------------- date grantor bank ----------------------------------------------------------------------------------------------------------------- son son’s spouse child child child year year year court state dear ----- this is in response to your representative’s letter of date and supplemental correspondence in which rulings are requested on the income estate and generation-skipping_transfer gst tax consequences of a proposed modification of trust facts ------------------------ ------------------------ ----------------------------- -------------------------- ----------------- ------- ------- ------- ------------------------------------------------------------- ----------- plr-162695-04 the facts as represented are as follows on date a date prior to date grantor established trust an irrevocable_trust grantor transferred real_property to trust and appointed bank and son as trustees it has been represented that there have been no actual or constructive additions to trust for gst tax purposes after date item ii of trust provides that the net_income of trust be paid quarterly to son for the duration of his life and upon his death to son’s spouse and to son’s children in equal amounts upon the death or remarriage of son’s spouse her interest shall fully cease and the trustees are directed to pay to son’s children in equal amounts the net_income for the duration of their lives upon the death of any child of son his or her share of the net_income shall be paid_by the trustees per stirpes to his or her child or children notwithstanding the foregoing trust shall fully terminate twenty-one years following the death of the last living child of son living at the time of execution of the trust agreement item xiii of trust generally provides that if at any time any of the income beneficiaries should be in need of funds in excess of the net_income derived from his or her respective share of the trust estate in order to provide for his or her reasonable care maintenance or education or on account of any illness infirmity or other like emergency then the trustees are authorized to make advances of principal for such purposes item ix of trust provides son with the right to appoint by will the successor individual trustee if son fails to name a successor individual trustee then a court having jurisdiction shall appoint the successor individual trustee upon the application of any beneficiary of trust the trust instrument includes provisions limiting the sale_or_exchange of certain real_property held by trust the current income beneficiaries of trust include son’s spouse child and child each having a percent share of trust’s income and the three children of child deceased sharing percent of trust’s income pursuant to item ix of trust at son’s death in year he appointed child and child as successor individual trustees of trust in year bank resigned as a trustee of trust in year the trustees of trust petitioned court for an order to modify trust the trustees seek to modify trust in order to sever trust into four separate equal trusts one for the benefit of son’s spouse one for the benefit of child one for the benefit of child and one for the benefit of the three children of child allow the trustees to invest in assets other than the real_property transferred to trust allow each successor trustee to appoint his or her successor and allow the trustees to plr-162695-04 distribute principal to a beneficiary to provide for the support of such beneficiary in his or her accustomed manner of living the original terms of trust will apply to each separate trust with the following modifications item ii will be amended to provide that upon son’s death the trustee shall divide the trust property into four equal shares and the trustee shall hold a resulting share for the benefit of son’s spouse and each child of son item ii will be amended to further provide that upon the death or remarriage of son’s spouse her interest shall terminate and the trustee shall distribute the property of such trust to the separate trusts established for each of son’s children and the trustee is directed to pay to such beneficiary the net_income continuing the said payments during the respective lifetime of such descendant item ii will be amended to further provide that upon the death of any of son’s children the trustee of such child’s trust shall continue to hold and manage the property in trust and shall pay the net_income of the trust to the child or children of such child per stirpes for the duration of their respective lifetimes or until the earlier termination of this trust item ii will be amended to further provide that upon the death of any child of son who is not survived by any descendants his or her trust share shall be added on a per stirpes basis to the trust shares set apart for the remaining children of son or their descendants item xiii of trust will be amended to provide that if at any time any of the income beneficiaries should be in need of funds in excess of the net_income derived from his or her respective trust or share of such trust in order to provide for his or her support in his or her accustomed manner of living then the trustee s are authorized to encroach on the principal of such separate trust of such beneficiary in such amounts as the trustee s of such trust shall deem necessary in its judgment to provide for the support of such beneficiary in his or her accustomed manner of living item ix of trust will be amended to provide that each successor trustee may appoint his or her successor by a written instrument item ix will be further amended to provide that if a trustee fails or ceases to serve the trustee appointed as described above will serve as successor trustee for that terminating trustee item ix will be further amended to provide that if a successor trustee is not appointed for the terminating trustee as described above within days of such vacancy the remaining co-trustee if any may continue to serve as the sole trustee further if all of the persons named above and in the written appointments described above fail or cease to serve and if there is a vacancy in the position of trustee then the court having jurisdiction shall appoint the successor individual trustee upon the application of any beneficiary of the trust created for such descendant plr-162695-04 additional provisions of trust will be amended to liberalize the requirements for selling or exchanging certain property of the trust the following rulings have been requested the proposed severance and modification of trust and the previous resignation the proposed severance and modification of trust and the previous resignation by bank as trustee will not cause trust or the successor trusts to lose their exempt status under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations and will not subject distributions from any of the trusts to the gst tax by bank as trustee will not cause the individual trustees to be treated as having a general_power_of_appointment for purposes of sec_2041 the proposed severance of trust into successor trusts will not result in the realization of income under sec_61 and will not result in the realization of gain_or_loss under sec_1001 law and analysis ruling sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer gst which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip under of the tax_reform_act_of_1986 the act gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26 b i of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a_trust that was irrevocable on date except to the extent the transfer is made out of corpus added to the trust by an actual or constructive_addition after date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status these rules are applicable only for purposes of determining whether an exempt trust retains exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument by judicial reformation or nonjudicial reformation that is valid under applicable state law plr-162695-04 will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in a beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst or the creation of a new gst sec_26_2601-1 example provides as follows in grantor established an irrevocable_trust for the benefit of his two children a and b and their issue under the terms of the trust the trustee has the discretion to distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate on the death of the last to die of a and b the trust principal is to be distributed to the living issue of a and b per stirpes in the appropriate local court approved the division of the trust into two equal trusts one for the benefit of a and a's issue and one for the benefit of b and b's issue the trust for a and a's issue provides that the trustee has the discretion to distribute trust income and principal to a and a's issue in such amounts as the trustee deems appropriate on a's death the trust principal is to be distributed equally to a's issue per stirpes if a dies with no living descendants the principal will be added to the trust for b and b's issue the trust for b and b's issue is identical except for the beneficiaries and terminates at b's death at which time the trust principal is to be distributed equally to b's issue per stirpes if b dies with no living descendants principal will be added to the trust for a and a's issue the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the two partitioned trusts resulting from the division will not be subject_to the provisions of chapter in the present case trust was irrevocable on date it is represented that no additions actual or constructive have been made to trust after that date trust will be divided on a pro-rata basis into four successor trusts and except for the amendments to item ii item ix item xiii and the provisions regarding the sale_or_exchange of certain real_property of trust the successor trusts will have the same terms as trust the changes described in the amended item ii are similar to the changes described in sec_26_2601-1 example these changes as well as the changes described in item ix item xiii and the provisions regarding the sale_or_exchange of certain real_property of trust will not result in a shift of any beneficial_interest in trust to any beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the proposed severance and modification of trust and the proposed severance and modification of trust will not extend the time for vesting of any beneficial_interest in trust beyond the period provided for in trust in addition bank’s resignation as trustee in year did not result in a shift of a beneficial plr-162695-04 interest in trust to any beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the resignation and the resignation did not extend the time for vesting of any beneficial_interest in trust beyond the period provided for in the original trust accordingly based on the facts submitted and the representations made we conclude that the proposed severance and modification of trust and bank’s resignation as trustee will not cause trust or any successor trust created by the severance to lose its status under of the tax_reform_act_of_1986 as a_trust exempt from the application of the gst tax under chapter of the code ruling sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 to inclusive sec_2041 provides in part that the term general_power_of_appointment means a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_20_2041-1 of the estate_tax regulations provides that the term power_of_appointment includes all powers that are in substance and effect powers of appointment regardless of the nomenclature used in creating the power and regardless of local property law connotations sec_20_2041-1 also provides that the mere power of management investment custody of assets or the power to allocate receipts and disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has no power to enlarge or shift any of the beneficial interests therein except as an incidental consequence of the discharge of such fiduciary duties is not a power_of_appointment sec_20_2041-1 provides in part that a power to consume invade or appropriate income or corpus or both for the benefit of the decedent which is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent is by reason of sec_2041 not a general_power_of_appointment a power is limited by such a standard if the extent of the holder’s duty to exercise and not to exercise the power is reasonably measurable in terms of his needs for health education or support or any combination of them the words support and maintenance as used here are synonymous and their meaning is not limited to the bare necessities of life a power to use property for the comfort welfare or happiness of the holder of the power is not limited by the requisite standard examples of powers plr-162695-04 which are limited by the requisite standard are powers exercisable for the holder’s support support in reasonable comfort maintenance in health and reasonable comfort support in his accustomed manner of living education including college and professional education health and medical dental hospital and nursing expenses and expenses of invalidism in determining whether a power is limited by an ascertainable_standard it is immaterial whether the beneficiary is required to exhaust his other income before the power can be exercised while legal rights and interests in property such as the creation and the breadth of a power to appropriate or consume the principal of a_trust is a matter of state law it is federal_law that designates what rights or interests so created shall be taxed see 309_us_78 thus whether a trustee’s power to consume invade or appropriate the principal of trust for his or her own benefit is limited by an ascertainable_standard relating to health education support or maintenance is a matter of state law a review of state law reveals no statutory or case law authority directly on point as to whether the invasionary power granted to the trustee is limited by an ascertainable_standard thus under 387_us_456 we must forecast what the law of state is likely to be under bosch state law as announced by the highest court of the state is to be followed but if there is no decision by the highest court we must apply what we find to be the state law after giving proper regard to relevant rulings of other courts id pincite in budd v commissioner 49_tc_468 acq 1973_2_cb_1 the trust instrument provided for distribution in the event of sickness accident misfortune or other emergency the tax_court held that these conditions or circumstances under which the grantor as trustee could invade corpus of the trust for an income_beneficiary reflected external standards to which a court of equity would give effect id pincite in budd use of the word other before the word emergency limited the meaning of the emergency to the type of emergencies itemized before the word other in the present case prior to bank’s resignation as trustee bank child and child had the power as trustees to advance principal to a class of beneficiaries that included child and child this power was exercisable to provide for a beneficiary’s reasonable care maintenance or education or on account of any illness infirmity or other like emergency the first half of this standard to provide for a beneficiary’s reasonable care maintenance or education is an ascertainable_standard relating to health education support or maintenance within the meaning of the estate_tax regulations with regard to the second half of this standard which allows the trustee to advance principal on account of any illness infirmity or other like emergency we believe the highest court of state would find that a trustee’s power to advance principal of trust under item xiii prior to the modification is limited by an ascertainable_standard relating to health education support or maintenance budd t c pincite thus prior to the modification of trust the trustees’ power is considered limited by an plr-162695-04 ascertainable_standard relating to the health education support or maintenance of the beneficiaries the trustees’ power to advance principal pursuant to trust was unchanged by bank’s resignation as trustee accordingly bank’s resignation as trustee will not cause child and child to be treated as having a general_power_of_appointment over any portion of trust for purposes of sec_2041 the proposed modification of item xiii will provide a trustee with the power to distribute principal to a class of beneficiaries which may include him or herself but the power is only exercisable for a beneficiary’s support in his or her accustomed manner of living a power to appoint to oneself to provide for support in one’s accustomed manner of living is an example of a power limited by an ascertainable_standard that is provided in sec_20_2041-1 accordingly after the proposed modification to trust a trustee’s power to distribute principal to him or herself will be considered to be limited by an ascertainable_standard and the proposed severance and modification of trust will not cause any individual trustee to be treated as having a general_power_of_appointment over any portion of trust for purposes of sec_2041 ruling sec_61 provides that gross_income includes gains derived from dealing in property under sec_1001 the gain from the sale_or_other_disposition of property is the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 and the loss is the excess of the adjusted_basis over the amount_realized sec_1_1001-1 of the income_tax regulations treats as income or as loss sustained the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent in 499_us_554 the supreme court of the united_states examined the issue of what constitutes a material difference in exchanged properties or a disposition of property for purposes of the realization requirement implicit in sec_1001 in cottage savings a savings and loan association sold 90-percent participation interests in mortgage loans to four other lenders simultaneously the association purchased 90-percent participation interests in mortgage loans held by these lenders the exchanged properties were derived from loans made to different obligors secured_by different homes and thus embodied legally distinct entitlements the association claimed a deduction under sec_165 for the adjusted difference between the face value of the participation interests the association had traded and the fair_market_value of the participation interests it had received the supreme court said the test for determining whether exchanged properties are materially different for purposes of sec_1001 is whether the respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings pincite because the mortgages had different mortgagors and were secured_by different properties the loans were materially different the court therefore held that the taxpayer actually sustained a loss for purposes of sec_165 plr-162695-04 in revrul_69_486 l969-2 c b a_trust instrument required the trustee to distribute the corpus of a_trust consisting of promissory notes and common_stock one-half to an individual and one-half to a tax exempt charitable_organization the beneficiaries however agreed that the individual should receive all of the notes and the charitable_organization should receive all of the stock although the trustee complied with their request neither the trust instrument nor local law allowed the trustee to make an allocation of specific property in_kind thus the beneficiaries were considered to have received a pro_rata distribution of the notes and stock followed by a deemed exchange between the beneficiaries of their respective shares of stock and notes revrul_69_486 therefore concluded that the individual recognized gain on the disposition of his shares of the common_stock in an amount determined under sec_1001 a pro_rata partition of jointly owned property is not a sale_or_other_disposition of property if the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result thereof thus neither gain nor loss is realized on a partition revrul_56_437 l956-2 c b under the proposed court order the beneficiaries do not acquire their interests in each of the four successor trusts as a result of an exchange of their property interests in trust but rather by reason of the authority granted under state law the trustees are exercising a right to divide trust as allowed by state law and by reason of their existing authority to distribute trust income or principal revrul_56_437 in contrast to the situation in revrul_69_486 the division of trust into four successor trusts will be pro_rata and each of the successor trusts will receive an equal share of each asset of the trust the interest that each of the beneficiaries will have in the successor trusts is substantially the same as each currently has in trust finally the successor trusts will be subject_to the same trust provisions applicable to trust accordingly we conclude that the division of trust into four successor trusts will not be considered to be a sale_or_other_disposition of trust property and thus will not cause any beneficiary the trust or any of the successor trusts to recognize any gain_or_loss from a sale_or_other_disposition of the property under sec_61 or sec_1001 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-162695-04 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely melissa c liquerman branch chief branch passthroughs special industries cc


office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b05 ecreigle postf-125979-17 uilc student loans date january to division counsel small_business self-employed attn mr john janusz from shareen s pflanz senior technician reviewer branch office of associate chief_counsel income_tax accounting subject tax treatment of loan repayment made pursuant to program p this chief_counsel_advice responds to your date request for assistance regarding the above matter this advice may not be used or cited as precedent legend state a program p agency b dollar_figurex issues -------------- ------------------------------------------------------------------------ ----------------------------------------------------- ------------ whether cash award payments made to recipients in state a’s program p a student_loan repayment program are excludable from their gross_income under sec_108 of the internal_revenue_code the code what if any are the reporting requirements for these award payments postf-125979-17 conclusion cash award payments received by recipients in state a’s program p a student_loan repayment program as more fully described herein are excludable from recipients’ gross_income under sec_108 of the code state a is not required to file or furnish any information returns with respect to the award payments made to recipients in program p facts state a is seeking to determine whether cash award payments given under program p are excluded from gross_income under sec_108 of the code program p provides award payments to physicians who agree to practice medicine in an area of state a designated as having a shortage of physicians state a has determined that there is a generalized shortage of health services providers for certain geographic areas of the state program p allows state a to target this underserved_population across all needy areas of the state_agency b in state a has established needs-based guidelines for selecting participating health care providers as well as identifying perceived need sites to receive a cash award payment recipients in program p must meet certain eligibility requirements and agree to practice medicine in a designated shortage area for no less than ----months such service obligation consists of either the establishment of a practice of medicine or employment as a licensed physician in the designated shortage area in state a or a combination of both recipients also must have student loans either made or guaranteed by a state or federal governmental agency or by the educational_institution which the recipient attended for the purpose of paying educational expenses at the undergraduate or medical school the award consists of -----------------------annual award payments with the each payment dependent upon the individual fulfilling the service requirement for-----------months and maintaining the eligibility requirements each annual award payment is limited to the lesser_of the total of the recipient’s undergraduate and medical school student_loan expense or dollar_figurex the award payments under program p are limited to repayment of educational loans that were made for undergraduate and medical education at an accredited institution and loans made to cover expenses at a graduate school other than medical school are not included law and analysis sec_61 of the internal_revenue_code provides that except as otherwise provided by the law gross_income means all income from whatever source derived including income from compensation_for services and income from the discharge_of_indebtedness under sec_61 of the code congress intends to tax all gains or undeniable postf-125979-17 accessions to wealth clearly realized over which taxpayers have complete dominion 348_us_426 1955_1_cb_207 sec_108 of the code provides for the exclusion from income of payments received under the national health service corps loan repayment program and certain state loan repayment programs qualifying under of the public health service act or under any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health care services in underserved or health professional shortage areas as determined by such state this provision is effective for amounts received by individuals in taxable years beginning or after date our review of the purposes and operations of program p shows that amounts received under program p are amounts received under a state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health care services in underserved or health professional shortage areas as determined by state a and thus excluded from gross_income under sec_108 of the code the amounts paid_by state a under program p are for loan repayment and not loan forgiveness therefore there is no discharge_of_indebtedness requiring information reporting under sec_6050p of the code the amounts paid under program p are not includable in recipients’ gross incomes under sec_61 of the code and are therefore not fixed or determinable income under sec_6041 of the code therefore no information reporting is required under sec_6041 of the code this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions by _____________________________ shareen s pflanz senior technician reviewer branch office of associate chief_counsel income_tax accounting


ramona inc petitioner v commissioner of internal revenue respondent docket no 6443-07l filed date p challenges r’s right to proceed with collection of any futa_tax from p on the ground that taking into account credits against the tax under sec_3302 i r c for actual and deemed contributions to a state employment fund p has no outstanding liability held we apply a de novo standard in reviewing p’s chal- lenge to its underlying liability for futa_tax held further p has failed to carry its burden of proving its entitlement to any sec_3302 i r c credit held further appeals’ determination to proceed with collection of the assessments against p for is sustained william e taggart jr for petitioner shannon edelstone for respondent halpern judge respondent’s appeals_office appeals has determined to proceed with the collection from petitioner of federal_unemployment_tax_act futa_tax a penalty an addition_to_tax and interest for the crux of the parties’ disagreement is whether for petitioner paid dollar_figure to the state of california unless otherwise stated all section references are to the internal_revenue_code in effect for and all rule ref- verdate 0ct date jkt po frm fmt sfmt v files ramona sheila united_states tax_court reports erences are to the tax_court rules_of_practice and proce- dure we round all dollar amounts to the nearest dollar findings_of_fact some facts are stipulated and are so found the stipulation of facts with accompanying exhibits is incorporated herein by this reference background petitioner was organized in california in and during the second quarter of began operating a restaurant nola in palo alto california petitioner had a payroll of to individuals by the end of and had payroll expenses for the second third and fourth quarters of for petitioner used a payroll service company expresspay plus expresspay to prepare its payroll in connection with that service expresspay withdrew various amounts on various dates from petitioner’s account with wells fargo bank respondent’s records reflect that with respect to the last three quarters of he received dollar_figure of futa_tax deposits from petitioner on or about date petitioner filed with the internal_revenue_service irs a form 940-ez employer’s annual federal unemployment futa_tax return relating to nola’s payroll the form 940-ez the form 940-ez reported contributions of dollar_figure to the cali- fornia unemployment_fund total taxable wages of dollar_figure a futa_tax liability percent of dollar_figure of dollar_figure and total futa_tax deposits of dollar_figure the california state reporting number on the form 940-ez however was that of avenir restaurant group inc avenir a corporation owned substantially by the same individuals who own peti- tioner the 8-percent multiplier is found on line of the form 940-ez and represents the difference between the federal futa_tax rate which for was percent and the percent maximum rate for determining available credits against the tax under sec_3302 in this case that amount dollar_figure is the difference between percent of petitioner’s total taxable wages of dollar_figure ie dollar_figure and percent of those wages ie dollar_figure the assumption is that the taxpayer is entitled to a credit against its 2-percent futa_tax liability because of actual and deemed contributions percent of total taxable wages made to a state unem- ployment fund verdate 0ct date jkt po frm fmt sfmt v files ramona sheila ramona inc v commissioner to fund in date in date the irs asked california to certify that for petitioner had paid wages for services performed in california and made contributions the california unemployment the califor- nia employment development department edd reported to the irs that it had no record of petitioner’s paying any wages in in date the irs notified petitioner of the discrepancy between the edd report and the information on the form 940-ez petitioner did not respond to the notification and as a result in date respondent assessed an additional dollar_figure of futa_tax that peti- tioner owed along with a federal_tax_deposit penalty of dollar_figure and interest of dollar_figure subsequently respondent assessed additional penalties an addition_to_tax and interest and gave petitioner credit for small overpayments of subse- quent employment_tax liabilities in both petitioner and the irs made further inquiries in letters dated date to the irs and date to petitioner edd reported that with respect to petitioner for neither taxable wages nor contributions were reported to the department the letters further stated that petitioner’s account was inactive for tax_year in date edd advised the irs that petitioner’s unemployment first became active on date insurance account with california levy notice on date respondent issued to petitioner a final notice_of_intent_to_levy and notice of your right to a hearing the levy notice with respect to the additional futa_tax interest and penalties that respondent had assessed but that petitioner had not paid according to the levy notice petitioner owed dollar_figure which consisted of dollar_figure of futa_tax dollar_figure of accrued interest and a late payment penalty of dollar_figure request for cdp hearing on date in response to the levy notice peti- tioner timely requested a collection_due_process cdp hearing contending that the originally filed 940ez is cor- rectly filed and requesting that respondent allow the credit verdate 0ct date jkt po frm fmt sfmt v files ramona sheila united_states tax_court reports and abate all penalties in date petitioner had a cdp hearing with respect to the levy notice the levy hearing lien notice on date respondent recorded a notice of fed- eral tax_lien indicating that petitioner had an assessed but unpaid employment_tax liability of dollar_figure for relating to the date assessment on date respondent issued to petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 the lien notice advising petitioner of the recorded lien for dollar_figure and of its right by date to request a hearing peti- tioner did not request a hearing in response to the lien notice and none was held notice_of_determination on date appeals issued a notice of deter- mination concerning collection action s under sec_6320 and or the notice_of_determination by which an appeals officer determined that all statutory and procedural requirements were followed and that the levy notice was appropriate based on all available information the notice_of_determination sustained in full the levy notice petition in response to the notice_of_determination petitioner timely filed the petition and an amended petition i introduction opinion we must determine whether respondent may proceed by levy to collect the additional futa_tax penalties and interest that respondent claims petitioner owes the disputed liability that in large part depends on whether petitioner made contributions of dollar_figure for to the california the notice_of_determination states that petitioner’s only challenge to the proposed levy was petitioner’s challenge to the existence or amount of the tax_liability it further states that peti- tioner was informed that it was required and we presume failed to provide either a state recertification letter or copies of the state returns and the front and back of the cancelled checks to verify the timely or late contributions verdate 0ct date jkt po frm fmt sfmt v files ramona sheila ramona inc v commissioner unemployment_fund before we address that question we shall set forth some of the general rules governing our review of collection matters set forth the relevant futa and cali- fornia state tax provisions summarize the parties’ argu- ments and address certain of respondent’s evidentiary objec- tions finally we shall state our analysis and conclusion ii sec_6320 sec_6330 and sec_6331 sec_6331 authorizes the secretary to levy against property and property rights when a taxpayer liable for taxes fails to pay those taxes within days after notice_and_demand for payment sec_6331 requires the secretary to send the taxpayer written notice of the secretary’s intent to levy and sec_6330 requires the secretary to send the taxpayer written notice of his right to a hearing before appeals at least days before any levy begins a taxpayer receiving a notice_of_federal_tax_lien has hearing rights similar to the hearing rights accorded to a taxpayer receiving a notice_of_intent_to_levy see sec_6320 after the hearing an appeals officer must determine whether and how to proceed with collection taking into account among other things collection alternatives the tax- payer proposed and whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the taxpayer that the collection action be no more intrusive than necessary see sec_6330 the taxpayer may raise its underlying liability at the hearing if it did not receive any statutory_notice_of_deficiency for the liability or did not otherwise have an opportunity to dispute the tax_liability sec_6330 respondent concedes that petitioner was entitled to and did raise its underlying liability ie the disputed liability at the levy hearing and that the disputed liability is properly before the court with respect to the disputed liability we review the record made here and not the administrative record made before appeals and we apply a de novo standard of review see 114_tc_604 114_tc_176 cf 132_tc_203 de novo standard of review for cases brought under section verdate 0ct date jkt po frm fmt sfmt v files ramona sheila united_states tax_court reports f petitioner bears the burden_of_proof see rule a iii relevant futa and california state tax provisions a futa provisions for sec_3301 imposes on every employer a percent excise_tax with respect to wages paid to its employees under sec_3306 wages subject_to tax include with certain exceptions not here relevant all remu- neration for employment that does not exceed dollar_figure for the calendar_year sec_3302 allows taxpayers credits against that tax for certain actual and deemed contributions to state unemploy- ment funds sec_3302 provides a credit for actual con- tributions to such funds during the taxable_year the normal credit sec_3302 provides an additional credit the additional credit equal to the amount if any by which the contributions the taxpayer is required to pay with respect to the taxable_year were less than the contributions such taxpayer would have been required to pay if throughout the taxable_year he had been subject under such state law to the highest_rate applied thereunder or percent whichever rate is lower the additional credit allows employers with good experience ratings and thus a lower state contribution rate to avoid paying more federal tax than those employers with bad experience ratings in pertinent part sec_31_3302_b_-2 employment_tax regs provides that the additional credit shall not be allowed unless the taxpayer submits to the district_director a certificate of the proper officer of each state with respect to the law of which the additional credit is claimed showing for the taxpayer- the total remuneration with respect to which contributions were required to be paid_by the taxpayer under the state law with respect to such calendar_year and the rate of contributions applied to the taxpayer under the state law with respect to such calendar_year sec_7491 which under certain circumstances shifts the burden_of_proof is limited in its application to factual issues relevant to ascertaining the liability of the taxpayer for any_tax imposed by subtitle a or b of the internal_revenue_code the factual issue in this case is whether petitioner is entitled to a credit under sec_3302 against its liability for futa taxes imposed by sec_3301 which is in subtit c therefore sec_7491 is inapplicable verdate 0ct date jkt po frm fmt sfmt v files ramona sheila ramona inc v commissioner sec_3302 limits the credits against the tax imposed by sec_3301 to percent of that tax in applying the 90-percent limit on total credits however the tax is computed at a deemed rate of percent rather than at the actual 2-percent rate see sec_3302 thus in effect total credits may not exceed percent percent percent of the employer’s futa wage_base b california unemployment insurance code pursuant to cal unemp ins code sec_675 west an employer is subject_to the california unemployment com- pensation system if during any day within the current or preceding calendar_year the employer has or had in employ- ment one or more employees to whom it pays or paid wages in excess of one hundred dollars dollar_figure during any calendar_quarter employment includes an individual’s entire service performed in california id sec wages means all remuneration payable to an employee for personal services that does not exceed dollar_figure during any calendar_year id sec_926 thus the california wage_base is identical to the federal futa wage_base the actual contribu- tion rate for each employer_generally depends on the ratio of the employer’s the employer’s unemployment insurance contributions to california to its average base payroll both as of a computation_date id secs the maximum contribution rate i sec_5 per- cent of wages which equals the highest_rate that may be used in determining a taxpayer’s additional tax under sec_3302 id sec reserve_account ie iv arguments of the parties in their opening and reply briefs the parties frame the issue regarding alleged unpaid futa taxes as a dispute over whether petitioner has satisfied its burden of proving that it did in fact make unemployment insurance contributions to california of dollar_figure as stated on its form 940-ez thereby entitling it to the credit taken on that return rule e governs the content of briefs and provides that all briefs shall contain among other things proposed findings_of_fact with references to the pages of the tran- script or the exhibits or other sources relied upon to support verdate 0ct date jkt po frm fmt sfmt v files ramona sheila united_states tax_court reports the proposed finding a concise statement of the points on which the party relies and the party’s argument which sets forth and discusses the points of law involved and any disputed questions of fact at the conclusion of the trial the court specifically instructed counsel for the parties to incorporate in the discussion argument section of their briefs cross-references to any proposed findings_of_fact on which they relied petitioner’s counsel has failed both to fol- low that instruction and to include in petitioner’s opening brief a statement concise or not of the points on which peti- tioner relies we have done our best to understand petitioner’s arguments but particularly with respect to the crucial question of how the evidence in the case supports petitioner’s claim that it paid dollar_figure to california the fail- ures of petitioner’s counsel make petitioner’s arguments somewhat unclear petitioner argues that respondent’s disallowance of any credit for the dollar_figure that petitioner reported on its form 940-ez as paid to the california unemployment_fund was apparently based on erroneous information respondent received from edd respondent’s disallowance of dollar_figure of credit apparently was the result of a difference in association of federal identification numbers with edd employer identification numbers on the respective records of respondent and edd edd confirmed that it received substantial sums of money in under the edd number under which petitioner reported to respondent that it had paid unemployment insurance to the state of cali- fornia apparently in support of that argument we say apparently because as stated petitioner’s counsel has failed to cross-ref- erence petitioner’s arguments and proposed findings_of_fact petitioner proposes a number of facts for us to find first expresspay deposited the employment_taxes and paid the related charges associated with petitioner’s payroll and prepared the federal and california employ- ment tax returns associated with petitioner’s payroll second expresspay withdrew funds for the payroll_taxes and related charges required to be deposited or paid in the record is not small consisting in part of pages of trial transcript and hundreds of pages of written exhibits admitted into evidence petitioner’s counsel further failed to follow our briefing instructions by omitting a detailed table of contents to petitioner’s approximately pages of proposed findings_of_fact verdate 0ct date jkt po frm fmt sfmt v files ramona sheila ramona inc v commissioner connection with petitioner’s payroll third most pertinently expresspay made payments in the total amount of dollar_figure to the state of california for unemploy- ment insurance relating to petitioner’s pay- roll respondent’s argument is straightforward petitioner is entitled to no credit against its futa_tax because it has failed to show that for it made any unemployment_fund contribution to california v evidentiary issues at trial we reserved ruling on respondent’s objections to four exhibits petitioner proffered the first three relate to petitioner’s operations they are exhibit 20-p a page from petitioner’s tax_liability register exhibit 21-p a tax status ledger report for the third and fourth quarters of and exhibit 22-p a year-to-date register run date the fourth exhibit exhibit 40-p purports to be a page from a tax_liability register for avenir run date respondent objects to the four documents on var- ious grounds including with respect to all of them that they constitute inadmissible hearsay at the conclusion of the trial we ordered the parties to address on brief respondent’s objections to all four exhibits petitioner’s opening brief contains a section entitled findings_of_fact dependent on contested documents peti- tioner supports those proposed findings with references to exhibits 20-p and 21-p but with no reference to either exhibit 22-p or exhibit 40-p we assume therefore that petitioner does not rely on the latter two exhibits to support its arguments and we shall not consider them further we shall not rule on the admissibility of exhibits 20-p and 21-p because in considering their admissibility we have read them and even were we to overrule respondent’s objec- tions petitioner would still fail to carry its burden_of_proof alternatively petitioner states for expresspay plus made california unem- ployment insurance payments in the total amount of dollar_figure on behalf of petitioner verdate 0ct date jkt po frm fmt sfmt v files ramona sheila united_states tax_court reports vi analysis a petitioner’s failure to prove any unemployment insur- ance contribution to california for petitioner has failed to support the findings_of_fact that it relies on in support of its argument that for it made unemployment insurance contributions of dollar_figure to cali- fornia in support of its proposed findings that expresspay depos- ited employment_taxes on its behalf and prepared the associ- ated tax returns petitioner principally relies on the testi- mony of its accountant j kelly monaghan who testified about the operation of payroll services in general but con- ceded that he had not been involved in any way with expresspay and was not familiar with its business practices or day-to-day routines petitioner also relies on stipulations that petitioner used expresspay’s services for and expresspay withdrew money from petitioner’s account finally petitioner relies on the testimony of gregory h st claire who organized petitioner and who testified that peti- tioner used expresspay to prepare its payroll while none of that evidence is inconsistent with petitioner’s proposed findings_of_fact none of it directly supports them and of course we have the evidence of edd reporting that with respect to petitioner no taxable wages and contributions were reported to the department for and petitioner’s unemployment first became active on date petitioner has failed to convince us that expresspay deposited employment_taxes on its behalf and prepared the associated tax returns insurance account with california while there is adequate support for petitioner’s proposed finding that expresspay prepared petitioner’s payroll and in connection with its payroll duties withdrew funds from wells fargo bank petitioner has not convinced us that expresspay withdrew funds from that bank and paid dollar_figure or any lesser amount to california for unemployment insur- ance relating to petitioner’s payroll petitioner’s prin- cipal support for its argument that expresspay made unemployment insurance contributions to california on its behalf is exhibit 20-p the page from petitioner’s tax_liability register and exhibit 21-p petitioner’s tax status ledger verdate 0ct date jkt po frm fmt sfmt v files ramona sheila ramona inc v commissioner reports for the third and fourth quarters of at best those documents suggest total contributions on petitioner’s behalf of dollar_figure but they do not prove that any amount was actually paid to california for only that the fore- going amount may have been owed indeed the stipulated wells fargo bank statements while showing that with- drawals were made from the account during do not indicate the purpose of the withdrawals and we do not dis- cern any connection between those withdrawals and the amounts reflected in the tax status ledger report again we have before us the edd reports which state that petitioner reported nothing paid nothing and had no relationship with the department in or for in short we are unable to make the findings_of_fact that petitioner proposes in support of its argument that for it made unemployment insurance contributions of dollar_figure to california indeed petitioner has failed even to propose findings_of_fact that would support its argument that it should receive credit for payments to california that were reported to the irs as having been made under avenir’s state reporting number petitioner has failed to prove that for it made any unemployment insurance contribution to california b no credit allowed sec_3302 allows the normal credit for actual con- tributions to state unemployment funds since petitioner has failed to prove that it made any contribution to the cali- fornia unemployment_fund for petitioner is entitled to no normal credit to claim the additional credit provided for in sec_3302 petitioner must satisfy the state certification requirement imposed by sec_31_3302_b_-2 employment_tax regs petitioner has failed to adduce evidence indeed even to claim that the requirement has been satisfied peti- tioner is not entitled to the additional credit petitioner is entitled to no sec_3202 or b credit in determining its futa liability for respondent did not err in assessing an additional dollar_figure of futa_tax verdate 0ct date jkt po frm fmt sfmt v files ramona sheila united_states tax_court reports c penalties the levy notice listed a late payment penalty of dollar_figure respondent has assessed an addition_to_tax under sec_6651 for failure to pay the tax shown on a return and a penalty under sec_6656 for failure to make deposit of taxes in neither the petition nor the amended petition does petitioner assign error to any addition_to_tax or penalty and petitioner does not in its briefs raise any reasonable_cause defense see sec_6651 sec_6656 respondent has shown an adequate ground for imposing the addition_to_tax and the penalty and we shall sustain them d jurisdiction over the notice of tax_lien the issue here is not clear at trial petitioner for the first time raised some question as to the propriety of the lien notice petitioner’s witness mr monaghan petitioner’s accountant who participated in the levy hearing did not recall that there was any discussion of the lien as noted petitioner did not request a hearing pursuant to sec_6320 regarding the lien notice and none was held petitioner in its opening brief proposes that we find facts consistent with the issuance of the lien notice but petitioner does not further discuss the lien or raise any issue with respect to it respondent in his opening brief argues that we have no jurisdiction over the lien notice in response and apparently in disagreement petitioner argues that one of the opportunities available to taxpayers at a cdp hearing is the sec_6330 and that the recording of a lien is a collec- tion alternative petitioner then suggests that by recording the lien before the levy hearing respondent has proposed a collection alternative that petitioner might have offered and that therefore i t would be wasteful to require a second request for a cdp hearing in order to place in issue a matter that already appears to be in issue collection alternatives to offer right see aside from the inconsistency of suggesting that petitioner might have offered a collection alternative a lien against its assets that it obviously opposes petitioner’s implicit argu- ment that there is something that we must consider with respect to the lien notice fails because of the absence of any evidence that the lien notice or any other collection alter- verdate 0ct date jkt po frm fmt sfmt v files ramona sheila ramona inc v commissioner native was even discussed at the hearing and the absence of any reference to it in the notice_of_determination under those circumstances we agree with respondent that this case is governed by 114_tc_492 in which we held that our jurisdiction under sec_6330 is dependent on the issuance of a valid notice_of_determination and a timely petition for review because nei- ther the notice_of_determination nor the petition referred to the propriety of the lien notice we lack jurisdiction under sec_6330 to consider the lien notice vii conclusion the appeals officer’s determination affirming the levy notice against petitioner for is sustained respondent may proceed by levy to collect the disputed liability an appropriate order and decision will be entered f verdate 0ct date jkt po frm fmt sfmt v files ramona sheila


internal_revenue_service number release date index number ------------------------------------- ------------------------------------ ------------------ --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ---------------- ---------------- telephone number -------------------- refer reply to cc ita b07 plr-143357-14 date date re --------------------------------------------------------------------------------------------------------------- ----------------------------------------- legend taxpayer ------------------------------------------------------------- date -------------------------- a x --------------------------------------------------------------------------- --------------------- dear ------------- this letter responds to a letter dated date submitted by taxpayer requesting an extension of time pursuant to sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file a duplicate copy of its form_3115 application_for change in accounting_method for the taxable_year ending date with the internal_revenue_service irs in ogden ut ogden facts taxpayer represents that the facts are as follows taxpayer an s_corporation files federal_income_tax returns on a calendar_year basis and uses the accrual_method of accounting taxpayer’s principal business is that of a wholesaler of x taxpayer timely filed its federal_income_tax return for the taxable_year ending date along with the original of a form_3115 to change its method_of_accounting for depreciation under section dollar_figure of the appendix of revproc_2011_14 2011_4_irb_330 however taxpayer failed to file a duplicate copy of this form_3115 with plr-143357-14 signature with the irs in ogden as required by section a of revproc_2011_14 taxpayer engaged a a certified public accounting firm to prepare and electronically file its federal tax_return and form_3115 for the taxable_year ending date a provided a copy of the form_3115 to taxpayer to sign and send to the irs in ogden however because of unusual circumstances a failed to communicate to taxpayer filing instructions that clearly indicated the due_date for filing the duplicate copy upon learning the duplicate copy of the form_3115 was not timely filed with the irs in ogden taxpayer submitted this request for relief under sec_301_9100-1 and sec_301_9100-3 ruling requested taxpayer requests an extension of time pursuant to sec_301_9100-1 and sec_301_9100-3 to file a duplicate copy of its completed form_3115 with the irs in ogden for the taxable_year ending date law and analysis revproc_2011_14 provides the procedures by which a taxpayer may obtain automatic consent to change certain accounting methods a taxpayer complying with all the applicable provisions of this revenue_procedure has obtained the consent of the commissioner to change its accounting_method under sec_446 of the internal_revenue_code and the income_tax regulations thereunder section a of revproc_2011_14 provides that a taxpayer changing an accounting_method pursuant to revproc_2011_14 must complete and file a form_3115 in duplicate the original must be attached to the taxpayer’s timely filed including any extensions original federal_income_tax return for the year_of_change and a copy with signature of the form_3115 must be filed with the appropriate office of the irs no earlier than the first day of the year_of_change and no later than when the original is filed with the federal_income_tax return for the year_of_change the copy of the form_3115 is generally required to be filed with the irs national_office however some sections of the appendix of revproc_2011_14 require the copy of the form_3115 to be filed with the irs in ogden instead of the irs national_office see section a ii b of revproc_2011_14 section dollar_figure of the appendix of revproc_2011_14 provides the requirements for requesting an accounting_method change from an impermissible depreciation or amortization_method to a permissible method section of the appendix of revproc_2011_14 provides that a taxpayer changing its method_of_accounting under section dollar_figure of the appendix must file a signed copy of the completed form_3115 with the irs in ogden in lieu of filing the copy with the irs national_office plr-143357-14 under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusions based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly taxpayer is granted calendar days from the date of this letter to file the required duplicate copy of the form_3115 with signature with the irs in ogden for the taxable_year ending date please attach a copy of this letter_ruling to the duplicate copy of the form_3115 except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code specifically no opinion is expressed or implied concerning i whether taxpayer is qualified to file the form_3115 for the change in method_of_accounting for depreciation under revproc_2011_14 ii whether each item of property that is the subject of such form_3115 meets the requirements of section dollar_figure of the appendix of revproc_2011_14 or iii whether the change in method_of_accounting that is the subject of such form_3115 qualifies under section dollar_figure of the appendix of re proc in accordance with the power_of_attorney we are sending a copy of this letter to taxpayer’s authorized representatives we are also sending a copy of this letter to the appropriate office of the small_business_self-employed_division sb_se plr-143357-14 this letter is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely willie e armstrong jr willie e armstrong jr senior technician reviewer branch office of associate chief_counsel income_tax accounting enclosures copy of this letter copy for sec_6110