t c summary opinion united_states tax_court olen w and gwendolyn wilborn petitioners v commissioner of internal revenue respondent docket no 6805-02s filed date olen w and gwendolyn wilborn pro sese john f driscoll for respondent wherry judge this case is before the court on respondent’s motion for summary_judgment under rule the petition was filed pursuant to the provisions of sec_7463 the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority the instant proceeding arises from a petition for judicial review filed in unless otherwise indicated section references are to the internal_revenue_code_of_1986 as amended and rule references are to the tax_court rules_of_practice and procedure response to a notice_of_determination concerning collection action s under sec_6320 and or background on date respondent assessed dollar_figure pertaining to petitioners’ federal_income_tax liabilities for the year thereafter on date respondent issued to petitioners separate identical notices of deficiency for the taxable_year the notices reflected a deficiency of dollar_figure and an accuracy-related_penalty under sec_6662 of dollar_figure the notices were sent by certified mail to petitioners at p o box magee mississippi in response to the notices of deficiency petitioners apparently prepared a petition to the tax_court for redetermination they attached to their pleadings in the instant collection case a copy of a petition with respect to the deficiency signed and dated date such a petition however was never in fact filed with this court and no deficiency proceedings were instituted respondent assessed an unpaid balance of dollar_figure with respect to on date on or about date respondent issued to petitioners a final notice - notice_of_intent_to_levy and notice of your right to a hearing with regard to their and taxable years subsequently on date respondent sent to petitioners separate notices of federal_tax_lien filing and your right to a hearing under sec_6320 with respect to the and years petitioners then submitted a form request for a collection_due_process_hearing which was received by respondent on date on the form petitioners checked boxes indicating disagreement with both a filed notice_of_federal_tax_lien and a notice_of_levy seizure they also attached a statement explaining that their reasons for disagreeing included that they were never given the tax_court hearing they requested on date and that they primarily disputed the disallowance in its entirety of dollar_figure claimed in as cost of good sold in response to that portion of petitioners’ request which related to the notice_of_intent_to_levy respondent held a so- called equivalency hearing and on date issued a decision letter concerning equivalent_hearing under sec_6320 and or concluding that the subject levy was an appropriate collection action in response to that portion of petitioners’ request which pertained to the notices of lien filing respondent held a collection_due_process_hearing and sent to petitioners a notice_of_determination concerning collection actions s under sec_6320 and or dated date an attachment to the notice_of_determination explained in relevant part as follows in their protest taxpayer stated that they did not agree with the lien filing because they were never given a tax_court hearing in mobile al as they had requested in a timely filed petition taxpayer provided a copy of the petition that was mailed to the tax_court in their petition taxpayer had disagreed with the audit adjustment to disallow the cost of good sold in its entirety it was decided to give the taxpayer the benefit of a doubt and consider the cost of good sold issue taxpayer provided documentation to substantiate material cost of dollar_figure the snd was revised to reflect the allowance of the cogs this adjustment reduces the amount of tax owed for from dollar_figure to dollar_figure and the penalty associated with the adjustment to be abated is dollar_figure taxpayer was told of the recommendation to reduce the liability for taxpayer-wife had stated several times that she was going to try and borrow some money to pay part of the liability and set the balance on payments a copy of the revised audit report was mailed to taxpayer along with the form taxpayer-wife called to discuss the form and was given two weeks to sign and return the waiver or a determination_letter would be issued from the best information available it appears that all required legal procedures were followed by the internal_revenue_service in issuing the notice_of_federal_tax_lien and advising taxpayer of their appeal right taxpayer had raised the liability issue for one year which was considered the notice_of_federal_tax_lien should not be withdrawn the lien was properly file to secure the government’s priority position this action balances the need for the efficient collection_of_taxes with the legitimate concern that any collection action be no more intrusive than necessary reproduced literally on date petitioners filed with this court a petition that on its face challenges the notice_of_determination - with respect to the year attached to the petition is an explanation of petitioners’ position which mentions once again the lack of a tax_court proceeding in response to their petition acknowledges that respondent considered and allowed at the collection_due_process_hearing a portion of the disputed cost_of_goods_sold argues that respondent did not consider other issues that petitioners wished to raise such as deductions in for gambling_losses state income taxes and mortgage interest and contends that a levy against petitioners’ current income would indeed be ‘more intrusive than necessary ’ petitioners then allude to several items of real_property and state what the petitioners want is for the levy against current earnings to be delayed until the correct amount of deficit has been determined and until they can sell the property or mortgage it to pay the deficit the attachment also clarifies that petitioners are not challenging any of the dollar_figure alleged to be owed for respondent on date filed a motion to dismiss for lack of jurisdiction as to petitioners’ sec_6330 claim the court granted respondent’s motion on grounds that petitioners’ request for a hearing as to the levy was not timely submitted to respondent within the time period prescribed by statute see sec_6330 116_tc_255 respondent on date filed the instant motion for summary_judgment petitioners were ordered to file any response to this motion on or before date but no such response has been received by the court discussion rule a allows a party to move for a summary adjudication in the moving party’s favor upon all or any part of the legal issues in controversy rule b directs that a decision on such a motion shall be rendered if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law the moving party bears the burden of demonstrating that no genuine issue of material fact exists and that he or she is entitled to judgment as a matter of law 98_tc_518 affd 17_f3d_965 7th cir facts are viewed in the light most favorable to the nonmoving party id however where a motion for summary_judgment has been properly made and supported by the moving party the opposing party may not rest upon mere allegations or denials contained in that party’s pleadings but must by affidavits or otherwise set forth specific facts showing that there is a genuine issue for trial rule d the court has considered the pleadings and other materials in the record and concludes that there is no genuine justiciable issue of material fact in this case i collection actions--general rules sec_6321 imposes a lien in favor of the united_states upon all property and rights to property of a taxpayer where there exists a failure to pay any_tax liability after demand for payment the lien generally arises at the time assessment is made sec_6322 sec_6323 however provides that such lien shall not be valid against any purchaser holder of a security_interest mechanic’s_lienor or judgment lien creditor until the secretary files a notice of lien with the appropriate public officials sec_6320 then sets forth procedures applicable to afford protections for taxpayers in lien situations sec_6320 establishes the requirement that the secretary notify in writing the person described in sec_6321 of the filing of a notice of lien under sec_6323 this notice required by sec_6320 must be sent not more than business days after the notice of tax_lien is filed and must advise the taxpayer of the opportunity for administrative review of the matter in the form of a hearing before the internal_revenue_service office of appeals sec_6320 and sec_6320 and c grants a taxpayer who so requests the right to a fair hearing before an impartial appeals officer generally to be conducted in accordance with the procedures described in sec_6330 d and e sec_6330 addresses the matters to be considered at the hearing sec_6330 matters considered at hearing --in the case of any hearing conducted under this section-- requirement of investigation --the appeals officer shall at the hearing obtain verification from the secretary that the requirements of any applicable law or administrative procedure have been met issues at hearing -- a in general --the person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy including-- i appropriate spousal defenses ii challenges to the appropriateness of collection actions and iii offers of collection alternatives which may include the posting of a bond the substitution of other assets an installment_agreement or an offer-in-compromise b underlying liability --the person may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability once the appeals officer has issued a determination regarding the disputed collection action sec_6330 allows the taxpayer to seek judicial review in the tax_court or a u s district_court in considering whether taxpayers are entitled to any relief from the commissioner’s determination this court has established the following standard of review where the validity of the underlying tax_liability is properly at issue the court will review the matter on a de novo basis however where the validity of the underlying tax_liability is not properly at issue the court will review the commissioner’s administrative determination for abuse_of_discretion 114_tc_604 ii review of underlying liability petitioners seek to challenge in this proceeding the amount of their underlying tax_liability for the record however makes clear that petitioners received a notice_of_deficiency for identical notices were sent to what respondent alleges and petitioners do not dispute was their last_known_address see sec_6212 that address is the same address as petitioners have indicated to the court should be used for correspondence in connection with this case moreover petitioners in fact received one or both of the statutory notices in time to prepare and sign on date a timely tax_court petition see sec_6213 the reason why this petition was never actually filed with the court is not explained by the record but it is clear that petitioners failed to follow up adequately on their submission to ensure its receipt and filing accordingly because a statutory_notice_of_deficiency for was received by petitioners they are precluded by sec_6330 from challenging their underlying liability for that year in this proceeding furthermore this preclusion mandated by statute is not altered or waived by the fact that the appeals officer chose to consider at the collection hearing matters related to petitioners’ liability see 118_tc_572 petitioners’ contentions regarding items such as deductions for are not properly at issue and cannot be addressed here petitioners have also expressly conceded any challenge to the balance due for we therefore review respondent’s determination solely for abuse_of_discretion iii review for abuse_of_discretion with respect to issues subject_to review in collection proceedings for abuse_of_discretion petitioners have at no time raised a spousal defense nor have they offered any specific concrete collection alternatives although petitioners in their petition generally allude to the possibility of selling or mortgaging real_property they have not proposed any actual plan or arrangements for satisfying their tax_liabilities they also apparently broached at their appeals hearing but failed to follow through on borrowing funds to pay a portion of the debt hence the record does not reveal that respondent inappropriately rejected any bona_fide collection alternative concerning challenges to the appropriateness of collection actions the petition complains about intrusiveness to the extent that this complaint pertains to the levy action the issue is not before us to the extent that the complaint can be interpreted to encompass the lien action we conclude that in light of the absence of any definite collection alternatives the filing of a lien properly balances the competing concerns of efficient collection and intrusiveness as this court has noted in earlier cases rule b states that a petition for review of a collection action shall contain clear and concise assignments of each and every error alleged to have been committed in the notice_of_determination and that any issue not raised in the assignments of error shall be deemed conceded see 117_tc_183 114_tc_176 accordingly having considered those matters set forth in petitioners’ pleadings the court concludes that respondent’s determination to proceed with collection was not an abuse_of_discretion respondent’s motion for summary_judgment will be granted to reflect the foregoing an appropriate order granting respondent’s motion for summary_judgment and decision for respondent will be entered


internal_revenue_service number release date index number ---------------------------------------------- -------------------------------------- -------------------------------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-134636-11 date date x ----------------------------------------------------------------------------------------------------- ----------------------- state ------------- date ----------------------- dear --------------- this responds to a letter dated date submitted by x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in state on date x was eligible to elect s_corporation treatment effective date however a form_2553 election by a small_business_corporation was not timely filed for x sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the plr-134636-11 election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective date accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective date within days following the date of this letter then such election will be treated as timely made for x's taxable_year beginning date a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index nos cc ita plr-117935-01 date dear this is in reference to a form_1128 application to adopt change or retain a tax_year submitted on behalf of the above- named taxpayer requesting permission to change its accounting_period for federal_income_tax purposes from a taxable_year ending december to a taxable_year ending september effective date the taxpayer has requested that the form_1128 be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations the taxpayer’s form_1128 requesting a change in accounting_period to a tax_year ending date was due on or before date however the information furnished indicates that due to an error or misunderstanding the form_1128 was not timely filed however the taxpayer filed the form within days of the due_date sec_1_442-1 of the income_tax regulations provides that in order to secure the commissioner's consent to a change in accounting_period the taxpayer must file an application on form_1128 with the commissioner on or before the 15th day of the second calendar month following the close of the short_period section of revproc_2000_11 2000_3_irb_312 states in part that a form_1128 filed pursuant to this revenue_procedure will be considered timely filed for purposes of sec_1_442-1 b if and only if it is filed on or before the time including extensions for filing the return for the short_period required by such change sec_301_9100-3 of the regulations provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government based on the facts and information submitted and the representations made it is held that the taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case and taxpayer’s late filed form_1128 requesting permission to change to a tax_year ending september effective date is considered timely filed the ruling contained in this letter is based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as part of an examination process this ruling addresses the granting of sec_301_9100-3 relief only no opinion is expressed regarding the tax treatment of the instant transaction under the provisions of any other sections of the code or regulations that may be applicable thereto or regarding the tax treatment of any conditions existing at the time of or effects resulting from the instant transaction specifically no opinion is expressed as to whether the taxpayer is permitted under the code and applicable regulations to change to the tax_year requested in the subject form_1128 a copy of this letter_ruling and taxpayer's form_1128 are being forwarded to the service_center where the taxpayer files its federal_income_tax returns with instructions that the form_1128 be considered timely filed and processed in accordance with established procedures under revproc_2000_11 in accordance with the provisions of a power_of_attorney currently on file we are sending the original this letter_ruling to the taxpayer's authorized representative and a copy to the taxpayer this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent enclosures copy of this letter copy for sec_6110 purposes sincerely yours associate chief_counsel income_tax and accounting heather maloy


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b04-plr-122174-02 date june re legend decedent spouse will date date dear this letter is in response to your letter dated date requesting a ruling pursuant to the authority of revproc_2001_38 2001_24_irb_1335 that the qualified_terminable_interest_property qtip_election which was made in respect of the credit_shelter_trust established under paragraph sixth of will be treated as a nullity for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 of the internal_revenue_code facts decedent died on date pursuant to paragraph sixth of will the executors of decedent’s estate funded a credit_shelter_trust for the lifetime benefit of spouse in an amount equal to that fraction of the residuary_estate of which the numerator equaled the largest amount that could pass free of federal estate_tax by reason of the unified_credit and state_death_tax_credit and the denominator was the value of the residuary_estate pursuant to paragraph seventh of will the balance of the residuary_estate passed to a marital trust for the lifetime benefit of spouse the marital trust was intended to qualify as a qualified_terminable_interest_property qtip_trust decedent’s federal estate_tax_return form_706 was filed on or about date on schedule m of the return the executors made qtip elections for both the credit_shelter_trust and the marital trust the qtip_election for the credit_shelter_trust was unnecessary because no estate_tax would have been imposed whether or not the qtip_election was made for that trust plr-122174-02 law and analysis sec_2056 provides that except as limited by sec_2056 the value of a taxable_estate is determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property which passes or has passed_from_the_decedent to the surviving_spouse sec_2056 denies a marital_deduction for an interest passing to the surviving_spouse that is a terminable_interest an interest is a terminable_interest if the interest passing to the surviving_spouse will terminate or fail on the lapse of time or on the occurrence of an event or contingency or on the failure of an event or contingency to occur and on termination an interest in the property passes to someone other than the surviving_spouse sec_2056 provides an exception to this terminable_interest_rule in the case of qualified_terminable_interest_property for purposes of sec_2056 qualified_terminable_interest_property is treated as passing to the surviving_spouse and no part of the property is treated as passing to any person other than the surviving_spouse under sec_2056 qualified_terminable_interest_property is property which passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under sec_2056 applies sec_2056 provides that the election to treat property as qtip under sec_2056 is made by the executor on the return of tax imposed by sec_2001 this election once made is irrevocable sec_20_2056_b_-7 of the estate_tax regulations provides that the qtip_election is made on the return of tax imposed by sec_2001 or sec_2101 the term return of tax imposed by sec_2001 means the last estate_tax_return form 706-united states estate and generation-skipping_transfer_tax return filed by the executor on or before the due_date of the return including extensions or if a timely return is not filed the first estate_tax_return filed after the due_date sec_2044 and b provides generally that the value of the gross_estate includes the value of any property in which the decedent had a qualifying_income_interest_for_life and with respect to which a deduction was allowed for the transfer of the property to the decedent under sec_2056 sec_2519 and b provide that any disposition of all or part of a qualifying_income_interest_for_life in any property with respect to which a deduction was allowed under sec_2056 is treated as a transfer of all interests in the property other than the qualifying_income interest sec_2652 provides that the surviving_spouse will be treated as the transferor of the property for generation-skipping_transfer_tax purposes in the absence of a reverse_qtip_election under sec_2652 plr-122174-02 revproc_2001_38 provides relief for surviving spouses and their estates in situations where a predeceased spouse’s estate made an unnecessary qualified_terminable_interest_property qtip_election under sec_2056 that did not reduce the estate_tax liability of the estate when such an unnecessary election is made the internal_revenue_service will disregard the election and treat it as null and void for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 the revenue_procedure specifically applies to cases where an estate made qtip elections for both a credit_shelter_trust and a marital trust and the qtip_election for the credit_shelter_trust was not necessary because no estate_tax would have been imposed whether or not the qtip_election was made for that trust in this case the qtip_election for the credit_shelter_trust was unnecessary because no estate_tax would have been imposed whether or not the election was made for the trust accordingly we rule that the service will disregard the qtip_election for the credit_shelter_trust established under paragraph sixth of will and treat it as null and void for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 the property in the credit_shelter_trust for which the election is disregarded will not be includible in the gross_estate of spouse under sec_2044 and spouse will not be treated as making a gift under sec_2519 if spouse disposes of the income_interest with respect to that property further spouse will not be treated as the transferor of the property in the credit_shelter_trust for generation-skipping_transfer_tax purposes under sec_2652 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 s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any_tax return to which it is relevant 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 lorraine e gardner assistant to the branch chief branch office of associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service number release date index number r ---------------------------------------------------- ----------------------------------- -------------------------------- ---------------------------- 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 b06 plr-134945-12 date date legend ------------------------------------ -------------------------------------- taxpayer ------------------------------------------------------------ parent ------------------------------------------------------------ state a state b commission a commission b operator a operator b date a year a director ------------- -------------- --------------------------------------------------- ------------------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------ --------------------------- ------- -------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ -------------------------------------------------- dear -------------- this letter responds to the request dated date of taxpayer for a ruling on the consequences of taxpayer’s accounting and regulatory treatment of the investment_tax_credit itc the representations set out in your letter follow taxpayer is a regulated_public_utility incorporated in state a it is an indirect wholly-owned subsidiary of parent which is incorporated in state b taxpayer is included in the consolidated federal_income_tax return of parent taxpayer is principally engaged in the generation transmission distribution and sale of electricity in state a plr-134945-12 as well as the sale of various transmission and other services at negotiated rates under the jurisdiction of commission b taxpayer is regulated with respect to the terms and conditions of service and most particularly regarding the rates it may charge for its services by commission a and commission b taxpayer was a member of operator a an independent transmission system operator through date a since that time taxpayer has been a member of operator b also an independent transmission system operator with respect to the jurisdiction of each of the commissions taxpayer’s rates are determined using a rate of return basis that allows taxpayer to earn a reasonable rate of return taxpayer has elected to account for its itc pursuant to former sec_46 taxpayer has unamortized accumulated deferred itc relating to generation transmission and distribution assets placed_in_service prior to with respect to transmission activities formula rates have been employed by taxpayer since year a taxpayer uses a formula rate structure to establish its rates subject_to the jurisdiction of commission b formula rates in general allow for self- executing adjustments to rates on an annual basis to reflect increases and decreases in costs and investments since the prior year they incorporate a calculation of both rate base and tax expense thus they reflect taxpayer’s aditc balance as well as the amount being amortized the formula is periodically updated resulting in changes to rates the tariff that taxpayer may charge its wholesale customers and third parties for their use of its transmission assets the open access transmission tariff oatt is regulated by commission b in establishing its oatt rates taxpayer currently uses a template approved by commission b that was developed by operator b prior to date a taxpayer established its oatt rates using a template developed by operator a taxpayer’s rates were established using procedures consistent with former sec_46 meaning that taxpayer reduced the tax expense element of cost of service by no more than a ratable portion of its itc and that taxpayer did not reduce rate base by any portion of the aditc balance under this provision in no event can itc be reflected in the rate-setting process until the later of the placement in service of the asset which generated the credit or the use of the credit on a taxpayer’s tax_return taxpayer has determined that the template taxpayer used to establish its oatt rates beginning in year a reflected its aditc balance as a reduction in rate base further the amortization of taxpayer’s aditc balance was not reflected as a reduction in tax expense thus taxpayer applied the requirements of sec_46 notwithstanding that it had elected to apply the requirements of sec_46 the effect of taxpayer’s treatment of its aditc in the rate templates was a reduction in rates to wholesale customers the formula templates were completed by taxpayer’s regulatory personnel and they did not recognize the normalization issue raised personnel in taxpayer’s tax department became suspicious and reviewed the use of the templates by regulatory plr-134945-12 personnel once they became aware of the errors taxpayer has not yet made a formula filing with the corrected template but will do so at its next annual filing commission b did not specifically address or consider any of the rates or calculations at issue here in any order to taxpayer law and analysis former sec_46 of the code provides an election for ratable flow through under which an elector may flow through the investment_tax_credit to cost of service however former f a provides that no investment_tax_credit is available if the taxpayer's cost of service for ratemaking purposes or in its regulated books of account is reduced by more than a ratable portion of the credit determined under former a and allowable by sec_38 also under former sec_46 no investment_tax_credit is available if the base to which the taxpayer's rate of return for ratemaking purposes is applied is reduced by reason of any portion of the credit determined under former a and allowable by sec_38 former sec_46 of the code provides that for purposes of determining ratable portions under former sec_46 the period of time used in computing depreciation expense for purposes of reflecting operating results in the taxpayer's regulated books of account shall be used under sec_1_46-6 of the regulations ratable for purposes of former sec_46 of the code is determined by considering the period of time actually used in computing the taxpayer's regulated depreciation expense for the property for which a credit is allowed regulated depreciation expense is the depreciation expense for the property used by a regulatory body for purposes of establishing the taxpayer's cost of service for ratemaking purposes sec_1_46-6 provides that the itc is disallowed for any sec_46 property placed_in_service by a taxpayer before the date a final_decision of a regulatory body that is inconsistent with sec_1_46-6 is put into effect on or after such date and before the date a subsequent decision consistent with sec_1_46-6 is put into effect sec_1_46-6 provides that there is no disallowance of a credit before the first_final_inconsistent_determination is put into effect for the taxpayer’s sec_46 property sec_1_46-6 provides that inconsistent refers to a determination that is inconsistent with sec_46 or for example a determination to reduce the taxpayer’s cost of service by more than a ratable portion of the credit would be a determination that is inconsistent with sec_46 plr-134945-12 senate report no 94th cong 1st sess 1975_1_cb_590 provides in its explanation of the ratemaking treatment to be accorded the additional itc allowed public_utilities under the act that the additional itc is to be disallowed if the regulatory agency requires the flowing-through of a company’s additional itc at a rate faster than permitted or insists upon a greater rate base adjustment than is permitted but only after a final_determination is put into effect that report further provides that the rules provided under existing law with respect to determinations made by a regulatory body and the finality of its orders would apply to this provision senate report no 92nd cong 1st sess 1972_2_cb_559 provides in its explanation of amendments to the revenue act of dealing with the limitations on the ratemaking treatment of the itc under sec_46 and e that the committee hopes that the sanctions of disallowance of the itc will not have to be imposed for the periods during which taxpayer erroneously calculated the template and thus improperly reduced_rate base the practical effect of this error was to lower rates and thus to flow the itc to its transmission customers more rapidly than if the template had been correctly applied this reduction was not the intent of either the taxpayer or commission b further taxpayer has acted upon discovery of these errors and adjusted its template so that they will reflect the same amounts as if no errors had occurred when filed we conclude that taxpayer’s actions as described above are not inconsistent with the requirements of former sec_46 finally commission b never specifically addressed these matters in a rate case involving taxpayer and so did not issue and order on these matters during this period in accord with the senate reports quoted above disallowance or recapture of the itc should be imposed only after a regulatory body has required or insisted upon such treatment by a utility because commission b did not insist on the errors discussed above no disallowance or recapture is required in this case except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the matters described above in particular orders concerning this matter finalized by either of the commissions after the date of this ruling are not necessarily subject_to the same analysis as those considered above this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides 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 plr-134945-12 authorized representative we are also sending a copy of this letter_ruling to the director sincerely peter c friedman senior technician reviewer branch passthroughs special industries cc


t c memo united_states tax_court david o viola and tammy j viola petitioners v commissioner of internal revenue respondent docket no filed date michael a fisher for petitioners mark j tober for respondent memorandum findings_of_fact and opinion morrison judge the respondent the irs sent the petitioners mr david o viola and ms tammy j viola a notice_of_deficiency for the tax years and in the notice the irs determined the following deficiencies and section-6662 a penalties year deficiency dollar_figure big_number big_number penalty sec_6662 dollar_figure dollar_figure dollar_figure the deficiency determinations resulted from various adjustments to the items of income and deductions reported on the violas’ returns in the stipulation of settled issues the parties have resolved all the adjustments that the violas challenged except for the computational effects of the resolved adjustments the only issue for decision is whether the violas are liable for the penalty for any or all of the three years before us findings_of_fact the violas were a married couple living in ohio at all relevant times david viola owned and operated a business viola contracting llc that repaired and maintained cell phone towers and related equipment viola contracting llc is a disregarded_entity for federal_income_tax purposes the violas reported all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure income and expenses from the business on schedules c profit or loss from business in viola contracting llc received dollar_figure in non-employee compensation from an entity called revol wireless revol wireless did not issue viola contracting llc a form 1099-misc miscellaneous income the violas used mr james csaszar of the accounting firm of csaszar snider accounting services to prepare all of their federal-income-tax returns for to in mr csaszar lost his accounting license but the violas were unaware of this for the tax_year the violas provided mr csaszar with the necessary business records to prepare their tax_return including forms 1099-misc which reported dollar_figure of payments to viola contracting llc and documentation of the fact that viola contracting llc had received the dollar_figure payment from revol wireless before mr csaszar could prepare their return he suffered a stroke when the violas became aware of the stroke csaszar snider accounting services assured them that it would still be able to finish the violas’ return as the due_date for the tax_return approached mr viola periodically called csaszar snider accounting services to check that the return would be completed on time however he did not request any substantive tax_advice csaszar snider accounting services prepared the return in time for it to be filed timely no one from the accounting firm discussed the dollar_figure payment from revol wireless with the violas or gave any advice to the violas regarding the position to take on their return with respect to the revol wireless payment the accounting firm did not give the violas a copy of the return a form_1040 u s individual_income_tax_return until three weeks after it was filed mr viola briefly reviewed the return then attached to the return was a schedule c for viola contracting llc the schedule c reported dollar_figure as the gross_receipts for viola contracting llc mr viola noticed that the amount reported as gross_receipts on schedule c was the same as the total of the payments received on forms 1099-misc but that it did not include the dollar_figure payment from revol wireless mr viola assumed without confirming that the dollar_figure payment was reported elsewhere on the return the dollar_figure amount was not reported elsewhere on the return the violas concede that the amount should have been reported as gross_receipts the irs made an upward adjustment of dollar_figure to the violas’ schedule c gross_receipts in the notice_of_deficiency the violas conceded that dollar_figure of the adjustment was correct see table infra p the irs conceded the remainder of the adjustment in the stipulation of settled issues for the and tax years the violas continued to have csaszar snider accounting services prepare their returns on date the irs issued the violas a notice_of_deficiency determining the deficiencies and a section-6662 a penalty for each of the and tax years the deficiency determinations reflected various adjustments to the amounts reported on the returns in their petition the violas did not challenge some of the adjustments of the adjustments challenged in the petition the parties have resolved all except for computational adjustments ie adjustments that depend solely on other adjustments in addition the parties have come to a special agreement in the stipulation of settled issues regarding adjustments made in the notice_of_deficiency to real_estate losses reported on schedule e supplemental income and loss for and even though these adjustments were not challenged in the petition the parties have agreed that these adjustments will be recomputed to take into account the effect of other adjustments the adjustments made in the notice_of_deficiency thus fall into the following three categories adjustments not challenged by the violas adjustments the violas initially challenged that were then settled in the stipulation of settled issues filed in this case and adjustments challenged by the violas that were not settled in the stipulation of settled issues all of the adjustments in this third category are computational the adjustments in this category correspond to the following lines in the notice_of_deficiency self employment_tax for all three years addnl child_tax_credit for all three years depreciation for all three years depreciation and sec_179 expense for and itemized_deductions for all three years exemptions for and additional taxes alternative_minimum_tax for qualified dividends for and capital_gain or loss for some adjustments increase income some decrease income the stipulation of settled issues says that t he parties agree that the remaining adjustments for both of the years at issue ie the adjustments in the notice_of_deficiency other than the adjustments settled in the stipulation of settled issues are computational in nature and will be determined in accordance with the concessions described above this presumably means that the amounts of the adjustments from the notice in the above lines in the notice--category --are subject_to calculation under rule in accordance with our resolution of the case these adjustments are listed in the table below along with a description of how the parties have resolved each adjustment year line item on return amount of adjustment in the notice_of_deficiency all amounts reflect increases in income amount of adjustment conceded by the irs schedule c gross_receipts schedule c cost_of_goods_sold schedule c car and truck expenses schedule c rental or lease expenses for other business property schedule c expenses for business use of the home schedule e real_estate loss schedule c cost_of_goods_sold schedule c expenses for business use of the home schedule c cost_of_goods_sold schedule c expenses for business use of the home dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number amount of adjustment conceded by the violas dollar_figure big_number big_number big_number big_number big_number big_number dollar_figure big_number -0- big_number -0- big_number big_number big_number we note that the adjustments in category depend only on the resolution of the other adjustments ie those in categories and since none of the amounts in category or requires our resolution it appears that the parties should already have been able to calculate the computational adjustments in categories and therefore they should be able to calculate total mutually agreed-upon amounts of the violas’ deficiencies and tax_liabilities yet nothing in the record shows that the parties have agreed to these amounts the calculations will thus be made under rule the violas timely filed a petition requesting that this court redetermine the deficiencies which have now been settled by the parties and the penalties which remain at issue trial was held in tampa florida opinion sec_6662 and b imposes a penalty on any part of an underpayment that is attributable to a substantial_understatement_of_income_tax an understatement is generally defined as the correct_tax minus the tax_shown_on_the_return sec_6662 sec_1_6662-4 income_tax regs an understatement of income_tax is substantial if it exceeds the greater of dollar_figure or of the correct_tax required to be shown on the return sec_6662 sec_1_6662-4 income_tax regs in an exception to the accuracy-related_penalty sec_6664 provides that the amount of an underpayment is reduced by any part of an underpayment for which the taxpayer can show both reasonable_cause and good_faith sec_6664 under sec_7491 the irs must produce sufficient evidence indicating that it is appropriate to impose the the amounts of the penalties will depend on the amounts of the underpayments the parties calculate on the basis of this opinion see rule penalty see 116_tc_438 the taxpayer however bears the burden of proving that penalties are inappropriate because of reasonable_cause id the violas have conceded that many of the adjustments made in the notice_of_deficiency are correct and so they have admitted that their returns understated their tax_liabilities because the adjustments they have conceded have a net effect of increasing their tax_liability whether the understatement_of_tax for each year is substantial ie whether the understatement exceeds the greater of dollar_figure or of the correct_tax will be determined under rule the violas contend that they are not liable for the accuracy-related_penalties with respect to the items they challenged in their petition because they qualify for the reasonable-cause-and-good-faith exception the pertinent regulation - - provides the determination of whether a taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all pertinent facts and circumstances generally the most important factor is the extent of the taxpayer’s effort to assess the taxpayer’s proper tax_liability circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of all of the facts and circumstances including the experience knowledge and education of the taxpayer an isolated computational or transcriptional error generally is not inconsistent with reasonable_cause and good_faith reliance on professional advice constitutes there are other exceptions to the penalty that the violas do not invoke here ie sec_6662 provides that an understatement is reduced first where the taxpayers had substantial_authority for their treatment of an item giving rise to the understatement or second where the relevant facts affecting the treatment of an item giving rise to an understatement are adequately disclosed and the taxpayers had a reasonable basis for their treatment of that item in their answering brief the violas claimed that csaszar snider accounting services submitted their and returns without their signatures or permission that these returns were therefore not filed and that therefore sec_6662 penalties cannot be imposed for these two years see sec_6664 but the violas raised the issue of whether they filed returns only in a brief filed after trial this is too late see 55_tc_862 the violas did not even raise the issue in their opening brief which asserted only that they could argue that their and returns were never actually filed in any case we find unpersuasive the violas’ claim that the returns for and were filed without their permission mr viola testified only that he could not recall whether he had given permission to anyone at csaszar snider accounting services to file the returns furthermore the violas used csaszar snider accounting services for their and returns even though they now say the firm filed their return without their permission we find that the and returns were filed with their permission reasonable_cause and good_faith if under all the circumstances such reliance was reasonable and the taxpayer acted in good_faith sec_1_6664-4 income_tax regs whether the taxpayer acted with reasonable_cause and in good_faith thus depends on the pertinent facts and circumstances including the taxpayer’s efforts to assess the proper tax_liability the taxpayer’s knowledge and experience and the extent to which the taxpayer relied on the advice of a tax professional the portion of the underpayment attributable to the omitted payment from revol wireless the violas contend that their return did not report the dollar_figure payment from revol wireless because csaszar snider accounting services either decided that the dollar_figure payment was not includable in their income or made a clerical_error in failing to include the payment on their return a similar argument was made by the taxpayers in 136_tc_585 in woodsum we held that the taxpayers could not claim to have relied on the advice of their tax_return_preparer because there was no evidence that the tax_return_preparer made a judgment or that the taxpayers relied on it id pincite likewise there is no evidence that csaszar snider accounting services made a judgment that the revol wireless payment was not includable in the violas’ income and there is no evidence that the violas relied on any such judgment of csaszar snider accounting services in woodsum the court further held that even if the error by the tax_return_preparer was an innocent oversight such as an innocent computational or transcriptional error the taxpayers did not have reasonable_cause for signing the erroneous return id pincite for them to qualify for the reasonable-cause exception they would have to show that they made a reasonable review of the completed return and the court held that they did not do so id pincite at minimum the court held taxpayers should check returns prepared by others to make sure that each item_of_income is reported see id see also 70_tc_465 aff’d 651_f2d_1233 6th cir when mr viola examined the schedule c he noticed the revol wireless payment was not reported there he merely assumed instead of confirming that it was reported elsewhere on the return the violas failed to make a reasonable effort to be sure they ascertained their proper tax_liability therefore they did not the violas rely on thrane v commissioner tcmemo_2006_269 thrane held that the taxpayer had reasonable_cause for failure to report income in part because a reasonable inspection of the return whether or not the taxpayer actually conducted one would not have uncovered the error see id slip op pincite by contrast a reasonable inspection of the violas’ return would have uncovered the failure to report the revol wireless payment show that they had reasonable_cause and acted in good_faith with respect to the unreported payment from revol wireless the portions of the and underpayments attributable to other adjustments the violas assert that they had reasonable_cause for and acted in good_faith with respect to the full amounts of the underpayments for all three years the irs on the other hand continues to assert the same amounts of penalties originally determined in the notice_of_deficiency neither side differentiates between the types of adjustments for the purposes of the reasonable-cause-and- good-faith exception--the irs claims that the violas have not proven reasonable_cause and good_faith for any parts of the underpayments while the violas assert that the entire process they used to generate their income-tax returns demonstrates their good_faith and that they had reasonable_cause for the entire underpayments we must therefore discuss the applicability of the reasonable-cause-and-good- faith exception to adjustments in all three of the categories that we have used to classify the adjustments in the notice_of_deficiency we have already discussed the revol wireless payment supra part some of the underpayments attributable to any overreporting of schedule e real_estate losses for and may be reduced as a consequence of the special agreement described supra pp we begin with the aspects of the return that gave rise to the adjustments we have placed in category these adjustments are all computational ie they depend on other adjustments therefore whether the underpayments related to the category adjustments are excepted from the penalty depends on whether the exception applies to the other adjustments we now consider the aspects of the return that gave rise to the adjustments we have placed in category all of the facts and circumstances must be taken into account in determining whether the violas had reasonable_cause for the underpayments and acted in good_faith again the most important factor for us to consider is the extent of the violas’ efforts to report their tax_liabilities correctly woodsum v commissioner t c pincite sec_1_6664-4 income_tax regs the violas submitted a considerable amount of documentation and business records to csaszar snider accounting services in doing so they were following the same routine that they had in prior years the violas were not themselves well versed in tax matters mr viola credibly testified that he did not know what schedule e is for example he began working in construction immediately after high school and started his business after gaining on-the-job experience unlike the omission of the revol wireless payment the errors that resulted in the category adjustments were not ones that a reasonable inspection by a taxpayer with the violas’ limited tax knowledge and experience would have been likely to uncover thus taking into account all pertinent facts and circumstances we hold that the violas had reasonable_cause for claiming the category deductions they are thus not liable for section-6662 penalties for the portions of the underpayments attributable to the category adjustments we now consider the aspects of the return that gave rise to the adjustments we have placed in category the violas argue that they are entitled to full relief from the penalties on account of the process they used to generate their tax returns ie giving information to their return preparer and conducting a brief review of the resulting tax_return but they introduced no evidence about the the violas argue that they relied on the professional advice of csaszar snider accounting services with respect to the deductions and cost_of_goods_sold amounts that they concede were incorrectly reported on their return ie with respect to the aspects of their return that other than the revol wireless payment make up our category the regulation allows us to take reliance on a tax professional into consideration when determining whether the taxpayer acted with reasonable_cause and good_faith see sec b income_tax regs but because we find that the violas are not liable for the penalty on the basis of all the facts and circumstances we need not analyze their argument that they relied on the advice of a tax professional under the tests set out in 115_tc_43 aff’d 299_f3d_221 3d cir with respect to these adjustments income and expenses which as reported on the returns gave rise to these adjustments we have no way of knowing whether a reasonable review of the tax returns would have uncovered that the income and expenses were incorrectly reported see woodsum v commissioner t c pincite the violas bear the burden of proving that they had reasonable_cause for and acted in good_faith with respect to these aspects of the returns their general argument that their tax- return-preparation process was reasonable is not sufficient to meet the burden we have considered all arguments that the parties have made and we find any contentions not addressed above to be meritless irrelevant or moot to reflect the foregoing decision will be entered under rule the violas never challenged these adjustments the rule calculation must thus apply the penalty to the portion of each underpayment attributable to the category adjustments and the revol wireless payment


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 intl b06 plr-104607-15 date date legend --------------------------------------------------- ------------------- ----------------------------- ------------------- taxpayer llc a llc b individual accounting firm ------------------------------- law firm date date ------------------------------------ --------------------------- ----------------------- dear ------------------ this responds to a letter dated date supplemented by letters dated date date date and date submitted by accounting firm requesting that the internal_revenue_service service grant taxpayer an extension of time under sec_301_9100-1 and sec_301_9100-3 to file form 4876-a election to be treated as an interest_charge_disc for taxpayer’s first taxable_year the rulings contained in this letter are based upon information and representations submitted by taxpayer and accounting firm and accompanied by affidavits and penalty of perjury statements executed by appropriate parties this office has not verified any of the materials submitted in support of the request for rulings it is subject_to verification on examination facts taxpayer is a domestic_corporation wholly owned by llc a a limited_liability_company classified as a partnership for federal_income_tax purposes taxpayer was formed on plr-104607-15 date for the sole purpose of qualifying and operating as an interest charge domestic_international_sales_corporation ic-disc taxpayer operates under a commission arrangement with llc a llc b owns a majority interest in llc a parties unrelated to one another and to individual own llc b individual and his children beneficially own a minority interest in llc a in addition employees of llc a own a minority interest in llc a these employees are not related to individual shortly before date owners of llc a consulted accounting firm about benefits that an ic-disc may provide after deciding to form taxpayer as an ic-disc llc a retained law firm to organize taxpayer as a corporation upon formation taxpayer operated as an ic-disc taxpayer law firm and accounting firm understood that taxpayer was required to file form 4876-a to operate as an ic-disc and agreed that accounting firm would prepare the form however due to an inadvertent oversight accounting firm failed to prepare the form 4876-a in date accounting firm prepared taxpayer’s first federal_income_tax return using form 1120-ic-disc at this time accounting firm discovered that a form 4876-a had not been filed upon discovery of this error in order to be treated as an ic-disc beginning on date taxpayer requested a ruling granting an extension of time to file form 4876-a for its first taxable_year law and analysis sec_992 of the internal_revenue_code the code provides that an election by a corporation to be treated as a disc1 shall be made by such corporation for a taxable_year at any time during the 90-day period immediately preceding the beginning of the taxable_year except that the secretary may give his consent to the making of an election at such other times as he may designate sec_992 of the code provides that such election shall be made in such manner as the secretary shall prescribe and shall be valid only if all persons who are shareholders in such corporation on such first day of the first taxable_year for which such election is effective consent to such election temporary sec_1_921-1t provides in part that a corporation electing ic-disc status must file form 4876-a and that a corporation electing to be treated as an ic-disc for its first taxable_year shall make its election within days after the beginning of that year as used in this letter the terms ic-disc and disc have the same meaning plr-104607-15 sec_301_9100-1 provides in part that the commissioner in exercising the commissioner’s discretion may 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 under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that a regulatory election is an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin for this purpose an election includes an application_for relief in respect of tax sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government based on the facts and representations submitted with taxpayer’s ruling_request we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file form 4876-a such filing will be treated as a timely election to be treated as an ic-disc for taxpayer’s first taxable_year the granting of an extension in this ruling letter is not a determination that taxpayer is otherwise eligible to make the election or to claim ic-disc status or benefits see sec_301_9100-1 taxpayer should attach a copy of this ruling letter to its federal_income_tax return for the taxable years to which this letter applies 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 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 plr-104607-15 pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to your authorized representatives sincerely _________________________ joseph p dewald senior technical reviewer branch office of associate chief_counsel international enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ---------------------------- ------------------------- --------------------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ----------------- telephone number --------------------- refer reply to cc psi b05 plr-109144-14 date date legend taxpayer --------------------------------------------------------------- ----------------------------------------------------- property ----------------------------------------------------------------------- ----------------------- year date date date consultant ------ -------------- ----------------- ------------------ ---------------------------------------- dear -------------------------------------- this letter responds to your letter dated date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file an application_for certification of historic status with the united_states department of interior for purposes of claiming rehabilitation tax_credits under sec_47 of the internal_revenue_code according to the facts submitted taxpayer acquired property in year on date taxpayer began renovations on property and retained the services of consultant to plr-109144-14 assist taxpayer in preparing the application_for certification of historic status of property in addition taxpayer consulted with an accountant regarding property the renovations to property were completed and the property was placed_in_service on date on date taxpayer learned that it failed to file part i of the historic preservation certification application with the department of interior prior to placing property in service taxpayer represents that consultant and the accountant failed to inform taxpayer that part i of the application needed to be filed before property was placed_in_service law and anaylysis sec_47 provides that the rehabilitation_credit for any taxable_year includes an amount equal to percent of the qualified_rehabilitation_expenditures with respect to any certified_historic_structure sec_47 provides that the term certified_historic_structure means any building and its structural_components that is i listed on the national register or ii is located in a registered_historic_district and certified by the secretary of the interior as being of historic significance to the district sec_1_48-12 provides that a building shall be considered to be a certified_historic_structure at the time it is placed_in_service if the taxpayer reasonably believes on that date the building will be determined to be a certified_historic_structure and has requested on or before that date a determination from the department of interior that such building is a certified_historic_structure within the meaning of the historic_rehabilitation_credit provisions and the department of interior later determines that the building is a certified_historic_structure sec_301_9100-1 provides that the commissioner may 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 or a statutory election but no more than six months except in the case of taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term election includes an application_for relief in respect of tax sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the plr-109144-14 commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusions based solely on the facts and the representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly taxpayer’s application will be considered timely filed for purposes of sec_1_48-12 a copy of this letter should be sent to the appropriate service_center with a request that it be attached to taxpayer’s amended tax_return for the taxable_year a copy is enclosed for that purpose except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code we are sending a copy of this letter to the appropriate sb_se official this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file a copy of this letter is being sent to taxpayer’s authorized representatives sincerely associate chief_counsel passthroughs and special industries by ______________________________ nicole r cimino senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purpose cc


tcmemo_2003_240 united_states tax_court sandra g venable petitioner v commissioner of internal revenue respondent docket no filed date on date p filed a malicious prosecution lawsuit in texas against a former business_associate after trial to a jury p was awarded a favorable verdict and judgment in august of a state appellate court affirmed and the texas supreme court denied review in the former business_associate then satisfied the judgment by means of a check dated date held sec_104 i r c as amended by the small_business job protection act of publaw_104_188 sec 110_stat_1838 is applicable to determine excludability from gross_income of the damages p received held further the payment p received pursuant to the malicious prosecution lawsuit is not excludable from gross_income for under sec_104 i r c there is no evidence that any of the judgment award was received on account of a personal physical injury or physical sickness as required by sec_104 i r c or for medical_care attributable to emotional distress as required by the flush language of sec_104 i r c hans i lindberg for petitioner gerald l brantley for respondent memorandum opinion wherry judge respondent determined a federal_income_tax deficiency for petitioner’s taxable_year of dollar_figure respondent also determined an accuracy-related_penalty under sec_6662 of dollar_figure for after concessions the issue for decision is whether damages petitioner received in satisfaction of a lawsuit judgment are includable in her gross_income for unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure background this case was submitted fully stipulated pursuant to rule the stipulations of the parties with accompanying exhibits are incorporated herein by this reference at the time the petition was filed in this case petitioner resided in the woodlands texas in the mid-1980s petitioner and her then husband victor hubbard mr hubbard now deceased were involved in the operation of a software development company they were introduced to terry thrift jr mr thrift who agreed to invest in the venture subsequently the financial condition and business prospects of the company as well as the relationship of petitioner and mr hubbard with mr thrift deteriorated mr thrift thereafter filed a complaint against petitioner and mr hubbard with the district attorney’s office for bexar county texas alleging inter alia theft of accounts_receivable in response to this complaint the district attorney’s office instituted a criminal prosecution on date the assistant district attorney assigned to the criminal case filed a motion to dismiss on date petitioner sued mr thrift for malicious prosecution in the 224th judicial district bexar county texas petitioner entered into a contingency fee contract with attorney darby riley mr riley to represent her as plaintiff in this lawsuit the case was tried to a jury and petitioner was awarded a favorable verdict on date in the amount of dollar_figure as follows loss of earning capacity attorney’s fees to defend criminal charges mental anguish loss to reputation total dollar_figure big_number big_number big_number big_number the trial_court signed a judgment on date in the amount of dollar_figure which included the damages determined by the jury and prejudgment_interest thereafter mr thrift posted a supersedeas bond and appealed to the court_of_appeals fourth district san antonio texas on date the appellate court delivered and filed its opinion affirming the judgment of the trial_court thrift v hubbard s w 2d tex app a motion for rehearing filed by mr thrift was denied on date mr thrift then filed a petition for review with the texas supreme court which was denied on date by means of a cashier’s check dated date and made payable to petitioner and her attorney mr thrift remitted dollar_figure in satisfaction of the judgment from this sum petitioner received a direct payment of dollar_figure in net_proceeds that amount represented petitioner’s 50-percent share of the recovery after deduction of dollar_figure in expenses paid_by her attorney and dollar_figure in expert witness’s fees mr riley received a corresponding dollar_figure on date petitioner signed a form_1040 u s individual tax_return for the return was received by the internal_revenue_service on date therein petitioner reported as income lawsuit proceeds of dollar_figure she did not deduct as an itemized_deduction any expenses related to the malicious prosecution lawsuit respondent on date issued to petitioner a notice_of_deficiency in calculating the subject tax_deficiency of dollar_figure respondent included in petitioner’s gross_income the full amount of the lawsuit settlement proceeds and treated the attorney’s fees and other expenses_incurred in connection therewith as a miscellaneous itemized_deduction respondent further determined that petitioner was liable for the sec_6662 accuracy-related_penalty in the amount of dollar_figure on account of negligence or disregard of rules and regulations after the instant case was commenced the parties submitted stipulations of settled issues addressing certain of the adjustments made in the notice_of_deficiency as regards the itemized_deductions specifically the contingent attorney’s fees paid directly to mr riley the parties stipulated in the notice_of_deficiency respondent allowed petitioner’s contingent attorney’s fees as an itemized_deduction venue for appeal lies to the court_of_appeals for the fifth circuit the parties agree that petitioner’s gross_income from the damage award does not include the portion of the award paid directly to her attorney and petitioner is not entitled to an itemized_deduction for the attorney’s fees paid to her attorney see 220_f3d_353 5th cir rev’g and remanding in part and aff’g on another issue tcmemo_1998_362 concerning the penalty their stipulation reads the parties agree that if it is determined that there is an underpayment of petitioner’s income_tax attributable to the amount of gross_income petitioner received from the lawsuit recovery the accuracy related penalty provided in sec_6662 and c shall be computed the amount of the penalty imposed and assessed will be reduced by from the amount computed i general rules discussion as a general_rule the internal_revenue_code imposes a federal tax on the taxable_income of every individual sec_1 sec_61 specifies that except as otherwise provided gross_income for purposes of calculating such taxable_income means all income from whatever source derived the compass of this definition is broad typically reaching any accretions to wealth 515_us_323 348_us_426 sec_104 in contrast provides otherwise with respect to compensation_for injuries or sickness such exclusions from gross_income are construed narrowly commissioner v schleier supra pincite 504_us_229 souter j concurring in judgment before its amendment on date by the small_business job protection act of sbjpa publaw_104_188 sec 110_stat_1838 sec_104 read in pertinent part as follows sec_104 compensation_for injuries or sickness a in general --except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 relating to medical etc expenses for any prior taxable_year gross_income does not include-- the amount of any damages received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal injuries or sickness the reference to personal injuries in this former version of the statute did not include purely economic injuries but did embrace nonphysical injuries to the individual such as those affecting emotions reputation or character united_states v burke supra pincite n see also commissioner v schleier supra pincite the sbjpa then amended sec_104 as relevant here to provide sec_104 compensation_for injuries or sickness a in general --except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 relating to medical etc expenses for any prior taxable_year gross_income does not include-- the amount of any damages other than punitive_damages received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal physical injuries or physical sickness for purposes of paragraph emotional distress shall not be treated as a physical injury or physical sickness the preceding sentence shall not apply to an amount of damages not in excess of the amount_paid for medical_care attributable to emotional distress legislative_history accompanying passage of the sbjpa additionally clarifies that the term emotional distress includes symptoms eg insomnia headaches stomach disorders which may result from such emotional distress h conf rept pincite ndollar_figure 1996_3_cb_741 regulations promulgated under sec_104 further define damages received whether by suit or agreement as an amount received other than workmen’s compensation through prosecution of a legal suit or action based upon tort or tort type rights or through a settlement agreement entered into in lieu of such prosecution sec_1_104-1 income_tax regs for purposes of applying the above statutory and regulatory text in effect prior to the sbjpa the u s supreme court in commissioner v schleier supra pincite established a two- pronged test for ascertaining a taxpayer’s eligibility for the sec_104 exclusion as stated by the supreme court first the taxpayer must demonstrate that the underlying cause of action giving rise to the recovery is ‘based upon tort or tort type rights’ and second the taxpayer must show that the damages were received ‘on account of personal injuries or sickness ’ id pincite this test has since been extended to apply to the amended version of sec_104 with the corresponding change that the second prong now requires proof that the personal injuries or sickness for which the damages were received were physical in nature shaltz v commissioner tcmemo_2003_173 henderson v commissioner tcmemo_2003_168 prasil v commissioner tcmemo_2003_100 ii contentions of the parties the dispute between the parties in this case turns in large part upon which version of sec_104 is applicable to petitioner’s situation petitioner contends that the statute as it existed before amendment by the sbjpa controls specifically petitioner alleges that to consider her case under the amended sec_104 would inappropriately give the law retroactive effect in violation of the standard set forth by the u s supreme court in 511_us_244 further it is petitioner’s position that the majority of the damages she received in particular those for mental anguish and loss to reputation are properly excluded from gross_income pursuant to the law in effect when she filed her tort cause of action in conversely respondent maintains that the amended version of sec_104 requiring proof of physical injuries or sickness is applicable here respondent argues that because petitioner is a cash_basis taxpayer and received the payment in question after the effective date of the sbjpa excludability of the damages is governed by the revised statute respondent then asserts that none of the amounts petitioner received were to compensate for physical injuries or sickness the court concludes for the reasons explained below that sec_104 as amended by the sbjpa is applicable to the instant case further petitioner is not entitled to the exclusion afforded by sec_104 the payment petitioner received pursuant to the malicious prosecution lawsuit is therefore subject_to taxation under the default rule_of sec_61 iii analysis a applicable law at the outset we note that petitioner’s arguments regarding retroactivity are premised on her contention that the relevant conduct occurred in august of with the filing of the malicious prosecution lawsuit respondent in contrast focuses on when the judgment became final and petitioner received the payment in question for the sake of completeness and because we conclude under these facts that application of the amended sec_104 would not run afoul of the standards typically employed to evaluate retroactive legislation we discuss sec_104 under those standards including the test for retroactivity advocated by petitioner we note however that the amendment to sec_104 is not in fact a retroactive statute in that the effective date provision quoted infra p was prospective only from the date of enactment our conclusion that application of the amended version of sec_104 is permissible rests on two principal considerations first to the extent that the test of landgraf v usi film prods supra is pertinent in the context of tax legislation a point we do not reach the rubric set forth therein supports application of the revised statute second application of amended sec_104 is likewise consistent with the standard for retroactivity of tax laws expressly described in 512_us_26 in landgraf v usi film prods supra pincite the supreme court stated the following rule when a case implicates a federal statute enacted after the events in suit the court’s first task is to determine whether congress has expressly prescribed the statute’s proper reach if congress has done so of course there is no need to resort to judicial default rules when however the statute contains no such express command the court must determine whether the new statute would have retroactive effect ie whether it would impair rights a party possessed when he acted increase a party’s liability for past conduct or impose new duties with respect to transactions already completed if the statute would operate retroactively our traditional presumption teaches that it does not govern absent clear congressional intent favoring such a result hence the threshold question is whether congress expressly provided that the disputed statute should apply retroactively or prospectively in the words of the court_of_appeals for the fifth circuit to which appeal in the instant case would normally lie we must first determine whether congress has clearly prescribed the temporal reach of the section and if congress has clearly expressed whether the statute should apply retroactively the inquiry ends 290_f3d_292 5th cir for purposes of finding such an unambiguous direction the supreme court has further explained ‘ c ases where this court has found truly retroactive effect adequately authorized by statute have involved statutory language that was so clear that it could sustain only one interpretation ’ ins v st cyr 533_us_289 quoting 521_us_320 n sbjpa section after setting forth in subsections a through c the amending language to be codified as part of sec_104 provided as follows d effective date -- in general --except as provided in paragraph the amendments made by this section shall apply to amounts received after the date of the enactment of this act in taxable years ending after such date exception --the amendments made by this section shall not apply to any amount received under a written binding agreement court decree or mediation award in effect on or issued on or before date while the supreme court has indicated that a statement that a statute will become effective on a certain date does not even arguably suggest that it has any application to conduct that occurred at an earlier date landgraf v usi film prods supra pincite the above text constitutes markedly more than the mere promulgation of an effective date ins v st cyr supra pincite sbjpa section d does not just state when the law is to take effect rather the provision explicitly dictates the particular conduct and the timing thereof to which the amendments shall apply according to the express text receipt of payments after the date date of enactment falls within the intended scope of the amended version of sec_104 unless the explicit exception for a prior binding agreement court decree or mediation award is applicable here the jury verdict in petitioner’s favor was not returned until date and the appellate process was not completed until the texas supreme court denied review on date petitioner’s situation therefore fails to satisfy the requisites for relief under sbjpa section d in such event sbjpa section d explicitly and unambiguously prescribes the temporal reach of the sec_104 amendments to the situation at hand we conclude that 511_us_244 would pose no barrier here to application of the revised sec_104 moreover less than months after issuing its decision in landgraf and without reference thereto the supreme court decided united_states v carlton supra the issue in united_states v carlton supra pincite was the propriety of retroactive application of an amendment made to a federal estate_tax statute in that context the supreme court explained as follows this court repeatedly has upheld retroactive tax legislation against a due process challenge some of its decisions have stated that the validity of a retroactive tax provision under the due process clause depends upon whether retroactive application is so harsh and oppressive as to transgress the constitutional limitation the harsh and oppressive formulation however does not differ from the prohibition against arbitrary and irrational legislation that applies generally to enactments in the sphere of economic policy the due process standard to be applied to tax statutes with retroactive effect therefore is the same as that generally applicable to retroactive economic legislation that burden is met simply by showing that the retroactive application of the legislation is itself justified by a rational legislative purpose id pincite internal quotations and citations omitted the supreme court further noted taxation is neither a penalty imposed on the taxpayer nor a liability which he assumes by contract it is but a way of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and must bear its burdens since no citizen enjoys immunity from that burden its retroactive imposition does not necessarily infringe due process id pincite quoting 305_us_134 in general the raising of government revenue is considered a sufficient and legitimate legislative purpose for supporting a modest period of retroactivity id pincite id pincite o’connor j concurring in judgment 269_f3d_1332 fed cir 170_f3d_961 9th cir 36_f3d_25 7th cir affg tcmemo_1993_191 the principal exception to this reasoning discernible from caselaw arises in scenarios involving imposition of a wholly new tax see united_states v carlton u s pincite quarty v united_states supra pincite furlong v commissioner supra pincite 904_f2d_311 5th cir affg 92_tc_869 the imposition of a wholly new tax is to be distinguished from changes in the rate of an existing tax 449_us_292 quarty v united_states supra pincite 973_f2d_638 8th cir estate of 797_f2d_481 7th cir 730_f2d_1211 8th cir estate of 698_f2d_17 1st cir affg 78_tc_320 furthermore amendments which eliminate an exemption exclusion or tax_credit have repeatedly been construed as ‘closer in_kind and in effect to a mere increase in the tax_rate than to the enactment of a wholly new tax ’ honeywell inc v united_states supra pincite quoting fein v united_states supra pincite see also estate of ekins v commissioner supra pincite estate of ceppi v commissioner supra pincite turning to the case at bar the amendment to sec_104 restricted the availability of an exclusion_from_gross_income in such instance retroactivity would not be constitutionally objectionable on grounds related to a wholly new tax accordingly petitioner’s situation does not present reason for departure from the lenient standards typically employed to evaluate tax legislation as regards legitimate governmental purpose the legislative_history accompanying the sbjpa notes that courts have interpreted the exclusion_from_gross_income of damages received on account of personal_injury_or_sickness broadly in some cases to cover awards for personal injury that do not relate to a physical injury or sickness h conf rept supra pincite c b pincite congress’s choice to narrow the exclusion and any retroactive application of the change would therefore appear to be rationally linked to the legitimate objective of raising revenue legislative_history further reveals that the change was intended as a curative measure designed to reduce or eliminate ambiguity in the otherwise applicable law reference is made to confusion that led to substantial litigation including the supreme court cases of 515_us_323 and 504_us_229 h rept pincite 1996_3_cb_331 in addition the period of retroactivity alleged by petitioner in this case ie slightly less than years does not exceed what has been upheld in other tax litigation see eg 946_f2d_690 9th cir upholding application of tax penalty passed in to returns previously filed for years through affg tcmemo_1990_4 799_f2d_18 2d cir upholding 4-year retroactive application 769_f2d_126 3d cir upholding at least a 4-year retroactive application 955_fsupp_27 s d n y upholding retroactive application of amendment extending statute of limitation on tax collection actions from to years affd 109_f3d_127 2d cir as the court_of_appeals for the fifth circuit has observed the supreme court has never explicitly imposed a time limit on the retroactivity of a tax statute’s application wiggins v commissioner supra pincite accordingly the court_of_appeals for the fifth circuit has further opined that the ‘harsh and oppressive’ test does not limit retroactivity to one year but instead requires a case-by-case analysis in which the length of the period affected is but one factor to be considered id to summarize we conclude that to the extent petitioner raises issues of retroactivity application of the amendment to sec_104 would not violate the standards requiring a rational purpose and reasonable period the tests employed to evaluate retroactive legislation therefore do not justify refusal to apply the law in effect for the tax_year under consideration b application of sec_104 as amended as indicated above the first requirement for the sec_104 exclusion is that the claim underlying the funds received must be based on tort or tort type rights commissioner v schleier supra pincite a tort is defined as a ‘civil wrong other than breach of contract for which the court will provide a remedy in the form of an action for damages ’ united_states v burke supra pincite quoting keeton et al prosser keeton on the law of tort sec_2 state law typically determines the nature of the legal interests involved bland v commissioner tcmemo_2000_98 massot v commissioner tcmemo_2000_24 here the parties do not dispute that petitioner’s malicious prosecution lawsuit sounded in tort under texas law the second requirement for exclusion under sec_104 as amended demands that the damages be received on account of personal physical injuries or physical sickness prasil v commissioner tcmemo_2003_100 petitioner’s award comprised amounts for loss of earning capacity for attorney’s fees to defend criminal charges for mental anguish and for loss to reputation none of these categories is based on a physical injury or sickness the amended version of the statute provides that emotional distress is not a physical injury or physical sickness except to the limited extent of allowing an exclusion for damages up to the amount_paid for medical_care necessitated by emotional distress petitioner is unable to take advantage even of this limited exception because there is no evidence of how much if anything she spent to obtain medical_care thus the court holds that petitioner is not entitled under sec_104 to exclude from income any portion of the payment she received pursuant to the malicious prosecution lawsuit to reflect the foregoing and concessions by the parties which inter alia and as noted previously resolved the sec_6662 penalty issue decision will be entered under rule