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 b02 plr-150387-10 date june re ----------------------- ---------------------------------------------- ----------------------------------- ------------------------------------------ ----------------------------------- ------------------------------ ----------------------- --------------------------------------- ---------------- ---------------- ---------------- -------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------- ----------------------------------------------------- --------------------------------------- --------------------------------------- legend domestic fund foreign fund x pfic date year year year type a entity type b entity stock exchange firm a firm b tax advisor dear ------------------- this is in response to correspondence submitted on behalf of domestic fund by its authorized representative requesting an extension of time under sec_301_9100-1 and plr-150387-10 of the procedure and administration regulations to make a mark to market election under sec_1296 of the internal_revenue_code with respect to its investment in pfic the ruling contained in this letter is based upon information 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 submitted may be required as part of the audit process facts domestic fund was formed on date as a type a entity and commenced business activities during year domestic fund is treated as a partnership for u s federal_income_tax purposes domestic fund holds an x interest in foreign fund foreign fund is a type b entity that is treated as a partnership for u s federal_income_tax purposes foreign fund’s activity consisted of investment in a range of securities and asset classes including offshore marketable_securities of passive foreign investment companies within the meaning of sec_1297 during year foreign fund held marketable_securities of pfic a company listed on the stock exchange the accounting and tax filings of domestic fund and foreign fund collectively the funds were both handled by the same firm firm a a year form_1065 u s return of partnership income was timely filed for each of the funds employees at firm a prepared a form_8621 electing mark to market treatment for the stock of pfic however the form_8621 was prepared for and attached to the form_1065 of foreign fund rather than domestic fund for independent business reasons the funds thereafter changed tax advisors during year while preparing the year forms for the funds firm b the successor tax advisors found that the year form_8621 electing mark to market treatment for the stock of pfic was erroneously prepared for foreign fund instead of domestic fund domestic fund represents that its federal_income_tax returns have been filed as if it rather than foreign fund had made the mark to market election with respect to the pfic stock in a timely manner domestic fund has made the following additional representations with respect to the mark to market election as of the submission date of its request for relief domestic fund had not been notified a of any_action taken by the irs with respect to the election b that the irs had discovered its failure to properly make the regulatory election or c that the treatment of affected items on the returns filed by domestic fund was incorrect plr-150387-10 government interests will not be prejudiced by virtue of granting relief for domestic fund to file the election because the late election will not result in a lower or different tax_liability in addition tax advisor from firm a submitted an affidavit stating that a domestic fund intended to make a mark to market election under sec_1296 for the pfic stock that domestic fund indirectly held through foreign fund and b at all times the funds accounted for the investments in pfic as if a mark to market election had been timely and properly made law sec_1296 provides that in the case of marketable_stock in a passive_foreign_investment_company that is owned or treated as owned under sec_1296 by a united_states_person at the close of any taxable_year the united_states_person may elect to include in gross_income the excess of the fair_market_value of the stock over its adjusted_basis sec_1296 provides in part that stock owned directly or indirectly by a foreign_partnership will be considered as being owned proportionately by its partners sec_1_1296-1 provides that an election under sec_1296 for a taxable_year must be made on or before the due_date including extensions of the person’s u s income_tax return for that year sec_301_9100-1 provides that the commissioner has the discretion to grant a taxpayer a reasonable extension of time under the rules set forth in 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 an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief 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 the grant of relief will not prejudice the interests of the government plr-150387-10 sec_301_9100-3 provides that except as provided in sec_301_9100-3 a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer i ii iii iv v requests relief before the failure to make the regulatory election is discovered by the irs failed to make the election because of intervening events beyond the taxpayer’s control failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election reasonably relied on the written advice of the irs or reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer is deemed not to have acted reasonably or in good_faith if the taxpayer i ii iii seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief taking into account any qualified_amended_return filed within the meaning of sec_1_6664-2 and the new position requires or permits a regulatory election for which relief is requested was informed in all material respects of the required election and related tax consequences but chose not to file the election or uses hindsight in requesting relief sec_301_9100-3 provides in part that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 provides in part that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made is closed or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief conclusion based on the information and representations submitted we conclude that domestic fund satisfies the requirements for a reasonable extension of time to make plr-150387-10 the mark to market election under sec_1296 of the code accordingly domestic fund is granted an extension of time of days from the date of this letter to make the election under sec_1296 with respect to the stock of pfic for year the granting of an extension of time is not a determination that domestic fund is otherwise eligible to make the election under sec_1296 sec_301 a this ruling is directed only to the taxpayer who requested 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 copies of this letter are being sent to domestic fund’s representative sincerely jeffery g mitchell chief branch office of the associate chief_counsel international


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-112286-03 date date legend x a b d1 state dear this letter responds to a letter dated date written on behalf of x by x's authorized representative requesting a ruling under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated under state law on d1 x's shareholders a and b intended for x to be an s_corporation as of d1 the beginning of x's first taxable_year a assumed that x's accountant filed form_2553 election by a small_business_corporation however there is no record that the form_2553 was filed timely law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation plr-112286-03 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 election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply conclusion based on the facts submitted and representations made we conclude that x has established reasonable_cause for its failing to make a timely s election and that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 effective d1 within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is otherwise eligible to be an s_corporation for federal tax purposes pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours jeanne sullivan senior technician reviewer office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc psi b09-plr-116296-03 date date re legend taxpayer taxpayer date trust i trust ii child child child trust i a_trust i b_trust i c trust ii a plr-116296-03 trust ii b_trust ii c date a b year accounting firm date law firm trust i a trust i a date year date dear this is in response to your letter dated date on behalf of taxpayer and the estate of taxpayer requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make allocations of generation-skipping_transfer gst_exemption the facts and representations submitted are summarized as follows on date taxpayer established trust i and taxpayer established trust ii trust i and trust ii are irrevocable trusts for the benefit of the children of taxpayer and taxpayer article i a of trust i provides that immediately upon the initial transfer of property to the trustee the trustee shall divide and set apart the trust estate into three equal shares so that there is one share for each of the settlor’s children child child plr-116296-03 and child the share for each such child of the settlor shall constitute the initial principal of a separate trust for the primary benefit of that child article i b of trust i provides that any property subsequently received by the trustee as an addition to the trust estate which is not designated as an addition to a particular trust shall be divided and set apart per stirpes for the then living descendants of the settlor if a share is set apart pursuant to the preceding sentence for a descendant of the settlor for whose benefit a separate trust then exists under article ii such share shall be added to and dealt with as part of the principal of such existing trust if a share is set apart for a descendant of the settlor for whom no separate trust then exists under article ii or if property received by the trustee is designated for the benefit of a descendant of the settlor for whose benefit no separate trust then exists under article ii such property shall constitute the initial principal of a separate trust for the primary benefit of that descendant and shall be dealt with as provided in article ii article i d of trust i provides that upon the death of the survivor of the settlor and the settlor’s spouse the trust under article i shall terminate and the trustee shall deal with the then principal of the trust as follows if the value of all payments to any child of the settlor including all payments to the descendants of such child from the income and principal of the trust under article i is less than the value of all payments to any other child of the settlor including all payments to the descendants of such child the trustee shall determine the amount if any which if paid to each child of the settlor would equalize the value of all payments to all of the settlor’s children over the term of the trust under article i and shall deal with the amount so determined with respect to each child for the benefit of such child or if such child is not then living per stirpes for the descendants of such child as provided in article ii the amounts determined pursuant to this paragraph shall not take into account differences in the timing of payments the trustees shall divide and set apart the balance of the principal of the trust per stirpes for the settlor’s then living descendants and shall deal with such shares as provided in article ii article ii a of trust i provides that whenever the provisions of this agreement require that any share set apart for a descendant of the settlor be dealt with as provided in article ii such share shall be held by the trustee as the principal of a separate trust for the primary benefit of the descendant of the settlor the trustee may from time to time and in his discretion pay to the beneficiary so much of the net_income and principal of the trust as the trustee deems advisable for the beneficiary’s health education maintenance and support and after the death of the survivor of the settlor and the settlor’s spouse if the beneficiary has attained the age of years pay to the beneficiary in addition to any amount or amounts distributed pursuant to the provisions of article ii a so much of the net_income and principal of the trust for any other purpose that the independent_trustee deems to be worthwhile and in the best interests of the beneficiary article ii c of trust i provides that upon the death of the beneficiary the trust shall terminate and the trustee shall deal with the then principal of such trust as follows plr-116296-03 if a taxable_termination or taxable_distribution within the meaning of sec_2612 of the internal_revenue_code would otherwise occur by reason of the beneficiary’s death the trustee shall distribute the appointive share of such principal to or for the benefit of any one or more persons including the beneficiary’s estate or creditors or the creditors of his or her estate in such proportions and on such terms and conditions either outright or in trust as the beneficiary appoints by will making specific reference to this power_of_appointment for purposes of article ii c the term appointive share shall mean the largest fraction if any of such principal which if added to the beneficiary’s taxable_estate for federal estate_tax purposes would not be taxed at the maximum_federal_estate_tax_rate in effect at the time of the beneficiary’s death provided however that i the appointive share shall be satisfied exclusively out of that portion the non-exempt portion of the trust which has an inclusion_ratio as defined in sec_2642 of greater than zero and if the appointive share exceeds the non-exempt portion it shall be reduced by such excess and ii if under any other instrument the beneficiary has one or more other general powers of appointment exercisable and measured substantially as provided by article ii c the amount the beneficiary may appoint under article ii c shall be reduced proportionately based on the relative fair market values at the date of death of the beneficiary of the non-exempt portion of the various properties with respect to which such powers are potentially exercisable so that the aggregate amount appointable under this agreement and amounts so appointable pursuant to such other power or powers shall be no greater than the appointive share would be if all such properties were part of a single trust governed by article ii c article ii c of trust i provides that the trustee shall distribute the balance of such principal including any portion of the appointive share over which the beneficiary does not effectively exercise his or her power_of_appointment or all of such principal if the provisions of article ii c do not take effect to or for the benefit of any one or more of the settlor’s descendants excluding the beneficiary his or her estate his or her creditors and the creditors of his or her estate in such proportions and on such terms and conditions either outright or in trust as the beneficiary appoints by will making specific reference to this power_of_appointment the trustee shall divide and set apart the balance of the principal over which the beneficiary does not effectively exercise either power_of_appointment per stirpes for the beneficiary’s then living descendants or if there is none for the then living descendants of the beneficiary’s most immediate ancestor who is the settlor or a descendant of the settlor and who has any descendant then living and the shares so set apart shall be dealt with as provided in article ii article v g of trust i provides that notwithstanding any provision of this agreement requiring that property be held in a single trust the trustee of any trust created under this agreement may at any time or times and without court approval i divide any trust created under this agreement before or after it is funded with assets into two or more separate trusts the terms of each such trust being identical to those of the divided trust for any purpose and ii merge or consolidate any trusts that have been so divided any division of a_trust to which a portion or all of the settlor’s gst_exemption within the meaning of sec_2631 will be or has been allocated shall be made solely on a fractional or percentage basis and the separate trusts created by such division shall be funded on the basis of the fair_market_value of the assets of the divided plr-116296-03 trust at the time the separate trusts are funded or in a manner that fairly reflects the net appreciation or depreciation in the assets from the date the trust is established under this agreement to the date of funding article xii of trust i provides that notwithstanding any provision of this agreement to the contrary at any time during the life of the settlor’s spouse the trustees shall immediately distribute or otherwise deal with the principal of any trust under this agreement to or for the benefit of any one or more of the settlor’s descendants in such proportions and on such terms and conditions outright or in trust as the settlor’s spouse appoints by written instrument signed and acknowledged by the settlor’s spouse and delivered to the trustee provided that this power_of_appointment may not be exercised i to discharge a legal_obligation of the settlor’s spouse or ii with respect to any trust under this agreement that holds stock of an s_corporation the terms of trust ii are virtually identical to those of trust i pursuant to the direction in article i a_trust i was divided into three separate trusts trust i a_trust i b and trust i c for the benefit of child child and child respectively trust ii was also divided into three separate trusts trust ii a_trust ii b and trust ii c for the benefit of child child and child respectively trust i a_trust i b_trust i c trust ii a_trust ii b and trust ii c are collectively referred to as the children’s trusts on date taxpayer transferred dollar_figurea of marketable_securities to each of trust i a_trust i b and trust i c also on date taxpayer transferred dollar_figureb of marketable_securities to each of trust ii a_trust ii b and trust ii c taxpayer and taxpayer each reported the transfers on year form sec_709 united_states gift and generation- skipping transfer_tax return and elected under sec_2513 to treat the gifts made by them to third parties during the calendar_year as made one-half by each of them accounting firm prepared taxpayer 1's and taxpayer 2's year gift_tax returns but did not allocate any of taxpayer 1's and taxpayer 2's gst_exemption to the trusts in date law firm reviewed taxpayer 1's and taxpayer 2's year gift_tax returns and discovered that no allocation of taxpayer 1's and taxpayer 2's gst_exemption had been made in an attempt to mitigate further damage the trustees of the children’s trusts divided each trust into two separate trusts so that each taxpayer could allocate a sufficient amount of their gst_exemption to fully exempt one of the divided trusts from gst tax for example trust i a was divided into trust i a exempt and trust i a non-exempt as a result of the division child child and child were each the beneficiary of four trusts on date after the division of the children’s trusts taxpayer and taxpayer each filed year gift_tax returns and made late allocations of their respective gst exemptions with respect to the divided exempt trusts taxpayer died on date taxpayer and the estate of taxpayer have requested the following rulings an extension of time under sec_2642 and sec_301_9100-1 and sec_301_9100-3 to make plr-116296-03 allocations of taxpayer 1’s and taxpayer 2's respective gst exemptions with respect to the transfers to the children’s trusts in year that the allocations shall be made based on the value of the property transferred to the children’s trusts as of date the date of the original transfers and that the late allocations made by taxpayer and taxpayer on the year gift_tax returns are void sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides in part that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 an allocation of gst_exemption to a_trust is void to the extent the amount allocated exceeds the amount necessary to obtain an inclusion_ratio of zero with respect to the trust sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period and such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for plr-116296-03 requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted into law on date sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore taxpayer and the estate of taxpayer are granted an extension of time of days from the date of this letter to make allocations of taxpayer 1’s and taxpayer 2's available gst exemptions plr-116296-03 with respect to the transfers to the children’s trusts the allocations will be effective as of date the date of the transfers to the trusts and the gift_tax values of the transfers to the trusts will be used in determining the amount of gst_exemption to be allocated to the trusts these allocations should be made on supplemental form sec_709 united_states gift and generation-skipping_transfer_tax return and filed with the internal_revenue_service center cincinnati oh a copy of this letter should be attached to the supplemental form_709 copies are enclosed for this purpose the year late allocations of taxpayer 1's and taxpayer 2's respective gst exemptions are void because if taxpayer and the estate of taxpayer make allocations of gst_exemption pursuant to the relief granted above the allocations will be deemed timely and will result in the children’s trusts having a zero inclusion_ratio immediately prior to the division similarly immediately after the division of the children’s trusts each of the divided exempt and non-exempt trusts will have a zero inclusion_ratio for gst tax purposes 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 except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code in addition we express or imply no opinion regarding the value of the property transferred to the children’s trusts in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer and the estate of taxpayer this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copies of this letter


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 b01 plr-107387-06 date date legend legend x ------------------------------------------------------------------------------------------ ------ ------------------------ ----------------- -------------------- ---------------------- ------------------------- state d1 d2 d3 y trust trust d4 trust ---------------------------------------------------- ------------------------ ---------------------- ---------------------------------------- ------------------------ -------------------------------------------- ------------------------------------------------------- ------------------------ -------------------------------------------------------------------------- -------------------- -- plr-107387-06 d5 dear ------------------ this responds to the letter dated date and related correspondence submitted on behalf of x requesting relief under ' f of the internal_revenue_code acode for an inadvertent termination of s election facts the information submitted states that x was incorporated under the laws of state on d1 and elected to be treated as an s_corporation effective d2 on d3 a portion of the stock of x was transferred to y a partnership and an ineligible shareholder y had two trust partners trust and trust both also ineligible shareholders on d4 a portion of the stock of x was transferred to trust a grantor_trust x and its shareholders represent that they were unaware of the fact that y is an ineligible shareholder and did not intend the s election of x to terminate immediately after they discovered the termination they took remedial action to rectify the error y effected transfers of all of its stock of x to trust and trust equally effective d5 further elections on behalf of trust and trust were made to be treated as electing small_business trusts esbts effective d5 law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 provides that a small_business_corporation cannot have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1362 provides that an election under '1362 a shall be terminated whenever at any time on or after the first day of the taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation sec_1361 provides that a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be an s_corporation shareholder plr-107387-06 s_corporation i sec_1361 states that an esbt is a permissible shareholder of an sec_1361 defines an esbt in part as a_trust if- such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in paragraph or of sec_170 or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary no interest in such trust was acquired by purchase and an election under this subsection applies to such trust ii iii sec_1361 provides that an election to be an esbt shall be made by the sec_1362 provides that if an election under sec_1362 by any trustee any such election shall be applied to the taxable_year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the secretary corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consent or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken - a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to this subsection agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such termination such corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely upon the representations made and the information submitted we conclude that x’s s election terminated on d3 when a portion of the stock of x was transferred to y we further conclude however that the termination was an inadvertent termination within the meaning of sec_1362 pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation on and after d3 unless x’s s election is otherwise terminated under sec_1362 provided that y trust and trust make any adjustments that are necessary to comply with this ruling except as specifically ruled upon above no opinion is expressed as to the plr-107387-06 federal_income_tax consequences of the facts described above under any other provision of the code the code provides that it may not be used or cited as precedent letter_ruling will be sent to your authorized representatives in accordance with the power_of_attorney on file with this office copies of this this ruling is directed only to the taxpayer who requested it sec_6110 of sincerely david r haglund senior technician reviewer office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes cc


t c memo united_states tax_court albert m kun petitioner v commissioner of internal revenue respondent docket no 16979-02l filed date albert m kun pro_se rebecca s duewer and paul r zamolo for respondent supplemental memorandum opinion marvel judge on date we received and filed petitioner’s motion to vacate or revise decision pursuant to rule this opinion supplements our previously filed opinion in kun v commissioner tcmemo_2004_209 in his motion petitioner moves that we vacate or revise the decision that we entered on date in accordance with our memorandum opinion in kun v commissioner tcmemo_2004_209 kun i in kun i we sustained respondent’s determination that the notice_of_federal_tax_lien filing was an appropriate enforcement action with respect to petitioner’s and income_tax liabilities in the motion petitioner alleged that this court had no chance to consider the recent opinion of the united_states supreme court in united_states v galletti date s ct reporter this supplemental memorandum opinion addresses petitioner’s contention background we adopt the findings_of_fact in our prior memorandum opinion kun i for convenience and clarity we repeat below the facts necessary for the disposition of this motion petitioner timely filed federal_income_tax returns for through but failed to pay the amounts shown as due on the returns on date respondent sent to petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 for through on date petitioner mailed to respondent form request for a collection due proce sec_1all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect at all relevant times hearing requesting a hearing with respect to all taxable years petitioner’s form stated i believe this bill is incorrect these taxes were never assessed on date petitioner and his representative attended a hearing before appeals officer serena wong at the hearing petitioner contended that respondent had not assessed the income_tax liabilities on date the appeals_office sent to petitioner a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination in the notice_of_determination the appeals_office determined that petitioner’s income_tax liabilities were timely assessed and the assessments were properly based on established law policy and procedure on date petitioner’s petition contesting respondent’s determination was filed in this court in the petition petitioner alleged that the internal_revenue_service abused its discretion in making the findings and conclusions it did and abused its discretion in rejecting petitioner’s offer_in_compromise we held a trial in this case on date at which petitioner testified on date we filed our memorandum opinion in kun i in which we rejected petitioner’s contention that the income_tax liabilities had not been timely assessed we pointed out that petitioner had not alleged any specific irregularity in the assessment procedure and that an appeals officer may rely on a computer transcript or form_4340 certificate of assessments payments and other specified matters to verify that a valid assessment had been made after reviewing the computer transcripts of petitioner’s accounts appeals officer wong had concluded that assessments for all years appear correct and based on established law policy and procedure we concluded in kun i that the record contained no credible_evidence to contradict appeals officer wong’s conclusion and we held that respondent had properly assessed petitioner’s income_tax liabilities on date we entered our decision in accordance with our opinion in kun i on date petitioner’s motion to vacate or revise opinion together with a memorandum of points and authorities and 2the parties stipulated to the admissibility of certified copies of forms certificate of assessments payments and other specified matters with respect to petitioner’s accounts for the forms show that petitioner’s income_tax returns were filed and the tax_liabilities shown thereon were assessed on the following dates date return filed date tax assessed year petitioner’s declaration were filed in accordance with our order dated date respondent submitted a response to petitioner’s motion which was filed on date discussion rule authorizes a party to file a motion to vacate or revise a decision with or without a new or further trial within days after the decision has been entered unless the court shall otherwise permit the disposition of a motion to vacate or revise a decision rests within this court’s discretion 87_tc_164 although rule does not articulate any standard by which we evaluate a motion to vacate decision rule a provides guidance on how to fill the gap where in any instance there is no applicable rule_of procedure the court or the judge before whom the matter is pending may prescribe the procedure giving particular weight to the federal rules of civil procedure to the extent that they are suitably adaptable to govern the matter at hand we have often referred to rule of the federal rules of civil procedure and cases applying rule to assist us in resolving issues raised in a motion to vacate decision under rule see eg 122_tc_264 involving a final_decision estate of miller v commissioner tcmemo_1994_25 motion filed within days of decision pietanza v commissioner tcmemo_1990_524 motion filed within days of order dismissing case for lack of jurisdiction affd without published opinion 935_f2d_1282 3rd cir rule a of the federal rules of civil procedure provides that clerical mistakes in judgments orders or other parts of the record and errors therein arising from oversight or omission may be corrected by the court at any time of its own initiative or on the motion of any party and after such notice if any as the court orders rule b provides that on motion and upon such terms as are just a court may relieve a party of a final judgment or order for mistake inadvertence surprise or excusable neglect newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial fraud or any other reason justifying relief from the operation or because the judgment is void or has been satisfied released or discharged in this case petitioner’s motion simply repeats his argument made throughout the proceedings that respondent did not timely assess the liabilities in question he relies upon an opinion of the united_states supreme court in 541_us_114 124_sct_1548 and specifically on language in the opinion to the effect that an assessment must be made within years after the return was filed sec_6501 and shall be made by recording the liability of the taxpayer in the office of the secretary sec_6203 see id at ___ s ct pincite petitioner contends that it is clear from the record that the respondent failed to comply with this requirement the assessment has not been reordered sic until date well outside the years requirement as respondent points out in his response to petitioner’s motion however petitioner does not state any basis for his belief according to respondent the record before the court indicates that petitioner’s through income_tax liabilities were assessed within years of petitioner filing his tax returns petitioner failed to present any evidence at trial in support of his contention that his income_tax liabilities were not timely assessed and that failure also infects his motion we can find nothing in the record to support his allegation in fact the record demonstrates that the assessments in question were timely moreover there is nothing in the supreme court’s opinion in united_states v galletti supra to suggest that our memorandum opinion in this case was in error or that our decision must be vacated petitioner has not asserted sufficient grounds for vacating the decision nor has he cited any opinion of any court that would support his motion consequently we shall deny petitioner’s motion to vacate or revise the decision an appropriate order denying petitioner’s motion to vacate or revise decision will be issued


internal_revenue_service number release date index number -------------------------- ------------ ------------------------------------------ ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ---------- telephone number -------------------- refer reply to cc ita b04 plr-111548-12 date date legend taxpayer trust company bank year year date date date date dollar_figurea dollar_figureb dollar_figurec dollar_figured s t u m n p -------------------------------------------------------- ----------------------------------------------------------------------- -------------------------------------- -------------- ------- ------- --------------------- --------------------- ------------------------- -------------------- --------------- ----------------- --------------- --------------- ------- ---------- ---- ---------- ------------ ------------ dear -------------------------- this is in reply to a letter submitted by your authorized representative requesting a private_letter_ruling under sec_453 of the internal_revenue_code specifically taxpayer requests a ruling that the modification of an installment_sales obligation by deferring the maturity_date substituting a new obligor and altering the interest rate is not a disposition or satisfaction of the installment_obligation within the meaning of sec_453b plr-111548-12 facts taxpayer an individual files its return on a calendar_year basis uses the cash_method_of_accounting and as a former shareholder was engaged in the business of providing business solutions to federal state and commercial customers including professional consulting and technical support services the transaction described below was entered into by taxpayer’s revocable grantor_trust trust taxpayer is the trustee of trust and taxpayer reports all trust income in year company completed a transaction the original transaction in which i company adopted an employee_stock_ownership_plan which included an employee_stock_ownership_trust together referred to as the esop ii company facilitated the esop’s purchase of all the outstanding_stock of company from the former shareholders including taxpayer and iii the parties to the original transaction entered into certain financial arrangements including a company borrowing dollar_figurea in senior financing from bank the bank loan b company lending dollar_figurea to the esop to purchase a portion of the shares from the former shareholders the company loan and c the esop borrowing an aggregate of dollar_figureb from the former shareholders in the form of notes to pay the balance of the purchase_price the esop_loan as part of the original transaction taxpayer received a promissory note from the esop in the principal_amount of dollar_figurec the note which represents taxpayer’s portion of the esop_loan the note provides for annual interest at the rate of s and monthly payments of interest only for the first two years and monthly payments of principal and interest for a period of m years the entire unpaid principal balance together with all accrued unpaid interest is due on date n years after the esop issued the note as security for payment of the note company absolutely unconditionally and irrevocably guaranteed the esop’s obligations on the note and the esop pledged the stock it purchased from taxpayer to taxpayer taxpayer did not elect out of installment_sale treatment and is reporting gain realized from the sale of the shares of company stock on the installment_method under sec_453 of the code as of date there is dollar_figured in principal and accrued interest outstanding on the note in year company and bank entered into certain amendments to the bank loan to address company’s deteriorated financial condition and to provide for revised payment schedules on the bank loan the company loan and the esop_loan including the note as well as to establish amended financial covenants for company company esop and the shareholders have agreed to make changes to the company loan and the esop_loan to satisfy required bank amendments and to permit company to repay all of its debts on a reasonable schedule that will permit company to operate using available cash_flow and also within applicable legal requirements relating to the esop plr-111548-12 company proposes to complete a transaction the proposed transaction based on the required bank amendments in which i the shareholders will deliver to company and company will assume the notes and pledge agreements that the shareholders are holding from the esop as part of the esop_loan including taxpayer delivering the note to company ii company will modify the payment terms of the notes it assumes including the note and will set forth the modified terms in a new note to be delivered by company to taxpayer the new note and iii in consideration of company assuming the note and issuing the new note the esop will deliver to company a note with a principal_amount equal to the amount currently outstanding on the esop_loan the note restructuring will provide company greater cash_flow flexibility without significantly changing the benefit stream to the esop participants as a result of the proposed transaction and in accordance with the terms of the new note the maturity_date of the note will be deferred the obligor will be substituted and the interest rate will be altered instead of the entire unpaid principal balance together with all accrued unpaid interest being due on date the note will be restructured to provide for monthly payments of interest at the annual rate of t until date and amortized monthly payments of principal and interest at the annual rate of u amortized over a period of p years with the entire unpaid balance together with all accrued unpaid interest being due on date in addition as a result of the proposed transaction instead of the esop being the obligor on the note company currently the guarantor on the note will be substituted as the direct obligor in all other respects the terms of the note will remain unchanged taxpayer requests a ruling that the modification of the terms of the note by deferring the maturity_date substituting a new obligor and altering the interest rate is not a disposition or satisfaction of an installment_obligation within the meaning of sec_453b of the code law analysis sec_453 of the code provides that income from an installment_sale shall be taken into account under the installment_method under the installment_method a portion of the total gross_profit from an installment_sale is included in income in each year in which the seller receives payment sec_453b of the code provides that if an installment_obligation is satisfied at other than its face value or distributed transmitted sold or otherwise_disposed_of gain_or_loss shall result to the extent of the difference between the basis of the obligation and the amount_realized in the case of satisfaction at other than face value or a sale_or_exchange or the fair_market_value of the obligation at the time of distribution transmission or disposition in the case of the distribution transmission or disposition otherwise than by sale_or_exchange in short if an installment_obligation is satisfied at plr-111548-12 its face value or if it is distributed transmitted sold or otherwise_disposed_of the seller must recognize gain_or_loss at that time the internal_revenue_service has held that certain modifications of the terms of an installment_obligation are not a disposition or satisfaction of the obligation in revrul_68_419 1968_2_cb_196 the parties agreed to modify the terms of a note so that each installment of principal due by the original terms of the note would be deferred for a period of five years in addition the rate of interest was increased from six percent to seven percent per annum revrul_68_419 holds that the modification of the terms of a purchaser's note by deferring the dates of payment of principal and increasing the rate of interest is not a disposition or satisfaction of an installment_obligation within the meaning of sec_453 the predecessor of current sec_453b see also revrul_55_429 1955_2_cb_252 reaching similar results in revrul_75_457 1975_2_cb_196 a taxpayer sold real_estate to an individual for cash a deed_of_trust and a promissory note providing for monthly payments over a year term the terms of the deed and note allowed the individual to resell the property provided that the subsequent buyer executed a new note under the same terms and conditions as the original deed_of_trust the original obligor subsequently sold the property to a successor individual who assumed the obligation by executing a new deed_of_trust and note in favor of the taxpayer under the same terms and conditions as the original deed_of_trust and note the original obligor was released from liability on the original note revrul_75_457 holds that the substitution of obligors deeds of trust and promissory notes without any other changes is not a satisfaction or disposition of an installment_obligation under sec_453 of the code likewise revrul_82_122 1982_1_cb_80 holds that the substitution of a new obligor and a change in the rate of interest is not a satisfaction or disposition of an installment_obligation for purposes of sec_453b to summarizing the revenue rulings modification of an installment_obligation by deferring the maturity_date substituting a new obligor and altering the interest rate is not a disposition or satisfaction of an installment_obligation for purposes of the installment_sales provisions under sec_453b moreover where the original installment note is replaced the substitution of a new promissory note without any other changes is not a disposition of the original installment note under sec_453b conclusion based upon the facts and representations presented and the above analysis we conclude that the described modification of the terms of the note by deferring the maturity_date substituting a new obligor and altering the interest rate is not a disposition or satisfaction of an installment_obligation within the meaning of sec_453b of the code plr-111548-12 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 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely donna j welsh senior technician reviewer branch income_tax accounting cc


t c memo united_states tax_court guido ruggiero and kristin ruggiero petitioners v commissioner of internal revenue respondent docket no filed date toni robinson alicia gaudio dean pinto daniel j spilotro alfred p bruno and susan l moon for petitioners elise f alair for respondent memorandum findings_of_fact and opinion panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 respondent determined a deficiency in the amount all section references are to the internal_revenue_code in effect for the year in issue all rule references are to the continued of dollar_figure in petitioners' federal_income_tax on the basis of petitioners' amended_return as well as arguments at trial it is clear that petitioners claim an overpayment in the amount of dollar_figure after concessions the issues for decision are the characterization of income and expenses relating to petitioner guido ruggiero's petitioner activities during the taxable_year and the characterization of expenses_incurred by petitioners in renting out their house during part of the year in issue findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time of filing the petition petitioner resided at coral gables florida and petitioner kristin ruggiero resided at cambridge massachusetts continued tax_court rules_of_practice and procedure petitioners have conceded they are not entitled to deduct travel_expenses claimed in the amount of dollar_figure and they are not entitled to deduct claimed schedule e expenses for repairs and maintenance in the amount of dollar_figure and depreciation in the amount of dollar_figure attributable to the rental use of their connecticut house the parties further agree that net royalty income in the amount of dollar_figure received by petitioner kristin ruggiero should have been reported on schedule e rather than on schedule c petitioner's professional activities in petitioner began teaching at the university of connecticut uconn as an associate professor of history petitioner received tenure in and stayed at uconn through the scholastic year as a professor at uconn petitioner taught undergraduate courses in western civilization and the italian renaissance and three graduate seminars entitled topics in italian history the new social and cultural history and gender and early modern europe in petitioner was awarded a john simon guggenheim guggenheim fellowship in the amount of dollar_figure and a harvard villa i tatti fellowship in the amount of dollar_figure petitioner believed that the fellowships would provide him with the opportunity to conduct research for a book he was writing relating to sexuality and power during the late italian renaissance petitioner sought to work with unique italian archival materials in the lively intellectual atmosphere afforded by the villa i tatti petitioner also favored the villa i tatti because it was removed from the demands of the university in petitioner began teaching at the university of miami florida harvard villa i tatti is an academic institution located near florence italy equipped with an extensive library and designed as a forum for scholars to conduct research and produce scholarly material environment petitioner chose the topic of his fellowship research petitioner worked in italy from the fall of through the summer of and at princeton university's institute for advanced study during the fall of petitioner's work at villa i tatti entailed an examination of materials pertaining to cases brought before inquisition courts petitioner also conducted research in the archivo di stato located in venice while at princeton university petitioner integrated the archival research he had compiled in italy with broader historical materials petitioner's fellowship research resulted in a book which he authored entitled binding passions tales of marriage magic and power at the end of the renaissance oxford university press hereinafter binding passions on date petitioner entered into an agreement with oxford university press to publish binding passions in exchange for granting oxford university press the copyright in binding passions petitioner was entitled to royalties equal to percent of the net receipts on the first big_number clothbound edition copies sold and percent of the net receipts of all copies sold thereafter petitioner was also entitled to royalties equal to percent of the net receipts on the first big_number inexpensive edition copies and percent of the net receipts on all copies sold thereafter in addition to his written materials petitioner offered several lectures pertaining to his fellowship research including the world of the illicit in sixteenth century venice at harvard university date love magic and power at the end of the renaissance at the university of east anglia england date and a tale of two witches at yale university date petitioner has written other published works including the boundaries of eros sex crime and sexuality in renaissance venice oxford university press and violence in early renaissance venice rutgers university press petitioner has also written entries contained in the encyclopedia of social history peter n stearns ed garland press and a dictionary of the middle ages joseph r strayer ed charles scribner's sons petitioner when awarded the fellowships was not eligible for sabbatical from uconn and sought to negotiate with the university for special leave also known as a release from teaching duties in order to pursue research in connection with the fellowships petitioner negotiated an arrangement whereby he would receive percent of his academic salary from uconn while on leave and would reimburse the university for an amount equal to percent of his salary through the fellowship and grant proceeds a letter dated date written by richard carterud assistant controller for grants and contracts university of connecticut described the arrangement as follows petitioner did have an option as to whether he wanted to remit his grant fellowship to the university and stay on the university of connecticut's payroll pincite of his academic salary or to keep the grant fellowship's income and have his salary reduced to his retirement program was enhanced by remitting his grant fellowship income to the university during the taxable_year petitioner received payments from uconn in the amount of dollar_figure and fellowship proceeds in the amount of dollar_figure petitioner's release from teaching duties was in effect during this time pursuant to his agreement petitioner remitted dollar_figure to uconn out of moneys paid to him from harvard and guggenheim the fellowship proceeds were paid into petitioner's personal bank account and petitioner then wrote checks from that account to uconn in an amount equal to one-half of his salary all amounts are rounded to the nearest dollar although the stipulation of facts indicates that petitioner remitted proceeds to uconn in the amount of dollar_figure the record clearly indicates that the amount reimbursed was dollar_figure in such an instance we are not bound by the stipulation of facts 66_tc_312 we also note that the form_w-2 issued by uconn reflects wages tips other compensation in the amount of dollar_figure and medicare wages and tips in the amount of dollar_figure although the amount remitted by petitioner does not precisely continued on their return for the taxable_year petitioners reported the following income attributable to petitioner's professional activities as wages payor form issued amount uconn w-2 dollar_figure guggenheim big_number harvard big_number emory university1 unknown total amount received big_number less fellowship proceeds paid to uconn big_number reported as wages big_number this amount was paid to petitioner as a reader's fee thus despite the fact that the fellowships were reported by the respective payors on forms petitioners reported both of the fellowships dollar_figure plus dollar_figure as wage income and then deducted from wages dollar_figure the amount remitted to uconn as a result and with the addition of the dollar_figure reader's fee petitioners originally reported dollar_figure more in wage income than the amounts reflected on petitioner's form_w-2 petitioners also claimed deductions on schedule a in the amount of dollar_figure pertaining to unreimbursed employee business_expenses of these expenses dollar_figure is attributable to continued constitute one-half of either of these amounts we assume that petitioner remitted the proper amount as required by the agreement petitioner's activities while the remaining expenses in the amount of dollar_figure are attributable to petitioner kristin ruggiero in addition petitioners attached to their return an alternative_minimum_tax computation which calculated an alternative_minimum_tax liability in the amount of dollar_figure on date petitioners submitted to respondent an amended_return form 1040x attached to the amended_return was a schedule c which indicated professor as petitioner's profession the schedule c reflects gross_receipts in the amount of dollar_figure attributable to amounts petitioner received pursuant to the two fellowships as well as a reader's fee from emory university in the amount of dollar_figure these amounts had been reported as wages on the original return and petitioners accordingly reduced the_amount_of_wages reported on the amended_return consistent with the original return however the amount reported as wages on the amended_return reflects total_amounts indicated on the form_w-2 issued by uconn reduced by the fellowship proceeds which petitioner remitted to uconn the notice_of_deficiency indicates that the alternative_minimum_tax computation per return is dollar_figure we assume that respondent made other mathematical adjustments to the alternative_minimum_tax which are not reflected in the record in addition despite petitioners' attachment of an alternative_minimum_tax computation to their return petitioners' return does not reflect that alternative_minimum_tax computation as other taxes since this adjustment is not reflected in the notice_of_deficiency we further assume that respondent adjusted this item as a mathematical correction sec_6213 schedule c of the amended_return reflects the following expenses attributable to petitioner's activities as a professor expense amount office expense dollar_figure travel big_number meals and entertainment big_number less limitation big_number phone--toll call sec_442 subscriptions research book sec_166 total expenses big_number petitioners reduced schedule a expenses claimed on the amended_return by the amount of dollar_figure therefore we assume that the expenses claimed on schedule c of the amended_return consist of the expenses claimed on schedule a of the original return that are attributable to petitioner's activities as well as additional expenses in the amount of dollar_figure upon examination respondent allowed dollar_figure of the dollar_figure in expenses claimed by petitioners on their original return in relation to petitioner's activities the notice_of_deficiency does not address the additional expenses claimed on the amended_return in the amount of dollar_figure and accordingly we deem petitioners claimed expenses in the amount of dollar_figure on schedule a of their original return respondent has allowed all of these claimed expenses except for travel_expenses in the amount of dollar_figure relating to petitioner's research and writing activities petitioners have conceded this adjustment see supra note since dollar_figure of the dollar_figure in expenses claimed is attributable to petitioner's research and writing activities respondent has allowed dollar_figure of the claimed expenses relating to these activities dollar_figure - dollar_figure dollar_figure respondent to have disallowed those claimed expenses as well respondent determined that petitioner's expenses were incurred in connection with his employment with uconn and therefore were reportable as unreimbursed employee business_expenses on schedule a as a result respondent asserted that petitioner's alternative_minimum_tax liability was dollar_figure in addition respondent determined that petitioners overstated wage income on their original return in the amount of dollar_figure in so doing respondent asserted that the reader's fee in the amount of dollar_figure received from emory university constituted other income rather than wages respondent also asserted that the fellowship proceeds were not taxable to any extent because petitioner remitted the fellowship proceeds to uconn in their entirety accordingly respondent asserted that the entire amount which petitioner received from uconn as reflected by the form_w-2 constituted taxable wages which could not be offset by any fellowship proceeds remitted by petitioner petitioners have since modified their position as indicated on their original and amended returns prior to trial petitioners submitted a memorandum which summarized their present position regarding items of income and expense pertaining to petitioner's activities as follows income wage income from uconn dollar_figure less remittance to uconn big_number total wages big_number other income fellowship proceed sec_1 big_number expenses schedule c gross_receipts reader's fee less petitioner's fellowship expense sec_2 big_number total schedule c loss big_number in comparison respondent's present position is as follows income wage income from uconn dollar_figure less fellowship proceeds remitted -0- total wages big_number other income fellowship proceeds -0- reader's fee total other income expenses schedule a dollar_figure petitioners classify the fellowship proceeds as other income because they maintain that the proceeds are neither wages nor income from self-employment see 102_tc_394 holding that fellowship proceeds were not paid in consideration for services rendered although petitioners' summary reflects expenses claimed in the amount of dollar_figure it is clear that this amount erroneously includes expenses attributable to petitioner kristin ruggiero in the amount of dollar_figure the difference between dollar_figure the expenses claimed on the original return and dollar_figure the expenses which petitioners have conceded are not allowable would leave dollar_figure of the expenses claimed on the original return dollar_figure is attributable to kristin ruggiero thus the amount claimed is dollar_figure dollar_figure less dollar_figure rental of petitioners' connecticut house during the taxable_year petitioners owned a house in hampton connecticut petitioner did not reside in the house at any time during while petitioner kristin ruggiero resided in the house from september to date from january through july during that year petitioners rented the house to three students for a total of days on schedule e of their original return petitioners reported rental income in the amount of dollar_figure and claimed expenses for cleaning and maintenance in the amount of dollar_figure on schedule e of their amended_return petitioners claimed additional expenses for depreciation in the amount of dollar_figure resulting in net rental income reported in the amount of dollar_figure on schedule a of their original and amended returns petitioners claimed expenses attributable to the house for real_estate property taxes in the amount of dollar_figure and mortgage interest in the amount of dollar_figure upon examination respondent determined that petitioners' rental of their home did not constitute an activity engaged in for profit accordingly respondent disallowed the claimed expenses and asserted that the income should have been reported as other income on form_1040 rather than on schedule e the notice_of_deficiency made no adjustment or reclassification with respect to the mortgage interest and property taxes allocable to the rental use of the dwelling petitioners concede that they are not entitled to the claimed expenses for maintenance and depreciation petitioners now maintain that the rental income is reportable on schedule e and may be offset by claiming dollar_figure of the mortgage interest_expense on schedule e rather than on schedule a opinion we begin by noting that respondent's determinations are presumed correct and petitioners bear the burden of proving that those determinations are erroneous rule a 290_us_111 moreover deductions are a matter of legislative grace and petitioners bear the burden of proving that they are entitled to any deductions claimed 503_us_79 petitioner's professional activities a characterization of income we first address the characterization of the income which petitioner received during petitioners acknowledge that petitioner received gross wages from uconn during the taxable_year in the amount of dollar_figure petitioners however contend that the fellowship proceeds remitted to uconn in the amount of dollar_figure should be allowed as an offset against gross wages to support their position petitioners argue that the fellowship proceeds remitted to uconn were returned to petitioner in the form of gross wages for the narrow purpose of allowing petitioner to retain employment benefits accordingly petitioners maintain that uconn acted as a conduit with respect to the remitted fellowship proceeds petitioners suggest that petitioner's choice in running the monies through uconn should not alter the character of the fellowship proceeds therefore petitioners argue that amounts paid to petitioner by uconn are not wages insofar as they reflect a return of fellowship proceeds previously remitted by petitioner petitioners also argue that the fellowship proceeds which petitioner received in the amount of dollar_figure are fully taxable however citing our opinion in 102_tc_394 petitioners contend that the fellowship proceeds constitute neither wages nor earnings from self-employment respondent determined that petitioner's wage income for the taxable_year totaled dollar_figure the amount reflected on the form_w-2 issued by uconn respondent maintains that petitioner remitted all of the fellowship proceeds to uconn and consequently argues that petitioners are neither required to include the fellowship proceeds as income nor entitled to offset the proceeds remitted to uconn from wages received from uconn it is clear that the various positions taken by petitioners both on their amended_return and at trial were fashioned in an attempt to reduce their liability under the alternative_minimum_tax provisions petitioners' contentions that the fellowship proceeds were fully taxable as noncompensatory income and that the remitted proceeds could offset gross wages paid_by uconn are an attempt to buttress their argument discussed infra that respondent assumes a factual premise which is contrary to the stipulated facts and evidence in the record therefore we shall disregard respondent's argument insofar as it relates to the portion of the fellowship proceeds that was not remitted to uconn petitioner's research and writing expenses were not incurred in his capacity as an employee of uconndollar_figure we do not agree with petitioners' contention that the remitted fellowship proceeds should offset gross wages received petitioner had an employment relationship with uconn which existed both prior to and subsequent to receipt of the fellowships and the amount of gross wages received during the year in issue was determined in accordance with this agreement petitioner by agreeing to remit a portion of the fellowship proceeds to uconn maintained the terms of this employment relationship including full salary and related benefits we conclude therefore that the amounts paid to petitioner by uconn constitute wages in the full amount reflected on the form_w-2 issued by uconn we now turn to the characterization of the fellowship proceeds the facts before us are not distinguishable from those presented in spiegelman v commissioner supra where we held that fellowship proceeds are fully includable in the recipient's gross_income unless some statutory exclusion is applicable id pincite in this case the fellowships were awarded to petitioner after being awarded the fellowships petitioner by claiming petitioner's fellowship expenses on schedule c rather than as employee business_expenses on schedule a petitioners minimize the effects of the alternative_minimum_tax see kant v commissioner tcmemo_1997_217 assigned a portion of the proceeds to uconn it is well settled that a taxpayer cannot reduce gross_income by executing an anticipatory_assignment_of_income earned by that taxpayer but not yet received 281_us_111 78_tc_882 affd without published opinion 734_f2d_20 9th cir on this basis we reject respondent's contention that the fellowship proceeds remitted to uconn were not includible in gross_income we therefore conclude that the full amount of the fellowship proceeds dollar_figure is includible in gross_income nevertheless pursuant to our holding in spiegelman v commissioner supra we hold that the fellowship proceeds are noncompensatory and should be characterized as other income b petitioner's expenses fellowship proceeds remitted to uconn with respect to the fellowship proceeds remitted to uconn both parties have suggested that the remitted proceeds may be used to offset petitioner's gross_income we have opined above that the amounts received from uconn and the amount received as a fellowship constitute gross_income in contrast to both parties' position however we find that the remitted fellowship proceeds constitute a deductible expense incurred as a condition of receiving full salary from uconn it is clear that petitioner was required pursuant to his employment with uconn to pay over a portion of the fellowship proceeds accordingly we hold that the remitted fellowship proceeds constitute an employee_business_expense deductible on schedule a see butchko v commissioner tcmemo_1978_209 affd 638_f2d_1214 9th cir holding taxpayer's payment to employer for cash register shortages resulted in employee_business_expense remaining expenses there is some confusion with respect to the amount of expenses remaining in dispute on schedule c of the amended_return petitioners claimed expenses related to petitioner's research and writing in the amount of dollar_figure on the basis of arguments presented prior to trial petitioners now appear to claim expenses relating to petitioner's activities in the amount of dollar_figure the amount allowed by respondent see supra p note to table in any event petitioners have offered no proof that they are entitled to deductions in excess of dollar_figure and we sustain respondent's determination to that extent respondent determined that petitioner incurred the allowable expenses as an employee of uconn accordingly respondent argues that petitioner's allowable work-related expenses are deductible as miscellaneous_itemized_deductions under sec_67 in contrast petitioners contend that petitioner was in the separate trade_or_business of writing scholarly materials when he incurred the expenses in so doing petitioners argue that petitioner's activities were not related to his employment at uconn petitioners contend therefore the expenses related to his research and writing activities are deductible on schedule c petitioners' argument in this regard in similar fashion to their position concerning the characterization of the fellowship proceeds represents an attempt to reduce the effects of the alternative_minimum_tax work-related expenses_incurred by an independent_contractor are deductible above_the_line schedule c under sec_62 whereas unreimbursed expenses_incurred by an employee are deductible below_the_line schedule a as itemized_deductions hathaway v commissioner tcmemo_1996_ sec_56 provides that for the purposes of calculating a taxpayer's alternative_minimum_taxable_income no deductions shall be allowed for miscellaneous_itemized_deductions therefore were petitioner's expenses_incurred as part of a trade_or_business separate from his employment with uconn the expenses would be deductible above_the_line and could be used to offset alternative_minimum_taxable_income see kant v commissioner tcmemo_1997_217 petitioner's employment with uconn and receipt of a fellowship do not preclude the possibility that his research and writing activities constituted a separate trade_or_business it is well settled that a taxpayer may engage in more than one trade_or_business 74_tc_525 affd without published opinion 681_f2d_805 3d cir 16_tc_332 to be engaged in a trade_or_business within the meaning of sec_162 the taxpayer must be involved in the activity with continuity and regularity and the taxpayer's primary purpose for engaging in the activity must be for income or profit 480_us_23 although a reasonable expectation of a profit is not required the taxpayer must have entered the activity or continued it with the bona_fide objective of making a profit as indicated by the surrounding facts and circumstances 88_tc_464 sec_1_183-2 income_tax regs the regulations accompanying sec_183 contain a nonexhaustive list of nine factors to consider when determining whether an activity is engaged in for a profit sec_1_183-2 income_tax regs university professors in their capacity as educators regularly conduct research and produce scholarly materials pertaining to their particular area of competence in addition the receipt of the fellowship as well as the publication of binding passions enhanced petitioner's reputation as a scholar and was certainly considered for purposes of determining his salary in succeeding years moreover despite the royalty agreement in the record petitioners have offered little evidence concerning the amount of income earned by petitioner for the sec_162 provides that there shall be allowed as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business publication of his work there is no history of profit potential nor any projections of profit potential from his activity accordingly we conclude that petitioner did not engage in his research and writing activities with the primary purpose of producing income apart from the salary he earned as a professor or apart from the fellowship he received therefore petitioner's activities do not constitute a separate trade_or_business and the related expenses are not deductible on schedule c we also disagree with respondent's determination that petitioner incurred the expenses in question in his capacity as an employee of uconn rather we conclude that petitioner incurred the expenses in relation to the fellowship income it is clear from this record that the expenses claimed relate to the research and writing which petitioner engaged in pursuant to the fellowship since we have held that the fellowship income constitutes noncompensatory income petitioner's fellowship expenses are deductible pursuant to sec_212 rental of petitioners' connecticut house we now address respondent's determination with respect to the items of income and expense attributable to the rental use of petitioners' house respondent employing the limitations set forth in sec_183 determined that petitioners did not engage in the activity of renting their house with a profit_motive and are therefore precluded from deducting under sec_162 or sec_212 expenses attributable to its rental use accordingly respondent disallowed all of petitioners' claimed expenses for cleaning and maintenance and depreciation attributable to the rental use of their house and asserted that the rental income was reportable as other income petitioners concede that they are not entitled to the depreciation and maintenance_expenses claimed on schedule e of their original and amended returns petitioners however argue that they may fully offset the rental income by mortgage interest attributable to the rental use of the house sec_280a provides that except as otherwise provided in that section no deduction otherwise allowable under chapter of the internal_revenue_code is allowable with respect to the use of a dwelling_unit which is used by the taxpayer during the taxable_year as a residence a taxpayer uses a dwelling during the taxable_year as a residence if he uses the unit for personal purposes for a number of days which exceeds the greater of days or percent of the number of days during the taxable_year for which the dwelling_unit was rented at fair_market_value sec_280a nevertheless some deductions that are attributable to the rental use of a dwelling_unit are excepted from the blanket disallowance of sec_280a and can be deducted subject_to the limitations imposed by subsections c and e of sec_280a sec_280a sec_280a limits deductions attributable to the rental use of such a dwelling_unit to an amount not to exceed the excess of the gross rental income derived from the rental use over the sum of the deductions allocable to the rental use that are otherwise allowable regardless of such rental use such as mortgage interest and real_estate_taxes plus any deductions that are allocable to the rental_activity in which the rental use of the residence occurs but that are not allocable to the rental use of the residence itself see sec_163 and sec_164 therefore a taxpayer who rents a portion of a dwelling_unit in which he or she also resides during the taxable_year must offset rental income first by expenses allocable to the rental use which are otherwise allowable such as mortgage interest and property taxes and then if any rental income remains by other expenses related to the rental_activity petitioners acknowledge that the connecticut house is considered a personal_residence under sec_280a because petitioner kristin ruggiero lived there for months during the taxable_year sec_280a therefore is applicable where sec_280a is applicable to a dwelling_unit for a taxable_year the provisions of sec_183 do not apply to such unit for the year sec_280a see also 77_tc_104 affd 694_f2d_556 9th cir respondent's position insofar as it ignores the provisions of sec_280a is without legal foundation regardless of whether petitioners engaged in the activity of renting their home with the intent to earn a profit sec_280a requires petitioners to first offset rental income with expenses attributable to the rental use of the house which are otherwise allowable such as mortgage interest_paid petitioners do not argue otherwise therefore petitioners are entitled to offset the rental income with mortgage interest_paid in the amount of dollar_figure to reflect the foregoing decision will be entered under rule petitioners rented the house to the students for days during the taxable_year accordingly petitioners' house was rented for percent of the taxable_year days days the mortgage interest attributable to the rental use of their house therefore is dollar_figure percent of total mortgage interest in the amount of dollar_figure 77_tc_104 affd 694_f2d_556 9th cir since the mortgage interest attributable to the rental use of the connecticut house exceeds rental income the net rental income is zero