t c memo united_states tax_court james e copley and cynthia r copley petitioners v commissioner of internal revenue respondent docket no filed date james e copley pro_se stephen j neubeck for respondent memorandum opinion goldberg special_trial_judge this case was heard pursuant to sec_7443a and rule sec_180 sec_181 and sec_182 respondent determined deficiencies in petitioners' federal income taxes for and in the respective amounts of all section references are to the internal_revenue_code in effect for the years in issue all rule references are to the tax_court rules_of_practice and procedure dollar_figure and dollar_figure and an accuracy-related_penalty under sec_6662 for in the amount of dollar_figure after concessions the issues for decision are whether the distribution received by petitioners from an individual_retirement_account ira with fidelity magellan fund fidelity in in the amount of dollar_figure is taxable whether petitioners are entitled to an adjustment to income in the amount of dollar_figure attributable to petitioners' ira distribution from fidelity in whether petitioners failed to report a distribution from the civil service retirement_system csrs in in the amount of dollar_figure whether petitioners failed to report a distribution from the u s department of agriculture doa national finance center in of dollar_figure whether petitioners are liable for a penalty pursuant to sec_72 for premature distributions in the aggregate amount of dollar_figure in whether petitioners are entitled to rental expense deductions for and in petitioners concede that they overstated their rental income for and by dollar_figure and dollar_figure respectively they are not entitled to rental depreciation of dollar_figure for they are not entitled to deduct capital losses of dollar_figure for they failed to report an individual_retirement_account distribution of dollar_figure they are not entitled to schedule a deductions claimed in for job and miscellaneous expenses of dollar_figure and medical_expenses of dollar_figure and they are not entitled to itemize for because the standard_deduction exceeds the allowable itemized_deductions respondent concedes that petitioners repaid unemployment_compensation in in the amount of dollar_figure and are entitled to rental depreciation of dollar_figure for excess of the expenses allowed by respondent whether petitioners failed to report capital_gain in the amount of dollar_figure for and whether petitioners are liable for an accuracy-related_penalty under sec_6662 for for the purpose of clarity the facts and legal analysis of each issue will be combined some of the facts have been stipulated and are so found the stipulation of facts and attached exhibits are incorporated by this reference at the time the petition in this case was filed petitioner james e copley resided in charleston west virginia and petitioner cynthia r copley resided in treasure island florida references to petitioner are to james e copley issue ira distribution during and petitioner was employed by the u s department of energy doe in morgantown west virginia as a project manager in or around date petitioner left the doe allegedly on account of whistle-blowing activities at the time of his departure petitioner was entitled to a gross distribution from the csrs of dollar_figure on date petitioner directed that these funds be rolled over into a fidelity ira for this transaction fidelity charged a commission of percent of the amount deposited on date the market_value of the stock purchased by fidelity for petitioner's ira account totaled dollar_figure on or about date petitioner withdrew the entire balance of his account dollar_figure and closed his fidelity ira on date petitioner deposited the funds withdrawn into a personal checking account with city national bank at the time of the withdrawal petitioner wa sec_41 years old petitioner argues that the amount withdrawn from the fidelity ira is not currently taxable because fidelity withheld the tax prior to disbursing the funds in support thereof petitioner points to the difference between the amount deposited in the ira dollar_figure and the balance of the account at the time of the withdrawal dollar_figure petitioner claims that this amount dollar_figure represents tax withheld petitioner offers no documentation to support his argument under sec_402 a distribution from a qualified employee's trust is taxable to the distributee in the year of distribution sec_402 provides an exception to the general_rule for certain rollovers by the employee namely where the balance_to_the_credit of the employee in a qualified_trust is paid to him and the employee transfers any portion of the distribution to an eligible_retirement_plan within days of receipt then the amount so distributed shall not be included in gross_income sec_402 c respondent does not dispute that the deposit of petitioner's lump-sum_distribution into the fidelity ira qualifies as a tax- free rollover however respondent contends that petitioner's withdrawal of the funds on or about date and his deposit of the same into a personal checking account qualifies as a taxable_distribution we agree the distribution that petitioner received from the csrs is subject_to taxation under sec_72 pursuant to sec_402 csrs is a plan that meets the requirements of sec_401 and the law is well established that sec_72 is applicable to distributions received pursuant to the csrs 43_f3d_466 9th cir shimota v united_states cl_ct affd 943_f2d_1312 fed cir sec_1_72-2 income_tax regs a lump sum payment from the csrs is treated as a payment under an annuity_contract roundy v commissioner tcmemo_1995_298 kirkland v commissioner tcmemo_1994_220 such payment is subject_to tax in the year in which it is received as a payment under an annuity_contract that is not received as an annuity under sec_72 97_tc_237 affd 985_f2d_819 5th cir at the time petitioner withdrew the funds from the fidelity ira and deposited them into his personal checking account the funds became taxable_income petitioner's argument that whatever tax was due was withheld by fidelity prior to his withdrawal of the funds is unfounded first it is not the responsibility of financial institutions to withhold income taxes from savings withdrawals and petitioner presented no documentation that such withholding took place second it is more_likely_than_not that the difference between the amount distributed by csrs and the amount later withdrawn by petitioner represents a combination of the 3-percent commission charged by fidelity for establishing the account and a decline in the fair_market_value of the stock purchased with the ira funds accordingly respondent is sustained on this issue issue adjustment to income on their federal_income_tax return petitioners claimed an adjustment to income for a penalty on early withdrawal of savings in the amount of dollar_figure petitioner argues that this amount representing the difference between the amount deposited in his fidelity ira and the amount later withdrawn was tax withheld by fidelity petitioner confuses three separate and distinct concepts the tax due on a lump-sum_distribution from a qualified_benefit plan under sec_402 a penalty imposed by banks on early withdrawal of savings from time savings accounts certificates of deposits and similar classes of deposits and deductible under sec_62 and a penalty imposed by sec_72 on premature distributions petitioner appears to argue that the dollar_figure simultaneously represents all of the above petitioner presented no evidence that fidelity imposed a penalty for premature withdrawal of savings and it is not the responsibility of financial institutions to impose and collect the tax imposed under sec_402 or the penalty imposed under sec_72 as stated above the amount simply represents a commission charged by fidelity and a decline in the market_value of the ira stock consequently petitioners are not entitled to an adjustment to income in the amount of dollar_figure issue csrs distribution prior to trial petitioner stipulated that he received dollar_figure from csrs in and that he failed to report this distribution as taxable_income at trial petitioner attempted to withdraw this stipulation and argued that he did not receive dollar_figure but instead received dollar_figure of nontaxable income in support of his position petitioner presented a statement from the office of personnel management opm stating that petitioner's application_for refund of retirement deductions had been approved and that a check for dollar_figure would be issued the statement indicated that the refund consisting entirely of funds petitioner had put into the civil service retirement and disability fund was nontaxable respondent does not dispute that the dollar_figure is exempt from tax an examination information_return master_file transcript for tax_year the transcript which lists payee entities payer entities information forms received eg form_1099 and types and amounts of income indicates that petitioner received a gross distribution of dollar_figure of taxable_income from csrs during although respondent did not present the form 1099-r in question the absence of that document appears due to the fact that petitioner conceded this issue up until the day of trial and then sought to withdraw his concession the determinations of respondent are presumed to be correct and petitioners bear the burden of proving otherwise rule a 290_us_111 all taxpayers are required to keep sufficient records to enable the commissioner to determine their correct_tax liability sec_6001 43_tc_824 petitioners offered no evidence to show that respondent's determination was incorrect we conclude that petitioner failed to report taxable_income from csrs in the amount of dollar_figure respondent is sustained on this issue issue doa distribution prior to trial petitioner stipulated that he received and failed to report dollar_figure of taxable_income from doa at trial petitioner attempted to withdraw his stipulation and argued that the dollar_figure represents moneys borrowed from doa which he repaid through payroll deductions in support of his argument petitioner presented an earnings leave and benefit statement issued on date by doa indicating that dollar_figure had been withheld from his wages during for repayment of a thrift_savings_plan loan petitioner offered no documentation to prove that the dollar_figure reported by doa to the internal_revenue_service as taxable_income represented loan proceeds we find that petitioner failed to report taxable_income in the amount of dollar_figure from doa respondent is sustained on this issue issue penalty for premature_distribution respondent determined that petitioners were liable for a percent penalty in the amount of dollar_figure under sec_72 on premature distributions of dollar_figure dollar_figure and dollar_figure from qualified_plans petitioners dispute this determination sec_72 provides for a 10-percent additional tax on distributions from qualified_plans unless the distributions come within one of the statutory exceptions sec_72 and the exceptions include certain distributions made on or after the date on which an employee attains the age of made to an employee after separation_from_service and the attainment of age to a beneficiary on or after the death of an employee attributable to an employee's disability and to an employee to the extent they do not exceed certain deductible medical_expenses sec_72 and b because petitioner conceded this issue up until trial respondent was not prepared to refute petitioner's argument with supporting documents nevertheless respondent suggests that the dollar_figure may represent a forgiveness by doa of an unpaid portion of a loan taken by petitioner as a general_rule a debtor excused from an obligation to repay must include the amount forgiven in his or her gross_income see sec_108 although we find respondent's suggestion credible without more we are unable to say with certainty that such a scenario is more_likely_than_not petitioner does not argue that he falls within the scope of any of the above exceptions with respect to the distribution of dollar_figure however petitioner argues that fidelity withheld the 10-percent penalty prior to distributing the balance of the account to him as noted above petitioner confuses the penalty for premature_distribution with the penalty for early withdrawal and the tax imposed on a distribution by sec_402 the distribution of dollar_figure stems from a lump sum distribution from a qualified_plan and a tax-free_rollover into a qualified ira because the distribution does not fall within the scope of any of the exceptions under sec_72 petitioner is liable for the penalty imposed thereunder the transcript identified above indicates that the payments of dollar_figure and dollar_figure were reported to the internal_revenue_service by the payers on forms 1099-r petitioner stipulated that he received these payments from qualified_plans thus we conclude that the payments of dollar_figure and dollar_figure were received by petitioner from qualified_plans consequently petitioner is liable for the penalty imposed by sec_72 on the premature distributions in the aggregate amount of dollar_figure issue rental expenses in petitioners purchased sunny ridge drive moreno valley california the california property and rented the property through inland property management co inland on date petitioners sold the california property on date petitioners purchased west washington street charleston west virginia the charleston property as rental property petitioners maintained the house and obtained tenants without the assistance of a management company with their and joint federal_income_tax returns petitioners filed schedules e supplemental income and loss to report their rental income and expenses on date after respondent's notice_of_deficiency was issued petitioners filed amended returns for and the following charts show the expenses claimed by petitioners on their original and amended returns the expenses allowed by respondent and the amounts still in dispute after concessions the california property per original per amended allowed by still in item return return respondent dispute advertising -0- dollar_figure -0- dollar_figure cleaning maint dollar_figure dollar_figure dollar_figure dollar_figure commissions dollar_figure -0- -0- -0- insurance -0- dollar_figure -0- dollar_figure legal prof dollar_figure dollar_figure -0- dollar_figure mortg interest dollar_figure dollar_figure dollar_figure dollar_figure repairs -0- dollar_figure -0- dollar_figure taxes dollar_figure dollar_figure dollar_figure utilities dollar_figure dollar_figure dollar_figure dollar_figure termite control dollar_figure -0- -0- -0- home shield dollar_figure -0- -0- -0- prop mgt dollar_figure -0- -0- -0- federal express dollar_figure -0- -0- -0- miscellaneous -0- dollar_figure -0- dollar_figure pool service -0- dollar_figure -0- dollar_figure the information on these charts is largely derived from respondent's statement of issues and facts filed on the day of trial depreciation dollar_figure dollar_figure dollar_figure -0- total dollar_figure dollar_figure dollar_figure dollar_figure the charleston property per original per amended allowed by still in item return return respondent dispute advertising dollar_figure dollar_figure dollar_figure -0- auto expense dollar_figure dollar_figure dollar_figure -0- insurance dollar_figure dollar_figure dollar_figure legal prof dollar_figure dollar_figure dollar_figure -0- mortg interest dollar_figure dollar_figure dollar_figure -0- repairs dollar_figure dollar_figure dollar_figure -0- taxes dollar_figure dollar_figure dollar_figure -0- utilities dollar_figure dollar_figure dollar_figure -0- wages salaries -0- dollar_figure dollar_figure miscellaneous dollar_figure dollar_figure dollar_figure depreciation dollar_figure dollar_figure dollar_figure -0- total dollar_figure dollar_figure dollar_figure the charleston property per original per amended allowed by still in item return return respondent dispute advertising -0- dollar_figure dollar_figure dollar_figure auto expense dollar_figure dollar_figure dollar_figure dollar_figure insurance dollar_figure dollar_figure dollar_figure -0- legal prof dollar_figure dollar_figure dollar_figure -0- mortg interest dollar_figure dollar_figure dollar_figure -0- repairs dollar_figure dollar_figure dollar_figure -0- taxes dollar_figure dollar_figure dollar_figure -0- utilities dollar_figure dollar_figure dollar_figure -0- telephone dollar_figure -0- dollar_figure big_number miscellaneous -0- dollar_figure -0- dollar_figure meals -0- -0- dollar_figure depreciation dollar_figure dollar_figure dollar_figure -0- total dollar_figure dollar_figure dollar_figure dollar_figure sec_62 allows the deduction of expenses attributable to property held_for_the_production_of_rents_or_royalties deductions are a matter of legislative grace and the taxpayer bears the burden of proving that he or she is entitled to any deduction claimed rule a 292_us_435 this includes the burden of substantiation 65_tc_87 affd per curiam 540_f2d_821 5th cir in support of the items remaining in dispute with respect to the california property petitioner introduced an invoice titled trial balance the invoice dated date and created for petitioner by inland lists income and expenses attributable to the california property petitioner testified that several of the items on the invoice are incorrect and based on the lack of available receipts or other supporting documents we are unable to determine whether the expenses were actually paid and if so in which year or with respect to the charleston property petitioner offered no receipts travel logs or other documentation to substantiate the items still in dispute other than handwritten schedules and lists of expenses prepared for trial despite the fact that petitioners filed amended returns as late as date month before trial they were unable to provide any credible_evidence to support the deductions claimed furthermore several of the items in dispute if in fact purchased would be in the nature of improvements with an expected life greater than year and the costs associated therewith must be capitalized and depreciated pursuant to statutorily prescribed limits the testimony of petitioner regarding all of the expenses in dispute was for the most part general vague conclusory uncorroborated and questionable under these circumstances we are not required to and we do not accept such testimony to support the positions of petitioners herein 877_f2d_624 7th cir affg tcmemo_1987_295 440_f2d_688 9th cir affg per curiam tcmemo_1969_159 the determination of respondent is sustained as to rental expenses claimed in and issue capital_gain petitioners sold the california property on date for dollar_figure with their original federal_income_tax return petitioners filed a form_2119 with the following information selling_price of home dollar_figure expense of sale dollar_figure amount_realized dollar_figure basis of home sold dollar_figure gain on sale big_number in response to the query if you haven't replaced your home do you plan to do so within the replacement_period petitioners answered in the affirmative in the notice_of_deficiency respondent determined that petitioners miscalculated the gain on the sale of the california property respondent's computation is as follows selling_price of home dollar_figure expense of sale big_number amount_realized dollar_figure cost big_number less depreciation big_number big_number adjusted_basis gain on sale big_number capital_loss_carryover from big_number taxable gain big_number after the notice_of_deficiency was issued petitioners filed an amended_return for with an amended form_2119 wherein they recomputed their gain on the sale of the california property as follows selling_price of home dollar_figure expense of sale big_number amount_realized big_number basis of home sold big_number gain on sale big_number petitioners also reported that they had not replaced their home and did not plan to do so within the replacement_period at trial petitioner presented a more detailed calculation of the gain realized indicating that the difference between the gain determined by respondent and that calculated by petitioners results from a difference of dollar_figure in the original cost of the property a difference of dollar_figure in the depreciation of the property and an alleged loan of dollar_figure that petitioner subtracted from the selling_price to arrive at the amount_realized petitioner provided no evidence to explain the discrepancies in cost or depreciation other than his own testimony that he claimed excess_depreciation intentionally with respect to the loan of dollar_figure petitioner testified that he borrowed the money from brenda summers a friend of the family he presented no loan documents or credible proof of repayment accordingly petitioners have failed to prove that respondent's determination regarding the gain realized is incorrect in the alternative petitioner argues that the gain realized on the sale of the california property should not be recognized in pursuant to sec_1034 respondent contends that petitioners are not entitled to deferral because the california property was rented out beginning in which was more than years prior to the date on which the property was sold generally sec_1001 and sec_61 require a taxpayer to recognize in the year of the sale gain realized on the sale of property sec_1034 however allows a taxpayer in certain circumstances to defer recognition of gain realized on the sale of the taxpayer's principal_residence under sec_1034 if the taxpayer purchases a new principal_residence within the replacement_period the taxpayer will recognize gain on the sale only to the extent that the taxpayer's adjusted sale price of the old residence exceeds the taxpayer's cost of purchasing the new residence sec_1034 as noted above petitioner presented a statement at trial which explains the process he used to arrive at the gain realized on the california property in particular he calculated a total of dollar_figure in depreciation as follows year amount of depreciation dollar_figure big_number big_number big_number total big_number such figures would seem to indicate that petitioners did in fact rent out the california property beginning in petitioner's testimony that he resided at that address from through while working at general dynamics was uncorroborated and questionable under such circumstances petitioners have failed to establish that the property was ever used as their principal_residence or that even if it were that such use was not abandoned long before the property was sold see 40_tc_345 affd per curiam 326_f2d_760 2d cir we are unable moreover to determine with any degree of certainty the location of petitioners' new residence after the sale of the california property in on their federal_income_tax return petitioners listed their address as p o box star city west virginia the star city address and a form 1099-int attached to their return listed petitioners' residence as village park drive morgantown west virginia the morgantown address on their amended return petitioners listed their residence in as the charleston property on their federal_income_tax return petitioners listed their home address as the charleston property however the form_4562 depreciation and amortization attached to their return listed the charleston property as being used percent for rental purposes on the form_w-2 doa lists petitioners' residence as the star city address even assuming arguendo that for purposes of sec_1034 petitioners' old residence was the california property and their new residence was the charleston property petitioners would not qualify for a deferral under sec_1034 petitioner testified that he sold the california property on date and purchased the charleston property on date consequently petitioners would not be permitted to defer the gain because they did not purchase the charleston property within years before or after the date on which they sold the california property the time requirement of sec_1034 must be strictly complied with bayley v commissioner 35_tc_288 if the morgantown property was petitioners' new residence petitioners are also not entitled to deferral under sec_1034 because they offered no evidence regarding the date the morgantown property was purchased or how much they paid respondent is sustained on this issue issue addition_to_tax the final issue for decision is whether petitioners are liable for an accuracy-related_penalty for the taxable_year sec_6662 and b imposes an accuracy-related_penalty equal to percent of the portion of any underpayment_of_tax that is due to negligence under sec_6662 negligence is any failure to make a reasonable attempt to comply with the provisions of the code based on petitioners' amended returns filed after the notice_of_deficiency was issued and immediately before trial wherein they adjusted the amount of nearly every item of expense claimed on their original returns and based on petitioners' failure to provide credible substantiation or authority for any of the items at issue in this case we find that petitioners are liable for the penalty under sec_6662 for respondent is sustained on this issue at trial petitioner made an oral motion for discovery requesting copies of the revenue agent's workpapers resulting from the administrative examination of his and federal_income_tax returns petitioner also sought an explanation as to why his returns were selected for examination under rule b information sought through discovery may concern any matter not privileged and which is relevant to the subject matter involved in the pending case however discovery shall be completed unless otherwise authorized by the court no later than days prior to the date set for call of the case from a trial calendar rule a this case was first called for trial on date petitioner did not move for discovery until the case was recalled for trial at a special session held in washington d c on date under our rules petitioner's motion is untimely and will be denied furthermore we generally will not look behind a notice_of_deficiency to examine it for the motives or methods which were used by the commissioner in arriving at the deficiency determination 62_tc_324 senter v commissioner tcmemo_1995_311 petitioner has not made any showing that information concerning the method by which respondent selected and examined petitioner's returns for and is relevant to the subject matter of this case or is calculated to lead to discovery of admissible evidence to reflect the foregoing an appropriate order denying petitioners' motion for discovery will be issued and decision will be entered under rule petitioner filed a memo to the court on date requesting that the court order respondent to produce and turn over to petitioner documents relating to the examination of petitioners' returns we do not recognize this memo as a formal discovery motion however had we done so the request would also have been untimely under rule a


internal_revenue_service p o box cincinnati oh release number release date date date department of the treasury employer_identification_number contact person - id number contact telephone number legend uil w scholarship program dear you asked for advance approval of your scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provide in code sec_117 description of your request your will operate a scholarship program called w the purpose of w individuals attending recognized educational institutions with expenses such as tuition room and board and other educational expenses is to assist your scholarships will be publicized by the local high schools all graduating high school students from local high schools who will attend higher education institutions as full time students will be eligible to apply your selection committee will evaluate applicants based on scholastic and academic achievement citizenship and extracurricular activities and financial need the selection committee consists of relatives of your founding members successor members of the letter catalog number 58263t selection committee will be selected by remaining members and will be descendants of your founding members unless all such individuals are unable or unwilling to serve relatives of members of the selection committee or of your officers directors or substantial contributors are not eligible for your scholarships you expect to award less than five scholarships annually scholarship amounts will be determined based on your financial resources and the financial need of the recipients the scholarships will be paid directly to the educational_institution each recipient is attending and the educational_institution will apply the scholarship funds only for enrolled students who are in good standing with the institution and have achieved satisfactory academic progress scholarship funds will not be applied if a student is in violation of these terms in order for the scholarship recipient to obtain maintain or qualify for renewal of a scholarship the recipient must achieve satisfactory academic progress as determined by the selection committee members on an individual basis you represent that you will arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversions of funds from their intended purposes take all reasonable and appropriate steps to recover the diverted funds ensure other grant funds held by a grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees’ assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversion from occurring you also represent that you will maintain all records relating to individual grants including information obtained to evaluate grantees identify a grantee is a disqualified_person establish the amount and purpose of each grant and establish that you undertook the supervision and investigation of grants described above basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 e e other conditions that apply to this determination e this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don’t differ significantly from those described in your original request letter catalog number 58263t e e e e e this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely jeffrey cooper director exempt_organizations rulings and agreements letter catalog number 58263t


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 b03 plr-105511-07 date january legend -------- ---------------------- ---------------------------- x --------------------------------------------------------------------- state a ----------------------------------------------------------------------- b d1 d2 year dear --------------------- --------------------------- --------------------------- --------------------- ------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election under sec_754 of the internal_revenue_code facts x was formed on d1 as a limited_liability_company under the laws of state x is treated as a partnership for federal tax purposes the members of x were a and b until d2 when b died x relied on its tax advisor for advice x’s partnership return for plr-105511-07 year the year of b’s death was timely filed however x inadvertently failed to timely make a sec_754 election x represents that it has acted reasonably and in good_faith that granting relief will not prejudice the interests of the government and that it is not using hindsight in making the election law and analysis sec_754 provides that if a partnership files an election in accordance with the regulations prescribed by the secretary the basis of partnership property is adjusted in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions thereof for filing the return for that taxable_year sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time 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_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register 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_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely upon the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days following the date of this letter plr-105511-07 to make an election under sec_754 effective for year the election should be made in a written_statement filed with the appropriate service_center a copy of this letter should be attached to the sec_754 election a copy is enclosed for that purpose except as expressly set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts discussed above under any other provision of the code specifically we express no opinion as to whether or not x is a partnership for federal tax purposes 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 with this office we are sending a copy of this letter to your authorized representative s sincerely william p o'shea associate chief_counsel passthroughs special industries 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 b03 plr-147759-06 date date -------------------- ---------------------- ---------------------------- ------------------------------------- legend legend x ----------------------------------------------------------- y ----------------------------------------------------------- a ----------------------------------------------------------- country date1 date2 date3 date4 dear ----------- correspondence submitted by your authorized representative on behalf of x and y requesting an extension of time under sec_301_9100-3 of the procedure and this letter responds to a letter dated date and subsequent ---------------------- ---------------------- ------------------ ------- plr-147759-06 administration regulations to file an election to treat x as a disregarded_entity for federal tax purposes under sec_301_7701-3 facts country a a u s_corporation owned of x through three entities disregarded for u s federal_income_tax purposes x is not classified as a corporation under sec_301_7701-2 or at the time x was formed an initial entity classification election to treat x as a corporation for u s tax purposes was made on date2 y a u s_corporation acquired of the stock of a during the year date3 y completed a tax restructuring to simplify its business x a holding_company was formed on date1 as a partnership under the laws of sec_301_7701-3 provides in part that a business_entity that is not structure as part of the restructuring y intended for x to elect to be treated as disregarded as an entity separate from its owner under sec_301_7701-3 effective date4 x represents that it is a foreign_entity eligible to be classified as a disregarded_entity due to inadvertence a form_8832 entity classification election to treat x as disregarded as an entity separate from its owner effective date4 was not filed timely law and analysis classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 entity classification election with the service_center designated on form_8832 sec_301_7701-3 provides in part that an eligible_entity may elect to sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 provides that an election under sec_301_7701-3 plr-147759-06 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_7701-3 provides that if an eligible_entity makes an election under sec_301_7701-3 to change its classification the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election sec_301_7701-3 further provides that an election by a newly formed eligible_entity that is effective on the date of formation is not considered a change for purposes of sec_301_7701-3 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 not 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 determine whether to grant an automatic_extension of time for making certain elections sec_301_9100-2 provides the standards the commissioner will use to sec_301_9100-3 provides the guidelines for granting extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301 a provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides 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 based solely on the facts submitted and the representations made we conclude conclusion that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity effective date4 a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose the federal tax consequences of the facts described under any other provision of the code except as specifically set forth above we express or imply no opinion concerning this ruling is directed only to the taxpayer who requested it sec_6110 in accordance with the power_of_attorney on file with this office copies of this plr-147759-06 provides that it may not be used or cited as precedent letter are being sent to your authorized representatives sincerely s william p o’shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c summary united_states tax_court william m hawkins and laura c hawkins petitioners v commissioner of internal revenue respondent docket no 11334-99s filed date william m hawkins pro_se ronald t jordan for respondent carluzzo special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the years in issue rule references are to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined deficiencies in petitioners’ federal income taxes additions to tax and penalties as follows year deficiency additions to tax sec_6651 penalties sec_6662 dollar_figure big_number big_number dollar_figure big_number dollar_figure big_number big_number the issues for decision for each year in issue are whether petitioners underreported income whether petitioners are entitled to depreciation_deductions greater than those respondent allowed whether petitioners are entitled to a deduction for charitable_contributions whether petitioners had reasonable_cause for their failure_to_file a timely federal_income_tax return and whether the underpayment_of_tax required to be shown on petitioners’ federal_income_tax return is due to negligence background some of the facts have been stipulated and are so found petitioners are husband and wife they filed an untimely federal_income_tax return for each year in issue at the time the petition was filed they resided in indianapolis indiana william m hawkins petitioner is an attorney he has practiced law since and did so as a sole practitioner during the years in issue petitioners’ federal_income_tax return for each year in issue includes a schedule c profit or loss from business on which income and expenses attributable to petitioner’s law practice are reported petitioner maintained a checking account for his law practice the business account kept individual client records and saved receipts for expenses_incurred in his law practice otherwise he kept no formal books of account or other accounting_records to track income earned and expenses_incurred in his law practice petitioners own numerous residential real_estate properties that were held for rent or rented during the years in issue the rental properties some of the rental properties were rented pursuant to federal or state rent subsidy programs petitioners’ federal_income_tax return for each year in issue includes a schedule e supplemental income and loss on which income and expenses attributable to the rental properties are reported petitioner used the business account to pay expenses_incurred in connection with the rental properties he also saved expense receipts other than the business account and the expense receipts petitioner kept no formal books of account or other accounting_records to track income earned and expenses_incurred in connection with the rental properties petitioners also maintained a joint checking account during the years in issue the joint account expenses related to petitioner’s law practice and the rental properties were not paid from the joint account however some personal expenses were paid with checks drawn on the business account petitioners’ joint federal_income_tax return was filed on date their return was filed on date and their return was filed on date petitioner prepared each of these returns items reported on the schedules c are summarized as follows year gross_income total expenses profit loss dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number items reported on the schedules e are summarized as follows year rents received total expenses income loss dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number the examination of petitioners’ returns began in date petitioner failed to provide the revenue_agent with all of the documents that she requested from him as best can be determined from the record the revenue_agent did not issue any summonses to petitioners or third parties business account bank statements and canceled checks were provided to the revenue_agent as was petitioner’s check register for the business account petitioner also provided a check register for the joint account but the register included only entries made from april through date the revenue_agent concluded that petitioners’ income could not be determined from the books and sec_7491 is therefore inapplicable records with which she was provided she decided to reconstruct petitioners’ income using the cash t-account method and computed petitioners’ unreported income for each year in issue as follows year income per return expenses unreported income dollar_figure big_number big_number dollar_figure big_number big_number dollar_figure big_number big_number using a ratio derived from the incomes reported on the schedules c and e the revenue_agent allocated the unreported income between those schedules as follows year schedule c schedule e total dollar_figure big_number big_number dollar_figure big_number big_number dollar_figure big_number big_number the revenue_agent relied on depreciation schedules that were apparently created in connection with an examination of petitioners’ returns for years preceding and brought the schedules forward to the years in issue as a result petitioners’ depreciation_deductions were adjusted reduced as follows year schedule c schedule e total dollar_figure big_number big_number dollar_figure big_number big_number dollar_figure big_number big_number the revenue_agent did not question the charitable_contribution_deduction claimed for any year in issue respondent issued a notice_of_deficiency to petitioners on date for each year in issue respondent increased petitioners’ income by the unreported income amount listed above reduced depreciation_deductions claimed on the schedule c and schedule e made statutory adjustments to petitioners’ self-employment_tax self-employment_tax deduction and itemized_deductions imposed an addition_to_tax for petitioners’ failure_to_file a timely return and imposed an accuracy-related_penalty for negligence or disregard of rules or regulations discussion sec_6001 requires a taxpayer to maintain sufficient records to allow for the determination of the taxpayer’s correct_tax liability 92_tc_661 if a taxpayer fails to maintain or does not produce adequate books_and_records the commissioner is authorized to reconstruct the taxpayer’s income sec_446 petzoldt v commissioner supra pincite and it is well settled that indirect methods may be used to do so 348_us_121 the commissioner’s reconstruction need only be reasonable in light of all the surrounding facts and circumstances petzoldt v commissioner supra pincite 54_tc_1530 40_tc_30 in this case petitioners’ unreported income for each year in issue was determined by use of the cash transactions method commonly referred to as a cash t analysis which includes a table with income items debits on the left side of the t account and expenses credits on the right side of the t account see eg owens v commissioner tcmemo_2001_143 this method in some ways resembles the source_and_application_of_funds_method balken v commissioner tcmemo_1994_375 affd without published opinion 72_f3d_133 8th cir its purpose is to measure a taxpayer’s reported income against expenditures to determine whether more was spent than was reported rifkin v commissioner t c memo affd without published opinion 225_f3d_663 9th cir the suggestion is of course that the excess of expenditures over reported income represents unreported income id according to respondent’s long-ago-published training materials the cash t-account analysis is used as a preliminary to one of the more commonly used and more sophisticated indirect methods of reconstructing a taxpayer’s income such as the net_worth_method bank_deposits method source_and_application_of_funds_method or specific item method see eg rifkin v commissioner supra stand fed tax rept cch in this case petitioners’ failure to maintain adequate books_and_records justified the use of an indirect method to reconstruct their income according to petitioner the excess of expenditures over reported income for each year is accounted for by a cash hoard that he maintained in a safe in his house the revenue_agent rejected petitioner’s claim and we do likewise see eg 94_tc_654 rejecting petitioner’s cash hoard claim however does not require us to accept respondent’s computation although we find that respondent’s use of an indirect method is appropriate the analysis itself is not without problems for example the revenue_agent acknowledged that her analysis might have overstated petitioners’ unreported income for each year insofar as she included in her analysis expenditures that petitioners paid_by check plus all itemized_deductions without adjusting for duplications for those itemized_deductions that were paid_by check other problems exist with respect to the revenue agent’s analysis for example her analysis for includes an expenditure of dollar_figure for new roofs for one or more of the rental properties with respect to this item the revenue_agent relied on handwritten entries on the above-referenced depreciation schedules but could not identify who made the notations or why they were made petitioner denied that any amount was expended for new roofs on any of his rental properties during and we accept his testimony on the point we are also troubled by assumptions the revenue_agent made on account of a lack of records from the joint account the check register that the revenue_agent used covered only months of she averaged the monthly expenditures made during those months and applied that amount to the remaining months not covered by the check register she then applied the average monthly expenditures_for to and we consider this inappropriate and unreasonable given that petitioners’ joint checking account records could have been obtained from petitioners’ bank on the other hand we reject petitioner’s implausible claim that the source of many of the expenditures included in the revenue agent’s analysis was a cash hoard that he kept in a safe in his residence see de venney v commissioner 85_tc_927 t he existence of a cash hoard is endlessly claimed by taxpayers to explain the existence of otherwise unexplained sources of funds it is rare indeed that a taxpayer successfully proves this contention after careful consideration of the record we accept respondent’s analysis subject_to the following adjustments for the following expenditures must be eliminated from respondent’s cash t-account computation itemized_deductions personal expenditures estimated through the use of monthly averages and the dollar_figure expenditure for new roofs for and personal expenditures determined with reference to checking account information from must be eliminated from respondent’s computation depreciation_deductions petitioners have failed to offer any evidence to contradict respondent’s partial_disallowance of their depreciation_deductions petitioner suggested he had depreciation schedules that would support the allowance of those deductions and was given ample time following trial to provide these schedules but he failed to do so respondent is sustained on this issue charitable_contribution deductions respondent disallowed the charitable_contribution_deduction petitioners claimed for each year in issue the revenue_agent testified that she did not question those deductions during the examination of petitioners’ returns furthermore the deductions were taken into account in respondent’s cash t-account analysis on the basis of petitioner’s testimony we find that petitioners are entitled to the charitable_contribution deductions as claimed on their returns sec_6651 addition_to_tax the failure_to_file a timely federal_income_tax return results in a mandatory addition_to_tax unless the taxpayer shows that the failure was due to reasonable_cause and not due to willful neglect sec_6651 the taxpayer bears the heavy burden of proving both of these elements 469_us_241 defining willful neglect as the conscious intentional failure or reckless indifference on the part of the taxpayer to file a return and reasonable_cause as the inability to file a return within the prescribed period of time despite having exercised ordinary business care and prudence petitioners failed to file a timely federal_income_tax return for each year the record is nearly devoid of evidence pertaining to this issue when prompted by this court to explain the untimely filing of their returns petitioner responded as follows i’ll tell you exactly your honor i found that i was paying more taxes than i was required to pay and i negligence on my side i began to ask for an extension because i felt like this you don’t have to pay penalty you don’t have to pay no late charge as long as you have money coming back and you do it within three years there is no evidence that petitioners exercised reasonable business care and prudence and the above quote suggests that the untimely filing of petitioners’ returns was due to petitioner’s willful neglect petitioners have failed to carry their burden_of_proof and respondent is sustained on this issue sec_6662 penalty under sec_6662 a penalty is imposed on that portion of an underpayment of the tax required to be shown on a return if the underpayment is due to negligence or disregard of rules or regulations sec_6662 and b negligence is defined to include any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code sec_6662 it is further defined as the failure to do what a reasonable person with ordinary prudence would do under the same or similar circumstances 85_tc_934 disregard is defined to include any careless reckless or intentional disregard sec_6662 an accuracy-related_penalty will not be imposed with respect to any portion of an underpayment as to which the taxpayer acted with reasonable_cause and in good_faith sec_6664 whether the taxpayer acted with reasonable_cause and in good_faith depends on the pertinent facts and circumstances sec_1_6664-4 income_tax regs circumstances that may indicate reasonable_cause and good_faith include the extent of the taxpayer’s effort to properly assess the tax_liability and an honest misunderstanding of fact or law that is reasonable in light of the taxpayer’s experience knowledge and education id the taxpayer bears the burden of proving that he or she did not act negligently or disregard rules or regulations rule a 290_us_111 petitioner is not an unsophisticated taxpayer but an experienced attorney licensed since he operates his own law practice and owns approximately investment properties this experience is relevant in deciding whether he acted negligently with respect to the underpayments of tax required to be shown on petitioners’ returns see pelton gunther v commissioner tcmemo_1999_339 estate of holland v commissioner tcmemo_1997_302 positions taken on return not reasonable in light of the fact that one of the executors was an experienced attorney furthermore petitioners failed to maintain adequate books_and_records from which their federal_income_tax liability could be established see sowards v commissioner tcmemo_2003_180 brodsky v commissioner tcmemo_2001_240 sec_1_6662-3 income_tax regs after careful consideration of all pertinent facts and circumstances we find that petitioners did not act with reasonable_cause and in good_faith and that the underpayments of tax required to be shown on their returns are due to petitioners’ negligence respondent is sustained on this issue reviewed and adopted as the report of the small tax_division to reflect the foregoing decision will be entered under rule


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-134332-13 date date trust a_trust b a b date date state x dear -------------- --------------------------------------------------------------------------------------------- -------------------------------- --------------------------------------------------------------------------------------------- ------------------------------- ------------------- ----------------- ----------------------- ------------------------- ------------ --------------------------------------------------------------------------------------------- ---------- this responds to a letter dated date submitted by trust a and trust b requesting a ruling under sec_664 of the internal_revenue_code concerning the consolidation of trust a and trust b a and b created trust on date and trust on date under the laws of state both trust a and trust b are represented as qualifying as charitable_remainder unitrusts under sec_664 the terms of trust a and trust b are substantially identical trust a and trust b both have the same trustees a and b_trust a and trust b both have the same unitrust plr-134332-13 amount that is equal to x of the net fair_market_value of the trust estate valued as of the last day of each taxable_year trust a and trust b both have the same income beneficiaries a and b payments from both trust a and trust b are to continue as long as a or b is alive upon the death of the second of a or b to die trust a and trust b both provide that corpus is to be distributed to specified charities a and b reserve the power to change the charitable_remainder beneficiary so long as said beneficiary is a charitable_organization trust a and trust b currently both specify identical charitable_remainder beneficiaries the trustees propose to consolidate trust a and trust b by transferring all the assets of trust b to trust a_trust a and trust b represent that the purpose of the proposed consolidation is to eliminate duplicative administrative time and expenses as well as the filing of duplicative state and federal tax returns sec_664 provides generally that a charitable_remainder_unitrust shall be exempt from federal_income_tax sec_664 provides that a charitable_remainder_unitrust is a_trust a from which a fixed percentage which is not less than percent nor more than percent of the net fair_market_value of its assets valued annually is to be paid not less often than annually to one or more persons at least one of which is not an organization described in sec_170 and in the case of individuals only to an individual who is living at the time of the creation of the trust for a term of years not in excess of years or for the life or lives of such individual or individuals b from which no amount other than the payments described in sec_664 and other than qualified gratuitous transfers described in sec_664 may be paid to or for_the_use_of any person other than an organization described in sec_170 c following the termination of payments described in sec_664 the remainder_interest in the trust is to be transferred to or for_the_use_of an organization described in sec_170 or is to be retained by the trust for such a use or to the extent the remainder_interest is in qualified_employer_securities as defined in sec_664 all or part of such securities are to be transferred to an employee_stock_ownership_plan as defined by sec_664 and d with respect to each contribution of property to the trust the value determined under sec_7520 of such remainder_interest in such property is at least percent of the net fair_market_value of such property as of the date such property is contributed to the trust based solely on the facts and representations submitted we conclude that the consolidation of trust b into trust a will terminate that status of trust b as a charitable_remainder_unitrust but will not cause trust a to fail to qualify as charitable_remainder_trust under sec_664 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts of the transaction described above under any other provision of the code in particular sec_61 sec_507 sec_1001 sec_4941 sec_4945 and sec_4947 we plr-134332-13 express no opinion on whether trust a otherwise qualifies as a charitable_remainder_trust under sec_664 or whether the separate trusts each otherwise qualify as charitable_remainder trusts under sec_664 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 sincerely bradford r poston senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


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-130787-09 date date legend x -------------------------------------------------- --------------- y -------------------------------------------------- ----------------------------- d1 d2 d3 country ----------------------- --------------------- --------------------- --------------------------- dear ------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed on d1 under the laws of country on d2 y purchased percent of stock of x x intended to be treated as a disregarded_entity for federal tax purposes effective d3 however x inadvertently failed plr-130787-09 to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single member having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six 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_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under 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 granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an plr-130787-09 extension of time of days from the date of this letter to make an election to be treated as a disregarded_entity for federal tax purposes effective d3 x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 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 x’s authorized representative sincerely curt g wilson curt g wilson associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number info release date cc psi 1-cor-138416-01 date uilc we are responding to correspondence submitted on your behalf by requesting relief in order to establish date as the effective s_corporation_election the information date for submitted explains that the corporation’s s election was not recognized by the irs fresno service_center because the service_center has no record of receiving the corporation’s form_2553 election by a small_business_corporation although we are unable to respond to to your request as submitted this letter provides useful information relating to your request based on the instructions to form_2553 taxpayers are generally notified of acceptance or nonacceptance of their election within three months of date of filing_date mailed if the irs questions whether the election was filed acceptable proof of filing is a certified or registered mail receipt b form_2553 with an accepted stamp c form_2553 with stamped irs received date or e an irs letter stating the election has been accepted announcement copy enclosed provides guidance on seeking relief for late s_corporation elections and inadvertent invalid s_corporation elections generally to request relief for a late or invalid s_corporation_election you must request a private_letter_ruling from the national_office the procedures for requesting a private_letter_ruling are set out in revproc_2001_1 copy enclosed in addition revproc_2001_1 requires taxpayers to submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their last-filed tax_return qualify for a reduced user_fee in the amount of dollar_figure if you are eligible to use the reduced fee provision you must include the statement described in b b of appendix a with your request please review appendix b for a sample format for requesting a private_letter_ruling if you decide to submit a formal request for a private_letter_ruling please include the proper user_fee if applying under the reduced fee provisions send a statement certifying gross_income and refer your request to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi room by way of introduction the irs has a new small_business website which provides specific information and various links to useful non-irs sites visit this new site at www irs gov smallbiz additionally you can order a single free copy of the small_business resource guide cd-rom by calling the cd- rom provides critical tax information including forms instructions and publications as well as valuable business information from a variety of government agencies non-profit organizations and educational institutions please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful sincerely yours s dianna k miosi dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures announcement revproc_2001_1


department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c date of f i c e of c h i ef c ou n sel number info release date uil conex the honorable wally herger u s house of representatives washington dc dear mr herger i am responding to your inquiry dated date on behalf of your constituent --- ----------------------------- he wrote about our proposal to address the self-employment_tax treatment of payments under the conservation reserve program crp we appreciate ---- ------------------- comments the lack of clarity in this area prompted the irs and the department of treasury to seek public input on guidance for this issue the proposed revenue_ruling reflects what we and the department of treasury believe is the proper interpretation based on existing statutory and case law we believe that barring specific statutory language exempting crp payments from self-employment_income these payments are subject_to self-employment_tax as income derived from a trade_or_business we have requested public comments on the proposed revenue_ruling we will consider all the comments we receive including ---- ----------------- - as we finalize the ruling i hope this information is helpful if you would like to discuss this further please contact me or ------------------at ----- ------------- sincerely marie cashman special counsel exempt_organizations employment_tax government entities


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 b01 plr-127535-14 date date legend taxpayer country x --------------------------------------------------------------------------------------------- --------------------------------- ------------- dear ------------------ this responds to a letter from your representative dated date requesting a ruling concerning the treatment of royalties under the royalties article of the united states-country x income_tax treaty the treaty --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ ----------- taxpayer is a country x corporation in the television broadcasting business and owns television channels that are broadcast from country x via satellite taxpayer licenses access to the channels and their use to its wholly owned u s subsidiary the u s subsidiary entered into a non-exclusive agreement with an unrelated u s distributor to show the channels on the distributor’s platform in the united_states the u s subsidiary will receive fees from the distributor based on subscriptions the u s subsidiary will then pay a royalty to taxpayer for the broadcasting of the channels plr-127535-14 taxpayer represents that it neither engages in trade_or_business in the united_states through a permanent_establishment nor carries on business in the united_states through an employee or agent with general authority to contract on its behalf ruling requested taxpayer will not receive royalties within the meaning of royalties or rentals from motion picture films and will receive a full exemption from tax under the royalties article of the treaty law and analysis sec_881 of the internal_revenue_code imposes a tax of percent of the amount received from sources within the united_states by a foreign_corporation on fixed or determinable annual or periodic gains profits and income sec_1 b of the income_tax regulations provides that royalties are included in fixed or determinable annual or periodical income sec_894 however provides that income of any kind to the extent required by a treaty obligation of the united_states shall not be included in gross_income and shall be exempt from taxation under subtitle a of the code the royalties article of the treaty exempts from u s income_tax all royalties except royalties or rentals from motion picture films the royalties at issue are paid_by u s distributors for country x television programming and not for the distribution of motion picture films conclusion based on the foregoing we rule that royalties paid to taxpayer for the broadcasting of television channels are exempt from u s income_tax under the royalties article of the treaty except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-127535-14 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 _________________ elizabeth u karzon chief branch office of associate chief_counsel international


t c memo united_states tax_court elby b lyons jr petitioner v commissioner of internal revenue respondent docket no 18826-11l filed date elby b lyons jr pro_se john f driscoll and thomas alan friday for respondent memorandum opinion chiechi judge this case is before the court on respondent’s motion for summary_judgment as supplemented the court will grant respondent’s motion as supplemented 1the court issued orders on several different dates ordering petitioner to file a response petitioner failed to do so background the record establishes and or petitioner does not dispute the following petitioner resided in georgia at the time he filed the petition petitioner timely filed a federal_income_tax tax_return for his taxable_year return in his return petitioner showed an overpayment_of_tax which respondent refunded shortly after he filed that return thereafter respondent examined petitioner’s return as a result of that examination respondent issued to petitioner a notice_of_deficiency with respect to his taxable_year notice in that notice respondent determined a deficiency in petitioner’s tax of dollar_figure petitioner filed a petition with respect to the notice thereby commencing the case at docket no 12054-06s in that petition petitioner disputed the deficiency that respondent had determined in the notice at the call of the case at docket no 12054-06s from the calendar at the court’s date trial session in birmingham alabama petitioner appeared and conceded that case in the light of that concession respondent’s counsel made an oral motion on behalf of respondent for entry of decision respondent’s oral motion in the amount of the deficiency dollar_figure that respondent had determined in the notice on date the court entered an order and decision granting respondent’s oral motion and deciding that there was a deficiency of dollar_figure in petitioner’s tax for his taxable_year deficiency on date respondent assessed petitioner’s deficiency as required by sec_6303 within days after the date on which respondent assessed petitioner’s deficiency respondent mailed to petitioner a notice_and_demand for payment of that deficiency on date respondent issued to petitioner a final notice_of_intent_to_levy and notice of your right to a hearing with respect to petitioner’s unpaid deficiency on date petitioner timely submitted to respondent form request for a collection_due_process or equivalent_hearing petitioner’s form in that form petitioner requested an offer-in-compromise in order to resolve his unpaid deficiency and showed his address a sec_741 old tanyard road villa rica georgia petitioner’s old tanyard road address by letter to petitioner dated date and addressed to petitioner’s old tanyard road address date letter a settlement officer 2all section references are to sections of the internal_revenue_code in effect at all relevant times all rule references are to the court’s rules_of_practice and procedure settlement officer with respondent’s appeals_office appeals_office assigned to petitioner’s form acknowledged receipt of that form in the date letter the settlement officer informed petitioner that she had scheduled a telephonic hearing with him pincite p m on date in the date letter the settlement officer asked petitioner to submit to her within days after the date of that letter completed form_656 offer_in_compromise and copies of respective tax returns for his taxable years and that he had filed in her date letter the settlement officer also offered petitioner a face-to-face hearing the settlement officer advised petitioner in her date letter to contact her within days after the date of that letter if he wanted such a hearing or if he wanted to have a hearing via correspondence petitioner did not respond to the settlement officer’s date letter as a result the settlement officer sent a second letter to petitioner dated date and addressed to petitioner’s old tanyard road address date letter in the date letter the settlement officer offered petitioner an additional opportunity to provide her with any information that he wanted her to consider petitioner did not respond to the settlement officer’s date letter on date the appeals_office issued to petitioner at petitioner’s old tanyard road address a notice_of_determination concerning collection action s under sec_6320 and or with respect to petitioner’s taxable_year notice_of_determination the notice_of_determination included an attachment that stated in pertinent part summary and recommendation we could not reach an agreement extend any relief to you or even consider any alternatives to the proposed levy because you did not provide the requested financial information or participate in the scheduled cdp hearing appeals determination is based upon the review of the available information in the collection administrative file the proposed levy action is the appropriate action in this case discussion and analysis verification of legal and procedural requirements the requirements of applicable law or administrative procedures have been met and the actions taken were appropriate under the circumstances other issues raised by the taxpayer you raised no other issues balancing of need for efficient collection with taxpayer concern that the collection action be no more intrusive than necessary you did not respond to the two letters mailed to you and you did not provide the requested financial information necessary to make a determination regarding an alternative means of collection therefore our determination is that the proposed levy action balances the need for efficient collection_of_taxes with your concern that any collection action be no more intrusive than necessary in the amended petition that petitioner filed in this case petitioner alleged i made a legitimate offer-n-compromise proposal that was not accepted by the irs after i appealed i never received official correspondence at my correct address regarding when and where the appeal hearing would be held voice mails were not returned by my contact person in a timely manner - my offer-n-compromise should have been accepted - i do not have the ability to pay - each time you speak with someone at the irs you get different instructions and contradictory advice - correspondence from the irs was repeatedly sent to the wrong address discussion the court may grant summary_judgment where there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law rule b 98_tc_518 aff’d 17_f3d_965 7th cir the court concludes that there are no genuine disputes as to any material facts regarding the issue raised in respondent’s motion as supplemented petitioner does not dispute the existence or the amount of petitioner’s unpaid deficiency in the petition or the amended petition nor would he have been entitled to do so see sec_6330 where as is the case here the validity of the underlying tax_liability is not properly placed at issue the court will review the determination of the commis- sioner of internal revenue for abuse_of_discretion see 114_tc_604 114_tc_176 based upon the court’s examination of the entire record before the court the court finds that the appeals_office did not abuse its discretion in making the determinations in the notice_of_determination the court has considered all of the contentions and arguments of the parties that are not discussed herein and the court finds them to be without merit irrelevant and or moot on the record before the court the court will grant respondent’s motion as supplemented 3petitioner conceded the deficiency for his taxable_year that respondent determined in the notice and that was at issue in the case that he commenced in the court at docket no 12054-06s as a result of that concession the court entered a decision in that case that there was a deficiency of dollar_figure in tax for petitioner’s taxable_year to reflect the foregoing an order granting respondent’s motion as supplemented and decision for respondent will be entered


department of the treasury int ernal revenue service washington d c chief_counsel date number release date uilc cc pa apjp b02 postf-150581-01 internal_revenue_service national_office significant service_center advice memorandum for from associate area_counsel - miami small_business self-employed cc sb mia ashton p trice senior technician reviewer branch administrative provisions judicial practice cc pa apjp subject failure to pay penalty upon reversal of eitc this significant service_center advice responds to your memorandum dated date which we received on date in accordance with sec_6110 this significant service_center advice should not be cited as precedent issue upon the reversal of an earned_income_tax_credit eitc as the result of an examination of a return as of what date should the internal_revenue_service irs assess a failure to pay addition_to_tax conclusion liability for a failure to pay addition_to_tax arising from reversal of an eitc claim cannot arise until after the service has assessed the deficiency arising from the disallowance of the eitc made notice_and_demand for payment and days have elapsed without payment after these events the addition_to_tax would accrue at the rate of percent per month of the amount of tax which remains unpaid until the addition_to_tax reaches a maximum of percent in the aggregate once the liability for the failure to pay begins to accrue it may be assessed up to the amount accrued at the time of assessment the assessment occurs as of the date that the assessment officer signs the summary record of assessment reflecting a taxpayer’s liability for the failure to pay addition_to_tax and the service’s records of assessment should reflect that assessment_date postf-150581-01 facts a taxpayer’s return claiming an eitc is examined the service proposes to disallow an eitc claim in whole or in part which creates a deficiency after a statutory_notice_of_deficiency is issued and the taxpayer defaults or petitions and loses in tax_court service centers assess the deficiency and record the assessment with a transaction code sometimes however service centers are separately showing the reclaiming of part or all of the eitc as a reversal as of the date of filing of the original return as a result a failure to pay addition_to_tax is sometimes calculated from the return_due_date ie the date payment was due in addition service records sometimes reflect that a failure to pay addition_to_tax on the recouped eitc was assessed on the date of the original return analysis failure to pay additions to tax there are two different types of failure to pay additions to tax contained in sec_6651 of the code sub sec_6651 and sec_6651 the addition_to_tax under sec_6651 applies to a taxpayer who reports an amount of tax due on his return but fails to pay it by the payment due_date the addition_to_tax is percent per month of the amount of tax_shown_on_the_return but unpaid for each month that payment is overdue until the addition_to_tax reaches a maximum of percent the addition_to_tax under sec_6651 applies upon the failure to pay any amount in respect of any_tax required to be shown on a return which is not so shown within calendar days from the date of notice_and_demand therefor business days if the amount for which notice_and_demand is made equals or exceeds dollar_figure the addition_to_tax under sec_6651 is percent of the amount of tax stated in the notice_and_demand for each month that the failure to pay continues like the sec_6651 addition_to_tax the addition under sec_6651 may not exceed percent note that a sec_6651 addition_to_tax is calculated from the payment due_date which is generally the same as the due_date for filing the return without regard to extensions of time for filing see sec_6151 in contrast no sec_6651 addition_to_tax can be owed for the period that precede sec_21 calendar days after notice_and_demand for payment of tax is made business days for amounts at or above dollar_figure the sec_6651 addition_to_tax cannot arise by reason of a reversal of an eitc claim as stated above the a addition_to_tax arises only upon the failure to pay the amount shown as tax on a return a reversal of an eitc claim does not change the amount shown as tax on a return we reach the conclusion that reversal of an eitc claim does not change the amount shown as tax on a return by reference to the definition of a deficiency sec_6211 defines a deficiency as the amount of tax imposed that exceeds the amount of tax postf-150581-01 shown on the return therefore if there is a deficiency on a taxpayer’s return the amount of the deficiency is an adjustment to the amount of tax_shown_on_the_return the eitc a credit under sec_32 of the code is specifically included as part of the calculation of a deficiency and cannot be reversed without following deficiency procedures sec_6211 thus an adjustment to an eitc is by definition an adjustment to the amount of tax_shown_on_the_return when an amount of tax owed ie a deficiency is the result of an adjustment to the amount of tax_shown_on_the_return it cannot be included in the calculation of the addition_to_tax under sec_6651 because for purposes of sec_6211 the eitc affects the amount of tax_shown_on_the_return adjustments to the eitc cannot trigger the sec_6651 addition_to_tax conversely an addition_to_tax under sec_6651 can arise from the failure to pay an assessment relating to reversal of an eitc if the service determines that an eitc claim should be reversed in whole or part it must issue a statutory_notice_of_deficiency which can be assessed upon a taxpayer’s default in responding to the notice or upon a favorable final_decision by the tax_court upon assessment the service will issue notice_and_demand for payment which if unpaid for more than days will result in liability for a sec_6651 addition_to_tax arising and continuing to accrue until the taxpayer pays in full or the addition_to_tax reaches its maximum assessment of sec_6651 addition_to_tax an assessment under the internal_revenue_code is essentially a bookkeeping entry made to record a taxpayer’s liability sec_6203 sec_301_6203-1 423_us_161 ndollar_figure the assessment shall be made by an assessment officer signing the summary record of assessment sec_301_6203-1 because liability for the failure to pay addition_to_tax under sec_6651 does not arise until the twenty-second day after the service makes notice_and_demand for payment of the assessment of a reversed eitc assessment of the addition_to_tax cannot properly occur before that date much less the date the original return claiming the eitc is filed the date of assessment is the date the summary record is signed by an assessment officer sec_301_6203-1 service records should reflect that actual date of assessment moreover as noted above the service should be sure to calculate the sec_6651 addition_to_tax only from the twenty- note that at least one case has recognized that assessment of the sec_6651 addition_to_tax need not be made within the three-year period prescribed by sec_6501 in 548_fsupp_686 s d n y the court recognized that requiring assessment of the addition within three years of the filing of a taxpayer’s return would preclude the addition from ever being able to reach its statutory maximum and would frustrate the underlying congressional purposes of passing sec_6651 postf-150581-01 second calendar day eleventh business_day for dollar_figure or more after making notice_and_demand for payment and not to calculate the addition_to_tax from the due_date of the return this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views if you have questions please contact