tcmemo_2009_38 united_states tax_court richard s moulton jr petitioner v commissioner of internal revenue respondent docket no filed date richard s moulton jr pro_se louise r forbes for respondent memorandum findings_of_fact and opinion gale judge respondent determined a deficiency of dollar_figure and a sec_6662 accuracy-related_penalty of dollar_figure with respect to petitioner’s federal_income_tax after a concession the issues for decision are whether dollar_figure petitioner received in in connection with a mediation agreement with his former employer is includible in gross_income and whether petitioner is liable for a penalty under sec_6662 unless otherwise noted all section references are to the internal_revenue_code_of_1986 as in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure all dollar amounts have been rounded to the nearest dollar findings_of_fact some of the facts have been stipulated and are incorporated by this reference at the time the petition was filed petitioner resided in new hampshire petitioner’s employment at the morrell corp petitioner was an employee of the morrell corp which operated an amusement park called story land near north conway new hampshire for approximately years in that capacity he provided financial administrative and supervisory services first under the direction of story land’s original owner and founder and then under the direction of the founder’s son r 1petitioner has conceded that he failed to report dollar_figure in interest_income for stoning morrell jr mr morrell also referred to herein as stoney morrell sometime in or petitioner began having disputes with certain employees of story land that eventually led to an estrangement between petitioner and mr morrell as a result of his difficulties at work petitioner became anxious and depressed in petitioner sought treatment from a psychologist which extended to the fall of the psychologist also sought to mediate the employment dispute on petitioner’s behalf during to no avail petitioner’s termination in the fall of the morrell corp fired petitioner petitioner strongly believed that his dismissal was unjustified in date still aggrieved over the circumstances of his termination petitioner mailed a series of letters to mr morrell and two story land employees which the recipients perceived as threatening violence mr morrell and the two employees obtained temporary restraining orders against petitioner from a state court local newspapers published detailed accounts concerning the allegedly threatening letters and the issuance of the restraining orders in petitioner’s view the claims underlying the restraining orders were exaggerated and unfounded petitioner believed that the adverse publicity coupled with his earlier dismissal had ruined his reputation and his ability to find gainful employment in the area mediation at a hearing on the status of the restraining orders the presiding judge suggested that mr morrell and petitioner engage in professional mediation to resolve their differences a day-long session with a mediator was conducted the mediation session culminated in a mediation agreement it has been stipulated that the purpose of the mediation agreement was to resolve inter alia ‘a painful and questionable termination’ by the morrell corporation mediation agreement the agreement executed on date by petitioner and by mr morrell on behalf of the morrell corp provided in pertinent part stoney morrell’s restraining order against petitioner shall be dismissed marian owen and nancy porath have each indicated that they will also dismiss their restraining orders as a result of this agreement peter malia morrell corp ’s counsel shall fax the agreed upon joint press release to the conway daily sun on date neither party shall have any further comment to the press however both parties reserve the right to respond--in writing or verbally--to factual inaccuracies printed in the press but agree to provide any written comments to peter malia and to discuss the same with peter malia and to allow peter malia time to discuss the same with the other party prior to disseminating such a correction to the press in order to provide petitioner with resource sec_3 to enhance his employment opportunities maintain his health insurance and or enhance his ability to relocate the morrell corporation will pay by check the sum of dollar_figure gross subject_to all applicable state and federal taxes in exchange for the consideration set forth in above petitioner agrees to release and forever discharge the morrell corporation its owners employees and agents from any and all claims and causes of action that he had in the past or may now have in any way related to or arising out of his employment and its termination the morrell corporation agrees to release and forever discharge petitioner from any claims that could arise out of the restraining order docketed as 02-cv-127 settlement payment the morrell corp issued a check to petitioner for dollar_figure on date which petitioner endorsed and cashed shortly thereafter the morrell corp took the position that the dollar_figure it agreed to pay petitioner pursuant to the mediation agreement was taxable wages it subsequently issued petitioner a form_w-2 wage and tax statement for which listed wages of dollar_figure and withholdings in the amounts of dollar_figure and dollar_figure for social_security and medicare respectively the form_w-2 was addressed to petitioner’s residence in north conway new hampshire through the time of the execution of the mediation agreement petitioner did not bring to the attention of mr morrell or the mediator any medical problems he was experiencing or seek compensation_for any medical_expenses other than identifying his need to maintain health_insurance_coverage subsequent medical_care in petitioner received medical treatment for sleeping problems that he attributed to depression in petitioner received medical treatment for elevated blood sugar levels which petitioner attributed to increased stress and some emotional issues over the past few years petitioner’s return petitioner did not consult an accountant lawyer or other professional as to the proper treatment of the mediation proceeds on his federal_income_tax return petitioner did not report on the return any amount he received pursuant to the mediation agreement notice_of_deficiency respondent mailed petitioner a notice_of_deficiency in which he determined that petitioner failed to report dollar_figure in wage income from the morrell corp for respondent further determined that petitioner was liable for a dollar_figure accuracy-related_penalty under sec_6662 for petitioner timely filed a petition for redetermination unreported income opinion we first decide whether petitioner must include in his gross_income the proceeds he received from the morrell corp pursuant to the mediation agreement petitioner contends that the proceeds are excludable from gross_income under sec_104 because they were compensation_for injuries he suffered because of a wrongful termination and subsequent defamation by the morrell corp including injury to his health respondent counters that petitioner is not entitled to exclude the proceeds under sec_104 because the morrell corp did not make the payment on account of physical injuries but intended the payment to be treated as taxable wage income respondent’s determinations in the notice_of_deficiency are presumed correct and petitioner bears the burden of proving that the determinations are in error see rule a 290_us_111 generally gross_income includes all income from whatever source derived see sec_61 sec_1_61-1 income_tax regs while sec_61 broadly applies to any accession to wealth statutory exclusions from gross_income are to be narrowly construed see 515_us_323 504_us_229 348_us_426 petitioner must bring himself within the clear scope of any statutory exclusion see commissioner v schleier supra pincite united_states v burke supra pincite 2petitioner has not claimed or shown entitlement to a shift in the burden_of_proof under sec_7491 the statutory exclusion at issue appears in sec_104 before it was amended by the small_business job protection act of sbjpa publaw_104_188 sec a 110_stat_1838 sec_104 excluded from gross_income amounts received on account of personal injuries or sickness the reference to personal injuries or sickness included nonphysical injuries to the individual such as those affecting emotions reputation or character united_states v burke supra pincite n see 102_tc_116 affd in part and revd in part on another issue 70_f3d_34 5th cir the sbjpa amended sec_104 to exclude from gross_income the amount of any damages other than punitive_damages received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal physical injuries or physical sickness sbjpa sec a emphasis added the sbjpa also amended sec_104 by adding the following flush language for purposes of paragraph emotional distress shall not be treated as a physical injury or physical sickness the preceding sentence shall not apply to an amount of damages not in excess of the amount_paid for medical_care attributable to emotional distress id sec b the foregoing amendments are effective generally for amounts received after date see id sec d 110_stat_1839 taken together the sbjpa amendments eliminate the sec_104 exclusion for damages received on account of emotional distress unless the emotional distress is attributable to a physical injury or physical sickness or except to the extent the damages do not exceed amounts paid for medical_care attributable to emotional distress the legislative_history confirms this view the house bill followed in the conference bill provides that the exclusion_from_gross_income only applies to damages received on account of a personal physical injury or physical sickness the house bill also specifically provides that emotional distress is not considered a physical injury or physical sicknessdollar_figure thus the exclusion_from_gross_income does not apply to any damages received other than for medical_expenses as discussed below based on a claim of employment discrimination or injury to reputation accompanied by a claim of emotional distress because all damages received on account of physical injury or physical sickness are excludable from gross_income the exclusion_from_gross_income applies to any damages received based on a claim of emotional distress that is attributable to a physical injury or physical sickness in addition the exclusion_from_gross_income specifically applies to the amount of damages received that is not in excess of the amount_paid for medical_care attributable to emotional distress __________ it is intended that the term emotional distress includes symptoms eg insomnia headaches stomach disorders which may result from such emotional distress h conf rept pincite 1996_3_cb_741 in interpreting sec_104 the supreme court has held that damages are excludable from gross_income where a taxpayer proves the underlying cause of action giving rise to the recovery is based on tort or tort type rights and the damages were received on account of personal injuries or sickness see commissioner v schleier supra pincite lower courts have applied the foregoing two-pronged test from schleier in interpreting sec_104 as amended in see 422_f3d_684 8th cir affg tcmemo_2004_113 goode v commissioner tcmemo_2006_48 shaltz v commissioner tcmemo_2003_173 henderson v commissioner tcmemo_2003_168 affd 104_fedappx_47 9th cir accordingly the second prong of the schleier test now requires a taxpayer to prove that the damages were received on account of personal physical injuries or physical sickness see lindsey v commissioner supra goode v commissioner supra shaltz v commissioner supra henderson v commissioner supra moreover satisfaction of the second prong requires the taxpayer to show a direct causal link between the damages received and the physical injury or sickness sustained lindsey v commissioner supra pincite see also 340_f3d_1074 9th cir affg in part and revg in part on another issue tcmemo_2002_5 revd sub nom 543_us_426 when determining the tax consequences of a payment made pursuant to a settlement agreement it is the nature of the underlying claim not its validity that determines whether the payment was received on account of a tort type claim for personal injuries see united_states v burke u s pincite 87_tc_1294 affd 848_f2d_81 6th cir 76_tc_116 affd without published opinion 676_f2d_682 1st cir in seeking the nature of the underlying claim the court should consider ‘in lieu of what were the damages awarded ’ robinson v commissioner supra pincite quoting 144_f2d_110 1st cir emphasis added in robinson affg 1_tc_952 the determination of the nature of the underlying claim is a question of fact which is determined by considering the agreement in light of all the facts and circumstances including the claim’s characterization under applicable state law the evidence marshaled the arguments made by the parties and the intent of the payor of the settlement see threlkeld v commissioner supra pincite burditt v commissioner tcmemo_1999_117 citing robinson v commissioner supra pincite see also gross v commissioner tcmemo_2000_342 paramount to this inquiry is the payor’s intent in making the settlement payment see 349_f2d_610 10th cir affg tcmemo_1964_33 robinson v commissioner t c pincite if the settlement agreement expressly allocates the settlement between tort type personal injury damages and other damages it will be respected for tax purposes to the extent that the parties entered into the agreement in an adversarial context at arm’s length and in good_faith see robinson v commissioner supra pincite absent an express allocation in the settlement agreement the most important consideration is the payor’s intent in making the payment see 99_f3d_20 1st cir affg tcmemo_1995_378 knuckles v commissioner supra pincite 88_tc_834 affd without published opinion 845_f2d_1013 3d cir gerard v commissioner tcmemo_2003_320 gross v commissioner supra a were the underlying claims giving rise to the proceeds based on tort or tort type rights we find petitioner meets the first prong of the schleier test having had tort type claims against the morrell corp for wrongful termination and defamation at the time the mediation agreement was executed 3the state of new hampshire recognizes tort claims based on both wrongful termination see 885_fsupp_331 d n h porter v city of manchester a 2d n h cloutier v great atl pac tea co a 2d n h and defamation see 312_f3d_503 1st cir indep mech contractors inc v gordon t burke sons inc a 2d n h the stipulations establish that the mediation agreement was entered into to resolve a questionable termination by the morrell corp petitioner testified credibly as to his view that his abrupt termination after years’ employment was unjustified and that his termination and the unfavorable newspaper coverage of the restraining orders destroyed his reputation in the community finally the mediation agreement was conditioned upon petitioner’s release of all claims against the morrell corp and its owners employees and agents in any way related to or arising out of his employment and its termination on these facts we are satisfied that petitioner had underlying claims based on tort or tort type rights he therefore satisfies the first prong of the schleier test b were the proceeds received on account of personal physical injuries or physical sickness the second prong of the schleier test requires that the amounts to be excluded from income be received on account of personal physical injuries or physical sickness as noted to satisfy this prong petitioner must show a direct causal link between the damages received and a personal physical injury or sickness sustained while the mediation agreement does not contain express allocations to specific claimed injuries we find that when read in context the agreement is directed at wrongful termination and to a lesser extent possible injury to petitioner’s reputation although the agreement does not acknowledge that petitioner was the victim of a wrongful termination it has been stipulated for purposes of this case that the termination was questionable the agreement states that the morrell corp will pay petitioner dollar_figure i n order to provide petitioner with resources to enhance his employment opportunities maintain his health insurance and or enhance his ability to relocate these purposes suggest a payment in the nature of severance the agreement also expressly provides that in exchange for the dollar_figure petitioner agrees to release and forever discharge the morrell corporation its owners employees and agents from any and all claims and causes of action that he had in the past or may now have in any way related to or arising out of his employment and its termination this language demonstrates a clear nexus between petitioner’s possible claim of wrongful termination and the amounts he received pursuant to the agreement finally the agreement provides that the dollar_figure gross payment is subject_to all applicable state and federal taxes and within week of the agreement’s execution petitioner accepted a check for dollar_figure in satisfaction of the morrell corp ’s obligation taken together we believe these provisions and the surrounding circumstances demonstrate that petitioner and the morrell corp agreed to settle petitioner’s wrongful termination claim by the morrell corp ’s providing dollar_figure to petitioner in the nature of a severance payment--that is as taxable wages we conclude that the mediation agreement also had a secondary purpose of addressing potential injury to petitioner’s reputation petitioner believed that his abrupt termination as well as the publicity surrounding the restraining orders had damaged his reputation the mediation agreement addressed this concern albeit implicitly by mandating carefully choreographed communications with the media concerning the dispute between petitioner and the morrell corp and its resolution and by the requirement that the restraining orders be dismissed on the basis of the preponderance_of_the_evidence we believe that petitioner received the dollar_figure proceeds on account of a wrongful termination petitioner has not demonstrated any direct causal link between the dollar_figure proceeds and a personal physical injury or physical sickness to the contrary although petitioner testified that he became depressed and suffered various other maladies as a result of his termination and related events he conceded that he had not brought any medical problems to the attention of mr morrell or the mediator or sought compensation_for any medical_expenses in connection with the mediation other than identifying his need to maintain his health insurance thus as payor the morrell corp was unaware of any medical claims and could not have intended to compensate for them see sodoma v commissioner tcmemo_1996_275 affd without published opinion 139_f3d_899 5th cir foster v commissioner tcmemo_1996_26 affd without published opinion 122_f3d_1071 9th cir galligan v commissioner tcmemo_1993_605 the claims of wrongful termination and defamation that we believe prompted the consideration petitioner received under the mediation agreement were not physical injuries to petitioner or physical sickness to the extent petitioner may have suffered depression sleep disorders or elevated blood sugar levels that he attributed to heightened stress from his job termination and its aftermath those conditions fall within the category of emotional distress that shall not be treated as a physical injury or physical sickness for purposes of the exclusion provided in sec_104 sec_104 flush language see also h conf rept supra pincite n c b pincite it is intended that the term emotional distress includes symptoms eg insomnia headaches stomach disorders which may result from such emotional distress finally while there is evidence that petitioner was treated by a psychologist before during and after the year in issue and that he received other medical_care in and there is no substantiation in the record of any actual expenditures_for medical_care thus petitioner has not shown eligibility for exclusion of any amount under the last sentence of the flush language of sec_104 c conclusion we conclude on the basis of the preponderance_of_the_evidence that no part of the dollar_figure proceeds petitioner received in exchange for a release of any claims he might have had against the morrell corp was received by him on account of personal physical injuries or physical sickness we accordingly sustain respondent’s determination that petitioner had unreported taxable wage income of dollar_figure in accuracy-related_penalty we now consider whether petitioner is liable for the accuracy-related_penalty under sec_6662 respondent bears the burden of production with respect to petitioner’s liability for the sec_6662 penalty see sec_7491 in order to meet that burden respondent must offer sufficient evidence to indicate that it is appropriate to impose the accuracy-related_penalty see 116_tc_438 once respondent meets his burden of production petitioner bears the burden of proving error in the determination including establishing reasonable_cause or other exculpatory factors id pincite sec_6662 and b imposes a penalty of percent on the portion of an underpayment_of_tax attributable to a substantial_understatement_of_income_tax pursuant to sec_6662 the term understatement is defined as the amount of tax required to be shown on the return for the taxable_year over the amount of tax_shown_on_the_return for the taxable_year a substantial_understatement arises where the understatement exceeds the greater of percent of the tax required to be shown on the return for the taxable_year or dollar_figure sec_6662 the sec_6662 penalty is not imposed on any portion of an underpayment as to which the taxpayer acted with reasonable_cause and in good_faith sec_6664 higbee v commissioner supra pincite whether the taxpayer acted with reasonable_cause and in good_faith depends upon all the pertinent facts and circumstances including the taxpayer’s reasonable reliance on a professional tax adviser the taxpayer’s efforts to assess his or her proper tax_liability and the knowledge and experience of the taxpayer lindsey v commissioner tcmemo_2004_113 sec_1_6664-4 income_tax regs petitioner’s failure to include in his gross_income the dollar_figure gross payment and the dollar_figure in interest_income resulted in a dollar_figure understatement of income_tax for because the understatement exceeds the greater of percent of the tax required to be reported on petitioner’s tax_return or dollar_figure respondent has satisfied his burden of production under sec_7491 petitioner claims that he is not subject_to the accuracy-related_penalty because he concluded reasonably and in good_faith that the proceeds were excludable from gross_income under sec_104 as payments for personal injuries however petitioner has not shown that he undertook any investigation of a basis for excluding the dollar_figure proceeds when he filed his return in petitioner’s apparent circumstances this was a significant sum of money that warranted greater diligence other factors gave petitioner reasonable notice that his treatment of the proceeds as nontaxable was subject_to doubt first the mediation agreement petitioner signed stated that the payment would be subject_to all applicable state and federal taxes second the morrell corp mailed a form_w-2 characterizing the dollar_figure gross payment as wages to petitioner’s residence and petitioner has offered no evidence to support an inference that he did not receive it nonetheless petitioner failed to seek any guidance as to the correct treatment on his return of this very sizable amount until he received the notice_of_deficiency considering all the facts and circumstances we conclude that petitioner has not shown reasonable_cause with respect to any portion of the underpayment we shall therefore sustain respondent’s determination of the accuracy-related_penalty under sec_6662 to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc psi - plr-137301-02 date december re legend taxpayer trust trustee company date date year year a b c m dollars n dollars o dollars cash gift x shares y shares accounting firm lawyer - - - - - - - - - - - - - - - - - - - dear this is in response to your letter dated date and other correspondence requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an allocation of generation-skipping_transfer gst tax exemption plr-137301-02 the facts and representations submitted are summarized as follows on date taxpayer established trust an irrevocable_trust for the benefit of her children and their lineal_descendants the trustee of trust is trustee article two of trust provides that the trustee shall divide the property initially transferred to trust between the exempt share and the nonexempt share for generation-skipping tax purposes in accordance with the provisions of article three if an additional gift is made to trust after the initial transfer to trust the trustee shall also divide the property between the exempt share and the nonexempt share in accordance with the provisions of article three article two paragraph a provides that the trustee shall divide the trust estate of the exempt share into as many equal shares as there are children of the trustor then living and children then deceased who have left issue then living the trustee shall allocate one equal share to each then living child which share shall be held in a separate trust for the benefit of such child and administered as provided in paragraph b the trustee shall allocate one equal share to the then living issue of each deceased child which share shall be further divided into subshares among such issue by right of representation each subshare shall be allocated to a descendant of the trustor and shall be held in a separate trust for the benefit of such descendant and administered as provided in paragraph sec_2_1 b article two paragraph b provides that the trustee shall pay to or apply for the benefit of the beneficiary from time to time as much of the net_income of the trust estate as the trustee in the trustee’s discretion deems necessary for the beneficiary’s health support maintenance and education after taking into consideration any other resources available to the beneficiary outside of the trust and known to the trustee any income not distributed shall be accumulated and added to principal article two paragraph b provides that the trustee may also pay to or apply for the benefit of the beneficiary from time to time as much of the principal of the trust estate as the trustee in the trustee’s discretion deems necessary for the beneficiary’s health support maintenance and education after taking into consideration any other resources available to the beneficiary outside of the trust and known to the trustee article two paragraph sec_2_1 b provides that trust shall terminate upon the twentieth anniversary of the date of execution of this instrument notwithstanding the preceding sentence the trustee in the trustee’s discretion may terminate such trust at any earlier time when such trust is not a grantor_trust described in subpart e of part i of subchapter_j of subtitle a of the internal_revenue_code upon termination the trustee shall distribute the trust estate as follows if the beneficiary of trust is a or a descendant of a then the trust estate of such trust shall be distributed to the a exempt plr-137301-02 trust dated on the date of trust the trust provides identical terms for b and c and their respective b exempt trust and c exempt trust article three provides that property allocated to the exempt share shall consist of an amount equal to i the gst_exemption as defined in sec_2631 of the individual whose gst_exemption is being allocated ii reduced by the amount of such individual’s gst_exemption previously allocated by such individual or such individual’s personal representative to gifts made directly or by gift-splitting during the life of such individual including allocations attributable to prior transfers to trust any remaining balance of property transferred to trust shall be allocated to the nonexempt share article six paragraph dollar_figure provides that it is the intention of the trustor that trust be interpreted in a manner consistent with the maximum use of any unused generation- skipping transfer exemption of the trustor which may be available under sec_2631 with respect to any transfer to or distribution from trust and the provisions of trust shall be interpreted accordingly on date taxpayer transferred the following to trust x shares of series a common_stock of company valued for gift_tax purposes at m dollars y shares of common_stock of company valued for gift_tax purposes at n dollars and cash gift the total value of the listed transfers as of the date of transfer is o dollars taxpayer had a long-standing relationship with accounting firm taxpayer retained accounting firm’s services to prepare all of her tax returns for year including her personal income_tax return and gift_tax_return accounting firm however failed to file taxpayer’s gift_tax_return reporting the year transfers and allocating a portion of taxpayer’s gst_exemption to the transfers lawyer drafted trust in year in year lawyer requested a copy of taxpayer’s year gift_tax_return from accounting firm and learned that it was never prepared or filed you have requested the following rulings that the service grant an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-1 and sec_301_9100-3 to allocate taxpayer’s gst_exemption under sec_2642 to the transfers to trust in year and that such allocations are to be made based upon the value of the transferred assets to trust as of date the date of the original transfer sec_2501 imposes a tax on the transfer of property by gift during each calendar_year by any individual plr-137301-02 sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is generally defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of the gst_exemption allocated to the trust or to property transferred in a direct_skip and the denominator is the value of the property transferred to the trust or involved in the direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 united_states gift and generation-skipping_transfer_tax return sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period plr-137301-02 sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation or election shall be treated as if not expressly prescribed by statute sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin notice_2001_50 i r b provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election plr-137301-02 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore taxpayer is granted an extension of time of days from the date of this letter to make an allocation of taxpayer’s available gst_exemption with respect to taxpayer’s transfers on date to trust the allocation will be effective as of date the date of the transfers to trust and the value of the transfers to trust for purposes of determining the amount of gst_exemption to be allocated to trust shall be its value as finally determined for purposes of chapter the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein we express or imply no opinion on the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent this election should be made on a supplemental form_709 united_states gift and generation-skipping_transfer_tax return and filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the supplemental form_709 a copy is enclosed for this purpose sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b1-plr-112317-02 date may legend x a b date dear this letter responds to a request submitted on behalf of x dated date seeking a written_determination allowing an extension of time for x to make an election under sec_754 of the internal_revenue_code facts a wife of b died on date b is a partner of x under controlling state law a fraction of b’s interest in x passed to a’s estate x filed its partnership return for the year of a's death without a sec_754 election having relied on a professional tax_return_preparer who failed to advise x of the availability and benefits of such an 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 under sec_754 a partnership may elect to adjust the basis of partnership property where there is a distribution_of_property or a transfer of a partnership_interest the election applies to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year that the election applies and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides that an election plr-112317-02 under sec_754 is 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 no later than the time for filing for the taxable_year under sec_301_9100-1 of the procedure and administration regulations 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 code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose deadline is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 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 interest of the government conclusion based on the information submitted and the representations made therein 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 sixty days following the date of this letter to make a sec_754 election the election should be made in a written_statement filed with the applicable service_center a copy of this letter should be attached to the statement filed a copy of this letter is enclosed for that purpose if the statutory period of limitation on assessment or filing a claim_for_refund has expired for any year subject_to this grant of late relief and as a condition of this late relief x must adjust the basis_of_property and b must adjust b's basis in x to reflect any additional_depreciation that would have been allowable under sec_743 if the sec_754 election had been timely made any depreciation deduction allowable for an open_year is to be computed based upon the remaining useful_life and using property basis as adjusted by the greater of any depreciation deduction allowed_or_allowable in any prior year had the sec_754 election been timely made except as specially set forth above we express no opinion concerning the federal_income_tax consequences of the transactions described above under any other provision of the code specifically we express no opinion as to whether or not partnership is a partnership for tax purposes plr-112317-02 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this written_determination will be sent to the taxpayer representatives sincerely yours paul kugler assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for purposes


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa postn-134261-08 uilc date date to duane thomas collection policy field payment compliance from peter j devlin branch chief procedure administration subject sale of property following detl and cdp rights this chief_counsel_advice responds to your date request for assistance this advice may not be used or cited as precedent issues how do post-seizure collection_due_process rights affect the sale process following a seizure of tangible_property under a disqualified employment_tax levy conclusions after a disqualified employment_tax levy detl is served the taxpayer is given an opportunity for a collection_due_process cdp hearing when appeals receives a detl case it should promptly confirm whether the detl was proper under the law if the detl was not proper appeals must contact the client to discuss the matter at the cdp hearing the taxpayer may among other things challenge the appropriateness of collection actions and or offer collection alternatives bond oic ia etc sec_6330 ii iii although there are no legal restrictions against the continuation of the sale of tangible_property seized under a detl if the taxpayer raises a non-frivolous argument addressing either of these issues and requests a stay of the sale appeals should exercise its discretion in determining whether to stay the sale if a notice of sale has been published at the time the taxpayer requests the stay of sale the sale may be adjourned for up to one month from the original date of sale sec_301 c postn-134261-08 law and analysis sec_6330 was amended by the small_business and work opportunity tax act of to permit a levy to collect employment_taxes without giving a taxpayer a pre-levy cdp_notice if the levy is a detl a detl is a levy to collect employment_tax when the person subject_to the levy has requested a hearing under sec_6330 with respect to unpaid employment_taxes arising in the two year period prior to the taxable_period for the current levy sec_6330 we believe the detl provisions were enacted in order for the service to more effectively deal with tax pyramiders who are using multiple cdp hearings to merely delay collection there are three situations where a taxpayer would have a right to a post-seizure cdp proceeding the first situation occurs where the service has made a finding under the last sentence of sec_6331 that the collection of tax is in jeopardy the second situation occurs when a levy is served upon a state to collect a federal tax_liability from a state tax_refund and the third situation occurs when a detl is served sec_6330 sec_6330 does not address the sale of the property following a detl seizure if there is a jeopardy_levy or assessment sec_7429 provides for administrative and judicial review of the actions of the service the taxpayer will also have an opportunity to request a cdp hearing under sec_6330 the provisions of sec_7429 are not applicable to property seized under a detl not a jeopardy_levy or assessment congress also enacted sec_6863 which provides provisions for a stay of sale of property seized following a jeopardy_assessment pending a tax_court decision a similar provision was not enacted for detls when tangible_property is seized from a taxpayer the collection process is not concluded until the property is sold sec_6331 and sec_6335 once property is seized notice of the seizure must be given to the owner of the property as soon as practicable sec_6335 after notice of seizure is given notice of the sale must likewise be given as soon as practicable sec_6335 the sale must then take place not less than days nor more than days from the time notice of sale is given sec_6335 if an adjournment of the sale best serves the interest of the united_states or the taxpayer the sale may be adjourned for no more than one month after the date fixed in the original notice of sale sec_301_6335-1 if the property is not sold within the time frame prescribed by the code and regulations the property is released to the owner of the property see sec_301_6335-1 44_f3d_795 9th cir it may be possible for the taxpayer to voluntarily waive the said statutory and regulatory requirements id pincite dicta suggests that that a taxpayer may stipulate to a delay beyond the one month adjournment in sec_301_6335-1 presently the service does not have any procedures in place to effectuate a waiver postn-134261-08 the taxpayer is given an opportunity for a cdp hearing within a reasonable_time after the detl sec_6330 there are no legal restrictions against the sale of property seized under a detl it is our position that the tax_court in a cdp proceeding has no jurisdiction to review the service’s detl seizure and sale procedures and actions if the court was to review the levy action the sole focus of the court should be whether appeals abused its discretion in deciding that future levies for the detl module may proceed during the cdp hearing appeals must consider collection alternatives and any challenges to the appropriateness of the collection action such as whether the taxpayer has previously requested a cdp hearing for employment_taxes in the two years prior to the current levy period sec_6330 if the taxpayer raises non-frivolous arguments such as a collection alternative or challenges the appropriateness of the collection action and requests a stay of sale of the seized property while discussions take place appeals should exercise its discretion in determining whether to stay the sale if the taxpayer does not request a stay of sale but appeals determines that the detl was not appropriate appeals should immediately contact the client however since we believe the purpose of a detl is to prevent tax pyramiders from using multiple cdp hearings to delay collection the general_rule should be that sales will not be delayed if appeals determines that they would like to stay a sale they should look at factors such as past compliance history of the taxpayer including history of submission of collection alternatives and compliance as with jeopardy levies if the property is perishable or the cost of storing and maintaining the property will reduce the net_proceeds appeals should take this into consideration when determining whether to stay the sale where only frivolous arguments are being raised or the taxpayer has a history of defaulting with respect to collection alternatives the sale should not be stayed if the notice of sale has already been published the sale can be adjourned for no more than one month after the original sale date as stated above it may be possible for a taxpayer to waive the one month requirement case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions


internal_revenue_service number release date index number ------------------------------------------------------------ -------------------- --------------------------------- ------------------------------------------ re ------------------------------ 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 b04 plr-137218-15 date date legend decedent date spouse date --------------------- -------------------------- -------------------- -------------------- dear ------------------------------ this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election plr-137218-15 it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during his lifetime you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-137218-15 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 plr-137218-15 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void 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-137218-15 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 associate chief_counsel passthroughs special industries by lorraine e gardner lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter 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 intl b02 plr-124172-08 date september ty ------- ty ------- legend ---------------------- taxpayer --------------------------------------------------- year year year fc country x country y trust ------- ------- ------- ---------------- ------------------ ----------- -------------------------- trustee o trustee r ---------------------------- ------------------------------ law firm p law firm q ------------------------------------------------------------------------------------------ ---------------------- ---------------------------------------------------------- dear ------------------ this is in response to your letter received by our office on date submitted by your authorized representative requesting the consent of the commissioner of the internal_revenue_service to make a retroactive qualified electing plr-124172-08 fund qef election under sec_1295 of the internal_revenue_code code and sec_1_1295-3 with respect to your investment in fc the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalties of perjury statement executed by the appropriate parties while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination facts taxpayer is a u s citizen and a named beneficiary of the trust established under the laws of country x by taxpayer's grandmother a citizen and resident of country y in year the trust acquired shares in fc a corporation organized under the laws of country y at all times since its formation the trust was administered and managed by various foreign nationals who served as the trustees of the trust trustee o who served as a trustee of the trust at all times since inception is an attorney with substantial experience in transnational tax planning and was a partner at law firm p during all the years at issue trustee o is competent to render international tax_advice trustee o and the other trustees had full access to all the records of the trust and trustee o was aware at all relevant times that taxpayer resided permanently in the united_states taxpayer is not a tax professional and has no experience in international tax matters taxpayer represents that as a beneficiary of the trust taxpayer had no control_over the assets of the trust and relied on the trustees to manage the assets of the trust at all times the trustees and in particular trustee o never informed taxpayer that the trust held shares of fc that fc was a passive_foreign_investment_company pfic under sec_1297 of the code for u s federal_income_tax purposes and of the consequences of such investment and of the possibility of making any elections qef or otherwise with respect to such shareholdings for u s federal_income_tax purposes in year after the death of taxpayer's father taxpayer engaged law firm q and others to determine the extent of the family's assets in year during its evaluation of the trust's assets law firm q determined that fc had been a pfic since year and informed taxpayer of fc's characterization as a pfic at that time taxpayer has submitted an affidavit signed under penalties of perjury describing the events that led to the failure to make the qef election by the election due_date plr-124172-08 including the role of the trustees taxpayer has also submitted affidavits of trustee o and trustee r corroborating the representations made by taxpayer taxpayer represents that as of the date of this request_for_ruling the pfic status of fc has not been raised by the irs on audit for any of the taxable years at issue ruling requested taxpayer requests the consent of the commissioner of the internal_revenue_service to make a retroactive qef election with respect to fc for year under sec_1_1295-3 law sec_1295 of the code provides that any pfic shall be treated as a qef with respect to a taxpayer if an election by the taxpayer under sec_1295 applies to such company for the taxable_year and the company complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company under sec_1295 a qef election may be made for any taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations such an election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic under sec_1_1295-3 a taxpayer may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united state sec_3 government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe plr-124172-08 the events which led to the failure to make a qef election by the election due_date the discovery of such failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with taxpayer’s ruling_request we conclude that taxpayer has satisfied sec_1_1295-3 accordingly consent is granted to taxpayer to make a retroactive qef election with respect to fc for year provided that taxpayer complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election this private_letter_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 a copy of this ruling must be attached to any_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer's authorized representative sincerely ethan a atticks senior technical reviewer branch international cc


internal_revenue_service number release date index numbers ------------------------------------ -------------------------------- ---------------------------- ----------------------------------- --------------------- department of the treasury washington dc person to contact ---------------------- id no ------------- telephone number -------------------- refer reply to cc psi b03 - plr-139925-07 date date -------------------------------------------------------------------------------- ---------------------------------------- ---------------------------------------------------- --------------------------------------------------------------- ------------------------------------------------------- legend company sub ----------------------------------------------------------- fund business ------------------------------------------------------------------------------------------------------------------ regions a ----------------------- ----------------------------------------------------------- b ------------------------------ ----------------------------------------------------------- c ----------------------------------------------------------- d ----------------------------------------------------------- e ----------------------------------------------------------- country ------------------------------------- -------------------------------- ----------------- ---------- ------- ----------- ----------------- --------------------------- we received a letter dated date submitted on behalf of e the information submitted discloses that in a company formed and sponsored plr-139925-07 country country a b dear ---------------- requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be classified as a disregarded_entity for federal tax purposes this letter responds to that request facts sub a fund to focus on business in regions in pursuit of its business purposes fund acquired directly or indirectly entities a b c d and e the entities a is a country entity which owns c a country entity b is a country entity which owns d and e also country entities company and sub intended the entities to be disregarded entities for federal tax purposes effective on b however each of the entities inadvertently failed to timely file form_8832 entity classification election law and analysis classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 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 b 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 sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 sec_301_7701-3 provides that except as provided in sec_301 sec_301_7701-3 provides in part that a business_entity that is not plr-139925-07 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_9100-1 through provide the standards the sec_301_7701-3 provides in part that an election made under sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 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 on form_8832 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 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 an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or an announcement published in the internal_revenue_bulletin commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the granting of relief will not prejudice the interests of the government conclusions requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied consequently e is granted an extension of time of days from the date of this letter for electing under sec_301_7701-3 to be treated as a disregarded_entity effective b e must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be based on the facts and representations submitted e has established that the plr-139925-07 except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election sec_6110 of the internal_revenue_code this ruling may not be used or cited as precedent being forwarded to taxpayer’s authorized representative pursuant to a power_of_attorney on file with this office a copy of this letter is this ruling is directed only to the taxpayer requesting it according to sincerely s william p o’shea associate chief_counsel passthroughs special industries enclosures copies of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service p o box irs cincinnati oh release number release date uil code date july employer id number contact person id number contact telephone number form you must file tax years dear this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final because you don’t qualify as a tax-exempt_organization under sec_501 of the code donors can’t deduct contributions to you under sec_170 of the code you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action we'll also notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed determination_letter under sec_6104 of the code you should contact your state officials if you have questions about how this determination will affect your state responsibilities and requirements letter rev catalog number 47632s if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 redacted letter final adverse determination under sec_501 - no protest letter rev catalog number 47632s department of the treasury internal_revenue_service irs p o box cincinnati oh legend b state c date dear date date employer id number contact person id number contact telephone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for the reasons described below facts you incorporated in the state of b on c your organizing document states you are organized for purposes that quality for exemption from federal income taxes under sec_501 of the code and for the following specific purposes e e to promote buying local b agricultural products within the restaurant and hospitality industry and to match the demand for b-raised agricultural products with supply from local farms to serve as a clearinghouse of information regarding current supplies of agricultural products and to consult with restaurants on their options for sourcing local agricultural products to develop an infrastructure for farms to get b-grown agricultural products to market in b through logistics support to increase the amount of locally sourced agricultural products sold and eaten in b boosting employment farm revenue and overall public health to assist farms in promoting themselves to the public and to advocate for the production and provision of locally grown agricultural products through legislative and policy advocacy in addition to developing grassroots support letter rev catalog number 47630w to achieve your stated purposes you plan to operate food hubs across the state of b where you receive locally grown food that meets the needs of restaurants and retailers you confirm local produce needs from restaurants and retailers and use the information to help farms in your network_plan their production for the season once the crops are harvested you receive them from the local farmers repackage and then deliver them to the buyers you provide planning warehousing sales marketing distribution and communication services to small farms so farmers can focus on growing food you plan to build a network of growers by visiting farms and entering into signed agreements with farmers vendors you initially identified over small farms in b that could be potential partners and began an inventory of what agricultural products are currently being produced in b the terms of the agreement specify certain conditions that must be met by the farmer the agricultural products delivered to you are only products that have been grown on the farm listed in the agreement the farmer agrees to pack the products in adherence to quality standards listed as us grade and the agricultural products must be delivered to you within hours of harvest you also have the right to refuse product that does not fall into a us grade category you explained that there is a demand by both restaurants and local farmers for your services local farmers have very little time to market themselves to engage with social media to build websites or to reach out to restaurants directly most end up taking their harvest to regional brokers where they know it will be loaded into trucks and taken all over the country chefs and restaurant operators would like to be able to explain where the ingredients in their dishes originate the restaurants and retailers you sell to know that local food that was picked recently tastes better has more nutrients is more genetically diverse generally safer easier on the environment and supports the local economy operating food hubs in areas across the state also assists with transportation costs for smail farmers restaurants and retailers your start-up funding will be from a small_group of donors and pending grant applications you described yourself as unlike many nonprofit_organizations that have to annually raise funds you plan to become self- sustaining by the end of your third year of operations by selling your products to restaurants and retailers law sec_501 of the code provides that corporations may be exempted from tax if they are organized and operated exclusively for charitable or educational_purposes and no part of their net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 provides that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense and includes the relief of the poor and distressed or of the under privileged as well as the advancement of education letter rev catalog number 47630w in revrul_72_369 1972_2_cb_245 an organization was formed to provide managerial and consulting services for organizations described in sec_501 of the code to improve the administration of their charitable programs the organization enters into agreements with unrelated sec_501 organizations to furnish managerial and consulting services on a cost_basis this ruling stated that an organization is not exempt merely because its operations are not conducted for the purpose of producing a profit to satisfy the ‘operational test ’ the organization's resources must be devoted to purposes that qualify as exclusively charitable within the meaning of sec_501 and the applicable regulations providing managerial and consulting services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit the fact that the services in this case are provided at cost and solely for exempt_organizations is not sufficient to characterize this activity as charitable within the meaning of sec_501 furnishing the services at cost lacks the donative element necessary to establish this activity as charitable in better business bureau of washington d c inc v united_states 326_us_179 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy a claim for exemption regardless of the number or importance of truly exempt purposes in 70_tc_352 the court found that a corporation formed to provide consulting services did not satisfy the operational_test under sec_501 of the code because its activities constituted the conduct_of_a_trade_or_business that is ordinarily carried on by commercial ventures organized for profit its primary purpose was not charitable educational or scientific but rather commercial the court stated that although an organization is not disqualified from tax-exempt status solely because its primary activity constitutes a business when it conducts a business with an apparently commercial character as its primary activity that fact weighs heavily against exemption the court also found that competition with commercial firms is strong evidence of the predominance of non-exempt commercial purposes in living faith inc v comm’r t c m aff'd 950_f2d_365 cir the court wrote that the activities were conducted as a business and the organization was in direct competition with other restaurants and health food stores thus it did not qualify for exemption under sec_501 of the code the appellate court stated the factors that the court relied on to find commerciality and thus offered the best contemporary explanation of the commerciality doctrine these factors included the organization sold goods and services to the public the organization was in direct competition with for profit businesses food stores and restaurants the prices set by the organization were based on pricing formulas common in retail food businesses the organization utilized promotional materials and commercial catch phrases to enhance sales the organization advertised its services and food the organization did not receive any charitable_contributions in 283_fsupp2d_58 d d c the court relied on the commerciality doctrine in applying the operational_test because of the commercial manner in which this organization conducted its activities the court found that it was operated for a nonexempt commercial purpose rather than for an exempt_purpose the court stated that among the major factors courts have considered in assessing commerciality are competition with for profit commercial entities extent and degree of below cost services provided pricing policies and reasonableness of financial reserves additional factors include inter alia whether the organization uses commercial promotional methods eg advertising and the extent to which the organization receives charitable donations letter rev catalog number 47630w application of law you are not described in sec_501 of the code because you are not operating exclusively for charitable purposes as required under sec_1_501_c_3_-1 you were formed to promote local agricultural products within the restaurant and hospitality industry by establishing and operating food hubs across the state ‘ you are not described in sec_1_501_c_3_-1 because more than an insubstantial part of your activities are devoted to non-exempt purposes the provision of food hubs that assist with warehousing inarketing repackaging sales and distribution services are not charitable educational or religious activities within the meaning of sec_501 of the code you are not described in sec_1 c - d because your activities do not further a charitable or educational purpose your clientele consists of farmers restaurants and retailers you are like the organization described in revrul_72_369 because you are operating in a commercial manner a substantial portion of your activities consists of soliciting agreements with farmers in order to receive timely delivery of agricultural products that are repackaged and sold to restaurants and retailers you provide warehousing sales marketing and distribution services although you did not specify the fees for your services you plan for your food hubs to become self-sustaining by selling agricultural products to restaurants and retailers the organization described in this ruling was conducting commercial services only for organizations exempt under sec_501 of the code and was still found to be conducting commercial activities the fact that you sell agricultural products to restaurants and retailers shows that you are operated in even more of a commercial manner than the organization described in this ruling because you are primarily engaged in the collection repackaging and resale of agricultural products you are not operating for one or more exempt purposes to be exempt under sec_501 of the code an organization must be both organized and operated for one or more exempt purposes specified in the section although exclusively does not mean solely or without exception the presence of a single nonexempt purpose if substantial will preclude exemption regardless of the number or importance of exempt purposes better business bureau an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more purposes specified in sec_501 you are operating like the organization in b s w group because you are substantially engaged in the commercial activity of receiving repackaging marketing and selling agricultural products much like the organization described in in living faith you are operating as a business and are in direct competition with other agricultural wholesale businesses in addition you will be entirely self-sustaining by selling your repackaged products to restaurants and retailers these activities constitute the conduct of a commercial business of the sort which is ordinarily carried on by enterprises organized for profit in airlie foundation the court relied on the commerciality doctrine in applying the operational_test because of the commercial manner in which this organization conducted its activities the court found that it was operated for a nonexempt commercial purpose rather than for an exempt_purpose in the same way you are operating for nonexempt commercial purposes and do not qualify for exemption under sec_501 of the code letter rev catalog number 47630w your position you explained that you work with b farmers who wish to sell agricultural products to restaurants and retailers in their region currently there are no mechanisms available for farmers to connect with local restaurants or hospitality venues through the food hubs you provide a service that helps farmers sell to local restaurants or hospitality venues otherwise farmers are forced to sell to large regional organizations which may resell their produce in markets nationally or internationally you also assist with transportation costs for small farmers restaurants and retailers by establishing food hubs in various regions across the state you will be a bridge between individual farmers and businesses our response to your position although you provide a service for local farmers restaurants and retailers your operations are commercial in nature and do not achieve a charitable purpose conclusion based on the facts and information provided you are not operated exclusively for exempt purposes rather you ate operating for substantial non-exempt commercial purposes and do not qualify for exemption under sec_501 of the code if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with an explanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative e one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete letter rev catalog number 47630w your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we'll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we'll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we'll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh ‘you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements letter rev catalog number 47630w you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosure publication letter rev catalog number 47630w


department of the treasury internal_revenue_service washington d c jul number info release date index no conex-137928-02 cc psi b8 dear this letter refers to your inquiry dated date on behalf of your constituent stating that wrote because he received a letter from could no longer give his fire company a tax exemption for diesel_fuel because of a new federal regulation as you requested i am enclosing a copy of my i responded directly to no new federal_law or regulation affects eligibility for response i told an exemption and while his current supplier of diesel_fuel is evidently unwilling to sell diesel_fuel at a tax-excluded price the fire company may be able to find a new supplier that will i hope this information is helpful if you have any questions please contact me at sincerely associate chief_counsel passthroughs and special industries richard a kocak chief branch by enclosure department of the treasury internal_revenue_service washington d c jul index no dear this letter refers to your recent inquiry to congressman which he forwarded to us for response you forwarded congressman a letter dated date from the letter from states it can no longer give your fire company a tax exemption for diesel_fuel because of a new federal regulation effected on date congressman asked us to explain why this change was made no new federal_law or regulation affects eligibility for an exemption from the excise_tax on diesel_fuel the irs ruled that nonprofit volunteer fire departments fall within the exemption the internal_revenue_code the code provides for liquid fuels used exclusively by states and their political subdivisions revenue_ruling copy enclosed while diesel_fuel may be sold to a volunteer fire company at a tax-excluded price the only person that can claim a refund_or_credit for the tax on that diesel_fuel is its registered ultimate vendor sec_6427 of the code we do not have believes possibly mistakenly that it does not enough facts but perhaps qualify as a registered ultimate vendor consequently it is not selling the fuel to your volunteer fire company at a tax-excluded price while your current supplier is evidently unwilling to sell diesel_fuel at a tax-excluded price you may be able to find a different vendor that will it would be helpful if you asked the prospective new supplier if it is a registered ultimate vendor willing to sell the diesel_fuel at a tax-excluded price i hope this information is helpful if you have any questions please contact me at sincerely associate chief_counsel passthroughs and special industries by richard a kocak chief branch enclosure cc


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 1-plr-112171-99 date date legend x d1 this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 x intended to be treated as an s_corporation for federal_income_tax purposes effective on d1 but the s election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that tax_year x did not file a timely election to be treated as an s_corporation under sec_1362 effective on d1 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely signed dianna k miosi dianna k miosi chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes