t c no united_states tax_court john d shea petitioner v commissioner of internal revenue respondent docket nos filed date p and his wife filed joint returns for and p submitted a delinguent return for that was filed as a joint_return r determined that p underreported business receipts for and based on deposits to p's bank accounts and also disallowed business deductions claimed on p's returns in the notice_of_deficiency for r determined that p's proper filing_status for was married_filing_separately even though p and his wife remained married throughout r did not allocate one-half of p's income for to p's wife pursuant to california community_property law sec_66 i r c authorizes r to disallow the benefits of any community_property law to p if p acted as if he were solely entitled to the income in question and failed to notify his wife of the nature and amount of such income on brief r relies exclusively on sec_66 i r c as justification for denying the benefits of community_property law to p however r's notice_of_deficiency contained no reference to sec_66 i r c nor did it refer to any facts that would support a sec_66 i r c determination a determination of whether or not sec_66 i r c applies requires the presentation of different evidence than that necessary to decide the matters described in the notice_of_deficiency held r's determinations of additional gross_receipts and disallowance of deductions are with certain modifications upheld held further sec_7522 i r c requires that a notice_of_deficiency contain a description of the basis for the commissioner's tax_determination where r relies on a basis that was not described in the notice_of_deficiency that requires the presentation of different evidence it is new_matter within the meaning of rule a tax_court rules_of_practice and procedure if the new_matter is allowed to be raised rule a tax_court rules_of_practice and procedure requires that r bear the burden_of_proof the burden_of_proof regarding application of sec_66 i r c 1s on r r failed to meet this burden therefore p is entitled to the benefits of california's community_property law for the taxable_year david m kirsch for petitioner dale a zusi for respondent opinion ruwe judge respondent determined deficiencies in petitioner's federal income taxes an addition_to_tax and accuracy-related_penalties as follows addition_to_tax accuracy-related_penalty year deficiency sec_6651 a sec_6662 a dollar_figure -- dollar_figure big_number -- big_number big_number dollar_figure big_number respondent determined that petitioner substantially underreported gross_receipts during the years in issue based on deposits made to petitioner's bank accounts after concessions the issues for decision are whether petitioner has substantiated business deductions claimed on his and federal_income_tax returns and whether petitioner is entitled to the benefit of california's community_property law in calculating his income_tax_liability ’ in order to decide the second issue we must determine whether respondent's reliance on sec_66 to disregard the community_property law of california raises a new_matter on which respondent bears the burden_of_proof and if so whether respondent has met that burden some of the facts have been stipulated and are so found the first second third and fourth stipulations of fact are incorporated herein by this reference petitioner's legal residence was in campbell california at the time he filed his petitions for convenience we will combine our findings_of_fact with our opinion ‘petitioner does not dispute that the addition_to_tax and accuracy-related_penalties apply to the deficiencies that result from this opinion unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure in each of the years in issue petitioner was married to flor shea petitioner and mrs shea were divorced in petitioner filed timely joint returns with mrs shea in and petitioner's return was filed on date as a joint_return in the notice_of_deficiency for respondent determined that petitioner's correct filing_status was married_filing_separately the notice also contains various consequential adjustments the parties now agree that married_filing_separately is the correct filing_status for petitioner in each of the years in issue petitioner was the owner and operator of an unincorporated consulting business known as shea technology group hereafter referred to as stg petitioner reported income and deductions from this business on schedule c profit or loss from business in each of the years in issue the parties now agree that petitioner underreported stg's gross business receipts by dollar_figure in dollar_figure in and dollar_figure in -respondent proposed that we find these unreported gross receipt figures and petitioner indicated that he did not object in respondent's reply brief he states that the total amount of unreported gross_receipts for is dollar_figure we will use the lower figure to which the parties have agreed petitioner also bought sold and traded military memorabilia petitioner did not report this activity on his or returns a schedule c deductions in the notices of deficiency for the years and respondent disallowed all petitioner's schedule c deductions respondent now concedes certain of these deductions we must decide which if any of the remaining deductions claimed by petitioner are allowable deductions are a matter of legislative grace and taxpayers bear the burden of proving that they are entitled to any deductions claimed rule a 503_us_79 292_us_435 taxpayers are required to maintain sufficient records to enable the commissioner to determine their correct_tax liability sec_6001 sec_162 generally allows a deduction for all the ordinary and necessary expenses paid_or_incurred during the respondent concedes air phone charges of dollar_figure in dollar_figure in and dollar_figure in office rent of dollar_figure in and dollar_figure in postage and secretarial services of dollar_figure in both and office expenses of dollar_figure in and printing expenses of dollar_figure in and dollar_figure in the total deductions conceded by respondent are dollar_figure in dollar_figure in and dollar_figure in taxable_year in carrying on any trade_or_business such expenses must be directly connected with or pertain to the taxpayer's trade_or_business sec_1_162-1 income_tax regs the determination of whether an expenditure satisfies the requirements of sec_162 is a question of fact 320_us_467 sec_162 allows a deduction for all the ordinary and necessary traveling expenses including meals paid_by a taxpayer during the taxable_year while traveling away from home in the pursuit of a trade_or_business a travel or entertainment deduction is disallowed if the taxpayer does not satisfy the substantiation reguirements of sec_274 through either sec_274 provides d substantiation required ---no deduction or credit shall be allowed-- under sec_162 or sec_212 for any traveling expense including meals_and_lodging while away from home for any item with respect to an activity which is of a type generally considered to constitute entertainment amusement or recreation or with respect to a facility used in connection with such an activity for any expense for gifts or with respect to any listed_property as defined in sec_280f unless the taxpayer substantiates by adequate_records continued adequate_records or the taxpayer's own detailed statement that is corroborated by sufficient evidence sec_274 also applies to listed_property which includes any passenger_automobile sec_274 280f d a at a minimum the taxpayer must substantiate the amount of the expense the time and place such expense was incurred the business_purpose of the expense and the business relationship to the taxpayer of persons entertained sec_274 the regulations further clarify the stringent substantiation requirements of sec_274 a taxpayer generally must substantiate each expenditure by producing adequate_records or sufficient evidence to corroborate his or her own statement sec_1_274-5t temporary income_tax regs fed reg date the adequate_records standard requires that a taxpayer maintain an account book continued or by sufficient evidence corroborating the taxpayer's own statement a the amount of such expense or other item b the time and place of the travel entertainment amusement recreation or use of the facility or property or the date and description of the gift c the business_purpose of the expense or other item and d the business relationship to the taxpayer of persons entertained using the facility or property or receiving the gift the secretary may by regulations provide that some or all of the requirements of the preceding sentence shall not apply in the case of an expense which does not exceed an amount prescribed pursuant to such regulations this subsection shall not apply to any qualified_nonpersonal_use_vehicle as defined in subsection diary log statement of expense or other similar record in which entries of expenditures are recorded at or near the time of the expenditure in addition a taxpayer must supply documentary_evidence such as receipts or paid bills sec_1_274-5t to temporary income_tax regs fed reg date alternatively taxpayers who are unable to satisfy the adequate_records requirement are still entitled to a deduction for expenses that they can substantiate with other corroborative evidence sec_1_274-5t temporary income_tax regs fed reg date for expenses other than those covered by the provisions of sec_274 if the taxpayer failed to keep adequate_records but the court 1s convinced that deductible expenditures were incurred the court should make as close an approximation as it can bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making 39_f2d_540 2d cir however we must have some rational basis on which an estimate may be made 85_tc_731 petitioner deducted schedule c bussiness expenses totaling dollar_figure in dollar_figure in and dollar_figure in these deductions fall into two categories one category must meet the see appendix substantial and stringent regquirements of sec_274 the other category consists of all the other claimed deductions regarding the deductions governed by sec_274 respondent has conceded some items of expense and petitioner has conceded that the air travel_expenses in all the years in issue cannot be adequately substantiated petitioner has put forward no believable explanation for the absence of required records consequently the burden of his inexactitude must fall on him petitioner did not produce any witnesses to corroborate when and where he traveled on business mrs shea could testify only to the fact that petitioner was not home and that petitioner said he was traveling on business while it is likely that some of petitioner's travel was business related we have insufficient information to allow any deductions given the strict standards set by sec_274 petitioner's claims for deductions relating to meals away from home and lodging_expenses fail for the same reasons that the airline travel_expenses fail the other claimed deductions subject_to sec_274 including passenger auto expense and entertainment are likewise unsubstantiated petitioner did not keep a contemporaneous trip diary to record business miles traveled in his personal vehicle and did not maintain a record of the parties entertained or the business_purpose we consequently uphold respondent's disallowance of these items as not complying with the statutory requirements of sec_274 as to the remaining items we find that petitioner paid and is entitled to a deduction for telephone expenses in the amounts of dollar_figure for and dollar_figure for in addition to the items respondent has conceded with respect to the other claimed deductions the only documents presented to substantiate petitioner's claimed business_expenses were credit card summaries charge slips showing various purchases and a crude ledger for which appears to have been prepared from canceled checks these credit card summaries contain personal expenses ’ what appears to be military memorabilia-related expenses and what purports to be business_expenses other than the credit card summaries and petitioner's less then credible vague and self-serving testimony there is no corroborative evidence of the business_purpose of these expenses as we have stated many times before this court is not bound to accept a taxpayer's self-serving unverified and undocumented testimony 87_tc_74 while there are undoubtedly business_expenses contained within the credit card por example airfares for family members and third parties not employees of stg a limousine rental for petitioner's daughter who was not an employee items noted as apparel and accessories leather goods and accessories fine art and frames and jewelry and gifts summaries we cannot in most instances determine which expenses relate to the military memorabilia activity are personal expenses or are truly business_expenses except as noted above petitioner has produced insufficient evidence to persuade us that respondent's disallowance of the deductions reported in schedules c of the returns is in error consequently with the exceptions noted above we uphold respondent's disallowance of deductions based on the foregoing we find that the net profit from petitioner's consulting business was dollar_figure in dollar_figure in and dollar_figure in swe are unable to determine the exact magnitude of petitioner's military memorabilia activity but it appears to be quite extensive during the examination petitioner or his agent provided a document in the form of a ledger the ledger appears to show six transactions in for amounts of dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure that relate to petitioner's military memorabilia activity ’the net profit was calculated as follows reported receipts dollar_figure dollar_figure dollar_figure unreported receipts dollar_figure dollar_figure dollar_figure continued b application of community_property law in petitioner's return was filed as a joint_return in the notice_of_deficiency respondent changed petitioner's filing_status from married_filing_jointly to married_filing_separately nevertheless respondent determined petitioner's unreported income without making any adjustment for california's community_property law the notice_of_deficiency does not refer to california community_property law any exceptions to such law or any facts that might support such exceptions married persons who reside in a community_property_state are generally each required to report one-half of their community_income for federal_income_tax purposes 403_us_190 drummer v commissioner tcmemo_1994_214 affd without published opinion 68_f3d_472 5th cir petitioner contends that under california law the income generated by petitioner's consulting business is community_income and that he is required to report and be taxed continued less conceded deductions dollar_figure dollar_figure dollar_figure additional allowable deductions dollar_figure dollar_figure dollar_figure net profit dollar_figure dollar_figure dollar_figure on only one-half of that community_income for federal tax purposes respondent now recognizes that all of stg'ss income is community_income under california law respondent also stipulated that dollar_figure of stg's net profit for the amount which was transferred to petitioner's and mrs shea's household checking account in was community_income reportable by each spouse in the amount of dollar_figure the parties dispute whether stg's net profit in excess of dollar_figure should all be attributed to petitioner regardless of community_property law on brief respondent relies solely on the provisions of sec_66 to deny petitioner the income-splitting benefits of california's community_property law sec_66 provides the secretary may disallow the benefits of any community_property law to any taxpayer with respect to any income if such taxpayer acted as if solely entitled to such income and failed to notify the taxpayer's spouse before the due_date including extensions for filing the return for the taxable_year in which the income was derived of the nature and amount of such income petitioner acknowledges that sec_66 authorizes the commissioner to disallow the benefits of any community_property law to a taxpayer with respect to any income if the taxpayer acted as if he were solely entitled to such income and the taxpayer failed to notify the taxpayer's spouse of the nature and amount of such income before the due_date for filing the return see mischel v commissioner tcmemo_1997_350 schramm v commissioner tcmemo_1991_523 affd without published opinion 988_f2d_121 9th cir however petitioner contends that respondent made no determination in the notice_of_deficiency to disallow the benefits of community_property law pursuant to sec_66 that respondent's reliance on sec_66 is a new_matter within the meaning of rule a and that respondent must bear the burden of proving that sec_66 applies when the commissioner attempts to rely on a basis that is beyond the scope of the original deficiency determination the commissioner must generally assume the burden_of_proof as to the new_matter a substantial body of case law has developed in this rule provides a general the burden_of_proof shall be upon the petitioner except as otherwise provided by statute or determined by the court and except that in respect of any new_matter increases in deficiency and affirmative defenses pleaded in the answer it shall be upon the respondent as to affirmative defenses see rule ‘idetitioner does not contend that respondent should be precluded from relying on sec_66 petitioner was on notice before trial that respondent would rely on sec_66 the sec_66 issue was tried by consent of the parties and is properly before the court see rule b petitioner's only requested relief is that respondent bear the burden_of_proof regarding this issue court setting forth criteria for determining when the commissioner is raising a new_matter a synopsis of these criteria is as follows a new_theory that is presented to sustain a deficiency is treated as a new_matter when it either alters the original deficiency or requires the presentation of different evidence a new_theory which merely clarifies or develops the original determination is not a new_matter in respect of which respondent bears the burden_of_proof 93_tc_500 citations omitted ’ here the relevant issues raised by respondent's notice_of_deficiency are the total amount of business gross_receipts and whether petitioner is entitled to deductions that he claimed were incurred in his business during the only explanation stated in the notice_of_deficiency for increasing gross_receipts is that the adjustment was based on bank_deposits all these deposits were to the business account used for petitioner's consulting business the only reason for disallowing business deductions was that petitioner had not substantiated their deductibility t236e also 91_tc_793 n 77_tc_881 estate of jayne v commissioner 1t c 50_tc_478 respondent now acknowledges that petitioner is entitled to the benefits of community_property law unless those benefits can be disallowed pursuant to sec_66 respondent argues that invocation of sec_66 is necessarily implicit in the notice_of_deficiency we disagree the notice_of_deficiency makes absolutely no mention of community_property law sec_66 or facts which would allow respondent to invoke sec_66 in the notice_of_deficiency respondent determined that all of mrs shea's wage income was her separate_income without regard to community_property law respondent also treated interest on petitioner's and mrs shea's joint bank account as the separate_income of petitioner without regard to community_property law and as previously mentioned the notice_of_deficiency contains no adjustment for the dollar_figure that was transferred from the business account to petitioner's and mrs shea's household checking account during respondent failed to offer any evidence that indicated that respondent considered the application of community_property law or sec_66 in making his determination in short it as previously noted respondent now acknowledges that petitioner is entitled to the benefits of community_property law with respect to dollar_figure of the stg net profit regardless of whether sec_66 is otherwise applicable attached to petitioner's motion to shift burden_of_proof is what purports to be a copy of the revenue_agent's_report for continued appears to us that respondent gave no thought to community_property law or sec_66 when the notice_of_deficiency was prepared ’ respondent's apparent failure to even consider community_property law or sec_66 in making his deficiency determination supports our conclusion that sec_66 was not implicit in the notice_of_deficiency however even if respondent's agents had considered such matters it does not follow that they were necessarily implicit in the notice_of_deficiency the objective language in the notice_of_deficiency remains the controlling factor as indicated in the preceding paragraph there is nothing in the notice_of_deficiency that makes sec_66 necessarily implicit the factual basis required to establish whether stg's income was understated is different from the factual basis necessary to establish whether community_property law or sec_66 applies the facts necessary for a determination of income ‘4 continued petitioner's taxable_year petitioner alleged and the attached revenue_agent's_report shows that the revenue_agent computed the deficiency based on joint filing_status as opposed to the married filing separate status used in the notice_of_deficiency we also note that the notice_of_deficiency for was addressed to john d and flora sic m shea even though the attached schedules reflect tax_liability for only john d shea at trial respondent's counsel could not clarify this point other than to state i think it was done pursuant to b although b i concede is not mentioned in the stat_notice pursuant to a bank_deposits analysis would require evidence of deposits and an identification of which deposits should be excluded from income business deductions are allowed or disallowed based on whether they can be substantiated generally the only evidence necessary to establish that income 1s community_income is that the income was received by either spouse during the marriage while domiciled in a community_property_state as we have recently stated the term community_property pursuant to california law is generally defined as property acquired by husband and wife or either during marriage when not acquired as the separate_property of either under california law absent a contrary agreement each spouse has the right to one half of all community_income from the moment it is acquired and therefore is liable for the federal_income_tax on one half of such amount the character of property as separate or community is determined at the time of acquisition property acquired by purchase after marriage is presumed to be community_property furthermore earnings_of a husband acquired during marriage are presumed to be community_property with respect to unearned_income where the source property is presumed to be community_property and no evidence is introduced to rebut such presumption then the income from such property is presumed community_income under california law the burden of proving that property is separate rests on the party making such assertion webb v commissioner tcmemo_1996_550 citations omitted on the other hand whether respondent may apply sec_66 and disregard community_property law in determining petitioner's income requires evidence of whether petitioner acted as if he were solely entitled to the income and whether he failed to notify his wife of the nature and amount of that income see mischel v commissioner tcmemo_1997_350 based on our previously articulated test for determining whether respondent's reliance on sec_66 is new_matter we would hold that it is and that the burden_of_proof as to that issue should be on respondent however on brief respondent relies on 644_f2d_1385 9th cir revg tcmemo_1978_392 ' based on abatti respondent argues that the proper test for determining whether respondent has introduced a new_matter on which he bears the burden_of_proof depends on whether the basis for the deficiency advanced at trial or in an amended answer is inconsistent with the language contained in the notice_of_deficiency based on abatti respondent asserts that if a notice_of_deficiency is broadly worded and the commissioner later advances a theory that is not inconsistent with that language the theory does not constitute a new_matter and the burden_of_proof remains with the taxpayer in abatti v commissioner supra the court_of_appeals for the ninth circuit characterized the notice_of_deficiency as a notice that informed the taxpayers that there were deficiencies the court_of_appeals for the ninth circuit is the court to which this case is appealable and the amount of them but contained no explanation id pincite the court_of_appeals for the ninth circuit then stated this type of notice is sufficient to raise the presumption of correctness and to place the burden_of_proof on the taxpayer 408_f2d_65 7th cir cert_denied 396_us_836 90_sct_94 24_led_86 judge hand in olsen v helvering supra stated the notice is only to advise the person who is to pay the deficiency that the commissioner means to assess him anything that does this unequivocally is good enough id pincite0 citation omitted the court went on to state in fact if a deficiency_notice is broadly worded and the commissioner later advances a theory not inconsistent with that language the theory does not constitute new_matter and the burden_of_proof remains with the taxpayer id pincite we have recognized that the above-quoted language from abatti v commissioner supra may represent a standard for determining what constitutes a new_matter that is at variance with the current standard articulated by this court see 77_tc_881 7’ yamaha motor corp 7tn achiro v commissioner t c pincite we stated if respondent does not indicate in the notice_of_deficiency that he is relying on sec_482 but alerts the taxpayer of his reliance on sec_482 formally in pleadings far enough in advance of trial so as not to prejudice the taxpayer or take him by surprise at trial then the burden_of_proof shifts to continued --- - u s a v commissioner tcmemo_1992_110 national semiconductor corp consol subs v commissioner tcmemo_1991_81 perryman v commissioner tcmemo_1988_378 affd without published opinion 920_f2d_936 9th cir petitioner acknowledges that the court_of_appeals opinion in abatti v commissioner supra contains broad language but argues that the subsequent enactment of sec_7522 abrogated that broad language by requiring specificity in respondent's notices of deficiency sec_7522 which was applicable to the notice_of_deficiency in this case ’ provides sec_7522 content of tax due deficiency and other notices ‘7 continued respondent to establish all the elements necessary to support his allocation under sec_482 see 56_tc_1155 affd 460_f2d_1216 2d cir rule a tax_court rules_of_practice and procedure but see 644_f2d_1385 9th cir revg a memorandum opinion of this court 18th perryman v commissioner supra appellate venue was in the ninth circuit_court of appeals which had decided 644_f2d_1385 9th cir revg tcmemo_1978_392 in perryman we held despite our holding in achiro however we will follow the precedent established in the court to which an appeal would lie see 54_tc_742 affd 445_f2d_985 10th cir appeal in this case would lie in the ninth circuit sec_7522 is applicable to notices of deficiency issued after date -- - a general_rule --any notice to which this section applies shall describe the basis for and identify the amounts if any of the tax due interest additional_amounts additions to the tax and assessable_penalties included in such notice an inadequate description under the preceding sentence shall not invalidate such notice b notices to which section applies ---this section shall apply to-- any_tax due notice or deficiency_notice described in sec_6155 sec_6212 or sec_6303 any notice generated out of any information_return matching program and the lst letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the internal_revenue_service office of appeals emphasis added congress enacted sec_7522 with the expectation that the irs would make every effort to improve the clarity of all notices x that are sent to taxpayers h conf rept pincite 1988_3_cb_473 petitioner argues that respondent's failure to state specifically that petitioner was being denied the benefits of community_property law or to describe a basis for denying petitioner the benefits of community_property law violates sec_7522 and warrants treating the sec_66 issue as a new_matter on which respondent bears the burden_of_proof respondent argues that there was no violation of sec_7522 because reliance on sec_66 was implicit in the notice_of_deficiency as we have previously indicated we do not believe that sec_66 was implicit or even considered in making the adjustments contained in the notice_of_deficiency it is a closer call to say whether reliance on sec_66 is inconsistent with the language in the notice_of_deficiency in the final analysis we think that sec_7522 makes the question of whether reliance on sec_66 is or is not inconsistent with the notice_of_deficiency irrelevant if the basis on which respondent relies was not described in the notice_of_deficiency and requires different evidence sec_7522 which was enacted after the abatti decision requires that a notice_of_deficiency describe the basis for the tax_deficiency sec_7522 makes no exception for a basis sec_7522 does not articulate specific standards for determining whether the description of the commissioner's basis is adequate nor does it provide any statutory remedy or sanction the only reference in sec_7522 to a failure to abide by itss provisions provides an inadequate description under the preceding sentence shall not invalidate such notice we view this provision as referring only to the validity of the notice_of_deficiency for jurisdictional purposes as the court_of_appeals for the ninth circuit has stated the tax_court has jurisdiction only when the commissioner issues a valid deficiency_notice and the taxpayer files a timely petition for redetermination a valid petition is the basis of the tax court's jurisdiction to be valid a petition must be filed from a valid statutory notice 84_tc_248 see 73_tc_902 continued that is not inconsistent with the language in the notice_of_deficiency indeed were such an exception available the commissioner would be free to raise new theories that would require different evidence so long as the new theories were not inconsistent with the language in the notice_of_deficiency such a result would significantly dilute the legislative mandate of sec_7522 generally the commissioner's determination in a notice_of_deficiency is presumed correct the purpose of sec_7522 is to give the taxpayer notice of the commissioner's basis for determining a deficiency a taxpayer is given days from the day the notice_of_deficiency is mailed in which to file a petition with the tax_court sec_6213 rule b sets forth what is required to be included in a petition among its requirements are that the petition shall contain clear and concise assignments of each and every error which the petitioner alleges to have been committed by the commissioner in the determination of the deficiency or liability the assignments of error shall include issues in respect of which the burden_of_proof is on the commissioner any issue not raised in the assignment of error shall be deemed to be conceded fach assignment of error shall be separately lettered scontinued 814_f2d_1363 9th cir revg on other grounds 81_tc_855 emphasis added - - clear and concise lettered statements of the facts on which petitioner bases the assignments of error except with respect to those assignments of error as to which the burden_of_proof is on the commissioner rule b without notice of the commissioner's basis for a determination of deficiency it would be difficult if not impossible to comply with rule b we have previously held that new_matter is raised when the basis or theory on which the commissioner relies was not stated or described in the notice_of_deficiency and the new_theory or basis requires the presentation of different evidence wayne bolt nut co v commissioner t c pincite this rule for determining whether a new_matter has been raised by the commissioner is consistent with and supported by the statutory requirement that the notice_of_deficiency describe the basis for the commissioner's determination this rule also provides a reasonable method for enforcing the requirements of sec_7522 in the instant case the notice_of_deficiency does not describe sec_66 as respondent's basis for disallowing the 10n brief respondent declined to address what the consequences if any would be if we were to find that respondent was attempting to rely on a basis that he failed to describe in the notice_of_deficiency as required by sec_7522 however in straight v commissioner tcmemo_1997_569 respondent conceded that placing the burden_of_proof on respondent may be proper where the notice_of_deficiency violates sec_7522 benefits of community_property law to petitioner and different evidence will be necessary to resolve the sec_66 issue under these circumstances treating the sec_66 issue as a new_matter upon which respondent has the burden_of_proof is both consistent with our prior practice and supported by the statutory requirements of sec_7522 we therefore hold that where a notice_of_deficiency fails to describe the basis on which the commissioner relies to support a deficiency determination and that basis requires the presentation of evidence that is different than that which would be necessary to resolve the determinations that were described in the notice_of_deficiency the commissioner will bear the burden_of_proof regarding the new basis to hold otherwise would ignore the mandate of sec_7522 and rule a respondent must therefore bear the burden_of_proof regarding application of sec_66 respondent argues that he has met that burden and that the following facts demonstrate that petitioner treated the income as if he were solely entitled to it a gross_receipts were 2placement of the burden_of_proof affects only the obligation to prove facts if a new_theory or basis is completely dependent upon the same evidence required by the basis described in the notice_of_deficiency there would normally be little practical reason to shift the burden_of_proof the taxpayer would not suffer from lack of notice concerning what facts must be established indeed in that situation the new_theory would be a purely legal as opposed to a factual issue the burden_of_proof does not affect the court's determination of what the law is separately deposited into an account styled in the business name b not all the net business income was deposited into the joint household account c mrs shea did not have signing authority access or knowledge of the specific transactions in the business account and d mrs shea did not involve herself in the business and did not know the extent of the gross_income or the extent of the unreported income of the business the facts on which respondent relies either taken alone or taken together do not justify the conclusion that petitioner acted as if he were solely entitled to business income the fact that business gross_receipts are deposited into a business account 1s in accordance with normal business practice mrs shea was clearly aware of the existence of petitioner's business and its bank account the fact that not all the business income was deposited into the household account is of itself unremarkable we would not find it at all unusual if less than the net profit was so deposited the fact that mrs shea did not have signing authority over the business account is likewise unremarkable given the fact that she had little day-to-day involvement in the operation of the business finally the fact that mrs shea did not know the extent of business income is not proof that petitioner was acting as if he were solely entitled to the income without more it does not support respondent's allegation that the income was hidden from her respondent now concedes that some of the business profits were used to support the shea family and that in excess of dollar_figure was deposited into the household account respondent disallowed deductions for some expenditures from the business account because he determined that these expenditures were personal expenses of the shea family not properly deductible as business_expenses but this position supports petitioner's argument that profits were used to pay community debts respondent points out in arguing for disallowance of claimed business deductions that mrs shea directly benefited from some of these expenditures indeed our findings which sustain respondent's disallowance of claimed business deductions were in part based on respondent's analysis indicating that some of the expenditures from that business account which were claimed as business deductions were apparently spent for personal expenses of the shea family examples of such expenditures from the business account in include the purchase of airline tickets for mrs shea b alvarez margreite alvarez and trudy daly also in disallowing petitioner's claimed business deductions for we noted the possibility that some of them might have been the shea family took a vacation cruise on the regal princess from date to date on date petitioner stayed in fort lauderdale florida mrs shea's airline ticket from san jose to fort lauderdale purchased on date was deducted as a business_expense business expenditures_for which petitioner failed to provide adequate substantiation but the fact that petitioner failed to meet his burden_of_proof regarding the deductibility of these expenses is not sufficient to justify a finding that respondent has met his burden of proving that petitioner treated the income deposited in the business bank account as if he were solely entitled to it the facts on which respondent relies establish only that mrs shea had little meaningful involvement in petitioner's business activities and that petitioner underreported the income of that business these facts are insufficient to prove that petitioner acted as if he were solely entitled to stg's income as a result there is no factual basis to justify respondent's invocation of sec_66 we therefore hold that petitioner is entitled to the benefits of california community_property law with respect to the net_income of his consulting business as redetermined decision will be entered under rule reviewed by the court cohen jacobs gerber parr wells colvin beghe laro foley vasquez and gale jj agree with this majority opinion thornton and marvel jj concur in the result only appendix expense items claimed on schedule c expenses subject_to sec_274 car and truck expenses dollar_figure dollar_figure air travel big_number big_number meals away from home big_number entertainment big_number lodging big_number big_number other expenses car rental big_number big_number depreciation big_number insurance big_number big_number office expense big_number big_number legal and professional services big_number big_number rent or lease a vehicles machinery and equipment big_number big_number b other business property -- -- repairs and maintenance big_number big_number trade_show sec_841 big_number research big_number big_number parking telcon sic big_number big_number professional services other big_number dues and publication sec_410 software -- courier -- --- charity contribution -- -- printing big_number big_number commission and fees - total big_number big_number ‘for the taxable_year dollar_figure big_number big_number big_number big_number big_number big_number air travel also includes lodging for the taxable_year meals away from home combined meals and entertainment some items in this category would have been subject_to sec_274 since none of the expenses were substantiated under sec unnecessary to subdivide the category further for the taxable_year petitioner inexplicably reported total expenses of dollar_figure on line of schedule c it was halpern j concurring in result i agree with the result reached by the majority however i write separately because i disagree with the following steps taken by the majority in reaching that result one incorporating a requirement of sec_7522 into the definition of the term new_matter and two suggesting that respondent's intent in drafting the notice_of_deficiency is relevant to the determination of whether a new_theory is new_matter with respect to such notice the term new_matter rule a provides a general the burden_of_proof shall be upon the petitioner except as otherwise provided by statute or determined by the court and except that in respect of any new_matter increases in deficiency and affirmative defenses pleaded in the answer it shall be upon the respondent the majority recognizes that a substantial body of case law has developed in this court setting forth criteria for determining when the commissioner is raising a 'new matter' majority op pp an examination of that case law reveals a disjunctive test to determine whether a new_theory raised in respondent's answer is new_matter for purposes of rule a in 77_tc_881 we stated the assertion of a new_theory which merely clarifies or develops the original determination without being inconsistent or increasing the amount of the deficiency is not a new_matter requiring the shifting of the burden_of_proof however if - - the assertion in the amended answer either alters the original deficiency or requires the presentation of different evidence then respondent has introduced a new_matter a new_theory may or may not constitute new_matter a new_theory in the answer is new_matter if either the new_theory is inconsistent with the notice the inconsistency alternative or it requires the presentation of different evidence i1 e evidence different from that necessary to prove a well-pleaded assignment of error the different evidence alternative it is illogical and defies common sense to believe that in the case of a disjunctive test such as our test for new_matter the failure to satisfy one alternative precludes the possibility of satisfying the other for instance it does not follow from achiro that if a new_theory is consistent with the notice then it cannot be new_matter a finding that a new_theory is consistent with the notice simply leads to the conclusion that the new_theory is not new_matter pursuant to the inconsistency alternative it does not foreclose the possibility that the new_theory could be new_matter pursuant to the different evidence alternative golsen doctrine the majority finds and i agree that b ased on our previously articulated test for determining whether respondent's reliance on sec_66 is new_matter we would hold that it is and that the burden_of_proof as to that issue should be on respondent majority op p the majority's hesitation to make such a holding is based on the opinion of the court_of_appeals for the ninth circuit ninth circuit in 644_f2d_1385 9th cir revg tcmemo_1978_392 respondent argues and the majority appears to believe that abatti holds that if a new_theory is not inconsistent with the determination in the notice then it is not new_matter see majority op pp respondent’s argument ignores the disjunctive nature of our traditional interpretation a new_theory is new_matter under either the inconsistency alternative or the different evidence alternative nevertheless if abatti means that the ninth circuit’s interpretation of the term new_matter is inconsistent with our interpretation then the doctrine established by 54_tc_742 affd 445_f2d_985 10th cir comes into play the golsen doctrine is that notwithstanding that we are a national court and have the authority to render a decision inconsistent with any court_of_appeals where a reversal would appear inevitable due to the clearly established position of the court_of_appeals to which an appeal would lie we shall not insist on our view but shall follow the court_of_appeals decision on point id pincite accord 99_tc_490 jurisprudence of the ninth circuit an examination of abatti and subsequent ninth circuit authority leads me to believe that the golsen doctrine does not bar us from applying our traditional interpretation in abatti the ninth circuit was reviewing our application of our rule a the ninth circuit relied on our opinion in 29_tc_959 affd per curiam 271_f2d_741 2d cir for an interpretation of the term new_matter abatti v commissioner supra pincite in sorin we stated that when a determination is not broad enough to include the new ground its presumptive correctness does not then extend to such new_matter which he the commissioner is required to raise affirmatively in his answer under the tax_court rules the burden_of_proof as to it is expressly placed upon respondent but when the determination is made in indefinite and general terms and is not inconsistent with some position necessarily implicit in the determination itself the situation is quite different t c pincite in sorin the different evidence alternative was not under consideration we held that the burden_of_proof should remain on the taxpayer because contrary to the taxpayer's contention the commissioner had not taken a position inconsistent with the notice the ninth circuit reached a similar result in abatti there too the taxpayer did not raise nor did the ninth circuit address the different evidence alternative 714_f2d_977 9th cir affg tcmemo_1982_209 is a post-abatti case that also required the ninth circuit to interpret rule a ’s use of the term new_matter the ninth circuit concluded it is well settled that the assertion of a new_theory that merely clarifies the original determination without requiring the presentation of different evidence does not shift the burden_of_proof id pincite citing achiro v commissioner t c pincite again the ninth circuit stated an interpretation of the term new_matter that if considered in isolation could be misunderstood to exclude alternative interpretations and would imply that in every instance a new_theory that does not require different evidence is not new_matter i do not believe we must infer that in going from abatti to stewart the ninth circuit replaced one singular interpretation of the term new_matter e inconsistency with another ie different evidence clearly the ninth circuit has adopted both alternatives of our disjunctive test although the ninth circuit has stated each alternative in exclusive terms at different times i think that those statements can be harmonized if however either test preempts the other in the ninth circuit we must conclude that the different evidence alternative preempts the inconsistency alternative because stewart postdates abatti it agree with the majority that pursuant to the different evidence alternative respondent's reliance on sec_66 is new_matter within the meaning of rule a majority op p the golsen doctrine is no bar to that conclusion for the reasons stated i do not believe that respondent’s argument to wit if a new_theory is not inconsistent with the determination in the notice then it is not new_matter would necessarily succeed in the ninth circuit therefore i conclude that under golsen we need not alter our disposition of the instant case on account of the jurisprudence of the ninth circuit why sec_7522 instead of holding that respondent's reliance on sec_66 is new_matter pursuant to our case law and in accord with the ninth circuit's opinion in stewart the majority makes various analytical errors which i feel compelled to address first the majority incorporates the legislative mandate of sec_7522 that the notice_of_deficiency shall describe an adequate basis into the definition of new_matter imposition of the burden_of_proof is in the absence of a legislative directive a judicial function the majority seems to believe that sec_7522 should influence the ninth circuit in determining what constitutes new_matter see majority op p indeed the majority's holding appears to require our consideration of a sec_7522 requirement in determining what is new_matter i have difficulty understanding why the majority concludes that sec_7522 affects the allocation of the burden_of_proof sec_7522 makes no mention of the burden_of_proof the majority has not persuaded me that on account of a violation of sec_7522 congress intended a particular remedy i ée allocating the burden_of_proof to the commissioner as opposed to for instance extending a period of limitations if it operates against the taxpayer or awarding attorney's_fees further assume the commissioner issues a valid but inadequately descriptive notice in violation of sec_7522 if the commissioner introduces no new_theory would the majority remedy the commissioner's violation of sec_7522 by placing the burden_of_proof upon him ’ t the only remedy that we can assuredly conclude is not within the purview of sec_7522 is an invalidation of such inadequate notice see sec_7522 in that vein consider judge beghe's concern that a vaguely broad notice that does no more than state an intention to assess a deficiency ina specified amount is not just a valid notice it's an empty bottle that can be filled and made specific with any theory and won't thereby be considered an inconsistent theory or as requiring different evidence so as to justify the shifting of the burden_of_proof to the commissioner continued -- - the majority however has convinced itself that a reasonable method for enforcing the requirement of sec_7522 is to allocate the burden_of_proof to the commissioner with regard to any new_theory that both was not stated or described in the notice_of_deficiency and requires the presentation of different evidence majority op pp i do not understand the cumulative aspect of such a test clearly any new_theory that requires the presentation of different evidence thus satisfying the second prong could not have been stated or described in the notice and thus will always satisfy the first prong adding the first prong however is a rhetorical device that serves only to import the sec_7522 requirement into the new_matter inguiry the majority merely couples one of our traditional disjunctive alternatives which has been explicitly adopted by the ninth circuit toa restatement of the sec_7522 requirement to opine on what is continued beghe j concurring p witness the case at bar where the majority has found that under the different evidence alternative respondent raised new_matter relative to his vaguely broad notice by trying with consent the sec_66 issue it seems a sufficient and appropriate response to judge beghe’s concern to say that if a new_theory is both not inconsistent with a notice_of_deficiency and does not require different evidence petitioner has not been prejudiced by such new_theory therefore notwithstanding that the notice may be an empty bottle there is no harm reguiring redress -- -- a proper means of enforcement for sec_7522 such holding is both unnecessary and inappropriate on the facts before us looking beyond the notice_of_deficiency my second concern with the majority's analysis is its suggestion that there may be a case in which the commissioner's intent in drafting the notice_of_deficiency will determine whether a new_theory is new_matter under either the inconsistency or different evidence alternatives the majority states respondent failed to offer any evidence that indicated that respondent considered the application of community_property law or sec_66 in making his determination majority op p the majority then finds r espondent gave no thought to community_property law or sec_66 when the notice_of_deficiency was prepared id pincite that finding the majority continues supports our conclusion that sec_66 was not implicit in the notice_of_deficiency id although the majority makes obeisance to the determining force of the notice’s language the objective language in the notice_of_deficiency remains the controlling factor id the fact that the majority finds support in respondent’s failure to consider sec_66 suggests that intent has some role in determining whether a new_theory is a new_matter if intent plays some role then there is the possibility that in a close case intent or lack thereof could tip the balance i disagree and think that the majority should make it clear that there is no connection between the commissioner’s intent and whether a new_theory is implicit ina notice_of_deficiency consider two taxpayers each with unreported income each married and filing separately and each residing in a community_property jurisdiction each receives an identical notice determining a deficiency in income_tax on account of the omission of dollar_figure in gross_income the notices do not mention sec_66 hach taxpayer concedes receipt of the dollar_figure and its taxable nature each pleads nevertheless that as the receipt was community_property he is taxable only on one-half in one case in determining the deficiency it was the commissioner's intention unexpressed in the notice to disallow the benefits of community_property under sec_66 in the second case the commissioner was unaware that the receipt was community_property he becomes aware only after his right to amend the answer without leave of court has expired see rule a the commissioner’s awareness may be a factor in determining whether under rule a the court should give leave to amend the answer to incorporate the new_theory assuming leave to amend is given the question of whether the new_theory constitutes new_matter under rule a involves different considerations viz whether the new_theory is inconsistent with the notice or requires different evidence simply stated it would violate principles of horizontal_equity to place the burden_of_proof on the taxpayer in the first case and on the commissioner in the second case when both taxpayers have identical tax_attributes and received identical notices conclusion i fail to see what the majority's analysis adds to the jurisprudence of this court when attention to golsen v commissioner supra would allow us to dispose_of this issue without discussing sec_7522 or respondent's intent the court is always free to place the burden_of_proof on respondent pursuant to the first sentence of rule a which provides the burden_of_proof shall be upon the petitioner except as otherwise determined by the court placing the burden on respondent because sec_7522 makes something new_matter which otherwise is not obfuscates not only our interpretation of the ninth circuit's jurisprudence but our own jurisprudence as well for the foregoing reasons i respectfully concur in result chabot whalen and chiechi jj agree with this concurring in result opinion dollar_figurethat portion of the rule would support the result that judge beghe would accomplish and satisfy his pragmatic concern without doing violence to the term new_matter beghe j concurring more than years ago judge raum made the suggestion that bears fruit today that sec_7522 a provides a justification for shifting the burden_of_proof to respondent as a sanction for vague notices of deficiency see ludwig v commissioner tcmemo_1994_518 i write on to respond to some of the objections to the majority opinion expressed in judge halpern's concurrence judge halpern's normative explication of the disjunctive tests for new matter---inconsistency and different evidence--is impeccable so far as it goes but he pays inadequate attention to another strand in the tax court's jurisprudence on this subject exemplified by 29_tc_959 affd per curiam 271_f2d_741 2d cir that the court_of_appeals for the ninth circuit relied upon along with judge learned hand's opinion in 88_f2d_650 2d cir to reverse us for our shifting of the burden_of_proof in 644_f2d_1385 9th cir revg tcmemo_1978_392 that strand is to the effect that a vaguely broad notice that does no more than state an intention to assess a deficiency in a specified amount is not just a valid notice it's an empty bottle that can be filled and made specific with any theory and won't thereby be considered an inconsistent theory or as requiring different evidence so as to justify the shifting of the burden_of_proof to the commissioner our jurisprudence and that of the ninth circuit is sufficiently murky on this issue to justify using sec_7522 a to clarify the situation and set ourselves and our litigants on the right path for the future in so using sec_7522 i frankly am impelled by pragmatic considerations commentators have suggested that the present situation is unsatisfactory because it encourages---even rewards----vagueness and imprecision in the commissioner's deficiency notices and discourages the specificity that tells taxpayers the points they must put in issue in their petitions and prove at trial it's appropriate to use sec_7522 as the device for repudiating the line of cases represented by sorin v commissioner supra there's a theoretical as well as a pragmatic justification for so using sec_7522 that answers the questions posed in judge halpern's concurrence pp judge halpern follows up the general question---just what is sec_7522 supposed to accomplish ---by asking what justifies our decision to sanction a vague notice by shifting the burden_of_proof when the commissioner's theory is finally put forth as opposed to applying some other sanction such as extending the period of limitations or awarding attorney's_fees the answer i submit is that shifting the burden on the ground that the theory once stated by the commissioner constitutes new_matter is an appropriate proportionate and specifically directed response to the vagueness and inadequacy of the notice in failing to set forth any matter other than to express the intent to assess a specified amount of a particular tax sec_7522 was a signal from congress that vague notices would thenceforth be disfavored shifting the burden_of_proof to the commissioner under sec_7522 1s an appropriate way to implement the not too clearly expressed intent of congress in this regard the imaginative reconstruction applied by judge learned hand in other contexts see eg 218_f_547 2d cir such statutes are partial they should be construed not as theorems of euclid but with some imagination of the purposes which lie behind them and espoused by judge posner as well as by our own judge raum points the direction in which we and the courts of appeals should go see posner statutory interpretation----in the classroom and in the courtroom u chi l rev


internal_revenue_service department of ry keen pek eker khir rk eere eere ahererreree feiss ioi iii iiis st tte washington dc person to contact hare ere erekeekerereerere telephone number ereerekeererekeeeeeeekeeerereerereeeer erekeekeeeeeerrekekrererekreerek refer reply to date attn reraerkeeereekereruuererereererere legend state a plan xx rrerehereerreereeereerererderweeereekeeee rekerkerrererererereeererererrewnererekeee employer m resolution o proposed resolution po aera ekrereee eere rerekerereeeereeerekkrer tetra eirrrererrnssnesnennndneriiitie eker ekekeererererrekrererekrererhkererkeere ece i iir rrrerrrrer rrr irena eere group n employees rrr er ire rere arerr eere proposed amendment ro ern orrrrreorerrorreeeeie re ye siiioiii issir iiia iai iiis ati jeiieh tinkiik tik dear this is in response to a ruling_request dated date as supplemented by jetters dated date and date submitted on your behalf by your authorized representative concerning the federal_income_tax treatment under sec_414 of the internal_revenue_code code of certain contributions to plan x the following facts and representations have been submitted by your authorized representative employer m is a body corporate and public duly organized and existing under the laws of state a on date employer m passed resolution o adopting plan x effective date for the benefit of the group n employees plan x is a defined benefit pension_plan pian x was established for the exclusive benefit of the group n employees a group n employee is defined under sec_1 of plan x to include any covered individual who is currently benefitting under plan x and certain former group n employees who are eligible to receive a benefit under plan x generally any full-time sworn police officer is eligible to participate in plan x pursuant to sec_4 a of plan x group n employees are required to make mandatory_contributions to plan x equal to seven percent of their compensation sec_4 a provides among other things that the contributions referred to in a shall be picked up by employer m pursuant to sec_414 of the code and that the contributions shall be deducted from the pay of the contributing group n employee as salary reduction contributions praposed amendment r which amends sec_4 of plan x provides that the group n hhh ikea kee eeke ke ee eere ee page l employees have no option to choose to receive the contributions provided for in this sec_4 directly instead of having the contributions paid_by employer m to plan x sec_1 of plan x states that plan x is intended to meet the qualification requirements set forth under sec_401 of the code resolution o which established plan x provides that group n contributions although designated as employee contributions are being paid_by employer m in lieu of contributions by the group n employees pursuant to sec_414 of the code proposed resolution p provides that employer m will make contributions equal to seven percent of the group n empioyees compensation and the group n employees do not have the option of choosing to receive the contributed amounts directly instead of having such contributions paid to plan x based on the aforementioned facts you request the following rulings that the mandatory employee contributions made by the group n employees and picked up by employer m under sec_4 of plan x will be treated as employer contributions for federal_income_tax purposes that the mandatory employee contributions made by the group n employees and picked up by employer m under sec_4 of plan x will not be included in the current gross_income of the group n employees for federal_income_tax purposes that the mandatory_contributions of the group n employees picked up by employer m will not constitute wages subject_to federal_income_tax withholding sec_414 of the code provides that contributions otherwise designated as employee contributions shalt be treated as employer contributions if such contributions are made to a plan determined to be qualified under sec_401 established by a state government or a political_subdivision thereof and are picked up by the employing unit the federal_income_tax treatment to be accorded contributions which are picked up by the employer within the meaning of sec_414 of the code is specified in revrul_77_462 1977_2_cb_358 in that revenue_ruling the employer school district agreed to assume and pay the amounts employees were required by state law to contribute to a state pension_plan revrul_77_462 concluded that the schoo district's picked-up contributions to the plan are excluded from the employees’ gross_income until such time as they are distributed to the employees the revenue_ruling held further that under the provisions of sec_3401 of the code the school district's contributions to the plan are excluded from wages for purposes of the collection of income_tax at source on wages therefore no withholding is required from the employees' salaries with respect to such picked-up contributions the issue of whether contributions have been picked up by an employer within the meaning of sec_414 of the code is addressed in revrul_81_35 1981_1_cb_255 and revrul_81_36 1981_1_cb_255 these revenue rulings established that the following two criteria must be met the employer must specify that the contributions although designated as employee contributions are being paid_by the employer in lieu of contributions by hikrik iat iii eir iir ia iaai iain page -3- the employee and the employee must not be given the option of choosing to receive the contributed amounts directly instead of having them paid_by the employer to the pension_plan in revrul_87_10 1987_1_cb_136 the internal_revenue_service considered whether contributions designated as employee contributions to a governmental_plan are excludable from the gross_income of the employee the service concluded that to satisfy the criteria set forth in revenue rulings and with respect to particular contributions the required specification of designated employee contributions must be completed before the period to which such contributions relate in this request sec_4 of plan x and proposed amendment r if adopted as proposed satisfy the criteria set forth in revrul_81_35 and revrul_81_36 by providing in effect that employer m will make contributions to plan x in lieu of contributions by group n employees and that the group n employees participating in plan x have no option to receive any picked up contributions directly instead of having such contributions paid to plan x further resolution o and proposed resolution n also satisfy the criteria set forth in revrul_81_35 and revrul_81_36 resolution o provides that the group n employees’ contributions although designated as employee contributions are being paid_by employer m in lieu of contributions by the group n employees proposed resolution n if adopted as proposed provides that the group n employees do not have the option of choosing to receive the contributed amounts directly instead of having such contributions paid to plan x accordingly we conclude with respect to ruling requests number sec_1 and that the amounts picked up by employer m on behalf of the group-n employees who participate in plan x shall be treated as employer contributions and will not be includible in the group n employees' gross_income in the year in which such amounts are contributed for federal_income_tax purposes these amounts will be includible in the gross_income of the group n employees or their beneficiaries only in the taxable_year in which they are distributed to the extent that the amounts represent contributions made by employer m to plan x because we have determined that the picked-up amounts are to be treated as employer contributions they are excepted from wages as defined in sec_3401 a a of the code for federal_income_tax withholding purposes in addition no part of the amounts picked up by employer m will constitute wages for federal_income_tax withholding purposes in the taxable_year in which they are contributed to plan x these rulings apply only if the effective date for the commencement of the pick-up is no earlier than the later the date specified in the adoption of the final resolution and amendment or the date the pick-up is put into effect for purposes of the application of sec_414 of the code it is immaterial whether an employer picks up contributions through a reduction in salary an offset against future salary increases or a combination of both these rulings are based on the assumption that plan x will be qualified under sec_401 a of the code at the time of the proposed contributions and distributions this ruling is further based on plan x and resolution o as set forth in your letter dated date and proposed amendment r and proposed resolution n as set forth in your letter dated date kreririrrerrenaikereeerrereire page -4- no opinion is expressed as to whether the amounts in question are subject_to tax under the federal_insurance_contributions_act no opinion is expressed as to whether the amounts in question are paid pursuant to a salary reduction agreement within the meaning of sec_3121 these rulings are directed only to the taxpayer who requested them sec_6110 of the code provides that they may not be used or cited by others as precedent a copy of this letter has been sent to your authorized representative in accordance with the power_of_attorney on file with this office sincerely yours magnes otr flotd joyce e floyd manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of this letter and notice