department of the treasury internal_revenue_service washington d c date cc dom fs p si tl-n-6725-98 uilc 2207a number release date internal_revenue_service national_office field_service_advice memorandum for attn from assistant chief_counsel field service cc dom fs subject this field_service_advice responds to your memorandum field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend w h s w trust h trust descendants’ trust x partners year year year year year dollar_figurex1 state a state a code case a case b issues whether h’s disposition of his interest in the w trust is subject_to gift_tax whether the agreements in year and year between s and h resulted in a gift from h to s whether the agreement in year between s and h resulted in estate_tax consequences whether h made an indirect gift that benefitted the descendants’ trust when in his capacity as general_partner he failed to require reimbursement of losses before he resigned as general_partner resulting in the depletion of his capital accounts to the benefit of the capital accounts of the descendants’ trust whether the service may assert transferee_liability for the transfers made pursuant to the year settlement agreement that are subject_to estate_and_gift_taxes conclusions h’s inter_vivos disposition of his qualifying_income_interest_for_life in the marital portion of the w trust is a transfer of all interests in such property other than the qualifying_income interest thus under sec_2519 h is treated as gifting the remainder of the marital portion of the w trust in year based upon the facts presented the year agreement was not respected by h and s and was superceded by the year agreement in the year agreement h transferred significant value to s when he transferred hi sec_3 qualifying_income_interest_for_life in the marital portion of the w trust relinquished certain rights in the h trust and relinquished his rights in x partners to resolve the litigation however based on the facts presented it appears that the year agreement was made in the ordinary course of business between s and h and therefore was not a taxable gift pursuant to the year agreement h retained a monthly annuity for life in the h trust accordingly we conclude that pursuant to sec_2036 h’s gross_estate includes the amount of the h trust corpus needed to generate the monthly annuity and the taxes paid thereon in addition since h retained a life_estate in certain real and personal_property the date of death values of these properties are also includible in h’s gross_estate under sec_2036 based upon the facts provided we conclude that h did not make an indirect gift by failing to require reimbursement of losses before he resigned as general_partner pursuant to the applicable regulations there was no triggering event requiring restoration of the capital accounts the transferee may be held liable for the estate_tax under sec_6324 and for the gift_tax under the doctrine_of transferee_liability in equity however further factual development is required there may be no transferee_liability to the extent either party has made the transfers for full and adequate_consideration sec_6901 allows the service one year beyond the expiration of the period of limitations for assessment against the transferor to assess such transferee liabilities facts w and h were married and had one son s in year w and h formed x partners pursuant to the laws of state a x partners has two classes of limited partners special limited partners and regular limited partners the partnership_agreement provides that h and w are special limited partners and the descendants’ trust with s as trustee h and w are regular limited partners the partnership_agreement was amended in year to allocate the partnership losses to w and h the amendment provided that losses allocable to each partner would be charged against his portion of the partner’s earnings retained in business and any partner’s negative balance would be collectible by the partnership as any other obligation owed to the partnership with interest at a reasonable rate to be determined by the general partners in year w and h created irrevocable trusts containing essentially the same terms called the w trust and h trust w and h transferred their interests in x partners to their respective trusts w and h were co-trustees of both trusts and when w died s became co-trustee of both trusts with h under the terms of the trusts the trustee was authorized to distribute net_income and principal to the grantor and the grantor’s spouse for their medical dental hospital and nursing expenses and for their support and maintenance in their accustomed manner of living s was the primary beneficiary of the remainder_interest of both trusts following the death of h and w but h and w retained the right to revoke the beneficiary designations w died in year on the estate_tax_return filed by the estate the executor of w’s estate elected to treat the marital trust portion of the w trust which was included in w’s gross_estate as qualified_terminable_interest_property under sec_2056 b and her estate claimed a marital_deduction for the value of the marital trust the return reported that no estate_tax was due shortly after w’s death h desired to remarry against the wishes of s to resolve the disputes over the family’s assets s and h entered into a formal agreement in year the terms of the agreement required that all income from assets in the w and h trusts continue to be used to support h in his accustomed manner of living pursuant to the discretionary authority granted in the trust instruments the year agreement also provided that payments from x partners from the trusts that exceeded a combination of the distributions of net_income to h and the net_income distributions from the marital trust portion of the w trust would reduce a contingent_liability of s to pay the surviving_spouse named in h’s will a certain amount this contingency never occurred the agreement also provided that upon the sale before h’s death of certain property held by x partners an amount equal to the selling_price would be distributable to s although the property was sold h never distributed an amount equal to the selling_price to s the agreement also provided that certain life_insurance_proceeds be returned to h the day after the agreement was signed h remarried s hired an attorney as trustee of the descendants’ trust and sued h for amongst other things that as general_partner he failed to require reimbursement of partnership losses by the general_partner h counterclaimed and argued that s had cut off the payments that h was entitled to from the h trust and had failed to return the insurance proceeds as provided for under the year agreement s and h entered into an agreement in year to resolve the litigation h agreed to resign as general_partner of the partnership and as trustee of the w and h trusts s remained the trustee of the trusts and agreed to dissolve the partnership and distribute partnership assets to the partners in accordance with their capital accounts the documents indicate that this distribution has not been made real_property and two motor vehicles owned by the partnership were transferred to h for life s and h also agreed that h will be paid dollar_figurex1 per month for life plus the taxes due on the annuity from the principal of the h trust if the h trust is depleted payment would come from the income and if necessary from the principal of the marital portion of the w trust with the exception of this monthly annuity h relinquished all of his legal rights to payments from the h trust and the marital portion of the w trust further h relinquished his right to change the beneficiary designation on the h trust when he relinquished his legal rights to that trust h died in year law and analysis issue - whether h’s disposition of his interest in the marital portion of the w trust is subject_to gift_tax law sec_2044 a provides in part that the value of the gross_estate shall include the value of any property to which this section applies in which the decedent had a qualifying_income_interest_for_life sec_2044 provides that sec_2044 applies to any property if a deduction was allowed with respect to the transfer of such property to the decedent a under sec_2056 by reason of subsection b thereof or b under sec_2523 by reason of subsection f thereof and sec_2519 relating to dispositions of certain life estates did not apply with respect to a disposition by the decedent of part or all of such property sec_2056 generally provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate shall except as limited by subsection b be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property which passes or has passed_from_the_decedent_to_his_surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 provides that in the case of qualified terminable_interest property- i for purposes of sec_2056 such property shall be treated as passing to the surviving_spouse and ii for purposes of sec_2056 no part of such property shall be treated as passing to any person other than the surviving_spouse sec_2056 defines the term qualified_terminable_interest_property as property i which passes from the decedent ii in which the surviving_spouse has a qualifying_income_interest_for_life and iii which an election under this paragraph applies under sec_2056 the surviving_spouse has a qualifying_income_interest_for_life if i the surviving_spouse is entitled to all the income from the property payable annually or at more frequent intervals or has a usufruct interest for life in the property and ii no person has a power to appoint any part of the property to any person other than the surviving_spouse sec_2207a provides that if for any calendar_year tax is paid under chapter with respect to any person by reason of property treated as transferred by such person under sec_2519 such person shall be entitled to recover from the person receiving the property the amount by which the total_tax for such year under chapter exceeds the total_tax which would have been payable under such chapter for such year if the value of such property had not been taken into account for purposes of chapter sec_2511 generally provides that the tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that where property is transferred for less than an adequate_and_full_consideration in money or money’s worth then the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift and shall be included in computing the amount of gifts made during the calendar_year sec_2519 generally provides that for purposes of chapter sec_11 and sec_12 any disposition of all or part of a qualifying_income_interest_for_life in any property to which this section applies shall be treated as a transfer of all interests in such property other than the qualifying_income interest sec_2519 provides that sec_2519 applies to any property if a deduction was allowed with respect to the transfer of such property to the donor under sec_2056 by reason of subsection b thereof or under sec_2523 by reason of subsection f thereof treas reg provides in pertinent part that a sale exchange or other transfer of property made in the ordinary course of business a transaction which is bona_fide at arm’s length and free from donative_intent will be considered as made for an adequate_and_full_consideration in money or money’s worth sec_25_2519-1 provides in part that if a donee spouse makes a disposition of all or part of a qualifying_income_interest_for_life in any property for which a deduction was allowed under sec_2056 or sec_2523 for the transfer creating the qualifying_income interest the donee spouse is treated for purposes of chapter sec_11 and sec_12 of subtitle b of the internal_revenue_code as transferring all interests in property other than the qualifying_income interest analysis under sec_2056 property that passes from a decedent to the surviving_spouse in which the surviving_spouse has a qualifying_income_interest_for_life qualifies for the marital_deduction if the executor elects to treat the property as qualified_terminable_interest_property qtip the consequence of the qtip_election is that the property remaining at the surviving spouse’s death must be included in the surviving spouse’s gross_estate under sec_2044 unless the surviving_spouse made a transfer of the interest under sec_2519 the inter_vivos relinquishment of a qualifying_income interest may invoke two sections sec_2519 imposes a gift_tax on the remainder_interest and sec_2511 imposes a gift_tax on the qualifying_income interest the executor of w’s estate made an election under sec_2056 for the marital trust portion of the w trust and claimed a marital_deduction on w’s federal estate_tax_return for the value of the marital trust h had the benefit of a qualifying_income_interest_for_life and received the benefit of deferred estate taxation as part of the settlement between s and h in year h made a disposition of his qualifying_income_interest_for_life when he relinquished all legal rights to payments from the marital portion of the w trust but for the contingency should the assets in the h trust become depleted the agreement provided that h will be paid dollar_figurex1 per month for life from the principal of the h trust if the h trust corpus depleted only then would payment come from the income and if necessary from the principal of the marital portion of the w trust h specifically relinquished all of his legal rights to payments from either trusts with the exception of this annuity arrangement the term disposition as used in sec_2519 applies broadly to circumstances in which the surviving spouse’s right to receive the income is relinquished or otherwise terminated by whatever means see h_rep_no 97th cong 1st sess that states the bill provides that property subject_to a qtip_election will be subject_to transfer_taxes at the earlier of the date on which the spouse disposes either by gift sale or otherwise of all or part of the qualifying_income interest or upon the spouse’s death the estate_tax_marital_deduction provisions are intended to provide a special tax_benefit that allows property to pass to the surviving_spouse without the decedent’s estate paying tax on its value tax is deferred on the transfer until the surviving_spouse either dies or makes a lifetime disposition of the property see revrul_98_8 1998_6_irb_24 it is necessary under the estate and gift_tax laws to tax the transfer of the remainder_interest because the predeceased spouse’s estate received a marital_deduction for the terminable_interest property and after the inter_vivos transfer of the qualifying_income interest the remainder will no longer be included in the surviving spouse’s estate under sec_2044 we conclude that in year h gave up his right to receive the qualifying_income_interest_for_life in the marital portion of the w trust the amount_of_the_gift under sec_2519 is the value of the trust corpus less the value of the qualifying_income interest the amount_of_the_gift is further reduced by the gift_tax liability if the donee reimburses the estate for the gift_taxes attributable to the transfer under see sec_2207a furthermore pursuant to sec_2511 h may have gifted the qualifying_income interest when he relinquished his rights to that interest sec_2512 provides that where propery is transferred for less than an adequate_and_full_consideration in money or money’s worth then the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift and shall be included in computing the amount of gifts made during the calendar_year however if the transfer of property was made in the context of an agreement that is determined to be bona_fide at arm’s length and free from donative_intent the transfer will be deemed to be made for an adequate_and_full_consideration in money or money’s worth see sec_25_2512-8 although the inter_vivos disposition of the qualifying_income interest under sec_2511 may be characterized as a transfer of property made in the ordinary course of business under sec_25_2512-8 that does not affect the application of sec_2519 the facts and documents provided indicate that there was animosity between h and s litigation was pending pleadings were filed temporary restraining orders were obtained and negotiations ensued based on the facts presented it appears that the transfers were free from donative_intent and the transfers may have been at arm’s length and bona_fide due to the acrimonious relationship without further factual development we do not believe h made a gift of the qualifying_income interest under sec_2511 and express no opinion whether the terms of the marital trust satisfied the requirements of sec_2056 issue - whether the agreements in year and year between s and h resulted in a gift from h to s law sec_2501 imposes a tax on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides in part that the tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that where propery is transferred for less than an adequate_and_full_consideration in money or money’s worth then the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift and shall be included in computing the amount of gifts made during the calendar_year sec_25_2512-8 provides in pertinent part that a sale exchange or other transfer of property made in the ordinary course of business a transaction which is bona_fide at arm’s length and free from donative_intent will be considered as made for an adequate_and_full_consideration in money or money’s worth transactions within a family group are subject_to special scrutiny when considering an intra-family transaction particularly between a parent and a child the presumption is that the transaction is a gift rather than a bona_fide business transfer see 82_tc_239 aff’d 786_f2d_1174 9th cir bergeron v commissioner tcmemo_1986_587 for example in 16_f3d_462 1st cir aff’g 100_tc_313 the court stated transactions among family members are subject_to particular scrutiny even when they apparently are supported by monetary consideration because that is the context in which a testator is most likely to be making a bequest rather than repaying a real contractual obligation analysis the determination of whether a transaction between family members is in reality a gift subject_to gift_tax is a factual issue to be determined on the facts of each case the facts and documents presented indicate that although h and s attempted to settle their disagreements in year neither party adhered to the terms of the settlement because the year agreement appears to have settled most if not all of the property disputes we believe that any attempted settlement in year was superceded by the year settlement accordingly we do not believe the year agreement was a contingent gift completed in year the year settlement and the attendant transfers appear testamentary in nature s transferred nothing to h but received essentially all of h’s assets including control of x partners h agreed to resign as general_partner of the partnership and as trustee of the w and h trusts s remained the trustee of the trusts and agreed to dissolve the partnership and distribute partnership assets to the partners in accordance with their capital accounts the facts indicate that s has not dissolved the partnership and distributed its assets h was to be paid dollar_figurex1 per month for life from the principal of the h trust and was given a life_estate in certain real and personal_property held by x partners with the exception of the monthly annuity h relinquished all of his legal rights to payments from the w and h trusts further h relinquished his right to change the beneficiary designation on the h trust however the relationship between s and h appears to have been acrimonious litigation was pending pleadings were filed temporary restraining orders were obtained and negotiations ensued pursuant to sec_25_2512-8 a sale exchange or other transfer of property that is bona_fide at arm’s length and free from donative_intent will be considered as made for an adequate_and_full_consideration in money or money’s worth based on the facts presented it appears that the transfers were free from donative_intent and the transfers may have been at arm’s length and bona_fide due to the acrimonious relationship accordingly without further factual development we do not believe that the settlement agreement in year resulted in a gift under sec_2511 issue - whether the settlement agreement in year between s and h resulted in estate_tax consequences law sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in a case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death - the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_20_2036-1 provides in pertinent part that if the decedent retained or reserved an interest or right with respect to all of the property transferred by him the amount to be included in his gross_estate under sec_2036 is the value of the entire property less only the value of any outstanding income_interest which is not subject_to the decedent’s interest or right and which is actually being enjoyed by another person at the time of the decedent’s death if the decedent retained or reserved an interest or right with respect to a part only of the property transferred by him the amount to be included in the gross_estate under sec_2036 is only a corresponding proportion of the amount described in the preceding sentence analysis in year h created the h trust and retained an interest under sec_2036 h enjoyed or had the right to the income from the property under the terms of the h trust the trustees h and w were authorized to distribute net_income and principal to h and w for their medical dental hospital and nursing expenses and for their support and maintenance in their accustomed manner of living see sec_25_2511-2 sec_2036 generally provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has retained for his life the possession or enjoyment of or the right to the income from the property pursuant to the terms of the settlement in year h rearranged his affairs but continued to retain a sec_2036 string to the h trust h retained a lifetime annuity in the amount of dollar_figurex1 net per month from the principal of the h trust plus payment of the taxes h had a sec_2036 interest before the settlement and pursuant to the terms of the settlement retained a sec_2036 interest in the h trust accordingly we conclude that the corpus needed to produce the dollar_figurex1 net per month and the taxes paid thereon is includible in h’s estate pursuant to sec_2036 see sec_20_2036-1 revrul_82_105 1982_1_cb_133 further under sec_2036 a the date of death values of the personal and real_property in which h retained a life_estate are also includible in his gross_estate in year h and w created x partners with their own funds and set up the trusts to hold their partnership interests prior to the year agreement h was general_partner and special limited_partner when s and h entered into the agreement to resolve the litigation h agreed to resign as general_partner of the partnership and as trustee of the w and h trusts however h retained life estates in two motor vehicles and real_property owned by the partnership the values of which are includible in his gross_estate under sec_2036 whether h made an indirect gift that benefitted the descendants’ trust when in his capacity as general_partner he failed to require reimbursement of losses before he resigned as general_partner resulting in the depletion of his capital accounts to the benefit of the capital accounts of the descendants’ trust issue - law sec_704 provides that a partner’s distributive_share of income gain loss deduction or credit or item thereof shall be determined in accordance with the partner’s interest in the partnership determined by taking into account all facts and circumstances if the partnership_agreement does not provide as to the partner’s distributive_share of income gain loss deduction or credit or item thereof or the allocation to a partner under the agreement of income gain loss deduction or credit or item thereof does not have substantial economic_effect sec_1_704-1 provides in general that the economic_effect test requires an examination of the capital accounts of the partners of a partnership as maintained under the partnership_agreement sec_1_704-1 provides in pertinent part that in order for an allocation to have economic_effect it must be consistent with the underlying economic arrangement of the partners this means that in the event there is an economic benefit or economic burden that corresponds to an allocation the partner to whom the allocation is made must receive such economic benefit or bear such economic burden based on these principles and except as otherwise provided in this paragraph an allocation of income gain loss or deduction or item thereof to a partner will have economic_effect if and only if throughout the full term of the partnership the partnership_agreement provides - for the determination and maintenance of the partners’ capital accounts in accordance with the rules of b iv of this section upon liquidation of the partnership or any partner’s interest in the partnership liquidating distributions are required in all cases to be made in accordance with the positive capital_account balances of the partners as determined after taking into account all capital_account adjustments for the partnership taxable_year during which such liquidation occurs and if such partner has a deficit balance in his capital_account following the liquidation of his interest in the partnership as determined after taking into account all capital_account adjustments for the partnership taxable_year during which such liquidation occurs he is unconditionally obligated to restore the amount of such deficit balance to the partnership by the end of such taxable_year which amount shall upon liquidation of the partnership be paid to creditors of the partnership or distributed to other partners in accordance with their positive capital_account balances sec_1_704-1 provides that the economic_effect test described in paragraph b ii of this section requires an examination of the capital accounts of the partners of a partnership as maintained under the partnership_agreement except as otherwise provided in paragraph b ii i of this section an allocation of income gain loss or deduction will not have economic_effect under paragraph b ii of this section and will not be deemed to be in accordance with a partner’s interest in the partnership under paragraph b of this section unless the capital accounts of the partners are determined and maintained throughout the full term of the partnership in accordance with the capital accounting rules of this paragraph b iv sec_1_704-1 generally provides that upon the transfer of all or part of an interest in the partnership the capital_account of the transferor that is attributable to the transferred interest carries over to the transferee partner analysis the rules governing partnership capital accounts are set forth in the regulations under sec_704 the sec_704 capital accounts are designed to track the economic_effect of the allocation of partnership items to a partner under the regulations each partner has one capital_account that reflects the value of the partner’s contributions to the partnership and is increased by the partner’s share of income and is reduced by the partner’s share of partnership deductions and by distributions to the partner see sec_1_704-1 for the rules governing the proper maintenance of capital accounts to insure that tax allocations items of income gain loss or deduction have economic_effect the partners must agree to liquidate based on positive capital accounts and to require that partners with a negative capital_account restore this negative account upon liquidation see sec_1_704-1 the time for the restoration of a negative capital_account is when the partnership is being liquidated or the partner’s interest in the partnership is being liquidated see sec_1 b ii b and the partnership_agreement was amended in year to allocate the partnership losses to h and w in year in settlement of litigation between h and s h resigned as general_partner and as trustee of the h and the w trusts this transfer may have been a sale_or_exchange or a gift but in either case it was not the time that a partner is required to restore his her deficit capital_account under the sec_704 regulations the transferee inherits the capital_account of the transferor see sec_1_704-1 accordingly based on the information provided to us h had no obligation under sec_704 to restore his negative capital_account if he had one on the transfer of his interest in the partnership in year we express no opinion regarding whether the allocation of losses to the general partners satisfied the requirements for substantial economic_effect under the sec_704 regulations issue - whether the service may assert transferee_liability for the transfers made pursuant to the settlement agreement that were subject_to estate_and_gift_taxes law sec_6324 provides that where property is included in the gross_estate of a decedent pursuant to sec_2034 through the transferee of the property automatically becomes liable for any unpaid estate_tax to the extent of the date-of- death value of the property received sec_6901 provides that the liability of a transferee of property of a decedent in the case of a tax imposed by chapter relating to estate_taxes or of a donor in the case of a tax imposed by chapter relating to gift_taxes shall be assessed paid and collected in the same manner and subject_to the same provisions and limitations as in the case of the taxes with respect to which the liabilities were incurred sec_6902 and tax_court rule a provide that in proceedings before the tax_court the burden_of_proof shall be upon the secretary to show that a petitioner is liable as a transferee of property of a taxpayer but not to show that the taxpayer was liable for the tax in other words the service must prove each and every element of a prima facie case sec_6901 allows the service one year beyond the expiration of the period of limitations for assessment against the transferor to assess such transferee_liability analysis the analysis provided herein concludes that both gift and estate_taxes are due from h’s estate under sec_2519 gift_tax is due on the remainder of the marital portion of the w trust based upon h’s inter_vivos transfer of his lifetime qualified income_interest in the marital portion of the w trust under sec_2036 estate_tax is due on the amount of the corpus needed to support the lifetime annuity retained from the h trust and the date of death value of the real and personal_property that h retained for his life sec_6901 allows the government to assess a liability against a transferee in the same manner as the tax would be assessed against the transferor taxpayer sec_6901 provides that a transferee may be a donee heir legatee devisee distributee and with respect to estate_taxes any person who is personally liable for the tax sec_301_6901-1 see 100_tc_252 aff’d in part and rev’d in part 29_f3d_433 8th cir cert_denied 513_us_1190 however sec_6901 does not actually create transferee_liability it merely provides an alternative procedure for collecting the unpaid taxes of the transferor the substantive liability of the transferee for unpaid estate liability must be determined under federal_law sec_6324 transferee_liability for estate_taxes based on the available facts in this case to resolve litigation between h and s in year real_property and two vehicles owned by x partners were given to h for life s and h also agreed that h was to be paid dollar_figurex1 per month plus taxes for life from the principal of the h trust as noted above it has been determined that the corpus needed to produce the dollar_figurex1 net per month and the taxes paid thereon and the date of death values of the personal and real_property are includible in the gross_estate of h pursuant to sec_2036 sec_6324 specifically provides that where property is included in the gross_estate of a decedent pursuant to sec_2034 through the transferee of the property automatically becomes liable for any unpaid estate_tax to the extent of the date of death value of the property received sec_6324 this section allows the united_states to assert transferee_liability against persons receiving property that is transferred outside the probate proceeding magill v commissioner tcmemo_1982_148 aff’d sub nom 729_f2d_496 7th cir cert_denied sub nom 469_us_852 69_tc_309 thus a person who receives nonprobate assets that were included in the gross_estate of a decedent is a transferee and may be subject_to transferee_liability under sec_6901 without regard to whether he would be treated as a transferee under state law 312_f2d_311 9th cir aff’g 32_tc_998 and rev’g on another issue 32_tc_1017 groetzinger supra t c pincite and 66_tc_887 as possessors of property includible in the gross_estate of h the partnership and the h trust are transferees within the meaning of sec_6324 s as trustee is personally liable for the unpaid estate_taxes of the h estate where a trustee who as in this case is in possession of property includible in the decedent’s gross_estate at the date of death the trustee is personally liable as a transferee 32_tc_1017 modified on other grounds sub nom 312_f2d_311 9th cir sec_6324 provides in part a liens for estate_tax - liability of transferees and others - if the estate_tax imposed by chapter is not paid when due then the spouse transferee trustee surviving tenant person in possession of the property by reason of the exercise nonexercise or a release of a power_of_appointment or beneficiary who receives or has on the date of decedent’s death property included in the gross_estate under sec_2034 to inclusive shall be liable for such tax eggleston v commissioner tcmemo_1985_327 transferee’s receipt of property includible in the decedent’s estate under sections made her liable as trustee 309_f2d_202 9th cir cert_denied 373_us_909 government not required to proceed against the partnership entity individual partners were liable as transferees since they owned and controlled the partnership accordingly the service may assert transferee_liability against s since he is the trustee of the h trust and the partners of the partnership however to the extent that the transfers were made for full and adequate_consideration no transferee_liability would exist see 70_tc_71 sec_6901 allows the service one year beyond the expiration of the period of limitations for assessment against the transferor to assess such transferee_liability transferee_liability for gift_taxes as noted above under sec_2519 h’s inter_vivos disposition of the qualifying_income interest in the marital portion of the w trust results in a gift_tax imposed upon the remainder of the marital portion of the w trust transferee_liability may also be established either at law or in equity 37_tc_945 subsequent proceedings 40_tc_275 transferee_liability at law arises when the transferor transfers property at the time of the transfer and at the time the transferee_liability is asserted the transferor is liable for the tax and a valid contract exists between the transferor and the transferee and under the contract the transferee agrees to assume the liability of the transferor or the transferee_liability is imposed under an applicable state or federal statute 84_tc_375 later proceeding 90_tc_771 a review of the available facts reveals that there is no contractual agreement to assume the unpaid transfer_tax liabilities of h sec_6324 provides for a special_gift_tax_lien that attaches to any and all gifts made during a filing period and continues for ten years from the date the gifts are made unless the gift_tax is paid in full or sooner becomes unenforceable by the lapse of time see ccdm based upon the available facts it appears that any potential gifts by h occurred in year thus it appears that the government’s special_gift_tax_lien under sec_6324 lapsed sec_6324 cannot be used to establish transferee_liability at law to establish transferee_liability in equity the service must generally prove the following the transferee received property from the transferor the property was transferred to the transferee without consideration or for less than adequate_consideration the transfer was made during or after the period the gift_tax liabilities had accrued the transferor was insolvent to or because of the transfer of property to the transferee2 all reasonable efforts to collect from the estate of the transferor were made and that further collection efforts would be futile and the value of the property transferred 100_tc_180 the existence and extent of transferee_liability in equity is determined by the applicable state law 357_us_39 in this case the transfers of property were made in state a therefore it is necessary to look to the law of state a to determine transferee_liability under state a law transferee_liability at the time of the transaction is governed by state a code in this case the service initially would have to establish that the transferee received property from the transferor further factual development is required before we can opine on this element of transferee_liability the second element that must be proven is whether the transfers were made for consideration deemed valuable in law this requires a valuation not only of the property transferred but also of the legal rights given up in exchange for the property as this transfer has been deemed a gift it appears that inadequate consideration was given for the transfer however further factual development is required before we can opine on this element of transferee_liability the third element of transferee_liability concerns the accrual of the transferor’s gift_tax liability at the time of the transfer thus to the extent there is an unpaid gift_tax liability transferee would be liable for the deficiencies in the decedent’s gift_tax for gifts made during year see 64_tc_61 the fourth element that is generally required to establish transferee_liability is to show insolvency of the transferor at the time of the transfer or insolvency resulting from the transfer in this case under state a’s law it is necessary to prove insolvency case a debtor is insolvent when he has insufficient assets to pay his debts in order to prove insolvency both the value of the debtor’s assets and the amount of his liabilities must be established case b there is insufficient evidence for a determination as to whether h was insolvent at the time of the transfer or rendered insolvent by the transfer before the service can recover from the transferee it must exhaust all remedies against the transferor for the unpaid gift_tax liabilities this requirement is met when it is apparent that proceeding against the transferor would be futile it is our understanding that h’s estate does not have assets to pay the tax making this may or may not be required under state law see 100_tc_180 collection futile however this fact must be verified before initiating a transferee_liability case finally the service must establish the value of the transferred property 35_tc_317 acq 1961_2_cb_4 in this regard the service would have the burden of establishing the item transferred and its value bartmer t c pincite milliken v commissioner tcmemo_1959_210 18_tcm_995 aff’d 298_f2d_830 4th cir the facts provided to us do not specifically address this issue we are unable to recommend that transferee_liability for the gift_tax be asserted at this time because further factual development is necessary case development hazards and other considerations there are several viable theories in this case we recommend pursuing the imposition of gift_tax on the remainder of the marital portion of the w trust pursuant to sec_2519 and the inclusion in h’s gross_estate of his retained_life_estate in the h trust pursuant to sec_2036 these arguments appear to be the strongest arguments for the service the service may have a viable position under sec_2511 regarding the imposition of gift_tax on the exchange between h and s and h’s relinquishment of the qualified income_interest in the marital portion of the w trust in year we can argue that the transaction was a testamentary transfer between family members lacking the indicia of an arm’s length transaction petitioner may argue that the settlement was a bona_fide sale for adequate_and_full_consideration in money’s worth and therefore the retained_interest would not be subject_to sec_2036 petitioner would have to demonstrate that h received consideration equal to for the entire value of the trust corpus see estate of magnin v commissioner t c memo 897_f2d_516 d c cir but see 101_f3d_309 3rd cir 116_f3d_749 5th cir the facts provided support our position that h did not receive adequate_and_full_consideration for the transfer further factual development is necessary to determine if court rule sec_6902 tax by melissa liquerman senior technician reviewer passthroughs special industries branch field service division


department of the treasury internal_revenue_service washington d c o f f ic e o f c h ief c o u n sel date number info release date the honorable u s house of representatives washington d c attention mr dear conex-145391-01 uil this letter responds to your inquiry dated date to the commissioner of the internal_revenue_service on behalf of your constituent mr wages for his extended contract with the county school you ask whether mr system are supplemental_wages subject_to income_tax_withholding at a flat percentage rate of percent1 and if so whether he can claim a refund if his gross_income is subject_to a lower tax_rate i am providing you the following general information which i hope is helpful generally every employer is responsible for withholding income_tax from an employee’s wages actually or constructively paid sec_3402 of the internal_revenue_code this section provides two methods for withholding the percentage_method and the wage_bracket_method supplemental_wages are compensation paid in addition to the employee’s regular wages they include but are not limited to overtime pay severance_pay commissions and bonuses paid for the same or different payroll_period or without regard to a particular payroll_period the regulations provide several procedures an employer can use to determine the amount of tax to withhold from supplemental_wages supplemental_wages paid concurrently with regular wages if an employee’s supplemental_wages are paid concurrently with the employee’s regular wages and the amounts of each are not specified the employer determines the tax 1effective for wages paid after date the withholding rate for supplemental_wages is decreased from percent to percent withheld as if the supplemental_wages are combined with the regular wages paid for the payroll_period sec_31_3402_g_-1 if however the employer combines the regular and supplemental_wages in one payment and the employer specifically indicates the amount of each in its payroll records the employer can withhold federal_income_tax at a flat rate of percent on the portion of the total_payment representing the supplemental wage payment if tax is withheld on the regular wage portion at the appropriate rate sec_31 g -1 a ii and revrul_82_200 c b supplemental_wages and regular wages paid separately if the employer separately pays both regular wages and supplemental_wages to an employee and withholds the appropriate income_tax on the regular wages the employer can chose one of the following methods to withhold federal_income_tax on the supplemental_wages withhold tax from the supplemental_wages at the flat rate of percent use the aggregation method as described under sec_31 g -1 a according to this method the employer totals the supplemental_wages and the regular wages paid in the same calendar_year either for the last preceding payroll_period or for the current payroll_period and determines the income_tax to be withheld as if the total amount were a single payment the employer then subtracts from this amount the income_tax already withheld from the regular wages and withholds the remaining tax from the supplemental_wages special rule where the aggregate exemption exceeds wages paid an employer can apply a special rule to supplemental_wages paid for a period covering two or more consecutive payroll periods of no less than one week for which an employee receives other wages and his total withholding exemptions exceed his total wages for the regular payroll_period ie no income_tax was withheld from his regular wages sec_31_3402_g_-1 in this situation an employer can determine the amount of taxes to withhold on such supplemental_wages as follows determine the average wage for each payroll_period to which the supplemental payment relates by dividing the sum of the regular and the supplemental wage payments by the number of applicable payroll periods determine the withholding_tax on the amount calculated in as if that amount were actually paid to the employee for such payroll_period then multiply the amount by the number of payroll periods applicable subtract the amount calculated in from any taxes actually withheld from the employee’s regular wages the remaining amount if any is the amount of tax to be withheld from the employee’s supplemental wage payment supplemental_wages are also subject_to taxes under the federal_insurance_contributions_act fica and federal_unemployment_tax_act futa refund if employee’s wages are subject_to a lower rate if an employee’s wages are subject_to an income_tax_withholding rate in excess of the employee’s tax_liability the employee can claim a refund on his or her individual_income_tax_return form_1040 for the year he or she received the wages if you would like further assistance on this matter please contact employee identification_number at sincerely jerry e holmes chief employment_tax branch office of the assistant chief_counsel exempt_organizations employment_tax government entities


internal_revenue_service number release date index number -------------------------- --------------------------------------------------- ---------------- -------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------ telephone number -------------------- refer reply to cc psi plr-115809-05 date date -------------------------------- ------------------------------- ----------------------------- -------------------------- x ----------------------------------------- a ------------------------------------------- b ------------------------------------------- c ------------------------------------------- d ------------------------- ------------------------------------------- e ------------------------------------------- f ------------------------------------------- g ------------------------------------------- h ------------------------------------------- i ------------------------------------------- j ------------------------ ------------------------------------------- -------------------------- --------------------------- ---------------------------- ----------------------------- -------------------------------- ------------ ---------------- ---------------- ------------------- --------------------- -------------------------- plr-115809-05 state d1 d2 d3 d4 d5 dear ------------------- this responds to a letter dated date together with subsequent correspondence submitted on behalf of x requesting relief under ' g of the internal_revenue_code facts corporation effective d2 x revoked its s_corporation_election on d3 on d4 all of x’s stock was sold to new shareholders a b c d e f g h i and j the termination of the five-year waiting_period imposed by sec_1362 law and analysis x was incorporated under the laws of state on d1 x elected to be an s x is requesting permission to reelect to be an s_corporation effective d5 prior to sec_1362 provides that if a small_business_corporation has made an election under sec_1362 and if such election has been terminated under sec_1362 the corporation and any successor_corporation is not eligible to make an election under sec_1362 for any taxable_year before its fifth taxable_year which begins after its first taxable_year for which the termination is effective unless the secretary consents to the election sec_1_1362-5 of the income_tax regulations provides that the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should consent to a new election the fact that more than percent of the stock in the corporation is owned by persons who did not own any stock in the corporation on the date of the termination tends to establish that consent should be granted in the absence of this fact consent ordinarily is denied unless the corporation shows that the event causing termination was not reasonably within the control of the corporation or shareholders having a substantial interest in the corporation and was not plr-115809-05 part of a plan on the part of the corporation or of such shareholders to terminate the election conclusion based solely on the facts submitted and the representations made permission is granted to x to make an election to be an s_corporation effective d5 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective d5 within days following the date of this letter then such election will be treated as timely made for x's taxable_year beginning d5 a copy of this letter should be attached to the form_2553 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter including whether x was or is a small_business_corporation under sec_1361 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely s dianna k miosi dianna k miosi branch chief branch passthroughs special industries enclosures copy of this letter copy of ' purposes original form_2553


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b01 plr-125986-00 date nov legend x state d1 this responds to the letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated under state law x’s shareholder intended that x be a subchapter_s_corporation effective d1 however an s_corporation_election under sec_1362 was not timely filed s_corporation sec_1362 provides that a small_business_corporation may elect to be an law and analysis 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 that corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one-half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made cc psi b01 plr-125986-00 sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed for making such election for such taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year x did not timely file an election under sec_1362 to be treated as an s_corporation effective d1 x however has 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 assuming that x otherwise qualifies as a subchapter_s_corporation as of d1 we conclude that x will be recognized as an s_corporation effective as of d1 x should file a completed form_2553 with a copy of this ruling attached reflecting its election of subchapter_s_corporation status as of d1 with the applicable service_center within days of the date of this letter except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x otherwise satisfies the s_corporation eligibility requirements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this ruling is being sent to the taxpayer’s authorized representative s dianna k miosi sincerely dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc te_ge eb hw plr-117143-03 date city fund charter agreement dear this responds to the request of date on behalf of the fund concerning whether work-related disability benefits paid_by the fund are excludable from the gross_income of recipients under sec_104 of the internal_revenue_code the code the fund is an employee_benefit_plan providing retirement disability death and survivor benefits to retired police officers formerly employed by the city police department and their beneficiaries it pays benefits as defined in the charter and the agreement to those participants and surviving beneficiaries who meet certain eligibility requirements set forth in the mentioned documents section c7-10-2 of the charter states that there shall be such trust funds named herein or created hereafter by the board_of representatives which shall be governed by a_trust indenture or similar document as amended from time to time by the respective collective bargaining agreement the director of legal affairs may prepare for the trustees of each pension_plan an agreement and declaration of trust for the police pension_trust fund as may be later established by collective bargaining agreements section c7-20-1 of the charter states that the board_of trustees of the police fund may by a majority of vote of its members upon request of the respective chief of the fire and police departments as a reward for conspicuously meritorious service retire from duty any member of the regular police upon certificate of such medical examiner as the board_of trustees may designate showing that such member is permanently disabled physically or mentally so as to be unfit for any police or fire duty provided such medical examiner shall further certify that in the medical examiner's opinion such disability is due to injury received or exposures endured in the performance of duty in such department the board_of trustees by a majority vote may retire any member of the regular police force who in the actual performance of duty and without personal fault or misconduct shall have become permanently disabled so as to be incapacitated in the performance of duty the member so retired shall be entitled to receive from the proper fund during life time unless removed from the retired list after notice and hearing by a majority vote of the board_of trustees an annual sum payable monthly equal to one-half of the member's compensation during the last year_of_service it is represented by the fund's general counsel that the benefits provided under the above charter section is payable only on account of service-related disabilities that it has been so interpreted by the fund's board_of trustees and that the board_of trustees as the agency administering the fund has the authority to make such interpretation section c7-20-5 of the charter provides for survivor benefits to surviving_spouse and children of police officers who die or suffer injury in the performance of duty when any member of the police department shall die or be permanently injured in the actual performance of duty the board_of trustees shall direct an allowance out of this fund equal to one-half of the salary of such deceased police officer to be paid to the surviving_spouse or the dependent_children parent or sibling of the deceased police officer section k of the agreement which was ratified by the city and incorporated by reference into the charter establishes the criteria for benefits associated with work- related illness or injury active police officers of the city police department who suffer a work related illness or injury at any time during their employment as a police officer shall be eligible for the following disability pension benefits in addition to those currently existing pursuant to the charter and declaration of trust such members shall be entitled to a disability pension equal to one hundred percent of his her base pay at the time of the application if at least two out of three independent medical physicians selected by the pension board concur that said member has a permanent partial disability of fifty percent or a combined permanent partial disability of fifty percent or more of any part of his her body including mental_disability and the majority of the pension board concurs that said member is unable to be gainfully_employed as a result of said disability such members shall be entitled to a disability pension equal to seventy- five percent of his her base pay at the time of the application if at least two out of the three independent medical physicians selected by the pension board in accordance with the provisions of paragraph 9k above concur that same member has a permanent partial disability of thirty percent or a combined permanent partial disability of thirty percent or more of any part of his her body including mental_disability and also at least two out of three of said independent medical physicians concur that said member is unable to meet the physical or mental requirements of an entry patrolman for the city police department thus the charter provides for a disability benefit of of a member's compensation during the last year_of_service if determined to be incapacitated from the performance of duty as a result of an illness or injury incurred in the performance of duty the agreement provides a disability benefit of of the member's salary if determined to be at least disabled and unable to meet the police department's entry level medical requirements and a disability benefit if at least disabled and unable to be gainfully_employed such disability being caused by a work-related injury or illness sec_104 of the code states that except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 relating to medical etc expenses for any prior taxable_year gross_income does not include- amounts received under workmen's_compensation acts as compensation_for personal injuries or sickness sec_1_104-1 of the income_tax regulations states that sec_104 excludes from gross_income amounts that are received by an employee under a workmen's_compensation_act or under a statute in the nature of a workmen's_compensation_act that provides compensation to employees for personal injuries or sickness incurred in the course of employment sec_104 also applies to compensation which is paid under a workmen’s compensation act to the survivor or survivors of a deceased employee however sec_104 does not apply to a retirement pension or annuity to the extent that it is determined by reference to the employee's age or length of service or the employee's prior contributions even though the employee's retirement is occasioned by an occupational injury or sickness in revrul_81_47 1981_1_cb_55 county law provided that all collective bargaining agreements entered into by the county would be adopted and approved by legislative acts of the county council and that such agreements were incorporated by reference into the county code the revenue_ruling concludes that the collective bargaining agreements therefore had the force and effect of law and were considered statutes for purposes of sec_104 revrul_80_84 1980_1_cb_35 considered a situation in which a statute in the nature of a workmen's_compensation_act provided benefits in the event of work related injury and also provided that whenever any member died after retirement a pension based on the average salary of the member at the time of his death would be paid to survivors whether benefit payments are excludable by the recipient under sec_104 of the code depends upon the nature of the statute under which they are paid benefits will not be excludable where the statute allows for disability payments for any reason other than on-the-job injuries see 78_tc_864 affd 709_f2d_1206 8th cir based on the information submitted representations made and authorities cited section c7-20-1 of the charter provides for service-related disability to members determined to be permanently disabled physically or mentally so as to be unfit for any police duty the benefits payable are not determined by reference to the member's age length of service or prior contributions accordingly section c7-20-1 of the charter providing for service-related disability benefits is a statute in the nature of a workmen's_compensation_act and the benefits received thereunder are excludable from the recipient's gross_income under sec_104 of the code because sections k and k of the agreement have been incorporated by reference into the charter they have the force and effect of law and are a statute for purposes of sec_104 of the code sections k and k limit benefits to members who suffer personal_injury_or_sickness incurred in the performance of duty and are not determined by reference to the member's age length of service or prior contributions accordingly sections k and k of the agreement are statutes in the nature of workmen's_compensation acts and the benefits received thereunder are excludable from the recipient's gross_income under sec_104 of the code section c7-20-5 of the charter provides benefits to survivors of members who die as a result of accident or injury sustained in the performance of duty thus section c7-20-5 is a statute in the nature of a workmen's_compensation_act and the benefits received under section c7-20-5 by survivors of members are excludable from the recipient's gross under sec_104 of the code except as specifically ruled upon above no opinion is expressed or implied with respect to the application of any other provisions of the code or the regulations to the benefits described this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely harry beker chief health welfare branch office of division counsel associate chief_counsel tax exempt government entities enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court stuart m smith jr petitioner v commissioner of internal revenue respondent docket no filed date stuart m smith jr pro_se alvin a ohm for respondent memorandum findings_of_fact and opinion foley judge by notices dated date respondent determined the following deficiencies and additions to tax relating to petitioner's federal income taxes year deficiency sec_6651 a sec_6654 dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number 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 after concessions the remaining issues for decision are whether petitioner is liable for income and self-employment taxes relating to reconstructed self-employment_income and additions to tax findings_of_fact petitioner resided in dallas texas at the time his petition was filed during the years in issue petitioner worked in both permanent and temporary positions for various businesses petitioner received dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure of wages interest_income and unemployment_compensation relating to and respectively petitioner did not file tax returns for any of the years in issue on date petitioner submitted a pre-employment questionnaire questionnaire to jakes’ temps on the questionnaire petitioner listed several previous employers petitioner stated that he worked for pro staff during and - - for perrier group of america during and at the time he made his determinations respondent had no record e no forms w-2 or of petitioner’s working for either of these businesses petitioner failed to provide respondent with any information relating to his income respondent using as the base_year reconstructed petitioner’s gross_income relating to through by applying the consumer_price_index cpi method to through and subtracting income reported on forms w-2 and on date respondent mailed petitioner notices of deficiency in which respondent determined that petitioner received self-employment_income of dollar_figure dollar_figure dollar_figure and dollar_figure relating to and respectively and was liable for income_tax and pursuant to sec_1401 self-employment_tax opinion rt reconstructed self-employment_income generally a notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving that the determination 1s erroneous see 290_us_111 the court_of_appeals for the fifth circuit where an appeal would lie has recognized however that a court need not give effect to the presumption of correctness in a case involving unreported income if the commissioner cannot present some predicate evidence - - supporting its determination 932_f2d_1128 5th cir affg in part and revg and remanding in part tcmemo_1990_68 if the presumption of correctness does not apply respondent’s determination will be deemed arbitrary and he will bear the burden of proving it correct see 46_f3d_382 5th cir affg in part and revg and remanding in part tcmemo_1992_168 thus respondent must establish that he had predicate evidence for his determinations that petitioner received self- employment income relating to through respondent has established that he had predicate evidence l e the questionnaire for his determinations that petitioner received self-employment_income in and the presumption of correctness is applicable and petitioner failed to present sufficient evidence establishing that these determinations are erroneous accordingly we sustain respondent’s determinations relating to petitioner’s income and self-employment_tax deficiencies relating to and respondent failed however to establish that he had predicate evidence for his determinations that petitioner ' respondent citing 117_f3d_785 5th cir contends that he does not have to establish predicate evidence for these determinations we disagree the holding in parker applies only to commissioner’s determinations relating to income reported by third-party payors see id pincite holding that respondent has no duty to investigate third- party payment reports that are not disputed by the taxpayer received self-employment_income in and see eg senter v commissioner tcmemo_1995_311 concluding that respondent failed to provide predicate evidence to support her deficiency determinations based on cpi calculations therefore respondent has the burden of coming forward with evidence to establish the existence and amount of any deficiency see 73_tc_394 respondent failed to present any evidence relating to these determinations accordingly we do not sustain respondent’s determinations relating to petitioner’s income and self-employment_tax deficiencies relating to and il additions to tax respondent determined that petitioner is liable pursuant to sec_665l a and for additions to tax for failure_to_file timely federal_income_tax returns and to make estimated_tax payments respectively relating to the years in issue petitioner failed to present any evidence relating to these issues accordingly we sustain respondent’s determinations contentions we have not addressed are irrelevant or meritless to reflect the foregoing decision will be entered under rule


internal_revenue_service index no number release date cc dom p si 7-plr-106665-99 date legend a b c d e f g h i j k m dear in a letter dated you requested the service’s determination that your enhanced oil recovery project in the a qualifies for the credit under sec_43 of the internal_revenue_code specifically you requested rulings that each of the two tertiary recovery methods used are qualified tertiary recovery methods and the project is a qualified_enhanced_oil_recovery_project within the meaning of sec_43 of the code according to your submission the facts are as follows b owns an interest in and is operator of the a unit the a was produced for a number of years by primary_production in c the a was unitized for pressure maintenance which included in re-injection of produced gas inert gas and produced water subsequently tertiary recovery projects were initiated a successful polymer augmented water flood began in d and was terminated in e an unsuccessful immiscible carbon dioxide injection project was commenced in f and terminated in g the previous production activities depleted the reservoir to a thin oil column sandwiched between a secondary gas cap and a water invaded zone a large volume of relatively immobile oil remained trapped in the water invaded formation to produce this oil b began another tertiary recovery project in h this project simultaneously de-watered the watered-out portions of the reservoir and injected immiscible non- hydrocarbon gas the project is successfully lowering the water oil contact toward its original position prior to field discovery this method was recognized as a qualified tertiary_recovery_method in a private_letter_ruling issued by the service to supplement this tertiary_recovery_method two additional processes a thermal steam drive process which began in i and a microemulsion flooding surfactant process which began in j have been added the methods are being implemented in the following manner a dilute surfactant is injected into the water invaded formation below the projected depth of the final co-production water-oil contact to liberate oil trapped in the water invaded matrix a number of well bores will be reactivated to capture oil that the surfactant will mobilize from the water invaded zones new wells will be drilled to inject steam that will enhance gravity drainage of oil from the secondary gas-cap in areas of sufficient gas cap thickness warm condensate water from the thermal process will migrate to the water column and thereby also improve the effectiveness of the surfactant process the thermal process is expected to increase oil fluidity to expand the oil and to distill residual oil it is anticipated that the thermal process will recover k of the oil in place and that the microemulsion flooding will produce m of the oil in place your submission contains a copy of the petroleum engineers certification of an enhanced oil recovery project for each project the engineer states that with each process there will be more than an insignificant increase in the ultimate amount of crude_oil recovered sec_43 provides a credit in an amount equal to of certain costs paid_or_incurred by a taxpayer in connection with a qualified_enhanced_oil_recovery_project sec_43 defines the term qualified_enhanced_oil_recovery_project to mean any project that involves the application in accordance with sound engineering principles of one or more qualified tertiary recovery methods as defined in sec_193 that reasonably can be expected to result in a more than insignificant increase in the amount of crude_oil that ultimately will be recovered is located within the united_states within the meaning of sec_638 and with respect to which the first injection of liquids gases or other matter commences after date sec_1_43-2 of the income_tax regulations defines the term qualified tertiary_recovery_method to mean any one or combination of the tertiary recovery methods described in sec_1_43-2 or a method not described in sec_1_43-2 which has been determined by revenue_ruling to be a qualified tertiary_recovery_method a taxpayer may request a private_letter_ruling that a method not described in sec_1_43-2 or in a revenue_ruling is a qualified tertiary recovered method among the methods listed in sec_1_43-2 are steam drive injection sec_1 e i a and microemulsion flooding sec_1_43-2 your description of the processes places them within the definitions of steam drive injection and microemulsion flooding since the process of microemulsion flooding and the process of steam drive injection are named in sec_1_43-2 of the regulations as qualified enhanced oil recovery processes your processes are qualified processes sec_43 of the code provides that a taxpayer may employ more than one qualified process in a project you have represented that more than an insignificant increase in ultimate recovery will be obtained as required under sec_43 your project is a qualified tertiary recovery project provided it otherwise meets the requirements of sec_43 and the regulations thereunder this ruling is limited to the taxpayer’s request under sec_1_43-2 except as specifically ruled on above we express or imply no opinion concerning the federal_income_tax consequences of the facts of this case under any other provisions of the code specifically we express or imply no opinion whether the project implemented by the taxpayer otherwise meets the requirements of a qualified_enhanced_oil_recovery_project under sec_43 and the regulations this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this ruling should be attached to your tax_return filed for the year in which the transaction covered by this ruling is consummated a copy is enclosed for this purpose sincerely yours joseph h makurath senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries


ke h a a ss a department of the treasury internal_revenue_service te_ge eo examination fulton street room brooklyn ny tax_exempt_and_government_entities_division number release date legend org organization name xx date uil date date org dear taxpayer_identification_number person to contact contact telephone number last date for filing a pleading with the tax_court the claims_court or the united_states district_court for the district of columbia march 20xx this is a final_determination regarding your exempt status under sec_501 of the internal_revenue_code irc recognition of your exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 is retroactively revoked to january 20xx because you have not established that you are operated exclusively for exempt purposes sec_501 exempts from taxation organizations which are organized and operated exclusively for religious charitable or educational_purposes no part of the net_earnings of which inure to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation and which do not participate in or intervene in any political campaign on behalf of or in opposition to any candidate for public_office sec_1_6001-1 of the regulations requires that each person required to file a return maintain books_and_records to allow the service to establish whether the taxpayer is liable for any_tax liability in addition to the general recordkeeping rules organizations_exempt_from_taxation under sec_501 must also maintain the records required by sec_6033 of the code you failed to meet the requirements of sec_1_501_c_3_-1 in that you have failed to establish that you were operated exclusively for an exempt_purpose you have failed to file the required tax form form_990 for the year ended december 20xx and you failed to demonstrate that you are observing the conditions necessary for continuation of your exempt status we are revoking your exemption from federal_income_tax as an organization described in sec_501 of the internal_revenue_code effective january 20xx contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for all years beginning january 20xx processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must file a pleading seeking a declaratory_judgment in the united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia before the day after the date this final_determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing pleadings for declaratory judgments and refer to the enclosed publication you may write to these courts at the following addresses you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call too-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service we will notify the appropriate state officials of this action as required by sec_6104 of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours marsha a ramirez director eo examinations enclosure publication tax_exempt_and_government_entities_division org address department of the treasury internal_revenue_service commerce street m c dallas texas taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear ' we have enclosed a copy of our report of examination explaining why we believe an adjustment of your organization's exempt status is necessary if you do not agree with our position you may appeal your case the enclosed publication the examination process explains how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference we will forward your written_statement of protest to the appeals_office and they will contact you enclosed for your convenience an envelope is if you and appeals do not agree on some or all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court after satisfying procedural and jurisdictional requirements as described in publication letter catalog number 34801v you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for unagreed issues lf a determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the subject of the technical_advice if we do not hear from you within days from the date of this letter we if you accept our findings please sign and return the enclosed form_6018 consent to proposed adverse action we will then send you a final letter modifying or revoking exempt status will process your case on the basis of the recommendations shown in the report of examination and this letter will become final in that event you will be required to file federal_income_tax returns for the tax period s shown above file these returns with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and letter catalog number 34801v thank you for your cooperation sincerely marsha a ramirez director e o examinations enclosures publication publication form_6018 report of examination envelope letter catalog number 34801v form 886-a explanation of items year ended 20xx name of taxpayer org legend org organization name xx date president president xyz state serle exhibit no issue should the tax exempt status under internal_revenue_service sec_501 of org be revoked facts org was recognized by the internal_revenue_service as a tax exempt_organization under c of the internal_revenue_code in february 19xx the organization’s owner president the only officer of the organization has been deceased since july 20xx and therefore no activities have been conducted since thin the agent also received a faxed copy of president's death certificate from a third party an examination was also conducted by the state of xyz department of justice but they were not able to find president due to his death a contact letter was sent to the organization at the last_known_address located on accurint the organization has never filed the form_990 law internal_revenue_code sec_501 provides for tax exemption to organizations organized and operated exclusively for charitable purposes and no part of the net earning which inures to the benefit of any individual regulation sec_1_501_c_3_-1 organizational and operational tests provides that in order to be exempt as an organization described in sec_501 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 regulation sec_1_501_c_3_-1 provides that an organization will be regarded as it engages primarily in activities operated exclusively for one or more exempt purposes only if 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 regulation sec_1_501_c_3_-1 provides an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an department of the treasury - internal_revenue_service form 886-a form 886-a explanation of items schedule or exhibit no year ended 20xx name of taxpayer org legend org organization name xx date president president xyz state organization to establish that it is not organized or operated for the benefit of private interests such as the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_6033-2 of the income_tax regulations provides in part that every organization which is exempt from tax shall submit such additional information as may be required by the internal_revenue_service for the purposes of inquiring into its exempt status revrul_59_95 provides that a failure_to_file required information_return or comply with the provision of sec_6033 of the code and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of an exempt status government’s position president president the sole officer passed away in july 20xx no activities have been conducted since then therefore since the only principal is deceased there are no current activities and based on third party information revocation of the organization is proposed effective january 20xx taxpayer’s position not available conclusion the organization should be revoked effective january 20xx department of the treasury - internal_revenue_service form 886-a


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b02-plr-146913-02 date date legend x a d1 year d2 year dear this responds to your letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a the president of x represents that the shareholders of x intended for x to be an s_corporation effective d2 of year a form_1120s u s income_tax return for an s_corporation was filed for the year taxable_year indicating the shareholders’ intention that x be an s_corporation however x’s attorney inadvertently failed to file form_2553 election to be a small_business_corporation for year sec_1362 of the code provides that if - a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely plr-146913-02 make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically ruled upon above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the code including whether x was or is a small_business_corporation under sec_1361 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours j thomas hines chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c date number gl-802352-00 release date uil memorandum for central california district_counsel attn john chinnapongse from alan c levine chief branch general litigation cc el gl br1 subject this responds to your memorandum requesting our comments on your draft notice_of_intent_to_levy and notice of your right to a hearing and draft letter which would be sent to a taxpayer after he received a discharge_in_bankruptcy this document is not to be cited as precedent issue whether the draft notice and accompanying form letter need to be modified to clarify that the federal_tax_lien does not attach to a taxpayer’s post-petition property when the underlying tax_liability is discharged in bankruptcy conclusion the attached draft notice and accompanying letter should be modified to clarify that the federal_tax_lien does not attach to a taxpayer’s post-petition property after the underlying tax_liability is discharged in bankruptcy facts the internal_revenue_service service filed a notice_of_federal_tax_lien prior to the taxpayer’s petition in bankruptcy subsequently the bankruptcy court discharged the taxpayer’s tax_liabilities the service is now considering levying on the taxpayer’s prepetition property encumbered with the prepetition tax_lien law and analysis sec_6330 provides the taxpayer with a collection_due_process_hearing prior to levy prepetition liens pass through bankruptcy on the debtor’s encumbered property unless provisions of the bankruptcy code explicitly strip a lien from the property 502_us_410 if the service files a notice of gl-802352-00 federal_tax_lien prior to the petition date the federal_tax_lien remains on the debtor’s exempt_property b c sec_522 e g 62_f3d_1248 9th cir b c a permanently enjoins any_action by a creditor to recover a discharged debt in the draft notice the opening sentences are incorrect these sentences provide as follows your federal tax is still not paid we previously asked you to pay this but we still haven’t received your payment these sentences are problematic because they suggest that the taxpayer still has a personal liability for the tax and the service is trying to collect that liability the taxpayer however has had his tax_liability discharged in bankruptcy we recommend that the entire first paragraph be deleted and the following paragraph be inserted in its place the internal_revenue_service perfected its tax_liens by recording notices of federal_tax_lien prior to the filing of your bankruptcy petition even though you received a discharge in your bankruptcy proceeding that discharge does not prohibit the service from enforcing its tax_lien against property excluded exempt or abandoned from the bankruptcy_estate this letter is your notice of our intent to levy against that property under internal_revenue_code i r c and your right to receive a hearing with an appeals officer under sec_6330 your schedules list the following properties that are affected the second paragraph of the draft notice should also be deleted that paragraph provides as follows we may file a notice_of_federal_tax_lien at any time to protect the government’s interest a lien is a public notice to your creditors that the government has a right to current_assets including any assets you acquire after we file the lien the above paragraph is at best confusing it begins by stating that we may file a lien but the facts are that a notice_of_federal_tax_lien was filed prepetition indeed the service cannot now file a new tax_lien for a discharged tax_liability the paragraph goes on to state the government has a right to current_assets including any assets you acquire after we file the lien this is incorrect at most after the tax_liability has been discharged the service’s prepetition lien encumbers the debtor’s prepetition property the prepetition lien does not encumber the debtor’s property acquired post-petition e g 235_br_569 bankr d md listing cases holding that federal_tax_lien does not attach to post-petition property after tax_liability discharged this entire paragraph should be deleted the effect of the prepetition federal_tax_lien is adequately explained in the first paragraph that we have rewritten gl-802352-00 the third paragraph of the notice contains the same defect as the second paragraph ie it fails to clarify that the federal_tax_lien encumbers only the taxpayer’s prepetition property thus the statement that we may take your property or rights to property such as real_estate automobiles business_assets bank accounts wages commissions and other income is correct only if these items were prepetition assets this sentence should be rewritten to state if you don’t pay the amount you owe make alternative arrangements to pay or request appeals consideration within days from the date of this letter we may take your property that you acquired prior to bankruptcy in light of the above changes letter is not appropriate for this situation finally the draft letter notice does not explain that the federal_tax_lien remains on exempt_property we recommend that you cite sec_522 for this principle and the ninth circuit's decision in demarah this should clarify the situation for the debtor if you have any further questions please let us know cc assistant regional_counsel gl western region chief of procedural branch cc dom fs proc