t c memo united_states tax_court sharon k hudgins petitioner v commissioner of internal revenue respondent docket no filed date sherri k anderson for petitioner william f castor and dessa j baker-inman for respondent memorandum findings_of_fact and opinion marvel judge petitioner seeks review of respondent’s determination to deny relief from joint_and_several_liability for unpaid federal income taxes for under sec_6015 c and f and for under sec_6015 petitioner timely petitioned this court after concessions the sole issue for decision is whether petitioner is entitled to relief under sec_6015 for findings_of_fact some of the facts have been stipulated the stipulation of facts is incorporated herein by this reference petitioner resided in oklahoma when she petitioned this court background petitioner and mr rozell married in date mr rozell died from a mixture of pills and alcohol on date 1unless otherwise indicated all section references are to the internal_revenue_code for the relevant periods and all rule references are to the tax_court rules_of_practice and procedure some monetary amounts have been rounded to the nearest dollar 2after an audit in respondent issued to petitioner and donald r rozell a notice_of_deficiency determining a deficiency of dollar_figure plus interest with respect to their joint income_tax return for the liability was satisfied on date when respondent collected the amount due by a refund offset of a dollar_figure overpayment of petitioner and mr rozell’s joint income_tax account for of the overpayment dollar_figure was attributable to mr rozell’s income_tax_withholding and dollar_figure was attributable to a refundable recovery rebate credit accordingly the parties now agree that petitioner’s request for relief for is moot during mr rozell and three of his brothers each owned a share of hubs vending corp hubs an s_corporation from through at least petitioner owned and operated two businesses hudgins realty real_estate business a sole_proprietorship and seahorse publishing publishing business also a sole_proprietorship at the time of mr rozell’s death petitioner and or mr rozell owned the following real properties their marital home pincite east sixth street cushing oklahoma sixth street property a rental property pincite north linwood cushing oklahoma linwood property a rental property pincite east second street cushing oklahoma second street property and an undeveloped investment_property in lincoln county oklahoma lincoln county property petitioner and mr rozell timely filed a joint form_1040 u s individual_income_tax_return for reporting the following income items wages of dollar_figure that mr rozell received from hubs schedule c profit or loss from business income of dollar_figure from petitioner’s real_estate business schedule c income of dollar_figure from petitioner’s publishing business and net passthrough income from hubs of dollar_figure on schedule e supplemental income and loss the joint_return reported a total_tax liability of dollar_figure income_tax withheld of dollar_figure and tax due of dollar_figure petitioner’s request for relief on or about date petitioner submitted to respondent a form_8857 request for innocent spouse relief request for relief seeking relief from joint_and_several_liability for her and mr rozell’s outstanding income_tax_liability in a letter dated date respondent’s cincinnati centralized innocent spouse operation cciso notified mr rozell’s estate of petitioner’s request for relief and requested that the estate complete a form questionnaire for non-requesting spouse petitioner through her representative partially completed and returned the form on behalf of mr rozell’s estate in considering petitioner’s request for relief cciso determined that of the outstanding tax_liability dollar_figure was attributable to petitioner and dollar_figure was attributable to mr rozell petitioner did not have a reasonable belief that mr rozell would pay the tax because she did not review the return in the first instance and because the tax_liabilities shown on mr rozell’s individual returns from and were also not timely paid petitioner was not making a good-faith effort to comply with the tax laws because she did not file her return which had an extended due_date of date until date and petitioner’s minimum monthly payment was dollar_figure because her monthly income and expenses were dollar_figure and dollar_figure respectively in a letter dated date cciso proposed to deny petitioner relief under sec_6015 in a letter dated date petitioner’s attorney requested reconsideration of the proposed denial appeals_office proceedings respondent then transferred petitioner’s request for relief to respondent’s appeals_office on date appeals officer william jarvi held a conference with petitioner and her attorney subsequently the appeals_office determined that petitioner would not suffer economic hardship if denied relief petitioner had reason to know the liability would not be paid mr rozell 3petitioner was not married to mr rozell during and it is unclear why cciso concluded that she had knowledge of mr rozell’s prior noncompliance in deciding this case we do not rely on cciso’s conclusion 4respondent concedes that petitioner timely filed her return did not have a legal_obligation to pay the liability petitioner appeared not to be in compliance with the tax laws and petitioner’s marital status was the only factor favoring relief accordingly the appeals_office denied petitioner’s request for relief the probate case on date sherre rozell-brandenburg mr rozell’s previous wife filed a petition for letters of administration of mr rozell’s estate in the district_court of payne county oklahoma on date petitioner filed a cross- petition for letters of administration and on date the court appointed her personal representative of the estate on date petitioner filed an application_for an order determining that mr rozell’s estate had an interest in the betty rozell revocable_trust betty rozell trust requiring an account of the trust to be provided and determining whether the estate should file an action in the district_court of lincoln county oklahoma to enforce or construe the terms of the trust in her application petitioner alleged that the estate had a one-seventh interest in the trust 5the appeals officer seems to have misunderstood this factor asking according to the case record whether petitioner agreed to pay mr rozell’s debts as a beneficiary and that mr rozell had understood before his death that he would be receiving a distribution from the trust of approximately dollar_figure on date petitioner filed an inventory of mr rozell’s estate in the probate case in the inventory petitioner listed as nonprobate assets of the estate three parcels of real_property that she and mr rozell had owned as joint_tenants with the right_of_survivorship the three parcels listed in the inventory were the sixth street property the second street property and the lincoln county property petitioner listed as personal_property of the estate the estate’s interest in hubs which was valued at approximately dollar_figure and listed as having been transferred by the court to ms rozell-brandenburg to satisfy ms rozell- brandenburg’s lien on the estate tools worth approximately dollar_figure and the estate’s one-seventh interest in the betty rozell trust the value of which was to be determined finally petitioner listed dollar_figure as money the estate received after mr rozell’s death the trust case on date petitioner filed a petition on behalf of mr rozell’s estate in the district_court of lincoln county oklahoma to enjoin the trustee of the betty rozell trust from distributing the estate’s one-seventh share of the trust to other persons or entities on date the court entered judgment in favor of the betty rozell trust and on date petitioner appealed the district court’s judgment conveyances of the rental properties by quitclaim deeds dated date petitioner conveyed the linwood property and the second street property to her sister brenda sue hudgins and her brother jackie lee hudgins the quitclaim deeds regarding the linwood and second street properties bore no documentary tax stamps and stated that the conveyances were family transfer s the foreclosure case on date a foreclosure suit was filed in the district_court of payne county oklahoma against petitioner and mr rozell regarding the sixth street property on date the court entered judgment for the plaintiff and ordered that the sixth street property be sold at a sheriff’s sale on date the sixth street property was offered for sale 6as of the time of trial the appeal was still pending in the court of civil appeals of the state of oklahoma see ocis case summary for no df-109331 oklahoma state courts network http www oscn net applications oscn getcase information asp submitted true number db appellate viewtype oscn last visited date petitioner’s business income petitioner reported business income for tax years as follows real_estate business publishing business gross_receipts expenses net_income gross_receipts year dollar_figure big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number dollar_figure big_number big_number big_number expenses dollar_figure big_number big_number big_number net_income dollar_figure big_number big_number big_number petitioner’s rental income petitioner reported rental income for tax years as follows linwood property second street property gross_receipts expenses net_income gross_receipts net expenses income dollar_figure big_number big_number big_number big_number dollar_figure big_number big_number dollar_figure big_number big_number -0- -0- -0- dollar_figure -0- -0- -0- dollar_figure -0- -0- -0- dollar_figure year petitioner’s form 433-a on date petitioner submitted to respondent a form 433-a collection information statement for wage earners and self-employed individuals on the form 433-a petitioner reported that she was a beneficiary of the betty rozell trust and that she anticipated receiving dollar_figure petitioner did not list the linwood second street or lincoln county properties as real_property she owned and she did not disclose that she had transferred her interest in the linwood or second street property for less than full value within the last years petitioner indicated on her form 433-a that she had ceased operating her publishing business she had dollar_figure in total cash she had an ira account worth dollar_figure she owned two vehicles a lexus es-300 with big_number miles on it and estimated equity of dollar_figure and a chrysler tcm with big_number big_number miles on it and estimated equity of dollar_figure and from january through date she had total income of dollar_figure and total expenses of dollar_figure petitioner calculated her income and expenses as follows income and expense report - income sales commission property management com property management res family transfer sale dollar_figure month total dollar_figure big_number big_number big_number big_number expenses advertising auto travel auto service auto other business charity dining dues chamber of commerce filing fee food promotional insurance legal fees lions club_dues materials medical out of pocket postage supplies office other telephone utilities total dollar_figure big_number big_number big_number big_number big_number big_number 1petitioner erroneously calculated her total income to be dollar_figure i sec_6015 opinion generally married taxpayers who file a joint federal_income_tax return are jointly and severally liable for the tax reported or reportable on the return sec_6013 114_tc_276 sec_6015 allows a spouse to obtain relief from joint_and_several_liability in certain circumstances sec_6015 provides that a spouse who has made a joint_return may elect to seek relief from joint_and_several_liability under sec_6015 dealing with relief from liability for an understatement_of_tax with respect to a joint_return sec_6015 provides that an eligible spouse may elect to limit that spouse’s liability for any deficiency with respect to a joint_return under sec_6015 dealing with relief from joint_and_several_liability for taxpayers who are no longer married or who are legally_separated or no longer living together if a taxpayer does not qualify for relief under either sec_6015 or c the taxpayer may seek equitable relief under sec_6015 under sec_6015 the secretary7 has discretion to grant equitable relief to 7the term secretary means the secretary_of_the_treasury or_his_delegate sec_7701 a spouse who filed a joint_return with an understatement or underpayment_of_tax see also sec_1_6015-4 income_tax regs the parties agree that petitioner is not entitled to relief under sec_6015 or c because she is seeking relief from an underpayment_of_tax not an understatement_of_tax or a deficiency in tax see 121_tc_73 petitioner contends however that she is entitled to relief from joint_and_several_liability under sec_6015 respondent disagrees we have jurisdiction to determine whether petitioner qualifies for sec_6015 relief see sec_6015 see also 131_tc_191 ii the standard and scope of review in 132_tc_203 we held that in determining whether a taxpayer is entitled to equitable relief under sec_6015 we apply a de novo standard and scope of review petitioner bears the burden of proving that she is entitled to relief under sec_6015 see id see also rule a 8respondent disagrees with our holding in 132_tc_203 respondent argues that the appropriate standard of review in sec_6015 cases is abuse_of_discretion and the scope of review should be limited to the administrative record we decline to revisit our holding in porter pursuant to sec_6015 the commissioner has prescribed guidelines in revproc_2003_61 2003_2_cb_296 for determining whether a requesting spouse qualifies for relief under that section this court considers those guidelines but is not bound by them in evaluating the facts and circumstances of a case see 136_tc_432 porter v commissioner t c pincite on date the internal_revenue_service irs released notice_2012_8 2012_4_irb_309 which proposed a revenue_procedure that if finalized would revise the factors the irs will use to evaluate a requesting spouse’s claim for equitable relief under sec_6015 and would supersede revproc_2003_ supra notice_2012_8 supra states that until the revenue_procedure is finalized the service will apply the provisions in the proposed revenue_procedure instead of revproc_2003_61 in evaluating claims for equitable relief under sec_6015 however in sriram v commissioner tcmemo_2012_91 slip op pincite n we took the position that we would continue to apply the factors in revproc_2003_61 2003_2_cb_296 in view of the fact that the proposed revenue_procedure is not final and because the comment period under the notice 9rev proc 2003_2_cb_296 supersedes revproc_2000_15 2000_1_cb_447 and is effective for requests for sec_6015 relief filed on or after date revproc_2003_61 secs and c b pincite only recently closed see also yosinski v commissioner tcmemo_2012_195 slip op pincite n deihl v commissioner tcmemo_2012_176 slip op pincite the parties contend that this court should apply the provisions of the proposed revenue_procedure set forth in notice_2012_8 supra in determining whether petitioner is entitled to equitable relief under sec_6015 we decline to do so we adopt here an approach similar to the approach used in sriram we shall decide whether petitioner is entitled to relief under sec_6015 by considering all of the relevant facts and circumstances evaluating them through the prism of revproc_2003_61 supra and noting where appropriate how the analysis used in revproc_2003_61 supra would change if the proposed revenue_procedure in notice_2012_8 supra had actually been finalized iii revproc_2003_61 a sec_4 threshold conditions revproc_2003_61 sec_4 c b pincite sets forth seven threshold conditions that a requesting spouse must satisfy to be eligible to submit a request for relief under sec_6015 the requesting spouse filed a joint federal_income_tax return for the tax_year or years for which relief is sought the requesting spouse does not qualify for relief under sec_6015 or c the requesting spouse applies for relief no later than two years after the date of the commissioner’s first collection activity after date with respect to the requesting spouse no assets were transferred between the spouses as part of a fraudulent scheme by such spouses the nonrequesting spouse did not transfer disqualified assets to the requesting spouse the requesting spouse did not file the returns with fraudulent intent and the liability from which relief is sought is attributable to an item of the nonrequesting spouse unless an exception applies an exception to the seventh threshold condition applies where the requesting spouse shows that he or she was subject_to abuse before the time that the return was filed and that as a result of that abuse the requesting spouse did not challenge the treatment of any item on the return see revproc_2003_61 sec_4 d c b pincite the parties agree that petitioner satisfies the first six threshold conditions the parties also agree that to the extent that petitioner’s joint liability for is 10in 132_tc_131 rev’d 607_f3d_479 7th cir we held that the two-year deadline imposed by revproc_2003_61 sec_4 c b pincite pursuant to sec_1_6015-5 income_tax regs is invalid notice_2012_8 2012_4_irb_309 proposes to eliminate the two-year deadline and replace it with a requirement that the request for relief be filed within the applicable_period of limitations provided by sec_6502 relating to collections or sec_6511 relating to claims for credit or refund attributable to mr rozell she has satisfied the seventh condition petitioner contends however that she also qualifies for relief under the abuse exception to the seventh condition from the part of the liability attributable to her because mr rozell’s alcohol addiction constituted abuse petitioner has failed to introduce evidence showing that mr rozell’s alcohol addiction if any prevented her from challenging any item on their returndollar_figure accordingly petitioner cannot qualify for the abuse exception to the seventh threshold condition even if mr rozell’s alcohol addiction constituted abusedollar_figure we must decide however whether petitioner qualifies for relief with respect to the amount of the tax_liability attributable to mr rozell b sec_4 the safe_harbor requirements if a requesting spouse fulfills the threshold requirements of revproc_2003_61 sec_4 the commissioner ordinarily will grant relief from joint_and_several_liability with respect to underpayments on a joint federal_income_tax 11petitioner did not introduce any evidence other than her own testimony that mr rozell suffered from an alcohol addiction we shall assume that mr rozell suffered from an alcohol addiction that ultimately led to his death but we note that the record contains no objective evidence such as a death certificate or medical records to confirm petitioner’s testimony 12as discussed infra pp petitioner’s argument that mr rozell’s alcohol addiction constituted abuse also lacks merit return provided that all of the following additional safe_harbor requirements are satisfied on the date of the request for relief the requesting spouse is no longer married to or is legally_separated from the nonrequesting spouse on the date the requesting spouse signed the joint_return the requesting spouse did not know and had no reason to know that the nonrequesting spouse would not pay the tax_liability and the requesting spouse will suffer economic hardship if the commissioner does not grant relief id sec_4 c b pincite the parties agree that petitioner was the widow of mr rozell when she requested relief under sec_6015 however the parties disagree whether petitioner has shown that she did not know or have reason to know that the liability reported on the return would not be paid and whether petitioner has shown that she would face economic hardship if her request for relief were denied accordingly we address these two issues knowledge or reason to know petitioner contends that she reasonably believed that the tax_liability would be paid respondent contends that petitioner failed to satisfy her duty_of inquiry when signing the return in determining whether a taxpayer knew or should have known that a tax_liability would not be paid we impute to a taxpayer knowledge of what she could have gleaned from tax returns she signed had she taken the time to review them see porter v commissioner t c pincite citing 992_f2d_1256 2d cir aff’g t c memo petitioner testified that she did not know that the return showed that there was tax due when she signed the return she and mr rozell did not receive any distributions of money or property corresponding to the pass-through income from hubs there were no large purchases consistent with the receipt of such a distribution and she had assumed that hubs would advance funds to satisfy the tax_liability generated by the pass-through income mr rozell received from hubs we find credible petitioner’s testimony that when she learned of the outstanding tax_liability she believed that hubs would advance funds to satisfy that liability we are also prepared to find that belief reasonable under the circumstances but the question is not whether petitioner reasonably believed that the tax would be paid when she learned of the outstanding liability rather the question is whether petitioner reasonably believed when she signed the return that the amount shown on the return as tax due would be paid see revproc_2003_61 sec_4 b petitioner could not have had a reasonable belief that the tax_liability would be paid when she signed the return because she did not examine the return before signing it and she has conceded that she was unaware there was tax due when she signed the returndollar_figure petitioner also cannot claim that her failure to review the return before signing it constitutes reasonable belief that the liability would be paid as we said in pullins v commissioner t c pincite a taxpayer may not obtain the benefits of joint filing_status but then obtain relief from joint_and_several_liability by ignoring or avoiding facts fully disclosed on a return she signed accordingly petitioner is charged with knowledge of the liability that was reported on the return she signed economic hardship petitioner contends that she will suffer economic hardship if she is not granted relief from joint_and_several_liability because she lost her husband’s income with his death and the passing of his interest in hubs to ms rozell- brandenburg she lost her home to foreclosure she had to close her 13we have previously indicated that a requesting spouse who failed to review the return could satisfy this requirement where reviewing the return would not have caused the requesting spouse to know or have reason to know that the liability shown on the return would not be paid see kosola v commissioner tcmemo_2010_34 99_tcm_1141 here by contrast had petitioner reviewed the return she would have had reason to know that the liability shown on the return would go unpaid unless and until she was reassured that hubs would advance funds to satisfy the liability publishing business and her real_estate business has suffered because of the downturn in the real_estate markets respondent contends that petitioner has not proved that her monthly expenses exceed her monthly income petitioner was entitled to a portion of the proceeds from mr rozell’s estate through mr rozell’s estate petitioner may be entitled to a part of the distribution from the betty rozell trust petitioner currently owns the lincoln county property and petitioner’s siblings hold the linwood and second street properties as mere nominees for her because she transferred the linwood and second street properties to her siblings for inadequate consideration and maintains full control_over the properties in determining whether a requesting spouse will suffer economic hardship if the commissioner denies his or her request for relief under sec_6015 revproc_2003_61 sec_4 directs the commissioner to base his decision on rules similar to those found in sec_301_6343-1 proced admin regs sec_301_6343-1 proced admin regs provides that an individual suffers economic hardship when the individual is unable to pay reasonable basic living_expenses in determining a reasonable amount for basic living_expenses the commissioner must consider information provided by the taxpayer including a the taxpayer’s age employment status and history ability to earn number of dependents and status as a dependent of someone else b the amount reasonably necessary for food clothing housing medical_expenses transportation current tax_payments alimony child_support or other court-ordered payments and expenses necessary to the taxpayer’s production_of_income c the cost of living in the geographic area in which the taxpayer resides d the amount of property_exempt_from_levy which is available to pay the taxpayer’s expenses e any extraordinary circumstances such as special education expenses a medical catastrophe or natural disaster and f any other factor that the taxpayer claims bears on economic hardship and brings to the attention of the commissioner id in evaluating a requesting spouse’s claim of economic hardship we are under no obligation to accept self-serving uncorroborated testimony see 87_tc_74 kosola v commissioner tcmemo_2010_34 99_tcm_1141 however we may accept a requesting spouse’s testimony if we find it credible see eg 120_tc_137 kosola v commissioner t c m cch pincite the parties have two principal disputes with respect to whether petitioner will suffer economic hardship if denied relief from joint_and_several_liability under sec_6015 whether petitioner’s siblings hold the linwood and second street properties as mere nominees for her and whether petitioner has adequately proved the amounts of her income and expenses and the value of her equity in her assets we address each of these disputes in turn a the linwood and second street properties we have previously considered the issue of whether a third party holds property as a nominee of a taxpayer by examining whether the commissioner can collect against such property see 135_tc_393 rev’d on other grounds 682_f3d_149 1st cir under sec_6321 and sec_6331 a lien is imposed and the secretary can levy upon any property or rights to property belonging to a taxpayer see 528_us_49 505_f3d_1060 10th cir this includes ‘property held by a third party if it is determined that the third party is holding the property as a nominee of the delinquent taxpayer ’ holman f 3d pincite quoting 429_f3d_248 6th cir alteration in original see also dalton v commissioner t c pincite application of nominee principles to support a lien or levy turns on a two-part inquiry the first part of the inquiry looks to state law to determine what rights the taxpayer has in the property the government seeks to reach drye u s pincite see also holman f 3d pincite8 dalton v commissioner t c pincite the second part of the inquiry looks to f ederal law to determine whether the taxpayer’s state-delineated rights qualify as ‘property’ or ‘rights to property’ within the compass of sec_6321 and sec_6331 drye u s pincite see also holman f 3d pincite8 dalton v commissioner t c pincite in deciding whether a third party holds property as a nominee for a taxpayer in oklahoma courts have turned to oklahoma fraudulent conveyance principles see dalton v commissioner t c pincite citing 386_fsupp2d_1207 w d okla under oklahoma’s uniform fraudulent transfer act a a transfer made or obligation incurred by a debtor is fraudulent as to a creditor whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation with actual intent to hinder delay or defraud any creditor of the debtor or okla stat ann tit sec_116 west in determining a debtor’s intent consideration may be given among other factors to whether the transfer or obligation was to an insider the debtor retained possession or control of the property transferred after the transfer the transfer or obligation was disclosed or concealed before the transfer was made or obligation was incurred the debtor had been sued or threatened with suit the transfer was of substantially_all the debtor’s assets the debtor absconded the debtor removed or concealed assets the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred the transfer occurred shortly before or shortly after a substantial debt was incurred and the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor okla stat ann tit sec_116 see also stinson f_supp 2d pincite under oklahoma law the indicia of a fraudulent conveyance include inadequate consideration insolvency of the transferor a familial relationship between the transferor and transferee the pendency or threat of litigation and the transfer of the debtor’s entire estate citing ebey-mccauley co v smith p 2d okla petitioner testified that she sold the linwood and second street properties to her sister ms hudgins and her brother mr hudgins in installment_sales petitioner further testified that under these installment_sales she continued to collect the rents and pay all expenses on the properties and that she never turned over any of the rents to her siblings when asked to explain why she set up such an arrangement petitioner testified that she entered into this arrangement because she could no longer afford to maintain the properties in the event that they required significant repairs we do not find petitioner’s testimony regarding the transfer of the linwood and second street properties to be credible for two reasons first the quitclaim deeds regarding the linwood and second street properties bore no documentary tax stamps and stated that the conveyances were family transfer s oklahoma imposes a documentary stamp tax on each deed conveying land when the consideration or value of the property conveyed exclusive of the value of any encumbrance on the property exceeds dollar_figure okla stat ann tit sec_3201 west the documentary stamp tax is prorated at the rate of cents per dollar_figure of consideration including future consideration id sec_3201 c deeds between persons related within the second degree of consanguinity without consideration are exempt from the tax id sec_3202 west supp accordingly by recording the quitclaim deeds as family transfers petitioner represented to the state of oklahoma that she did not and will not receive consideration for the properties second petitioner failed to introduce copies of the installment_sale agreements any corroboration that she obtained or will require any assistance from her siblings in maintaining the linwood and second street properties or any evidence other than her own unsupported testimony regarding her remaining equity in the properties lacking such corroboration we decline to accept petitioner’s self-serving testimony see 137_tc_46 we need not accept the taxpayer’s self-serving testimony when the taxpayer fails to present corroborative evidence tokarski v commissioner t c pincite we observe that petitioner transferred the properties to her relatives see okla stat ann tit sec_113 defining i nsider to include a relative of the debtor petitioner continued to exercise full control_over the properties such as by collecting rent on and paying expenses for the properties after the transfers petitioner did not disclose the transfer of the properties for less than full consideration on her form 433-a the transfers were made during the pendency of petitioner’s efforts to secure relief under sec_6015 and petitioner received inadequate consideration for the properties accordingly on the evidence before us we conclude that petitioner fraudulently conveyed the linwood and second street properties under oklahoma’s uniform fraudulent transfer act we now turn to the second part of the inquiry to decide under federal_law whether petitioner’s interests in the linwood and second street properties constitute property or a right to property under sec_6321 and sec_6331 under oklahoma’s uniform fraudulent transfer act a creditor may obtain an attachment or other provisional remedy against the asset transferred okla stat ann tit sec_119 west because creditors can attach transferred properties under oklahoma law we find that petitioner’s interests in the transferred properties are property or a right to property under sec_6321 and sec_6331 see drye u s pincite holding that a disclaimed inheritance is property or a right to property under sec_6321 and sec_6331 even though creditors could not reach the disclaimed inheritance under state law see also 637_f3d_1160 10th cir t he terms ‘property’ and ‘rights to property’ embrace not only rights or interest s with exchangeable value that the taxpayer holds formal legal_title to but also those that the taxpayer is found under state law to have fraudulently conveyed to a nominee dalton v commissioner t c pincite accordingly for the purposes of deciding whether petitioner will suffer economic hardship if denied relief from joint_and_several_liability under sec_6015 we conclude that her siblings hold the linwood and second street properties as mere nominees for her b petitioner’s income expenses and assets the administrative record shows that in date petitioner wa sec_57 years old and had no dependents petitioner’s tax returns show that she reported items of income for at least some of those years from her real_estate business her publishing business and from renting out the linwood property at trial petitioner conceded that the second street rental was currently profitable petitioner also concedes that she currently owns the lincoln county property petitioner testified that she closed her publishing business in date because it was starting to lose money and because her mother could no longer write for her on account of her mother’s deteriorating health however petitioner failed to introduce any books records or other evidence showing that the publishing business was no longer viable or that the publishing business was too burdensome to continue on account of her mother’s deteriorating health lacking corroboration we decline to accept petitioner’s self-serving testimony see tokarski v commissioner t c pincite petitioner testified that she now pays her father rent of dollar_figure per month and that she is paying for her own utilities petitioner however also testified that her father would not accept any rent payments from her and that she is now living with her mother petitioner introduced no evidence to corroborate her testimony lacking corroboration we decline to accept petitioner’s self-serving testimony see id accordingly on the evidence before us we cannot determine whether petitioner is currently incurring housing and utility expenses other than her tax returns an unsupported and incomplete form 433-a and some limited testimony petitioner has failed to produce any books records or other credible_evidence to support her claimed income and expenses without such evidence we are unable to determine petitioner’s income or expenses petitioner also failed to introduce any evidence that would enable us to determine her equity in the linwood second street and lincoln county properties or her monthly rental income from the linwood and second street properties petitioner testified that she thought that she had equity in the linwood and second street properties of dollar_figure and dollar_figure respectively and that she listed the lincoln county property for sale for dollar_figure petitioner also testified that the linwood and second street properties produced a combined dollar_figure in gross_income and dollar_figure in net_income per month petitioner introduced no evidence to corroborate her testimony lacking corroboration we decline to accept petitioner’s self-serving testimony see id accordingly we find that petitioner has failed to show that she will suffer economic hardship if denied relief under sec_6015dollar_figure see rule a in summary we conclude that petitioner has not satisfied the safe_harbor requirements of revproc_2003_61 sec_4 because she has failed to satisfy her burden of showing that she reasonably believed that the tax due on the return would be paid and that she will suffer economic hardship if denied relief 14because we conclude on other grounds that petitioner has not shown that she would suffer economic hardship if denied relief we need not decide whether petitioner’s interest in mr rozell’s estate and potential interest in the betty rozell trust also preclude her from showing that she will suffer economic hardship if denied relief c sec_4 factors for determining whether to grant equitable relief if a requesting spouse satisfies the threshold conditions of revproc_2003_ sec_4 but fails to satisfy one or more of the safe_harbor requirements of revproc_2003_61 sec_4 the commissioner may still grant relief under sec_6015 on the basis of several additional factors see revproc_2003_61 sec_4 c b pincite the following list is not exclusive and no single factor is determinative a factors that may be relevant to whether the service will grant equitable relief include but are not limited to the following i marital status whether the requesting spouse is separated whether legally_separated or living apart or divorced from the nonrequesting spouse ii economic hardship whether the requesting spouse would suffer economic hardship within the meaning of sec_4 c of this revenue_procedure if the service does not grant relief from the income_tax_liability iii knowledge or reason to know a underpayment cases in the case of an income_tax_liability that was properly reported but not paid whether the requesting spouse did not know and had no reason to know that the nonrequesting spouse would not pay the income_tax_liability c reason to know for purposes of a and b above in determining whether the requesting spouse had reason to know the service will consider the requesting spouse’s level of education any deceit or evasiveness of the nonrequesting spouse the requesting spouse’s degree of involvement in the activity generating the income_tax_liability the requesting spouse’s involvement in business and household financial matters the requesting spouse’s business or financial expertise and any lavish or unusual expenditures compared with past spending levels iv nonrequesting spouse’s legal_obligation whether the nonrequesting spouse has a legal_obligation to pay the outstanding income_tax_liability pursuant to a divorce decree or agreement v significant benefit whether the requesting spouse received significant benefit beyond normal support from the unpaid income_tax_liability or item giving rise to the deficiency vi compliance with income_tax laws whether the requesting spouse has made a good_faith effort to comply with income_tax laws in the taxable years following the taxable_year or years to which the request for relief relates b factors that if present in a case will weigh in favor of equitable relief but will not weigh against equitable relief if not present in a case include but are not limited to the following i abuse whether the nonrequesting spouse abused the requesting spouse the presence of abuse is a factor favoring relief a history of abuse by the nonrequesting spouse may mitigate a requesting spouse’s knowledge or reason to know ii mental or physical health whether the requesting spouse was in poor mental or physical health on the date the requesting spouse signed the return or at the time the requesting spouse requested relief the service will consider the nature extent and duration of illness when weighing this factor id sec_4 we now consider each of these factors marital status petitioner was widowed from mr rozell when she requested relief accordingly this factor favors relief economic hardship for the reasons discussed supra pp we find that petitioner would not suffer economic hardship if her request for relief under sec_6015 were denied accordingly this factor weighs against reliefdollar_figure see sriram v commissioner slip op pincite knowledge or reason to know for the reasons discussed supra pp petitioner should have known that there was tax due on the return when she signed it and she could not have 15the commissioner proposes in notice_2012_8 sec_4 b i r b pincite that the economic hardship factor should be considered neutral where denying relief from joint_and_several_liability will not result in economic hardship to the requesting spouse reasonably believed that the tax due on the return would be paid when she signed the returndollar_figure accordingly this factor weighs against relief nonrequesting spouse’s legal_obligation petitioner and mr rozell were not divorced accordingly this factor is neutral see bland v commissioner tcmemo_2011_8 101_tcm_1023 significant benefit petitioner contends that she received no significant benefit from the underpayment_of_tax due to income items attributable to mr rozell because she and mr rozell neither received nor spent distributions corresponding to the pass-through income from hubs respondent concedes that there is no evidence that petitioner received significant benefit from the underpayment_of_tax but contends that this factor should be considered neutral because mr rozell also did not receive significant benefit from the underpayment_of_tax respondent cites no cases holding that the nonrequesting spouse must receive significant benefit from an understatement or underpayment_of_tax for this 16petitioner failed to introduce any evidence suggesting that mr rozell was deceitful or evasive with respect to the return additionally as discussed infra pp petitioner’s contention that mr rozell’s alcohol addiction constituted abuse is meritless factor to favor relief the plain language of revproc_2003_61 sec_4 a v does not so require however the revenue_procedure proposed by notice_2012_8 supra provides as follows if only the nonrequesting spouse significantly benefitted from the unpaid tax or item giving rise to an understatement or deficiency and the requesting spouse had little or no benefit or the nonrequesting spouse enjoyed the benefit to the requesting spouse’s detriment this factor will weigh in favor of relief if the amount of unpaid tax or understated tax was small such that neither spouse received a significant benefit then this factor is neutral notice_2012_8 i r b pincite as discussed supra pp we have not yet adopted the mode of analysis proposed by notice_2012_8 supra we are also not convinced that the analysis proposed by notice_2012_8 supra would require the nonrequesting spouse to significantly benefit from the underpayment or understatement_of_tax for this factor to favor relief where the underpayment or understatement_of_tax is large moreover we disagree with respondent’s assertion that mr rozell received no significant benefit from the pass-through income from hubs mr rozell owned a share of hubs when a shareholder of an s_corporation is required to report income of the s_corporation the shareholder’s basis in the s_corporation stock is increased accordingly sec_1367 because hubs never made a corresponding distribution of any money or property to mr rozell see sec b and c mr rozell’s basis in hubs was thus greater than it would have been without the pass-through income this was a significant benefit to mr rozell but not to petitioner accordingly even under respondent’s view this factor favors relief compliance with income_tax laws petitioner contends that she has complied with the income_tax laws for the years following respondent contends that petitioner filed her federal_income_tax return which was due on date on date and that respondent has no record of receiving a request for an extension of time to file her return for that year petitioner’s return showed no tax due petitioner’s return that was submitted into evidence includes a form_4868 application_for automatic_extension of time to file u s individual_income_tax_return the form_4868 is stamped as received by respondent on date the same date that respondent received petitioner’s return petitioner has submitted no evidence suggesting that she timely requested an extension of time to file her return critically petitioner never testified as to whether she requested an extension of time to file her return lacking evidence that petitioner timely requested an extension of time to file her return we must assume that she did not see rule a however because the return showed no tax due petitioner has timely filed in all other years since and petitioner contends that she timely requested an extension of time to file for we conclude that this factor is neutral abuse abuse can be both physical and psychological see nihiser v commissioner tcmemo_2008_135 95_tcm_1531 generally nonphysical abuse will weigh in favor of relief only where it is severe enough to incapacitate a requesting spouse in the same manner he or she would be incapacitated by physical abuse pugsley v commissioner tcmemo_2010_255 100_tcm_454 petitioner failed to introduce evidence showing that mr rozell physically or psychologically abused her instead petitioner contends that mr rozell’s alcohol addiction constituted a form of abuse petitioner has not cited any cases holding that a nonrequesting spouse’s alcohol addiction by itself constitutes a form of abuse favoring equitable relief under sec_6015dollar_figure moreover petitioner failed 17petitioner cites notice_2012_8 supra which proposes to supersede revproc_2003_61 supra with a provision that t he impact of a nonrequesting spouse’s alcohol or drug abuse is also considered in determining whether a requesting spouse was abused see notice_2012_8 i r b pincite we continued to introduce expert testimony supporting her contention that mr rozell’s alcohol addiction constituted psychological abuse our cases require more than alcohol addiction by the nonrequesting spouse for a finding of abuse under sec_6015 see nihiser v commissioner t c m cch pincite7 accordingly this factor is neutral see revproc_2003_61 sec_4 b i mental or physical health petitioner has introduced no evidence showing that her mental or physical health was impaired either when she signed the return or when she requested relief lacking such evidence we find that petitioner did not have a physical or mental impairment at the relevant times see rule a accordingly this factor is neutral see revproc_2003_61 sec_4 b ii in summary two of the eight factors set out in revproc_2003_61 sec_4 favor granting relief four factors are neutral and two factors weigh against granting relief petitioner had the burden_of_proof as to persuasion and if this were a matter of simply counting factors for and against relief she would lose in continued agree that alcohol and drug addiction can be a factor in determining that a requesting spouse was abused see nihiser v commissioner tcmemo_2008_135 95_tcm_1531 but we do not agree and we do not read notice_2012_8 supra as proposing that a nonrequesting spouse’s alcohol or drug addiction by itself constitutes abuse under sec_6015 sec_6015 cases however we do not simply count factors we evaluate all of the relevant facts and circumstances to reach a conclusion see pullins v commissioner t c pincite revproc_2003_61 sec_4 some of the most compelling facts in our analysis are the findings that petitioner fraudulently conveyed the linwood and second street properties and failed to disclose her interest in the lincoln county property these weigh heavily against relief in our view because a spouse requesting equitable relief under sec_6015 should come to the table with clean hands petitioner took affirmative steps to minimize her asset ownership in order to distort the economic analysis conducted with respect to her sec_6015 request for relief accordingly we conclude that petitioner is not entitled to relief from joint_and_several_liability under revproc_2003_61 sec_4 dollar_figure iv conclusion on the basis of the foregoing we conclude that petitioner has failed to satisfy the safe_harbor requirements of revproc_2003_61 sec_4 and the equitable factors set forth in revproc_2003_61 sec_4 accordingly we hold 18for the reason discussed above we would reach the same conclusion even if we were to evaluate petitioner’s request for relief under the procedure proposed by notice_2012_8 supra that petitioner is not entitled to relief from joint_and_several_liability under sec_6015 we have considered all other arguments made by the parties and to the extent not discussed above find those arguments to be irrelevant moot or without merit to reflect the foregoing decision will be entered for respondent


number release date id office uilc cca_2009040910443725 -------------- from ---------------- sent thursday april am to ----------------- cc ----------------------------------------------------------- subject fw bankruptcy automatic_stay ldp ased ----------- the service should not calculate the ldp or the ased based on the bc sec_362 termination of the automatic_stay the chief_counsel bankruptcy deskbook explains that sec_362 should be interpreted as applying only in cases in which the service is taking collection action prior to the filing of the second case to the relevant irs action at issue in your case is the issuance of the statutory_notice_of_deficiency prior to the debtor's first chapter case because the issuance of the statutory_notice_of_deficiency was part of the tax_determination process and not a collection action the stay would not have terminated pursuant to bc c a as to stat notice-related matters eg the running of the periods for the ldp and ased the service therefore will need to retain the case in bankruptcy suspense until the debtor receives a discharge or her chapter case is dismissed this conclusion is buttressed by the discussion in cc-2008-007 the heading of part ii reads u nder b c section c a the stay terminates with respect to all actions to collect a debt against the debtor personally emphasis added i hope this answers your question feel free to contact me if you have any questions about or further wish to discuss this matter --------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------


internal_revenue_service number release date index number --------------------------------------- ------------------------- ------------------------ ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number -------------------- refer reply to cc intl b03 plr-116698-16 date date ty ------ legend corp x corp y date dear ------------- --------------------------------------- ------------------------- --------------------------- ------------------- this is in response to your representative’s letter dated date requesting a ruling on behalf of corp x’s consolidated_group that the consolidated_group members be permitted to value their assets on the basis of the tax_book_value_method of asset valuation for purposes of the consolidated group’s ------ taxable_year the rulings contained in this letter are based upon information and representations submitted by corp x and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination corp x a domestic_corporation is a calendar_year taxpayer that uses the accrual_method as its overall_method_of_accounting corp x is the common parent of a group of affiliated corporations that files a consolidated u s federal_income_tax return corp x consolidated_group utilized the tax_book_value_method of asset valuation for taxable years prior to taxable_year ------ on date a date in calendar_year ------ corp x completed the acquisition of corp y the common parent of a u s consolidated_group of corporations for several years plr-116698-16 prior to date the corp y consolidated_group utilized the fair_market_value_method of asset valuation as a result of the acquisition the corp y consolidated_group members became members of the corp x consolidated_group and will be included in corp x’s consolidated federal_income_tax returns starting from the day after date sec_864 provides that all allocations and apportionments of interest_expense shall be made on the basis of assets rather than gross_income sec_1_861-8 through and sec_1_861-8t through 861-13t set forth the rules specific to the allocation and apportionment of interest_expense sec_1 9t g ii provides that a taxpayer may elect to determine the value of its assets on the basis of either tax book_value or the fair_market_value of its assets sec_1_861-8t provides that once a taxpayer uses the fair_market_value_method the taxpayer and all related_persons must continue to use such method unless expressly authorized by the commissioner to change methods based solely on the information submitted and the representations made pursuant to sec_1_861-8 and sec_1_861-8t and sec_1_861-9t the corp x consolidated_group members may value their assets on the basis of the tax_book_value_method of asset valuation for purposes of apportioning interest_expense for all operative sections including sec_199 and sec_904 of the code for the consolidated group’s ------ taxable_year and future years this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely richard l chewning senior counsel branch office of associate chief_counsel international cc


internal_revenue_service number release date index number ------------------------------------------------ --------------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ----------------- telephone number -------------------- refer reply to cc intl b03 plr-120328-17 date august ty ------ legend corp a corp b ------------------------------------------------ tin ---------------- ---------------------------------------------- ein ---------------- date ---------------------- dear -------------- this is in response to your representative’s letter dated date requesting a ruling on behalf of corp a’s consolidated_group that the consolidated_group members be permitted to value their assets on the basis of the tax_book_value_method of asset valuation for purposes of the consolidated group’s ------- taxable_year the rulings contained in this letter are based upon information and representations submitted by corp a and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination corp a a domestic_corporation is a calendar_year taxpayer that uses the accrual_method as its overall_method_of_accounting corp a is the common parent of a group of affiliated corporations that files a consolidated u s federal_income_tax return corp a consolidated_group utilized the tax_book_value_method of asset valuation for taxable years prior to ------- on date corp a acquired corp b for several years prior to date corp b utilized the fair_market_value_method of asset valuation as a result of the acquisition plr-120328-17 the corp b and its u s subsidiaries became members of the corp a consolidated_group sec_864 of the code provides that all allocations and apportionments of interest_expense shall be made on the basis of assets rather than gross_income sec_1_861-8 through and sec_1_861-8t through 861-13t set forth the rules specific to the allocation and apportionment of interest_expense sec_1_861-9t provides that a taxpayer may elect to determine the value of its assets on the basis of either tax book_value or the fair_market_value of its assets sec_1_861-8t provides that once a taxpayer uses the fair_market_value_method the taxpayer and all related_persons must continue to use such method unless expressly authorized by the commissioner to change methods based solely on the information submitted and the representations made pursuant to sec_1_861-8 and sec_1_861-8t and sec_1_861-9t the corp a consolidated_group members may value their assets on the basis of the tax_book_value_method of asset valuation for purposes of apportioning interest_expense for all operative sections including sec_199 and sec_904 of the code for the consolidated group’s -------taxable year and future years 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely jeffrey l parry senior counsel branch international


department of the treasury p o box ben franklin station washington dc person to contact telephone number refer reply to cc dom p si - plr-109700-99 date date internal_revenue_service index no number release date re legend decedent spouse date date date date date date trust child a child b child c personal representative x y this letter is in response to your submission of date on behalf of decedent’s estate in which you request rulings concerning a reverse qualified_terminable_interest_property qtip_election under sec_2652 of the internal_revenue_code and the generation-skipping_transfer gst tax consequences of a division of a_trust decedent died testate on date decedent was survived by spouse and three adult children according to article v of decedent’s will the residue of decedent’s estate is to be distributed to the trustee of trust a revocable inter_vivos_trust created by decedent that became irrevocable on decedent’s death article ii section a of trust directs that after decedent’s death the balance of trust after providing for a specific devise of real_property to child a is to be held in a marital trust and governed pursuant to article iii section a under article iii section a of trust the trustee is directed to pay to spouse for life or to apply for her benefit the entire net_income of the trust not less frequently than quarter-annually the trustee other than spouse also has the discretion to pay to spouse or to apply for her benefit such sums of the trust principal as the trustee deems advisable for spouse’s best interests in addition spouse has the right at any time or times upon written request to the trustee to receive such sums of the trust principal as are reasonably necessary to provide for spouse’s health maintenance and support article iv section a of trust provides that upon the death of spouse the trustee is to divide the trust assets into equal shares for the benefit of decedent’s three children child a child b and child c under article iv section a the trustee is directed to pay over and distribute to child a the share set_aside for him if child a predeceases spouse child a’s share is to be distributed to his wife if she is then living if child a’s wife is not then living child a’s share is to be held in trust for the benefit of his descendants who are then living and allocated among them per stirpes article iv section a provides that the share allocated to child b is to be held as a separate trust for child b’s benefit pursuant to article iv section b the trustee has the discretion to pay to child b or apply for her benefit so much of the net_income or principal of the trust as the trustee deems advisable at child b’s death the remaining principal and any undistributed_income shall be paid over and distributed to child b’s then living descendants per stirpes article iv section a provides that the share allocated to child c will also be held in a separate trust for child c’s benefit article iv section c gives the trustee the discretion to pay to child c or apply for her benefit so much of the net_income or principal of the trust as the trustee deems advisable upon child c’s death the remaining principal and any undistributed_income is to be divided into two equal shares one share is to be added to and administered as part of the principal of the trust being held for child b’s benefit if child b predeceases child c child b’s share will be held in trust for the benefit of child b’s living descendants the other share is to be distributed outright to child a if living or to his wife if he is not then living if neither child a nor his wife survive child c child a’s share will held in trust for the benefit of child a’s descendants it is represented that decedent’s estate was granted an extension of time until date to file the decedent’s form_706 federal estate and generation-skipping_transfer_tax return on date prior to date decedent’s estate filed the return on schedule m the personal representative elected to treat a specified percentage of the marital trust established under article iii section a as qualified_terminable_interest_property qtip under sec_2056 a schedule r was not filed with the return thus the estate neither made a reverse_qtip_election under sec_2652 nor allocated any of decedent’s available gst_exemption after it was discovered that the schedule r was not filed with decedent’s estate_tax_return and prior to date several corrective measures were taken first the personal representative petitioned a state court to reform articles iii and iv of trust the personal representative’s petition which was agreed and consented to by all the beneficiaries of trust requested that articles iii and iv of trust be reformed to provide for three separate marital trusts- trust trust and trust spouse is the life_income_beneficiary of each marital trust and each of decedent’s children is a successor beneficiary of one of the trusts child a is the successor beneficiary of trust child b is the successor beneficiary of trust and child c is the successor beneficiary of trust the three trusts provide in the aggregate for the same succession of interests and beneficiaries that were provided in trust on date the state court granted the personal representative’s request and on date pursuant to the court order the trustee divided trust on a fractional basis into three equal trusts lastly on date which was prior to date the personal representative filed a second estate_tax_return a schedule r was included with this return on the schedule r a reverse_qtip_election was made with respect to trust and trust decedent’s available gst tax exemption was allocated dollar_figurex or the smallest amount necessary plr-109700-99 to derive an inclusion_ratio of zero to trust and dollar_figurey or the remaining gst_exemption to trust the estate has represented that decedent did not use any of the gst_exemption available under sec_2631 during his life the following rulings have been requested the division of trust into three trusts will be recognized for purposes of chapter of the code the estate made a timely reverse_qtip_election under sec_2652 the decedent’s gst_exemption will be allocated in accordance with the schedule r as filed and the inclusion_ratio as defined in sec_2642 with respect to trust benefitting child b is zero sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse sec_2056 provides the general_rule that no deduction shall be allowed for an interest passing to the surviving_spouse if on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur the interest will terminate or fail sec_2056 provides that in the case of qualified_terminable_interest_property the entire property shall be treated as passing to the surviving_spouse for purposes of sec_2056 and no part of the property shall be treated as passing to any person other than the surviving_spouse sec_2056 defines qualified_terminable_interest_property as property which passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under sec_2056 applies sec_2056 provides that an election under sec_2056 with respect to any property is to be made by the executor on the return of tax imposed by sec_2001 the election once made is irrevocable plr-109700-99 sec_20_2056_b_-7 of the estate_tax regulations provides the that the qtip_election is made on the return of tax imposed by sec_2001 for purposes of this paragraph the term return of tax imposed by sec_2001 means the last estate_tax_return filed by the executor on or before the due_date of the return including extensions or if a timely return is not filed the first estate_tax_return filed by the executor after the due_date under sec_2044 any property in which the decedent possessed a qualifying_income_interest_for_life and for which a deduction was allowed under sec_2056 is includible in the decedent’s gross_estate sec_2601 imposes a tax on every generation-skipping_transfer gst made by a transferor to a skip_person a person assigned to a generation that i sec_2 or more generations below the generation assignment of the transferor after date under sec_2602 the amount of the gst tax is determined by multiplying the amount of the gst transfer by the applicable_rate under sec_2641 the applicable_rate with respect to any generation-skipping_transfer is the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2642 defines the inclusion_ratio in the case of a transfer from a_trust as the excess of over the applicable_fraction with respect to trust the applicable_fraction with respect to a_trust is a fraction the numerator of which is the amount of gst_exemption allocated to the trust and the denominator of which is the value of the property transferred to the trust reduced as provided in the section sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure that may be allocated by the individual or his executor to any property with respect to which the individual is the transferor sec_2631 provides that any allocation under sec_2631 once made is irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for the individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed under sec_2652 a transferor is defined generally as the last person with respect to whom the property was subject_to an estate or gift_tax thus in the case of property subject_to a plr-109700-99 qtip_election that is subsequently includible in the surviving spouse’s gross_estate under sec_2044 the surviving_spouse would become the transferor of the property for gst purposes however sec_2652 provides that in the case of any trust with respect to which a deduction is allowed to the decedent under sec_2056 the estate of the decedent may elect to treat all of the property in the trust for purposes of the gst tax as if the election to be treated as qualified_terminable_interest_property had not been made this election is referred to as the reverse_qtip_election the consequence of a reverse_qtip_election is that the decedent remains for gst purposes the transferor of the qtip_trust for which the election is made as a result the decedent’s gst tax exemption may be allocated to the qtip_trust sec_26_2652-2 of the generation-skipping_transfer regulations provides that the reverse_qtip_election is made on the return on which the qtip_election is made sec_26_2654-1 provides that if there is more than one transferor with respect to a_trust the portions of the trust attributable to the different transferors are treated as separate trusts for the purposes of chapter sec_26_2654-1 provides that the severance of a_trust that is included in the transferor’s gross_estate or created under the transferor’s will into two or more trusts is recognized for purposes of chapter if the governing instrument does not require or otherwise direct severance but the trust is severed pursuant to discretionary authority granted either under the governing instrument or under local law and a the terms of each of the new trusts provide in the aggregate for the same succession of interests and beneficiaries as are provided in the original trust b the severance occurs or a reformation proceeding if required is commenced prior to the date prescribed for filing the federal estate_tax_return including extensions actually granted for the estate of the transferor and c either the new trusts are severed on a fractional basis or if the severance is required by the terms of the governing instrument to be made on the basis of a pecuniary amount the pecuniary payment is satisfied in a manner that would meet the requirements of sec_26 a ii if it were paid to an individual if severed on a fractional basis the separate trusts need not be funded with a pro_rata portion of each assets held by the undivided trust the trusts may be funded on a nonpro rata basis provided funding is based on either the fair_market_value of plr-109700-99 the assets on the date of funding or in a manner that fairly reflects the net appreciation or depreciation in the value of the assets measured from the valuation_date to the date of funding in the present case prior to the due_date of the estate_tax_return including extensions and pursuant to a court order the trustee divided trust into three equal trusts one for the benefit of each of decedent’s children the terms of these three trusts grant spouse a qualifying_income_interest_for_life after spouse’s death the remainder of each trust is to pass to or be held for the benefit of one of decedent’s children as prescribed in the original trust instrument therefore the three trusts provide in the aggregate for the same succession of interests and beneficiaries that were provided in trust further trust was severed prior to the due_date including extensions for filing the decedent’s estate_tax_return thus the division of trust into three trusts will be recognized for purposes of chapter of the code see eg sec_26_2654-1 example decedent’s estate initially failed to include the schedule r with decedent’s form_706 federal estate_tax_return however a second estate_tax_return was filed prior to the extended due_date for filing decedent’s estate_tax_return this estate_tax_return was the last estate_tax_return filed by the personal representative on or before the due_date of the return including extensions therefore since both the qtip and reverse qtip elections were made on this return the reverse_qtip_election is timely further the allocation of decedent’s gst_exemption made on this return is timely and will be allocated in accordance with the schedule r as filed according to schedule r decedent’s gst_exemption is allocated to trust sec_2 and the gst_exemption allocated to trust will be dollar_figurex or the smallest amount necessary to derive an inclusion_ratio of zero any remaining gst_exemption is allocated to trust except as ruled above we express or imply no opinion concerning the federal tax consequences of this transaction under the cited provisions of the code or any other provision of the code plr-109700-99 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel passthroughs and special industries by _________________ george masnik chief branch enclosure copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c tax a a government entities division feb uniform issue list legend individual a individual b state c company m ira x ira w company p company n company o company q association r ira z ira y page account a account b amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount page individual c individual d attorney e attorney f law firm g ira u ira v loss a loss b loss c loss d allocation y allocation z allocation b dear this is in response to correspondence dated date as supplemented by correspondence dated june august and date and date submitted on your behalf by your authorized representative and a discussion with your authorized representative on date concerning the status of contributions to your individual_retirement_arrangements iras the following facts and representations have been submitted under penalty of perjury in support of the rulings requested individual a is married to individual b individuals a and b individuals a and b file a joint federal form_1040 are residents of state c page company m individual a was employed by company m from sponsored one or more retirement plans represented to be qualified within the meaning of sec_401 of the internal_revenue_code code in which individual a participated individual a was employed by company n from company n sponsored one or more retirement plans represented to be qualified within the meaning of sec_401 of the code in which individual a participated individual b was employed by company o from sponsored one or more retirement plans represented to meet the requirements of sec_403 of the code in which individual b participated company o individual a was eligible to receive a distribution from his company m qualified_plan due to his termination on individual a’s accrued_benefits in his company m plan was made into ira w ira w and it contained was an ira individual a established with company qon assets prior to this direct transfer ira w was an ira described in sec_408 of the code a direct transfer of amount on individual a established ira y with company p ira y was an ira in described in sec_408 of the code on was made from ira w to ira y on as a direct transfer from ira w these transferred amounts were the total account balance of ira w a direct transfer of was deposited into ira y individual a was also eligible to receive a distribution from his company n qualified_plan due to his termination on a direct transfer of on individual a’s accrued_benefits in his company n plan was made into ira y individual b was eligible to receive a distribution from her company o sec_403 plan due to her termination in check for ira z was an ira described in sec_408 of the code this direct_rollover of company o issued a payable to ira z an ira individual b established with company p on was deposited into ira z on individual b also maintained ira x with company q ira x was an ira described in sec_408 of the code pursuant to a direct transfer individual b terminated ira x in and her account balance in ira x was deposited into ira z on the amount of the assets received by ira z was individuals a and b also maintained account a a personal investment account with from account a and company q deposited it into account b a personal investment account established with company p _ individuals a and b withdrew in was used to purchase stock as an account b investment account b _ stock valued at consisted of the following stock transactions on stock costing plus __ through stock costing was received on was purchased was purchased and during totaled plus page 20u719v1 through during eventually resulting in the closure of account b on was withdrawn on was withdrawn and on individuals a and b withdrew amounts from account b was withdrawn resulting in the closure of account b individual c employed as a retirement planning specialist with company p managed the ira y and ira z from values of ira y ira z and account b held with company p had decreased significantly in or about had been assigned a new financial advisor individual d during the period that individual d acted as the financial advisor to individuals a and b the value of ira y ira zand account b continued to decrease individuals a and b were informed by company p that they until about by company p is a member of association r on instituted an association r arbitration proceeding against company p matter in arbitration individuals a and b the matter in arbitration alleged that individuals c and d were employed as financial advisors by company p the matter in arbitration contained factual allegations to the effect that company p to invest their funds including through individuals c and d advised individuals a and b their iras contrary to their stated investment objectives and risk tolerance the matter in arbitration also alleged that company p through individuals c and d although aware that individuals a’s and b’s investment objective was to save for retirement without losing their savings failed to invest their funds accordingly but instead invested in highly volatile technology and internet stocks the matter in arbitration stated that individuals a and b lost in excess of by financial advisors employed by company p in unsuitable investments recommended based on the above allegations and other allegations contained in the matter in arbitration individuals a and b alleged that the actions of company p constituted breach of fiduciary duty common_law fraud constructive fraud negligent misrepresentation breach of contract breach of duty and negligence and violations of the state c securities act furthermore the actions of company p were the proximate causes of the losses suffered by individuals a and b with respect to the investments in ira y ira z and account b individuals a and b were represented by attorney e and attorney f licensed to practice law in state c _ individuals a and b entered into a settlement agreement with on company p settlement agreement in the settlement agreement company p agreed to pay individuals a and b their claim against company p in exchange for dismissing with prejudice ae war bow from documentation contained in the file it appears that the above-referenced settlement was the result of arm’s-length negotiations between various parties with adverse interests and your authorized representative has asserted on your behalf that they were page 20uz yvi7 pursuant to the settlement agreement the matter in arbitration against company p was dismissed pursuant to the provisions of the settlement agreement reached between individual a individual b and company p on or about a check in the amount of payable to individuals a and b was sent by company p to law firm g the law firm with which attorneys e and f were associated the check was deposited into a law firm g trust account the sum of the settlement proceeds paid_by company p less attomeys’ fees and expenses associated with the matter in arbitration totaled no part of has been distributed it is still intact in the law firm g trust account the settlement agreement does not specify the portion of individual a’s ira y losses individual b’s ira z losses or individuals a’s and b’s account b losses that represented contributions to ira y consisted of which totaled on or about ira y was closed out and the account was deposited into ira u an ira established in the name of balance of individual a the amount of the loss which ira y experienced during its existence was loss a contributions to ira z consisted of on or about _ira z was closed out and the account balance of which totaled and withdrawals of on was withdrawn resulting in the closure deposits to account b consisted of was deposited into ira v an ira established in the name of individual b which totaled -reduced the initial deposits to the amount of the loss which ira z experienced during its existence was loss b of account b the amount of the loss which account b experienced during its existence was loss c it is the intent of individual a to deposit the portion of the proceeds of the settlement agreement representing losses in ira y into ira u itis the intent of individual b to deposit the portion of the proceeds of the settlement agreement representing losses in ira z into ira v it has been represented that neither individual a nor individual b received a form_1099 with respect to amounts received as a result of the above-referenced matter in arbitration and settlement agreement that for purposes of determining how much of amount the net settlement proceeds payable to individual a and individual b should be treated as representing ira losses_incurred by individual a and individual b said based on these facts and representations you request the following letter rulings - page gov71901 should be allocated between individual a’s and b’s iras and non-ira account in proportion to the losses_incurred in each account and the amounts representing ira losses as determined in response to your first ruling_request may be contributed as replacement payments to the iras of individuals a and b with respect to the requested letter rulings code sec_219 and sec_408 govern the timing and amount of contributions to individual_retirement_arrangements see eg code sec_219 sec_219 sec_219 f and d the initial issue presented in this case is whether the service should treat _ by individuals a’s and b’s iras y and z respectively and as a result not treat the intended contributions of portions of contributions subject_to the limitations of code sec_219 and sec_408 to iras u and v as ordinary as replacing losses suffered with respect to the initial issue it has been represented that individuals a and b initiated an arbitration action against company p relating to significant losses in value of various investments including an ira set up and maintained in the name of individual a and an ira set up and maintained in the name of individual b the arbitration action alleged various causes of said losses of value relating to activities taken either by company p or other named parties allegedly acting as the agents of company p arbitration action were represented by counsel and the arbitration action was settled in good_faith pursuant to the settlement individuals a and b recovered after attorney’s fees were deducted amount which represented losses suffered in both individuals a's and b’s iras and non-ira property held jointly by individuals a and b is being held by law firm g pending the issuance of this letter_ruling all parties to the a determination of whether settlement proceeds should be treated as a replacement payment rather than an ordinary contribution must be based on all the relevant facts and circumstances surrounding the payment of the settlement proceeds see revrul_2002_45 c b which applies a facts_and_circumstances_test to determine whether a payment to a qualified_plan under code sec_401 is a restorative payment to a plan as opposed to a plan contribution we believe that it is appropriate to apply the reasoning of revrul_2002_45 to iras as a general_rule payments to an ira are restorative payments only if the payments are made in order to restore some or all of the ra losses resulting from breach of fiduciary duty fraud or federal or state securities violations such as payments made pursuant to a court-approved settlement or independent third-party arbitration or mediation award in contrast payments made to an ira to make up for losses due to market fluctuations or poor investment returns are generally treated as contributions and not as restorative payments fe in the instant case as noted above individuals a and b instituted an association r arbitration proceeding against company p the matter in arbitration contained factual allegations to the effect that company p through individuals c and d advised individuals a and b to invest their funds including their iras contrary to their stated investment objectives and risk tolerance the matter in arbitration stated that individuals a and b financial advisors employed by company p and the actions of company p were the in unsuitable investments recommended by lost in excess of _ page proximate causes of the losses suffered by individuals a and b with respect to the investments in ira y ira z and account b subsequently individuals a and b and company p settled the matter in arbitration furthermore all of the parties to the matter in arbitration were represented by counsel fs accordingly from the facts presented in this case the payment from company p to individuals a and b was the result of an arm’s-length settlement of a good_faith claim of are contributed to the iras as is the intent liability and as such if portions of of individuals a and b said contributions will be restorative payments rather than additional contributions to their iras made to merely replenish their ra account balances after investment losses in this case the service has noted that ira y experienced a loss of loss a ira z experienced a loss of loss b and account b experienced a loss of loss c loss a and loss b and loss c total loss d loss a of loss d loss b is approximately loss d of loss d and loss c is approximately is approximately of the above-referenced settlement proceeds were designed to replace a portion of individual a’s and individual b’s losses ira and non-ira due to alleged misconduct on the part of company p in this case as indicated above the service notes that the settlement agreement did not specify which portions of individual b’s ira losses or individuals a’s and b’s non-ira losses in the absence of such specification the service concludes that it is appropriate to allocate a pro-rata portion of non-ira losses attorney's_fees and expenses to such ira and were allocable to individual a’s ira losses since loss a is approximately allocation y since loss b is approximately percent of loss d of loss d of ‘is of is allocation z since loss c is approximately of loss d of is allocation b the net settlement proceeds payable to individual thus with respect to your first ruling_request we conclude that for purposes of determining how much of a and individual b should be treated as representing ira losses_incurred by individual a and individual b said should be allocated between individual a's and b’s iras and non-ira account in proportion to the losses_incurred in each account as a result of the proportional allocation allocation y represents a recovery_of some of the losses suffered in individual a’s ira y and allocation z represents a recovery_of some of the losses suffered in individual b’s ira z with specific respect to your second ruling_request as noted above allocations y and z represent recoveries of ira losses furthermore as detailed above said allocations were recovered as a result of an arm’s-length transaction between adverse parties which was settled in good_faith thus the service will treat allocations y and z as restorative payments as se page accordingly with respect to your second ruling_request based on the particular facts and circumstances presented herein we hold that if contributed to iras u and v respectively allocation y and allocation z will be considered to be restorative payments replacing portions of individual a’s and b’s losses in iras y and z and as such will not be subject_to the limitations on contributions found in code sec_219 and sec_408 no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter expresses no opinion as to whether the iras described herein satisfied the requirements of sec_408 of the code and assumes that they do in accordance with representations made to that effect this letter is directed only to the taxpayers who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this ruling letter is being sent to your authorized representative if you wish to inquire about this ruling please contact please address all correspondence to d at sincerely yours vv employee_plans technical group mangger enclosures deleted copy of letter_ruling notice of intention to disclose