t c no united_states tax_court henry hermanus van es petitioner v commissioner of internal revenue respondent docket no 1134-o0l filed date with regard to p’s tax_year r assessed a tax_deficiency along with penalties and interest and three sec_6702 i r c frivolous_return penalties along with related interest of which r collected a portion as to the uncollected portion of those amounts r issued a levy notice pursuant to sec_6330 i r c p requested an appeals hearing from r’s appeals_office after review an appeals officer issued to p a notice_of_determination pursuant to sec_6330 i r c stating that the levy should proceed with respect to the appeals officer’s determination p thereafter filed a petition with this court challenging the merits of r’s assessment of the collected and uncollected frivolous_return penalties and related interest amounts held p is not entitled to the protections of sec_6330 i r c for amounts collected before the effective date of the internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_685 -- - held further the court lacks jurisdiction to review the appeals officer’s determination that the levy with regard to the uncollected frivolous_return penalties and related interest should proceed see 114_tc_171 henry h van es pro_se thomas r mackinson for respondent opinion vasquez judge petitioner filed a petition in response to respondent’s notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination in the petition petitioner disputes respondent’s assessment of sec_6702 frivolous_return penalties and related interest and alleges that respondent has violated his fifth_amendment rights as a result of that assessment because under sec_6703 we lack jurisdiction to review assessments of sec_6702 frivolous_return penalties respondent filed a motion to dismiss the petition for lack of jurisdiction petitioner concedes the issue to the extent that he can file a petition with a u s district_court within days of the dismissal of the instant case ’ unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure for purposes of respondent’s motion petitioner does not dispute various factual allegations that are part of the record background at the time the petition was filed petitioner resided in san francisco california the amounts for which petitioner seeks relief relate to his tax_year the internal_revenue_service irs assessed an income_tax deficiency along with penalties and interest and three sec_6702 frivolous_return penalties and related interest with regard to petitioner’s tax_return on date after previously collecting and applying dollar_figure to the outstanding liability related to the sec_6702 frivolous_return penalties and related interest prior collection activities respondent issued a notice_of_intent_to_levy and notice of your right to a hearing levy notice to petitioner with regard to the outstanding balance of the income_tax deficiency and related penalties and interest and the sec_6702 frivolous_return penalties and related interest see sec_6330 in the levy notice among other items the irs asserted that petitioner had an outstanding balance of dollar_figure for the sec_6702 frivolous_return penalties and dollar_figure for interest related to those penalties the outstanding balance for the tax_year as presented in the levy notice is reproduced below form tax unpaid amount additional number period from prior notices penalty interest amount you owe dollar_figure dollar_figure dollar_figure civ pen dollar_figure dollar_figure dollar_figure pursuant to sec_6330 petitioner requested a hearing - appeals hearing from the internal_revenue_service office of appeals appeals_office petitioner contested all amounts listed in the levy notice by making constitutional arguments including the violation of his fifth_amendment rights on date an appeals officer sent petitioner a notice_of_determination pursuant to sec_6330 in the notice_of_determination the appeals officer determined that because petitioner raised only constitutional issues and did not raise issues listed in sec_6330 a with regard to the unpaid amounts the levy should proceed petitioner thereafter appealed the appeals officer's notice_of_determination to this court using a preprinted petition form available to taxpayers seeking review of deficiency determinations made by the commissioner under the headings amount of deficiency disputed and addition_to_tax penalty if any disputed petitioner wrote all penalties and interest and dollar_figure interest and penalties from date of assessment respectively petitioner also provided an explanation for instituting the suit all irs forms submitted for the tax_year were signed under reservation of rights two frivolous tax_return penalties were assessed against me these two penalties violate my 5th amendment right in addition the statement attached to my return stated clearly that the return was filed involuntarily also violated wa sec_42 usc - - discussion sec_6331 provides that if any person liable to pay any_tax neglects or refuses to do so within days after notice_and_demand the secretary can collect such tax by levy upon property belonging to such person pursuant to sec_6331 the secretary is required to give the taxpayer notice of his intent to levy and within that notice must describe the administrative review available to the taxpayer before proceeding with the levy see also sec_6330 sec_6330 describes the administrative review process providing that a taxpayer can request an appeals hearing with regard to a levy notice at the appeals hearing the taxpayer may raise certain matters set forth in sec_6330 which provides in pertinent part as follows sec c matters considered at hearing --in the case of any hearing conducted under this section-- issues at hearing --- a in general --the person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy including-- appropriate spousal defenses challenges to the appropriateness of collection actions and offers of collection -- - alternatives which may include the posting of a bond the substitution of other assets an installment_agreement or an offer-in- compromise b underlying liability --the person may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability pursuant to sec_6330 within days of the issuance of the notice_of_determination the taxpayer may appeal that determination to this court if we have jurisdiction over the underlying tax_liability if we do not have jurisdiction over the underlying tax_liability then the appeal is to be made to a u s district_court see sec_6330 respondent interprets the petition as seeking review of the sec_6702 frivolous_return penalties and not the unpaid income_tax assessment petitioner does not object to that interpretation of the petition after reviewing the petition and the record we conclude that petitioner seeks review of all of respondent’s collection activities with regard to the sec_6702 frivolous_return penalties assessed including related interest we view the references to sdollar_figure and two frivolous tax_return penalties in the petition as petitioner’s attempt to contest respondent’s prior collection activities which were not - the subject of the levy notice or the notice_of_determination because the prior collection activities were initiated and completed before the effective date of sec_6330 petitioner is not entitled to the protections of that section for those collection activities see internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_685 which created new sec_6330 and provided for an effective date of days after date to the extent that the petition refers to respondent’s prior collection activities we dismiss that part of the petition for lack of jurisdiction pursuant to sec_6330 respondent moves to dismiss the petition on the basis that we lack jurisdiction to review respondent’s assessment of the uncollected sec_6702 frivolous_return penalties sec_6330 provides the following sec_6330 proceeding after hearing --- judicial review of determination ---the person may within days of a determination under this section appeal such determination-- a to the tax_court and the tax_court shall have jurisdiction to hear such matter or b if the tax_court does not have jurisdiction of the underlying tax_liability to a district_court of the united_states if a court determines that the appeal was to an incorrect court a person shall have days after the court determination to file such appeal with the correct court emphasis added in katz v commissioner 1t c slip op pincite we interpreted the term underlying tax_liability as including any amounts owed by a taxpayer pursuant to the tax laws that are the subject of the commissioner’s collection activities pursuant to our recent decision in 114_tc_171 respondent argues that we do not have jurisdiction over the underlying tax_liability ie the sec_6702 frivolous_return penalties in moore v commissioner supra pincite we observed that our deficiency jurisdiction generally is limited to the redetermination of income estate_and_gift_taxes see sec_6211 sec_6213 we interpreted sec_6330 d a and b as not expanding the court’s jurisdiction beyond the types of taxes over which the court has jurisdiction see moore v commissioner supra pincite we concluded that because we did not have jurisdiction to redetermine federal trust_fund_taxes determined by the commissioner under sec_6672 we did not have jurisdiction to review an appeals officer’s determination pursuant to sec_6330 with regard to those taxes see id just as in moore in which we held that we did not have jurisdiction to redetermine federal trust_fund_taxes we hold that we do not in the instant case have jurisdiction to redetermine the frivolous_return penalties assessed pursuant to sec_6702 see sec_6703 and c hansen v commissioner tcmemo_1996_158 nephew v commissioner tcmemo_1989_32 --- - because we do not have jurisdiction over the assessment of the sec_6702 frivolous_return penalties we also dismiss for lack of jurisdiction the part of the petition challenging the collection of the outstanding amounts listed in the levy notice for the frivolous_return penalties and related interest pursuant to sec_6330 petitioner ha sec_30 days after the entry of our order of dismissal to file his appeal with the appropriate u s district_court to reflect the foregoing an appropriate order of dismissal will be entered petitioner does not make an argument that he is not liable for the interest cf katz v commissioner t c __ slip op pincite we therefore interpret petitioner’s challenge to respondent’s collection activities as being based solely on petitioner’s view that the sec_6702 frivolous_return penalties were illegally assessed


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 corp b1 plr-104636-16 date june purchaser ----------------------------------------------------------- ---------------------- legend s_corporation shareholders ---------------- ----------------------- ------------------- ------------------- -------------------------- ---------------------- --------------------- ----------------- s_corporation target ------------------------------------------------- ---------------------- date state a state b ---------------------- ------------ --------- company official ----------------------------- -------------------------------------------------------- plr-104636-16 tax professional -------------------- ------------------------------------------------------------------------------- dear ------------------- this letter_ruling responds to a letter from your authorized representative dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an election specifically s_corporation shareholders and s_corporation target are requesting an extension of time for s_corporation target to file an election statement under sec_1_336-2 of the income_tax regulations election statement with respect to purchaser’s acquisition of the stock of s_corporation target from s_corporation shareholders on date the material information provided in that letter is summarized below on date purchaser a state a limited_liability_company that is treated as a partnership for federal_income_tax purposes acquired all of the stock of s_corporation target a state b limited_liability_company that has elected to be treated as an s_corporation for federal_income_tax purposes from s_corporation shareholders the disposition it has been represented that the disposition qualified as a qualified_stock_disposition as defined in sec_1_336-1 prior to the due_date for s_corporation target’s tax_return for the taxable_year that included date year s_corporation shareholders and s_corporation target entered into a written binding agreement providing that a sec_336 election would be made with respect to the disposition but s_corporation target did not timely file its tax_return for year subsequently a request was submitted under sec_301_9100-3 of the procedure and administration regulations for an extension of time to file the election statement it has been represented that neither s_corporation shareholders nor s_corporation target is seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 regulations promulgated under sec_336 permit certain_sales exchanges or distributions of stock of a corporation to be treated as asset dispositions if the disposition is a qualified_stock_disposition as defined in sec_1_336-1 and a sec_336 election is made sec_1_336-2 provides that a sec_336 election for an s_corporation target is made by i all of the s_corporation shareholders including those who do not dispose_of any stock in the qualified_stock_disposition and the s_corporation target entering into a written binding agreement on or before the due_date including extensions of the federal_income_tax return of the s_corporation target for the taxable_year that includes the disposition date to make a e election ii the s_corporation target retaining a plr-104636-16 copy of the written_agreement and iii the s_corporation target attaching the sec_336 election statement described in sec_1_336-2 and to its timely filed including extensions federal_income_tax return for the taxable_year that includes the disposition date under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 the time for filing the election statement is fixed by the regulations ie sec_1 h iii therefore the commissioner has discretionary authority under sec_301 to grant an extension of time for s_corporation target to file the election statement provided purchaser s_corporation shareholders and s_corporation target acted reasonably and in good_faith the requirements of sec_301_9100-1 and are satisfied and granting relief would not prejudice the interests of the government information affidavits and representations submitted by s_corporation shareholders s_corporation target company official and tax professional explain the circumstances that resulted in the failure to timely file the election statement the information establishes that purchaser s_corporation shareholders and s_corporation target reasonably relied on a qualified_tax professional who failed to file or advise them to timely file the election statement and that the request for relief was filed before the failure_to_file the election statement was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that purchaser s_corporation shareholders and s_corporation target have acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for s_corporation target to file the election statement with respect to the disposition within days of the date on this letter s_corporation target having already filed a return with the e election statement attached must attach a copy of plr-104636-16 this letter to s_corporation target’s return alternatively if s_corporation files its return electronically it may satisfy the requirement of attaching a copy of this letter to the return by attaching a statement to its return that provides the date and control number plr-104636-16 of this letter_ruling within days of the date on this letter all relevant parties must file or amend as applicable all returns and amended returns if any necessary to report the transaction consistently with the making of a sec_336 election for the taxable_year in which the transaction was consummated and for any other affected_taxable_year the above extension of time is conditioned on the taxpayers’ ie purchaser’s s_corporation target’s and s_corporation shareholders’ tax_liability if any being not lower in the aggregate for all years to which the sec_336 election applies than it would have been if the election statement had been timely filed taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved we express no opinion as to whether the disposition qualifies as a qualified_stock_disposition or any other tax consequences arising from the sec_336 election in addition we express no opinion as to the tax consequences of filing the return or election statement late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election statement late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we have relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election statement penalties and interest that would otherwise be applicable if any continue to apply this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-104636-16 in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely _ken cohen______________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


third party communication date of communication month dd yyyy cca_2013082910472260 id uilc number release date from --------------------------- sent thursday date am to ----------------------- cc bcc subject cdp rights for successor entity ------ - when an entity is deemed to be a mere continuation of a taxpayer the successor entity is liable for the unpaid taxes of the taxpayer see eg 40_fsupp2d_268 e d pa the assessment against the taxpayer and the tax_liens based on those assessments are valid against the successor entity cf 541_us_114 holding that the assessments attach to the tax debt without reference to the special circumstances of the secondarily liable parties the assessment lien attaches to the successor’s property and the service may levy on such property to collect the taxpayer’s liability cf 17_f3d_116 5th cir 118_f2d_760 5th cir if the service has previously issued notices under sec_6320 and sec_6330 to the taxpayer for a particular tax period the service is not required to issue these notices to the successor entity notice to the taxpayer under sec_6320 or sec_6330 is effective as to the taxpayer’s successor when the successor is a mere continuation cf 387_fsupp2d_143 e d n y in order to put third parties on notice of the assessment lien attached to the property of the successor entity we agree with your recommendation that the service should file a notice_of_federal_tax_lien that specifically identifies the entity as a successor of the taxpayer a sec_6320 notice however does not need to be given to the successor entity for the tax periods listed on the notice_of_federal_tax_lien if a sec_6320 notice has already been given to the taxpayer for the same periods if you have additional questions or concerns feel free to contact me ----------------------------- -------------- ---------------------


internal_revenue_service department of the treasury number release date index number 468a washington dc person to contact telephone number refer reply to cc psi plr-108757-99 date date legend taxpayer parent state district plant location commission a b c d e f g h i j k l m n act this letter responds to your request submitted on behalf of taxpayer dated may plr-108757-99 for a revised schedule of ruling amounts under sec_468a of the internal_revenue_code in accordance with sec_1_468a-3 of the income_tax regulations taxpayer was previously granted a revised schedule of ruling amounts on date information for the schedule of ruling amounts was submitted on behalf of taxpayer pursuant to sec_1_468a-3 taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows taxpayer is a wholly-owned subsidiary of the parent and is an investor-owned public_utility incorporated in state the taxpayer is engaged in the production transmission and distribution of electric energy parent files a consolidated federal_income_tax return and is under the audit jurisdiction of the district_director of district for most of i the taxpayer had a direct ownership_interest of a percent in plant which is situated at location the plant was sold in n the plant is under the regulatory jurisdiction of commission the taxpayer has established and maintained a qualified nuclear decommissioning fund for its interest in the plant plant’s operating license expires in b the estimated base cost for decommissioning the plant is based on an independent study and is premised on the safe storage with delayed dismantlement method of decommissioning commission authorized nuclear decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes for the plant in the amount of c and estimated an after-tax rate of return on assets of d percent the commission also determined the total estimated cost of decommissioning to be e this base cost escalated using an estimated inflation rate of f percent results in an estimated future decommissioning cost of g these rates were estimated after taking into consideration the tax and investment changes made to sec_468a by section of the energy policy act of recently state enacted act into law which deregulates the sale of electric generation in state the act authorizes taxpayer to continue to recover its nuclear plant decommissioning costs through a separate nonbypassable charge included in its bills to all customers over a transitional period that varies among taxpayer’s h rate classes of customers during i some of taxpayer’s customers elected under the act to purchase electricity from providers other than taxpayer the customers that continued to purchase electricity from taxpayer paid the same total rates as were in place prior to i which rates were determined by commission on the basis of traditional rate-of-return ratemaking procedures the funding_period and level_funding limitation period for the plant extends from j the estimated period for which the fund will be in effect is k years the estimated_useful_life of the plant is l years thus the taxpayer has calculated its qualifying percentage to be m percent plr-108757-99 sec_468a provides that a taxpayer may elect to deduct the amount of payments made to a qualified nuclear decommissioning fund however sec_468a limits the amount_paid into the fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to the fund that is included in the taxpayer’s cost of service for ratemaking purposes for the taxable_year or the ruling_amount applicable to that year sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any taxable_year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs with respect to the nuclear power plant which bears the same ratio to the total nuclear decommissioning costs with respect to the nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the nuclear power plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of the taxable_year if the payment is made on account of the taxable_year within 2½ months after the close of the taxable_year sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a an eligible_taxpayer as defined under sec_1_468a-1 is a taxpayer that has a qualifying interest in a nuclear power plant as defined under sec_1_468a-1 a qualifying interest is a direct ownership_interest including an interest held as a tenant in common or joint tenant and a leasehold interest in any portion of the nuclear power plant if a the holder of the leasehold interest is subject_to the jurisdiction of a public_utility commission with respect to that portion of the nuclear power plant b the holder of the leasehold interest is primarily liable under federal or state law for decommissioning that portion of the nuclear power plant and c no other person establishes a nuclear decommissioning fund with respect to that portion of the nuclear power plant sec_1_468a-2 provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any taxable_year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for the taxable_year or ii the ruling_amount applicable to the nuclear decommissioning fund for the taxable_year sec_1_468a-3 provides that the maximum amount of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the taxable years remaining in the funding_period as of the date the schedule first applies plr-108757-99 will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 provides that each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission s in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes taking into account amounts that are otherwise required to be included in the taxpayer’s income under sec_88 and the regulations thereunder each schedule of ruling amounts shall be based on the public_utility commission’s reasonable assumptions concerning i the after-tax rate of return to be earned by the amounts collected for decommissioning ii the total estimated cost of decommissioning the nuclear power plant and iii the frequency of contributions to the nuclear decommissioning fund for a taxable_year schedule 468a-3 a permits the internal_revenue_service to provide a schedule of ruling amounts that is identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer’s proposed schedule is consistent with the principles and provisions of this section sec_1_468a-3 provides that the ruling_amount specified in a schedule of ruling amounts for any taxable_year in the level_funding limitation period shall not be less than the ruling amounts specified in such schedule for any earlier taxable_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes under sec_1_468a-3 the ruling_amount specified in a schedule of ruling amounts for a taxable_year after the end of the level_funding limitation period may be less than the ruling_amount specified in the schedule for an earlier taxable_year under sec_1_468a-3 the ruling_amount specified in a schedule of ruling amounts for the last taxable_year in the level_funding limitation period may be less than the ruling_amount specified in the schedule for any earlier taxable_year if the applicable public_utility commission assumes for cost of service purposes that decommissioning costs will be included in cost of service for only a portion of the last taxable_year in the level_funding limitation period sec_1_468a-3 provides that the funding_period for a nuclear decommissioning fund is the period that begins on the first day of the first taxable_year for which a deductible payment is made or deemed to be made to such nuclear decommissioning fund and ends the later of i the last day of the taxable_year that includes the estimated date on which decommissioning costs of the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer’s cost of service for ratemaking purposes or ii the last day of the taxable_year that includes the estimated date on which the nuclear power plant to which the plr-108757-99 nuclear decommissioning fund relates will no longer be included in the taxpayer’s rate base for ratemaking purposes sec_1_468a-3 provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer’s share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 provides that a taxpayer’s share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning the plant multiplied by the taxpayer’s qualifying interest in the plant sec_1_468a-3 provides that the qualifying percentage for any nuclear decommissioning fund is equal to the fraction the numerator of which is the number of taxable years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of taxable years in the estimated_useful_life of the applicable nuclear power plant sec_1_468a-3 provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer’s rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer’s rate base sec_1_468a-3 provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer’s rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking plr-108757-99 purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer’s rate base sec_1_468a-3 provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant to which the nuclear decommissioning fund relates has determined the amount of decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 provides that a taxpayer is required to request a revised schedule of ruling amounts for a nuclear decommissioning fund if a any public_utility commission that establishes or approves rates for the furnishing or sale of electric energy generated by a nuclear power plant to which the nuclear decommissioning fund relates increases the proposed period over which decommissioning costs of the nuclear power plant will be included in cost of service for ratemaking purposes adjusts the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes or reduces the amount of decommissioning costs to be included in cost of service for any taxable_year and b the taxpayer’s most recent request for a schedule of ruling amounts did not provide notice to the service of such action by the public_utility commission sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely on these representations of the facts we reach the following conclusions for i taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 plr-108757-99 commission has determined the amount of decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes as required by sec_1_468a-3 taxpayer has determined that pursuant to sec_1_468a-3 the qualifying percentage is m percent taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by commission and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund the maximum amount of cash payments made or deemed made to the fund during any taxable_year is restricted to the lesser amount of the decommissioning costs applicable to the fund or the ruling_amount applicable to the fund as set forth under sec_1_468a-2 taxpayer has calculated its share of the total decommissioning costs allocable to the commission as required by sec_1_468a-3 based on the above determinations we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a approved schedule of ruling amounts approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time this ruling is issued if any of the events described in sec_1_468a-3 occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a as stated above payments made to the fund can qualify only to the extent that plr-108757-99 they do not exceed the lesser_of the decommissioning costs applicable to the fund or the ruling_amount applicable to the fund in the taxable_year this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that this ruling may not be used or cited as precedent pursuant to sec_1_468a-7 a copy of this letter must be attached with the required election statement to the taxpayer’s federal_income_tax return for each taxable_year in which the taxpayer claims a deduction for payments made to the fund in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives sincerely yours charles b ramsey chief branch office of associate chief_counsel passthroughs and special industries


t c memo united_states tax_court wayne lasier wilmot petitioner v commissioner of internal revenue respondent docket no filed date wayne lasier wilmot pro_se james c o’leary for respondent memorandum findings_of_fact and opinion morrison judge respondent the irs issued a notice_of_deficiency to petitioner wayne lasier wilmot wilmot determining an income-tax deficiency of dollar_figure for the year the irs reduced the deficiency to dollar_figure after correcting a computational error in the notice wilmot timely filed a petition under sec_6213 for redetermination of the deficiency we have jurisdiction under sec_6214 the primary issue for decision is whether wilmot’s photography activity was an activity_not_engaged_in_for_profit within the meaning of sec_183 we find that wilmot did not engage in his photography activity for profit thus he cannot deduct any of the photography expenses he reported findings_of_fact some facts have been stipulated and they are so found wilmot resided in maryland when he filed the petition wilmot earned a b s in electrical engineering in and a ph d in oceanography in from to he conducted oceanographic research at various universities institutes and government agencies he also taught graduate-level courses this work took place in scandinavia--primarily in sweden 1all section references are to the internal_revenue_code as in effect for the year in issue all rule references are to the tax_court rules_of_practice and procedure 2the notice_of_deficiency reflected that the disallowed photography deductions increased wilmot’s income thus resulting in computational adjustments to his tuition_and_fees_deduction and his miscellaneous_itemized_deductions wilmot argues that his tuition and fees expenses were genuine expenses but he misunderstands the irs’s adjustment though he may have incurred tuition and fees expenses his modified_adjusted_gross_income as increased by the notice_of_deficiency exceeds the threshold for the tuition_and_fees_deduction in wilmot returned to the united_states and started wilmot associates an oceanographic-consulting business by his account the business was relatively successful in wilmot began working full time for the national oceanic and atmospheric association noaa as an oceanographer he also continued his oceanographic-consulting business wilmot associates by the 1990s however wilmot associates was dormant in while still working for noaa wilmot earned an m s from johns hopkins university the degree was in technical management project management and systems engineering in after earning his m s wilmot began teaching part time at johns hopkins while continuing to work at noaa in wilmot began taking photography classes at montgomery college in rockville maryland his coursework included color photography black-and-white photography electronic photography portrait and fashion photography and business practices and portfolio development around wilmot became interested in starting a photography business he hoped to pursue advertising commercial photography and environmental photography 3wilmot generally taught two courses per year--one in the spring and one in the fall 4environmental photography in wilmot’s parlance consists continued in while working full time for noaa and part time for johns hopkins wilmot began engaging in a photography activity that he characterized as a for-profit business on his tax returns he began reporting the expenses from this activity under the name wilmot environmental technology he used the same name to report expenses from oceanographic consulting an activity he resumed in for the two years that wilmot conducted both photography and oceanographic consulting and it is unclear how much of the expenses he reported for wilmot environmental technology were oceanographic-consulting expenses in the year in issue wilmot stopped working as an oceanographic consultant he continued to engage in photography and remained a full-time_employee of noaa and a part-time_employee of johns hopkins his combined wages in from noaa and johns hopkins totaled dollar_figure in wilmot made three trips to europe to take photos he used these trips to build a portfolio--a set of sample photos that photographers use to seek work the first trip took place from date to date the second trip from march to and the third trip from july to date on the first and second trips wilmot took photo sec_4 continued of taking staged photos of people in their work environments these photos are then used in promotional brochures or advertising exclusively in the czech republic on the third trip he again took photos in the czech republic but also brought one model hana strangfeldova to sweden for seaside photos during portions of each trip wilmot staged multiple all-day photo shoots the shoots consisted of photographing models in fashionable clothing and swimwear in the czech republic the shoots took place at local photo studios and at various other locations pavel danel a czech photographer and studio owner coordinated the logistics for many of the shoots he lent wilmot his studio he provided equipment and he hired models makeup artists and photo assistants in sweden wilmot and strangfeldova stayed at a summer home owned by the family of wilmot’s former domestic partner wilmot took seaside photos of strangfeldova on the surrounding land and islands after the photo shoots wilmot either processed the photos himself or sent them to a professional lab for processing he then used the photos to compile a portfolio in wilmot earned an associate of applied science degree in photography from montgomery college he continued 5wilmot paid danel for studio and equipment rental danel also set the fees for the models makeup artists and photo assistants whom wilmot paid directly and received a 25-percent commission on their earnings 6wilmot’s portfolio is not in evidence nor are any of his photos engaging in his photography activity until at least he continued teaching part time at johns hopkins until and he continued working for noaa until he retired in on his tax_return wilmot claimed dollar_figure of photography expenses on schedule c profit or loss from business expense car and truck legal and professional services office repairs and maintenance supplies travel meals and entertainment utilities total amount claimed dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure 7the manner in which wilmot conducted his photography activity underwent little change in the years after as discussed infra pt iii a the only change wilmot made was a shift from film to digital photography 8the schedule c stated that wilmot’s principal business was consulting photography but as wilmot testified the activity reported on his schedule c consisted solely of photography thus all his schedule c expenses in were photography expenses wilmot reported no gross_receipts from his photography activity he thus claimed a dollar_figure schedule c loss which reduced his gross_income by dollar_figure at trial wilmot submitted into evidence two binders of documents to substantiate his photography expenses binder documents the documents include receipts invoices ticket stubs bank statements credit card statements and utility bills they indicate payments for books meals travel lodging entertainment women’s clothing women’s swimwear makeup supplies utilities photo equipment storage equipment digital equipment postal services photographic services and miscellaneous items to prepare his tax_return wilmot created handwritten workpapers based in part on the binder documents the handwritten workpapers are not in evidence the amounts on wilmot’s schedule c see table above did not correspond to the amounts on the binder documents one reason was that he lacked receipts for some expenses and thus relied on his personal knowledge of those expenses another reason was that he sometimes used the u s department of state per_diem rates instead of his actual expenses during audit wilmot created excel spreadsheets that detail how he calculated his expenses when preparing his tax_return the excel spreadsheets are electronic versions of the handwritten workpapers that wilmot used to prepare his tax_return the spreadsheets divide his photography expenses into categories the same categories used on his tax_return and list the date payee amount and purpose of each expense although we excluded the spreadsheets as hearsay the parties agreed to treat the spreadsheets as if wilmot had testified to the information contained in them we thus ordered that the spreadsheets be treated as if their information was reflected in wilmot’s sworn testimony i the parties’ positions opinion wilmot contends that he engaged in his photography activity for profit and is thus entitled to deduct his photography expenses as business_expenses under sec_162 he argues that the profit-motive factors in sec_1_183-2 income_tax regs show that he had a profit_motive citing the same factors the irs argues that wilmot did not engage in his photography activity for profit the irs also argues that even if wilmot intended to earn a profit from photography his photography expenses should be amortized as startup expenses because he was not actively engaged in a photography activity in see sec_195 b c a 86_tc_492 no deduction under sec_162 unless ongoing business affd 864_f2d_1521 10th cir we need not address this argument because as we explain we find that wilmot did not conduct his photography activity for profit thus he could not amortize his expenses as sec_195 startup expenses see sec_195 c a amortization allowed only for expenses_incurred to create new trade_or_business 480_us_23 profit_motive required to have trade_or_business wilmot contends that he gave the irs full substantiation of his photography expenses during audit and that the irs failed to conduct a proper audit of his tax_return he requests that we order the irs to conduct a complete audit but even if the audit was incomplete the proper remedy is for us to determine wilmot’s correct_tax liability see eg 62_tc_324 wilmot also argues that when the irs audited his tax_return it agreed that he had conducted his photography activity for profit but this is irrelevant the irs’s failure to propose adjustments to one year does not estop it from proposing adjustments to another year see eg 55_tc_28 ii burden_of_proof in the notice_of_deficiency the irs determined only that wilmot failed to substantiate his photography expenses the irs raised the issue of profit_motive before trial and the parties agreed to try this issue even though it was not raised in the notice_of_deficiency or the answer because the issue was not raised in the notice_of_deficiency the irs has the burden of showing by a preponderance_of_the_evidence that wilmot did not engage in his photography activity for profit see 112_tc_183 placing burden_of_proof on irs for new_matter tried by consent of parties under rule b 88_tc_38 party satisfies burden_of_proof by demonstrating merits of claim by preponderance of evidence iii whether wilmot engaged in his photography activity for profit under sec_183 no deduction is allowed for an activity_not_engaged_in_for_profit except as provided in sec_183dollar_figure sec_183 defines an activity_not_engaged_in_for_profit as any activity other than one for which sec_183 applies only to individuals and s_corporations sec_183 sec_183 provides two exceptions neither of which applies to wilmot sec_183 allows certain types of deductions that do not require a profit_motive sec_183 allows deductions that would otherwise require a profit_motive but only to the extent that gross_income from the activity exceeds the total deductions under sec_183 all of wilmot’s photography-expense deductions are the type that require a profit_motive see sec_162 and sec_183 and he earned no gross_income from his photography activity thus he does not qualify for deductions under sec_183 deductions are allowable under sec_162 or sec_212 or expenses are deductible under sec_162 the section wilmot claims is applicable only if the taxpayer is engaged in a trade_or_business in other words the taxpayer must engage in the activity continuously and regularly and the taxpayer’s primary purpose must be profit commissioner v groetzinger supra pincite defining trade_or_business courts determine whether an activity is engaged in for profit by examining the facts and circumstances sec_1_183-2 income_tax regs see also 32_f3d_94 4th cir affg tcmemo_1993_396 the taxpayer must have a good_faith profit_motive but need not have a reasonable expectation of profit sec_1_183-2 income_tax regs see also hendricks v commissioner supra pincite 78_tc_642 affd without opinion 702_f2d_1205 d c cir in determining profit_motive greater weight is given to objective facts than to the taxpayer’s mere statement of his intent sec_1_183-2 income_tax regs see also hendricks v commissioner supra pincite sec_1_183-2 income_tax regs provides nine factors that courts typically consider in determining whether an activity is engaged in for profit manner in which the taxpayer carries on the activity the expertise of the taxpayer or his advisors the time and effort expended by the taxpayer in carrying on the activity expectation that assets used in activity may appreciate in value the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer’s history of income or losses with respect to the activity the amount of occasional profits if any which are earned the financial status of the taxpayer and elements of personal pleasure or recreation dollar_figure see eg hendricks v commissioner supra pincite a manner in which the taxpayer carries on the activity the following facts can indicate a profit_motive the taxpayer conducts the activity in a businesslike manner and maintains complete and accurate books_and_records the taxpayer conducts the activity in a manner substantially_similar to profitable activities of the same nature and the taxpayer attempts to improve the activity’s profitability by changes in operating methods sec_1_183-2 income_tax regs 72_tc_659 wilmot did not conduct his photography activity in a businesslike manner he lacked a separate bank account for the 11these factors are not exclusive and no one factor is dispositive sec_1_183-2 income_tax regs 32_f3d_94 4th cir activity and a written business plandollar_figure see 544_f3d_900 8th cir affg tcmemo_2007_309 although he kept detailed records of his expenses it seems he did so solely to substantiate tax deductions see id records do not indicate profit_motive when kept only to memorialize for tax purposes the existence of the subject transactions bush v commissioner tcmemo_2002_33 records do not indicate profit_motive if maintained primarily to support tax deductions affd without published opinion 51_fedappx_422 4th cir there is no evidence that wilmot used his records to make business decisions or improve operations see 72_tc_411 affd without published opinion 647_f2d_170 9th cir wilmot’s meager efforts at promotion and advertising fall far short of what the owner of a profitable business would have done see keating v commissioner supra pincite paltry advertising efforts can indicate lack of profit_motive wilmot relied on word of mouth to promote his activity even though he had few contacts and no established reputation in the photography industry he claimed that he had contacted several potential 12wilmot’s unwritten business plan was supposedly to build up his photography activity to provide additional retirement income wilmot also claims that he chose his photo-shoot locations to lower costs but there is no written evidence of cost comparisons his two binders of documents merely show that he incurred certain expenses at the locations he chose clients in but we find that he contacted only three potential clients and of these only one was a realistic prospectdollar_figure he even turned down work that he thought undesirable he declined to work on photography jobs with another montgomery college student who did personal portraits and wedding photography we are skeptical that a fledgling for- profit photographer would have behaved this way wilmot did not make significant efforts to improve profitability only belatedly did he shift from film to digital photography even this transition--which ended several years after 2004--was unlikely to materially improve profitability see golanty v commissioner supra pincite operational changes not meaningful when they cannot significantly improve profitability for clients who preferred digital photography wilmot was still an unknown photographer because he did not advertise for the above reasons the manner in which wilmot conducted his photography activity does not indicate a profit_motive 13wilmot could only name three contacts he interviewed with an office-workspace company in rockville maryland but did not get the job he also sent unsolicited mailings to nordstrom and h m two large clothing companies offering his services but we do not believe these mailings created realistic work opportunities b the expertise of the taxpayer or his advisors preparation for an activity by extensive study of its accepted business economic and scientific practices or by consultation with experts in these practices may indicate a profit_motive where the taxpayer conducts the activity in accordance with such practices sec_1_183-2 income_tax regs this factor is neutral wilmot’s coursework at montgomery college gave him extensive knowledge of photographic techniques but he lacked adequate knowledge of the business aspects of photography see golanty v commissioner supra pincite expertise should include knowledge of business aspects of activity giles v commissioner tcmemo_2005_28 same he testified that his courses at montgomery college taught him the business aspects of photography but only one of these courses covered business practices he also claimed that he had received advice from professional photographers but he received only general advice on which fields to pursue from a photography professor at montgomery college and he did not receive business advice from the other photographers with whom he worked he simply paid them for services and studio space even if wilmot did glean business knowledge from his courses or from other photographers we doubt whether he applied it given his lackluster efforts at cost cutting and promotion see supra part iii a c the time and effort expended by the taxpayer in carrying on the activity if the taxpayer devotes much of his personal time and effort to conducting an activity this may indicate a profit_motive particularly if the activity lacks substantial personal or recreational aspects sec_1_183-2 income_tax regs this factor is neutral wilmot spent a significant amount of time on his photography activitydollar_figure the time spent however included substantial personal and recreational aspects see infra part iii i which severely detract from the significance of the time commitment see sec_1_183-2 income_tax regs giles v commissioner tcmemo_2006_15 wilmot also would have done many tasks like taking photos and purchasing equipment regardless of whether photography was a hobby or a business see giles v commissioner tcmemo_2006_15 d expectation that assets used in activity may appreciate in value a profit_motive may exist if the taxpayer expects that assets used in the activity will appreciate in value such that 14wilmot estimates that he spent big_number hours on his photography activity in or about hours a week the irs argues that this estimate is implausible we disagree as wilmot testified a combination of his annual leave his holidays his flexible work schedule at noaa and the seasonal nature of his work at johns hopkins allowed him to devote time to photography even if current income is insufficient to realize a profit the activity will generate an overall profit when the assets are sold sec_1_183-2 income_tax regs this factor favors the irs wilmot testified that his photos were assets that could appreciate in value and earn him royalty-like income when leased to stock photography companies but we do not find this testimony credibledollar_figure wilmot admitted that he did not seriously pursue stock photography there is also no evidence that wilmot’s photos would appreciate in value he never earned any income from his photography activity and we have no samples of his work and no credible market-value estimates thus we have no way of gauging any potential appreciation see hendricks v commissioner f 3d pincite mere expectation of asset appreciation without probative foundation is insufficient to support profit_motive e the success of the taxpayer in carrying on other similar or dissimilar activities if the taxpayer has profitably conducted similar activities this may indicate a profit_motive sec_1_183-2 income_tax regs this factor favors the irs although wilmot successfully ran an oceanographic-consulting business the skills he developed were not readily transferable to a photography 15stock photography companies acquire photos and let clients use the photos for a fee the companies then remit a portion of this fee to the photographer activity see eg giles v commissioner tcmemo_2005_28 success in dental practice had no bearing on ability to conduct horse activity f the taxpayer’s history of income or losses with respect to the activity if the taxpayer sustains losses beyond the customary startup_period for the activity this may indicate a lack of profit_motive sec_1_183-2 income_tax regs losses during the startup stage or losses that are explainable as due to customary business risks or reverses however might not indicate a lack of profit_motive id losses due to circumstances outside the taxpayer’s control such as natural disasters or depressed market conditions do not indicate a lack of profit_motive id this factor favors the irs wilmot’s photography losses generally worsened over the years see golanty v commissioner t c pincite as reflected in his schedules c wilmot lost dollar_figure in dollar_figure in dollar_figure in the year in issue dollar_figure in dollar_figure in and dollar_figure in 2007--a 6-year total of dollar_figure of lossesdollar_figure wilmot claims that his history of losses is not so severe first he argues that we should not consider losses from and because those years precede the year in issue this 16it is possible that the and figures reflect some losses from wilmot’s consulting activity but we find that most of wilmot’s schedule c losses for and were photography losses argument is invalid sec_1_183-2 income_tax regs directs us to examine the history of losses which includes losses from prior years second wilmot argues that we should not examine years after ie and we need not decide whether these post-2004 years are outside our frame of reference even without these years we conclude that wilmot’s history of losses suggests he lacked a profit_motive three straight years of losses and is sufficient because the magnitude of the losses far outstrips the revenue see smith v commissioner tcmemo_1997_503 affd without published opinion 182_f3d_927 9th cir see also miller v commissioner tcmemo_1998_463 affd without published opinion 208_f3d_214 6th cir wilmot earned no gross_receipts and this poor performance was caused by his method of operation not by the newness of his business g the amount of occasional profits if any which are earned the earning of substantial profits even if the profits are sporadic generally indicates a profit_motive if the taxpayer’s investment or losses are relatively small sec_1_183-2 income_tax regs the mere opportunity to earn a substantial profit may also indicate a profit_motive id in contrast an occasional small profit generally indicates a lack of profit_motive if the taxpayer’s investment or losses are relatively large id this factor favors the irs wilmot earned no income from his photography activity and never made a profit see wesley v commissioner tcmemo_2007_78 analogous situation he claims that he persisted in his photography activity because he hoped to make a profit but objectively he had little hope of the activity ever becoming profitable given his lack of clients advertising reputation business records and flexibility regarding type of work see giles v commissioner tcmemo_2005_28 hope of speculative profit must be supported by record h the financial status of the taxpayer if the taxpayer lacks substantial income from sources other than the activity this may indicate a profit_motive sec_1_183-2 income_tax regs if on the other hand the taxpayer has substantial income from other sources--particularly if the losses from the activity generate substantial tax benefits--this may indicate a lack of profit_motive especially if the activity involves personal or recreational elements id this factor favors the irs wilmot earned dollar_figure in from his work at noaa and at johns hopkins he claimed dollar_figure of photography losses which reduced his gross_income by dollar_figure his photography activity also involved personal and recreational elements as explained below see infra part iii i i elements of personal pleasure or recreation the presence of personal motives in conducting an activity may indicate a lack of profit_motive especially if the activity involves personal or recreational elements sec_1_183-2 income_tax regs making a profit however need not be the taxpayer’s sole objective id an activity is not classified as a hobby simply because the taxpayer finds it pleasurable 59_tc_312 this factor favors the irs it is true as wilmot suggests that he did not visit family during his three trips to europe but this fact does not convince us that his photography activity lacked personal and recreational elements first we believe that photography had a significant recreational aspect for wilmot second it is difficult to conceive why if wilmot did not enjoy photography he would continue the activity given its complete lack of revenue see eg miller v commissioner supra third many of wilmot’s activities involved foreign_travel dining and entertainmentdollar_figure j conclusion wilmot did not engage in his photography activity for profit he earned no income from the activity and incurred 17of the dollar_figure of photography expenses dollar_figure was for travel and dollar_figure was for meals and entertainment wilmot’s receipts indicate that his photography expenses included a trip to gröna lunds tivoli a swedish amusement park and the purchase of a harry potter dvd in the czech republic increasing losses that he was unlikely to recoup he did not conduct the activity in a businesslike manner or in a manner similar to a profitable business he did not keep records that helped him make business decisions nor did he significantly attempt to improve profitability he had no genuine expectation that his photos would appreciate in value his previous success in oceanography did not increase his odds of success in photography and lastly he used photography losses to offset income from other sources and derived substantial pleasure from traveling and taking photos his expertise in photographic techniques and his large time expenditure are insufficient to outweigh these factors because we find that wilmot did not conduct his photography activity for profit he cannot deduct any of his photography expenses under sec_162 or sec_183 for this reason we need not determine whether wilmot substantiated his expenses we have considered all arguments and contentions not addressed are meritless irrelevant or moot to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury index number washington dc number release date re person to contact telephone number refer reply to cc dom corp 3-plr-100707-00 date date target acquiring target esop corp y corp c corp s exchange corp x state a business a state b business b a b c plr-100707-00 date d e f g h i j date k l business m n o p date q date r date s t u v w x plr-100707-00 dear this letter responds to your request dated date for rulings on the federal_income_tax consequences of a proposed transaction you submitted additional information in letters dated april and date the information submitted for consideration is summarized below target is a state a corporation and the common parent of a consolidated_group target engages in business a indirectly through its wholly owned subsidiary corp c a state b corporation target engages in business b indirectly through its wholly owned subsidiary corp s also a state b corporation target’s only authorized and outstanding class of stock is common_stock approximately a percent of target stock is owned by target esop with the balance of shares held by approximately b individual shareholders target employees have employee stock_options to acquire approximately c shares of target common_stock additionally corp y an unrelated party was issued a warrant on date d to purchase approximately e percent or f shares of target common_stock the warrant was received by corp y in connection with a lending transaction with corp c in addition an affiliate of corp y owns g shares of target common_stock acquiring is a publicly held state a corporation acquiring has approximately h shares of common_stock issued and outstanding acquiring has only one class of stock approximately i shares of acquiring common_stock are held by target the acquiring stock held by target represents more than percent of the target group’s total net value approximately j shares of acquiring common_stock were sold to the public in an initial_public_offering ipo on date k approximately l shares of acquiring common_stock are held by acquiring employees who acquired their shares through the exercise of stock_options acquiring is actively_engaged_in_business m acquiring common_stock is publicly traded on exchange corp x an unrelated public company is the holder of n shares of acquiring common_stock and has a warrant to purchase an additional o shares at an exercise price of p dollars corp x acquired this warrant in connection with acquiring’s acquisition of technology from corp x on date q prior to the ipo of acquiring common_stock target acquiring corp c and corp s filed a consolidated federal_income_tax return with a tax_year end of date r as a result of the ipo acquiring is no longer a member of the affiliated_group as of the date of the stock offering acquiring now has a tax_year end of date s for what have been represented to be valid business purposes the following transactions have been proposed plr-100707-00 i ii iii iv v target will contribute approximately t million dollars of available net cash after allowance for any unpaid target tax_liabilities and expenses and all of the stock of corp s to the capital of corp c the cash will be used by corp c in its normal business operations target will distribute all of the corp c stock to target esop in redemption of approximately u shares of target stock in what target has characterized as a taxable transaction under sec_311 of the code the warrant issued to corp y to acquire approximately f shares of common_stock of target will be exercised in addition target employees will exercise existing employee stock_options to acquire approximately c shares of common_stock of target target will transfer its remaining assets consisting of i shares of acquiring common_stock to acquiring in exchange for i shares of new acquiring common_stock to be issued under the plan_of_reorganization the transfer target will not transfer any liabilities to acquiring target will distribute in complete_liquidation the acquiring common_stock to target stockholders in proportion to their respective ownership of target stock no other_property will be distributed to target stockholders within the six-month period following the consummation of the reorganization it is contemplated that target stockholders other than target esop will sell not less than v million and not more than w million shares of acquiring common_stock distributed to them pursuant to the reorganization such sales may occur in a registered secondary public offering in market transactions or in private block transactions target stockholders will receive the shares of acquiring common_stock distributed to them in the liquidation of target subject_to agreed upon contractual lock-up arrangements designed to restrict the flow of shares into the market so as to not exceed the maximum amount set forth above or as a condition to the reorganization enter into direct contractual lock-up agreements to effect the same purpose moreover target esop will divest itself of its acquiring common_stock as soon as prudently possible and consistent with its i fiduciary duties to esop participants and their beneficiaries and ii the contractual lock-ups as discussed above the taxpayers have made the following representations with respect to the proposed transactions a the fair_market_value of the acquiring stock received by each target shareholder will be approximately equal to the fair_market_value of the target stock surrendered in the exchange plr-100707-00 b c d e there is no plan or intention for acquiring or any person related as defined in sec_1_368-1 of the income_tax regulations to acquiring to acquire or redeem during the five-year period beginning on the date of the proposed transaction any of the acquiring common_stock issued in the transaction either directly or indirectly or through any transaction agreement or arrangement with any other person during the five-year period ending on the date of the proposed transaction i neither acquiring nor any person related as defined in sec_1_368-1 to acquiring will have acquired target stock with consideration other than acquiring stock ii neither target nor any person related as defined in sec_1_368-1 determined without regard to sec_1_368-1 to target will have acquired target stock with consideration other than acquiring stock or target stock and iii no distributions will have been made with respect to target stock other than ordinary normal regular dividend distributions made pursuant to target’s historic dividend paying practice either directly or through any transaction agreement or arrangement with any other person except amounts paid to target stockholders for redemption of x shares of target stock as reflected in exhibit f of the request for private_letter_ruling and except for the distribution of all of the corp c stock to target esop in redemption of approximately u shares of target stock as described in step ii above the aggregate value of any acquisitions redemptions and distributions described in c i ii and iii above will not exceed percent of the value without giving effect to the acquisitions redemptions and distributions of the proprietary interest in target on the effective date of the proposed transaction acquiring will acquire at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets held by target immediately prior to the transaction for purposes of this representation amounts used by target to pay its reorganization expenses amounts paid_by target to stockholders who receive cash or other_property and all redemptions and distributions except for regular normal dividends made by target immediately preceding the transfer will be included as assets of target held immediately prior to the transaction f acquiring has no plan or intention to sell or otherwise dispose_of any of the assets of target acquired in the transaction plr-100707-00 g h i j k l m n o p q target will distribute the stock of acquiring it receives in the transaction and its other retained properties in pursuance of the plan_of_reorganization acquiring will not assume any target liabilities in the transaction acquiring target and the stockholders of target will pay their respective expenses if any incurred in connection with the transaction there is no intercorporate indebtedness existing between acquiring and target that was issued acquired or will be settled at a discount no two parties to the transaction are investment companies as defined in sec_368 and iv of the code acquiring does not own directly or indirectly nor has it owned during the past five years directly or indirectly any stock of target in the transaction none of the property transferred by target to acquiring will be subject_to any liabilities and acquiring will not assume any of target’s liabilities target is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 of the code none of the compensation received by any shareholder-employees of target will be separate consideration for or allocable to any of their shares of target stock none of the shares of acquiring common_stock received by any shareholder-employees will be separate consideration for or allocable to any employment agreement and the compensation paid to any shareholder-employees will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm’s-length for similar services target’s shareholders will not be in control of acquiring immediately after the transaction for purposes of sec_368 of the code the proposed transaction is not a reorganization within the meaning of sec_368 of the code based solely on the information submitted and the representations set forth above we rule as follows plr-100707-00 ‘ the acquisition by acquiring of substantially_all of target’s assets in exchange solely for acquiring voting common_stock as described above followed by the distribution of the acquiring common_stock to the stockholders of target in complete_liquidation of target will be a reorganization within the meaning of sec_368 of the code see sec_1_368-1 revrul_85_197 1985_2_cb_120 revrul_85_198 1985_2_cb_121 130_f2d_791 3d cir aff’g 44_bta_881 acq 1946_2_cb_2 131_f2d_426 5th cir aff’g 44_bta_881 acq 1946_2_cb_5 see also revrul_88_48 1988_1_cb_117 for purposes of this ruling substantially_all means at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets of target acquiring and target will each be a party to the reorganization within the meaning of sec_368 target will recognize no gain_or_loss on the transfer of substantially_all of its assets to acquiring in exchange for acquiring voting common_stock sec_361 target will recognize no gain_or_loss on its distribution of the acquiring stock received in the transfer to target shareholders pursuant to the plan_of_reorganization sec_361 acquiring will recognize no gain_or_loss on the receipt of substantially_all the assets of target solely in exchange for acquiring voting common_stock sec_1032 acquiring will succeed to and take into account on the date of the proposed transfer as defined in sec_1_381_b_-1 the applicable items of target described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 sec_384 and the regulations thereunder acquiring will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of target as of the date of the transfer sec_381 of the code and sec_1_381_c_2_-1 of the regulations any deficit in earnings_and_profits of target will be used solely to offset earnings_and_profits accumulated after the date of the transfer target shareholders will recognize no gain_or_loss on the exchange of their target stock solely for acquiring voting common_stock sec_354 a target shareholder’s basis in the acquiring stock received in the transaction will be the same as the basis of the target stock such shareholder surrendered in exchange therefor sec_358 plr-100707-00 a target shareholder’s holding_period in the acquiring stock received in the transaction will in each instance include the period during which the stock of target surrendered in exchange therefor was held provided that the target stock is held as a capital_asset in the hands of the target shareholder on the date of the exchange sec_1223 no opinion is expressed about the tax treatment of the transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above rulings specifically no rulings were requested and no opinion is expressed about the federal_income_tax treatment of the distribution by target of all of the corp c stock to the target esop in redemption of approximately u shares of target stock this ruling is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling is consummated in accordance with a power_of_attorney on file in this office we have sent a copy of this letter to the taxpayer sincerely yours assistant chief_counsel corporate by senior technician reviewer branch