internal_revenue_service number release date index number ----------------------------------------- ----------------------------- ------------------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-151163-08 date june legend x parent --------------------------------------------------------------------------------------------------- -------------- --------------------------------------------------------------------------------------------------- ------------------------ holding --------------------------------------------------------------------------------------------------- ------------------------ country -------------- d1 ------------------------- dear ------------ this letter responds to your letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to treat x as an entity disregarded as separate from its owner for federal tax purposes under sec_301_7701-3 facts parent a u s subchapter_s_corporation wholly-owns all of the stock of holding a u s_corporation treated as a qualified_subchapter_s_subsidiary of parent holding wholly-owns all the stock of x x is a corporation organized under the laws of country plr-151163-08 on d1 parent intended that x would make an election to be disregarded as an entity separate from its owner effective d1 however x failed to timely file form_8832 entity classification election law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with a single owner can elect to be classified as an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that unless it elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301 c i will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 plr-151163-08 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center and to elect to be classified as an entity disregarded as separate from its owner for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely s curtis g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury number release date index number in re washington dc person to contact telephone number refer reply to cc psi 9-plr-162243-02 date date legend decedent spouse date date son daughter dollar_figurea dear this is in response to your letter dated date sent on behalf of the estate of decedent and spouse in which you request a ruling regarding a qualified_terminable_interest_property qtip_election made on decedent’s federal estate_tax_return plr-162243-02 the facts and representations are as follows decedent died testate on date survived by spouse son and daughter articles two and three of decedent’s will bequeath certain specific property to son and spouse respectively article four of decedent’s will bequeaths to spouse that portion of the residuary_estate that together with the total of any other_amounts allowed as a marital_deduction if any equals the maximum allowable marital_deduction then reduced by the amount if any needed to increase the taxable_estate to the largest amount that will after allowing for the unified_credit against the federal estate_tax and the credit_for_state_death_taxes not result in a federal estate_tax payable by decedent’s estate article five of decedent’s will bequeaths to spouse the remainder of the residuary_estate for the duration of spouse’s life article five provides that all of the income from this portion of the residuary_estate shall be retained absolutely by spouse and spouse shall have a right to use all or any part of the principal as she may determine necessary for her maintenance and support in the standards to which she has been accustomed and for her medical dental hospital and nursing expenses including if any expenses of her care and custody during any period of invalidism article five further provides that no person shall have the power to appoint any part of the property to any person other than the spouse finally article five provides that all that remains of this portion of the residuary_estate at the death of spouse or the entire residuary_estate should spouse not survive decedent is bequeathed in accordance with the provisions of articles six through fourteen of decedent’s will articles six through fourteen of decedent’s will bequeath certain specific property to son and daughter in the event spouse does not survive decedent or upon the death of spouse a united_states estate and generation-skipping_transfer_tax return form_706 was timely filed by the executor of decedent’s estate listed on schedule m are all of the interests in property included in decedent’s gross_estate except for the specific property bequeathed to son in article two of decedent’s will all of the property that was bequeathed to spouse pursuant to articles iv and v of decedent’s will is included on schedule m because the property bequeathed to spouse pursuant to article v meets the requirements of qualified_terminable_interest_property under sec_2056 and ii and the value of the property is listed on schedule m the estate is deemed to have made an election to have such property treated as qualified_terminable_interest_property under sec_2056 you have requested that we disregard the qtip_election made on decedent’s form_706 and treat it as null and void in accordance with revproc_2001_38 2001_24_irb_1335 in addition you ask that we rule that the property for which the election is plr-162243-02 disregarded under this procedure will not be includible in the gross_estate of spouse under sec_2044 sec_2056 provides that the value of a decedent’s taxable_estate shall 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 that a deduction is not allowed for terminable interests that pass to the spouse an interest is a terminable_interest if the interest passing to the surviving_spouse will terminate or fail on the lapse of time or on the occurrence of an event or contingency or on the failure of an event or contingency to occur and on termination an interest in the property passes to someone other than the surviving_spouse sec_2056 provides that qualified_terminable_interest_property shall be treated as passing to the surviving_spouse and no part of such property shall be treated as passing to any person other than the surviving_spouse thus the value of such property is deductible from the value of the gross_estate under sec_2056 and is not treated as a terminable_interest under sec_2056 qualified_terminable_interest_property is property that 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 shall be made by the executor on the return of tax imposed by sec_2001 such an election once made shall be irrevocable a qtip_election has transfer_tax consequences for the surviving_spouse sec_2044 and b provides generally that the value of the gross_estate includes the value of any property in which the decedent has a qualifying_income_interest_for_life and with respect to which a deduction was allowed for the transfer of the property to the decedent under sec_2056 under sec_2519 and b any disposition of all or part of a qualifying_income_interest_for_life in any property with respect to which a deduction was allowed under sec_2056 is treated as a transfer of all interests in the property other than the qualifying_income interest further the surviving_spouse will in the absence of a reverse_qtip_election under sec_2652 be treated as the transferor of the property for generation-skipping_transfer_tax purposes under sec_2652 in the case of a qtip_election to which revproc_2001_38 2001_24_irb_1335 applies the service will disregard a qtip_election made under sec_2056 and treat it as null and void for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 revproc_2001_38 applies to qtip elections under sec_2056 where the election was not necessary to reduce the estate_tax liability to zero based on values as finally plr-162243-02 determined for federal estate_tax purposes revproc_2001_38 does not apply in situations where a partial_qtip_election was required with respect to a_trust to reduce the estate_tax liability and the executor made the election with respect to more trust property than was necessary to reduce the estate_tax liability to zero nor does it apply to elections that are stated in terms of a formula designed to reduce the estate_tax to zero in this case the election under sec_2056 to treat property as qualified_terminable_interest_property was not necessary to reduce the estate_tax to zero because no estate_tax would have been imposed whether or not the election was made the outright bequests to spouse pursuant to articles three and four of decedent’s will qualify for the marital_deduction under sec_2056 you have represented that the value of the remaining property in the gross_estate which includes the property bequeathed to son pursuant to article two and the property bequeathed to spouse pursuant to article five equals dollar_figure date of death values after applying the unified_credit amount under sec_2010 the estate’s federal estate_tax liability is reduced to zero because the qtip_election in this case was not necessary to reduce the estate_tax liability to zero revproc_2001_38 applies and the service will disregard the qtip_election and treat it as null and void for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 the property for which the election is disregarded will not be includible in the spouse’s gross_estate under sec_2044 an amended form_706 should be filed with the internal_revenue_service center cincinnati ohio listing on schedule m only those assets that passed outright to spouse pursuant to articles three and four of decedent’s will a copy of this letter should be attached to the amended_return a copy is enclosed for this purpose the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-162243-02 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely melissa c liquerman ________________________ melissa c liquerman chief branch office of associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc fip 4-plr-161694-01 date date taxpayer state date year target company x dear this is in response to your representative’s letter dated date requesting consent to taxpayer's revocation of its election under sec_831 of the internal_revenue_code effective tax_year additional information was submitted in letters dated date and date facts taxpayer is a state corporation and its principal business activity is the sale of fire wind and inland marine insurance taxpayer uses an accrual_method of accounting and files returns on a calendar_year basis company x was formed as a corporation under the laws of state on date company x’s principal business activity was the sale of fire wind and inland marine insurance in year target merged into company x pursuant to what taxpayer represents was a type_a_reorganization immediately following this merger company x changed its name to taxpayer pursuant to a type_f_reorganization at least ten years prior to the merger company x elected to be taxed only on its taxable_investment_income pursuant to sec_831 of the code the merger resulted in an increase in the geographical territory in which taxpayer operates and in the number of policyholders it covers soon after the merger many of taxpayer’s policies were changed to replacement policies and or rewritten to provide broader coverage since the merger taxpayer has incurred significant underwriting losses due to numerous storms and fires that have occurred in the geographical area in which taxpayer operates these losses have been exacerbated by an increase in the cost of repairs due to the increased demand for repairs in the areas affected by the storms and fires because of these losses taxpayer’s tax_liability since the merger has been greater than it would have been had its sec_831 election not been in effect law and analysis sec_831 of the code imposes a tax for each taxable_year on the taxable_income of every insurance_company other than a life_insurance_company sec_831 of the code provides an alternative_tax to the tax imposed by sec_831 for certain insurance_companies the alternative_tax for these companies is a tax computed for each year by multiplying the taxable_investment_income defined in sec_834 of the company for the taxable_year by the rates in sec_11 sec_831 of the code provides that the alternative_tax applies to every insurance_company other than a life_insurance_company if i the company's net written premiums or if greater direct written premiums for the taxable_year exceed dollar_figure but do not exceed dollar_figure and ii the company elects the application of sec_831 the alternative_tax for the taxable_year sec_831 of the code provides that for purposes of part ii of subchapter_l insurance_companies except as provided in sec_844 a net_operating_loss as defined in sec_172 shall not be carried a to or from any taxable_year for which the insurance_company is not subject_to the tax imposed by sec_831 of the code or b to any taxable_year if between the taxable_year from which such loss is being carried and such taxable_year there is an intervening taxable_year for which the insurance_company was not subject_to the tax imposed by sec_831 of the code sec_831 of the code further provides regarding the effect of making an election to have sec_831 apply the election under clause ii shall apply to the taxable_year for which made and for all subsequent taxable years for which the requirements of clause i are met such an election once made may be revoked only with the consent of the secretary the two sentences quoted above from sec_831 of the code were not in sec_831 as originally added to the code by sec_1024 of the tax_reform_act_of_1986 pub_l_no these sentences were added to the code by section f of the technical_and_miscellaneous_revenue_act_of_1988 tamra pub_l_no the change to sec_831 of the code was retroactively effective for tax years beginning after date the same effective date as applicable to the rest of sec_831 see sec_1019 of tamra and sec_1024 of the tax_reform_act_of_1986 the senate_finance_committee offered the following explanation for the two sentences added to sec_831 by section f of tamra the bill clarifies that the election to be taxed only on investment_income once made and so long as the requirements for the election are met may be revoked only with the consent of the secretary this clarification reflects congress’ intent that the election not be used as a means of eliminating tax_liability eg by making the election only for years when the taxpayer does not have net operating losses but rather as a simplification for small companies s rep no 100th cong 2d sess as indicated above since its merger with target the character of taxpayer’s business has changed significantly in the geographic area covered by its policies the nature of its policies and the costs it must incur to meet its obligations under its policies in view of the foregoing taxpayer requests that consent be granted to revoke its sec_831 election taxpayer represents that it will not make an election under sec_831 to be taxed on only its investment_income for any of the first five taxable years following the year to which the consent relates conclusion consent is hereby granted to taxpayer to revoke its sec_831 election effective tax_year caveats no opinion is expressed under other sections of the code and income_tax regulations that may also be applicable the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sec_6110 of the internal_revenue_code provides that this ruling may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax returns to be filed by taxpayer with respect to the taxable_year with respect to which this consent is granted and the next succeeding five taxable years pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely donald j drees jr senior technician reviewer branch office of associate chief_counsel financial institutions products


department of the treasury internal_revenue_service washington d c date number release date uil cc dom p si cam-101106-99 memorandum for district_director district attn chief examination_division from subject senior technician reviewer branch cc dom p si withdrawal of application_for change in accounting_method in accordance with section a of revproc_2000_1 2000_1_irb_4 this memorandum advises you that taxpayers within your district have withdrawn a form_3115 application_for change in accounting_method this document is not to be cited as precedent legend a b c d e f g h i j k l m this memorandum advises you that a form_3115 submitted on behalf of a through j hereafter collectively referred to as taxpayers is withdrawn taxpayers did not give any reason for the withdrawal taxpayers filed the form_3115 to change the method of computing depreciation for landfill development costs under the unit-of-production method from a method which uses future estimated costs and total potential capacity of the landfill to a method that uses actual costs incurred and actual built-out capacity of the landfill beginning with the taxable_year beginning k if granted consent to make this method change it would have resulted in a total net negative sec_481 adjustment decrease in taxable_income of dollar_figurel additionally taxpayers represented that prior to the tax_year ended m taxpayers consistently utilized the requested method for determining its depreciation expense for its landfills subsequently taxpayers switched to its current method for determining depreciation expense taxpayers did not request or receive permission to make this method change taxpayers are attempting to change back to their original method at the time of the withdrawal we had formed concerns regarding use of the actual built-out capacity of the landfill as opposed to the total potential capacity of the landfill in taxpayers’ proposed method of computing depreciation for their landfill development costs if you have any questions on this matter do not hesitate to call kathleen reed


internal_revenue_service department of the treasury washington dc index number number release date person to contact telephone number refer reply to cc dom p si - plr-108994-00 date date x a b d1 year dear this letter responds to your letter dated date and subsequent correspondence written on behalf of x as its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a and b are the shareholders of x a the president of x represents that it was intended for x to be an s_corporation beginning in year its first taxable_year a prepared a form_2553 election by a small_business_corporation for x and gave the form_2553 to x’s accountant to file however the service has no record of receiving a form_2553 timely filed for x for year for year x filed form_1120s u s income_tax return for an s_corporation sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause mr mark l pugatch for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x sincerely yours branch h grace kim assistant to the chief office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number release date genin-106284-19 uil ------------------------------------------ ------------------------- ------------------------------ ------------------------------------------------------------- --------------------------- dear thank you for your letter dated date sent to commissioner charles p rettig in your letter you state that the ----------------- ---------- office to forward a copy to commissioner rettig the resolution notes the requirements for an individual to be eligible to contribute to a health_savings_account hsa it also explains that state insurance mandates or coverage requirements may affect whether a plan qualifies as a high_deductible_health_plan finally the resolution urges the congress and the internal_revenue_service to allow states to determine health benefit coverage requirements without jeopardizing hsa eligibility we appreciate receiving a copy of the resolution we will share it with our colleagues at the department of the treasury for their consideration ------------------------------------------------------ ------------------------------------ and instructed your recently passed for the state of ------------------- sincerely denise trujillo branch chief health and welfare branch office of associate chief_counsel employee_benefits exempt_organizations and employment_taxes


internal_revenue_service date -------------------- ---------------------- -------------------------- number info release date conex-171555-03 cc ita b5 uil dear ms ------- this letter responds to your inquiry of date to senator john kerry about the proper tax treatment of damages received from a settlement award senator kerry asked us to respond to you directly --------------------------------------recently agreed to pay damages to all alleged victims of sexual abuse by --------- you were told that sec_104 of the internal_revenue_code the code requires a physical injury or sickness in order for a settlement award to be excludible from taxable_income you object to settlement awards involving sexual abuse by --------- being subject_to income_tax and believe that settlement awards should be excluded from taxable_income under sec_104 under the law the term physical injuries or physical sickness does not include emotional distress or any symptoms eg insomnia headaches and stomach disorders that may result h_r conf_rep no 104th cong 2d sess ndollar_figure for example if a taxpayer receives damages solely on account of emotional distress he or she cannot exclude the damages from taxable_income however if a lawsuit originates from a physical injury or sickness all resulting damages other than punitive_damages are treated as payments received on account of the physical injury or sickness for example if a taxpayer receives damages other than punitive_damages for a physical injury he or she can exclude all damages including those received for emotional distress from taxable_income a taxpayer also may exclude from income an amount of damages that equals medical_expenses incurred to treat emotional distress sec_104 of the code if a settlement award represents either damages for physical injury or sickness other than for punitive_damages or reimbursement for medical_expenses incurred to treat emotional distress the damages can be excluded from taxable_income if a settlement award represents damages solely for emotional distress other than reimbursement of medical_expenses or other nonphysical injuries or sickness the settlement award cannot be excluded from taxable_income the change you requested that would allow a taxpayer to exclude damages for emotional distress or other nonphysical injuries or sickness from taxable_income would requires a statutory amendment i hope this information is helpful if you need further information please contact me or - --------------------- identification_number ------------- at --------------------- sincerely s robert m brown associate chief_counsel income_tax and accounting


t c memo united_states tax_court mardi rustam petitioner v commissioner of internal revenue respondent docket no 3316-04l filed date stephen m lopez for petitioner john d faucher for respondent memorandum opinion wells judge this case is before the court on respondent’s motion to dismiss for lack of jurisdiction and petitioner’s motion for award of reasonable_litigation_costs unless otherwise noted all section references are to the internal 1the parties appeared via video conference from los angeles cal presenting oral arguments on the instant motions to the court sitting in washington d c revenue code as amended and all rule references are to the tax_court rules_of_practice and procedure background at the time of filing his petition petitioner resided in toluca lake california on date respondent’s appeals_office issued a notice_of_determination concerning collection action s under sec_6320 and or determining that a proposed levy to recover a sec_6672 trust fund penalty liability with respect to petitioner’s tax_year was appropriate the first page of the notice_of_determination stated if you want to dispute this determination in court you must file a petition with the united_states tax_court for a redetermination within days from the date of this letter the time limit for filing your petition is fixed by law the courts cannot consider your case if you file late if the court determines that you made your sec_6672 failure_to_collect_and_pay_over_tax or attempt_to_evade_or_defeat_tax a general_rule -- any person required to collect truthfully account for and pay over any_tax imposed by this title who willfully fails to collect such tax or truthfully account for and pay over such tax or willfully attempts in any manner to evade or defeat any such tax or the payment thereof shall in addition to other penalties provided by law be liable to a penalty equal to the total amount of the tax evaded or not collected or not accounted for and paid over no penalty shall be imposed under sec_6653 or part ii of subchapter_a of chapter for any offense to which this section is applicable petition to the wrong court you will have days after such determination to file with the correct court emphasis added petitioner subsequently petitioned this court for review pursuant to sec_6330 petitioner contended that he was not liable for the underlying tax_liability because he was not a responsible_person for purposes of collecting accounting for and paying over taxes as required by sec_6671 and sec_6672 before answering the petition respondent filed a motion to dismiss for lack of jurisdiction pursuant to sec_6330 and rule in response petitioner filed an opposition subsequently petitioner filed a motion for award of reasonable_litigation_costs on date the parties presented oral arguments before this court with regard to respondent’s motion to dismiss for lack of jurisdiction and petitioner’s motion for award of reasonable_litigation_costs motion to dismiss for lack of jurisdiction discussion sec_6330 provides persons liable for tax with the right to a hearing with the commissioner’s appeals_office before the secretary may levy upon the property of such persons the sec_6330 notice and opportunity for hearing before levy a requirement of notice before levy -- in general --no levy may be made on any property or right to property of any person unless the continued determination of the commissioner’s appeals_office is subject_to judicial review pursuant to sec_6330 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 with respect to 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 the jurisdiction of this court to review administrative determinations with respect to levy actions therefore is limited to actions in which we have jurisdiction of the underlying tax_liability see sec_6330 petitioner does not argue that this court has jurisdiction over the underlying sec_6672 liability that is the subject of continued secretary has notified such person in writing of their right to a hearing under this section before such levy is made b right to fair hearing -- in general --if the person requests a hearing such hearing shall be held by the internal_revenue_service office of appeals respondent’s collection action rather petitioner contends that respondent waived the right to challenge this court’s jurisdiction by stating on the notice_of_determination that the proper method for disputing the determination was to file a petition with this court petitioner’s contention is without merit we previously have held that this court lacks jurisdiction to determine the liability of taxpayers with respect to penalties imposed by sec_6672 114_tc_171 77_tc_1255 60_tc_977 in moore v commissioner supra pincite we stated sec_6672 contemplates that the federal district_court or the court of federal claims shall have jurisdiction to determine a taxpayer’s liability for a penalty imposed under that section the tax_court does not have jurisdiction 4whereas sec_6672 imposes procedural requirements for refund suits in u s district courts and the u s court of federal claims sec_6672 makes no reference to the jurisdictional authority of this court sec_6672 provides suit must be brought to determine liability for penalty --if within days after the day on which his claim_for_refund with respect to any penalty under subsection a is denied the person described in paragraph fails to begin a proceeding in the appropriate united_states district_court or in the court of claims for the determination of his liability for such penalty paragraph shall cease to apply continued the right to question the jurisdiction of this court cannot be waived by the actions or inactions of a party 114_tc_268 affd 22_fedappx_837 9th cir consequently respondent did not waive the right to challenge our jurisdiction over the underlying tax_liability by instructing petitioner that the proper method for disputing the determination was for petitioner to file a petition with this court for the foregoing reasons we conclude that this court lacks jurisdiction over the underlying sec_6672 penalty in the instant case and that respondent’s motion to dismiss must be granted petitioner however is not necessarily without continued with respect to such penalty effective on the day following the close of the 30-day period referred to in this paragraph 5petitioner also contends that respondent’s motion to dismiss is premature because respondent failed to notify petitioner or petitioner’s counsel before the filing of the motion pursuant to rule a leaving petitioner with no opportunity to object to the motion this contention lacks merit rule a provides a form and content of motion an application to the court for an order shall be by motion in writing which shall state with particularity the grounds therefor and shall set forth the relief or order sought the motion shall show that prior notice thereof has been given to each other party or counsel for each other party and shall state whether there is any objection to the motion if a motion does not include such a statement the court will assume that there is an objection to the motion continued remedy pursuant to sec_6330 petitioner ha sec_30 days to file an appeal with the appropriate u s district_court motion for reasonable_litigation_costs sec_7430 provides that the prevailing_party in a court_proceeding brought by or against the united_states in connection with the determination or collection of a tax interest or penalty may recover reasonable_litigation_costs sec_7430 defines prevailing_party as follows prevailing_party -- a in general --the term prevailing_party means any party in any proceeding to which subsection a applies other than the united_states or any creditor of the taxpayer involved -- continued where notice of a motion is not provided objection to the motion is assumed by this court id accordingly petitioner’s objection to respondent’s motion to dismiss was assumed and petitioner has been permitted ample opportunity to voice the objection to this court sec_7430 provides in part sec_7430 awarding of costs and certain fees a in general --in any court_proceeding which is brought by or against the united_states in connection with the determination collection_or_refund_of_any_tax interest or penalty under this title the prevailing_party may be awarded a judgment or a settlement for-- reasonable_litigation_costs incurred in connection with such court_proceeding i which-- i has substantially prevailed with respect to the amount in controversy or ii has substantially prevailed with respect to the most significant issue or set of issues presented and ii which meets the requirements of the 1st sentence of section d b of title united_states_code as in effect on date except to the extent differing procedures are established by rule_of court and meets the requirements of section d b of such title as so in effect sec_7430 effectively limits the award of litigation costs to parties with net_worth of dollar_figure million or less 89_tc_784 consequently to qualify as the prevailing_party pursuant to sec_7430 a party must inter alia substantially prevail with respect to either the amount in controversy or the most significant issue or set of issues presented and satisfy the dollar_figure million net_worth limitation the taxpayer bears the burden of proving that the foregoing two requirements have been satisfied rule e 88_tc_492 sec_7430 provides the following exception to 7rule b requires that a motion for award of reasonable_litigation_costs contain a statement supported by an affidavit of the moving party that the moving party meets the net_worth requirement the definition of prevailing_party b exception if united_states establishes that its position was substantially justified -- i general_rule --a party shall not be treated as the prevailing_party in a proceeding to which subsection a applies if the united_states establishes that the position_of_the_united_states in the proceeding was substantially justified consequently a party that satisfies the sec_7430 definition of prevailing_party is not treated as the prevailing_party if the united_states establishes that its position in the proceeding was substantially justified sec_7430 reasonable_litigation_costs include reasonable court costs and reasonable attorney’s fees such costs and fees must be sec_7430 definitions --for purposes of this section-- reasonable_litigation_costs --the term reasonable_litigation_costs includes-- a reasonable court costs and b based upon prevailing market rates for the kind or quality of services furnished-- i the reasonable expenses of expert witnesses in connection with a court_proceeding except that no expert witness shall be compensated at a rate in excess of the highest_rate of compensation_for expert witnesses paid_by the united_states ii the reasonable cost of any study analysis engineering report test or project which is found by the court to be necessary for the preparation of the party’s case and iii reasonable fees paid_or_incurred for continued based on prevailing market rates sec_7430 attorney’s fees generally are capped at dollar_figure per hour with an adjustment for inflation sec_7430 we understand petitioner’s position to be that he substantially prevailed with respect to the most significant issue or set of issues presented pursuant to sec_7430 without elaboration petitioner contends that he prevailed with respect to respondent’s motion to dismiss or with respect to petitioner’s own motion for reasonable_litigation_costs petitioner makes no contention as to whether the position of respondent was substantially justified or whether petitioner satisfied the net_worth requirements of sec_7430 petitioner requests litigation costs of continued the services of attorneys in connection with the court_proceeding except that such fees shall not be in excess of dollar_figure per hour unless the court determines that an increase in the cost of living or a special factor such as the limited availability of qualified attorneys for such proceeding the difficulty of the issues presented in the case or the local availability of tax expertise justifies a higher rate in the case of any calendar_year beginning after the dollar amount referred to in clause iii shall be increased by an amount equal to such dollar amount multiplied by the cost-of-living adjustment determined under sec_1 for such calendar_year by substituting calendar_year for calendar_year in subparagraph b thereof if any dollar amount after being increased under the preceding sentence is not a multiple of dollar_figure such dollar amount shall be rounded to the nearest multiple of dollar_figure dollar_figure which represents dollar_figure hours_of_service billed at dollar_figure per hour together with various miscellaneous costs petitioner does not contend however that special factors justify the payment of attorney’s fees at a rate higher than that prescribed by sec_7430 we will deny petitioner’s motion the only issue presented by respondent’s motion to dismiss for lack of jurisdiction is whether this court has jurisdiction over the collection of petitioner’s sec_6672 penalty liabilitydollar_figure see sec_7430 as noted above petitioner did not substantially prevail with respect to that issuedollar_figure furthermore petitioner failed to demonstrate that his net_worth does not exceed dollar_figure million pursuant to sec_7430 consequently petitioner is not the prevailing_party in the proceeding before us even if petitioner were the prevailing_party respondent’s 9in addition to billing petitioner dollar_figure per hour for dollar_figure hours_of_service petitioner’s counsel states that he advanced costs of dollar_figure for filing the petition and dollar_figure for postage copying and faxes petitioner’s counsel added anticipated court parking costs of dollar_figure and the dollar_figure cost of federal express filing the amended motion to the litigation cost total 10we note that respondent has not yet filed an answer in this case consequently respondent’s only position with respect to petitioner’s sec_6672 liability is that this court lacks jurisdiction over the issue see sec_7430 11although petitioner contends that he prevailed with respect to the motion for litigation costs that argument is circular and we will not consider it position in the motion to dismiss for lack of jurisdiction was substantially justified as we held above we lack jurisdiction with respect to respondent’s attempt to collect the sec_6672 penalty from petitioner see 114_tc_171 consequently petitioner is not the prevailing_party in the proceeding before us for the foregoing reasons petitioner is not entitled to an award of reasonable_litigation_costs by this courtdollar_figure conclusion we conclude that respondent’s motion to dismiss must be granted because this court lacks jurisdiction over respondent’s collection of the underlying sec_6672 liability from petitioner we further conclude that petitioner’s motion for costs must be denied because petitioner is not the prevailing partydollar_figure we have considered all remaining arguments and to the 12we also note that sec_7430 permits the award of attorney’s fees in excess of the prescribed limitation only where a special factor justifies a higher rate petitioner’s claimed rate of dollar_figure per hour far exceeds the prescribed limitation and petitioner has not demonstrated any special factor justifying such a rate see sec_7430 13we sympathize with petitioner’s argument that respondent’s notice_of_determination erroneously directed him to this court we do not know whether petitioner will refile this case in the district_court if he does we express no view herein as to whether he would substantially prevail on the sec_6672 issue and otherwise qualify for an award of litigation costs however if he is otherwise entitled to such an award we do not intend our holding that he did not substantially prevail on the jurisdictional issue in this court to affect whether the district continued extent not addressed above conclude that they are irrelevant or without merit to reflect the foregoing an order and order of dismissal for lack of jurisdiction will be entered and petitioner’s motion for award of litigation costs as amended will be denied continued court includes costs petitioner incurred in this court in an award under sec_7430


t c summary opinion united_states tax_court clarence michael cherveny petitioner v commissioner of internal revenue respondent docket no 7621-99s filed date clarence michael cherveny pro_se michael o'donnell for respondent pajak special_trial_judge this case was heard pursuant to sec_7463 unless otherwise indicated all section references are and and any to the internal_revenue_code in effect for the year in issue all rule references are to the tax_court rules_of_practice procedure the decision to be entered is not reviewable by other court and this opinion should not be cited as authority this case is before the court pursuant to petitioner's oral - - motion for litigation costs under sec_7430 and rules through petitioner claimed litigation costs of dollar_figure for the tax_court filing fee the underlying issues raised in the petition were settled by a stipulation of settled issues at the time the petition was filed petitioner resided in streator illinois by notice_of_deficiency respondent determined a deficiency in petitioner's federal_income_tax of dollar_figure for the taxable_year respondent conceded that there was no deficiency in income_tax due from petitioner under sec_7430 a taxpayer may be awarded a judgment for reasonable_litigation_costs if the taxpayer establishes certain criteria and if the commissioner’s position was not substantially justified respondent contends that his position was substantially justified respondent concedes that petitioner has satisfied the other requirements of sec_7430 in petitioner was involved ina labor dispute with his employer in date the employer sent petitioner a check in the gross amount of dollar_figure which netted out to dollar_figure after withholding and payroll deductions the payment was designated as a final settlement of all claims against his employer arising out of petitioner's termination of employment petitioner refused to accept the check because he did not want to give up his right to pursue legal remedies against his former employer - - the check was returned to the former employer in the check was re-issued to petitioner by his former employer petitioner accepted the check a notation on the bottom of the statement attached to the check indicated that taxes applied to earnings the internal_revenue_service irs received a form_w-2 wage and tax statement which indicated that the employer paid petitioner dollar_figure in this information became the basis of the 30-day_letter issued to petitioner on date on date petitioner responded to the letter and enclosed a copy of the second check written by his former employer in on date respondent asked petitioner to get a corrected form_w-2 from his employer respondent needed further verification because respondent did not consider the check to be proof that the check had been an accord and satisfaction and had never been cashed petitioner replied on date and stated that he wanted answers before he would sign anything or would do what he considered to be the irs' function absent further verification from petitioner the notice_of_deficiency was issued on date when petitioner met with respondent he was able to show the facts necessary for respondent to concede the issue however petitioner would not sign the stipulation of settled issues q4e- because respondent would not agree to the dollar_figure of litigation costs ultimately petitioner and respondent signed the stipulation of settled issues in deciding the merits of a motion for litigation costs the court generally considers the reasonableness of the commissioner’s position from the date the answer was filed huffman v commissioner 978_f2d_1139 9th cir affg in part revg in part and remanding t c memo no answer was required in this case which was tried under the small_tax_case procedures rule b accordingly respondent's position for the purpose of the motion is the position maintained by respondent during the pendency of this case there is nothing in the record that suggests that respondent's position changed from that taken in the notice_of_deficiency so these positions are in effect the same in the notice_of_deficiency respondent took the position that the dollar_figure reported by petitioner's employer was taxable wages to petitioner in whether the commissioner’s position was substantially justified turns on a finding of reasonableness based upon all the facts and circumstances as well as the legal precedents relating to the case 487_us_552 106_tc_76 a position is substantially justified if the position is justified to a degree that could satisfy a reasonable person pierce v underwood supra pincite the court must consider the basis for respondent's legal position and the manner in which the position was maintained 86_tc_962 the reasonableness of the commissioner’s position and conduct necessarily requires considering the facts available to the commissioner at that time 94_tc_685 85_tc_927 whenever there is a factual determination the commissioner is not obliged to concede a case until the commissioner receives the necessary documentation which proves the taxpayer's contentions brice v commissioner tcmemo_1990_355 affd without published opinion 940_f2d_667 9th cir currie v commissioner tcmemo_1989_23 the fact that the commissioner eventually loses or concedes a case does not establish an unreasonable position 92_tc_760 in this case respondent received third party payer information the form_w-2 which stated that petitioner received taxable wages of dollar_figure in respondent attempted to verify the information with petitioner and asked petitioner to provide substantiation that he did not receive the money petitioner produced only a copy of the second check that was dated in respondent was justified in not accepting the -- - copy of the second check as evidence that the first check was never cashed when respondent did receive adequate substantiation from petitioner that petitioner did not receive the money respondent conceded the issue it was reasonable for respondent to rely on the third party payer information and to request proof from petitioner that he did not receive the amount reported 861_f2d_131 5th cir affg 89_tc_79 respondent was under no obligation to concede the case prior to receiving the documentation which proved petitioner's contentions based on the record we find that respondent's position was substantially justified consequently petitioner’s motion will be denied reviewed and adopted as the report of the small_tax_case division an appropriate order and decision will be entered


internal_revenue_service number info release date uil no date the honorable james a barcia u s house of representatives washington d c attention chris blanda dear mr barcia i am enclosing a copy of a letter we sent at your request to your constituent mr health insurance for federal_income_tax purposes he believes he could do so if he was self employed is concerned because he cannot deduct the cost of his mr you also asked for the enclosed copy of sec_213 and sec_162 of the internal_revenue_code which allow a deduction for the cost of insurance for medical_care i hope this information is helpful please call me or g channing horton identification_number at if you have any questions sincerely associate chief_counsel income_tax accounting by robert a berkovsky chief branch enclosures cor-121409-01 internal_revenue_service index no department of the treasury washington dc person to contact g channing horton id no telephone number refer reply to cc ita - cor-121409-01 date date dear mr this letter is in response to your recent inquiry to congressman james a barcia who asked that i reply directly to you mr barcia indicated that you are concerned because you cannot deduct the cost of your health insurance for federal_income_tax purposes you believe that you could do so if you were self employed sec_213 of the internal_revenue_code allows a deduction for the expenses paid during the taxable_year not_compensated_for_by_insurance_or_otherwise for medical_care of the taxpayer his spouse or a dependent the deduction only applies to the extent that such expenses exceed percent of adjusted_gross_income the term medical_care is defined by sec_213 to include amounts paid for the diagnosis cure mitigation treatment or prevention of disease or for the purpose of affecting any structure or function of the body the term medical_care also includes amounts paid for insurance for medical_care defined in sec_213 this includes amounts paid as premiums under part b of title xviii of the social_security act relating to supplementary medical insurance for the aged thus the amount you pay for medical_care insurance premiums is deductible to the extent the amount exceeds percent of your adjusted_gross_income under sec_162 self-employed individuals can deduct percent of the amount_paid during taxable_year for insurance that constitutes medical_care for the taxpayer his spouse and dependents cor-121409-01 enclosed is a copy of irs publication medical and dental expenses which explains the medical_expense_deduction in greater detail i hope this information is helpful please call g channing horton at if you have any questions sincerely associate chief_counsel income_tax accounting by robert a berkovsky chief branch enclosure


internal_revenue_service number release date index number ------------------------------------------- ---------------------------------------------- ------------------------- ----------------------------- re ------------------------------------------------- ----------------------------------------------------- ----------------------- ------------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------------ ----------------------------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------- id no ----------- -------- telephone number --------------------- refer reply to cc ita b02 plr-123950-06 plr-123951-06 plr-123952-06 date date legend trust ---------------------------------------------- fund1 --------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- fund2 --------------------------------------------------------------------------------------- fund3 -------------------------------------------------------------------------------------- x -------------------------------------------------------------------- y -------------------------------------------- z ----------------------------------------------------- m --------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- n --------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- a ----------------------- b -------------------------- firm ---------------------------------------- date1 ------------- plr-123950-06 plr-123951-06 plr-123952-06 date2 -------------------------- date3 -------------------------- date4 --------------------------- date5 --------------------------- date6 -------------------------- year1 ------ year2 ------ dollar_figurea dollar_figure------------- dollar_figureb dollar_figure------------- dollar_figurec dollar_figure------------- dollar_figured dollar_figure----------- dear --------------- this letter is in response to a request_for_ruling of ----------------- submitted on behalf of fund1 fund2 and fund3 collectively taxpayers requesting an extension of time for making an sec_565 consent_dividend election this request is made pursuant to sec_301_9100-1 and sec_301_9100-3 and revproc_2006_1 this letter supersedes the letter dated date facts fund1 fund2 and fund3 are separate funds of trust a series_fund that is registered under the investment_company act of as amended trust includes other funds that are not included in this request pursuant to sec_851 each separate fund of trust is treated as a separate corporation for tax purposes and files its own income_tax returns taxpayers have been treated as regulated_investment_companies rics beginning with each funds initial taxable_year and all subsequent taxable years taxpayers fully intend to continue to qualify to be taxed as rics for all subsequent tax years x is the investment_advisor for taxpayers y serves as the administrator for taxpayers z serves as the sub-administrator of taxpayers z serves taxpayers pursuant to a contract with y pursuant to the terms of this contract z supervises all aspects of taxpayers’ operations except those performed by x since date1 a of z has had responsibility over certain tax matters specifically a ensures that the returns reflect taxpayers’ intended federal tax treatment and arranges for the execution and timely filing of such returns a also oversees the preparation of the taxable_income calculation for taxpayers prior to plr-123950-06 plr-123951-06 plr-123952-06 date1 a’s predecessor had similar responsibilities for the year1 and year2 taxable years of taxpayers as of date and continuing through date3 fund1 is wholly owned by m fund2 and fund3 are wholly owned by n all of whom are insurance_companies since taxpayers have engaged firm or one of its predecessors firms to prepare their federal_income_tax returns firm reviews the taxable_income calculation prepared by z and uses it as a basis for the preparation of taxpayers’ tax returns taxpayers’ federal_income_tax returns form 1120-ric u s income_tax return for regulated_investment_companies for the taxable years ending date2 and date3 were prepared by firm reviewed and filed by taxpayers prior to the extended due_date of date4 and date5 respectively during the review of the trust’s date6 financial statements which included a review of tax calculations supporting footnote disclosures that were prepared by z b a tax partner with firm posed questions regarding the tracking of capital calculations b examined the year2 federal tax returns for various funds noted capital_loss carryovers subject_to such limitations and requested more information from z as well as prior year firm files to support such calculations and clarify the origination of the limited capital_loss carryovers after a more detailed sec_382 and sec_383 analysis it was determined that the limitations had been inappropriately applied in the year1 and year2 calculations prepared by z and reviewed by firm for fund1 tax returns as originally filed for this fund for year1 and year2 were based on these calculations these calculations applied recognized built-in losses and capital_loss carryovers against capital_gains in excess of the annual limitation amount this primarily occurred because unrealized capital losses subject_to the same limitations applying to capital_loss carryovers were not treated as subject_to such limitations when they were recognized after the preliminary analysis was finalized the error in the original calculations resulted in fund1 having undisputed capital_gains of dollar_figurea for year1 and dollar_figureb for year2 when the miscalculations on fund1 were discovered firm discussed possible alternatives with taxpayers’ management on ------------------------- and with taxpayers’ audit committee on ------------------------- alternatives discussed included filing for relief in the time to file a consent_dividend election under sec_565 because undistributed_capital_gains had been identified on one fund it was possible that other funds in trust could have undistributed_capital_gains as well on ----------------- -------------------------------------------------------------------------------------------------------------------- ------- b directed her team to work closely with z to prepare a more detailed analysis for the other potentially impacted funds in trust between -------------------------and ------------ -------------------------------------------------------------------------------------------------------------------- plr-123950-06 plr-123951-06 plr-123952-06 ------------such preliminary analysis was prepared and reviewed by firm no other funds were found to have undistributed_capital_gains for year1 but similar errors in the original calculations were found with respect to the year2 returns of fund2 and fund3 when the preliminary analysis was later finalized firm and z concluded that the fund had undistributed_capital_gain of dollar_figurec for year2 and fund3 had undistributed_capital_gain of dollar_figured for year2 on --------------------- firm presented the analysis to taxpayers’ board_of trustees pursuant to these discussions it was determined that a request for relief under sec_301_9100-1 was necessary to request extensions of time to make consent_dividend elections for taxpayers it had always been the practice and policy of taxpayers to calculate the pre-dividend paid deduction taxable_income and then declare and pay sufficient dividends to reduce the taxable_income including capital_gains and any related_income tax to zero however because taxable_income had been originally understated taxpayers had understated the necessary dividends that should be paid to eliminate their taxable_income had taxpayers been aware of the larger amounts of capital_gains at the time each fund declared and paid its capital_gain dividends they would have declared and paid such larger amounts pursuant to sec_855 as would have been necessary to reduce net taxable_income and net taxable capital_gains to zero shareholders of taxpayers are aware of the undistributed_capital_gains and have agreed to take all necessary steps including providing form consent of shareholder to include specific amount in gross_income to taxpayers accordingly fund1 respectfully requests an extension of time to make an election under sec_565 for the taxable_year ending date2 and date3 fund2 and fund3 respectfully request an extension of time to make an election under sec_565 for the taxable_year ending date3 law and analysis sec_565 provides that if any person owns consent_stock as defined in sec_565 in a corporation on the last day of the taxable_year of such corporation and such person agrees in a consent filed with the return of such corporation in accordance with the regulations to treat as a dividend the amount specified in such consent the amount so specified shall except as provided in b constitute a consent_dividend for purposes of relating to the deduction for dividends_paid sec_1_565-1 provides that the dividends_paid deduction as defined in includes the consent dividends for the taxable_year a consent_dividend is a hypothetical distribution as distinguished from an actual distribution made by certain corporations to plr-123950-06 plr-123951-06 plr-123952-06 any person who owns consent_stock on the last day of the taxable_year of such corporation and who agrees to treat the hypothetical distribution as an actual dividend subject_to specified limitations by filing a consent at the time and in the manner specified in b sec_1_565-1 provides that a consent may be filed not later than the due_date of the corporation's income_tax return for the taxable_year for which the dividends_paid deduction is claimed under revrul_78_296 1978_2_cb_183 the due_date for purposes of sec_1 b includes the extended due_date of a return filed pursuant to an extension of the time to file sec_301_9100-1 provides that the commissioner of internal revenue in exercising his discretion may grant a reasonable extension of time under the rules set forth in to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i the term regulatory election is defined in b as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government under sec_301_9100-3 except as provided in paragraphs b i through iii of this section a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer requests relief before the failure to make the regulatory election is discovered by the service paragraphs b i through iii of provide that a taxpayer is deemed to have not acted reasonably and in good_faith if the taxpayer i seeks to alter a return position for which an accuracy- related penalty could be imposed under at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the due_date for making the election that make the election advantageous to a taxpayer the service will not ordinarily grant relief in such a case the service will plr-123950-06 plr-123951-06 plr-123952-06 grant relief only when the taxpayer provides strong_proof that the taxpayer's decision to seek relief did not involve hindsight in the present case relief was requested before the failure to make the regulatory elections properly was discovered by the service further taxpayers are not seeking to alter a return position for which an accuracy-related_penalty could have been imposed nor were taxpayers informed of the required elections but chose not to file the elections moreover there is no indication that taxpayers are using hindsight in requesting relief specific facts material to the issue under consideration have not changed since the due_date for making the elections that make the elections advantageous to taxpayers sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment in this case taxpayers will not have a lower tax_liability in the aggregate for any taxable_year in which the election applies than taxpayers would have had if the elections had been made timely also no taxable_year that would be affected by the election had it been timely made is closed by the period of limitations on assessment conclusion based upon our analysis of the facts taxpayers acted reasonably and in good_faith and granting relief will not prejudice the interests of the government and therefore the requirements of sec_301_9100-1 and sec_301_9100-3 have been met under the facts represented taxpayers’ tardiness in filing the consent_dividend election was not due to the intentional disregard of the tax rules but was an inadvertent error on the part of taxpayers and taxpayers did not affirmatively choose not to file the election taxpayers are not seeking to alter a return position or to use hindsight to request relief finally taxpayers acted promptly in filing its request for relief before the irs discovered the failure to make a regulatory election therefore taxpayers did not act unreasonably or in bad faith furthermore granting relief will not result in taxpayers having a lower tax_liability in the aggregate for all taxable years affected by the election than taxpayers would have had plr-123950-06 plr-123951-06 plr-123952-06 if the election had been timely made nor will any closed years be affected therefore the interests of the government will not be prejudiced by granting the request for relief because taxpayers acted reasonably and in good_faith and because the interests of the government will not be prejudiced if the request for relief is granted taxpayers are granted an extension of days from the date of this ruling to file their consent_dividend elections a copy of this letter should be attached to the amended returns filed reflecting the elections except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed with regard to whether any of the taxpayers qualify as a ric under subchapter_m of the code the ruling contained in this letter is based upon facts and representations submitted by the taxpayer except as specifically addressed herein no opinion is expressed regarding the tax treatment of the subject transactions under the provisions of any other sections of the code or regulations that may be applicable thereto this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that a private_letter_ruling may not be used or cited as precedent in accordance with the power_of_attorney on file in our office a copy of this letter is being sent to your authorized representative s sincerely yours lewis fernandez associate chief_counsel income_tax accounting by clifford m harbourt clifford m harbourt senior technician reviewer branch


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp 2-plr-136371-02 date date legend individual oldco newco merger sub newco old sub x y z year year m plr-136371-02 n dear this letter responds to your date request for rulings on certain federal_income_tax consequences of a proposed transaction on behalf of the above-referenced taxpayer the information submitted in that letter and in later correspondence is summarized below oldco was incorporated in state x in year in year oldco filed form_2553 election by a small_business_corporation to be taxed as an s_corporation for federal_income_tax purposes for its fiscal_year beginning and has continuously operated as an s_corporation since that time oldco has m shares of common_stock outstanding all of which are owned by individual oldco currently holds assets used in its businesses y and z oldco also owns n percent of the stock of old sub state x regulatory requirements related to business y restrict the growth of oldco’s business z for that reason oldco seeks to separate the two businesses into separate state law entities to accomplish that goal oldco proposes the following transaction transaction oldco will cause newco to be incorporated in state x as its wholly owned subsidiary newco will cause merger sub to be incorporated in state x as its wholly owned subsidiary oldco will transfer all the assets associated with business z and the stock of old sub to newco merger sub will merge with and into oidco under applicable state law with oidco being the surviving corporation on the effective date of the merger merger date all of the merger sub stock held by newco will be converted pursuant to state law into stock of oldco and all of the oldco stock held by individual will be converted into newco stock newco will file an election to be treated as an s_corporation effective as of the merger date and will file a qualified_subchapter_s_subsidiary qsub election for oldco also effective as of the merger date also on the merger date newco will contribute to newco2 a newly formed state x corporation cash and the business z assets in exchange for shares of newco2 common_stock newco’s stock in newco2 will constitute all of the issued and outstanding_stock of newco2 newco will plr-136371-02 file a qsub election for newco to be effective on the merger date sec_3 of revproc_2003_3 2003_1_irb_133 provides that the service will not rule on the qualification of a transaction as a reorganization under a f however the service will rule on a transaction involving a significant issue that is not clearly and adequately addressed by published authority in this case there are significant issues surrounding the s_corporation status of the involved entities and the effect of the transaction on sec_1374 assets currently held by oldco in support of the proposed transaction the taxpayer has made the following representations a the fair_market_value of the newco stock received by individual will be approximately equal to the fair_market_value of the oldco stock surrendered in the exchange b immediately following consummation of the transaction individual will own all of the outstanding newco stock and will own such stock solely by reason of individual’s ownership of oldco stock immediately prior to the transaction c individual will preserve the interest in newco stock received in exchange for oldco stock within the meaning of sec_1_368-1 d newco has no plan or intention to issue additional shares of its stock following the transaction e immediately following the transaction for federal_income_tax purposes newco will possess the same assets and liabilities except for assets used to pay expenses_incurred in connection with the transaction as those possessed by oldco immediately prior to the transaction assets used to pay expenses will constitute less than one percent of the net assets of oldco f at the time of the transaction oldco will not have outstanding any warrants options convertible securities or any other type of right pursuant to which any person could acquire stock in oldco g newco has no plan or intention to reacquire any of its stock issued in the transaction h newco has no plan or intention to sell or otherwise dispose_of any of the assets of oldco acquired in the transaction except for dispositions made in the ordinary course of business i the liabilities of oldco assumed by newco and any liabilities to which the transferred plr-136371-02 assets of oldco are subject were incurred by oldco in the ordinary course of its businesses j following the transaction newco will continue the historic_business of oldco or use a significant portion of oldco’s historic_business_assets in the continuing business k oldco newco and individual will pay their respective expenses if any incurred in connection with the transaction l oldco is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 based solely upon the information and representations set forth above we hold as follows a b c d e f g the transaction qualifies as a reorganization under sec_368 of the code no gain_or_loss will be recognized by oldco upon the transfer of its assets and related liabilities to newco in exchange for newco common_stock sec_361 newco will not recognize any gain_or_loss on the receipt of the assets of oldco in each instance in exchange for voting shares of newco sec_1032 the basis of the oldco assets in the hands of newco will be the same as the basis of those assets in the hands of oldco immediately prior to the transaction sec_362 newco’s holding_period for the assets it acquired from oldco will include the period during which such assets were held by oldco sec_1223 the basis of the newco shares including fractional share interests if any received by individual will be the same as the basis of the oldco shares surrendered in exchange therefor sec_358 the holding_period of the newco shares including fractional share interests if any received by individual in exchange for individual’s oldco shares will include the period during which the exchanged oldco shares were held provided that the oldco shares are held as a capital_asset in the hands of individual on the date of the exchange sec_1223 h sec_1374 will not subject the assets that are transferred from plr-136371-02 oldco to newco and from newco to newco to the built-in_gain provisions of sec_1374 but to the extent that oldco’s assets are presently subject_to the built-in_gain provisions of sec_1374 they will continue to be subject_to the built-in_gain provisions of sec_1374 on the same basis as they were subject_to such provisions in oldco for purposes of sec_1374 newco's year recognition_period begins on the first day oldco was an s_corporation i the taxable_year of oldco does not close on the date of the reorganization and such tax_year continues in the name of newco sec_1_381_b_-1 and revrul_57_276 1957_2_cb_126 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer a copy of this letter must be attached to any income_tax return to which it is relevant this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely marlene oppenheim senior counsel branch office of associate chief_counsel corporate