office_of_chief_counsel internal_revenue_service memorandum number release date cc psi jholmes postf-127742-11 uilc date date to linda averbeck large business international from paul handleman chief branch passthroughs special industries third party communication none date of communication not applicable subject application of the domestic_production_activities_deduction to repackaging this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend taxpayer --------------------------------------------------- -------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------ ------- ----------------- a b issue for purposes of the domestic_production_activities_deduction under sec_199 of the internal_revenue_code does the exception for repackaging and labeling activities to the definition of manufactured produced grown or extracted mpge under sec_1 e apply to taxpayer’s activities if taxpayer repackages and labels pills it did not postf-127742-11 manufacture but manufactures blister packs and sells the blister packs containing the pills in the normal course of its business to customers conclusion no the exception for repackaging and labeling activities to the definition of mpge under sec_1_199-3 does not apply to taxpayer’s activities because taxpayer engages in other mpge activities with respect to the blister packs containing the pills by manufacturing the blister packs for taxpayer’s gross_receipts from the sale of blister packs containing the pills to qualify as domestic_production_gross_receipts dpgr taxpayer must meet the other requirements of sec_199 including the in whole or in significant part requirement of sec_199 and sec_1_199-3 to the extent the gross_receipts do not qualify as dpgr taxpayer can apply sec_1_199-3 to determine whether the gross_receipts from the sale of any component of the property the blister packs containing the pills qualify as dpgr facts taxpayer is a provider of pharmaceutical products for seniors in nursing assisted living and other similar healthcare facilities in its a taxable_year taxpayer derived gross_receipts from providing medications to healthcare facilities with payments being made by medicare medicaid and insurance_companies the medications at issue are those provided in blister packs in its business taxpayer purchases medicines pills in bulk form and places the pills into blister packs before providing the pills to healthcare facilities taxpayer does not mpge the pills healthcare facilities can order pills in blister packs or bottles some states require certain healthcare facilities to purchase pills in blister packs blister packs are made of plastic pvc and lidding material an aluminum moisture barrier the pills mostly over-the-counter medicine are normally purchased in bottles with b pills the plastic pvc and lidding material are in roll form the blister pack assembly is subject_to various food and drug administration fda safety regulations pertaining to the handling and repacking of drugs taxpayer’s blister packs are produced entirely within the united_states the steps of the assembly are generally as follows taxpayer removes any stuffing from the bottles and empties the pills from the bottles in accordance with fda safety standards the pills are then placed on a blister pack assembly line the assembly equipment heats the plastic forms depressions in the plastic creating the blisters by using a drug-specific metal mold places the pills into the blisters and then seals the lidding material to the blister back a scannable bar code identifying the type of medication dosage and expiration date is printed on the lidding material the blister packs are then perforated separated and case packaged in bulk the process does postf-127742-11 not result in any changes to the pills which retain the same form and pharmaceutical characteristics they had when packaged in bottles the process transforms the plastic pvc and lidding material into blister packs law and analysis under sec_199 the domestic_production_activities_deduction is an amount equal to percent of the lesser_of a qualified_production_activities_income qpai of the taxpayer for the taxable_year or b taxable_income determined without regard to the sec_199 deduction for the taxable_year under sec_199 the percentage i sec_3 percent for taxable years beginning in and and percent for taxable years beginning in through under sec_199 qpai for the taxable_year is dpgr less cost_of_goods_sold allocable to such dpgr less other expenses losses or deductions which are properly allocable to such dpgr sec_199 provides the term dpgr means the gross_receipts of the taxpayer which are derived from any lease rental license sale exchange or other_disposition of qualifying_production_property qpp which was mpge by the taxpayer in whole or in significant part within the united_states sec_199 defines qpp as including tangible_personal_property sec_1_199-3 provides that a taxpayer determines using any reasonable method that is satisfactory to the secretary based on all of the facts and circumstances whether gross_receipts qualify as dpgr on an item-by-item basis and not for example on a division-by-division product line-by-product line or transaction-by-transaction basis sec_1_199-3 provides that the term item means the property offered by the taxpayer in the normal course of the taxpayer's business for disposition to customers if the gross_receipts from the disposition of such property qualify as dpgr sec_1_199-3 provides if sec_1_199-3 does not apply to the property then any component of the property described in sec_1_199-3 is treated as the item provided that the gross_receipts from the disposition of the property in sec_1 d i that are attributable to such component qualify as dpgr each component that meets the requirements under sec_1_199-3 must be treated as a separate item and a component that meets the requirements under sec_1_199-3 may not be combined with a component that does not meet these requirements sec_1_199-3 example provides that r manufactures toy cars in the united_states r also purchases cars that were manufactured by unrelated persons r offers the cars for sale to customers in the normal course of r’s business in sets of three and requires no minimum quantity order r sells the three-car toy sets to toy stores a postf-127742-11 three-car set may contain some cars manufactured by r and some cars purchased by r if the gross_receipts derived from the sale of the three-car sets do not qualify as dpgr under sec_1_199-3 then under sec_1_199-3 r must treat a toy car in the three-car set as the item provided the gross_receipts derived from the sale of the toy car qualify as dpgr under sec_1_199-3 sec_1_199-3 provides the term mpge includes manufacturing producing growing extracting installing developing improving and creating qpp making qpp out of scrap salvage or junk material as well as from new or raw material by processing manipulating refining or changing the form of an article or by combining or assembling two or more articles cultivating soil raising livestock fishing and mining minerals sec_1_199-3 provides if a taxpayer packages repackages labels or performs minor assembly of qpp and the taxpayer engages in no other mpge activity with respect to that qpp the taxpayer's packaging repackaging labeling or minor assembly does not qualify as mpge with respect to that qpp sec_1_199-3 provides that in general qpp must be mpge in whole or in significant part by the taxpayer and in whole or in significant part within the united_states to qualify under sec_199 sec_1_199-3 provides that qpp will be treated as mpge in significant part by the taxpayer within the united_states for purposes of sec_1_199-3 if the mpge of the qpp by the taxpayer within the united_states is substantial in nature taking into account all of the facts and circumstances including the relative value added by and relative cost of the taxpayer's mpge activity within the united_states the nature of the qpp and the nature of the mpge activity that the taxpayer performs within the united_states sec_1_199-3 provides a taxpayer will be treated as having mpge qpp in whole or in significant part within the united_states for purposes of sec_1_199-3 if in connection with the qpp the direct labor and overhead of such taxpayer to mpge the qpp within the united_states_account for percent or more of the taxpayer's cgs of the qpp or in a transaction without cgs for example a lease rental or license account for percent or more of the taxpayer's unadjusted depreciable basis as defined in sec_1_199-3 in the qpp sec_1_199-3 example provides that x purchases gemstones and precious metal from outside the united_states and then uses these materials to produce jewelry within the united_states by cutting and polishing the gemstones melting and shaping the metal and combining the finished materials x's mpge activities are substantial in nature under sec_1_199-3 therefore x has mpge the jewelry in significant part within the united_states postf-127742-11 sec_1_199-3 requires taxpayer to determine whether the gross_receipts derived from the property that taxpayer offers in the normal course of its business for sale to customers are dpgr to the extent the gross_receipts are dpgr then the property offered in the normal course of its business for sale to customers is taxpayer’s item for purposes of sec_199 in this case the property that taxpayer offers in the normal course of its business for sale to customers is the blister packs containing the pills while taxpayer did not mpge the pills treating this as the property offered is consistent with example of sec_1_199-3 because taxpayer offers the blister packs and pills as a set in the normal course of its business for sale to customers for gross_receipts from the sale of blister packs containing the pills to be dpgr taxpayer must meet the requirements of sec_199 to meet these requirements the blister packs containing the pills must be qpp that was mpge by the taxpayer in whole or in significant part within the united_states if the gross_receipts from the blister packs containing the pills are non-dpgr then taxpayer can determine whether gross_receipts from the sale of any of the components eg the blister packs qualify as dpgr by applying sec_1_199-3 to qualify as dpgr gross_receipts from the sale of a component must meet the requirements under sec_199 in this case there is no issue in determining that the blister packs containing the pills are qpp also if taxpayer applies sec_1_199-3 there is no issue in determining the individual blister packs without pills and vice versa ie pills without blister packs qualify as qpp the issue for this advice is whether any of taxpayer’s activities relating to the sale of blister packs containing the pills relate to the mpge of the blister packs containing the pills or whether all of taxpayer’s activities fall within the exception for repackaging and labeling activities to the definition of mpge under sec_1_199-3 in our view sec_1_199-3 does not apply to taxpayer’s activities in this case sec_1_199-3 applies to repackaging and labeling when a taxpayer engages in no other mpge activities with respect to the qpp taxpayer is engaging in the mpge of qpp when taxpayer produces the blister pack from the plastic pvc and lidding material taxpayer heats the plastic depresses the plastic molds and seals each pack we also consider the mpge of the blister packs to be a part of the mpge of the blister packs containing the pills the blister packs are a component of the blister packs containing the pills for purposes of sec_199 at the same time we also recognize taxpayer is repackaging the pills into the blister packs taxpayer’s activity is removing the pills from one package the bottle and placing them into another the blister pack the form and characteristics of the pills do not change the fact that the repackaging is done concurrently with the mpge of the blister packs does not change that conclusion taxpayer also labels the blister packs identifying the type of medication dosage and expiration date if taxpayer did not mpge the blister packs but only repackaged and labeled pills into blister packs manufactured by a third party then the exception under sec_1_199-3 would apply however the exception to the definition of mpge under postf-127742-11 sec_1_199-3 does not apply to taxpayer because taxpayer engages in other mpge activities with respect to the qpp blister packs containing the pills by manufacturing the blister packs while the above analysis answers the request for advice we are providing some additional comments as to the how the in whole or in significant part requirement of sec_199 and sec_1_199-3 may apply to taxpayer for taxpayer’s gross_receipts from the blister packs and pills to qualify as dpgr taxpayer must show that the mpge of the blister packs and pills was done in whole or in significant part by taxpayer within the united_states under sec_1_199-3 the qpp will be treated as mpge in significant part by taxpayer within the united_states if the mpge of the qpp by taxpayer within the united_states is substantial in nature as described in sec_1_199-3 alternatively taxpayer will be treated to have met the in whole or in significant part requirement if it meets the safe_harbor in sec_1_199-3 in determining whether taxpayer’s activities with respect to the entire product are substantial in nature all relevant facts and circumstances should be taken into account as described in sec_1_199-3 taxpayer’s facts are distinguishable from the facts in sec_1_199-3 example in that example x manipulated the gemstones cutting and polishing and the metal melting and shaping and combined the gemstones and metal to produce the jewelry in taxpayer’s situation none of taxpayer’s activities result in a change to the pills its activities with respect to the pills are repackaging as the mpge of the pills was not completed by taxpayer thus to the extent that the pills are part of the value to the property offered the activities that produced the pills and value that the pills contribute weigh against treating taxpayer as having mpge the blister pack containing the pills in whole or in significant part to the extent that taxpayer’s gross_receipts derived from the sale of blister packs containing the pills are non-dpgr because taxpayer did not mpge the blister packs containing the pills in whole or in significant part under sec_1_199-3 or taxpayer can apply the provisions of sec_1_199-3 to the components of the blister packs containing the pills under the provisions of sec_1_199-3 taxpayer must determine whether any gross_receipts derived from the sale of individual components qualify as dpgr to qualify as dpgr gross_receipts from the sale of a component must meet the requirements under sec_199 for example the blister packs and the pills are both separate components of the blister pack containing the pills taxpayer does not meet the requirements of sec_199 with respect to the pills because taxpayer did not mpge the pills however taxpayer may meet the requirements with respect to the blister packs if taxpayer did mpge the blister packs in whole or in significant part within the united_states then the gross_receipts derived from the sale of the blister packs should qualify as dpgr the blister packs without the pills would be treated as a separate item for purposes of sec_1_199-3 taxpayer could then allocate the gross_receipts attributable to that item for purposes of postf-127742-11 determining taxpayer’s total dpgr but any gross_receipts attributable to the pills without the blister packs ie a non-qualifying component would be non-dpgr case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call james holmes if you have any further questions


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 tege eoeg teb presp-144245-06 date date dear ------------ this letter is in response to your application_for an allocation of authority to issue dollar_figure------- ----------------- in clean renewable energy bonds crebs under sec_54 of the internal_revenue_code the code pursuant to sec_54 of the internal_revenue_code the code and notice_2005_98 2005_52_irb_1211 and after review of your application submitted on date including supplements thereto we have determined that the projects described in appendix a attached hereto are qualified for purposes of sec_54 and will be owned by one or more qualified borrowers we allocate authority to ----------------------------------- ----------------------- the issuer a qualified issuer under sec_54 to issue up to dollar_figure-------- ----------------- of clean renewable energy bonds crebs bonds issued pursuant to this allocation must be designated by the issuer as bonds for purposes of sec_54 for the projects described in appendix a up to the amount allocated for each project described in appendix a bonds so designated must be issued on or before date please be aware that in order for bonds to be crebs the applicable_requirements of the code including without limitation sec_54 notice_2005_98 and notice_2006_7 2006_10_irb_559 must be met please note that creb proceeds may be used to reimburse capital expenditures paid_by qualified borrowers for qualified projects only if the provisions of sec_54 are met sec_54 of the code imposes a limitation of dollar_figure on the amount of crebs which may be issued to finance qualified projects the limitation sec_54 provides that the limitation is to be allocated by the secretary of treasury in such manner as the secretary deems appropriate except that no more than dollar_figure of the limitation may be allocated to finance qualified projects of qualified borrowers which are governmental bodies presp-144245-06 section of notice_2005_98 2005_52_irb_1211 provides that the limitation will be allocated among qualified projects for which a share of such limitation has been requested beginning with the project s requesting the smallest share in dollar amount and continuing with the project s requesting the next-smallest share until the total limitation has been exhausted however in the event that dollar_figure has been allocated to qualified projects of qualified borrowers that are governmental bodies the remaining shares of the limitation will be allocated under the methodology described in the previous sentence only to qualified projects of qualified borrowers that are not governmental bodies for purposes of allocating the limitation among projects all qualified projects located at the same site and owned by the same qualified_borrower are treated as a single project and each project is treated as requesting a single allocation an allocation of shares of the limitation cannot be made with respect to the projects owned by the borrower listed in appendix b because the application failed to demonstrate that one or more of the requirements of notice_2005_98 notice_2006_7 or sec_54 of the code have been met we appreciate your submission of the application_for our consideration and encourage you to continue to pursue your plans for constructing clean renewable energy projects if you have any questions with respect to this allocation please contact --------------------- -------- or ---------------------------- of the office of division counsel associate chief_counsel tax-exempt and government entities on -------------------- not a toll-free call 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 for purposes of the renewable_electricity_production_credit under sec_45 of the code no inference may be drawn from this allocation that any project listed in the appendices attached hereto is a qualified_facility or that electricity to be produced at such project s is electricity from a qualified_energy resource at a qualified_facility within the meaning of sec_45 this determination is directed only to the applicant named above sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any form 8038-g information_return for tax- exempt governmental obligations filed for bonds issued pursuant to this allocation the allocation contained in this letter is based upon information and representations submitted by the applicant for the creb allocation and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified presp-144245-06 any of the material submitted in support of the application_for an allocation it is subject_to verification on examination sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-144245-06 borrower name appendix a project type project location ---------------------------------- wind facility ------------------------------- ---------------------------------- wind facility ------------------------------- total -------------------------------- -------------------------------- -------------------------------- -------------------------------- ---------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------- ----------------------- amount allocated ----------------- ----------------- ----------------- presp-144245-06 borrower name appendix b project type project location -------------------------------- ------------------------------ -------------------------------- ------------------------------ open or closed loop biomass facility wind facility -------------------------------- ------------------------------ -------------------------------- ------------------------------ total wind facility solar_energy_facility -------------------------------- -------------------------------- ----------- -------------------------------- -------------------------------- -------------------------------- ----------------- -------------------------------- ------------------------------- -------------------------------- ------------------------------- amount requested ---------------- ----------------- ----------------- ---------------- ------------------


t c summary opinion united_states tax_court james m cambria petitioner v commissioner of internal revenue respondent docket no 13323-18s filed date james m cambria pro_se michael t garrett and gretchen w altenburger for respondent summary opinion nega judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined a dollar_figure deficiency a dollar_figure sec_6662 accuracy-related_penalty and a dollar_figure sec_6651 late-filing addition_to_tax with respect to petitioner’s federal_income_tax for after concessions the issues for decision are whether petitioner’s income may be excluded from gross_income under sec_911 and whether he is liable for the accuracy-related_penalty and the late-filing addition_to_tax background some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner maintained a permanent residence in colorado in and he resided in colorado when he filed this petition in petitioner accepted employment with academi training center llc to provide security services in camp dwyer afghanistan the employment was governed by a 12-month service_contract that ran from date through date petitioner’s intent in accepting this position was to get his foot in the door at the company in the hopes of gaining employment 1unless otherwise indicated all section references are to the internal_revenue_code code in effect for the taxable_year at issue and all rule references are to the tax_court rules_of_practice and procedure all monetary amounts are rounded to the nearest dollar somewhere else internationally petitioner’s goal was to move to europe where he has distant family in france and the netherlands petitioner did not intend to live permanently in afghanistan he testified that although his family was prohibited under the contract from accompanying him even if his family had been allowed to join him in afghanistan he would never have moved his family there while petitioner was in camp dwyer his employer_provided him meals and living quarters on the military base there were several shops on the base where petitioner could purchase daily supplies petitioner was not permitted to leave the base for safety reasons he did not leave camp dwyer during his contract except for one trip to the united_states from date through date for the birth of his child petitioner was paid through a bank account he held in the united_states petitioner’s employer withheld medicare federal_insurance_contributions_act tax and federal u s income_tax from petitioner’s pay petitioner was not required to pay and did not pay afghan taxes throughout the tax_year at issue petitioner maintained a colorado residence housing his wife and later their child petitioner had a colorado driver’s license registered and maintained a vehicle in colorado had bank and credit card accounts in colorado and new york and was registered to vote in new york where he resided before moving to colorado petitioner did not have an afghan driver’s license did not own a car in afghanistan and did not have an afghan bank account after his contract ended in date petitioner returned to colorado and began taking college classes petitioner was eventually selected for a position with the parker police department in colorado where he works to this day petitioner timely requested an extension to file hi sec_2014 federal_income_tax return which expired on date on date petitioner filed hi sec_2014 form_1040 u s individual_income_tax_return on form 2555-ez foreign_earned_income_exclusion attached to hi sec_2014 tax_return petitioner took the position that his tax_home for was afghanistan and excluded his wages earned in afghanistan from his gross_income under sec_911 petitioner reported that he was out of the country for days in petitioner engaged a tax_return_preparer with franklin tax services in denver colorado petitioner’ sec_2014 tax_return was selected for examination on date respondent determined that petitioner was not entitled the foreign_earned_income_exclusion and mailed petitioner a notice_of_deficiency for on date petitioner timely petitioned this court 2petitioner conceded additional income he excluded as foreign_earned_income from dfas of dollar_figure and us security associates of dollar_figure discussion i burden_of_proof the commissioner’s determinations in a notice_of_deficiency are generally presumed correct and the taxpayer bears the burden of proving them erroneous rule a 290_us_111 petitioner does not contend and the evidence does not establish that the burden_of_proof shifts to respondent under sec_7491 as to any issue of fact respondent bears the burden of production but petitioner bears the burden_of_proof with respect to the accuracy-related_penalty under sec_6662 and the addition_to_tax under sec_6651 see sec_7491 ii foreign_earned_income_exclusion sec_61 provides that gross_income means all income from whatever source derived citizens of the united_states are taxed on their worldwide income unless a specific exclusion applies eram v commissioner tcmemo_2014_60 at exclusions from gross_income are construed narrowly and a taxpayer must clearly establish his entitlement to any such exclusion id sec_911 provides that a t the election of a qualified_individual there shall be excluded from the gross_income of such individual for any taxable_year the foreign_earned_income of such individual subject_to limitations set forth in subsection b to be a qualified_individual eligible for this exclusion a taxpayer must satisfy a three-part test first he must be a u s citizen who is either a bona_fide_resident of a foreign_country for an uninterrupted period which includes an entire taxable_year or physically present in a foreign_country during at least days in a 12-month_period id subsec d second he must have earned_income from personal services rendered in a foreign_country id para third his tax_home for the applicable_period must be outside the united_states id paras in addition to satisfying these substantive tests the taxpayer must make an affirmative election to exclude foreign_earned_income which petitioner has timely done id subsec a the parties have stipulated that petitioner met the 330-day physical_presence_test under sec_911 likewise there is no dispute that petitioner earned_income from personal services rendered in a foreign_country therefore the sole issue is whether petitioner’s tax_home for purposes of sec_911 was in afghanistan sec_911 defines the term tax_home to mean in the case of an individual such individual’s home for purposes of sec_162 under sec_162 a person’s home is generally considered to be the location of his regular or principal_place_of_business see 74_tc_578 however sec_911 goes on to provide that a n individual shall not be treated as having a tax_home in a foreign_country for any period for which his abode is within the united_states thus a person whose abode is within the united_states cannot establish that his tax_home is in a foreign_country see 927_f2d_849 5th cir rev’g tcmemo_1989_616 93_tc_297 in bujol v commissioner tcmemo_1987_230 53_tcm_762 aff’d without published opinion 842_f2d_328 5th cir we considered the meaning of the word abode as used in sec_911 and stated abode has been variously defined as one’s home habitation residence domicile or place of dwelling black’s law dictionary 5th ed while an exact definition of abode depends upon the context in which the word is used it clearly does not mean one’s principal_place_of_business thus abode has a domestic rather than vocational meaning and stands in contrast to tax_home as defined for purposes of sec_162 a taxpayer’s abode is generally in the country in which he has the strongest economic familial and personal ties id pincite see also jones v commissioner f 2d pincite a taxpayer posted abroad will invariably have some connections with the foreign_country in which he works but when his ties to the united_states are stronger we have held that his abode remains in the united_states see eg harrington v commissioner t c pincite holding that oilfield worker lacked abode in angola we considered facts similar to those here in daly v commissioner tcmemo_2013_147 at and held that a taxpayer’s abode was in the united_states because his ties to the foreign countries were severely limited and transitory the taxpayer was an authorized contractor for the department of defense who worked and lived on air bases in afghanistan and iraq and was not permitted to leave the bases id at he worked rotational shifts and left these countries when off duty or when required to do so for work id the taxpayer’s family resided in the united_states where he also owned and maintained a residence id at on the basis of these facts we determined that the taxpayer’s economic familial and personal ties to the united_states made the united_states his abode at all times id at the facts in the instant case are similar to those in daly like the taxpayer in daly petitioner did not leave the base where he lived and worked his family continued to reside in the united_states while he worked overseas although they were prohibited from accompanying him petitioner admitted that even if his family had been allowed to join him in afghanistan he would never have moved them to afghanistan in addition to returning to his home in the united_states for the birth of his child in petitioner owned and registered a vehicle in colorado had a colorado driver’s license was registered to vote in new york and maintained two bank accounts in the united_states in contrast petitioner has not shown any connection with afghanistan other than the location of his employment petitioner did not own land or vehicles in afghanistan he did not maintain a bank account there and he did not want to bring his family with him like the taxpayer in daly petitioner had ties to afghanistan that were severely limited and transitory during the year at issue petitioner noted that in after his return to colorado he sought jobs outside the united_states and his goal was to work internationally however petitioner was not seeking jobs in afghanistan in fact petitioner testified that after living in afghanistan for one year he wanted to progress into working in a more livable less hostile country petitioner also argued that his strongest economic ties were in afghanistan because he was employed there he paid for internet he received mail and he purchased products on the base these contentions fail to establish that petitioner had more than limited ties to afghanistan rather it is clear that petitioner’s ties to afghanistan were transitory and his ties to the united_states were predominant we find that petitioner’s abode was in the united_states during because petitioner had substantially more economic familial and personal ties to the united_states therefore petitioner’s tax_home was in the united_states and not in afghanistan for the purposes of sec_911 during the year at issue petitioner is therefore liable for the deficiency as determined by respondent iii sec_6662 penalty sec_6662 and b and imposes a accuracy-related_penalty on any portion of an underpayment of federal_income_tax which is attributable to negligence or disregard of rules or regulations or to a substantial_understatement_of_income_tax sec_6662 defines negligence as including any failure to make a reasonable attempt to comply with the provisions of the code and defines disregard as including any careless reckless or intentional disregard see sec_1_6662-3 and income_tax regs an understatement of income_tax is substantial if it exceeds the greater of of the tax required to be shown on the return or dollar_figure sec_6662 under sec_7491 respondent has the burden of production with respect to the accuracy-related_penalty see 116_tc_438 to satisfy respondent’s burden of production under sec_7491 he must produce evidence showing inter alia that his representatives complied with sec_6751 see graev v commissioner 149_tc_485 supplementing and overruling in part 147_tc_460 the record contains a timely penalty approval form that shows that respondent’s representatives complied with sec_6751 respondent has met the burden of production in this case and it is petitioner’s burden to establish that the imposition of the penalty is not appropriate see higbee v commissioner t c pincite sec_6664 provides an exception to the sec_6662 penalty if it is shown that there was reasonable_cause for any portion of the underpayment and the taxpayer acted in good_faith the determination of whether a taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all the pertinent facts and circumstances sec_1_6664-4 income_tax regs generally the most important factor is the extent of the taxpayer’s effort to assess his or her proper tax_liability id circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in view of the taxpayer’s experience knowledge and education id the evidence establishes negligence in that petitioner has failed to make a reasonable attempt to comply with the provisions of the code moreover petitioner offered insufficient evidence that he sought advice regarding proper tax treatment for his income while petitioner hired a tax preparer believed to have experience petitioner provided no evidence that he relied on the tax preparer for advice on whether sec_911 applied merely hiring a professional to prepare an income_tax return--without giving him necessary information or relying on his advice--does not absolve a taxpayer from liability for a penalty see eg povolny grp inc v commissioner tcmemo_2018_37 at bronson v commissioner tcmemo_2012_17 wl at aff’d 591_fedappx_625 9th cir petitioner also did not make any arguments on brief or at trial regarding the applicability of the reasonable-cause exception in fact petitioner testified that he did little to no research of the rules and that he should have fully researched the law before filing his tax_return and the record does not show that the reasonable- cause exception applies to this case therefore we will sustain respondent’s determination that petitioner is liable for the accuracy-related_penalty for the year at issue iv sec_6651 addition_to_tax respondent determined that petitioner is liable for an addition_to_tax under sec_6651 for failure_to_file hi sec_2014 federal_income_tax return timely the commissioner bears the burden of production with respect to a taxpayer’s liability for additions to tax see sec_7491 higbee v commissioner t c pincite once the commissioner carries the burden of production the taxpayer must come forward with persuasive evidence that the commissioner’s determination is incorrect or that the taxpayer has an affirmative defense see higbee v commissioner t c pincite sec_6651 authorizes the imposition of an addition_to_tax for failure_to_file a return timely unless it is shown that such failure was due to reasonable_cause and not due to willful neglect see 469_us_241 a failure_to_file a federal_income_tax return timely is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence but nevertheless was unable to file the return within the prescribed time typically for reasons outside the taxpayer’s control see 114_f3d_366 2d cir aff’g tcmemo_1995_547 sec_301_6651-1 proced admin regs with an extension petitioner’ sec_2014 federal_income_tax return was due on date he filed his return on date more than three months after the due_date petitioner failed to introduce any evidence showing that he had reasonable_cause for filing hi sec_2014 return late respondent has carried his burden of production accordingly we will sustain respondent’s imposition of the addition_to_tax under sec_6651 for we have considered all of the arguments made by the parties and to the extent they are not addressed herein we find them to be moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


t c summary opinion united_states tax_court ronald and nancy sweet petitioners v commissioner of internal revenue respondent ronald t sweet petitioner v commissioner of internal revenue respondent docket nos 4479-00s 4480-o00s filed date charles a borek and robb longman specially recognized for petitioners chang ted li for respondent goldberg special_trial_judge these consolidated cases were heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time each petition was filed the decisions to be entered are not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to - - the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure in separate notices of deficiency respondent determined that petitioners are liable for the following deficiencies in federal income taxes additions to tax and penalty docket no 4479-00s ronald and nancy sweet additions to tax penalty year deficiency sec_6651 a sec_6653 sec_6662 a dollar_figure dollar_figure dollar_figure --- big_number big_number -- --- big_number -- -- dollar_figure docket no ronald t sweet addition_to_tax year deficiency sec_6651 a dollar_figure dollar_figure big_number big_number big_number big_number after concessions by respondent ’ the issues for decision are whether petitioners are entitled to deduct certain schedule c expenses whether petitioners are liable for respondent concedes for the tax_year that petitioners in docket no 4479-o00s have substantiated schedule c profit or loss from business cost_of_goods_sold of dollar_figure and repairs expense deduction of dollar_figure and are not liable for the accuracy-related_penalty under sec_6662 petitioners reported as cost_of_goods_sold for tax years and amounts purportedly paid to various subcontractors or workers for purposes of this opinion continued additions to tax for failure to timely file returns under sec_6651 for tax years to and whether petitioners are liable for an addition_to_tax for negligence under sec_6653 for tax_year adjustments to self-employment_income taxes and the deductions therefor and the earned_income credits are computational and will be resolved by the court’s holding on the issues in these cases some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time the respective petitions were filed petitioners resided in baltimore maryland petitioners ronald and nancy sweet are husband and wife references to petitioner in the singular are to ronald t sweet from through petitioner was a window installation contractor and a tax_return_preparer petitioner installed windows for washington energy corporation washington energy as an independent_contractor upon acceptance of a contract or job from washington energy petitioner would employ other workers if necessary petitioners testified that it was a common practice in the window installation business for a contractor receiving a payment continued we treat these items of cost_of_goods_sold as additional labor expenses infra q4e- in the form of a business check upon the completion of the job to cash such payment and divide the cash among the workers petitioner testified that it would be impossible for him to complete some of the jobs by himself due to the deadlines and the diverse locations of the jobs thereby requiring him to engage the services of other installers petitioner kept several books with information of various payments made to workers however he admitted that upon reviewing the books he could not make sense of them they’re kind of sporadic the books were not brought to trial and are not a part of the record petitioners filed joint federal_income_tax returns for tax years and the joint returns for tax years and were signed by petitioners on date and stamped received by the cincinnati service_center on date the joint_return was timely filed petitioner filed separate federal_income_tax returns for tax years and these returns were signed on date and stamped received by the cincinnati service_center on date respondent disallowed the following schedule c deductions and cost_of_goods_sold dollar_figure schedule c - construction expense - paid to joseph sweeney big_number schedule c - cost_of_goods_sold -- paid to charles hoerl --- - schedule c - cost_of_goods_sold -- paid to charles hoerl dollar_figure and james eckelt dollar_figure big_number schedule c - cost_of_goods_sold -- paid to charles hoerl big_number schedule c - construction expense - paid to subcontractor gary keener big_number schedule c - cost_of_goods_sold -paid to subcontractors the parties stipulated that james eckelt denied receiving dollar_figure from petitioner during joseph sweeney charles hoerl james eckelt and gary keener were not called as witnesses and did not testify at trial respondent disallowed deductions and cost_of_goods_sold in the amounts shown above because petitioner failed to maintain adequate_records to substantiate the claimed amounts deductions are a matter of legislative grace and taxpayers bear the burden of proving the entitlement to any deduction claimed 503_us_79 292_us_435 a taxpayer is required to maintain records sufficient to establish the amount of his or her income and deductions sec_6001 sec_1_6001-1 e income_tax regs sec_162 allows a taxpayer to deduct all ordinary and necessary business_expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business to be necessary an expense must be appropriate and helpful to the taxpayer’s business 290_us_111 to be ordinary the transaction which gives rise to the expense must -- - be of a common or frequent occurrence in the type of business involved 308_us_488 no deduction is allowed for personal living or family_expenses sec_262 generally if a claimed business_expense is deductible but the taxpayer is unable to substantiate it the court is permitted to make as close an approximation as it can bearing heavily against the taxpayer whose inexactitude is of his or her own making 39_f2d_540 2d cir the estimate must have a reasonable evidentiary basis 85_tc_731 the issue is whether petitioners substantiated the amounts purportedly paid to various subcontractors or workers during the years in issue petitioners ask the court to find they incurred ordinary and necessary business_expenses during the years in issue although they admit they do not have the records to substantiate every dollar spent they believe their testimony and other evidence sufficiently establish that labor expenses were incurred during the years in issue we agree with petitioners that it is plausible that petitioners hired workers to assist in the installation process however we have no basis for determining how much was actually paid during the years in issue the cohan_rule allows the court to make as close an approximation as it can - jj - of a claimed business_expense cohan v commissioner supra the rule also allows the court to bear heavily against the taxpayer whose inexactitude is of his or her own making at trial petitioners failed to provide any corroborating evidence besides their self-serving testimony that payments were made the court has discretion to disregard testimony which we find self-serving 99_tc_202 petitioners could not recollect the number of jobs completed in a particular year the person or persons hired for a particular job or how the amount claimed as a deduction or cost_of_goods_sold was calculated petitioners did not call as witnesses any of the purported subcontractors or workers who rendered services for petitioners during the years in issue under vanicek v commissioner supra any estimation of business_expenses incurred by a taxpayer must be based on a reasonable evidentiary basis petitioners failed to establish any reasonable evidentiary basis based upon the above we find that petitioners failed to substantiate and therefore are not entitled to schedule c deductions for labor expenses during the years in issue respondent determined additions to tax as a result of petitioners’ failure to timely file their respective tax returns for tax years to sec_6651 imposes an addition_to_tax for failure to timely file a tax_return the --- - addition_to_tax is equal to percent of the amount of the tax required to be shown on the return if the failure_to_file is not for more than month sec_6651 an additional percent is imposed for each month or fraction thereof in which the failure_to_file continues to a maximum of percent of the tax id the additions are applicable unless petitioners establish that their failure to timely file the returns was due to reasonable_cause and not willful neglect id if petitioners exercised ordinary business care and prudence and were nonetheless unable to file their returns within the date prescribed by law then reasonable_cause exists sec_301 l c proced admin regs willful neglect means a conscious intentional failure or reckless indifference 469_us_241 petitioners’ and federal_income_tax returns were due on date and date respectively petitioners did not file their returns until date after the commencement of the audit petitioner’s separate and federal_income_tax returns were due on date date and date respectively these returns were also not filed until date petitioners offered no explanation for their failure to --- - timely file their respective returns petitioners failed to show that they exercised ordinary care and prudence in these cases accordingly petitioners are liable for the additions to tax under sec_6651 as determined in the notices of deficiency sec_6653 for taxable_year provides that if any portion of an underpayment_of_tax is due to negligence or disregard of rules or regulations an amount equal to percent of the underpayment is added to the tax negligence is defined as the failure to exercise the due care that a reasonable and ordinarily prudent person would employ under the circumstances 85_tc_934 the question is whether a particular taxpayer’s actions in connection with the transactions were reasonable in light of his experience and the nature of the investment or business 60_tc_728 respondent’s determinations are presumed correct and petitioners bear the burden of establishing otherwise welch v helvering u s pincite 58_tc_757 petitioners maintain that they prepared form_1099 for window installation services rendered by joseph sweeney in the record shows that petitioners failed to prepare and file a return we note that sec_7491 is inapplicable in these cases because petitioners’ respective examinations commenced prior to date -- - for tax_year until date the record also shows that respondent did not receive a copy of form_1099 prior to the commencement of petitioners’ respective audits as noted above we found that petitioners did not substantiate the schedule c expenses deducted on their return based on the record we can find no credible basis for the schedule c deductions claimed petitioner was a tax preparer during the years in issue it goes without saying that as a tax preparer petitioner should have understood the substantiation requirements for deductions claimed on their schedule c because petitioners failed to offer any credible explanation for their lack of due care in preparing and filing their return they are liable for an addition_to_tax under sec_6653 a we have considered all arguments by the parties and to the extent not discussed above conclude that they are irrelevant or without merit reviewed and adopted as the report of the small_tax_case division decisions will be entered under rule in docket no 4479-o00s and for respondent in docket no 4480-00s


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 b01 plr-105525-09 date date legend x ------------------------------------------- -------------------------------------- state -------- d1 d2 d3 year1 year2 year3 year4 year5 a n -------------------- ---------------------- ---------------------- ------- ------- ------- ------- ------- --------------- ----------- plr-105525-09 dear -------------- this responds to the letter dated date and subsequent correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts the information submitted states that x was incorporated under the laws of state on d1 x elected to be treated as an s_corporation effective d2 at the beginning of year1 x had dollar_figurea of accumulated_earnings_and_profits due to its prior c_corporation years for each of the consecutive years of year1 year2 and year3 x had passive_investment_income exceeding percent of its yearly gross_receipts therefore x’s s election terminated on d3 in year x discovered the termination of its s election as of d3 and distributed all of its subchapter_c_earnings_and_profits to its shareholders x and its shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1362 provides that an election under sec_1362 shall be terminated whenever the corporation has accumulated_earnings_and_profits at the close of each of consecutive taxable years and has gross_receipts for each of such taxable years more than percent of which are passive_investment_income sec_1362 provides that any termination under sec_1362 shall be effective on and after the first day of the first taxable_year beginning after the third consecutive taxable_year referred to in sec_1362 sec_1362 provides that except as otherwise provided the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1362 provides in part that if an election under sec_1362 by any corporation was terminated under sec_1362 the secretary determines that the circumstances resulting in the termination were inadvertent no later than a reasonable period of time after the discovery of the circumstances resulting in the termination steps were taken so that the corporation for which the termination occurred plr-105525-09 is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder in such corporation at any time during the period of inadvertent termination of the s election agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the termination the corporation is treated as an s_corporation during the period specified by the secretary sec_1375 imposes a tax on the income of an s_corporation that has accumulated_earnings_and_profits at the close of a taxable_year and that has gross_receipts more than percent of which are passive_investment_income within the meaning of sec_1362 conclusion based solely upon the representations made and the information submitted we conclude that x’s s election terminated on d3 because x had subchapter_c_earnings_and_profits at the close of each of the three consecutive years year1 year2 and year3 and had gross_receipts for each of those years of which more than percent was passive_investment_income we further conclude that the termination of x’s s election on d3 was an inadvertent termination within the meaning of sec_1362 pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation on d3 and thereafter unless x’s s election is otherwise terminated under sec_1362 and provided that the following conditions are met as an adjustment under sec_1362 x must send a payment of dollar_figuren with a copy of this letter to the following address internal_revenue_service cincinnati service_center stop manual deposit west rivercenter blvd covington ky x must send this payment no later than days from the date of this letter no amendments shall be made to the year5 income_tax returns of x and its shareholders with respect to the issues addressed in this letter if all of the above conditions are not met then this ruling is null and void furthermore if these conditions are not met x must notify cincinnati service_center that its s election has terminated plr-105525-09 except as expressly provided herein no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the code in particular no opinion is expressed as to whether x is an s_corporation for federal tax purposes 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 pursuant to the power_of_attorney on file with this office a copy of this letter will be sent to x’s authorized representative sincerely david r haglund david r haglund senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number --------------------------- ----------------------------- ----------------------------- -------------------------- ------------------------------------- ------------ ------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------ telephone number -------------------- refer reply to cc intl b02 plr-115135-09 date date legend taxpayer qsub1 qsub2 qsub3 qsub4 qsub5 qsub6 fc1 fc2 fc3 fc4 fc5 fc6 fc7 fc8 fc9 fc10 fc11 fc12 ----------------------------- ---------------------- -------------------------------------- ----------------------- -------------------------------- ----------------------- ----------------------------- ---------------------- ----------------------------- ----------------------- ------------------------ ----------------------- --------------------------- ----------------------- --------------------------------------------- -------------------------------------------- ------------------------------------------- ------------------- ---------------------- -------------------- ------------------------------------------ ----------------------------- --------------------------------------------------------- ----------------------------- ----------------------------------- ---------------------------------- plr-115135-09 fc13 fc14 fc15 fp state v ----------------- ---------------------------- ------------------- ---------------------------- ----------------- country w country x country y country z -------------------------- ---------------- --------- --------------------- b c d e date1 date2 year1 year2 year3 year4 ------- ------ ------- ------- ------------------ ------------------- ------- ------- ------- ------- service provider1 service provider2 accounting firm --------------------------------------------- ----------------------------------------------------- ---------------------------------------- dear ------------------- this is in response to a letter dated date submitted by your authorized representative that requested the consent of the commissioner of the internal_revenue_service commissioner for taxpayer to make a retroactive qualified_electing_fund qef election under sec_1295 of the internal_revenue_code code and sec_1_1295-3 with respect to taxpayer’s investment in fc11 the ruling contained in this letter is based upon information and representations submitted on behalf of taxpayer by its authorized representatives and accompanied by a penalties of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of this request_for_ruling such plr-115135-09 material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts taxpayer is a corporation organized under the laws of state v that is a subchapter_s_corporation within the meaning of code sec_1361 taxpayer owns directly and indirectly six corporations that are each a qualified_subchapter_s_subsidiary within the meaning of code sec_1361 and that are disregarded as separate from taxpayer for u s tax purposes specifically taxpayer wholly owns qsub1 which in turn wholly owns qsub2 qsub2 wholly owns each of qsub3 and qsub4 in turn qsub3 wholly owns qsub5 and qsub4 wholly owns qsub6 during year1 through qsub5 taxpayer acquired a b percent interest in fp a partnership formed under the laws of country w also during year1 fp and other investors including taxpayer through qsub6 formed fc1 a company formed under the laws of country x taxpayer’s total ownership_interest in fc1 taking into account its interest through both fp and qsub6 was approximately c percent fc1 owned d percent of fc2 a company formed under the laws of country x fc2 wholly owned fc3 a company formed under the laws of country x which in turn wholly owned fc4 a company formed under the laws of country y on date1 fc3 fully liquidated into fc2 subsequently fc2 was the sole owner of fc4 fc4 directly and indirectly wholly owned the following subsidiaries i fc5 a company formed under the laws of country y ii fc6 a company formed under the laws of country y iii fc7 a company formed under the laws of country y iv fc8 a company formed under the laws of country y v fc9 a company formed under the laws of country y vi fc10 a company formed under the laws of country y vii fc11 a company formed under the laws of country y viii fc12 a company formed under the laws of country z ix fc13 a company formed under the laws of country y x fc14 a company formed under the laws of country y and xi fc15 a company formed under the laws of country y collectively subsidiaries each of the subsidiaries owned real_property which it leased to unrelated persons and upon which it collected rental income the majority of leases entered into by the subsidiaries were so-called triple-net leases whereby the lessee generally was responsible for the maintenance and operation of the property no subsidiary held any assets other than real_property nor earned any income other than rental income in year1 fc2’s ownership of fc4 was diluted by e percent as part of an initial_public_offering on date2 fp and qsub6 sold the remaining portion of their interests in fc4 and indirectly the subsidiaries to an unrelated party plr-115135-09 in accordance with its partnership_agreement fp was required to provide sufficient detail to its u s investors to enable such investors to prepare their u s tax returns including any information required with respect to a foreign_corporation that was a passive_foreign_investment_company within the meaning of code sec_1297 pfic to do this fp retained service provider1 to provide tax and administrative services including the preparation of u s tax-related documents service provider1 was known to be a leader in providing such services to the private equity industry following the takeover of service provider1 by service provider2 in year2 fp retained service provider2 as a tax and administrative service provider fp retained service provider2 on the basis that service provider2 employed experienced tax specialists who were qualified_tax professionals such qualified_tax professionals were responsible for preparing and distributing information regarding the u s tax consequences of an investment in fp and indirectly in fc1 fc2 fc3 fc4 and the subsidiaries collectively fcs service provider2 prepared k-1 equivalents for fp’s investors for the year1 and year2 tax years during the time that service provider2 prepared fp’s k-1 equivalents service provider2 had access to both income statement and balance_sheet information relating to the fcs however service provider2 failed to identify fc11 as a pfic and failed to advise fp or consequently taxpayer of the pfic status of fc11 and the possibility of making a qef election with respect to fc11 it was not until year4 when fp retained accounting firm to prepare its k-1 equivalents and provide relevant u s tax information to its u s investors with respect to its year3 tax_year that it was discovered that fc11 was a pfic taxpayer has submitted an affidavit under penalties of perjury describing the events that led to the failure to make the qef election with respect to fc11 by the election due_date including the role of service provider2 taxpayer represents that service provider2 prepared and distributed fp’s k-1 equivalents which contained the u s tax consequences of an investment in fp and indirectly fc11 taxpayer also submitted an affidavit from an advisor to fp that was responsible for engaging service provider2 corroborating the representations made by taxpayer taxpayer represents that the pfic status of fc11 has not been raised by the irs on audit for any of the taxable years ruling requested taxpayer requests the consent of the commissioner to make a retroactive qef election with respect to fc11 for year1 under sec_1_1295-3 law plr-115135-09 code sec_1295 provides that a pfic will be treated as a qef with respect to a taxpayer if an election by the taxpayer under code sec_1295 applies to such pfic for the taxable_year and the pfic complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company under code sec_1295 a qef election may be made for any taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations such an election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united state sec_3 government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe the events that led to the failure to make a qef election by the election due_date the discovery of such failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with taxpayer’s ruling_request we conclude that taxpayer has satisfied sec_1_1295-3 accordingly consent is granted to taxpayer to make a retroactive qef election with respect to fc11 for year1 provided that taxpayer complies with the rules under treas plr-115135-09 reg sec_1_1295-3 regarding the time and manner for making the retroactive qef election except as specifically set forth above no opinion is expressed or implied concerning the u s tax consequences of the facts described above under any other provision of the code this private_letter_ruling is directed only to the taxpayer who requested it code sec_6110 provides that it may not be used or cited as precedent a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely jeffery g mitchell special counsel international


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi br 1-plr-130587-00 date date legend x country d1 d2 this letter responds to your firm’s date request for a private_letter_ruling submitted on behalf of x requesting a time extension under sec_301_9100-3 of the procedure and administration regulations facts according to the information submitted x was validly formed under country law on d1 x’s first closing was on d2 further x and x’s owners intended from inception to elect to classify x as a partnership for federal tax purposes effective d2 however form_8832 entity classification election was not timely filed law and analysis sec_301_7701-3 classifies eligible foreign entities for federal tax purposes this section classifies any foreign eligible_entity whose members all have limited_liability as an association unless the entity elects otherwise sec_301_7701-3 allows an entity to elect to change its classification by filing form_8832 entity classification election with the service_center designated on that form sec_301_7701-3 provides that all such elections become effective on the date specified by the entity on form_8832 or on the date filed if no plr-130587-00 effective date is specified the specified effective date must not be earlier than days prior to the filing_date of form_8832 nor later than twelve months after that filing_date sec_301_9100-1 gives the commissioner discretion to grant reasonable extensions of time to make regulatory elections under the rules of sec_301_9100-2 and sec_301_9100-3 under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register or a notice published in the internal_revenue_bulletin sec_301_9100-3 sets forth the standards which the commissioner uses to determine whether to grant a discretionary time extension under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence proving 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 conclusion based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 as a result x is granted an extension of time for making the election to be treated as a partnership for federal tax purposes effective d2 until days following the date of this letter x should make the election by filing form_8832 a copy of this letter should be attached to that form 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 the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer s paul f kugler sincerely paul f kugler associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi 3-plr-130165-00 date date number release date index number legend company a state date dear this letter responds to your letter dated date and subsequent correspondence submitted on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code facts according to the information submitted company was incorporated in state on date the sole shareholder of company is a it is represented that company intended to be an s_corporation effective date the date company first began doing business as an s_corporation a reported income and losses from company on a’s federal_income_tax return for taxable years beginning date subsequently it was discovered that company’s form_2553 election by a small_business_corporation had not been timely filed company requests a ruling that its sec_1362 election will be treated as timely made under sec_1362 effective for its taxable_year beginning date law and analysis sec_1362 generally provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides when an s election will be effective generally if an s election is made within the first two and one half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation beginning the year in which the election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year conclusions after applying the law to the facts submitted and the representations made we conclude that company has established reasonable_cause for not making a timely election and is eligible for relief under sec_1362 this ruling is contingent on company filing form_2553 with an effective date of date with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 filed with the service_center additionally this ruling is conditioned on company filing form_1120s u s income_tax for an s_corporation for taxable years beginning date through the present a copy of this letter should be attached to each return except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether company is an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely mary beth collins assistant to the branch chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


number release date id office uilc cca-710638-08 ---------------- from ----------------------- sent thursday date am to -------------------- cc ---------------------------- subject re need help oh great one ---------- my thoughts since your taxpayer is under dollar_figure million you avoid the sec_448 concerns if it's a c has a c owner etc since your taxpayer is under dollar_figure million it may fit under rp sec_4 of forces you to decide where it gets the most of its gr if it's from construction the naics is likely and the taxpayer can't use the rp if the gr are mostly coming from installation and maintenance the seems to be and the taxpayer fits into the rp based on most of the h ac folks i've come across the dollar_figureis mostly from the duct work what sometimes is interesting is to see what the taxpayer put on its return that doesn't solve the issue as a lot of folks pick the wrong code but it can be entertaining my ego has been stroked for today --------------- ---------------- -------------- ------------------------ --------------------------- ------------------- -----------------


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa cwgorham postn-132553-12 uilc date date to james mccabe indian_tribal_government specialist tax exempt government entities from blaise g dusenberry senior technical reviewer procedure administration subject notice cg and backup withholding for incorrect tins on form w-2g this chief_counsel_advice responds to your requests for assistance dated date and date this advice may not be used or cited as precedent issues when the service notifies a gaming establishment that there is a mismatch in the name and taxpayer_identification_number tin reported on a form w-2g certain gambling winnings that reports a slot machine winning of dollar_figure or more is the gaming establishment subject_to the backup withholding requirements of sec_3406 is the gaming establishment required to provide backup withholding notices upon receipt of a notice cg a penalty is proposed for your 2xxx information returns - action required from the service conclusion sec_1 only if the payee provided the gaming establishment with a tin that does not contain the proper number of digits would the gaming establishment be subject_to postn-132553-12 the backup withholding requirements of sec_3406 when there is a name tin mismatch on a form w-2g reporting slot machine winnings the gaming establishment should not be expected to provide backup withholding notices pursuant to notice cg as it currently reads ------------------------------- ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------- facts your inquiries are not case specific accordingly we present a factual scenario that highlights your question for the taxable_year the taxpayer a gaming establishment prepared and filed numerous forms w-2g pursuant to treas reg the service examined the forms w-2g and determined that a certain number of them contained incorrect tins that were not inconsequential errors in the service issued a notice cg a penalty is proposed for your 2xxx information returns - action required in discussions and correspondence with the service the gaming establishment was asked to provide copies of backup withholding notices prepared and sent to patrons for which there was a name tin mismatch pursuant to regulation sec_31 c d e and f the gaming establishment did not provide copies of the notices and filed a protest law and analysis issue regulation section requires information reporting for payments of slot machine winnings if a gaming establishment pays dollar_figure or more of slot machine winnings to a patron the gaming establishment must follow a specific procedure to issue a form w-2g certain gambling winnings to make an information_return of the reportable winnings specifically when a patron wins dollar_figure or more from slot machine play the gaming establishment must stop play and prepare a form w-2g containing the name address and employer_identification_number of the gaming establishment the name address and tin of the patron a general description of two types of identification eg driver’s license social_security card voter registration card furnished to the gaming establishment by the patron for verification of the patron’s name address and tin the date and amount of the payment and the type of wagering_transaction and identification_number of the slot machine sec_3402 generally requires every person making a payment of gaming winnings to withhold tax on the payment of such winnings at the third lowest rate_of_tax under sec_1 slot machine winnings however are exempted from this regular withholding requirement sec_3402 postn-132553-12 sec_3406 governs backup withholding a payor must deduct and withhold tax on a reportable_payment made to a payee at the time the payor makes a payment to the payee or to the account of the payee if a condition for backup withholding exists sec_3406 sec_31_3406_a_-4 one of the conditions upon which a requirement of backup withholding will be imposed is when the secretary notifies a payor that the tin furnished by a payee is incorrect sec_3406 backup withholding applies to reportable payments of interest or dividends and payments for which returns are required under sec_6041 sec_6041a sec_6045 sec_6050a sec_6050n and sec_6050w sec_3406 if the service notifies a payor of a name tin mismatch and the payor is required to backup withhold the payor must send a copy of the notice or an acceptable substitute to the payee within business days of receiving the notice from the service the payor must also backup withhold on all payments made with respect to the account after the close of the 30th business_day after the date the payor receives the notice and on or before the close of the 30th calendar day after the day the payor receives certification from the payee of the correct tin sec_31_3406_d_-5 e if the service provides an account number in the notice of the name tin mismatch the payor only has to identify the account or accounts associated with that number if no account number is provided on the notice the payor must identify using reasonable care all accounts of the payee having the same name tin combination provided in the notice sec_31_3406_d_-5 to prevent or halt backup withholding the payee can provide a form_w-9 request for taxpayer_identification_number and certification signed under penalties of perjury to the payor sec_31_3406_d_-5 if however the payor receives two name tin mismatch notices for the same account within three calendar years regardless of whether a form_w-9 has been secured the payor must disregard any future form w-9s provided by the payee until the payor receives notification of a correct name tin combination from the social_security administration or the internal_revenue_service the payor must also send notice to the payee within business days after receiving the second notice from the service initiate backup withholding and maintain sufficient records to determine whether the payor has received the name tin mismatch notices sec_31_3406_d_-5 regulations section imposes the information reporting requirement for slot machine winnings of dollar_figure or more sec_3402 exempts slot machine winnings from withholding accordingly slot machine winnings can be subject_to the backup withholding rules under sec_3406 regulation sec_31_3406_g_-2 directs that gaming winnings that are subject_to_withholding under sec_3402 are not subject_to the backup withholding rules of sec_3406 the section further directs that if the reportable gambling winning is not required to be withheld upon under sec_3402 withholding under sec_3406 applies to the gambling winning if and only if the payee does not furnish a taxpayer_identification_number to the payor failure to furnish a tin includes a situation where the payee fails to provide a tin at all postn-132553-12 but also includes a situation where the payee provides a tin that does not contain the proper number of digits sec_3406 accordingly where a name tin mismatch arises for a form w-2g reporting a slot machine winning only if the payee failed to provide a tin with the proper number of digits would the gaming establishment be subject_to backup withholding issue notice cg a penalty is proposed for your 2xxx information returns - action required notifies payors that the service intends to impose a penalty under sec_6721 for failure_to_file certain information returns the notice explains the penalty provides a list of information returns for which there are missing or incorrect tins and directs payors how to respond if they agree partially agree or completely disagree notice cg does not state that the payor is subject_to backup withholding or advise the payor to send backup withholding notices to payees more specifically notice cg refers payors to publication reasonable_cause regulations and requirements which provides information necessary for a payor to avoid penalties for information returns that are filed with incorrect or missing tins describes the actions that payors must take or should have taken to solicit a tin and explains the requirements for reasonable_cause under sec_6724 publication does not direct payors to backup withhold or to send backup withholding notices to payees upon receipt of a notice cg publication only directs payors to backup withhold after receipt of a cp2100 or cp2100a notice of possible payee name tin discrepancy specifically the publication reads a solicitation may be required if a payer receives a backup withholding notice based on an incorrect payee tin cp2100 or cp2100a if such a notice is received the solicitation must be made pursuant to the backup withholding rules see publication backup withholding on missing and incorrect name tins accordingly because slot machine winnings reportable on a form w-2g are largely exempted from backup withholding on a regulatory basis as noted in the discussion of issue above and because neither the notice cg nor the publication referenced therein direct payors to engage in backup withholding it is not reasonable for payors to be expected to engage in backup withholding and to provide copies of backup withholding notices after receipt of a notice cg -------------------------------------------- -------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------ in the event of the inclusion of incorrect information on an information_return such as a name tin mismatch a taxpayer is subject_to a penalty of dollar_figure for each return with a failure sec_6721 the penalty for all failures for a particular calendar_year may not exceed dollar_figure sec_6721 for purposes of sec_6721 a statement of payments made to another person required to be filed under sec_6041 such as a postn-132553-12 form w-2g certain gambling winnings is an information_return see sec_6724 sec_301_6721-1 sec_6724 provides that a penalty under sec_6721 may not be imposed if the failure is due to reasonable_cause and not to willful neglect a filer has reasonable_cause if either there are significant mitigating factors with respect to failure or the failure arose from events beyond the filer’s control and that the filer acted in a responsible manner sec_301_6724-1 significant mitigating factors include but are not limited to the fact that a filer has a history of compliance and whether the filer has incurred penalties in the past sec_301_6724-1 events beyond the filer’s control may include unavailability of relevant business records and a payee providing incorrect information upon which the filer relied in good_faith sec_301_6724-1 acting in a responsible manner generally means that the filer exercised reasonable care and undertook significant steps to avoid or mitigate the failure sec_301_6724-1 where a filer seeks a waiver for reasonable_cause on the basis that the actions of the payee or any other person caused the filer to include incorrect information on an information_return the filer will be deemed to have acted in a responsible manner if the filer makes an initial and annual solicitation upon the payee pursuant to regulation sec_301_6724-1 sec_301 d --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------ to avoid future confusion the service should avoid requesting copies of backup withholding notices upon issuing a notice cg in its current form when a name tin mismatch arises in the context of a form w-2g for reportable slot machine winnings the service should only ask for copies of backup withholding notices in cases where the tin does not contain the proper number of digits and only then after issuing a proper notice ---------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions