t c memo united_states tax_court yolanda welch petitioner v commissioner of internal revenue respondent john welch petitioner v commissioner of internal revenue respondent docket nos filed date beverly l winstead and g emeka obinna onwezi for petitioners erin r hines for respondent memorandum findings_of_fact and opinion thornton chief_judge these cases were consolidated for purposes of trial briefing and opinion pursuant to separate notices of deficiency respondent determined the following deficiencies and penalties under sec_6662 yolanda welch docket no tye dec deficiency dollar_figure big_number john welch docket no tye dec deficiency penalty sec_6662 --- dollar_figure penalty sec_6662 dollar_figure 1dollar_figure 1following trial with leave of the court respondent amended his answer to assert with respect to petitioner john welch’s tax_year an increased deficiency of dollar_figure and an increased sec_6662 penalty of dollar_figure the increases were due to respondent’s reclassifying mr welch’s filing_status from head_of_household to married_filing_separately 1unless otherwise indicated all section references are to the internal_revenue_code code for the years at issue and all rule references are to the tax_court rules_of_practice and procedure all monetary amounts have been rounded to the nearest dollar after a concession by mr welch the issues we will decide are whether petitioner yolanda welch had a sufficient basis in petitioners’ s_corporation respira medical inc respira to be entitled to claim passthrough losses for and whether petitioner john welch had a sufficient basis in respira to be entitled to claim a passthrough loss for whether mr welch was entitled to claim head_of_household status on his federal_income_tax return and whether petitioners are liable for accuracy-related_penalties for findings_of_fact when they filed their petitions petitioners resided in maryland they married on date and resided together at all relevant times mr welch has a b s in business administration ms welch graduated from high school and took some college-level courses but did not complete a degree program in date petitioners started respira an s_corporation that provides respiratory and home healthcare services and durable medical equipment ms welch is respira’s chief_executive_officer and an shareholder mr welch is respira’s president and a shareholder 2mr welch stipulated that for he had dollar_figure of income from a state tax_refund ms welch’s alleged loans to respira ms welch asserts that before and during the years at issue she borrowed from dr steven levenson over dollar_figure and that she lent all these funds to respira all these funds however were either paid directly by dr levenson to respira or else represent amounts that he charged to his credit card as payments of respira’s expenses dr levenson wrote no checks to ms welch nor did he otherwise make any payments to her with regard to the alleged loans ms welch contributed no personal funds to respira respira did not execute a loan agreement or any notes evidencing any loans from ms welch between date and date ms welch signed promissory notes in favor of dr levenson the notes are for varying amounts that total dollar_figure the notes have various maturity dates none more than a year after the date of execution and generally state an interest rate of per annum the notes were secured_by receivables owed to respira ms welch did not offer any personal collateral from date to date respira made some payments directly to dr levenson in satisfaction of some of the promissory notes between ms welch and 3ms welch had a preexisting relationship with dr levenson as they had worked together at a hospital and he had served as her mother’s doctor dr levenson ms welch reported no interest_income or constructive dividends with respect to these payments on date dr levenson filed suit in baltimore county circuit_court against both ms welch and respira he alleged that between and he had lent dollar_figure to ms welch and dollar_figure to respira dr levenson further alleged that as of date he had been repaid dollar_figure of the amount he lent to ms welch and respira but that the payments had stopped as of date by settlement agreement and release dated date ms welch agreed to execute a new note to dr levenson for dollar_figure and respira agreed to execute a note to dr levenson for dollar_figure the record does not indicate conclusively whether these new notes were ever actually executed or whether ms welch made any payments as a result of the lawsuit mr welch’s alleged loans to or on behalf of respira mr welch claims that between and he lent respira dollar_figure by charging some of respira’s expenses on his personal credit cards by transferring funds from his sec_401 account and by writing personal checks directly to respira to respira’s vendors and service providers and to ms welch to provide 4the record does not indicate why the aggregate amounts of these new notes exceeded the aggregate amounts of loans from dr levenson that according to his complaint remained unpaid her with funds to pay respira’s bills while he was traveling reggie palmore who was respira’s chief financial officer from mid-2002 to mid-2005 recorded some payments made by mr welch in respira’s books as shareholder loans mr palmore did not usually ask for an invoice bill receipt or other source documentation to verify the amount or nature of the expenses before he recorded the loans between date and date mr welch received from respira nonpayroll payments totaling dollar_figure of which dollar_figure was paid in respira’s books respira’s trial balance as of date listed a dollar_figure shareholder loan from mr welch and a dollar_figure shareholder loan from ms welch the trial balance listed mr welch’s equity contribution as dollar_figure and ms welch’s equity contribution as dollar_figure 5mr welch claims that between and he charged dollar_figure of respira’s expenses on his personal credit cards he also claims that between and he wrote checks to respira totaling dollar_figure he claims that between date and date he wrote mr palmore checks totaling dollar_figure for accounting and financial services that mr palmore performed for respira mr welch also claims that between and he personally paid some of respira’s vendors by writing them checks on his personal checking account these checks totaled dollar_figure of which dollar_figure were written in respira’s balance_sheet as of date listed liabilities of dollar_figure due to minority shareholder and dollar_figure due to majority shareholder the balance_sheet also listed dollar_figure of common_stock held by the minority shareholder and dollar_figure held by the majority shareholder respira’s recapitulation of payroll register showed gross payroll of dollar_figure for mr welch and dollar_figure for ms welch tax returns on forms 1120s u s income_tax return for an s_corporation respira reported net operating losses of dollar_figure for and dollar_figure for on their separate individual federal_income_tax returns for and petitioners reported their pro_rata shares of these net operating losses more particularly for ms and mr welch claimed passthrough losses from respira of dollar_figure and 6ms welch as an shareholder is respira’s majority shareholder mr welch as a shareholder is respira’s minority shareholder shareholder loans were reported consistently on respira’s trial balance which listed dollar_figure as due to shareholder shareholder loan - john and dollar_figure as due to shareholder shareholder loan - maria 7stock ownership was reported consistently on respira’s trial balance which listed mr welch’s equity contributions as dollar_figure and ms welch’s as dollar_figure 8for respira reported ordinary business income of dollar_figure the record does not include respira’s tax returns for years before dollar_figure respectively for ms and mr welch claimed passthrough losses from respira of dollar_figure and dollar_figure respectively on schedule l balance sheets per books in its forms 1120s for taxable years through respira reported these beginning and ending balances for loans from shareholders year beginning balance ending balance dollar_figure big_number big_number dollar_figure big_number big_number for these same years respira reported these beginning and ending balances for mortgages notes bonds payable in year or more year beginning balance ending balance dollar_figure big_number big_number dollar_figure big_number big_number for each of the taxable years through on schedule l respira reported capital stock in the unchanging amount of dollar_figure 9on her federal_income_tax return ms welch claimed a dollar_figure nonpassive loss from respira and also reported a dollar_figure unallowed passive loss from respira ms welch did not file a tax_return for ms welch filed her and federal_income_tax returns claiming married_filing_separately filing_status mr welch filed his and federal_income_tax returns claiming head_of_household statusdollar_figure someone named monique booker whom petitioners assert is a certified_public_accountant but who is otherwise unidentified in the record signed as the preparer of respira’s and forms 1120s as well as of ms and mr welch’s individual federal_income_tax returns for these yearsdollar_figure notice_of_deficiency by notice_of_deficiency respondent disallowed ms welch’s claimed passthrough losses for and and imposed an accuracy-related_penalty for 10the parties stipulated that mr welch filed a federal_income_tax return for taxable_year as married_filing_separately that stipulation is clearly contrary to the facts that we have found are established by the record and we shall disregard it see 93_tc_181 the record establishes and we have found that mr welch filed his return with head_of_household filing_status 11mr palmore prepared mr and ms welch’s individual federal_income_tax returns for and he also prepared respira’s federal_income_tax returns for and although mr palmore testified that he thought he also prepared petitioners’ and respira’s returns for all the returns were signed by preparer ms booker who also prepared ms welch’s individual federal_income_tax returns for and and mr welch’s individual federal_income_tax returns for and ms booker also prepared respira’s federal_income_tax returns for and by notice_of_deficiency respondent disallowed mr welch’s claimed passthrough loss for and imposed an accuracy-related_penalty for opinion generally the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer has the burden of proving that the determinations are in error rule a 290_us_111 sec_7491 provides that if in any court_proceeding a taxpayer introduces credible_evidence with respect to any factual issue relevant to ascertaining the taxpayer’s proper tax_liability the commissioner shall have the burden_of_proof with respect to that issue credible_evidence is evidence the court would find sufficient upon which to base a decision on the issue in the taxpayer’s favor absent any contrary evidence see 116_tc_438 sec_7491 applies however only if the taxpayer complies with all substantiation and recordkeeping requirements under the code and cooperates with the commissioner’s reasonable requests for witnesses information documents meetings and interviews sec_7491 and b petitioners argue that the burden should shift to respondent because petitioners produced checks deposit slips bank statements and corroborating testimony during trial and cooperated with respondent at every stage of these proceedings including the audit we are not persuaded however that petitioners complied with substantiation and recordkeeping requirements as necessary to shift the burden_of_proof under sec_7491 as discussed in more detail below although petitioners offered some documentary_evidence and testimony it is insufficient to establish their bases in respira and thus their entitlement to losses moreover petitioners did not maintain contemporaneous_records of their bases in respira did not provide complete records to evidence alleged loans from dr levenson and did not provide complete records to substantiate business_expenses mr welch allegedly incurred on respira’s behalf accordingly the burden_of_proof does not shift to respondent under sec_7491 with respect to any factual issue relating to petitioners’ bases in respira i petitioners’ passthrough losses from respira generally an s_corporation shareholder determines his or her tax_liability by taking into account a pro_rata share of the s corporation’s income losses deductions and credits sec_1366 the shareholder may not take into account however s_corporation losses and deductions for any taxable_year in excess of the shareholder’s adjusted_basis in the s_corporation stock and debt sec_1366dollar_figure sec_1367 provides that a shareholder’s basis is increased for items of income passed through to the shareholder under sec_1366 and decreased but not below zero by losses and deductions passed through to the shareholder under sec_1366 a shareholder may increase his or her basis in an s_corporation if he or she makes an economic outlay to or for the benefit of the s_corporation 944_f2d_747 10th cir 875_f2d_420 4th cir aff’g 90_tc_206 an economic outlay for this purpose is an actual contribution of cash or property by the shareholder to the s_corporation or a transaction that leaves the s_corporation indebted to the shareholder sec_1366 estate of leavitt v commissioner f 2d pincite when a shareholder obtains a personal loan and transfers some or all of the loan proceeds to the s_corporation he or she has made an economic outlay and is entitled to increase his or her basis in the s_corporation in an amount equal to the amount transferred to the s_corporation 357_f3d_854 8th cir aff’g tcmemo_2002_172 prashker v commissioner t c 12any disallowed loss or deduction may be carried forward indefinitely and claimed when and to the extent that the shareholder increases his or her basis in the s_corporation see sec_1366 miller v commissioner tcmemo_2006_125 by contrast when an s_corporation shareholder is only indirectly liable for a corporate debt that shareholder has not transferred any cash or property to the s_corporation or created corporate indebtedness owed to him or her until and to the extent the shareholder actually pays the debt 50_tc_762 the key question is whether the corporation is indebted to the shareholder for the shareholder’s own money oren v commissioner f 3d pincite in order to deduct a loss from an s_corporation a taxpayer must establish a basis in the s_corporation and that it has not been reduced to zero because of losses claimed in years predating the year at issue hogan v commissioner tcmemo_1999_365 see arnold v commissioner tcmemo_2003_259 guerrero v commissioner tcmemo_2001_44 e ven assuming that the checks were evidence of direct loans from petitioners there is no evidence that the loans were outstanding on date or that the amounts had not already been used in claiming or flowthrough losses briggs v commissioner tcmemo_2000_380 a taxpayer who fails to prove that he or she has a basis in an s_corporation is considered to have a zero basis in that corporation thomson v commissioner tcmemo_1983_279 aff’d without published opinion 731_f2d_889 11th cir thus petitioners have the burden of proving both that they made economic outlays and that they had sufficient bases in respira as of the close of and to absorb the claimed losses petitioners claim to have made loans to respira that gave rise to bases sufficient to support at least part of their claimed passthrough losses from respira ms welch alleges that she made loans to respira by contributing funds she received as personal loans from dr levenson on brief she claims that as of yearend she had dollar_figure of basis in respira--far more than enough to support the dollar_figure passthrough loss that she claims for and she claims that as of yearend she had a basis of dollar_figure in respira and so should be entitled to that much of the dollar_figure passthrough loss that she claimed on her returndollar_figure similarly mr welch alleges that he made loans to respira by paying some of respira’s expenses with his personal credit card paying vendors and service providers on behalf of respira by personal check writing personal checks to respira to provide cash for the company and writing personal checks to ms welch to allow her to pay some of respira’s expenses he also alleges that he lent respira 13effectively then ms welch concedes that dollar_figure of her claimed passthrough loss is suspended because of insufficient basis funds that he obtained by cashing out his retirement account on brief he asserts that as of yearend he had a basis of dollar_figure in respira and so should be entitled to that amount of the dollar_figure passthrough loss that he claimed on his returndollar_figure even if we were to assume for the sake of argument that petitioners made loans to respira in the amounts claimed--an assumption that respondent vigorously disputes--they have failed to show that as of the relevant dates yearend and for ms welch and yearend for mr welch they had any remaining bases in respira in the first instance it is impossible to reconcile petitioners’ asserted bases as of yearend and with respira’s books and tax returnsdollar_figure 14effectively then mr welch concedes that dollar_figure of his claimed passthrough loss is suspended because of insufficient basis 15for instance respira’s trial balance for yearend consistent with respira’s tax_return shows only a dollar_figure shareholder loan from ms welch and a dollar_figure shareholder loan from mr welch for yearend respira’s trial balance consistent with respira’s tax_return shows a dollar_figure shareholder loan from ms welch and an dollar_figure shareholder loan from mr welch although the small increases in shareholder loans from yearend to yearend might suggest additional loans that might support a small basis for ms welch has not asserted any basis from loans in we deem her to have waived any such argument similarly although respira’s books show that mr welch’s shareholder loan balance increased by dollar_figure in we are unwilling to attach much significance to this consideration in the absence of corroborating evidence continued the wide unexplained gulf between petitioners’ asserted bases and the information found in respira’s books and tax returns casts significant doubt on the reliability of petitioners’ assertions moreover although respira’s books and tax returns might suggest some relatively small amount of shareholder loans outstanding as of yearend and petitioners have not demonstrated whether and to what extent any bases attributable to even these relatively small amounts of outstanding shareholder loans might have been depleted pursuant to sec_1367 by net operating losses that respira might have incurred since its creation in dollar_figure additionally petitioners’ continued as to any such increase particularly considering that during mr welch received dollar_figure in nonpayroll payments from respira and the evidence does not establish that he lent respira any greater amount in respira’s books also show small equity contributions for ms welch dollar_figure for yearend and and mr welch dollar_figure for yearend and petitioners have not asserted however that they have any bases in respira attributable to anything other than loans respira’s tax returns also show significant increasing balances for yearend and for mortgages notes bonds payable in less than year but the evidence does not suggest that these short-term liabilities represent loans to petitioners to the contrary respira’s books suggest that these short-term obligations represent mainly if not entirely amounts that respira owed to third parties for operating_expenses 16this concern gains added significance in the light of the fact that for respira appears to have reported a net_operating_loss of over dollar_figure the record does not establish whether respira had a net operating_profit or loss for years before figures are inconsistent with other evidence leading us to doubt the credibility of their figuresdollar_figure finally petitioners admit that during respira’s early years they did not consistently keep contemporaneous_records of basis for these various reasons petitioners have failed to persuade us that they had any bases in respira as of the relevant yearend dates accordingly we sustain respondent’s disallowance of petitioners’ claimed passthrough losses from respira ii mr welch’s filing_status in his amendment to answer respondent asserted an increased deficiency and accuracy-related_penalty on the ground that mr welch is not entitled to head_of_household filing_status as mr welch claimed on his income_tax return respondent has the burden_of_proof with respect to this increase in deficiency see rule a to qualify as a head_of_household an individual generally must be unmarried at the close of the taxable_year sec_2 under certain circumstances in determining proper filing_status a married taxpayer may be treated as unmarried if he or she lives apart from his or her spouse during the last six months of the taxable 17for instance respira’s tax returns for and report a total net repayment of shareholder loans of dollar_figure however petitioners’ basis figures indicate total repayments of only dollar_figure of shareholder loans from through year provided that certain other requirements are met sec_2 b additionally a taxpayer is not considered married if he or she is legally_separated from his or her spouse pursuant to a decree of divorce or separate_maintenance sec_2 the determination of whether a taxpayer is married is made at the close of the taxable_year sec_7703 the parties stipulated that petitioners married on date and that they were still married as of date mr welch testified that he and ms welch resided together during and petitioners filed separate federal tax returns for taxable_year using the same mailing address and both petitioners received correspondence from respondent at this address on her federal tax_return ms welch indicated that she was married to john welch the preponderance_of_the_evidence convinces us that mr and ms welch were married and resided together throughout accordingly mr welch is not entitled to head_of_household filing_status for and we sustain respondent’s assertion of an increased deficiency in this regard iii accuracy-related_penalties sec_6662 imposes a penalty on any portion of an underpayment that is attributable to among other things negligence or disregard of rules or regulations sec_6662 negligence is the lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the same circumstances 85_tc_934 negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws and also includes any failure by the taxpayers to keep adequate books_and_records or to substantiate items properly sec_1_6662-3 income_tax regs under sec_7491 respondent bears the burden of production with respect to petitioners’ liability for the sec_6662 penalties this means that respondent must come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty see higbee v commissioner t c pincite respondent has met his burden of production with respect to the sec_6662 penalties as he has provided evidence of petitioners’ negligence as discussed below taxpayers are responsible for keeping adequate_records and substantiating items properly benson v commissioner tcmemo_2004_272 sec_1 b income_tax regs petitioners admitted at trial that they did not consistently keep contemporaneous_records to reflect their bases in respira furthermore petitioners failed to produce records or any evidence supporting their position that they had bases sufficient to deduct their claimed losses in respira petitioners were negligent in failing to keep accurate records no penalty shall be imposed under sec_6662 with respect to any portion of an underpayment if it is shown that there was reasonable_cause and that the taxpayer acted in good_faith sec_6664 this determination is made on a case-by-case basis taking into account all facts and circumstances sec_1 b income_tax regs factors considered include the extent of the taxpayer’s efforts to assess his or her proper tax_liability reliance on the advice of a professional and the taxpayer’s education sophistication and business experience sec_1_6664-4 c income_tax regs for a taxpayer’s reliance on the advice of a professional to be reasonable he or she must prove by a preponderance of evidence that the adviser was a competent professional who had sufficient expertise to justify reliance the taxpayer provided the adviser with necessary and accurate information and the taxpayer actually relied in good_faith on the adviser’s judgment 115_tc_43 aff’d 299_f3d_221 3d cir a taxpayer cannot avoid its duty to file accurate returns by shifting responsibility to its bookkeeper or its employee when the taxpayer makes an inadequate effort to see that the books_and_records are being kept correctly tietig v commissioner tcmemo_2001_190 aff’d 57_fedappx_414 11th cir see also 88_tc_654 petitioners contend that they are not liable for the accuracy-related_penalties that respondent has determined for their tax years because they acted in good_faith and reasonably relied on mr palmore and ms booker for their basis calculations mr palmore however did not prepare petitioners’ or respira’s tax returns he left respira in mid-2005 and testified that he has not been in charge of petitioners’ books since then we are not persuaded that petitioners relied upon mr palmore for their basis calculations for and it is not apparent to what extent they relied upon ms booker who signed their returns moreover on this record we are unable to find that ms booker was a competent professional with expertise to justify reliance petitioners did not call ms booker to testify as to her experience or the preparation of the returns see 92_tc_661 drawing negative inference from failure of potential witness to testify nor did petitioners present any other evidence showing ms booker’s experience or qualifications further petitioners failed to establish that they provided all necessary and accurate information with respect to all items reported on their tax returns such that it can be said that the incorrect returns resulted from error on their accountant’s part see eg 68_f3d_868 5th cir aff’g tcmemo_1993_634 70_tc_158 deihl v commissioner tcmemo_2005_287 to the contrary petitioners acknowledged that they did not keep contemporaneous basis records to reflect their investment in respira especially during the company’s early years although we acknowledge that the determination of a taxpayer’s basis in an s corporation’s stock and indebtedness is a fairly complicated subject see hogan v commissioner tcmemo_1999_365 and although petitioners lack expertise in this regard failure to keep required records weighs heavily against a finding of reasonable_cause statutory complexity alone does not make for reasonable_cause see 56_tc_717 ellwest stereo theatres of memphis inc v commissioner tcmemo_1995_610 moreover a portion of the accuracy-related_penalty against mr welch is attributable to his claiming head_of_household filing_status for even though we have found that he and ms welch were married and resided together throughout mr welch has not expressly advanced any reasonable_cause defense with respect to this issue and we are not persuaded that he acted with reasonable_cause or in good_faith in this regard accordingly we sustain respondent’s imposition of accuracy-related_penalties against both petitioners for to reflect the foregoing decisions will be entered for respondent


tcmemo_2012_267 united_states tax_court marla j crites petitioner v commissioner of internal revenue respondent docket no 19156-10l filed date marla j crites pro_se matthew d carlson for respondent memorandum opinion holmes judge the commissioner says marla crites owes a dollar_figure penalty for filing a frivolous amended_return she had filed a perfectly normal tax_return nearly three years before but argues now that she is not a person and that even if she were the commissioner blew through the statute of limitations by not imposing the penalty within three years of the filing of her original return i the returns background on date crites filed a return for her tax_year it showed about dollar_figure in adjusted_gross_income and a tax_liability of less than dollar_figure more than two years later in date crites sent a form 1040x amended u s individual tax_return to the commissioner the commissioner did not process thi sec_1040x as a return his reason is not hard to see in her 1040x crites asked for a refund of all the tax that she had paid on the ground that her income was radically lower than she had originally reported because she wrote i was in the service of a non-federal employer not engaged in a trade_or_business and not an officer of a corporation according to the sec_3401 and sec_3121 then my income consists only of unemployment_compensation and a tax_refund from the previous year this is only a variation of the frivolous wages-aren’t-income argument that tax protesters have made for years crites’s problem is that she was a wage earner and the school systems that employed her had withheld a portion of her wages and paid them over to the irs the employers didn’t support her theory and so crites attached two different forms substitute for form_w-2 to her form 1040x on these forms crites listed the employers’ names and the amounts they had withheld she claimed that her employers would not issue forms correctly listing ‘wages’ as defined by the irc the commissioner determined that crites’s form 1040x failed to divulge information on which the substantial correctness of the self-assessment could be judged and served only to delay or impede the administration of federal tax laws this made crites’s form 1040x frivolous under sec_6702 and he imposed a dollar_figure penalty against her ii the levy crites didn’t pay and the commissioner moved to collect by sending her a final notice that he would seize her property crites asked for a collection_due_process cdp hearing and attached to her request was a reiteration of her view that wages are not taxable she also threw in arguments that she isn’t a person subject_to levy under sec_6331 that her employer-provided forms w-2 weren’t valid that without forms w-2 the commissioner had insufficient information to crites had attached ordinary w-2s to her normal original return they of course showed that she did earn income all section references are to the internal_revenue_code in effect at all relevant times unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure impose tax on her that she didn’t receive a timely notice_of_deficiency that her assessment was not approved by a qualified assessment officer and other tax- protester-type arguments the commissioner told her to file an amended request free of frivolous arguments if she wanted a hearing in her second effort she took care to assure the commissioner that her arguments were not frivolous she claimed that she made no constitutional moral political religious or conscientious arguments and had no desire to delay or impede tax_administration which meant she wrote that her arguments could not be frivolous she also argued that she was entitled to dispute her liability for the frivolous- return penalty the commissioner relied on old information which was superseded by another 1040x filed in date the commissioner’s imposition of the frivolous-return penalty against her failed to provide facts establishing that sec_6702 even applied to her the commissioner relied on irrelevant and invalid information when he concluded that a wage levy could apply to her and the commissioner didn’t send her a valid notice_and_demand for tax crites actually filed four amended returns for the commissioner marked each of them frivolous the notice_of_determination in this case arises only from the penalty that the commissioner assessed for the first of these returns the commissioner sustained the levy he denied any relief to crites because she failed to propose any collection alternatives and had raised no nonfrivolous issues he confirmed that the requirements of any applicable law or administrative procedure had been met by the irs and he told crites that she might face fines of up to dollar_figure in the future for taking frivolous positions crites filed a timely petition with this court while a california resident the parties submitted the case for decision under rule discussion crites is correct that the commissioner can’t collect the penalty by levy without giving her written notice of his intent to do so and offering her a hearing at the hearing the appeals officer must address any relevant issues that she raises see sec_6330 he must also obtain verification from the secretary that the requirements of any applicable law or administrative procedure have been met see sec_6330 i issues raised by the taxpayer sec_6330 tells appeals officers to consider issues raised by the taxpayer the primary issue that crites raises under this subsection is whether she is actually liable for the frivolous-return penalty that the commissioner imposed on her--which she can raise because she has not otherwise had a chance to dispute the penalty see sec_6330 130_tc_44 when the validity of the underlying tax_liability is at issue in a cdp hearing we review it de novo 114_tc_604 this means we are not limited to looking at the administrative record or reviewing only the appeals officer’s justifications for the penalty we instead look to the record we have before us 314_f3d_1229 10th cir a what’s a return under sec_6702 it used to be the district courts’ job to review challenges to sec_6702 penalties callahan t c pincite that changed when the pension_protection_act of pub_l_no sec_855 sec_120 stat pincite amended sec_6330 to give our court jurisdiction to review all cdp determinations regardless of the type of underlying tax_liability at issue sec_6330 callahan t c pincite but precedents under the old allocation of jurisdiction are still relevant those precedents are helpful here construing her arguments as charitably as possible it seems crites’s first argument is that her frivolous amended_return crites initially reserved evidentiary objections to certain exhibits she abandoned these by failing to address them in her opening brief see 91_tc_524 wasn’t a return sec_6702 a --the section that the commissioner relies on to penalize crites--punishes only taxpayers who file what purports to be a return crites is wrong if she thinks her amended_return wasn’t a return under this section she was using it to try to get a refund and a taxpayer can file a refund claim only by sending an amended income_tax return to the irs sec_601_105 statement of procedural rules we have already held that amended returns submitted to obtain a refund are returns under sec_6702 callahan v commissioner t c pincite and so have the circuit courts that have ruled on the issue before we got jurisdiction over cases like this see 902_f2d_1462 9th cir 797_f2d_268 6th cir b the definition of person crites next argues that even if her amended_return counts as a return under sec_6702 that section’s penalties do not apply to her because she does not fall within its definition of a person on this point she falls into the old tax-protester habit of confusing includes and means the code’s definition of a person subject_to sec_6702 penalties includes an officer_or_employee of a corporation or a member or employee of a partnership sec_6671 emphasis added and the commissioner and crites agree that she is not an officer_or_employee of either a corporation or a partnership but caselaw has firmly established that sec_6671’s definition of person includes officers and employees but certainly does not exclude all others 309_f2d_210 9th cir ii issues reviewable under sec_6330 we normally don’t address issues that a taxpayer didn’t raise at the cdp hearing sec_301_6330-1 q a-f3 proced admin regs but there is an exception for the issues that the code lists in sec_6330 sec_6330 imposes a duty on appeals officers to verify that the irs has met the requirements of all applicable laws and administrative procedures at every hearing in 131_tc_197 we held that issues that an appeals officer has to consider under sec_6330 are the issues raised at the hearing even if it’s the code and not the taxpayer that raises them these are therefore issues that we have authority to review on appeal the code itself defines person as including an individual a_trust estate partnership_association company or corporation sec_7701 the code also explains that the term includes shall not be deemed to exclude other things otherwise within the meaning of the term defined sec_7701 emphasis added we review the appeals officer’s determination on these c issues for abuse_of_discretion sego t c pincite a administrative irregularities the first c issue that crites raises is whether the irs complied with applicable administrative procedures in assessing the penalty she argues that the computer transcripts that the appeals officer used did not prove that the irs ever actually assessed the penalty this won’t work we have consistently held that such transcripts are sufficient unless a taxpayer can show some irregularity serious enough to undermine their validity 118_tc_162 115_tc_35 crites thinks she has found two she first claims that it is a violation of irs internal procedure to use transaction code instead of penalty reference number prn to show the assessment of a civil penalty on the transcripts the a decisionmaker abuses his discretion according to the ninth circuit when he makes an error of law or rests his determination on a clearly erroneous finding of fact or ‘applies the correct law to facts which are not clearly erroneous but rules in an irrational manner ’ 249_f3d_1121 9th cir quoting 85_f3d_1400 9th cir overruled on other grounds 131_f3d_788 9th cir en_banc see also 496_us_384 internal_revenue_manual irm does state that penalties are assessed using prn irm pt date but even if a miscoding somehow invalidated an assessment crites’s argument would still fail transaction code is listed as a miscellaneous penalty in the irs transaction codes pocket guide transaction codes pocket guide document pincite rev but the commissioner used code in conjunction with prn and used the right code to identify the penalty on an assessment and abatement form no error--and certainly no abuse of discretion--here crites next claims that the agents who made the assessment were not assessment officers and were therefore not authorized to make assessments this argument is also meritless delegation_order gives a campus director the authority to appoint assessment officers--who may further delegate the authority to make assessments irm pt date crites offered no evidence other than their job titles8 suggesting that the agents who worked on her account did not have the authority to make an assessment this meant that there crites argues that there is yet another irregularity because this reference to prn reads dated instead of 1040x dated her argument is frivolous there is no mistaking that this is a reference to the amended_return the agents who worked on crites’s account had the titles correspondence examination technician and supervisor tax examining assistant were no irregularities in the computer transcripts and we thus find that the appeals officer properly verified the irs’s assessment of the frivolous-return penalty against crites b statute_of_limitations the second c issue here is whether the appeals officer verified that the irs assessed the penalty against crites within the statute_of_limitations this is a c issue because it is a legal requirement that an appeals officer must consider at a cdp hearing beeler v commissioner tcmemo_2009_266 wl at vacated and remanded on other grounds 434_fedappx_41 2d cir see also hoyle t c pincite irs timely mailing of a notice_of_deficiency is a legal requirement under subsection c sec_6501 does place limits on assessments with certain limited exceptions not relevant here the commissioner must assess a tax_liability within three years after a return is filed sec_6501 crites argues that because penalties are generally included within the definition of tax see sec_6665 sec_6501 prevents the commissioner from assessing a penalty against her under sec_6702 more than three years from the time she filed her original return we disagree as the commissioner observes penalties under sec_6702 do not have a readily observable statute_of_limitations the section penalizes not just frivolous returns --and even here congress was careful to penalize not just returns but what purports to be a return --but frivolous submissions it would be odd if penalties keyed to submissions had somehow to be tied to the limitations_period for tax that is supposed to be shown on a return but let us assume--and here we are expressly assuming without deciding--that crites is right that the filing_date of her return is the key date she had two returns and the one that the commissioner wants to punish her for is the amended_return that she sent the irs in date he assessed the penalty in date well within three years of her submitting it crites of course would prefer that we hold that the clock for penalizing her under sec_6702 began to run when she filed her original return but she cites no authority for her implicit proposition that a statute_of_limitations can start running before a cause of action accrues or in a case like hers before a taxpayer even files a sanctionable submission quite apart from crites’s subtle attempt to shift our focus from submission to return her construction of sec_6702 would be exceptionally unreasonable sec_6702’s purpose--evident from its text--is to deter frivolous submissions that gum up the irs’s work if we held that the statute_of_limitations for the commissioner to penalize frivolous amended returns began to run with the filing of the original return sec_6702 would quickly lose its deterrent effect tax protesters would have no disincentive to submit such frivolities once more than three years had passed from the filing_date of an original return we therefore hold that the appeals officer committed no error in concluding that the requirements of all applicable law and administrative procedure were met that leaves only the commissioner’s suggestion that we impose an additional penalty on crites under sec_6673 for even bringing this case but this is crites’s first trip to tax_court and by submitting the case under rule she did save us the burden of trial and one of her arguments the statute-of-limitations issue as applied to frivolous amended returns was one we had not yet addressed and was not itself obviously frivolous we will therefore exercise our discretion not to sanction her under sec_6673 this time an appropriate order and decision will be entered


t c memo united_states tax_court jose gracia and nancy gracia petitioners v commissioner of internal revenue respondent docket no filed date robert b scarlett for petitioners bradley c plovan for respondent memorandum opinion thornton judge petitioner husband petitioner was a general_partner in a partnership petitioner personally guaranteed certain of the partnership’s debts after the partnership filed for bankruptcy under chapter the bankruptcy court discharged petitioner’s personal liability with respect to the partnership’s debts and petitioner’s personal guaranty thereof the issue for decision is whether the resulting discharge_of_indebtedness income is excludable from gross_income pursuant to sec_108 we hold that it is background the parties submitted this case fully stipulated pursuant to rule the stipulations of the parties with accompanying exhibits are incorporated herein by this reference when petitioners filed their petition they resided in bel air maryland the partnership’s debts at all relevant times petitioner was a general_partner in notchcliff associates the partnership a maryland general_partnership that was engaged in the business of developing a continuing care facility on date the partnership borrowed dollar_figure million from the commercial bank the bank for use in its business on that same date petitioner and other general partners of the partnership executed a personal guaranty agreement whereby they jointly and severally guaranteed this loan on date the unless otherwise indicated section references are to the internal_revenue_code for the taxable_year at issue and rule references are to the tax_court rules_of_practice and procedure essentially identical issues are presented in three other cases also decided today ralph j and joan b mirarchi docket no chester l price docket no and jose martinez deceased docket no partnership borrowed an additional dollar_figure from the bank the partnership’s bankruptcy case on date the partnership initiated a bankruptcy case by filing a voluntary chapter bankruptcy petition in the u s bankruptcy court for the district of maryland the bankruptcy court on date the bankruptcy court appointed a chapter trustee the trustee to administer the partnership’s assets and to develop an orderly liquidation and sale of the assets petitioner’s contribution agreement the trustee negotiated with the partnership’s general partners including petitioner to obtain some contribution from them to pay the partnership’s debts the trustee filed a reorganization plan which among other things proposed a means whereby general partners of the partnership could contribute to a partnership release fund as a means of resolving the partnership’s claims and other creditors’ claims against its general partners on date the bankruptcy court confirmed the plan thereafter the trustee reached a negotiated settlement with some of the general partners including petitioner whereby in exchange for paying agreed-upon sums to the partnership’s bankruptcy_estate the contributing partners would be discharged from liability as permitted by the confirmed bankruptcy plan on the date personal guaranty agreement also applied to this loan date petitioner executed a contribution agreement and pursuant to its terms contributed dollar_figure to the partnership’s bankruptcy_estate in exchange for release of all claims or potential claims of creditors against petitioner arising out of or related to the partnership on date the bankruptcy court entered an order approving the contribution agreement in its order the bankruptcy court specifically discharged and released petitioner from any and all liability to the trustee and the bank arising out of or relating to the partnership petitioner’s status as a general_partner in the partnership and the date personal guaranty agreement in addition the bankruptcy court’s order released petitioner from the claims or potential claims of all creditors of the partnership the bankruptcy court further ordered that petitioner is subject_to the jurisdiction of the bankruptcy court tax reporting for the tax_year the partnership issued petitioner a schedule_k-1 partner’s share of income credits deductions etc allocating to him dollar_figure of discharge_of_indebtedness income petitioners excluded this entire amount from their gross_income as reported on their joint federal_income_tax return notice_of_deficiency by notice_of_deficiency respondent determined that the dollar_figure of discharged debt should be included in petitioners’ income discussion generally discharge_of_indebtedness gives rise to gross_income to the obligor sec_61 see 531_us_206 sec_108 provides certain exceptions to this general_rule pursuant to one of these exceptions income_from_discharge_of_indebtedness is excluded from gross_income if the discharge occurs in a title_11_case sec_108 this provision is applied at the partner level sec_108 consequently the relevant question is whether petitioner’s debt as opposed to the partnership’s debt was discharged in a title_11_case for purposes of sec_108 a title_11_case is defined as a case under title of the united_states_code relating to bankruptcy but only if the taxpayer is under the jurisdiction of the court in such case and the discharge_of_indebtedness is granted by the court or is pursuant to a plan approved by the court sec_108 the partnership’s chapter bankruptcy was a case under title of the united_states_code see u s c ch pursuant to its date order the bankruptcy court discharged and released petitioner from all liability to the trustee the bank and all other creditors that might have claims arising from or relating to the partnership petitioner’s status as a general_partner in the partnership and the date personal guaranty agreement in the same order the bankruptcy court explicitly asserted its jurisdiction over petitioner for this purpose giving due regard to principles of judicial comity we discern no reason to second-guess the bankruptcy court’s assertion of jurisdiction over petitioner in the partnership’s chapter bankruptcy case see u s c sec_151 we conclude that petitioner’s debts in question were discharged in a title_11_case within the meaning of sec_108 accordingly we hold that petitioner’s discharge_of_indebtedness income is excludable from gross_income pursuant to sec_108 we have considered all arguments raised by the parties arguments not addressed herein are moot irrelevant or without merit to reflect the foregoing decision will be entered for petitioners


internal_revenue_service department of the treasury washington dc number release date index numbers person to contact telephone number refer reply to cc corp - plr-114699-01 date date legend purchaser target sellers date a date b sellers’ cpa company official this letter responds to a letter dated date submitted on behalf of purchaser and sellers by their authorized representative requesting an extension of plr-114699-01 time under sec_301_9100-1 through of the procedure and administration regulations to file an election purchaser and sellers are requesting an extension to file a sec_338 election under sec_338 and sec_338 of the internal_revenue_code and sec_1_338_h_10_-1 of the income_tax regulations with respect to purchaser’s acquisition of the stock of target sometimes hereinafter referred to as the election on date a all citations in this letter to regulations under sec_338 are to regulations in effect on date a the material information is summarized below purchaser is the common parent of an affiliated_group_of_corporations filing a consolidated federal_income_tax return target is an s_corporation on date a purchaser acquired all of the stock of target from its shareholders sellers it is represented that purchaser’s acquisition of the stock of target qualified as a qualified_stock_purchase as defined in sec_338 as part of the acquisition and pursuant to the agreement signed on date a the parties authorized an election under sec_338 with respect to the transaction and all tax returns were timely filed as if the election had been made purchaser and sellers intended to file the election the election was due on date b but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for purchaser’s target’s or each seller’s taxable years in which the acquisition occurred the taxable years in which the election should have been filed or any taxable years that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase sec_338 permits the purchasing and selling corporations to elect jointly to treat the target_corporation as deemed to sell all of its assets and distribute the proceeds in complete_liquidation a sec_338 election may be made for target only if it is a member of a selling_consolidated_group a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a plr-114699-01 regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_338_h_10_-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for purchaser and sellers to file the election provided purchaser and sellers show they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser sellers sellers’ cpa and company official explain the circumstances that resulted in the failure to timely file a valid election the information establishes that the request for relief was initiated before the failure to make the election was discovered by the internal_revenue_service that the taxpayers relied on a qualified_tax professional and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that purchaser and sellers have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date_of_issuance of this letter for purchaser and sellers to file the election with respect to the acquisition of the stock of target as described above the above extension of time is conditioned on the filing within days of the issuance of this letter of all returns and amended returns if any necessary to report the transaction in accordance with the election and the taxpayers' purchaser's consolidated group’s each seller’s and target’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 purchaser and sellers must file the election in accordance with sec_1_338_h_10_-1 that is a new election on form_8023 must be executed on or after the date of this letter which grants an extension and filed in accordance with the plr-114699-01 instructions to the form a copy of this letter must be attached to the election form purchaser and sellers having filed their returns reporting the transaction as a sec_338 transaction for the taxable_year in which the transaction was consummated must amend their returns by attaching to the returns a copy of this letter and a copy of the election we express no opinion as to whether the acquisition sale of the target stock qualifies as a qualified_stock_purchase under sec_338 whether the acquisition sale of target stock qualifies for sec_338 treatment or any other tax consequences arising from the election in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply purchaser must provide sellers with a copy of this letter this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent cc sincerely yours associate chief_counsel corporate by ken cohen senior technician reviewer branch


internal_revenue_service number release date index number --------------------------------------------- ----------------------------- -------------------------- --------------------------- ------------------------------------ ------------------------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-142730-05 date february legend legend decedent spouse marital trust education trust attorney date university state state statute dear --------------- -------------------------------------------- -------------------------------------------- ------------------------------------------------------------- ----------------------------- --------------------- -------------------------- -------------------------------------------------------- ----------- ---------------------------------------------- this is in response to the date letter and subsequent correspondence requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to sever a_trust into an exempt and nonexempt trust under sec_26_2654-1 of the generation-skipping_transfer gst tax regulations to make a reverse qualified_terminable_interest_property qtip_election under sec_2652 of the internal_revenue_code with respect to the exempt trust and to allocate decedent’s available gst_exemption to the exempt trust the facts and representations submitted are summarized as follows decedent died testate on date survived by spouse under article iii of decedent’s will following certain specific bequests the remainder of decedent’s estate was to be held in trusts including marital trust plr-142730-05 marital trust provides that the trustees are required to pay the net_income of marital trust to spouse in convenient installments not less frequently than quarterly section dollar_figure provides that the trustees other than spouse may encroach upon the principal of marital trust for spouse’s proper support maintenance comfort and welfare or to provide against any emergency affecting spouse whether occasioned by accident sickness or otherwise upon spouse’s death the trustees are to make a series of cash gifts to certain named individuals and charities the remaining assets will be divided into two shares one to benefit university and an education trust to benefit spouse’s great nieces and great nephews decedent’s attorney attorney prepared the united state estate and generation-skipping_transfer_tax return form_706 and filed it within the time prescribed by law on schedule m bequests etc to surviving_spouse a qtip_election under sec_2056 was made with respect to marital trust attorney did not advise decedent’s estate to sever marital trust into an exempt trust and nonexempt trust to make the reverse_qtip_election or to allocate decedent’s gst_exemption to marital trust the errors were discovered by attorney’s partner upon review of spouse’s estate plan the trustees of marital trust propose to divide marital trust into two separate trusts the gst exempt marital trust and the gst nonexempt marital trust the gst exempt marital trust will receive a fraction of the assets owned by the marital trust the numerator of which is equal to the decedent’s unused gst_exemption and the denominator of which is equal to the value of the assets of the marital trust the gst nonexempt marital trust will continue to own the balance of the assets not transferred to the gst exempt marital trust the terms of the gst exempt marital and gst nonexempt marital trusts will provide in the aggregate for the same succession of interests and beneficiaries as are provided in marital trust state statute provides that after notice to the qualified beneficiaries a trustee may divide a_trust into two or more separate trusts if the result does not impair rights of any beneficiary or adversely affect achievement of the purposes of the trust the terms of each net trust created by a division under this section do not have to be identical if the interest of each beneficiary is substantially the same under the terms of the trust prior to its division and the combined terms of all trusts after the division you have requested an extension of time under sec_301_9100-1 and sec_301_9100-3 to sever marital trust under sec_26_2654-1 into a gst exempt marital trust and a gst nonexempt marital trust to make a reverse_qtip_election under sec_2652 with respect to the gst exempt marital trust and to allocate decedent’s gst available exemption to the gst exempt marital trust sec_2632 provides that any allocation by an individual of his gst sec_26_2632-1 provides in part that an allocation of a decedent's plr-142730-05 sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 provides that the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the gst tax every individual shall be allowed a gst_exemption which may be allocated by the individual or his executor to any property with respect to which the individual is the transferor sec_2631 provides that any allocation once made shall be irrevocable exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed unused gst_exemption by the executor of the decedent's_estate is made on the appropriate united_states estate and generation-skipping_transfer_tax return form_706 or form 706na filed on or before the date prescribed for filing the return by sec_6075 including any extensions actually granted the due_date an allocation of gst_exemption to a_trust whether or not funded at the time the form_706 or form 706na is filed is effective if the notice of allocation clearly identifies the trust and the amount of the decedent's gst_exemption allocated to the trust transferor means -- a in the case of any property subject_to the tax imposed by chapter the decedent an individual shall be treated as transferring any property with respect to which such individual is the transferor respect to which a deduction is allowed to the decedent under sec_2056 by reason of subsection b thereof the estate of the decedent or the donor spouse as the case may be may elect to treat all of the property in such trust for purposes of this chapter as if the election to be treated as qualified_terminable_interest_property had not been made reverse qtip return on which the qtip_election is made included in the transferor's gross_estate or created under the transferor's will into two or more trusts is recognized for purposes of chapter if the governing instrument does not require or otherwise direct severance but the trust is severed pursuant to discretionary authority granted either under the governing instrument or under local law and a the terms of the new trust provide in the aggregate for the same succession of sec_2652 provides in part that in the case of -- a any trust with sec_26_2652-2 provides that an election under sec_2652 is made on the sec_2652 provides in part that for purposes of chapter the term sec_26_2654-1 provides in part that the severance of a_trust that is under sec_301_9100-1 the commissioner may grant a reasonable extension of plr-142730-05 interests and beneficiaries as are provided in the original trust b the severance occurs or a reformation proceeding if required is commenced prior to the date prescribed for filing the federal estate_tax_return including extensions actually granted for the estate of the transferor and c the new trusts are severed on a fractional basis if severed on a fractional basis the separate trusts need not be funded with a pro_rata portion of each asset held by the undivided trust the trusts may be funded on a non pro_rata basis provided funding is based on either the fair_market_value on the date of funding or in a manner that fairly reflects the net appreciation or depreciation in the value of the assets measured from the valuation_date to the date of funding 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 months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-3 provides in part that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 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 b i through iii a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides in part that the commissioner will grant a reasonable extension of time to make a regulatory election only when the interests of the government will not be prejudiced by the granting of relief as a result of the qtip_election made on the form_706 spouse is considered the transferor of the property for gst tax purposes therefore decedent's remaining gst_exemption may not be allocated to marital trust however if marital trust is severed into two portions and a reverse_qtip_election under sec_2652 is made with respect to the gst exempt marital trust decedent will be treated as the transferor of the gst exempt marital trust assets based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly an extension of time of days from the date of this letter is granted to sever marital trust into a gst exempt marital trust and a gst nonexempt marital trust to file a supplemental form_706 making the reverse_qtip_election with respect to the gst exempt marital trust sec_301_9100-3 provides in part except as provided in sec_301 plr-142730-05 and to allocate decedent’s available gst_exemption to the gst exempt marital trust the supplemental form_706 should be filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the form a copy is enclosed for this 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 taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely heather c maloy associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter 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 psi b01 plr-118247-07 date date ---------------- legend x ------------------------------------------- country d1 dear ------------ ------------ ------------------------- this letter responds to the letter dated date submitted on behalf of x requesting a ruling that x be granted an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a partnership for federal tax purposes facts according to the information submitted x was formed on d1 under the laws of country x intended to elect to be treated as a partnership for federal tax purposes effective d1 however x inadvertently failed to timely file the proper election law and analysis sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with at least two members may elect to be treated as a partnership pursuant to the rules under ' c sec_301_7701-3 provides that an entity classification election must be filed on form_8832 plr-118247-07 and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under ' c the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term aregulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 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 requests for relief under ' will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a conclusion based solely on the facts submitted and the representations made we conclude that the requirements of ' have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a partnership for federal tax purposes effective d1 x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form except as specifically provided herein no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code the code provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer requesting it sec_6110 of pursuant to the power_of_attorney on file with this office a copy of the letter is plr-118247-07 being sent to your authorized representative enclosures copy of this letter copy for sec_6110 purposes sincerely william p o’shea associate chief_counsel passthroughs and special industries


t c summary opinion united_states tax_court law offices of robert a cushman llc petitioner v commissioner of internal revenue respondent docket no 17309-12s l filed date robert a cushman a member for petitioner william c bogardus for respondent summary opinion panuthos chief special_trial_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 this case is before the court on petitioner’s request for review of respondent’s determination sustaining the filing of a notice_of_federal_tax_lien nftl with respect to unpaid employment_tax liability for the period ending date the sole issue for decision is whether respondent abused his discretion in sustaining the nftl for the period ending date and not granting petitioner’s request for additional time for a face-to-face meeting with respondent’s settlement officer so background some of the facts have been stipulated and we incorporate the stipulation and the accompanying exhibits by this reference at the time the petition was filed petitioner’s principal_place_of_business was in connecticut unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended all rule references are to the tax_court rules_of_practice and procedure petitioner was represented by robert a cushman mr cushman signed the petition as a member of the l l c on date respondent mailed to petitioner an nftl for unpaid employment_taxes for the tax period ending date the nftl showed a tax_liability of dollar_figure for that tax period which is the same liability the court sustained in law offices of robert a cushman llc v commissioner t c summary opinion filed date there the court concluded that respondent properly assessed petitioner’s employment_tax liability for the period ending date did not abuse his discretion in conducting petitioner’s cdp hearing through correspondence and telephone calls and did not abuse his discretion in denying petitioner’s request for an installment_agreement petitioner timely submitted a form request for a collection_due_process or equivalent_hearing on the form petitioner checked the box stating i cannot pay balance and requested that respondent withdraw the nftl petitioner also asserted that the deposit penalty law had changed and that there would have been no penalty under the current law that some balances had been paid off but not properly allocated and that a form in law offices of robert a cushman llc v commissioner t c summary opinion petitioner requested judicial review of respondent’s determination sustaining a levy with respect to the tax period ending date the same period at issue in this case b collection information statement for businesses dated date was never considered settlement officer michael j matuszczak so matuszczak sent a letter to petitioner on date acknowledging receipt of petitioner’s form so matuszczak sent another letter to petitioner on date scheduling a telephone collection_due_process cdp hearing for date and informing petitioner that any request to reschedule the cdp hearing had to be made by date the date letter advised that petitioner had had a prior opportunity to dispute the underlying liability and that petitioner therefore would not be able to dispute the underlying liability at this cdp hearing the letter also stated that petitioner had to submit a completed form 433-b and must have timely paid in full any required federal tax deposits for so matuszczak to consider collection alternatives the letter further stated that petitioner had to submit a completed and signed form application_for withdrawal of filed form y notice_of_federal_tax_lien if petitioner wanted respondent to consider withdrawal of the nftl on date mr cushman as an individual mailed to respondent a completed form on the form mr cushman stated that a cdp hearing was pending and that he was unable to obtain credit with the lien affecting his credit score at some point after receiving the date letter scheduling the telephone cdp hearing petitioner contacted so matuszczak to request a face-to- face hearing the face-to-face hearing was scheduled for date on date petitioner’s office sent a fax to so matuszczak requesting to reschedule the date cdp hearing to june june or june because of mr cushman’s schedule mr cushman did not appear at or call so matuszczak for the cdp hearing scheduled for date and aside from the form mr cushman submitted as an individual petitioner did not submit any of the information requested in the date letter on date respondent mailed petitioner a notice_of_determination concerning collection action s under sec_6320 and or sustaining the nftl the notice_of_determination stated that petitioner only requested withdrawal of the nftl and did not request any collection alternative or submit financial information requested for consideration of collection alternatives petitioner filed the petition asserting among other things that a cdp hearing was not held even though petitioner had provided several potential dates for a hearing and that the form 433-b dated date was never considered petitioner’s only argument at trial was that it did not have a cdp hearing because the so failed to grant the requested extension for a hearing date petitioner asserted that it is seeking just a face-to-face hearing and that if the court were to remand the case to respondent’s appeals_office petitioner would propose that respondent withdraw the nftl as requested and discuss collection alternatives general cdp requirements discussion if a taxpayer fails to pay any federal_income_tax liability after notice_and_demand a lien in favor of the united_states is imposed on all the property of the delinquent taxpayer sec_6321 sec_6320 provides that within five business days after filing a notice of tax_lien the irs must provide written notice of that filing to the taxpayer after receiving such notice the taxpayer may request an administrative hearing before the appeals_office sec_6320 a cdp hearing concerning a lien under sec_6320 is to be conducted in accordance with the relevant provisions of sec_6330 sec_6320 we have jurisdiction under sec_6330 to review the commissioner’s determination that the nftl was proper and that the commissioner may proceed to collect by it in reviewing the commissioner’s decision to sustain collection actions where the validity of the underlying tax_liability is properly at issue the court reviews the commissioner’s determination of the underlying tax_liability de novo 114_tc_604 114_tc_176 the court reviews any other administrative determination regarding proposed collection actions for abuse_of_discretion sego v commissioner t c pincite goza v commissioner t c pincite an abuse_of_discretion occurs when the exercise of discretion is without sound basis in fact or law 125_tc_301 aff’d 469_f3d_27 1st cir the pension_protection_act of pub_l_no sec_855 sec_120 stat pincite amended sec_6330 and granted this court jurisdiction over all sec_6330 determinations made after date 129_tc_58 n petitioner does not dispute the validity of the underlying tax_liability in this proceeding in any event petitioner previously had an opportunity to dispute this liability in a cdp hearing with respect to a levy for the same tax period see law offices of robert a cushman llc v commissioner t c summary opinion see also sec_6330 at the collection hearing a taxpayer may raise any relevant issues relating to the unpaid tax or proposed levy including spousal defenses challenges to the appropriateness of the collection actions and offers of collection alternatives sec_6330 in addition he may challenge the existence or amount of the underlying tax_liability but only if he did not receive a notice_of_deficiency or otherwise have an opportunity to dispute such liability sec_6330 the appeals officer must verify that the requirements of applicable law and administrative procedure have been met consider the issues properly raised by the taxpayer and consider whether the proposed collection action balances the need for the efficient collection_of_taxes with the taxpayer’s legitimate concern that any collection action be no more intrusive than necessary sec_6330 c petitioner asserts that respondent abused his discretion in sustaining the nftl because respondent refused to reschedule petitioner’s face-to-face cdp hearing denial of face-to-face hearing petitioner argues that it did not receive a cdp hearing and that its form 433-b was not considered although a cdp hearing may consist of a face-to-face conference a proper hearing may also occur by telephone or by correspondence under certain circumstances barry v commissioner tcmemo_2011_127 wl at citing 115_tc_329 requests for a face-to-face cdp hearing in order to discuss a collection alternative will not be granted unless other taxpayers would be eligible for the alternative in similar circumstances sec_301_6320-1 q a-d8 proced admin regs to be eligible for a collection alternative the taxpayer must provide required returns make required deposits of tax and provide requested financial information including form 433-b to the appeals_office id see also rivas v commissioner tcmemo_2012_20 wl at williams v commissioner tcmemo_2008_173 wl at on its form petitioner requested withdrawal of the nftl and did not request collection alternatives so matuszczak requested petitioner to submit a form 433-b and supporting documentation within days of his date letter if petitioner wished to discuss collection alternatives petitioner never submitted a current form 433-b or supporting financial information and therefore petitioner was not eligible for a collection alternative consequently respondent’s appeals_office did not abuse its discretion by denying petitioner’s request to reschedule the face-to-face hearing and petitioner was afforded a reasonable opportunity to be heard for the tax period at issue see roman v commissioner tcmemo_2004_20 refusal to grant continuance and denial of collection alternatives petitioner further contends that respondent’s appeals_office abused its discretion when it denied petitioner’s request for a continuance of the cdp hearing and did not consider collection alternatives while an appeals officer’s unreasonable denial of a request for more time to submit financial information or other evidence may be an abuse_of_discretion see shanley v commissioner tcmemo_2009_17 wl at see also sullivan v commissioner tcmemo_2012_337 at we conclude that the denial by the appeals_office was not an abuse_of_discretion petitioner learned of the cdp hearing scheduled for date when it received the date letter from so matuszczak the date letter clearly informed petitioner that it should make any requests to reschedule the cdp hearing by date the letter also requested a current form 433-b so that so matuszczak could determine whether petitioner qualified for any collection alternatives so matuszczak agreed to reschedule the cdp hearing to date when petitioner requested to reschedule the hearing for the second time petitioner made the request on date just one day before the scheduled hearing date petitioner had not provided the financial information requested in the date letter and requested the extension because of mr cushman’s scheduling problem not because petitioner needed more time to complete the requested financial information a taxpayer may raise collection alternatives that may include an installment_agreement or an offer-in-compromise sec_6320 sec_6330 petitioner did not request any collection alternatives in the date letter the so requested a current form 433-b so that he could determine whether petitioner qualified for any collection alternatives petitioner did not provide a current form 433-b but in its petition asserted that a form 433-b dated date was not considered we have consistently held that it is not an abuse_of_discretion for the appeals_office to reject collection alternatives and sustain the proposed collection action on the basis of the taxpayer’s failure to submit requested financial information see huntress v commissioner tcmemo_2009_161 prater v commissioner tcmemo_2007_241 roman v commissioner tcmemo_2004_20 petitioner was aware that so matuszczak had requested current financial information and petitioner failed to provide it on these facts we cannot find that the denial of the extension because of petitioner’s failure to submit requested financial information was arbitrary capricious or without sound basis in fact and law furthermore it was not an abuse_of_discretion for the appeals_office to reject collection alternatives because of a lack of necessary financial information petitioner has not shown that respondent’s determination to sustain the nftl because of its unpaid tax_liabilities for the tax period ending date and failure to submit a current form 433-b was arbitrary capricious or without sound basis in fact or law conclusion on the basis of our findings stated above we sustain respondent’s determination for the tax period ending date we also conclude that there was no abuse_of_discretion in conducting petitioner’s cdp hearing through correspondence and telephone calls and no abuse_of_discretion in denying petitioner collection alternatives we have considered the parties’ arguments and to the extent not discussed herein we conclude the arguments to be irrelevant moot or without merit to reflect the foregoing decision will be entered for respondent


number release date id office uilc cca_2010112916235137 ---------- from ------------------- sent monday date pm to ---------------------- cc ------------------------------------- subject re tefra statute extension and tmp you are correct on issue that the dissolution of the partnership does not affect the continuing application of the tefra partnership procedures which are analogous to a class action audit of the partners in which the partnership itself is not a party see 95_tc_388 for a discussion of this point on issue you need state law authorized officials to sign for the tier partner - not its own tmp your facts do not state whether the ultimate members trusts were authorized under state law to sign documents on behalf of the llc general_partner - llc's can be member managed or manager managed depending on state law and the operating_agreement whoever is authorized to act for the llc would sign for it signing in turn as general_partner of the lp which is the tmp of the tefra partnership this is covered by the notice of frequently asked tefra questions