internal_revenue_service number release date index number --------------------- -------------------------- --------------------- ---------------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ----------------- ---------------------------------------------------- telephone number -------------------- refer reply to cc corp b05 plr-137877-13 date march legend distributing controlled -------------------- --------------------- -------------------------------------- ------------------------------ ------------ ------------------------------------------------ date ---------- businessa businessb businessb assets ------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------- ------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ---------------------- x -- dear ---------------- plr-137877-13 this letter responds to your date request for rulings on certain federal_income_tax consequences of a series of proposed transactions the information submitted in that letter and in subsequent correspondence is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process moreover this office has not reviewed any information pertaining to and has made no determination regarding whether the proposed transaction defined below i satisfies the business_purpose requirement of sec_1_355-2 ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code the code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 facts distributing is a cash_method taxpayer with a taxable_year ending date distributing has one class of stock outstanding the distributing stock is held by x shareholders the shareholders distributing engages in businessa and businessb distributing has submitted financial information indicating that businessa and businessb have had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years proposed transaction distributing intends to separate businessa and businessb to do so distributing proposes to undertake the following steps pursuant to a single_plan the proposed transaction i ii distributing will form controlled with a single class of stock controlled will have a number of shares equal to the outstanding distributing shares distributing will transfer businessb assets to controlled in exchange for all of the controlled stock and the assumption of certain liabilities of distributing related to businessb the contribution plr-137877-13 iii on the same day as the contribution distributing will distribute the controlled stock pro_rata to the distributing shareholders the distribution following the distribution controlled will operate businessb and distributing will operate businessa representations the following representations have been made in connection with the proposed transaction a b c d e f g h no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation the five years of businessa financial information submitted on behalf of distributing is representative of the present operation of businessa and there have been no substantial operational changes in businessa since the date of the last financial statements submitted the five years of businessb financial information submitted on behalf of controlled is representative of the present operation of businessb and there have been no substantial operational changes in businessb since the date of the last financial statements submitted following the distribution distributing and controlled will each continue the active_conduct of its business independently with its separate employees the distribution is being carried out for the following business purposes to facilitate providing equity interests to employees and for competitive purposes the distribution is motivated in whole or substantial part by these corporate business purposes the transaction is not being used principally as a device for the distribution of the earnings_and_profits of distributing controlled or both the total adjusted bases and the fair_market_value of the assets transferred to controlled by distributing each equals or exceeds the sum of the liabilities assumed within the meaning of sec_357 by controlled the total adjusted_basis and fair_market_value of the assets transferred to controlled in the contribution will equal or exceed the sum of i the total liabilities assumed as determined under sec_357 by controlled in the contribution ii the amount of any liabilities owed to controlled by distributing if any that are discharged or extinguished in connection with the plr-137877-13 i j k l m n o p contribution and iii the total amount of any money and the fair_market_value of any other_property within the meaning of sec_361 if any received by distributing from controlled in connection with the contribution the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately_after_the_exchange distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the proposed transaction the liabilities assumed within the meaning of sec_357 in the proposed transaction were incurred in the ordinary course of business and are associated with the assets being transferred no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution payments made in connection with all continuing transactions between distributing and controlled if any will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length no two parties to the transaction are investment companies as defined in sec_368 and iv for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of any controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that either i was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or ii is attributable to distributions on distributing stock_or_securities that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution plr-137877-13 q r s the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation immediately after the transaction within the meaning of sec_355 neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 no investment_credit determined under sec_46 has been or will be claimed with respect to any property being transferred between distributing and controlled rulings based solely on the information submitted and the representations made we rule as follows the contribution followed by the distribution will qualify as a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing on the contribution sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the contribution sec_1032 controlled’s basis in each asset received from distributing in the contribution will equal the basis of such asset in the hands of distributing immediately before the contribution sec_362 controlled’s holding_period in each asset received from distributing in the contribution will include the holding_period during which distributing held such asset sec_1223 no gain_or_loss will be recognized by distributing on the distribution sec_361 no gain_or_loss will be recognized by and no amount will be included in the income of the shareholders on the distribution sec_355 the basis of the distributing stock and controlled stock in the hands of each shareholder after the distribution will equal the basis of the distributing stock plr-137877-13 held by the shareholder immediately prior to the distribution allocated between the distributing and controlled stock in proportion to the fair_market_value of each immediately after the distribution in accordance with sec_1_358-2 sec_358 b and c the holding_period of the controlled stock received by each shareholder in the distribution will include the holding_period of the distributing stock on which the distribution is made provided that the distributing stock is held as a capital_asset in the hands of the shareholder on the date of the distribution sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 caveats no opinion is expressed about the federal_income_tax treatment of the proposed transaction under other provisions of the code or regulations or the federal_income_tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed regarding i ii whether the proposed transaction satisfies the business_purpose requirement of sec_1_355-2 whether the proposed transaction is used principally as a device for the distribution of the earnings_and_profits of distributing controlled or both see sec_355 and sec_1_355-2 or iii whether the proposed transaction is part of a plan or series of related transactions under sec_355 procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-137877-13 a copy of this letter must be attached to any income_tax return for which it is relevant alternatively any taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely _thomas i russell_____________ thomas i russell branch chief branch office of associate chief_counsel corporate cc


department of the treasury internal_revenue_service washington d c jul uilc number release date cc ebeo memorandum for chief branch office of the associate chief_counsel employee_benefits and exempt_organizations from subject railroad retirement act tax status attached for your information and appropriate action is a copy of a letter from the railroad retirement board concerning the status under the railroad retirement act and the railroad unemployment insurance act of we have reviewed the opinion of the railroad retirement board and based solely upon the information submitted concur in the conclusion that ceased being an employer under the railroad retirement act and the railroad unemployment insurance act effective harry beker


department of the treasury internal_revenue_service washington d c date number cc dom fs p si release date uilc internal_revenue_service national_office field_service_advice memorandum for district_counsel north texas district dallas cc msr ntx dal from subject assistant chief_counsel field service cc dom fs eligible_access_expenditures this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend taxpayer year year amount dollar_figure amount dollar_figure machine a machine b issue whether any portion of the amounts expended to acquire two dental x-ray machines purchased by a family practice dentist are eligible for the disabled_access_credit under sec_44 of the internal_revenue_code conclusion the disabled_access_credit is not available for any portion of the amounts expended to acquire these two x-ray machines the expenditures to acquire the machines do not qualify as eligible_access_expenditures because the machines were not purchased by the dentist to comply with any requirement of the americans with disabilities act facts taxpayer is a dentist who started a sole practice in year the practice was a family practice we do not know the exact number of taxpayer’s patients who were disabled or the nature of their disabilities only that they were not more than a usual number originally the taxpayer worked in other dental offices as an independent_contractor and used standard dental x-ray machines the kind that take postage stamp size pictures while the film is in the patient’s mouth taxpayer purchased two x-ray machines and claimed the sec_44 credit when taxpayer commenced an independent practice of dentistry in year these two new machines have different functions than a standard x-ray machine machine a rotates around the patient’s head taking a panoramic view of all the patient’s teeth the x-ray picture it produces is cheaper than a full mouth series produced by a standard machine machine b creates a cephalogram an x-ray of the patient’s entire head it allows the petitioner to determine if the patient has problems with his jaw structure or the positioning of his teeth the brochure describing this machine stresses that it can be used by all patients the brochure states that the machine makes total oral diagnostics practical and comfortable for all patients - standing seated or in a wheelchair - without changes to the unit or optional accessories the taxpayer has stated that the primary consideration in purchasing these particular x-ray machines was their price some other machines that take these kinds of pictures are considerably more expensive these two machines cost a total of amount the taxpayer claimed half that amount as a disabled_access_credit allowable under sec_44 of the code the service denied that credit but the net_adjustment to income was only amount due to an offsetting increase in allowable_depreciation on the machines the americans with disabilities act the americans with disabilities act of the ada public law is a national mandate for the elimination of discrimination against individuals with disabilities sec_302 of the ada provides that no individual may be discriminated against on the basis of disability in the full and equal enjoyment of the goods services and facilities of any place of public accommodation sec_301 of the ada defines public accommodation to include the professional offices of health care providers discrimination is defined in sec_302 of the ada to include a failure to make reasonable modifications in policies practices or procedures when such modifications are necessary to afford goods facilities or accommodations to individuals with disabilities this section also provides that discrimination includes the failure to take steps necessary to ensure that no individual with a disability is excluded denied services segregated or otherwise treated differently than other individuals because of the absence of auxiliary aids and services unless the entity can demonstrate that taking such steps would fundamentally alter the nature of the good service or accommodation being offered or would otherwise result in an undue burden the disabled_access_credit the disabled_access_credit was enacted as sec_44 of the internal_revenue_code by section of the budget reconciliation act of it was intended to assist eligible small businesses to comply with the applicable_requirements of the ada see conference_report rept no 101st cong 2nd sess date the general_rule allows eligible small businesses to claim a credit equal to percent of eligible_access_expenditures in excess of dollar_figure but not to exceed dollar_figure therefore the maximum allowable credit in any year is dollar_figure eligible_access_expenditures are defined in sec_44 as amounts paid_or_incurred by an eligible_small_business for the purpose of enabling such small_business to comply with applicable_requirements under the americans with disabilities act of in other words as the conference_report confirms eligible_access_expenditures are expenditures required by the ada therefore whether taxpayer is an eligible_small_business is outside the scope of this advice however businesses with gross annual receipts of no more than dollar_figure million or having no more than employees are eligible small businesses therefore for purposes of this advice we assume taxpayer falls within this definition expenditures not required by the ada even those with some perceived benefit for the disabled are not eligible for the credit sec_44 provides that eligible_access_expenditures include amounts paid_or_incurred a for the purpose of removing architectural communication physical or transportation barriers which prevent a business from being accessible to or usable by individuals with disabilities b to provide qualified interpreters or other effective methods of making aurally delivered material available to individuals with visual impairments c to provide qualified readers taped texts and other effective methods of making visually delivered material available to individuals with visual impairments d to acquire or modify equipment or devices for individuals with disabilities or e to provide other similar services modifications materials or equipment sec_44 c provides that eligible_access_expenditures includes only expenditures which are reasonable expenditures that are unnecessary to accomplish the purposes in sec_44 are not included discussion there is no indication that taxpayer was required by the ada to purchase the two x-ray machines in issue moreover the machines are not designed to address a particular concern of the disabled but have general usefulness in serving all patients whether or not they are disabled the primary benefit of the machines is to taxpayer’s sole family dental practice the machines provide x-ray pictures that would not otherwise be available through other types of x-ray equipment or would be available only with more effort and at increased cost using a standard dental x- ray machine any benefit to disabled patients is ancillary to the primary purpose of assisting in the practice of family dentistry indeed there is no reason to believe the machines benefit disabled patients presumably all patients sit in the dental chair for other aspects of their diagnosis and treatment if so then having their x-rays taken while they remain in their wheelchair would not be of any benefit case development hazards and other considerations if you have any further questions please call by ________________________ patrick putzi special counsel passthroughs and special industries branch field service division


tax_exempt_and_government_entities_division department of the treasury internal_revenue_service tege eo examinations mail stop dal commerce st dallas texas date date release number release date legend org - organization name xx - date address - address org address certified mail - return receipt dear taxpayer_identification_number person to contact employee identification_number employee telephone number phone fax this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code our favorable determination_letter to you dated date is hereby revoked and you are no longer exempt under sec_501 of the code effective january 20xx the revocation of your exempt status was made for the following reason s you have failed to establish that you are operated exclusively for exempt purposes and that no part of your net_earnings inures to the benefit of private shareholders or individuals you have failed to respond to repeated reasonable requests to allow the internal_revenue_service to examine your records regarding your receipts expenditures or activities as required by sec_6001 and sec_6033 of the code contributions to your organization are no longer deductible under sec_170 after january 20xx you are required to file income_tax returns on form_1120 these returns should be filed with the ‘appropriate service_center for the tax_year ending december 20xx and for all tax years thereafter in accordance with the instructions of the return processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia must be filed before the day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to the united_states tax_court at the following address you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely nanette m downing director eo examinations enclosures publication tax_exempt_and_government_entities_division org address department of the treasury internal_revenue_service sw 6th court plantation fl date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincerely paul david eo revenue_agent enclosures publication form 886a - report of examination letter catalog number 34809f ‘form 886-a department of the treasury - internal_revenue_service explanation of items schedule no or exhibit name of taxpayer org ein ein 990-pf years beginning 20xx legend org - organization name xx - date state - state motto - motto issue sec_1 whether org qualifies for exemption under internal_revenue_code sec_501 facts org hereafter referred to as org is a state non-profit corporation the irs granted org tax exempt status as a sec_501 organization based on its application_for exemption which stated it would be publicly supported as described in sec_509 and sec_170 and would bring awareness funding and increased research to the disease of motto org failed to furnish records to show that it was publicly supported and was consequently converted to a private_foundation upon the end of its advanced ruling period in december 20xx org has not filed its form_990 or 990-pf since 20xx exhibit a provides copies of the internal_revenue_service correspondence requesting that exempt_organization file the form_990-pf for the tax periods ending december 20xx through december 20xx exempt_organization failed to respond to the internal_revenue_service correspondence or file the forms 990-pf for the tax periods requested activity description there is no evidence of the existence and extent of any charitable activities conducted by org there are no records to show whether substantial non-exempt or jeopardizing activities were present law ‘ sec_501 of the code exempts from federal_income_tax organizations organized and operated exclusively for charitable educational and other exempt purposes provided that no part of the organization's net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the regulations provides that in order to be exempt as an organization described in sec_501 of the code the organization must be one that is both organized and operated exclusively for one or more of the purposes specified in that section form a rev department of the treasury - internal_revenue_service page of ‘form 886-a department of the treasury - internal_revenue_service explanation of items schedule no or exhibit name of taxpayer org ein ein 990-pf years beginning 20xx sec_1_501_c_3_-1 of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_6001 provides that every person liable for any_tax imposed by the irc or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6033 provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe sec_1_6001-1 in conjunction with sec_1_6001-1 provides that every organization exempt from tax under sec_501 and subject_to the tax imposed by sec_511 on its unrelated_business_income must keep such permanent books or accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person in any return of such tax such organization shall also keep such books_and_records as are required to substantiate the information required by sec_6033 sec_1_6001-1 states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law sec_1_6033-1 provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 revrul_59_95 1959_1_cb_627 concerns an exempt_organization that was requested to produce a financial statement and statement of its operations for a certain year however form a rev department of the treasury - internal_revenue_service page of ‘form a tent explanation of items department of the treasury - internal_revenue_service schedule no or exhibit name of taxpayer org ein ein 990-pf years beginning 20xx its records were so incomplete that the organization was unable to furnish such statements the service held that the failure or inability to file the required information_return or otherwise to comply with the provisions of sec_6033 and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it observing the conditions required for the continuation of exempt status is in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax taxpayer position the organization believes that it is entitled to exemption under sec_501 because its primary purpose is to bringing awareness funding and increased research to the disease of motto government position based on the absence of documentation furnished by the exempt_organization to establish presence of charitable activities and absence of non-charitable or jeopardizing activities org does not qualify for exemption under sec_501 conclusion it is the irs's position that the organization failed to meet the reporting requirements under sec_6001 and sec_6033 to be recognized as exempt from federal_income_tax under sec_501 accordingly the organization's exempt status is revoked effective january 20xx form_1120 returns should be filed for the tax periods ending on and after december 20xx form a rev department of the treasury - internal_revenue_service page of


t c memo united_states tax_court basim shami and rania ardah et al petitioners v commissioner of internal revenue respondent docket nos filed date jeremy m fingeret michael a thompson and robert g wonish ii for petitioners sara w dalton joshua smeltzer and derek matta for respondent 1this case is consolidated for purposes of trial briefing and opinion with the cases of arthur j goertz and jo mccall goertz docket no farouk shami and izziah shami docket no shaukat gulamani docket no rami shami and najat badran docket nos and and john mccall and kathy mccall docket nos and memorandum findings_of_fact and opinion kroupa judge respondent determined deficiencies in these consolidated cases as follows dkt no petitioners dollar_figure dollar_figure -0- basim shami and rania ardah arthur j and jo mccall goertz farouk and izziah shami shaukat gulamani rami shami and najat badran john and kathy mccall rami shami and najat badran john and kathy mccall dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure -0- -0- -0- dollar_figure dollar_figure total dollar_figure dollar_figure dollar_figure after concessions the sole issue for decision is whether certain wages farouk systems inc fs paid to petitioner farouk shami mr shami for 1the parties disagree as to whether the remaining fs employees whose wages fs used to claim the research_credit for the relevant years engaged in qualified_research within the meaning of sec_41 the parties agreed however at the court’s direction to focus on the two highest fs wage earners and and petitioner john mccall mr mccall for and qualify as research expenses for purposes of fs claiming the credit_for_increasing_research_activities under sec_41 research_credit we hold that none of the wages qualify findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts the supplemental stipulation of facts and the accompanying exhibits are incorporated each petitioner resided in texas when the petitions were filed petitioners were shareholders of fs an s_corporation for federal tax purposes fs developed manufactured and sold internationally hair skin and nail products fs had hundreds of employees and was organized into various departments including manufacturing marketing sales education and research_and_development product development activities were spread across departments but activities involving scientific knowledge and experimentation were conducted by the research_and_development department or were outsourced the research_and_development department staff ranged from to employees during the relevant years the staff included chemists technicians and a vice president of 2all section references are to the internal_revenue_code in effect for the relevant years and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated research_and_development who supervised the department fs is most known for developing the biosilk chi hair coloring systems and flat irons color vision sunglitz and deep brilliance product lines mr shami founded fs in after coming to the united_states in the 1960’s from palestine on an academic scholarship eschewing his father’s desires that he follow him into teaching and began working part time as a hair stylist mr shami was fs’s chief_executive_officer president and secretary for and he also served as the chairman of fs’s board_of directors and as the sole member of fs’s manufacturing and operations committee mr shami was paid wages of dollar_figure dollar_figure and dollar_figure for and respectively mr mccall was a principal for many years of armstrong mccall a wholesale_distributor that marketed and sold fs products mr mccall became a shareholder officer and director of fs in the 1990s mr mccall was fs’s executive vice president and the sole member of its sales and marketing committee for and mr mccall was paid wages of dollar_figure and dollar_figure for and respectively neither mr shami nor mr mccall have formal education or training in any physical or biological science or engineering fs contracted with alliantgroup lp alliantgroup to conduct research_and_development tax_credit studies covering the relevant years the studies concluded that fs was eligible to claim the research_credit based in part upon wages paid to mr shami and mr mccall the results of the studies formed the basis for fs claiming the research_credit for the relevant years fs filed form_1120s u s income_tax return for an s_corporation claiming the research_credit for each year at issue petitioners filed tax returns claiming their respective portions of the research credits respondent issued petitioners deficiency notices disallowing the claimed research credits petitioners filed timely petitions for redetermination with this court opinion we are asked to decide whether certain wages fs paid to mr shami and mr mccall qualify for the research_credit we begin with the burden_of_proof the commissioner’s determinations in a deficiency_notice are presumed correct and taxpayers bear the burden of proving otherwise rule a 290_us_111 tax_credits are a matter of legislative grace 3the attorneys representing petitioners are alliantgroup employees the court is satisfied that the attorneys’ representation of petitioners did not create a conflict of interest under rule g as they obtained the necessary informed consent and taxpayers bear the burden of proving they are entitled to claim tax_credits see eg 503_us_79 292_us_435 the burden to disprove a claimed credit may shift to the commissioner if the taxpayers prove that they have satisfied certain conditions sec_7491 gaitan v commissioner tcmemo_2012_3 petitioners have not shown that they complied with the requirements of sec_7491 the burden_of_proof therefore remains with petitioners see rule a we now address whether certain wages fs paid to mr shami and mr mccall qualify for the research_credit a taxpayer is allowed a credit against income taxes equal to of the excess if any of the qualified_research_expenses qres for the taxable_year over the base_amount sec_41 qres include among other things wages paid_or_incurred to an employee for performing qualified_services sec_41 and qualified_services means engaging in qualified_research or engaging in the direct supervision of research activities that 4in congress created stricter eligibility requirements for claiming the research_credit out of concern that taxpayers were interpreting the research_credit too broadly and that some taxpayers claimed the credit for virtually any expenses relating to product development s rept no pincite 1986_3_cb_1 see also union carbide corp subs v commissioner tcmemo_2009_50 h rept no pincite 1986_3_cb_1 constitute qualified_research sec_41 the term engaging in qualified_research as used in sec_41 means the actual conduct of qualified_research as in a scientist conducting laboratory experiments sec_1_41-2 income_tax regs direct supervision of qualified_research means immediate supervision first-line management of qualified_research as in a research scientist who directly supervises laboratory research sec_1_41-2 income_tax regs direct supervision does not include supervision by a higher level manager to whom first-line managers report even if the manager is a qualified_research scientist id if an employee has performed both qualified_services and nonqualified services only the_amount_of_wages allocated to the performance of qualified_services constitutes qres sec_1_41-2 income_tax regs all wages paid to an employee however are allocable to qualified_services and constitute qres if at least of the employee’s wages are attributable to qualified_services for a taxable_year sec_1_41-2 income_tax regs the_amount_of_wages properly allocable to qualified_services is determined by multiplying the total amount of wages paid to or incurred for the employee during the taxable_year by the ratio of the total time actually spent by the employee in the performance of qualified_services for the employer to the total time spent by the employee in the performance of all services for the employer during the taxable_year sec_1_41-2 income_tax regs another allocation method may be used if the taxpayer demonstrates the alternative method is more appropriate id a taxpayer claiming a credit under sec_41 must retain records in sufficiently usable form and detail to substantiate that the expenditures claimed are eligible for the credit sec_1_41-4 income_tax regs petitioners did not demonstrate a more appropriate method than the one the regulations prescribe for apportioning the wages between qualified_services and nonqualified services accordingly while petitioners are not required to show that mr shami and mr mccall wore lab coats petitioners must substantiate the time mr shami and mr mccall spent performing qualified_services and the total time they spent performing all other services we now turn to this issue petitioners claim that mr shami and mr mccall spent of their time performing certain services related to fs product research_and_development research_and_development services that constitute qualified_services for and and that mr shami spent of his time performing such services for respondent argues that petitioners failed to adequately substantiate the wage allocations for mr shami and mr mccall we agree fs’s product research_and_development was conducted across numerous departments and by many employees petitioners failed to provide any documentation that establishes how much time if any mr shami or mr mccall spent performing research_and_development services during the relevant years moreover testimony petitioners offered to substantiate the time mr shami and mr mccall spent performing purported qualified_services was inadequate petitioners offered the testimony of mr shami mr mccall and two fs employees jason yates and tai pham several witnesses contradicted mr shami’s testimony and no witnesses corroborated mr mccall’s testimony the testimony of the two fs employees was general vague conclusory and insufficient to establish the time mr shami or mr mccall spent performing any specific service in sum we found all of their testimony self-serving and unreliable we need not and do not accept any of their testimony see 87_tc_74 we hold that the inadequate substantiation prevents any amount of the relevant wages from qualifying for the research_credit petitioners argue that we must estimate the_amount_of_wages allocable to qualified_services if we find either mr shami or mr mccall performed qualified_services we disagree if a taxpayer establishes that he or she paid_or_incurred an expense but does not establish the amount of the expense this court may approximate the amount of the expense bearing heavily against the taxpayer whose inexactitude is of his or her own making 39_f2d_540 2d cir for the cohan_rule to apply however a reasonable basis must exist on which this court can make an estimate 245_f2d_559 5th cir 85_tc_731 without such a basis any allowance would amount to unguided largesse williams f 2d pincite petitioners failed to satisfy the court that there is sufficient evidence to estimate the appropriate allocation of wages between qualified_services and nonqualified services for mr shami and mr mccall the cohan_rule therefore does not allow this court to make an estimate and we decline to do so see eg union carbide corp subs v commissioner tcmemo_2009_50 eustace v commissioner tcmemo_2001_66 aff’d 312_f3d_905 7th cir fudim v commissioner tcmemo_1994_235 petitioners rely on 570_f3d_672 5th cir in arguing that this court must make an estimate we follow a court_of_appeals decision squarely on point when appeal from our decision would lie to that court absent stipulation by the parties to the contrary 54_tc_742 aff’d 445_f2d_985 10th cir mcferrin is inapposite to the present case in mcferrin the commissioner argued that even if qualified_research occurred the taxpayer failed to provide adequate documentation to substantiate the costs associated with the research mcferrin f 3d pincite the court_of_appeals applying the cohan_rule held that if the taxpayer can show activities that were qualified_research then the court should estimate the expenses associated with those activities id the court_of_appeals for the fifth circuit did not overrule or even address the basic requirement under cohan that a court must have a reasonable basis upon which to make an estimate see eg 691_fsupp2d_688 n d tex moreover the court_of_appeals for the fifth circuit upheld the requirement that a court must have a reasonable basis upon which to make an estimate in williams accordingly the court of appeal’s decision does not require this court to estimate the amounts of 5we note that the u s district_court for the southern district of texas decision from which the taxpayer appealed in mcferrin denied the taxpayer the research_credit because the taxpayer failed to adequately substantiate the claimed qres see united_states v mcferrin a f t r 2d s d tex the district_court did not apply however the cohan_rule because the taxpayer failed to prove that it actually engaged in qualified_research activities id accordingly the district_court never determined whether it could make an estimate id mr shami’s or mr mccall’s wages that are allocable to qualified_services given our finding that we lack a reasonable basis upon which to make such an estimate we reject therefore petitioners’ argument we have considered all arguments made in reaching our decision and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing and the parties’ concessions decisions will be entered under rule


t c memo united_states tax_court isabelle bichindaritz petitioner v commissioner of internal revenue respondent docket no filed date scott a schumacher for petitioner catherine l campbell for respondent memorandum findings_of_fact and opinion colvin judge respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure for after petitioner’s concession the issues for decision are whether petitioner may deduct for dollar_figure that she paid to a french retirement_plan and real_estate_taxes we hold that she may not unless otherwise stated section references are to the internal_revenue_code as amended and in effect in the year in issue and rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found petitioner resided in seattle washington when the petition was filed in petitioner was a citizen of france and a resident_of_the_united_states for tax purposes in petitioner was a professor at the university of washington central washington university and evergreen state college in central washington university contributed dollar_figure on petitioner’s behalf to a retirement_plan in the united_states and petitioner paid the equivalent of dollar_figure to a pension_plan in france french pension_plan petitioner filed a form_1040 u s individual_income_tax_return for reported that she was married filing petitioner concedes that she failed to report dollar_figure of income from evergreen state college on her form_1040 for as determined by respondent separately and deducted dollar_figure for a payment to an individual_retirement_account ira opinion a whether petitioner may deduct dollar_figure that she paid to her french pension_plan in petitioner’s contentions and background petitioner contends that dollar_figure that she paid to a french pension_plan in is deductible under sec_219 and article a of the convention for the avoidance of double art a and b of the convention for the avoidance of double_taxation and the prevention of fiscal evasion with respect to taxes on income and capital date u s - france tax_treaties cch par as modified by applicable subsequent agreements as in effect in provides in pertinent part a in determining the taxable_income of an individual who renders personal services and who is a resident of a contracting state but not a national of that state contributions paid_by or on behalf of such individual to a pension or other retirement arrangement that is established and maintained and recognized for tax purposes in the other contracting state shall be treated in the same way for tax purposes in the first-mentioned state as a contribution paid to a pension or other retirement arrangement that is established and maintained and recognized for tax purposes in that first-mentioned state provided that the competent_authority of the first-mentioned state agrees that the pension or other retirement arrangement generally corresponds to a pension or other retirement arrangement recognized for tax purposes by that state b for the purposes of subparagraph a ii where the competent_authority of the united_states continued taxation and the prevention of fiscal evasion with respect to taxes on income and capital the u s french tax_convention date u s -france tax_treaties cch par as modified by applicable subsequent agreements as in effect in article a of the u s french tax_convention provides that contributions to a french retirement_plan generally are treated in computing u s tax as though they were paid to a pension or other retirement arrangement established and recognized for tax purposes in the united_states if the competent_authority of the united_states agrees that the french pension or other retirement_plan generally corresponds to a pension or other retirement arrangement recognized for tax purposes by the united_states sec_219 provides that an individual taxpayer may deduct qualified retirement contributions made in the taxable continued agrees that a mandatory french pension or other retirement arrangement generally corresponds to a united_states pension or other retirement arrangement without regard to the mandatory nature of such arrangement it is understood that contributions to the french pension or other retirement arrangement shall be treated in the united_states in the same way for tax purposes as contributions to the united_states pension or other retirement arrangement and iii a pension or other retirement arrangement is recognized for tax purposes in a state if the contributions to the arrangement would qualify for tax relief in that state year a qualified_retirement_contribution is any amount_paid in cash for the taxable_year by or on behalf of an individual to an individual_retirement_plan for such individual’s benefit sec_219 and any amount contributed on behalf of any individual to a plan described in sec_501 sec_219 sec_501 describes trusts that are exempt from taxation a_trust may qualify under sec_501 if it was created before date as part of a plan providing for the payment of benefits under a pension_plan funded only by contributions of employees it is impossible at any time before all liabilities are satisfied with respect to employees under the plan for any part of the corpus or income to be within the taxable_year or thereafter used for any purpose other than the providing of benefits under the plan and benefits are payable to employees under a classification provided in the plan which does not discriminate in favor of employees who are highly compensated within the meaning of sec_414 on her form_1040 petitioner deducted the dollar_figure payment as a qualified_retirement_contribution to an individual_retirement_account ira she contended in her pretrial memorandum and at trial that she properly deducted that amount as an ira contribution in the opening brief respondent argued that sec_219 limits ira deductions for active participants in a plan established by the government or by an agency_or_instrumentality of the government and that petitioner participated in such a retirement_plan with central washington university in whether petitioner may contend that she made payments to an entity that qualifies as a_trust under sec_219 petitioner contended for the first time in her posttrial brief3 that her dollar_figure payment to a french pension_plan in qualified as a retirement contribution under sec_219 because she paid it to an entity that generally corresponds to a_trust as defined in sec_501 respondent asserts that petitioner raised that issue untimely we agree generally we do not consider an issue raised for the first time on brief see 96_tc_858 affd 959_f2d_16 2d cir 88_tc_702 84_tc_191 affd 796_f2d_116 5th cir 27_tc_346 16_tc_528 petitioner raised this issue too late for either party to offer relevant evidence at trial respondent had no reason to and did not offer evidence relating to whether petitioner’s french pension_plan generally respondent filed an opening brief petitioner filed an answering brief and respondent filed a reply brief corresponded to a_trust or whether it met the requirements of sec_501 therefore respondent would be prejudiced if petitioner were permitted to raise this issue after trial whether petitioner paid dollar_figure to an entity that generally corresponds to a_trust as defined in sec_501 petitioner contends that the french pension_plan to which she paid dollar_figure in generally corresponds to a_trust as defined by sec_501 even if we considered this argument petitioner would not prevail petitioner has not shown that the french pension_plan to which she contributed generally corresponded to a_trust under sec_501 petitioner testified that the french pension_plan was limited to permanent public employees the plan would pay her a taxable annuity after she reaches age the plan has no survivor benefits and she would lose all benefits under the plan if she stopped contributing to it the record includes a summary of a tax_convention signed by representatives of france and the united_states on date exhibit 12-p in french and 16-p english translation of exhibit 12-p consists of three documents the first document is a petitioner has the burden_of_proof the burden of proving a factual issue relating to liability for tax shifts to the commissioner under certain circumstances sec_7491 petitioner does not contend that sec_7491 applies thus petitioner bears the burden_of_proof see rule a 290_us_111 certificate signed by the general secretary of the union nationale des mutuelles retraite des instituteurs et des fonctionnaires de l’education nationale et de la fonction publique mrf on date that document states that petitioner was saving through an intermediary of mrf’s known as caisses autonomes a soldier’s benefit society annuity with the participation not further described in the record of france it also states that contributions are deductible if the pension does not exceed the maximum current threshold which was the equivalent of dollar_figure euros in the second document is an undated letter to petitioner from union mutualistic retraite umr responding to her request dated date to change her contributions the third document appears to be excerpts from an article by the direction des retraites cdc not otherwise described in the record about a french parliamentary debates on french pensions and retirement_system and b new retirement products that are the result of an ordinance dated date and a summary or explanation of some of the features of a french pension_plan offered by umr petitioner contends that these documents show that the french pension_plan generally corresponds to a_trust under sec_501 we disagree first there is no evidence that petitioner paid the dollar_figure to a_trust or anything similar to a_trust or that the entity to which petitioner made the payment was formed before date petitioner wrote on exhibit 12-p umr was created on date petitioner contends that the french pension_plan was formed before date because the corpus of that plan has existed since petitioner relies on rapport de gestion umr which she states is available on a web site we have not considered that document because it was not offered or admitted into evidence petitioner contends that we should take judicial_notice that the corpus of petitioner’s french retirement_plan has existed since a judicially noticed fact may not be subject_to reasonable dispute in that it is either generally known within the territorial jurisdiction of the trial_court or capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned fed r evid b the umr web site does not meet either requirement and we do not take judicial_notice of items appearing in it see id to qualify under sec_501 petitioner’s french retirement_plan must provide benefits that are payable to employees under a classification which is set forth in the plan and which does not discriminate in favor of highly compensated employees see sec_501 petitioner contends that her testimony that this requirement is met is corroborated at page of exhibits 12-p and 16-p we disagree page of those exhibits does not so state to qualify under sec_501 the plan must have been funded solely by employee contributions there is no evidence of the source of funding of the french pension_plan other than petitioner’s dollar_figure payment in to qualify under sec_501 the benefits paid under the plan may not discriminate in favor of highly compensated employees sec_501 and c petitioner contends that exhibits 12-p and 16-p and the umr web site show that the pension_plan meets this requirement we disagree exhibits 12-p and p do not describe the coverage of the french pension_plan and the umr web site is not in evidence according to petitioner a publication prepared by the french foreign ministry states that her dollar_figure payment to the french pension_plan in is deductible the publication to which petitioner refers describes a tax_convention signed by france and the united_states on date we disagree that the publication authorizes petitioner to deduct the dollar_figure the publication refers to a tax_convention that was superseded by the u s french tax_convention see u s french tax_convention art tax_treaties cch par article of the u s french tax_convention rather than article in the now-superseded convention signed in governs deductions for pension payments made in the french foreign ministry publication does not apply to petitioner’s payments to the french pension_plan in we conclude on this record that the french pension_plan to which petitioner paid dollar_figure in does not generally correspond to a_trust as defined by sec_501 thus petitioner may not deduct dollar_figure that she paid to her french retirement_plan in b whether petitioner may deduct real_estate tax in petitioner asserts that she is entitled to deduct real_estate_taxes she paid when she bought property in france in at trial petitioner offered to give respondent an english translation of a settlement statement that she received when she bought the property in question the settlement statement shows that certain taxes were calculated in connection with petitioner’s purchase of the property however the record does not show whether the taxes are foreign real_estate taxe sec_5 in light of this conclusion we need not decide respondent’s contention regarding the fact that petitioner did not receive a determination from the united_states competent_authority as to whether the french retirement_plan generally corresponds to a united_states retirement_plan or that certain documents including exhibits 9-p and 12-p and the english translation of them exhibits 14-p and 16-p should not have been admitted in evidence the court granted petitioner’s motion for leave to file the amended petition raising this issue when this case was called for trial that are deductible under sec_164 ie that were imposed on her interest_in_real_property and that such taxes were levied for the general_public welfare sec_1_164-3 income_tax regs absent that evidence we hold that petitioner is not entitled to the deduction that she claims to reflect the foregoing decision will be entered for respondent see sec_1_164-3 income_tax regs which defines real_property_taxes as taxes imposed on interests_in_real_property and levied for the general_public welfare but does not include taxes assessed against local benefits see sec_1_164-4 sec_1_164-4 income_tax regs states that taxes for local benefits that are not deductible include taxes for benefits such as streets sidewalks and other like improvements imposed because of and measured by some benefit inuring directly to the property against which the assessment is levied see sec_164


internal_revenue_service department of the treasury p o box ben franklin station washington dc person to contact telephone number refer reply to cc dom corp - plr-113929-99 date date number release date index numbers parent intermediate sub sub sub sub sub sub sub newco corporation x corporation y business a year date date date date plr-113929-99 date date date date date date date date a b c d country y this is in response to a letter dated date in which you requested a ruling on behalf of parent that under sec_1504 of the internal_revenue_code the code the service waive the general_rule of sec_1504 of the code additional information was received in letters dated date and date the information submitted indicates that parent is the common parent of an affiliated_group_of_corporations filing consolidated federal_income_tax returns on a calendar_year basis the group filed its first consolidated_return for year as of date parent owned percent of the outstanding_stock of intermediate intermediate owned percent of the outstanding_stock of sub sub owned percent of the outstanding_stock of sub sub sub and sub the sub subsidiaries sub owned less than of sub with the remaining sub stock owned by unrelated third parties on date intermediate transferred percent of the stock of sub to newco a newly formed corporation in exchange for a a percentage less than of newco common_stock the only class of stock of newco as part of the same transaction corporation x a country y corporation contributed cash notes receivable and other_property to newco in exchange for the remaining newco common_stock parent has represented that the above described transaction qualified under sec_351 of the code as a result of that transaction sub ceased to be a member of the parent affiliated_group plr-113929-99 the parent group filed a full-year consolidated federal_income_tax return for the taxable_year that included date that return included the activities of sub and the sub subsidiaries for the period ending date newco sub and the sub subsidiaries filed a short-period federal consolidated_income_tax_return for the period beginning date ie the date following date through date on date sub purchased from an unrelated third party sufficient stock of sub that caused sub to become a member of the newco affiliated_group on date sub merged into sub in what is represented to be a reorganization qualifying under sec_368 of the internal_revenue_code also on date parent formed sub and transferred sub to intermediate on date intermediate transferred sub to newco as part of what is represented to be a sec_351 transaction described below that was consummated on date on date sub distributed the stock of sub and sub to newco when the term sub subsidiaries is used with reference to the period following date the term sub subsidiaries refers to sub and sub on date intermediate transferred certain assets to newco in exchange for additional newco stock in what is represented to be an exchange qualifying under sec_351 intermediate transferred the assets to newco because additional working_capital assets were needed for newco’s business a activities as a result of this transaction intermediate came to own b a percentage more than of newco stock and newco became a member of the parent affiliated_group newco and sub were included in the parent group’s consolidated federal_income_tax return for the period beginning the day after date and ending with the end of the group’s taxable_year that included date parent filed for a waiver to include sub under revproc_91_71 sub sec_1 and were not included in that tax_return on date sub merged with corporation y in what is represented to be a reorganization as defined in sec_368 corporation y survived the merger the merger is represented to have been a reverse_acquisition as defined in sec_1 d following the merger newco owned c ie less than directly and indirectly of corporation y’s common_stock its only outstanding_stock the former shareholders of corporation y owned the remaining corporation y stock on date sub merged into sub in what is represented to have been a reorganization as defined in sec_368 of the code on date newco acquired additional corporation y stock pursuant to a settlement of a lawsuit filed by former shareholders of corporation y following that acquisition newco owned d ie more than directly and indirectly of the outstanding corporation y stock parent included corporation y and its subsidiaries including sub sub and sub as members of its consolidated_group in the parent group’s consolidated federal_income_tax return for the year including date in anticipation of receipt of this waiver plr-113929-99 parent has represented that the disaffiliation of sub and the sub subsidiaries on date and the reaffiliation of corporation y successor to sub and the sub subsidiaries on date will not provide a benefit of a reduction of income increase in loss or any other deduction credit or allowance that would not otherwise be secured or have been secured had the disaffiliation and reconsolidation not occurred including but not limited to the use of a net_operating_loss or credit that would have otherwise expired sec_1504 of the code provides that if a corporation is included or required to be included in a consolidated_return filed by an affiliated_group for a taxable_year which includes any period after date with respect to periods after such cessation such corporation and any successor of such corporation may not be included in any consolidated_return filed by the affiliated_group or by another affiliated_group with the same common parent or a successor of such common parent before the 61st month beginning after its first taxable_year in which it ceased to be a member of such affiliated_group revproc_91_71 1991_2_cb_900 grants a waiver of the general_rule of sec_1504 of the code for taxpayers that meet its requirements if a taxpayer qualifies for the waiver under revproc_91_71 the procedure described therein is the exclusive procedure available for obtaining a waiver of the rule contained in sec_1504 the waiver in revproc_91_71 generally applies to any corporation that ceased to be a member of a group and rejoined the same group ie the group remained in existence within the meaning of sec_1_1502-75 of the income_tax regulations in the case of the date disaffiliation and date reaffiliation the waiver in revproc_91_71 does not apply because corporation y was never a member of the parent group corporation y is subject_to sec_1504 of the code if it is a successor to sub based on the information submitted and representations made it is concluded that application of sec_1504 of the code is hereby waived under sec_1504 with respect to the disaffiliation of sub and the sub subsidiaries on date and reaffiliation of corporation y successor to sub and the sub subsidiaries on date provided that corporation y and the sub subsidiaries and the other members of the parent group constitute an affiliated_group_of_corporations within the meaning of sec_1504 corporation y and the sub subsidiaries may join in the filing of the parent group’s consolidated federal_income_tax return beginning with the day after date and for subsequent years no opinion is expressed about the tax treatment of the transaction under any other provisions of the code and regulations of about the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above ruling specifically no opinion has been requested and none is expressed as to whether any of the transactions described above represented by the taxpayer to qualify under sec_351 or sec_368 of the code do so qualify temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling will be modified or revoked by adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusions in the ruling see dollar_figure of revproc_99_1 1999_1_irb_6 however when the criteria in dollar_figure of the rev_proc are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances plr-113929-99 this ruling is directed only to the taxpayers who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter should be attached to the consolidated federal_income_tax return of the taxpayers involved for the taxable_year including the day after date sincerely yours assistant chief_counsel corporate by edward s cohen chief branch


t c summary opinion united_states tax_court neil rabinowitz petitioner v commissioner of internal revenue respondent docket no 11264-05s filed date neil rabinowitz pro_se james h harris jr for respondent powell special_trial_judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section reference sec_1 are to the internal_revenue_code petitioner timely filed a petition under sec_6330 for review of respondent’s determination to proceed with the collection of petitioner’s and federal_income_tax liabilities the issue is whether the refusal by the appeals_office to release or withdraw a federal_tax_lien constituted an abuse_of_discretion at the time the petition was filed petitioner resided in pikesville maryland background the facts are as follows respondent assessed tax_liabilities for the taxable years and and on date filed a federal_tax_lien showing the balance due on date respondent notified petitioner that the tax_lien had been filed petitioner requested a hearing to have the tax_lien removed and suggested that a compromise was appropriate petitioner however did not submit information concerning an offer-in-compromise the appeals_office determined that the filing of the tax_lien was appropriate and the least intrusive collection means of protecting the government’s interest petitioner appeals discussion after the filing of a notice_of_federal_tax_lien a taxpayer is entitled to notice and an opportunity for a hearing before an impartial officer of respondent’s office of appeals sec_6320 and b b if a taxpayer requests a hearing he or she may raise any relevant issue relating to the unpaid tax or to the tax_lien including challenges to the appropriateness of the collection action and offers of collection alternatives which may include the posting of a bond the substitution of other assets an installment_agreement or an offer-in- compromise sec_6330 see also sec_6320 a determination takes into account consideration of the verification that the requirements of the applicable law and administrative procedures have been met and whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary sec_6330 there is no issue here concerning the correctness of the amounts of the tax_liabilities for and there is also no dispute that the taxes were properly assessed and that petitioner has failed to pay these liabilities we therefore review the appeals office’s refusal to lift the tax_lien by the standard whether it was an abuse_of_discretion ie whether it was arbitrary capricious or without sound basis in fact or law we do not substitute our judgment for that of the appeals_office see sec_6330 125_tc_301 the original assessment was corrected to reflect the amount sec_2 shown on petitioner’s and returns that were filed on date affd ___ f 3d ___ 1st cir date 114_tc_176 the commissioner may withdraw a notice of tax_lien if relevant here the withdrawal will facilitate collection sec_6323 or with the consent of the parties the withdrawal would be in the best interest of the taxpayer and the united_states sec_6323 essentially petitioner’s argument is that he is an unemployed insurance agent who has been unable to obtain employment because of the filing of the federal_tax_lien and the public awareness of his financial situation petitioner’s argument is based on a misconception a tax_lien arises at the time the assessment is made sec_6321 and sec_6322 the notice of tax_lien protects the government’s interest as a creditor against other creditors see sec_6323 but even if a notice of tax_lien was not filed the liability still exists to the extent that petitioner argues that withdrawal of the notice of tax_lien would improve his credit this argument is wrong petitioner would still be required if requested to disclose the liabilities lurking beneath petitioner’s argument is the suspicion that petitioner seeks to mislead third parties as to his true financial situation by having the notice withdrawn while this may be in petitioner’s best interest we have difficulty in finding that the interest of the united_states is served by such a legerdemain we do not find that the refusal by the appeals_office to withdraw the notice of tax_lien was an abuse_of_discretion reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


internal_revenue_service number release date index number ------------------------------- ---------------------------------------------------------- ----------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc corp b06 plr-121879-08 date date ty ------------------ ty ------------------ legend distributing ------------------------------- controlled ----------------------------------- family a family b state -------------------------------------- -------------------------------------------- ------------- business x --------------------------------------------- business y ---------------------------------------------------------------------- date z a b c d e ----------------------- ---------------------------------------------------------------------------------- ------- ---------------- ------------------------------------------------------------------------------------------ ---------------------------------------------- ------------------------- ---------------------------------------------------------------------------- ------------ --------------------------------------------------------------------- ------------------------------------------------------- plr-121879-08 f g aa --------------------- ------------- ------- dear ---------------------------- this is in response to a letter dated date submitted on your behalf by your authorized representatives requesting rulings on the federal_income_tax consequences of a proposed transaction the information submitted for consideration is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and its shareholders and accompanied by penalties of perjury statements executed by the appropriate parties this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process moreover this office has not reviewed any information pertaining to and has made no determination regarding whether the distribution as defined below i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is being used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation the controlled_corporation or both see sec_355 of the internal_revenue_code the code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 summary of facts distributing is a state accrual basis taxpayer that files a federal_income_tax return with a calendar fiscal_year end distributing has been primarily engaged in businesses x and y since its incorporation on date z more than years from the date of this letter business x includes assets a b and c business y includes assets d e f and g distributing has outstanding aa shares of voting common_stock that are owned in various amounts by the members_of_family a and family b either in their own right or as beneficiaries of various trusts there are no securities or other interests of any kind that could be considered a stock interest financial information has been received that indicates that both businesses x and y have had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years plr-121879-08 the proposed transaction has been agreed to by and between family a and family b in order to resolve their differences of opinion on how best to operate the businesses of distributing the members_of_family b see a tremendous opportunity to leverage distributing’s assets to acquire other assets in sharp contrast the members_of_family a do not share the desires of the members_of_family b to expand distributing’s operations and would prefer to operate the business as it has historically been operated accordingly the distributing shareholders have decided to split off business y from business x by transferring business y to newly formed controlled and to distribute the controlled stock to the members_of_family b in exchange for their shares of distributing proposed transaction the following transaction has been proposed i ii distributing will form controlled by transferring business y and its assets to controlled solely in exchange for all of the outstanding_stock of controlled and the assumption by controlled of certain liabilities associated with business y distributing will then distribute all of the controlled shares to the members_of_family b in exchange for all of the shares of distributing held by those family b members after the distribution those family b members will own of the stock in controlled and members_of_family a will own of the stock in distributing subsequent to the proposed transaction both distributing and controlled will make elections to be treated as s_corporations for federal_income_tax purposes in the first tax_year that they are eligible representations the taxpayers have made the following representations in connection with the proposed transaction a the indebtedness if any owed by controlled to distributing after the distribution of the controlled stock will not constitute stock_or_securities b the total adjusted bases and fair_market_value of the assets transferred to controlled by distributing will each equal or exceed the amount of any liabilities assumed within the meaning of sec_357 by controlled in connection with the exchange the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately_after_the_exchange plr-121879-08 c the total fair_market_value of the assets transferred to controlled by distributing in the contribution will equal or exceed the aggregate adjusted_basis of the transferred assets d the fair_market_value of the controlled stock and other consideration to be received by the family b shareholders of distributing will be approximately equal to the fair_market_value of the distributing stock surrendered by the family b shareholders in the exchange e no part of the controlled stock to be distributed by distributing to the family b shareholders will be received by a family b shareholder of distributing as a creditor employee or in any capacity other than that of a shareholder of distributing f the liabilities assumed as determined under sec_357 by controlled in the contribution will have been incurred in the ordinary course of business and will be associated with the assets transferred g the years of financial information submitted on behalf of distributing’s business x is representative of business x’s present operations and with regard to such operations there have been no substantial operational changes since the date of the last financial statements submitted h the years of financial information submitted on behalf of distributing’s business y is representative of the business y’s present operations and with regard to such operations there have been no substantial operational changes since the date of the last financial statements submitted i the distribution of the stock of controlled is carried out for the following corporate business_purpose to enable each of the shareholder groups to devote their attention and apply a consistent business strategy to the business which each group is most interested in the distribution of the stock of controlled is motivated in whole or substantial part by this corporate business_purpose j following the distribution distributing and controlled will each continue independently and with its separate employees the active_conduct of its business k the proposed transaction is not used principally as a device for the distribution of earnings_and_profits of distributing or controlled l distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction plr-121879-08 m for purposes of sec_355 immediately after the distribution no person determined after applying the aggregation rules of sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five- year period determined after applying sec_355 ending on the date of the distribution n for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution o there is no acquisition of stock of distributing or controlled including any predecessor or successor of any such corporation that is part of a plan or series of related transactions within the meaning of sec_1 that includes the distribution of controlled stock p no intercorporate debt will exist between distributing and controlled at the time of the distribution and no intercorporate debt will exist between distributing and controlled subsequent to the proposed transaction except as may arise in the ordinary course of business or with respect to payments pursuant to any continuing transactions between distributing and controlled q payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length r no two parties to the transaction are investment companies defined in a f iii and iv s distributing and controlled and their respective shareholders will each pay their own expenses if any incurred in connection with the proposed transaction plr-121879-08 t immediately after the proposed transaction as defined in sec_355 neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 u no property with respect to which any investment_credit determined under sec_46 has been or will be claimed will be transferred from distributing to controlled in the proposed transaction rulings based solely on the information submitted and on the representations set forth above we hold as follows the transfer by distributing to controlled of assets associated with business y solely in exchange for all of the issued and outstanding_stock of controlled plus the assumption by controlled of certain liabilities will qualify as a reorganization within the meaning of a d of the code distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 of the code distributing will recognize no gain_or_loss in connection with the transfer of the assets associated with business y to controlled and the assumption by controlled of certain liabilities in the proposed transaction sec_361 and sec_357 controlled will recognize no gain_or_loss upon the receipt of distributing’s business y assets in exchange for controlled stock sec_1032 controlled's basis in each asset received in the proposed transaction will be in each instance the same as the basis of such assets in the hands of distributing immediately prior to the proposed transaction sec_362 controlled's holding_period of the assets received in the proposed transaction will include the period during which such assets were held by distributing sec_1223 no gain_or_loss will be recognized by distributing on the distribution of the controlled stock sec_361 no gain_or_loss will be recognized by and no amount will be included in the income of the members_of_family b on the exchange of their stock in distributing for the stock of controlled in the proposed transaction sec_355 plr-121879-08 the basis of the controlled stock in the hands of the family b shareholders of distributing will be the same as the basis of the distributing stock surrendered in exchanged therefore sec_358 the holding_period of controlled stock received by the family b shareholders of distributing will include their holding_period of distributing stock exchanged therefore provided that the distributing stock is held as a capital_asset on the date of the proposed transaction sec_1223 as provided in sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made in accordance with sec_1_312-10 caveats 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 procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely _______________________________ steven j hankin senior technician reviewer branch corporate cc


t c summary opinion united_states tax_court john thompson jr and desree thompson petitioners v commissioner of internal revenue respondent docket no 3094-14s filed date john thompson jr and desree thompson pro sese paul w isherwood peter r hochman and john chinnapongse for respondent summary opinion ashford judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed unless otherwise indicated all section references are to the internal continued 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 deficiency of dollar_figure in petitioners’ federal_income_tax and an accuracy-related_penalty pursuant to sec_6662 of dollar_figure for the taxable_year after concessions the issue for decision is whether pursuant to sec_86 petitioners had taxable social_security income of dollar_figure for as a result of the worker’s compensation payments that petitioner john thompson jr received during that year we hold that they did background 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 petitioners resided in california at the time they filed their petition with the court hereafter references to petitioner in the singular shall denote john thompson jr continued revenue code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure monetary amounts are rounded to the nearest dollar petitioners failed to address in their pleadings and at trial respondent’s determination that they received income of dollar_figure from cancellation of indebtedness we thus deem petitioners to have conceded this issue see rule b respondent conceded the accuracy-related_penalty in its entirety at trial in petitioner suffered an injury while performing services as a postal worker for the u s postal service which necessitated several surgeries and resulted in his temporary inability to work petitioner received worker’s compensation benefits for this injury under the federal employees compensation act u s c secs through the department of labor office of workers’ compensation programs from date to date on date petitioner applied to the social_security administration ssa for supplemental_security_income ssi disability benefits in a notice of disapproved claim dated date ssa initially denied his application because he had too much income to be eligible for ssi however three months later ssa approved his application_for disability benefits effective date in a notice of award dated date the notice of award further states we have to consider workers’ compensation and or public disability payments when we figure a social_security_benefit the following will explain how these payments affect social_security_benefits for more information please read the enclosed pamphlet how workers’ compensation and other disability payments may affect your social_security_benefit the pamphlet explains how we reduce your social_security disability checks if the money which you would receive from social_security and workers’ compensation payments add up to more than percent of your monthly average current earnings we found that percent of your average current earnings is dollar_figure we have to take into account your workers’ compensation payment of dollar_figure when we figure your social_security_benefits because you receive this payment we are withholding the benefits you are due we are withholding your monthly social_security checks beginning date which is the first month when you were entitled to both social_security disability benefits and workers’ compensation payments petitioner never actually received ssi disability benefits in nevertheless ssa issued petitioner a form ssa-1099 social_security_benefit statement which reflected benefits paid in of dollar_figure attributable to workers’ compensation offset petitioners did not report any of this amount on their form_1040 u s individual_income_tax_return respondent determined that dollar_figure or of the worker’s compensation offset reported on petitioner’s form ssa-1099 should have been included as taxable social_security income the notice_of_deficiency mailed to petitioners on date reflects that determination petitioners timely petitioned this court disputing respondent’s determination contending that married taxpayers filing a joint_return whose modified_adjusted_gross_income plus one-half of their social_security_benefits exceeds dollar_figure must include up to a maximum of of their social_security_benefits in their gross_income see sec_86 b and c ssa never paid petitioner the reported ssi disability benefits social_security_benefits are not a component of worker’s compensation benefits and the worker’s compensation benefits petitioner received from the department of labor are otherwise not taxable discussion gross_income includes all income from whatever source derived unless specifically excluded sec_61 generally gross_income does not include amounts received under workmen’s compensation acts as compensation_for personal injuries or sickness sec_104 however sec_86 provides for the inclusion of social_security_benefits in gross_income and defines those benefits as any amount received by the taxpayer by reason of entitlement to a monthly benefit under the social_security act sec_86 in addition sec_86 provides that where a taxpayer receives less in social_security_benefits because he is instead receiving worker’s compensation benefits then the amount of worker’s compensation benefits that causes the reduction the so-called offset amount is treated as though it were a social_security_benefit for purposes of determining gross_income in other words taxable social_security_benefits include the amount of worker’s compensation payments to the extent that they reduce or offset the total social_security_benefits to which the recipient is entitled such offsets do not reduce the taxable_amount of social_security_benefits despite ssa not actually paying such benefits this result was specifically contemplated by congress see eg moore v commissioner tcmemo_2012_249 mikalonis v commissioner tcmemo_2000_281 willis v commissioner tcmemo_1997_290 sec_86 is unambiguous and its application to the undisputed facts of this case is clear petitioners stipulated that during petitioner received worker’s compensation benefits and that the ssi disability benefits that he was otherwise entitled to receive in were entirely offset on account of petitioner’s receipt since date of worker’s compensation benefits we acknowledge that if petitioner had not applied to ssa for ssi disability benefits then petitioners would not find themselves in the situation they are in now petitioners’ frustration is thus understandable but our role is to apply the tax laws as written see 85_tc_168 accordingly pursuant to sec_86 we sustain respondent’s determination that for petitioners had dollar_figure of taxable social_security income to reflect the foregoing decision will be entered for respondent as to the deficiency and for petitioners as to the accuracy-related_penalty under sec_6662