t c memo united_states tax_court ray feldman transferee et al petitioners v commissioner of internal revenue respondent docket nos filed date robert edward dallman for petitioners george w bezold for respondent 1cases of the following petitioners are consolidated herewith for opinion sharon l coklan transferee docket no jill k reynolds transferee docket no jan reynolds transferee docket no carrie donahue transferee docket no rhea dugan transferee docket no emma mcclintock transferee docket no robert donahue transferee docket no and richard feldmann transferee docket no memorandum findings_of_fact and opinion swift judge in these consolidated cases respondent determined transferee_liability against petitioners relating to an agreed and unpaid dollar_figure federal_income_tax liability of woodside ranch resort inc woodside ranch for plus an addition_to_tax penalties and interest relating to woodside ranch’s unpaid federal_income_tax liability the amount of each petitioner’s respective transferee_liability as calculated by respondent is as follows ray feldman--dollar_figure sharon l coklan--dollar_figure jill k reynolds--dollar_figure jan reynolds-- dollar_figure carrie donahue--dollar_figure rhea dugan--dollar_figure emma mcclintock--dollar_figure robert donahue--dollar_figure and richard feldmann--dollar_figure the transferee_liability determined against each petitioner is based largely on respondent’s conclusion that a purported date sale2 by petitioners of shares of stock in woodside ranch constituted a sham_transaction not dissimilar from the abusive tax-avoidance transaction described in notice_2001_16 2001_1_cb_730 referred to as an intermediary transaction 2in our findings_of_fact use of the words sale purchase and similar words generally is for convenience and is not intended to and does not constitute a finding that the referenced transactions constituted a valid transaction to be recognized for federal_income_tax purposes the issue for decision is whether petitioners are liable under sec_6901 as transferees for their respective shares of woodside ranch’s dollar_figure federal_income_tax liability for plus the addition_to_tax penalties and interest findings_of_fact many of the facts have been stipulated and are so found at the time of filing their separate petitions petitioners resided in wisconsin florida and arizona trial was held on date in milwaukee wisconsin in the 1920s woodside ranch was established and began business as a wisconsin corporation with its place of business in mauston wisconsin from its incorporation until may of woodside ranch owned and operated a dude ranch resort offering among other activities horseback riding swimming boating hiking fishing snow skiing and snowmobiling along with accommodations the historic shareholders in woodside ranch were william feldman and his five children in at the time of the transactions before us woodside ranch stock was owned by shareholders of whom were grandchildren or great-grandchildren of william feldman they are petitioners herein the 10th 3unless otherwise indicated all section references are to the internal_revenue_code applicable to the year before us and all rule references are to the tax_court rules_of_practice and procedure shareholder lucille nichols daughter of william feldman has died and her estate is not involved in these consolidated cases just before the transactions involved in these cases the officers of woodside ranch were president--decedent lucille nichols vice president--richard feldmann secretary--ray feldman and treasurer--carrie donahue these same individuals also were the directors of woodside ranch on average each year to accidents resulting in injuries to customers occurred at woodside ranch only a few of these accidents resulted in formal claims against woodside ranch the injuries that occurred at woodside ranch typically were not serious and personal injury claims were satisfied by woodside ranch with in-kind compensation eg free return visits to the ranch for the injured customers and their families plus the payment by woodside ranch of medical_expenses after the transactions described below that occurred in the spring and summer of only one personal injury claim against woodside ranch resulted in a payment to an injured customer that payment was for dollar_figure although the sporting and other activities at woodside ranch involved some risk of personal injury for woodside ranch customers over the years woodside ranch did not obtain comprehensive personal injury insurance covering potential injuries such comprehensive insurance was available but expensive and management of woodside ranch chose not to purchase it woodside ranch did carry several insurance policies that covered some activities at the ranch as stated for many years including woodside ranch management was unwilling to pay the high cost of comprehensive liability insurance covering participant sports activities sale of woodside ranch’s assets in the late 1990s and early 2000s the owners and management of woodside ranch faced significant challenges to the continued operation of the ranch increased competition from wisconsin casinos and water parks aging of the woodside ranch shareholders and directors and lack of interest on the part of the shareholders and the feldman next generation in continued operation of the ranch as a result the shareholders of woodside ranch began a search for a buyer of either their stock in woodside ranch or of the assets of woodside ranch the shareholders were interested in minimizing the tax_liabilities associated with a sale of their interests in woodside ranch a corporate asset sale would trigger significant federal and state corporate_income_tax liabilities 4for example woodside ranch carried landlord tenant-type insurance relating to the buildings and property 5in an opinion letter woodside ranch’s accountant estimated that a sale of woodside ranch assets would trigger federal and state corporate income taxes of approximately dollar_figure and continued in the fall of negotiations began with an individual named damon zumwalt zumwalt for the sale of woodside ranch with the expectation on both sides that commercial operation of the dude ranch would be continued by zumwalt a stock sale was proposed to zumwalt who just laughed and chuckled and said ‘not on your life it’s got to be an asset sale’ on date after several months of negotiations the operating_assets and business of woodside ranch were sold to woodside ranch llc wrllc for dollar_figure million in cash hereinafter often referred to as the asset sale or the zumwalt asset sale zumwalt was the sole owner and sole member of wrllc on this asset sale the net cash proceeds received by woodside ranch were dollar_figure in a date memorandum to the woodside ranch shareholders petitioner ray feldman referred to the above estimated_taxes as posing a dilemma for the shareholders also woodside ranch management and shareholders were aware that under wisconsin law they might be able to limit their individual liability relating to potential personal injury claims of customers arising from ranch activities if the sale of woodside ranch took the form of a stock sale with the new owners of the continued dollar_figure respectively woodside ranch stock assuming the liabilities of woodside ranch including risks relating to potential personal injury claims the total combined federal and state_income_tax liability that woodside ranch incurred on the asset sale was approximately dollar_figure of which the officers directors and shareholders of woodside ranch at all relevant times were aware after the asset sale to zumwalt woodside ranch had no operating_assets and ceased to engage in any meaningful business activity efforts to avoid payment of tax_liabilities in the early spring of fred farris farris an accountant and financial adviser to woodside ranch and to some of the individual shareholders introduced the woodside ranch officers directors and shareholders to midcoast credit corp and to midcoast acquisition corp collectively midcoast midcoast was owned directly or indirectly percent by michael bernstein and percent by honora shapiro representatives of midcoast claimed to have expertise in tax matters and provided to the woodside ranch officers promotional materials which outlined a potential tax-avoidance transaction as an alternative to a liquidation of woodside ranch 6if a liquidation of woodside ranch occurred creditors would be able to bring claims directly against woodside ranch shareholders who received corporate assets on the liquidation see wis stat ann sec_180 west under the transaction presented by the midcoast representatives the shareholders of woodside ranch allegedly would be relieved of a significant portion if not all of woodside ranch’s combined federal and state_income_tax liability of approximately dollar_figure relating to the zumwalt asset sale on date in spite of the midcoast promotional materials that had been received the woodside ranch finance_committee consisting of petitioners carrie donahue ray feldman and richard feldmann met and adopted a resolution recommending that a plan_of_liquidation for woodside ranch be adopted however the woodside ranch board_of directors did not adopt the recommended plan_of_liquidation and the woodside ranch directors chose instead to pursue the alternative tax-avoidance transaction proposed by midcoast mentioned above and described more specifically below as reflected in written notations of petitioner ray feldman of a meeting that apparently occurred later in the day on date the midcoast representatives explained that under the midcoast proposal midcoast would purchase bad_debts from entities unrelated to target corporations such as woodside ranch and would use the bad_debts to offset or eliminate unpaid tax_liabilities of the newly acquired target corporations the midcoast representatives explained that the income comes in tax free by using nol and so you create a loss-- lower deferred_tax_liability emphasis added on date midcoast representatives explained over the phone to woodside ranch officers that if woodside ranch was not liquidated and if the cash woodside ranch received on the zumwalt asset sale was not distributed directly to the shareholders but instead the shareholders agreed to sell to midcoast their woodside ranch stock midcoast would pay to the midcoast shareholders a ‘premium’ of approximately dollar_figure to big_number for their stock hereinafter sometimes referred to as the midcoast premium the midcoast premium that the woodside ranch shareholders would receive was to be calculated as a percentage between and percent of the approximate combined federal and state corporate_income_tax liability woodside ranch had incurred as a result of the zumwalt asset sale notations reflecting the midcoast representations explain the exact figure for the premium would be set on a percentage formula based upon the amount of state and federal tax owed as a result of sale of woodside assets to damon zumwalt and woodside ranch llc representatives of midcoast repeatedly explained to the woodside ranch officers that if the woodside ranch stock was sold to midcoast or to a midcoast-related entity midcoast or its related_entity would obtain bad_debt losses from other companies and use those losses to offset or eliminate the tax_liabilities of woodside ranch the transaction proposed by the representatives of midcoast was also referred to by the midcoast representatives as a no- cost liquidation emphasis added in other words instead of directly liquidating woodside ranch and distributing to the woodside ranch shareholders the cash proceeds from the zumwalt asset sale less the combined federal and state tax_liability that would have been paid the midcoast proposal was designed so that the cash in effect still could be liquidated or transferred to the woodside ranch individual shareholders but indirectly and via a few additional steps as follows a purported or nominal sale of the woodside ranch stock to midcoast a transfer by midcoast to the woodside ranch individual shareholders of the cash that would have been distributed to the shareholders on a direct liquidation of woodside ranch ie the net_proceeds available from woodside ranch for a liquidating_distribution plus a premium --one-third of the taxes owed and midcoast would avoid paying the tax_liabilities the woodside ranch shareholders would have had to pay on a direct liquidation all this allegedly was to be made possible by midcoast’s use of bad_debt losses from other companies to offset the reportable woodside ranch gain on the zumwalt asset sale on date woodside ranch’s finance_committee met and adopted a resolution to pursue further with the shareholders the sale of woodside ranch’s stock to midcoast as proposed in the midcoast promotional materials as reflected in minutes of a date woodside ranch finance_committee meeting the amount midcoast would pay the woodside ranch shareholders for percent of the outstanding woodside ranch stock would not be based on the value of the woodside ranch stock such a valuation would have included the approximate dollar_figure million in cash that woodside ranch had on hand from the zumwalt sale rather the minutes state that the amount to be paid would be based on the premium or a percentage approximately percent of the taxes due on the zumwalt sale the minutes state as follows t he sale of of the stock of woodside ranch resorts inc shareholders to midcoast investments inc in exchange for a premium of approximately dollar_figure to dollar_figure the exact figure or total amount of the payment for the premium would be set on a percentage formula based upon the amount of state and federal tax owed as a result of sale of woodside assets as described in the above minutes the proposal from midcoast to pay approximately dollar_figure for percent of the woodside ranch stock was not tied to the value of woodside ranch stock or to the dollar_figure million in cash that woodside ranch had on hand but on a split of woodside ranch’s tax_liabilities intended to go unpaid or be offset via the use of net operating losses nols in the above minutes no mention is made of the cash woodside ranch held from the zumwalt asset sale the minutes of the date finance_committee meeting also state that upon a purchase by midcoast woodside ranch would become part of midcoast’s staple of companies that they are supervising for the purpose of utilizing tax losses which they acquired by buying credit card companies bad_debts and losses to offset against profitable c corps who have a situation like woodside’s wherein a large tax_liability exists the obvious and only benefit to midcoast and its owners was that they would end up with cash in their pockets equal to two- thirds of the amount of woodside ranch’s unpaid tax_liabilities during the weeks that the woodside ranch representatives were in discussion with the midcoast representatives woodside ranch representatives made a number of phone calls and undertook to find out information about midcoast however we are not convinced and in our opinion the credible_evidence in these cases does not establish that the woodside ranch shareholders and their representatives undertook a sufficiently in-depth and thorough due diligence investigation of midcoast on date midcoast sent a letter of intent to woodside ranch in which midcoast represented that--on the basis of percent of the woodside ranch estimated dollar_figure combined federal and state tax liability--the woodside ranch shareholders together would receive approximately dollar_figure more if the nominal stock sale to midcoast was used thereby converting the liquidation into the referred-to no-cost liquidation the following comparison chart was included in the letter of intent to estimate roughly the promised benefits of the midcoast transaction shareholders sell stock of company to shareholders midcoast the liquidate company no cost w out midcoast liquidation dollar_figure asset sales proceeds less federal state income taxes big_number big_number less re commission big_number less title insurance big_number big_number big_number less notes payable big_number big_number less misc adjustments big_number big_number dollar_figure net_proceeds available to shareholders big_number plus midcoast premium to shareholders n a midcoast stock purchase_price or net_proceeds available to shareholders n a n a big_number big_number on date petitioner ray feldman sent a letter to the other woodside ranch shareholders discussing among other things midcoast’s proposal specifically petitioner ray feldman noted the assets were sold by the deed and bill of sale on may 17th to wrllc which of course is owned by damon zumwalt therefore the corporation woodside ranch resort inc is basically an empty shell but which consists of the cash at the time of sale of two million two hundred seventy six thousand eighty-eight dollars and fifty-six cents midcoast promises to pay woodside’s taxes because the corporation would not be liquidated but instead be kept alive as a going concern as part of the midcoast organization this deal is profitable for midcoast because midcoast purchases large amounts of defaulted and delinquent credit card amounts from the major credit card companies and carries forward such losses to offset against the purchase of profitable corporations such as woodside on the basis of the above evidence we have summarized and contrary to some testimony and documentary_evidence in these cases it is absolutely clear that all individuals involved with woodside ranch and midcoast were aware that midcoast and its representatives had no intention of ever paying the tax_liabilities of woodside ranch and also that the source of the approximately dollar_figure midcoast premium to be received by the woodside ranch shareholders was to come from the unpaid tax_liability on date a limited_liability_company was formed under the name of woodsedge llc woodsedge with the woodside ranch shareholders as its sole members each having the same ownership percentage in woodsedge as they had in woodside ranch on date petitioners ray feldman and richard feldmann met with midcoast representatives and others to discuss further the terms of the proposed purchase of the woodside ranch stock by midcoast referred to as a share purchase agreement spa during that meeting petitioners raised a question about their exposure to transferee_liability relating to woodside ranch’s tax_liabilities on date for reasons not clear in the trial record woodside ranch redeemed of the outstanding shares of woodside ranch stock and distributed therefor to its shareholders dollar_figure in cash and other assets the redemption proceeds the parties explain that the fair_market_value of the redemption proceeds was later reduced to dollar_figure and the total redemption proceeds were assigned and transferred by the woodside ranch shareholders to woodsedge after the above partial_redemption and moments before the effective date of the stock sale to midcoast woodside ranch had dollar_figure in cash on hand from the zumwalt asset sale and an approximate combined federal and state_income_tax liability of dollar_figure also on date the woodside ranch shareholders and midcoast entered into the spa under the spa the stated purchase_price to midcoast for the woodside ranch stock was equal to a the amount of cash-on-hand less b dollar_figure the dollar_figure represented a percentage roughly percent of the estimated deferred tax_liabilities of approximately dollar_figure still on date in anticipation of the closing of the spa two escrow agreements were executed the first by midcoast woodside ranch the woodside ranch shareholders and the law firm of foley lardner foley hereinafter referred to as the sellers’ escrow agreement the second by midcoast honora shapiro shapiro shapiro’s attorney and foley hereinafter referred to as purchasers’ escrow agreement under both escrow agreements foley was to act as escrow agent and all funds involved in the stock sale were to be wired into and out of the same trust account of the foley law firm the trust account on date the following steps were taken dollar_figure woodside ranch’s remaining cash on hand from the zumwalt asset sale and after the dollar_figure cash redemption was transferred into the trust account dollar_figure million from shapiro was transferred into the trust account purporting to represent a loan from shapiro to midcoast allegedly to fund the midcoast stock purchase the purported sale to midcoast by the woodside ranch shareholders of their remaining woodside ranch stock closed 7the record does not indicate that the purported shapiro loan was evidenced by a promissory note nor that shapiro received any security or collateral relating thereto dollar_figure viz the dollar_figure cash less the dollar_figure portion of the combined federal and state tax_liability to be retained by midcoast hereinafter sometimes referred to as the woodside cash was transferred from the trust account into an account of woodsedge in favor of petitioners and which amount included the approximate dollar_figure midcoast premium dollar_figure million was transferred back to shapiro in return of the purported loan shapiro had made to midcoast earlier that same day see above and dollar_figure was transferred out of the trust account to foley for legal and escrow fees section of the spa states that the above cash transfers were to be treated as occurring simultaneously the schedule below highlights the reality that the above cash transfers occurred on the same day and within minutes or hours of each other date event p m dollar_figure woodside ranch cash transferred into the foley trust account p m dollar_figure million cash purportedly lent from shapiro to midcoast transferred into the foley trust account p m dollar_figure cash transferred out of the foley trust account into an account of woodsedge in favor of petitioners 8cash of dollar_figure less dollar_figure equals dollar_figure the record does not explain why an extra dollar_figure was transferred from the foley trust account into the woodsedge account in favor of the woodside ranch shareholders 9farris’ accounting firm also received a dollar_figure finder’s fee for introducing midcoast to the woodside ranch shareholders p m dollar_figure million cash transferred out of the trust account back to shapiro per the sellers’ escrow agreement both the dollar_figure which petitioners received out of escrow on the purported sale of their stock to midcoast and the dollar_figure which midcoast received were to be paid and they were paid from the sellers’ escrow fund into which was deposited the dollar_figure proceeds from the asset sale in the sellers’ escrow agreement no express mention is made of any other funds being deposited into escrow to be transferred to the sellers we quote from the express language of the sellers’ escrow agreement the escrow agent acknowledges receipt of the aggregate amount of dollar_figure such amount less distributions therefrom in accordance with this agreement being referred to herein as the escrow fund from woodside ranch the escrow agent shall immediately on the closing date pay over to a woodsedge on behalf of the petitioners from the escrow fund dollar_figure by wire transfer of immediately available funds to a bank account of petitioners’ designation set forth in the instructions b woodside ranch from the escrow fund dollar_figure by wire transfer of immediately available funds to a bank account of woodside ranch’s designation set forth in the instructions per the purchaser’s escrow agreement the purported dollar_figure million loan from shapiro was not to be disbursed until the dollar_figure proceeds of the woodside ranch asset sale were placed into the escrow fund and only then was dollar_figure to be disbursed to woodsedge on behalf of the woodside ranch shareholders dollar_figure to be disbursed to midcoast and dollar_figure million to be immediately returned to shapiro without interest the closing statement shows dollar_figure million coming from shapiro and going back to shapiro as part of the very same closing_transaction the dollar_figure million from shapiro came into escrow only momentarily and went right back to shapiro without ever serving a legitimate economic purpose in this transaction were it a legitimate loan the dollar_figure million would have been outstanding for a period of time and would have had some business_purpose interest would have been charged there would have been a written promissory note the dollar_figure million from shapiro constitutes a ruse a recycling a sham within days after the spa closed the dollar_figure balance in the trust account was transferred out of the trust account into a suntrust bank account in the name of woodside ranch which by that point in time was controlled by midcoast on or about date date and date each of the individual woodside ranch shareholders received from woodsedge his or her respective share of the dollar_figure redemption proceeds and of the dollar_figure cash that passed through the foley trust account as described above included in the spa was a representation by the shareholders of woodside ranch that as of the time of the spa woodside ranch had no liabilities direct or contingent other than the combined federal and state tax_liability included in the spa was a guarantee and release in favor of petitioners to the effect that as between petitioners and midcoast the maximum amount midcoast could seek from petitioners relating to personal injury claims made by customers of woodside ranch was equal to the dollar_figure midcoast premium ie to the portion of the taxes that were to go unpaid and that were to be retained by petitioners dollar_figure also the spa contained a provision prohibiting midcoast from liquidating or dissolving woodside ranch within years of the date closing of the stock saledollar_figure woodside ranch after the closing of the purported stock sale after the purported stock sale to midcoast midcoast was the nominal sole shareholder of woodside ranch woodside ranch had dollar_figure cash on hand a combined federal and state tax_liability 10as stated earlier after the above transactions with midcoast petitioners made only one payment relating to personal injury claims arising from activities of woodside ranch before date which resulted in a payment by petitioners and others of dollar_figure 11petitioners presumably wanted this provision both as added protection against potential personal injury claims arising from woodside ranch activities and to protect against petitioners’ personal exposure to transferee_liability for woodside ranch’s unpaid income_tax liabilities relating to the asset sale of approximately dollar_figure and no operating_assets woodside ranch was rendered insolvent as a result of the payment by it of the redemption proceeds the payment of the woodside cash to the woodside ranch shareholders and the return to shapiro of his dollar_figure million after the above transactions with midcoast woodside ranch had no paid employees and no income other than nominal interest_income however midcoast charged woodside ranch a professional service fee of dollar_figure and from august to date midcoast charged woodside ranch dollar_figure per month as a management fee even though there were essentially no assets to manage woodside ranch’s suntrust account records show withdrawals of dollar_figure and dollar_figure on july and respectively as a result of these withdrawals woodside ranch was unable to pay the july or date management fees it nominally owed midcoast an amount of dollar_figure was entered on the books of woodside ranch as a loan due from midcoast to woodside ranch this purported loan receivable in favor of woodside ranch apparently was based on the treatment of the dollar_figure million in cash that on date was returned out of the foley trust account to shapiro woodside ranch and midcoast treated part ie dollar_figure of the dollar_figure million returned to shapiro as if it had been returned to shapiro not by midcoast but by woodside ranch and that midcoast somehow owed woodside ranch dollar_figure in december of midcoast purportedly sold all of the stock of woodside ranch to wilder capital holdings llc wilder for no cash and for the assumption by wilder of midcoast’s purported dollar_figure loan obligation to woodside ranch wilder made no payment on this purported loan assumption and within month by date the purported dollar_figure loan and a promissory note of wilder’s relating thereto were marked paid dollar_figure on date woodside ranch’ sec_2002 federal corporate_income_tax return was filed showing a tax due of dollar_figure all relating to the zumwalt asset sale by that time woodside ranch of course had no funds and woodside ranch’s federal_income_tax liability was not paid with the filing of the return on date woodside ranch’s federal corporate_income_tax return was filed claiming a net_operating_loss nol this claimed nol was carried back to and thereby reduced woodside ranch’s reported federal_income_tax liability to zero 12wilder’s obligation on the assumed purported midcoast debt to woodside ranch should have been were it legitimate reflected in a promissory note running from wilder in favor of woodside ranch in fact however a promissory note of wilder relating thereto was issued in favor of midcoast woodside ranch was administratively dissolved on date on audit respondent disallowed all but dollar_figure of the nol claimed by woodside ranch on the grounds that the nol was based on sham loans and was part of an illegal distressed asset debt dad tax_shelter petitioners have stipulated that this dad tax_shelter was illegal that the claimed nol was not allowable and that respondent properly disallowed the nol_carryback to dollar_figure on date respondent sent to woodside ranch a notice_of_deficiency setting forth respondent’s determination of woodside ranch’s dollar_figure federal_income_tax deficiency for plus an estimated_tax penalty under sec_6654 delinquency additions to tax under sec_6651 and and an accuracy-related_penalty under sec_6662 woodside ranch did not file a petition in this court challenging the 13generally in a dad tax_shelter a domestic_partnership claims a loss relating to a purported contribution of a built-in_loss asset the partnership typically will contribute the asset to a lower_tier_partnership which in turn will sell that asset to another sometimes related_entity thereby purportedly incurring a significant loss the reported loss passes through to the upper_tier_partnership which allocates and passes through the loss to the domestic partners the domestic partners offset other income or gain with the purported loss the overall effect is that the domestic partner-taxpayers reap the benefits of the built-in_loss asset without ever having incurred the costs associated therewith see irs coordinated_issue_paper distressed asset debt tax_shelters lmsb-04-0407-031 date notice_of_deficiency nor did woodside ranch file a complaint in any other court relating to it sec_2002 federal_income_tax liability petitioners took no actions to ensure that the woodside ranch federal_income_tax liability triggered by the zumwalt asset sale would be paid14 and as stated it remains unpaiddollar_figure respondent investigated whether woodside ranch had any available assets from which to collect woodside ranch’s unpaid federal_income_tax liability and determined that it had none on date respondent sent notices of transferee_liability to petitioners each notice identifying woodside ranch as the transferor with an unpaid federal_income_tax liability of approximately dollar_figure plus additions to tax penalties and 14sec dollar_figure of the spa provided that all taxes due and payable by the company on or prior to the closing date including without limitation those which are called for by the tax returns or heretofore claimed to be due by any taxing authority from the company have been paid except for the deferred_tax_liability which liability is assumed by the purchasers hereunder sec_2 of the spa defines deferred_tax_liability and apparently limits it to dollar_figure 15it should be noted that the woodside ranch dollar_figure wisconsin corporate_income_tax liability for was paid_by midcoast when midcoast representatives learned apparently to their surprise that wisconsin law did not permit nol deductions to be carried back and to offset prior year state corporate_income_tax liabilities interest for a total of dollar_figure the transferee notices indicated the total amount each petitioner received in the stock_redemption and purported stock sale and calculated each petitioner’s individual transferee_liability accordingly an attachment to each notice of transferee_liability stated in relevant part it is determined that the transaction in which shareholders of woodside ranch resort inc purportedly sold stock of woodside ranch resort inc to midcoast acquisitions corporation and midcoast credit corporation on date is not respected for tax purposes this transaction is substantially_similar to an intermediary transaction shelter described in notice_2001_16 2001_1_cb_730 and notice_2008_20 2008_6_irb_406 it is determined that in substance woodside ranch resort inc ceased business activity on date and that the allocation set forth in exhibit showing petitioners’ share of the deemed transferred assets is attributable to you in liquidation or distribution of assets of woodside ranch resort inc on that datedollar_figure opinion in determining whether petitioners are liable under sec_6901 as transferees for woodside ranch’s unpaid federal_income_tax liability we first consider whether the date purported stock sale between petitioners and midcoast is for federal_income_tax purposes to be recognized as such or is to be treated as a sham 16petitioners do not contest their liability as transferees relating to the dollar_figure redemption proceeds they received economic_substance or sham taxpayers generally are free to structure their business transactions as they wish even if motivated in part by tax reduction considerations 293_us_465 81_tc_184 affd on this issue 752_f2d_89 4th cir however a transaction which lacks economic purpose and substance other than sought-after tax_avoidance may be treated as a sham and disregarded for federal_income_tax purposes 435_us_561 rice’s toyota world inc v commissioner supra pincite the economic_substance of a transaction rather than its form controls 324_us_331 gregory v helvering supra 108_tc_507 the labels semantic technicalities and formal written documents do not necessarily control the tax consequences of a given transaction 79_tc_570 see also 613_f3d_1360 11th cir affg 132_tc_105 580_f3d_1038 9th cir affg 124_tc_45 861_f2d_494 7th cir affg 87_tc_1087 as we recently stated for federal_income_tax purposes a transaction may be disregarded if the transaction was entered into not for valid business purposes but rather for tax benefits not contemplated by a reasonable application of the language and purpose of the code or its regulations palm canyon x invs llc v commissioner tcmemo_2009_288 even if a transaction is not treated as a sham it still may be recast in order to reflect its true nature gaw v commissioner tcmemo_1995_ citing 85_tc_397 affd without published opinion 111_f3d_962 d c cir courts often interpret the supreme court’s holding in frank lyon co v united_states supra as establishing an economic_substance_doctrine with two prongs whether the taxpayer had a nontax business_purpose or objective for entering into the disputed transaction the subjective prong and whether the transaction had economic_substance beyond the anticipated tax benefits the objective prong see eg 924_f2d_1018 11th cir affg 91_tc_733 820_f2d_1543 9th cir affg tcmemo_1986_23 rice’s toyota world inc v commissioner f 2d pincite palm canyon x invs llc v commissioner supra some courts use a disjunctive approach and treat a transaction as having economic_substance if the transaction has either a business_purpose or economic_substance see eg rice’s toyota world inc v commissioner f 2d pincite some courts use a conjunctive approach and treat a transaction as having economic_substance only if the transaction has both a business_purpose and economic_substance see eg 435_f3d_594 6th cir yet other courts collapse the objective and subjective prongs into one comprehensive inquiry see eg 69_f3d_982 9th cir revg tcmemo_1992_596 862_f2d_1486 11th cir affg 87_tc_1087 the court_of_appeals for the seventh circuit has stated generally that it is well-established that the commissioner is not required to recognize for tax purposes those transactions which lack economic_substance 238_f3d_860 7th cir affg tcmemo_1999_192 t ransactions with no economic_substance don’t reduce people’s taxes 515_f3d_749 7th cir 248_f3d_572 7th cir affg tcmemo_1999_425 muhich v commissioner supra pincite citing gregory v helvering supra see also 16_f3d_821 7th cir affg tcmemo_1990_ and tcmemo_1987_195 the court_of_appeals for the eleventh circuit recently noted that even if the transaction has economic effects it must be disregarded if it has no business_purpose and its motive is tax_avoidance 254_f3d_1014 11th cir see also kirchman v commissioner supra pincite the focus of the inquiry under the sham_transaction doctrine is whether a transaction has economic effects other than the creation of tax benefits citing 364_us_361 in kirchman v commissioner supra pincite the court_of_appeals for the eleventh circuit noted further the analysis of whether a transaction is a substantive sham however addresses whether a transaction’s substance is that which it form represents that does not necessarily require an analysis of a taxpayer’s subjective intent once a court determines a transaction is a sham no further inquiry into intent is necessary the court_of_appeals for the ninth circuit has recently discussed in an unpublished opinion the economic_substance_doctrine and its two prongs as follows ‘ whether taxpayers demonstrated that either of the principals directing their respective transactions had a business_purpose for engaging in the transaction other than tax_avoidance and whether either transaction had economic_substance beyond the creation of tax benefits ’ thomas inv partners ltd v united_states aftr 2d pincite1 ustc par big_number at big_number 9th cir quoting 909_f2d_1360 9th cir the court_of_appeals in thomas concluded that the transactions under scrutiny were unlikely to confer a nontax benefit and that the individuals who engaged in those transactions did so solely to create tax benefits id pincite- ustc par big_number at big_number further the court_of_appeals has stated that the consideration of business_purpose and economic_substance are simply more precise factors to consider in the application of this court’s traditional sham analysis 843_f2d_351 9th cir affg 85_tc_968 before us in these cases is a purported stock sale between petitioners and midcoast that lacks both business_purpose and economic_substance and that we conclude is to be disregarded for federal_income_tax purposes in substance there was no sale of the stock of woodside ranch rather woodside ranch was liquidated and the dollar_figure cash that woodside ranch had on hand after the partial_redemption that occurred on date was distributed to the woodside ranch shareholders less a fee of approximately dollar_figure that midcoast retained for facilitating the sham the no-cost liquidation terminology used by the midcoast representatives is telling in substance it really was a liquidation not a stock sale the effort assisted by midcoast’s sleight of hand to reduce the tax cost of the woodside ranch liquidation by cloaking the liquidation in the trappings of a stock sale is to be ignored we emphasize that at the same time shapiro transferred dollar_figure million into the trust account dollar_figure was immediately returned to shapiro inferentially the approximately dollar_figure million the woodside ranch shareholders received out of the trust account came to them from the dollar_figure million in proceeds of the zumwalt asset sale--as a corporate distribution in substance woodside ranch was liquidated and petitioners received the dollar_figure million as liquidation proceeds the dollar_figure reported loan receivable in favor of woodside ranch from midcoast obviously was a mere accounting device devoid of substance as we have emphasized the dollar_figure million shapiro placed into the escrow on date was returned to shapiro hours later and thereafter no portion thereof was owed by anyone to anyone shapiro had his dollar_figure million midcoast did not owe him anything woodside ranch did not owe him anything and midcoast did not owe woodside ranch anything with regard thereto what was transferred by woodside ranch to midcoast did not actually represent equity in woodside ranch see 568_f2d_1233 6th cir affg in part and revg in part 64_tc_1 on date woodside ranch’s assets consisted only of cash all of the operating_assets and business of woodside ranch had been sold to zumwalt after the asset sale and partial_redemption but before the purported stock sale woodside ranch had dollar_figure cash on hand and a combined federal and state corporate_income_tax liability of approximately dollar_figure from the time of the purported stock sale woodside ranch carried on no business activity there was no viable business to continue and on the basis of our evaluation of the evidence and testimony before us representations from midcoast that woodside ranch would be incorporated into midcoast’s asset-recovery business are preposterous after the date transaction woodside ranch was nothing more than a shell with no employees no real_property and no assets other than midcoast’s share of the unpaid taxes petitioners argue emphatically that if woodside ranch had been liquidated woodside ranch’s management and shareholders might have ended up facing unexpected and unknown claims and lawsuits against them personally under wisconsin law indeed petitioners argue that the woodside ranch shareholders’ concern over potential liability claims was dominant and that the shareholders’ concern over taxes due on the zumwalt asset sale was only secondary as we have found however whatever the level of perceived risk the woodside ranch management and shareholders actually had in operating woodside ranch it was not enough of a risk to convince them to purchase anything more than spotty or discrete personal injury insurance over the years woodside ranch had relatively few personal injury claims brought against it relating to activities of the ranch and then only in amounts not disclosed in the record on the facts and credible_evidence before us we conclude that petitioners had little basis for being concerned for their potential personal liability on unknown claims and lawsuits arising out of the activities of woodside ranchdollar_figure the date minutes of the woodside ranch finance_committee meeting establish that both the midcoast representatives and the woodside ranch shareholders knew and 17we also find it remarkable that the woodside ranch shareholders and midcoast capped the liability of the woodside ranch shareholders for personal injury claims relating to ranch activities to the amount of the midcoast premium ie to the amount the shareholders were to receive from the unpaid taxes apparently the individuals involved in the transactions before us thought the unpaid taxes or a portion thereof should be the measure not only of midcoast’s fee but also the measure and limit of the shareholders’ liability for personal injury claims the unpaid taxes were to serve dual purposes understood that the only real payment midcoast was making to the woodside ranch shareholders was calculated as and in fact constituted nothing more than a split of the projected tax_liabilities that no one intended to pay the real price to be paid_by midcoast for the stock had nothing to do with the value of woodside ranch rather the stock purchase by midcoast was a sham and midcoast was simply splitting between itself and the woodside ranch shareholders the amount of the taxes that should have been paid the midcoast representative said it correctly when he stated that the transaction before us was all about creating tax_avoidance it was not supported by underlying economic_substance and business activity the only entity that was to fund or incur the cost of the transaction before us was the federal government via unpaid taxes petitioners argue that the spa provision under which woodside ranch was not to be dissolved for years confirms their good_faith and intent that the tax_liabilities would be paid and confirms their concern over personal liability for personal injury claims against woodside ranch we disagree we regard the spa provision as essentially meaningless while under the control of midcoast woodside ranch failed to pay its taxes claimed other illegal tax-avoidance tax_shelters and was effectively given away by midcoast for nothing we conclude that in substance the transaction before us was not a bona_fide sale of woodside ranch stock the substance of the transaction was a liquidation to petitioners of woodside ranch’s cash and a fee payment to midcoast for its role in facilitating the sham transferee_liability sec_6901 provides a procedure through which respondent may collect from transferees of assets unpaid taxes owed by the transferors of the assets if a legal basis exists under state law or equity for holding the transferees liable for the unpaid taxes 357_us_39 100_tc_180 transferee_liability under sec_6901 includes related additions to tax penalties and interest owed by the transferors 42_tc_660 affd 351_f2d_1 2d cir respondent bears the burden of proving that petitioners are liable as transferees of the property of woodside ranch see sec_6902 rule d we apply wisconsin law in our analysis of whether petitioners should be held liable as transferees of woodside ranch wisconsin shareholders of a dissolved corporation may be liable as transferees to creditors of the corporation such as respondent where the shareholders receive corporate assets as part of a dissolution wis stat ann sec_180 west provides if the dissolved corporation’s assets have been distributed in liquidation a claim not barred under sec_180 or may be enforced against a shareholder of the dissolved corporation to the extent of the shareholder’s proportionate share of the claim or the corporate assets distributed to him or her in liquidation whichever is less but a shareholder’s total liability for all claims under this section may not exceed the total amount of assets distributed to him or her as computed for purposes of this subsection the shareholder’s proportionate share of the claim shall reflect the preferences limitations and relative rights of the class or classes of shares owned by the shareholder as well as the number of shares owned and shall be equal to the amount by which payment of the claim from the assets of the corporation before dissolution would have reduced the total amount of assets to be distributed to the shareholder upon dissolution income_tax liabilities arising from the sale of corporate assets are claims existing at the time of the sale see kreps v commissioner supra pincite this court has held that at the time of an intermediary transaction asset sale not dissimilar from the transaction herein the commissioner qualified as a creditor of the seller for federal taxes arising from the sale lr dev co llc v commissioner tcmemo_2010_203 discussing illinois definitions of the terms debt and claim which are the same as under wisconsin’s fraudulent transfer statute having found that the transaction before us in substance and purpose was part of a liquidation and dissolution of woodside ranch and that the woodside ranch shareholders received as a part of that liquidation and dissolution approximately dollar_figure million in cash as a distribution from woodside ranch we conclude that petitioners are liable as transferees under the above provision of wisconsin law for their proportionate shares of woodside ranch’s unpaid federal_income_tax liability wisconsin also has adopted the uniform fraudulent transfer act codified at wis stat ann secs dollar_figure to dollar_figure west wisconsin ufta which provides creditors with certain remedies where a debtor transfers property and thereby avoids creditor claims if the elements of the wisconsin ufta are satisfied creditors may obtain an attachment or other remedy against the property transferred and against the transferees and their property wisconsin ufta sec_242 respondent does not argue that petitioners should be liable as transferees under wisconsin ufta sec_242 a a provision that requires a debtor’s actual intent to defraud hinder or delay a creditor however respondent argues that under two closely related provisions of the wisconsin ufta petitioners should be treated as transferees and as liable for the unpaid federal_income_tax liability of woodside ranch wisconsin ufta sec_242 b is applicable where t he debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction or intended to incur or believed or reasonably should have believed that the debtor would incur debts beyond the debtor's ability to pay as they became due wisconsin ufta sec_242 is applicable where t he debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation wisconsin statutes do not define reasonably equivalent value the uniform fraudulent transfer act is a uniform act deriving the phrase reasonably equivalent value from u s c section 139_f3d_574 7th cir bowers- siemon chems co v h l blachford ltd bankr bankr n d ill illinois law on fraudulent conveyance parallels sec of the bankruptcy code whether reasonably equivalent value was received by the transferor is a question of fact leibowitz v parkway bank trust co in re image worldwide ltd supra pincite citing heritage bank tinley park v steinberg in re grabill bankr bankr n d ill in the bankruptcy context the court_of_appeals for the seventh circuit has stated that the test used to determine reasonably equivalent value in the context of a fraudulent conveyance requires the court to determine the value of what was transferred and to compare it to what was received 129_f3d_382 7th cir under the wisconsin ufta creditors such as respondent have the burden to prove the above elements of transferee_liability by clear_and_convincing evidence 969_f2d_515 7th cir 920_fsupp_944 e d wis petitioners do not dispute woodside ranch’s liability for the federal income taxes arising from the zumwalt asset sale nor the existence of respondent’s claim therefor or respondent’s creditor status at the time of the transfers in question on the evidence before us it is clear that in exchange for the distribution of approximately dollar_figure million in cash to petitioners woodside ranch received nothing of reasonably equivalent value after the zumwalt asset sale woodside ranch ceased to engage in any business activity there was no viable business to continue and regardless of how midcoast chose to describe its post-sale intentions for woodside ranch the only business left for woodside ranch was to pay its tax_liabilities arising from the asset sale the transfer of woodside ranch’s dollar_figure million to petitioners left woodside ranch with remaining assets of approximately dollar_figure in cash insufficient to pay woodside ranch’s federal and state_income_tax liabilities exceeding dollar_figure it is clear that as a result of woodside ranch’s cash distribution to petitioners woodside ranch was rendered insolvent see wisconsin ufta sec_242 b a debtor is insolvent if the sum of the debtor’s debts is greater than all of the debtor’s assets at a fair valuation further the woodside ranch shareholders should have known that the federal_income_tax liability arising from the zumwalt asset sale would not be paid the credible_evidence before us establishes that petitioners’ interest in the midcoast transaction relied almost entirely on the assumption and calculation that the woodside ranch tax_liability would remain unpaid the impetus for taking the cumbersome route of a nominal stock sale was the mutual understanding between petitioners and midcoast that each party would pocket and retain a portion of the unpaid taxes midcoast offered a no-cost liquidation as a solution to the tax dilemma in which petitioners found themselves in spite of representations to the contrary in some of the transaction documents the record is replete with notice to petitioners that midcoast never intended to pay woodside ranch’s federal_income_tax liability on the credible_evidence before us we conclude that petitioners knew or should have known that as a result of the transactions among woodside ranch midcoast and petitioners woodside ranch had debts beyond its ability to pay we conclude that petitioners herein are liable as transferees under both of the above provisions of the wisconsin ufta for their proportionate shares of woodside ranch’s unpaid federal_income_tax liability lastly under what respondent refers to as a common_law trust fund doctrine relating to fiduciary duties of corporate directors and officers petitioners should be treated as transferees and as liable for the unpaid federal_income_tax liability of woodside ranch respondent cites beloit liquidating_trust v grade n w 2d wis which explained that when a corporation is insolvent and has ceased to be a going concern and its directors and officers know or ought to know that suspension of the corporation is pending transfers of corporate property to the directors or officers in lieu of payments to creditors of the corporation may be held to constitute a fraud on the creditors and the directors and officers may be held personally liable to the injured creditors see also polsky v virnich n w 2d wis ct app under the above alternate authority respondent argues that all petitioners should be held liable under wisconsin law and under sec_6901 as transferees as noted however this wisconsin common_law authority would apply only to petitioners who were directors and officers of woodside ranch namely to ray feldman richard feldmann and carrie donahue not to petitioners who were neither directors nor officers of woodside ranch in light of our conclusion and holding herein that petitioners are liable under wis stat ann sec_180 the wisconsin ufta and sec_6901 for their respective shares of woodside ranch’ sec_2002 unpaid federal_income_tax liability we need not and we do not decide whether any petitioners also should be held liable under the above common_law authority on which respondent relies in two recent memorandum opinions and in a memorandum opinion filed today this court has addressed transferee_liability relating to other transactions promoted by midcoast see frank sawyer trust of date v commissioner tcmemo_2011_298 filed date starnes v commissioner tcmemo_2011_63 decision entered date on appeal 4th cir date griffin v commissioner tcmemo_2011_61 decision entered date in the above three cases this court held in favor of the taxpayers those cases involved differences from the instant cases starnes and frank sawyer trust were decided largely on the basis of insufficiency of and burden_of_proof in griffin after the transaction with midcoast the target_corporation retained substantial assets and was not thereby rendered insolvent additionally the taxpayer filed a lawsuit and obtained a state court judgment against midcoast in an effort to get the taxes paid in starnes griffin and frank sawyer trust the facts as found did not establish that the taxpayers knew that midcoast intended not to pay the taxes for the reasons stated we sustain respondent’s determination that petitioners are liable as transferees with respect to their respective shares of the unpaid federal_income_tax liability of woodside ranch and the related additions to tax penalties and interest decisions will be entered for respondent


internal_revenue_service department ofthdollar_figure index number washington dc person to contact telephone number refer reply to cc dom p si plr-111987-99 date date company state m o i q i o i dear this letter responds to a letter from your authorized representative dated date submitted on behalf of company requesting rulings under sec_1362 and b of the internal_revenue_code regarding company's s_corporation_election within five years of the termination of an earlier election company represents the following facts company was incorporated in state on a and elected under sec_1362 to be ans corporation effective b m one of company's original shareholders sold all of his stock back to company on c company revoked its s_corporation_election on d m was not a shareholder at this time 32y plr-111987-99 on e unaware of the revocation of company's s election m became the sole shareholder of company m represents that he intended company to be an s_corporation beginning on e for reasons stated in the ruling_request form_2553 election by a smail business corporation was not timely filed company filed form_1120s u s income_tax return for an s_corporation for its most recently completed tax_year sec_1362 provides that if a small_business_corporation has made an election under sec_1362 and if that election has been terminated under sec_1362 the corporation and any successor_corporation shall not be eligible to make an election under sec_1362 for any_tax year before it sec_5 tax_year which begins after the tax_year for which the termination is effective unless the secretary consents to the election regarding the election after termination sec_1_1362-5 of the income_tax regulations provides that the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should consent to a new election the fact that more than percent of the stock in the corporation is owned by persons who did not own any stock in the corporation on the date of the termination tends to establish that consent should be granted sec_1362 provides in general that an election under sec_1362 may be made by a small_business_corporation for any_tax year- a at any time during the preceding tax_year or b at any time during the tax_year and on or before the 15th day of the 3d month of the tax_year sec_1362 provides that if- a a small_business_corporation makes an election under sec_1362 for any_tax year and b that election is made after the 15th day of the 3d month of the tax_year and on or before the 15th day of the 3d month of the following tax_year then that election shall be treated as made for the following tax_year plr-111987-99 sec_1362 provides that if-- a an election under sec_1362 is made for any_tax year determined without regard to sec_1362 after the date prescribed by this subsection for making the election for that tax_year or no such election is made for any_tax year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat such election as timely made for that tax_year and sec_1362 shall not apply after applying the applicable law and regulations to the facts as presented in this ruling_request we rule that- company may elect to be an s_corporation effective d and company's late election under sec_1362 shall be treated under sec_1362 as timely filed for its tax_year beginning d ruling is contingent however on company filing form_2553 with an effective date of d with the appropriate service_center no later than days from the date of this letter a copy of this ruling letter should be attached to the form_2553 except for the specific rulings above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed on whether company otherwise is eligible to be an s_corporation in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative gr plr-111987-99 this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely gu ore jeff erickson assistant to the chief branch office of assistant chief_counsel passthroughs and special industries enclosure copy of this letter copy for sec_6110 purposes


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-101852-19 date date legend purchaser ------- ----------------------------- --------------------------------------------------- s_corporation ---------------------------------------------------------- ------------------------------------- shareholder ---------------------------------------------------------- ------------------------ date state a company official tax professional dear ----------------- ----------------------- --------- --------------------------------------------------------------------------------- ---- ------------------------------------------------------------------ this letter responds to a letter dated date submitted on behalf of purchaser s_corporation and shareholder collectively the parties requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election the parties are requesting an extension of time to properly execute the agreement referenced in sec_1_336-2 of the income_tax regulations the agreement and to file the election statement under sec_1_336-2 the election plr-101852-19 statement with respect to purchaser's acquisition of all of the stock of s_corporation from shareholder on date the material information submitted is summarized below on date purchaser an individual citizen_of_the_united_states entered into the agreement to purchase all of the stock of s_corporation a state a corporation from shareholder the disposition it has been represented that the disposition qualified as a qualified_stock_disposition as defined in sec_1_336-1 the parties intended to make a sec_336 election but for various reasons did not timely file an election statement furthermore s_corporation was not a party to the agreement consequently a timely sec_336 election was not made this request was submitted under sec_301_9100-3 for an extension of time to enter into the agreement and file the election statement the parties have represented that they are not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time of the request regulations promulgated under sec_336 permit certain_sales exchanges or distributions of stock of a corporation to be treated as asset dispositions if the disposition is a qualified_stock_disposition as defined in sec_1_336-1 and a sec_336 election is made sec_1_336-2 provides that a sec_336 election for an s_corporation target is made by i all of the s_corporation shareholders including those who do not dispose_of any stock in the qualified_stock_disposition and the s_corporation target entering into a written binding agreement on or before the due_date including extensions of the federal_income_tax return of the s_corporation target for the taxable_year that includes the disposition date to make a sec_336 election ii the s_corporation target retaining a copy of the written_agreement and iii the s_corporation target attaching the sec_336 election statement described in sec_1_336-2 and to its timely filed including extensions federal_income_tax return for the taxable_year that includes the disposition date under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 plr-101852-19 the time for entering into the agreement and filing the election statement is fixed by the regulations ie sec_1_336-2 and iii therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time to enter into the agreement and to file the election statement provided the parties acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief would not prejudice the interests of the government information affidavits and representations submitted by the parties company official and tax professional explain the circumstances that resulted in the failure to timely enter into the agreement and file the election statement the information establishes that the parties reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the request for relief was filed before the failure to timely enter into the agreement and file the election statement was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that the taxpayers have acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter to enter into the agreement and file the election statement within days of the date on this letter a s_corporation and shareholder must enter into a written binding agreement to make the sec_336 election and b s_corporation must file the election statement in accordance with sec_1_336-2 the election statement must be attached to s corporation’s tax_return for the taxable_year including date in addition a copy of this letter must be attached to s corporation’s return alternatively if s corporation's return is filed electronically the requirement of attaching a copy of this letter to the return may be satisfied by attaching a statement that provides the date and control number plr- on this letter within days of the date on this letter all relevant parties must file or amend as applicable all returns and amended returns if any necessary to report the transaction consistently with the making of a sec_336 election for the taxable_year in which the transaction was consummated and for any other affected_taxable_year the above extension of time is conditioned on all relevant parties’ tax_liability if any being not lower in the aggregate for all years to which the sec_336 election applies than it would have been if the agreement had been timely entered into and the election statement had been timely filed taking into account the time_value_of_money no opinion is expressed as to the parties’ tax_liability for the years involved a plr-101852-19 determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved we express no opinion as to whether the disposition qualifies as a qualified_stock_disposition or any other tax consequences arising from the sec_336 election in addition we express no opinion as to the tax consequences of filing the return or making the sec_336 election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the sec_336 late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we have relied on certain statements and representations made by the parties company official and tax professional however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to enter into the agreement and file the election statement penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely _ken cohen__________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate