internal_revenue_service number release date ------------------------------------------ --------------------------------------- ----------------------------- ---------------------------- 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 b01 plr-125748-18 date date legend parent corp x corp y date date date company official tax professional dear --------------- ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ----------- --------------------------------- -------------------------------------------- ------------------------ --------------------------- --------------------------- -------------------------------------------------------------------------------- ------------------------------------------------------------------------ this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to make an election the extension is being requested for parent group as defined below to make an election under sec_1 a of the income_tax regulations to file a consolidated federal_income_tax return for the tax_year ending on date the election additional information was submitted in a letter dated date the material information submitted for consideration is summarized below parent an entity taxed as a corporation for federal_income_tax purposes became the common parent of a new affiliated_group parent group as the result of its acquisition of corp x from corp y on date corp x had previously been the common parent of its own affiliated_group until it was acquired by corp y on date neither transaction was a reverse_acquisition within the meaning of sec_1_1502-75 parent group intended to file a consolidated_return for the tax_year ending on date but for various reasons a plr-125748-18 valid election ie the timely filing of a consolidated_return was not made after discovery of the missed election parent submitted this request for an extension of time under sec_301_9100-3 to file a valid election parent group has represented that it is not attempting to alter a return position taken for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time it requested relief and the new position requires or permits the election for which relief is granted the period of limitations on assessment under sec_6501 has not expired for the tax_year ending on date or any subsequent tax_year 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 the time for filing the election is fixed by the regulations ie sec_1_1502-75 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent group to file the election provided parent acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent 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 make the election 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 parent has 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 provided that parent group qualifies substantively to file a consolidated_return for the tax_year ending on date an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent group to file the election by filing a consolidated_return with parent as the common parent and attaching a form_1122 for each subsidiary for the tax_year ending on date parent must attach a copy of this letter to the return or if parent plr-125748-18 group files its returns electronically a statement must be attached to the return that provides the date on and the control number plr-125748-18 of this letter_ruling the above extension of time is conditioned on parent group's tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayer's tax_liability for the years involved a determination thereof will be made by the director's office upon audit of the federal_income_tax returns involved we express no opinion as to the tax effects or consequences of filing the election or the return late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election or the return late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by parent 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 file the election penalties and interest that would otherwise be applicable if any continue to apply 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 sincerely _ken cohen________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate-


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division dec uniform issue list xxxxxxxxxxxxxkxkxkxx xxxxxxxxxxxxxkxxkxx xxxxxxxxxxxxxkxxkxx xxxxxxxxxxxxxxxxx tep racts legend taxpayer a xxxxxxxxxkxxxkkxkxkk decedent xxxxxxxxxxxxxxxxx financial_institution h xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx xxxxxxxxxxxxkkkkxk xxxxxxxxxxxxxxxkk xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxkxx xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxkxxkx xxxxxxxxxxxxxxkxxx xxxxxxxxxxxxxxxkxx xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx court b state s - ira x date date date date date date year xxxxxxxxxxxx page dear xxxxxxxkxx this letter is in response to your request for a letter_ruling dated date as supplemented by additional correspondence dated date submitted by your authorized representative on your behalf in which you request rulings under sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested decedent whose date of birth was date died on date not having attained age decedent was survived by her husband taxpayer a whose date of birth is date at the time of her death decedent maintained an individual_retirement_annuity ira x with financial_institution h on date decedent designated taxpayer a as beneficiary of ira x in year decedent requested financial_institution h to change ownership of ira x from a custodial arrangement whereby the custodian held legal ownership of the ira for the benefit of the decedent to direct ownership of ira x by decedent the ownership_change became effective on date although not requested by the decedent financial_institution h also changed the beneficiary of ira x to decedent's_estate along with the change_of_ownership decedent was notified of this discrepancy by her financial advisor and new beneficiary designation forms were mailed to her renaming taxpayer a as beneficiary however she became ill and died prior to correcting the beneficiary designation forms decedent's last will and testament will designates taxpayer a her husband as the personal representative of her estate item viii of the will gives the personal representative broad powers to exercise in the management of decedent’s estate including without being limited in any way by the specific grants of power made and without the necessity of a court order taxpayer a was appointed as personal representative of decedent’s estate by court b on date as decedent's surviving_spouse taxpayer a intends to establish an ira in his own name and wishes ira x to be transferred directly to his ira account in a trustee-to- trustee transfer documentation submitted shows that decedent was the owner of ira x at the time of her death and that taxpayer a decedent's surviving_spouse was designated as the personal representative and the sole beneficiary of her estate based on the facts and representations you request the following rulings that taxpayer a will be treated for purposes of sec_408 of the code as the payee or distributee of the proceeds from ira x xxxxxxxxxxxx page that ira x will not be treated as an inherited ira within the meaning of sec_408 of the code with respect to executor a that taxpayer a is eligible to roll over the proceeds from ira x to an individual_retirement_account set up and maintained in his own name pursuant to section a08 d a i of the code as long as the rollover occurs no later than the day the proceeds are received by taxpayer a in his capacity as personal representative of decedent's_estate that taxpayer a will not be required to include in gross_income for federal_income_tax purposes for the year in which the distribution of ira x is made any portion of the proceeds distributed from ira x which are timely rolled over to an ira set up and maintained in taxpayer a’s name sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code provides that sec_408 does not apply to a rollover_contribution if such contribution satisfies the requirements of sec_408 and d b the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ra for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides in summary that in the case of an inherited ira sec_408 shall not apply to any amount received by an individual from such account and no amount transferred from such account to another ira shall oooo be excluded from income by reason of such transfer and such inherited account shall not be treated as an ira for purposes of determining whether any other amount is a rollover_contribution sec_408 of the code provides that the term inherited ira means an ira obtained by an individual other than the ira owner's spouse as a result of the death of the ira owner thus under circumstances that conform with the requirements of sec_408 a surviving_spouse who acquires a decedent's ira after and as a result of the death of an ira owner will be able to roll over the decedent's ira into an ira set up and maintained in the name of the surviving_spouse on date final income_tax regulations regulations were published in the federal_register with respect to code sec_401 and sec_408 see also 2002_19_irb_852 date sec_1_408-8 question and answer of the regulations provides that a surviving_spouse of an ira owner may elect to treat the spouse's entire_interest as a beneficiary in an individual's ira as the spouse's own ira in order to make this election the spouse must be the sole beneficiary of the ira and have an unlimited right to withdraw amounts from the ira if a_trust is named as beneficiary of the ira this requirement is not satisfied even if the spouse is the sole beneficiary of the trust the preamble to the regulations provides in relevant part that a surviving_spouse who actually receives a distribution from a deceased spouse's ira is permitted to roll that distribution over into his her own ira even if the spouse is not the sole beneficiary of the deceased's ira as long as the rollover is accomplished within the requisite 60-day period a rollover may be accomplished even if ira assets pass through either a_trust and or an estate generally if the proceeds of a decedent's ira pass through a third party eg a_trust or an estate and then are distributed to the decedent's surviving_spouse the surviving_spouse shall be treated as having received the ira proceeds from the third party and not from the decedent thus generally a surviving_spouse shall not be eligible to roll over the distributed ira proceeds into his or her own ira however the general_rule will not apply in a case where the surviving_spouse as executor of the decedent’s estate has sole authority and discretion to pay the ira proceeds to himself in such a case the surviving_spouse may then receive the ira proceeds and roll over the amounts into an ira set up and maintained in his name in the present case decedent's interest in ira x passed to her estate taxpayer a is both the executor of the estate and its sole beneficiary with the right to direct any and all amounts from the estate without restriction under this set of circumstances no third party can prevent taxpayer a from receiving the proceeds of ira x and from rolling over or transferring by means of a trustee-to-trustee transfer the full amount of ira x into another ira set up and maintained in the name of taxpayer a under this set of circumstances the general_rule set forth above will not apply therefore with respect to your ruling requests we conclude that page executor a as surviving_spouse and sole beneficiary of decedent's_estate will be treated for purposes of sec_408 of the code as the payee or distributee of the proceeds from ira x ira x will not be treated as an inherited ira within the meaning of sec_408 d of the code with respect to executor a taxpayer a is eligible to roll over the proceeds from ira x to an individual_retirement_account set up and maintained in his own name pursuant to sec_408 of the code as long as the rollover occurs no later than the day after the proceeds are received by taxpayer a in his capacity as personal representative of decedent’s estate that taxpayer a will not be required to include in gross_income for federal_income_tax purposes for the year in which the distribution of ira x is made any portion of the proceeds distributed from ira x which are timely rolled over to an ira set up and maintained in executor a’s name no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter is being sent to your authorized representative pursuant to a power_of_attorney on file in this office if you wish to inquire about this ruling please contact xxxxxxxxxxxxxx id xxx-xxxxkx at xxx xxx-xxxx please address all correspondence to se t ep ra t3 sincerely laura b warshawsky manager employee_plans technical group deleted copy of ruling letter notice of intention to disclose enclosures


internal_revenue_service number release date index number -------------------------- -------------------------- ------------------------------------- ------------------------------- ---------------------------- ------------------------- ---------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-139092-04 date date legend x --------------------------------------------- ----------------------- --------- ---------------------- country d dear ------------------ this letter responds to the letter dated date and related correspondence written on behalf of x requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an entity classification election facts the information submitted discloses that x was formed under the laws of country x intended to make an entity classification election to be treated for federal tax purposes as disregarded as an entity separate from its owner effective d however due to inadvertence form_8832 was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes elections are necessary only when an plr-139092-04 eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that generally except as provided in sec_301_7701-3 unless an entity elects otherwise a foreign eligible_entity is treated as an association if all members have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 entity classification election with the appropriate service_center under sec_301 c iii this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the federal_register commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 and therefore it is granted an extension of time of sixty days from the date of this letter to file a form_8832 to elect to be treated as a disregarded_entity effective d a copy of this letter should be attached to the election a copy is enclosed for that purpose except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent plr-139092-04 in accordance with the power_of_attorney on file with this office a copy of this letter is being mailed to x sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------------------------------ ---------- ------------------------------------- ----------------------------------- ----------- ----------------------------- ----- department of the treasury washington dc person to contact -------------------- telephone number -------------------- refer reply to cc tege eoeg et1 plr-132435-08 date date ty ty legend taxpayer ------------------------------------- plan ---------------------------------------------------- claim form ------------------------------------------------------------- dear ---- ------------------------------------------------- this responds to your request of date for a private_letter_ruling regarding the proper employment_tax treatment of payments made to service technicians for trade equipment supplies tools and equipment training and or certification required as a condition_of_employment specifically you have requested a ruling concerning whether taxpayer’s expense reimbursement arrangement the plan satisfies the accountable_plan requirements of sec_62 and the regulations thereunder according to the information submitted taxpayer is expanding its professional consulting business to include a new division that both will sell professional tools and equipment and provide associated services such as repair and maintenance to its customer base taxpayer will employ service technicians technicians as hourly wage employees to perform the repair and maintenance services on tools and equipment sold by taxpayer to its customers taxpayer’s technicians are required to provide and maintain their own tools and equipment for performing the repair and maintenance work the technicians’ tools and equipment which are kept on-site at the taxpayer’s business locations are owned by them and are used exclusively to perform repair and maintenance work for taxpayer taxpayer will reimburse technicians for certain deductible business_expenses incurred in connection with supplies tools equipment and training or certification necessary for plr-132435-08 technicians to perform services for taxpayer through an expense reimbursement arrangement the plan the plan is only between taxpayer and taxpayer’s technicians as described more fully below the plan only reimburses covered costs that the technician substantiates to taxpayer the reimbursements are not provided in lieu of nor are they a function of any other compensation such as hourly wages fixed salaries bonuses benefits or commissions nor does the plan provide for any adjustments to compensation on account of reimbursements prior to each fiscal_year taxpayer will determine the total amount it can afford to allocate to the plan for reimbursements in the coming year the allocated amounts will be treated no differently than any other budget line item and will remain at all times in the general funds of taxpayer subject_to creditors all allocated amounts will remain the sole property and under the direct control of taxpayer and used to reimburse expenses at taxpayer’s sole discretion at the end of each plan_year all amounts allocated for technicians’ reimbursable business_expenses that are not disbursed will remain in taxpayer’s general fund each technician will be eligible to receive up to a set amount as reimbursements for substantiated covered costs based on the total amount available for reimbursements and each technician’s expected need for additional trade equipment supplies tools and equipment training and or certification to accomplish his or her job assignments taxpayer will inform technicians at the beginning of each plan_year of eligibility to participate in the plan and their allocated maximum amount available for reimbursement of their substantiated expenses the amounts allocated for reimbursements of technician’s expenses may not be sufficient to fully reimburse all the technician’s expenses only qualified employees will be permitted to participate in the plan for purposes of the plan qualified employees are those employees who have completed at least days of employment have completed a certification form and have purchased tools or equipment or incurred covered costs as defined below for the benefit of taxpayer’s business the certification form details the terms and conditions of the plan and requires that the technician certify that he or she understands and agrees to the terms contained in the plan the certification form includes provisions regarding the purpose of the plan the types of expenses that are reimbursable under the plan and the requirements for reimbursement under the plan the form is intended to assist in the education process for the technician in order to ensure that the technician understands the plan the plan will only reimburse covered cost sec_1 covered costs are defined in the plan as costs incurred on job assignments while employed by taxpayer during the current plan_year and while enrolled in the plan covered costs include expenses_incurred after we assume for purposes of this ruling that none of the covered costs reimbursed under the plan would be nondeductible personal expenses under sec_262 of the internal_revenue_code plr-132435-08 technician becomes a qualified_employee to purchase tools equipment uniforms safety equipment and supplies and to obtain employee training and certification directly related to taxpayer’s trade_or_business tools and equipment required by technicians to perform services for taxpayer may range from simple hand tools to diagnostic equipment3 the plan will not reimburse expenses for supplies tools or equipment incurred while the technician was employed by another employer or expenses for any supplies tools or equipment purchased prior to the plan start date because the plan reimburses costs incurred to purchase tools and equipment eligible for a sec_179 deduction the plan will not reimburse for any depreciation of such tools and equipment that might have been otherwise deductible under sec_167 no reimbursements will be made for tools and equipment that are not used exclusively for taxpayer’s business not maintained at taxpayer’s place of business not purchased while an employee of taxpayer not needed to perform job assignments not purchased from an approved vendor4 or not considered necessary for the applicable industry technicians may only purchase tools or equipment from an approved vendor list so that taxpayer may control the cost of such expenses without sacrificing quality and warranty provisions in order to be reimbursed technicians will be required to submit a claim form the claim form requires the technician to validate that he or she has read and understands the plan and to certify that the information provided is correct and complete that the expense is required to complete his or her job assignments for taxpayer that the item will only be used in the performance of job assignments for taxpayer and that the item was purchased from the approved vendor list the claim form also requires the technician to identify the job assignments that require the trade equipment supplies tools and equipment training and or certification in addition the technician must certify i that he or she will not seek additional reimbursement from other sources any other plan or program of any other employer or person ii that he or she will not claim the expense as a deduction on his or her or his or her spouse’s tax_return iii notwithstanding clause ii that he or she could otherwise claim the cost of the tools and equipment that are sec_179 property as a deduction under sec_179 and iv if he or she places in service other sec_179 property not reimbursed under the plan during the taxable_year in which he or she receives a reimbursement under the plan that he or she will reduce the sec_179 and b limits for that taxable_year by the amount of the reimbursement received under the plan for sec_179 property during that taxable_year the technician’s manager will be required to sign the claim form certifying that the request redundant tool and equipment reimbursements are not permitted unless the redundant tools or equipment are required to perform assigned jobs or are required to replace lost or broken tools or equipment that have no associated warranty and or timely replacement process available to facilitate the type of jobs assigned to the technician the plan will not reimburse for the acquisition or use of cell phones or automobiles taxpayer plans to distribute the approved vendor list to technicians at the beginning of each plan_year plr-132435-08 for reimbursement is for an expense required by the technician for his or her job and validating that the job assignments identified on the claim form are accurate the manager will also verify that the expenses identified will only be used for the benefit of taxpayer’s business the plan also requires that technicians submit documented proof of purchase for any expenses submitted for reimbursement on the claim form acceptable forms of purchase validation include a receipt invoice or if a receipt or invoice cannot be obtained other written confirmation of the actual purchase from a vendor where a technician may have an open account the proof of purchase requires that all items be clearly identified along with the purchase date and cost of each associated item taxpayer reserves the right to deny any claim if the documentation is incomplete or if the expense is not eligible as allowed by the plan or exceeds the allocated reimbursement amount claims for reimbursement of expenses may be wholly or partially denied under the plan only reimbursements will be made no provisions for cash advances or allowances are provided under the plan as such there should be no excess_reimbursements for technicians to return however the plan requires that any reimbursements made in error be returned to taxpayer within days of notification reimbursements will only be made once the technician completes the required claim form gets the form signed by his or her manager and submits the completed form and proof of purchase to the plan_administrator all eligible reimbursement requests must be submitted within days of purchase in addition technicians will have up to days from the end of the plan_year or from the date he or she ceases to be a participant in the plan whichever is earlier to submit for reimbursements for that plan_year the plan_administrator will be responsible for validating that the claim form is complete and within the guidelines of the plan including the submission of proof of purchase the plan_administrator will also conduct periodic audits of reimbursements made to technicians and of manager authorizations the technician must remain an employee of taxpayer for at least six months after any such reimbursement is made if the technician ceases to be an employee of taxpayer he or she must repay all reimbursements made during the prior six months of employment with taxpayer at the time of departure taxpayer reserves the right to cancel the plan or cease or reduce reimbursements at any time applicable law and analysis accountable_plan requirements plr-132435-08 sec_61 of the internal_revenue_code code defines gross_income as all income from whatever source derived sec_62 defines adjusted_gross_income as gross_income minus certain deductions sec_62 provides that for purposes of determining adjusted_gross_income an employee may deduct certain business_expenses paid_by the employee in_connection_with_the_performance_of_services as an employee of the employer under a reimbursement or other expense allowance arrangement sec_62 provides that for purposes of sec_62 an arrangement will not be treated as a reimbursement or other expense allowance arrangement if the arrangement does not require the employee to substantiate the expenses covered by the arrangement to the person providing the reimbursement or the arrangement provides the employee the right to retain any amount in excess of the substantiated expenses covered under the arrangement sec_1_62-2 of the income_tax regulations provides that a reimbursement or other expense allowance arrangement satisfies the requirements of sec_62 if it meets the requirements of business connection substantiation and returning amounts in excess of substantiated expenses if an arrangement meets these requirements all amounts paid under the arrangement are treated as paid under an accountable plan5 see sec_1_62-2 amounts treated as paid under an accountable_plan are excluded from the employee’s gross_income are not reported as wages or other compensation on the employee’s form_w-2 and are exempt from the withholding and payment of employment_taxes see sec_1 c conversely if the arrangement fails any one of these requirements amounts paid under the arrangement are treated as paid under a nonaccountable_plan and are included in the employee’s gross_income must be reported as wages or other compensation on the employee’s form_w-2 and are subject_to_withholding and payment of employment_taxes see sec_1_62-2 and business connection requirement an arrangement meets the business connection requirement of sec_1_62-2 if it provides advances allowances or reimbursements for business_expenses that are allowable as deductions by part vi sec_161 and the following subchapter_b chapter of the code and that are paid_or_incurred by the employee in_connection_with_the_performance_of_services as an employee of the employer thus not only must an employee pay or incur a deductible business_expense but the expense must arise in connection with performing services for that employer if an employer reimburses deductible busine sec_5 revrul_2005_52 addressed the tax consequences of a tool allowance arrangement and held that the arrangement did not satisfy the substantiation and return of excess requirements of an accountable_plan the revenue_ruling did not address the business connection requirement although revrul_2005_52 deals with tool plans it is not relevant to the analysis of the plan at issue plr-132435-08 expenses that the employee incurred prior to employment the plan does not meet the business connection requirement sec_162 permits a deduction for ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business sec_1_162-17 provides rules for the reporting and substantiation of ordinary and necessary business_expenses incurred in_connection_with_the_performance_of_services as an employee sec_1_162-17 further provides that the term ordinary and necessary business_expenses means only those expenses which are ordinary and necessary in the conduct of the taxpayer’s business and are directly attributable to such business the term does not include nondeductible personal living or family_expenses sec_167 allows a reasonable allowance for the exhaustion wear_and_tear and obsolescence of property used in the taxpayer’s trade_or_business to be taken as a depreciation deduction sec_179 permits a taxpayer to elect to treat the cost of any sec_179 property as defined in sec_179 as an expense in the year such property is placed_in_service in lieu of treating the cost as chargeable to capital_account subject_to depreciation under sec_167 the cost is permitted as a deduction for the taxable_year in which the sec_179 property is placed_in_service by the taxpayer however sec_179 and b limit the amount that may be deducted sec_1_179-4 defines sec_179 property in relevant part as any tangible_property described in sec_179 that is acquired by purchase for use in the active_conduct of the taxpayer’s trade_or_business the determination of whether property is used in the active_conduct of the taxpayer’s trade_or_business is made under sec_1_179-2 for purposes of sec_1_179-2 and sec_1_179-4 sec_1_179-2 provides that the term trade_or_business has the same meaning as in sec_162 and the regulations thereunder further for purposes of sec_1_179-2 sec_1_179-2 provides that employees are considered to be engaged in the active_conduct of the trade_or_business of their employment sec_1_62-2 provides that the business connection requirement will not be satisfied if the payor arranges to pay an amount to an employee regardless of whether the employee incurs or is reasonably expected to incur deductible business_expenses or other bona_fide expenses related to the employer’s business a payor arranges to pay an amount to an employee regardless of whether the employee is reasonably expected to incur bona_fide business_expenses by supplementing the wages of those employees not receiving the reimbursement so that the same gross amount is paid regardless of the reasonable expectation to incur expenses by routinely paying a reimbursement allowance to an employee who has not incurred bona_fide business_expenses or by reducing the wage payment in light of expenses_incurred or reasonably expected to be incurred only to the increase the wage payment again after the expenses have been reimbursed plr-132435-08 where a plan serves to recharacterize amounts as a reimbursement allowance that would otherwise be paid as wages if there were no expenses reasonably expected to be incurred for the employer amounts paid under the plan will not be treated as paid under an accountable_plan such recharacterization violates the business connection requirement of sec_1_62-2 because the employee receives the same amount regardless of whether expenses were incurred or reasonably expected to be incurred based on the totality of the facts set forth above the plan satisfies the business connection requirement of sec_1_62-2 specifically the facts and circumstances of taxpayer’s business and its plan including the certifications required and the plan’s claim form procedures establish that the plan will reimburse only business_expenses deductible under sec_162 or sec_179 and incurred by technicians in performing services for taxpayer6 for all tool and equipment expenses reimbursed under the plan technicians are required to certify on the claim form that the expenses_incurred are necessary for the performance of services for taxpayer the tools and equipment are required to be kept on site and all claimed expenses are verified as necessary for the performance of services for taxpayer by the technician’s manager for tool and equipment expenses reimbursed under the plan that are deductible under sec_179 to the technician a technician is required to further certify that he could otherwise claim the cost of the tools and equipment as a deduction under sec_179 further the technician is required to certify that he will reduce the sec_179 and b limits for the taxable_year by the amount of any reimbursement received under the plan for sec_179 property during that taxable_year thereby limiting any deduction he or his spouse might claim under sec_179 for that taxable_year if the technician has other sec_179 property that is placed_in_service during that taxable_year but not reimbursed under the plan as a result of the technician’s certifications and the plan’s claim form procedures the payment amount that the technician receives as a reimbursement for expenses_incurred in the purchase and placement in service of sec_179 property eg certain tools and equipment under the plan will be treated as an elected sec_179 deduction by the technician furthermore the payments will be made in addition to rather than in lieu of any other compensation such as hourly wages fixed salaries bonuses benefits or commissions as such the payments will not be made to an employee regardless of whether the employee incurs or is reasonably expected to incur deductible business_expenses or other bona_fide expenses related to the employer’s business substantiation requirement see footnote plr-132435-08 sec_1_62-2 provides that the substantiation requirement is met if the arrangement requires each business_expense to be substantiated in accordance with paragraph e or e of that section whichever is applicable to the payor the employer its agent or a third party within a reasonable period of time sec_1 g provides that what constitutes a reasonable period of time depends on the facts and circumstances of each arrangement however sec_1_62-2 provides a safe_harbor for substantiation under which the substantiation requirement is met if an expense is substantiated within days after the expense is paid_or_incurred sec_1_62-2 provides that an arrangement that reimburses expenses governed by sec_274 meets the requirements of sec_1_62-2 if information sufficient to satisfy the substantiation requirements of sec_274 and the regulations is submitted to the payor sec_274 applies to listed_property under sec_280f most tools and equipment are not listed in sec_280f the list is limited to items such as property used for transportation including an automobile computer_or_peripheral_equipment as defined in sec_168 and cellular telephone or similar telecommunications equipment no deduction is allowed for an expense associated with such listed_property under sec_274 and any reimbursement of the expense must be treated as wages subject_to_withholding and payment of employment_taxes unless the employee establishes by adequate_records a the amount of each expenditure b the amount of each business or investment use of the listed_property and its total use c the date of the expenditure or use and d the business_purpose for an expenditure or use of any listed_property sec_1_274-5t and f and sec_1_274-5 sec_1_62-2 provides that an arrangement that reimburses business_expenses not governed by sec_274 meets the requirements of sec_1_62-2 if information is submitted to the payor sufficient to enable the payor to identify the specific nature of each expense and to conclude that the expense is attributable to the payor’s business activities each of the elements of an expenditure or use must be substantiated to the payor and it is not sufficient for an employee to merely aggregate expenses into broad categories or to report individual expenses through the use of vague non-descriptive terms sec_1_62-2 references sec_1_162-17 which provides substantiation rules for employee business_expenses sec_1_162-17 provides that an employee need not report on his tax_return expenses for travel transportation entertainment and similar purposes paid_or_incurred by him solely for the benefit of his employer for which he is required to account and does account to his employer and which are charged directly or indirectly to the employer or for which the employee is paid through advances reimbursements or otherwise provided the total amount of the advances reimbursements and charges is equal to the expenses sec_1_162-17 requires an employee to submit an expense account or other required written_statement plr-132435-08 to the employer showing the business nature and the amount of all the employee’s expenses based on the facts as set forth above the plan satisfies the substantiation requirement of sec_1_62-2 under the plan expenses will be reimbursed only if they would be deductible by technicians under sec_162 or sec_179 as applicable and substantiated either under sec_162 or sec_274 as applicable for all expenses technicians are required to submit a claim form along with a receipt invoice or other written confirmation of proof of purchase that provides sufficient information for taxpayer to determine that the expense was incurred in connection with services performed for taxpayer specifically the amount the date and the type of expense incurred in addition the plan will only reimburse expenses_incurred to purchase tools and equipment that are used only for business purposes on the work site and are kept on the work site at all times this substantiation satisfies the requirements of sec_162 and for any computer_or_peripheral_equipment subject_to sec_274 this substantiation satisfies those requirements as well furthermore the plan requires that expenses be substantiated within a reasonable period of time from the date the expense is incurred return of excess requirement sec_1_62-2 provides that in general an arrangement meets the requirement of returning amounts in excess of expenses if it requires the employee to return to the payor within a reasonable period of time any amount_paid under the arrangement in excess of the expenses substantiated an arrangement will not meet the return of excess requirement if it fails to satisfy the substantiation requirement under sec_1_62-2 since any amounts paid under the arrangement that are not substantiated are treated as excess and must be returned under the facts set forth above the plan satisfies the return of excess requirement the plan will reimburse only properly substantiated expenses already incurred it does not provide any allowances or cash advances for expenses in addition any reimbursement in error is required to be returned within a reasonable period of time accordingly we rule that the plan satisfies the business connection substantiation and return of excess requirements of an accountable_plan accordingly all payments made under the plan in accordance with the terms of the plan will be excluded from the technician’s income and will not be wages subject_to the withholding and payment of employment_taxes except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code plr-132435-08 provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely janine cook branch chief employment_tax branch exempt_organizations employment_tax government entities tax exempt government entities


t c memo united_states tax_court robert c austin petitioner v commissioner of internal revenue respondent docket no filed date merle r flagg for petitioner james f prothro for respondent memorandum findings_of_fact and opinion parker judge respondent determined deficiencies in and additions to petitioner's federal_income_tax as follows additions to tax sec deficiency sec_6654 sec_6653 sec_6661 dollar_figure big_number big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number big_number 1dollar_figure --- --- --- --- --- --- --- --- big_number big_number dollar_figure big_number big_number --- --- --- --- year plu sec_50 percent of the interest due on the deficiency unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable years before the court and all rule references are to the tax_court rules_of_practice and procedure the issue to be decided is whether petitioner's remittance in the form of a check in the amount of dollar_figure sent to the internal_revenue_service with petitioner's form_4868 application_for automatic_extension of time to file u s individual_income_tax_return on or about date was a payment of tax or a deposit in the nature of a cash bond findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the exhibits attached thereto are incorporated herein by this reference petitioner resided in greeneville tennessee at the time he filed his petition in this case in petitioner wa sec_38 years of age up to that time he had led a very sheltered and privileged life he had no idea what his assets were and no idea what his income was his father a very successful businessman handled all of petitioner's investments and financial matters and provided petitioner and his two sisters with a protected and cocooned life during the years at issue petitioner was an orchestra conductor sometime in petitioner moved from chattanooga tennessee to cheyenne wyoming to conduct the cheyenne symphony orchestra in approximately petitioner left wyoming and moved to texas in order to conduct the east texas symphony orchestra in tyler texas occasionally petitioner made guest appearances conducting other orchestras during petitioner's principal job was conducting the east texas symphony orchestra petitioner's income from conducting in was approximately dollar_figure the highest amount petitioner had ever earned from conducting and what he considered a handsome salary by the standards of his profession in petitioner was fired from his job with the east texas symphony orchestra and thereafter he moved from lindale texas to dallas texas a significant portion of petitioner's income derived from investments his father had made in petitioner's name including securities and rental property petitioner did not receive the income from these investments directly the income was held in an account at rolich a corporation organized by petitioner's father as a holding_company to manage the assets that the father had purchased and placed in the names of his three children the name rolich was derived from the names of the three children robert lisa and christine when petitioner needed money for any reason his father wired the funds to him rolich was a family_corporation and each of the five family members ie petitioner's father mother and the three children was an officer of rolich in petitioner's father participated in a leveraged buy out of unaka corp unaka and obtained petitioner's signature pledging petitioner's assets in this buy out petitioner was unaware at that time that he owned substantial assets petitioner and his sisters were named directors and officers of unaka and were given annual salaries of dollar_figure each after his father's death in petitioner learned for the first time that he was an owner of unaka and that he was liable for a debt of dollar_figure million for the buy out unaka owned a number of subsidiary companies including metals engineering company meco a company which manufactured metal folding furniture and southern packaging company so-pak a company which produced packaged military food rations any dividends from meco or so- pak would have been paid to unaka as sole shareholder petitioner does not know if he was an officer of meco or of so- pak during during petitioner was paid dollar_figure in compensation from unaka as a director or officer petitioner did not receive this compensation directly and did not learn of it until later petitioner estimates he may have received a couple of hundred dollars of dividend income from unaka in petitioner was also a stockholder of the austin company the austin company was in the tobacco business and was the company that petitioner's father worked for prior to his retirement and the purchase of unaka petitioner is unsure if he received dividends from the austin company in petitioner was not on the board_of directors or an employee of the austin company petitioner's father had caused a restaurant to be constructed and had placed the property in petitioner's name this restaurant was the source of rental income to petitioner during some of the years at issue as of date petitioner knew that the restaurant was being rented although he was unaware of the amounts of rental income or expenses the only investment that petitioner ever made on his own was the purchase of two condo time-shares located in vail colorado rental_activity was sporadic and petitioner ultimately disposed of the time-shares at a loss petitioner had purchased a house in wyoming as his residence while he worked there and similarly he had purchased a house in lindale texas when he went to work for the east texas symphony orchestra petitioner may have rented out one or both of these residences after he moved out none of the real properties that petitioner himself purchased produced any rental income during in petitioner's father borrowed approximately dollar_figure to dollar_figure in petitioner's name in order to purchase securities for petitioner petitioner was not aware of these transactions until respondent's audit examination of the years before the court petitioner's grandfather had established a_trust for the benefit of his grandchildren petitioner's share of the income from this trust went to petitioner's father petitioner was unaware of this trust until respondent began the audit examination petitioner's father had a power_of_attorney to act on petitioner's behalf the records regarding petitioner's various sources of income including forms and w-2 were mailed to petitioner's father in tennessee petitioner's tax returns for all of his taxable years up through had been prepared by his father petitioner for some reason copied the returns over in his own handwriting and then signed them petitioner's tax returns for the taxable years through reported no tax_liability around petitioner's mother became seriously ill she spent about half of her time in the hospital petitioner's father stayed with her while she was hospitalized during her illness apparently as a result of the mother's illness petitioner's father ceased the preparation of petitioner's tax returns the mother's condition continued to worsen and she died in august of petitioner's father died approximately a year after his mother's death in august of as of date petitioner had not filed a federal_income_tax return since his return filed for the taxable_year petitioner was aware that a federal_income_tax return is required to be filed for each year by april of the following year on date petitioner prepared and mailed form_4868 application_for automatic_extension of time to file u s individual_income_tax_return form for the taxable_year petitioner entered the following figures on the form total_tax liability federal_income_tax withheld balance due dollar_figure dollar_figure dollar_figure petitioner enclosed with the form_4868 a check in the amount of dollar_figure the remittance to the internal_revenue_service irs petitioner obtained dollar_figure of the funds used for the remittance from his account at rolich the memo line on the check was blank in petitioner's check register he noted that the check was to irs for taxes petitioner had initially written the amount of the remittance in the check register as dollar_figure but he crossed out that figure and then wrote in dollar_figure he made the change because he thought the round however the father remained active in managing his and petitioner's investments the leveraged buy out of unaka occurred in and the loan to buy securities for petitioner occurred in figure looked too pat and he wanted to change it to something that he felt looked more logical petitioner sent the check to the irs because if he owed any_tax he wanted it to be paid it was petitioner's intent in april of that if there were any taxes due for the remittance would pay for those taxes or for any that might be due for the next year or the previous year he wanted to be able to show that i was not trying to dodge my taxes that i was trying to keep everything paid he hoped that someday his father would be able to go back and deal with all this that there would have not been any liability to trigger any concern that there was an attempt to not pay the irs received petitioner's form_4868 and the remittance and granted petitioner an extension of time to file until date the irs posted the remittance as a payment for the taxable_year and has always treated the remittance as a payment of taxes that remittance was never placed into a suspense_account or an excess collection account and it was never treated by irs as a deposit in the nature of a cash bond the amount of the remittance has been shown on petitioner's account as a payment since it was received by the irs as of the time of trial no assessment had been made for the taxable_year and petitioner's account still showed a credit balance of dollar_figure petitioner did not timely file his return or the returns for the other years involved in this case although he did cooperate with respondent's agents during the audit in and on date respondent mailed three notices of deficiency to petitioner one notice for the taxable years through another for the years and and the third for the years and on date petitioner prepared his tax_return and on date he filed that return and returns for the other years he filed his petition in the tax_court on date challenging all of the adjustments in the three notices of deficiency during the trial session in dallas texas commencing date the parties filed their stipulation of agreed issues that settled all issues in the case except one leaving for trial and for the court's decision only the question of the characterization of the remittance as a tax payment or a deposit it was during the settlement negotiations and the drafting of the parties' stipulation of agreed issues that petitioner for the first time raised the issue that the remittance was a deposit in the nature of a cash bond opinion this court has jurisdiction to determine the existence and amount of any overpayment_of_tax to be credited or refunded for the year or years at issue sec_6512 however sec_6512 limits the amount of the allowable credit or refund based on the time of payment of the tax where no return has been filed and no claim for a refund has been made prior to the issuance of the notice_of_deficiency the amount of the refund is limited to those amounts paid either after the mailing of the notice_of_deficiency or within the 2-year period prior to the date of the mailing of the notice sec_6512 sec_6511 commissioner v lundy u s ___ ___ 116_sct_647 86_f3d_609 6th cir affg tcmemo_1993_592 in the instant case petitioner filed no return and made no claim for a refund prior to the mailing of the notice_of_deficiency the amount of petitioner's refund as determined by this court is limited to the amount of taxes paid in the year period preceding the mailing of the notice_of_deficiency on date the remittance was mailed to the irs on date if the remittance constituted a payment of tax rather than a deposit the refund of that amount is barred gabelman v commissioner supra pincite respondent argues that the the parties have not suggested that any payments were made after the notice_of_deficiency was mailed however consistent with petitioner's argument that the remittance was a deposit in the nature of a cash bond it may be that petitioner regards the date of filing of his tax_return on date as the date of payment and hence the date of overpayment of his tax see 100_tc_191 for this court to have subject matter jurisdiction there must first be a payment of tax before this court can determine the existence and amount of any overpayment under sec_6512 see johnson v commissioner tcmemo_1993_562 remittance was a payment of tax whereas petitioner argues that it was a deposit in the nature of a cash bond in 100_tc_191 an earlier case involving a taxpayer's remittance with a form_4868 this court stated that a remittance by a taxpayer to respondent generally will not be regarded as a payment of federal_income_tax until the taxpayer intends that the remittance satisfy what the taxpayer regards as an existing tax_liability we concluded that remittances made by taxpayers with form_4868 extension requests are not necessarily to be treated as a matter of law as payments of tax as of the filing_date of the associated income_tax return id pincite we applied instead a facts_and_circumstances_test in ascertaining the taxpayer's intent in risman v commissioner supra the taxpayers made a remittance with a form_4868 in an amount of dollar_figure that bore no good_faith relationship to the taxpayers' tax_liability for the year specified ie an arbitrary disorderly or random remittance the irs treated the remittance as a deposit by placing it in a suspense_account upon receipt the taxpayers wrote to the irs approximately months later indicating that the remittance had not been based on any estimate of their tax_liability for that year and that they expected the remittance would be applied to future taxes owed on tax returns not yet filed at the time of their letter the taxpayers were delinquent in filing the return for the year specified on the form_4868 and had requested an extension for the subsequent year's return based on those facts and circumstances we held that the taxpayers' remittance was a deposit in the instant case petitioner changed the amount of the remittance from a round figure of dollar_figure to dollar_figure he did not want the amount of the remittance to look too pat he changed the figure to dollar_figure so that it would look more logical in other words petitioner wanted the amount of the remittance to appear to be a valid rather than a made-up figure respondent treated petitioner's remittance as a payment of tax petitioner never contacted respondent regarding the treatment of the remittance during and when petitioner was cooperating fully with respondent's agents in the audit he never suggested that the remittance was merely a deposit shortly before trial when the parties made their calculations in connection with their settlement negotiations petitioner for the first time raised the issue as to whether the remittance was a payment of tax or a deposit under the golsen_rule where the court_of_appeals to which appeal lies has already passed upon the issue before us efficient and harmonious judicial administration calls for us to follow the decision of that court 54_tc_742 affd 445_f2d_985 10th cir an appeal in this case would lie to the court_of_appeals for the sixth circuit which has now spoken definitively on the issue in this case after the parties submitted their briefs in the present case the court_of_appeals for the sixth circuit affirmed our decision in gabelman v commissioner tcmemo_1993_592 in which the taxpayer voluntarily and in good_faith prepared his extension request and the accompanying check and based on the facts and circumstances this court held that the taxpayer's remittance was a payment of tax 86_f3d_609 6th cir the court_of_appeals affirmed however on the ground that remittances submitted with forms are payments of tax as a matter of law id pincite the court_of_appeals for the sixth circuit reasoned that the express language of the regulations requires taxpayers to submit an estimated payment of their taxes with form_4868 extension requests emphasis in original and also that such remittances are analogous to the withholding of taxes and payment of estimated_taxes throughout the year which are deemed paid on april of the following year and the due_date of the return respectively under sec_6513 id pincite the sixth circuit rejected the contrary conclusion we had reached in our opinion in risman v commissioner supra also the court_of_appeals for the sixth circuit distinguished the situation in the regulations referred to are sec_1_6081-4 and sec_1_6081-4 income_tax regs gabelman v commissioner from that in 426_f2d_1270 6th cir where the sixth circuit itself had previously applied a facts_and_circumstances_test in deciding whether a taxpayer's remittance made during an audit qualified as a deposit or payment gabelman v commissioner supra pincite- following the golsen_rule and applying the holding of the court_of_appeals for the sixth circuit set forth in gabelman v commissioner supra that remittances submitted with form_4868 extension requests are payments of tax as a matter of law we hold that the remittance in this case was a payment of tax not a deposit in accordance with the parties' stipulation of agreed issues and the above holding an appropriate decision will be entered


t c no united_states tax_court merlin a and dee d steger petitioners v commissioner of internal revenue respondent docket no filed date p a lawyer retired from the practice of law in that year p purchased a nonpracticing malpractice insurance_policy the policy to cover him for an indefinite period of time for acts errors or omissions in professional services rendered before the date of p's retirement ps claimed a schedule c deduction for the entire cost of the policy on their return r determined that the policy is a capital_asset providing a substantial future benefit and that ps were only entitled to deduct percent of the cost of the policy in held ps are entitled to deduct the entire cost of the policy in the year of termination of p's business james r monroe for petitioners george w bezold and christa a gruber for respondent wells judge this case was assigned to special_trial_judge robert n armen jr pursuant to rule sec_180 sec_181 and sec_182 the court agrees with and adopts the opinion of the special_trial_judge which is set forth below opinion of the special_trial_judge armen special_trial_judge respondent determined a deficiency in petitioners' federal_income_tax for the taxable_year in the amount of dollar_figure after concessions by petitioners the issue for decision is whether petitioners are entitled to deduct the entire cost of nonpracticing malpractice insurance paid during the year in issue we hold that they are findings_of_fact this case was submitted fully stipulated under rule and the facts stipulated are so found petitioners resided in des moines iowa at the time that their petition was filed with the court petitioner husband petitioner is a lawyer during the year in issue he practiced as a self-employed attorney and reported his income for the year on a schedule c tt all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the taxable_year in issue petitioners concede they failed to report interest_income in the amount of dollar_figure and respondent properly reduced petitioner husband's schedule c deduction by the amount of dollar_figure petitioner retired from the practice of law in during that year he was insured against malpractice under a lawyer's professional liability insurance_policy on date he exercised an option under this policy to purchase nonpracticing malpractice insurance coverage the policy for the amount of dollar_figure the nonpracticing insurance covered him for an indefinite period of time but only by reason of an act error or omission in professional services rendered before x x his date of retirement or termination of private practice on their return petitioners claimed a schedule c deduction for the entire cost of the policy respondent determined that the policy was a capital_asset and that petitioners were entitled to deduct only percent of the cost of the policy for the year in issue opinion respondent contends that petitioners are not entitled to deduct the entire cost of the policy on their return because the policy possesses a useful_life of indefinite duration beyond one year respondent therefore asserts that the policy is a capital_asset and that petitioners are entitled to deduct the cost of the policy only over its useful_life in this regard respondent determined that petitioners were entitled to deduct percent of the cost of the policy during the year in issue we disagree with respondent's determination for reasons stated below because petitioner ceased to conduct business in the year in issue petitioners are entitled to deduct the entire cost of the policy in irrespective of whether or not the policy is a capital_asset we therefore do not decide whether the policy is a capital_asset sec_162 allows taxpayers to deduct all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business to qualify as a deduction under sec_162 an item must be paid_or_incurred during the taxable_year for carrying on any trade_or_business an expense a necessary expense and an ordinary_expense see 403_us_345 an expense is not ordinary and therefore not currently deductible if it is in the nature of a capital_expenditure see 383_us_687 see also sec_263 rather a capital_expenditure is amortized and depreciated over the life of the asset indopco although we need not decide whether the policy is a capital_asset we note that a business asset is a capital_asset if it provides a significant long-term benefit to the taxpayer 503_us_79 thus insurance premiums that constitute prepayment of future insurance coverage provide significant benefits to the taxpayer beyond the year in issue and therefore constitute a capital_expenditure see 73_f3d_799 8th cir affg 102_tc_505 such premiums therefore are continued inc v commissioner 503_us_79 the primary effect of characterizing a payment as either a business_expense or a capital_expenditure concerns the timing of the taxpayer's cost_recovery see indopco inc v commissioner supra the cost of a capital_asset is deductible only over the useful_life of the asset because the code endeavors to match expenses with the revenues of the taxable_period to which they are properly attributable thereby resulting in amore accurate calculation of net_income for tax purposes indopco inc v commissioner supra pincite by the same token it is a longstanding rule_of law that if a taxpayer incurs a business_expense but is unable to deduct the cost of the same either as a current_expense or through yearly depreciation_deductions the taxpayer is allowed to deduct the expense for the year in which the business ceases to operate see indopco inc v commissioner supra pincite holding that where no specific asset or useful_life can be ascertained a capital_expenditure is deducted upon the dissolution of the enterprise 16_bta_409 holding that the cost of a business asset no part of which has been returned to the taxpayer through exhaustion deductions or as ordinary_and_necessary_expense continued not deductible as a current_expense deductions may be deducted in the year the taxpayer's business ceases to operate see generally sec_336 corporate taxpayer entitled to recognize loss in the year of liquidation sec_195 allowing a taxpayer to deduct the unamortized portion of deferred startup expenditures_for the year in which the trade_or_business is completely disposed of here respondent does not contend that the cost of the policy is not a necessary expense rather respondent contends that the cost of the policy is not ordinary because it is a capital_expenditure given its indefinite useful_life however even if we assume that the policy is a capital_asset petitioners are nevertheless entitled to deduct the cost of the policy in the year in issue the policy has no ascertainable_useful_life but rather is an intangible asset providing petitioner with malpractice coverage for an indefinite term of years although as a capital_asset with an indefinite useful_life the policy would not be currently deductible it is deductible upon dissolution of petitioner's business see indopco inc v commissioner supra pincite thus even if the policy is a capital_asset because petitioner purchased the policy in the same year that he ceased to operate his business petitioners are entitled to deduct the cost of the policy in that year in contrast if we assume that the policy is not a capital_asset then the cost of the policy would be deductible as an expense incurred by petitioner in closing his business it has long been established that the cost of dissolution and termination of a business constitutes an everyday happening in the business world and in this sense it is quite an ordinary affair under the test of the welch case 290_us_111 defining what constitutes an ordinary and necessary business_expense and is therefore deductible when directly connected with or as otherwise stated proximately resulted from the taxpayer's business 32_bta_39 there is no dispute that petitioner ceased to operate his business and that he retired from the practice of law in there is also no dispute that the expenditure was directly connected with petitioner's business nor that the cost was necessary in the course of petitioner's business under the facts of this case as an attorney ceasing to practice law it was also ordinary for petitioner to purchase nonpracticing malpractice insurance upon ceasing to practice law 290_us_111 thus if the policy is not a capital_asset petitioners would be entitled to deduct its cost as an ordinary and necessary closing expense in to reflect our disposition of the disputed issue as well as petitioners' concessions decision will be entered under rule


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l date number release date postf-118402-02 cc psi b5 uilc internal_revenue_service national_office field_service_advice memorandum for counsel to the shipping technical advisor cc lm hmt phi associate industry from associate chief_counsel passthroughs and special industries cc psi subject contributions to the capital of a corporation this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent legend taxpayer subsidiary year year issue whether taxpayer may exclude from income under sec_118 cash payments it received from the department of transportation dot under the maritime security fleet program conclusion taxpayer may not exclude from income under sec_118 cash payments it received from the dot under the maritime security fleet program facts postf-118402-02 taxpayer through subsidiary has contracted with the dot under the maritime security fleet program the operating agreements conform to the requirements of the maritime security fleet program statute described below pursuant to the operating agreements taxpayer received cash payments in year and year taxpayer did not include these cash payments on its income_tax returns for year and year taxpayer contends that the payments are excluded from income under sec_118 law and analysis maritime security fleet program u s c a provides that the secretary of transportation shall establish a fleet of active militarily useful privately-owned vessels to meet national defense and other security requirements and maintain a united_states presence in international commercial shipping the fleet must consist of privately owned united states-flag vessels for which there are in effect operating agreements and shall be known as the maritime security fleet to be included in the maritime security fleet program a vessel must meet the vessel eligibility requirements in u s c b and the owner or operator of the vessel must enter into an operating_agreement with the secretary of transportation under u s c 1187a a u s c 1187a b provides that an operating_agreement must require the vessel to be operated exclusively in foreign trade or in mixed foreign and domestic trade and the vessel to be documented under chapter of title ie a united states-flag vessel u s c 1187a d provides that an operating_agreement may be effective only for one fiscal_year but is renewable subject_to the availability of appropriations for each subsequent fiscal_year through the end of fiscal_year u s c 1187a d provides that an operating_agreement must require that the secretary of transportation pay each fiscal_year to the contractor for each vessel that is covered by the operating_agreement an amount equal to dollar_figure for each fiscal_year after in which the operating_agreement is in effect the amount shall be paid in equal monthly installments at the end of each month the amount may not be reduced except as provided by this section u s c 1187a e provides that as a condition of receiving payment for a fiscal_year for a vessel the contractor for the vessel must certify that the vessel has been and will be operated in accordance with u s c 1187a b for at least days postf-118402-02 in the fiscal_year days during which the vessel is drydocked surveyed inspected or repaired are considered days of operation for this purpose u s c 1187a f provides that an operating_agreement constitutes a contractual obligation of the united_states government to pay the amounts provided for in the operating_agreement to the extent of actual appropriations u s c 1187a g provides that the secretary of transportation must not make any payment for a vessel with respect to any days for which the vessel is not operated or maintained in accordance with an operating_agreement u s c 1187a h provides that the secretary of transportation must make a pro_rata reduction in payment for each day less than in a fiscal_year that a vessel covered by an operating_agreement is not operated in accordance with u s c 1187a b with days during which the vessel is drydocked or undergoing survey inspection or repair considered to be days on which the vessel is operated u s c 1187b a provides that the secretary of transportation shall include in each operating_agreement a requirement that the contractor enter into an emergency preparedness agreement with the secretary u s c 1187b a provides that an emergency preparedness agreement shall require that upon a request by the secretary of defense during time of war or national emergency or whenever determined by the secretary of defense to be necessary for national security including any natural disaster international peace operation or contingency operation a contractor for a vessel covered by an operating_agreement shall make available commercial transportation resources including services sec_61 a provides that except as otherwise provided in subtitle a income taxes gross_income means all income from whatever source derived sec_1_61-1 provides that g ross income means all income from whatever source derived unless excluded by law gross_income includes income realized in any form whether in money property or services the supreme court in 348_us_426 held that gross_income includes instances of undeniable accessions to wealth clearly realized and over which the taxpayers have complete dominion the supreme court in 292_us_435 held that w hether and to what extent deductions shall be allowed depends on legislative grace and only as there is clear provision therefor can any particular deduction be allowed obviously therefore a taxpayer seeking a deduction must postf-118402-02 be able to point to an applicable statute and show that he comes within its terms id no provision of the maritime security fleet program statute exempts the dot payments from income_tax sec_118 provides that in the case of a corporation gross_income does not include any contribution_to_the_capital_of_the_taxpayer sec_1_118-1 published in provides as follows in the case of a corporation sec_118 provides an exclusion_from_gross_income with respect to any contribution of money or property to the capital of the taxpayer thus if a corporation requires additional funds for conducting its business and obtains such funds through voluntary pro_rata payments by its shareholders the amounts so received being credited to its surplus account or to a special account such amounts do not constitute income although there is no increase in the outstanding shares of stock of the corporation in such a case the payments are in the nature of assessments upon and represent an additional price paid for the shares of stock held by the individual shareholders and will be treated as an addition to and as a part of the operating capital of the company sec_118 also applies to contributions to capital made by persons other than shareholders for example the exclusion applies to the value of land or other_property contributed to a corporation by a governmental_unit or by a civic group for the purpose of inducing the corporation to locate its business in a particular community or for the purpose of enabling the corporation to expand its operating facilities however the exclusion does not apply to any money or property transferred to the corporation in consideration for goods or services rendered or to subsidies paid for the purpose of inducing the taxpayer to limit production see sec_362 for the basis_of_property acquired by a corporation through a contribution to its capital by its stockholders or by nonstockholders emphasis added sec_118 was enacted in as part of public law regarding sec_118 h_r rep no pincite states the following your committee’s bill provides that in the case of a corporation gross_income is not to include any contribution_to_the_capital_of_the_taxpayer this in effect places in the code the court decisions on this subject it deals with cases where a contribution is made to a corporation by a governmental_unit chamber of commerce or other association of individuals having no proprietary interest in the postf-118402-02 corporation in many such cases because the contributor expects to derive indirect benefits the contribution cannot be called a gift yet the anticipated future_benefits may also be so intangible as to not warrant treating the contribution as a payment for future services emphasis added regarding sec_118 s rep no pincite states the following the house and your committee’s bill provides that in the case of a corporation gross_income is not to include any contribution_to_the_capital_of_the_taxpayer this in effect places in the code the court decisions on this subject it deals with cases where a contribution is made to a corporation by a governmental_unit chamber of commerce or other association of individuals having no proprietary interest in the corporation in many such cases because the contributor expects to derive indirect benefits the contribution cannot be called a gift yet the anticipated future_benefits may also be so intangible as to not warrant treating the contribution as a payment for future services emphasis added one of the court decisions on this subject referred to in the committee reports is 319_us_98 the facts involved the payment of cash to the taxpayer by prospective customers to cover the estimated cost of construction of the extension of the taxpayer’s electric utility service facilities to the prospective customers the taxpayer contended that the payments were gifts or contributions to capital the court disagreed holding that t he payments were to the customers the price of the service id pincite the court reasoned that it overtaxes the imagination to regard the farmers and other customers who furnished these funds as makers either of donations or contributions to the company the transaction neither in form nor in substance bore such a semblance id pincite another court decision on this subject is 339_us_583 the facts involved the payment of cash and the transfer of other_property to the taxpayer by certain community groups as an inducement to the location or expansion of the taxpayer’s factory operations in the communities the taxpayer contended that the properties so acquired were gifts or contributions to capital the court agreed holding that the assets transferred to petitioner by the community groups represented ‘contributions to capital ’ id pincite the court reasoned that t he contributions to petitioner were provided by citizens of the respective communities who neither sought nor could have anticipated any direct service or recompense whatever their only expectation being that such contributions might prove advantageous to the community at large id pincite the court in 412_us_401 explained its decisions in detroit edison and brown shoe the postf-118402-02 decisional distinction between detroit edison and brown shoe rested upon the nature of the benefit to the transferor rather than to the transferee and upon whether that benefit was direct or indirect specific or general certain or speculative where the transfers were made with the purpose not of receiving direct service or recompense as in detroit edison but of obtaining advantage for the general community as in brown shoe the result is a contribution_to_capital in addition the court stated that other characteristics of a contribution_to_capital are implicit in the two cases that do focus upon the use to which the assets transferred were applied or upon the economic and business consequences for the transferee corporation the court listed the following characteristics of a nonshareholder contribution_to_capital it certainly must become a permanent part of the transferee’s working_capital structure it may not be compensation such as a direct payment for a specific quantifiable service provided for the transferor by the transferee it must be bargained for the asset transferred foreseeably must result in benefit to the transferee in an amount commensurate with its value and the asset ordinarily if not always will be employed in or contribute to the production of additional income and its value assured in that respect id pincite in the present case the transferor’s motive for the payment is to contractually insure the availability of transportation services by united sates-flag vessels during war and national emergency the availability of transportation services pursuant to the operating agreements is a direct benefit to the transferor accordingly the payments by the transferor made to secure availability of transportation services is compensation to the transferee moreover taxpayer may use the government payments for the payment of dividends of operating_expenses of capital charges or for any other purpose within the corporate authority just as any other operating revenue might be applied the payments therefore fail to become a permanent part of taxpayer’s working_capital structure the present case is also similar to 286_us_285 during world war i most of the railroads in the united_states were under the control of the united_states government following the war the railroads were returned to private operation to help the railroads adjust to post-war operation congress enacted the transportation act of the statute guaranteed a minimum operating income for six months after relinquishment of government control the taxpayer received payments pursuant to the statute but did not include the payments in income claiming that the payments were a gift or a contribution_to_capital postf-118402-02 the court disagreed holding that t he sums received under the act were not subsidies or gifts -that is contributions to the capital of the railroads id pincite the court reasoned that the taxpayers were bound to operate their properties in order to avail themselves of the government’s proffer under the terms of the statute no sum could be received save as a result of operation id in addition the court reasoned that the payments might be used for the payment of dividends of operating_expenses of capital charges or for any other purpose within the corporate authority just as any other operating revenue might be applied id pincite in texas pacific railway co the purpose of the government payments was to help the railroads get back on their feet after several years of government control during world war i the government needed rail transportation services during the war here the purpose of the government payments is to keep taxpayer on its feet as an operator of united states-flag vessels in foreign trade in the event the government needs international shipping transportation services during a national security emergency here as in texas pacific railway co under the terms of the statute no sum could be received save as a result of operation taxpayer receives a payment at the end of each month based on the operation in foreign trade of specific vessels during that month the payment is reduced for each nonoperating day conclusion accordingly we conclude that taxpayer may not exclude from income under sec_118 cash payments it received from the dot under the maritime security fleet program case development hazards and other considerations we believe that our case is very strong this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views please call if you have any further questions by s walter woo walter h woo senior technician reviewer branch passthroughs and special industries


department of the treasury internal_revenue_service washington d c tax exempt and cover jul uniform issue list set ep rat hirkikeeerieeere hiakraheakkekerer kakrhkikhereeen - legend taxpayer haikkkaekeererer ira a krnkkkkekkakkkie amount dollar_figure hikkekeaekeeketke financial_institution a financial_institution b dear this is in response to your request dated atitneneeeeeee in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age represents that he received a distribution from ira a totaling amount taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to financial_institution b’s incorrect assertion that it could properly handle ira accounts taxpayer a further represents that amount has not been used for any other purpose taxpayer represents that he in consultation with his financial advisor at financial_institution a prepared to move funds from financial_institution a to financial_institution b in order to diversify the taxpayer’s investments financial_institution b a real_estate limited_partnership assured the taxpayer that they could accept ira funds and the taxpayer presumed therefore that financial_institution b could serve as an ira custodian and properly title the taxpayer's investment as an ira account taxpayer consulted with and entrusted his financial advisor to facilitate a trustee-to-trustee transfer between financial_institution a and financial_institution b the funds amount were moved in february to an investment account with financial_institution b which was not a qualified tax-deferred account only when filing his tax_return did the taxpayer become aware that the funds were not moved correctly the taxpayer's advisor and financial_institution b were unable to correct the mistake within the time prescribed by sec_408 of the code because financial_institution b could not legally serve as an ira custodian based on the above facts and representations you request a ruling that the internal_revenue_service service waive the 60-day rollover requirement with respect to amount contained in sec_408 of the code in this instance sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 d sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 d of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 ilr b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer is consistent with his assertion that his failure to accomplish a timely rollover was caused by the failure of his financial institutions and advisor to move the funds to a properly qualified account therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to amount taxpayer is granted a period of days from the issuance of this ruling letter to contribute amount into an eligible_retirement_plan provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount will be considered a rollover_contribution within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact identification_number at - _ please address all correspondence to sincerely yours calter kr wesrins carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose