internal_revenue_service number release date index number -------------------------------------- --------------------------------------------- -------------------- ----------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number ------------------- refer reply to cc psi b03 plr-107065-06 date date -------------------------------------------- ------------------------------------------ ---------------------------- legend legend x -------------------------------------------- a ------------------------------------------- b ---------------------- ------------------------------------------- shareholders ------------------------------------------- ------------------------------------------- trust trust1 trust2 state d1 ------------------ -------- ------------------------- ---------------------------------------- ----------------------------------------- ---------------------------------------- ---------------------- ------------------------- ------------------------- ------------------------- ------------------------- ----------------- ------- plr-107065-06 d2 d3 d4 d5 d6 d7 year m n o dear --------------- --- -------- -------- this letter responds to your letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under the laws of state on d1 x elected to be an s_corporation effective d2 on d3 a transferred m shares of x stock to trust a grantor_trust that was treated under subpart e of part i of subchapter_j of chapter as entirely owned by a_trust was an eligible shareholder under sec_1361 on d4 a died causing trust to cease being a grantor_trust under sec_1361 trust remained an eligible shareholder until d5 two years after a’s death trust did not distribute the shares of x stock on or before d5 accordingly trust ceased to be an eligible shareholder on d6 the terms of the trust agreement provide that upon the death of a the assets of trust were to be held in trust1 and trust2 it was intended that trust1 and trust2 qualify as qualified subchapter_s trusts qssts under sec_1361 due to an oversight shares of x stock were not transferred to trust1 and trust2 until d7 on d7 trust transferred n shares of x stock to trust1 and o shares of x stock to trust2 plr-107065-06 additionally b the beneficiary of trust1 and trust2 failed to file qsst elections for trust1 and trust2 x represents that there was no tax_avoidance or retroactive tax planning involved in the failure of trust to distribute the m shares of x stock to an eligible shareholder on or before d5 and in the failure of trust1 and trust2 to file qsst elections it is represented that x and its shareholders have treated x as an s_corporation since d2 in addition x and the shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not among other requirements have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder sec_1361 provides that for purposes of sec_1361 a_trust which was described in sec_1361 immediately before the death of the deemed owner and which continues in existence after such death is a permitted shareholder but only for the 2-year period beginning on the day of the deemed owner’s death sec_1361 provides that in the case of a qsst with respect to which a beneficiary makes an election under sec_1361 the trust is treated as a_trust described in sec_1361 and for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 provides that a beneficiary of a qsst may elect to have sec_1361 apply sec_1361 provides that for purposes of sec_1361 the term qualified_subchapter_s_trust means a_trust a the terms of which require that i during the life of the current income_beneficiary there shall only be income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current income plr-107065-06 beneficiary in the trust shall terminate on the earlier of such beneficiary’s death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to such beneficiary and b all the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states sec_1_1361-1 of the income_tax regulations provides that the current income_beneficiary of a qsst must make the election under sec_1361 by signing and filing with the service_center with which the corporation files its income_tax returns the applicable form or a statement including the information listed in sec_1_1361-1 sec_1362 provides that an election under sec_1362 is terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that any termination under sec_1362 is effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agree to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to this period then notwithstanding the circumstances resulting in termination the corporation shall be treated as an s_corporation during the period specified by the secretary sec_1_1362-4 provides that for purposes of sec_1_1362-4 the determination of whether a termination was inadvertent is made by the commissioner the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should determine that the termination was inadvertent the fact that the terminating event was not reasonably within the control of the corporation and was not part of a plan to terminate the election or the fact that the event took place without the knowledge of the corporation notwithstanding its due diligence to safeguard itself against such an event tends to establish that the termination was inadvertent conclusion plr-107065-06 based solely on the facts submitted and representations made we conclude that x’s s_corporation_election was terminated on d6 when trust became an ineligible shareholder we also conclude that the termination was inadvertent within the meaning of sec_1362 consequently we conclude that x will continue to be treated as an s_corporation from d6 and thereafter provided that x’s s_corporation_election was valid and was not otherwise terminated under sec_1362 this ruling is contingent on trust1 and trust2 making qsst elections with an effective date of d7 with the appropriate service_center within days from the date of this letter and attaching a copy of this letter to the elections in addition from year and thereafter trust1 and trust2 will be treated as qssts holding n shares of x stock and o shares of x stock respectively and b will be treated as the owner of the x stock deemed held by trust1 and trust2 accordingly x’s shareholders in determining their respective income_tax liabilities must include their pro_rata share of the separately_stated and non-separately computed items of x under sec_1366 make any adjustments to stock basis under sec_1367 and take into account any distributions made by x under sec_1368 except for the specific ruling above no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed or implied on whether x is otherwise eligible to be an s_corporation or on whether trust1 and trust2 qualify as qssts under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely s mary beth collins senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------- ------------------------------ -------------------------- -------------------- --------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc corp b06 plr-129005-07 date august --------------------------- legend old parent ----------------------------------------------------------------------------- -------------------------------------------------------------------- sub ----------------------------------------------------------------------------- -------------------------------------------------------------------- sub ----------------------------------------------------------------------------- -------------------------------------------------------------------- sub ----------------------------------------------------------------------------- -------------------------------------------------------------------- new parent ---------------------------------------------------------------------------- -------------------------------------------------------------------- date date 1a date date -------------------------- -------------------------- -------------------------- ---------------------- --------------------------------------------- ----------------------------------------------- --------------------------------------------------- ---------------------------------------------------- --------------------- --------------------- ---------------------- -------------------------- -------------------------- -------------------------- ---------------------------------------- plr-129005-07 date date date date date date business a dear ------------ this letter responds to your authorized representative’s letter dated date requesting that the commissioner make determinations that sub sub and sub have all joined in the making of an initial consolidated_return filed by old parent for the year ending date as well as in making the subsequent consolidated_return for the year ending date sub sub and sub can properly join old parent in the making of an amended consolidated_return for the short taxable_year beginning date and ending date old parent sub sub and sub can properly join new parent in the making of an amended consolidated_return for the short taxable_year beginning date and ending date old parent sub sub and sub have all joined in the making of a consolidated_return filed by new parent for the tax years ending date and date respectively additional information was submitted in a letter dated date the information submitted in the above-mentioned letters is summarized below sub are wholly owned subsidiaries of old parent old parent acquired all of the stock of each of sub sub and sub on date old parent filed an initial consolidated tax_return on behalf of itself and sub sub and sub for the calendar_year ending date that i included the income and deductions of old parent and each of sub sub and sub for the calendar_year ending date and ii included each of old parent sub sub and sub on a form_851 affiliations schedule attached to the date consolidated_return however forms authorization and consent of subsidiary_corporation to be included in a consolidated_income_tax_return were inadvertently not filed for sub sub and sub with the date old parent consolidated tax_return sub and sub for the calendar_year ending date that i included the income and old parent is a domestic_corporation conducting business a sub sub and old parent timely filed a consolidated tax_return on behalf of itself and sub plr-129005-07 deductions of old parent and each of sub sub and sub for the calendar_year ending date and ii included each of old parent sub sub and sub on form_851 affiliations schedule attached to the date consolidated_return on date new parent a newly formed corporation acquired all the stock of old parent and indirectly the stock of sub sub and sub accounting firm failed to advise new parent that a consolidated tax_return needed to be filed on behalf of old parent sub sub and sub for the short taxable_period beginning date and ending date rather new parent timely filed a consolidated_return for the calendar_year ending date original new parent consolidated_return on behalf of itself old parent sub sub and sub that included the income and deductions of new parent old parent sub sub and sub attached to the original new parent consolidated_return was a form_851 affiliations schedule that included new parent old parent sub sub and sub however forms authorization and consent of subsidiary_corporation to be included in a consolidated_income_tax_return were inadvertently not filed for old parent sub sub and sub with the original new parent consolidated_return for the calendar_year ending date new parent has timely filed consolidated_returns for the calendar years ending date and date respectively on behalf of itself old parent sub sub and sub that i included the income and deductions of new parent old parent sub sub and sub for the calendar years ending date and date respectively and ii included each of new parent old parent sub sub and sub on form_851 affiliations schedule attached to the respective date and date consolidated_returns representations all of the income and deductions of old parent sub sub and sub for the date and date calendar years were included in the date old parent consolidated_return and the date old parent consolidated_return respectively all of the income and deductions of new parent old parent sub sub and sub including in the case of old parent and sub sub and sub for the short taxable_period beginning on date and ending on date were included in the original new parent consolidated_return for the calendar_year ending date all of the income and deductions of new parent old parent new parent sub sub and sub for the date and date calendar years were included in the date new parent consolidated_return and the date new parent consolidated_return respectively plr-129005-07 none of old parent sub sub or sub filed a separate_income tax_return for the calendar years ending date or date none of new parent old parent sub sub or sub filed a separate_income tax_return for the calendar years ending date date and date old parent sub sub and sub were included on form sec_851 that were attached to the old parent consolidated_returns for the consolidated_return years ended date and date new parent old parent sub sub and sub were included on form sec_851 that were attached to the original new parent consolidated_return the new parent consolidated_return for the calendar_year ending date and the new parent consolidated_return for the calendar_year ending date old parent will file a consolidated_return for the short taxable_period beginning date and ending on date within days after receipt of the determinations requested herein old parent sub sub and sub will be included on a form_851 that will be attached to the old parent consolidated_return for the short taxable_period beginning on date and ending on date all of the income and deductions of old parent sub sub and sub for the short taxable_year beginning on date and ending on date will be included in the old parent consolidated_return beginning date and ending date new parent will file a consolidated_return for the short taxable_period beginning date and ending on date within days of the receipt of the determinations requested herein new parent old parent sub sub and sub will be included on a form_851 that will be attached to the new parent consolidated_return for the short taxable_year beginning on date and ending on date all of the income and deductions of new parent old parent sub sub and sub for the short taxable_year beginning date and ending date will be included in the new parent consolidated_return for the short taxable_year beginning date and ending date new parent’s date acquisition of all the stock of old parent was not a reverse_acquisition within the meaning of sec_1_1502-75 plr-129005-07 old parent sub sub and sub were affiliated for purposes of sec_1504 for the period from date 1a until date new parent old parent sub sub and sub were affiliated for purposes of sec_1504 for the period from date until date except for the failure to timely file forms with the date old parent consolidated_return old parent sub and sub were eligible to file a consolidated u s_corporation income_tax return for the taxable_year ending date except for the failure to timely file forms new parent old parent sub sub and sub are eligible to file a consolidated u s_corporation income_tax return for the taxable_year beginning date and ending date sec_1_1502-75 provides that a group which filed or was required to file sec_1_1502-75 of the income_tax regulations provides in part that an applicable law affiliated_group_of_corporations which did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents in accordance with sec_1_1502-75 to the regulations issued under sec_1502 a consolidated_return for the immediately preceding_taxable_year is required to file a consolidated_return for the taxable_year unless it has been granted permission by the commissioner to discontinue filing consolidated_returns year sec_1_1502-75 provides as a general_rule that the consent of a corporation shall be made by such corporation joining in the making of the consolidated_return for such year and that a corporation shall be deemed to have joined in the making of such return for such year if it files a form_1122 in the manner specified in sec_1_1502-75 executed by each subsidiary and attached to the consolidated_return for that first taxable_year of the group these provisions also provide that a form_1122 shall not be required for a taxable_year if a consolidated_return was filed or was required to be filed by the group for the immediately preceding_taxable_year temp regulation sec_1_1502-75t h provides that a form_1122 must be with regard to the consent of a corporation for a group’s first consolidated tax sec_1_1502-75 of the regulations provides that if a member of the group plr-129005-07 fails to file the form_1122 the commissioner may under the facts and circumstances determine that such member has nevertheless joined in the making of a consolidated_return by such group factors that the commissioner will take into account in making this determination include the following i ii iii the income and deductions of each member for such taxable_year were included in the consolidated_return no separate_return was filed by any member for that taxable_year and each member of the group was included in the affiliations schedule form_851 for such taxable_year a consolidated_return must include the common parent’s items of income gain where the commissioner under the facts and circumstances determines that the member has joined in the making of a consolidated_return such member will be treated for purposes of sec_1_1502-75t h as if it had filed a form_1122 for such year sec_1_1502-75 flush language deduction loss and credit for the entire consolidated_return_year and each subsidiary’s items for the portion of the year for which it is a member if the consolidated_return includes the items of a corporation for only a portion of its tax_year ie such tax_year determined without taking this section into account items for the portion of the year not included in the consolidated_return must be included in a separate_return including the consolidated_return of another group sec_1_1502-76 based solely on the information submitted and the representations made in particular the representations that old parent will file a consolidated_return for the short taxable_period beginning date and ending on date within days after receipt of the determinations requested herein and that new parent will file a consolidated_return for the short taxable_period beginning date and ending on date within days of the receipt of the determinations requested herein this office rules that rulings pursuant to sec_1_1502-75 sub sub and sub are treated under sec_1_1502-75t h as if they had filed forms with the consolidated_return of the old parent consolidated_group for the calendar_year ended date each of sub sub and sub properly joined in the making of old parent’s consolidated_return for the calendar years ending date and date respectively plr-129005-07 each of sub sub and sub can properly join in the making of old parent’s consolidated_return for the short taxable_period beginning date and ending date pursuant to sec_1_1502-75 old parent sub sub and sub will be treated under sec_1_1502-75t h as if they had filed forms with the consolidated_return of the new parent consolidated_group for the short tax_year beginning date and ending date each of old parent sub sub and sub can properly join in the making of new parent’s amended consolidated_return for the short taxable_year beginning date and ending date each of old parent sub sub and sub properly joined in the making of new parent’s consolidated_return for the calendar years ending date and date respectively caveats we express no opinion about the tax treatment of the facts described above under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from these facts that are not specifically covered by the above ruling in particular we express no opinion about the timeliness of any refund claims pursuant to taxpayer’s filing of any amended returns the rulings contained in this letter are based on information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the taxpayer’s ruling_request verification of this material may be required as part of the audit process this ruling is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling procedural statements plr-129005-07 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 ______________________________ steven j hankin senior technician reviewer branch office of associate chief_counsel chief_counsel


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 tege eo2 plr-144961-08 date date legend trust ------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------- ------------------------- plan retirement_plan ------------------------------------------ ------------------------------------------------------ dear --------------- this is in reply to your letter dated date requesting rulings that the income of trust is excluded from gross_income under sec_115 of the internal_revenue_code and that trust is not required to file a federal_income_tax return facts state established plan to pre-fund medical benefits for public employees who participate in state’s defined benefit retirement plans plan’s sole purpose is to assist state in providing medical benefits to eligible retirees their spouses dependents and domestic partners plan provides benefits through a self-insurance arrangement benefits provided under plan include medical and prescription drug benefits state created trust as a vehicle to pre-fund benefits provided under plan trust will accept account for and invest the contributions made by participating employers in plan trust proposes to amend its trust agreement to clarify that only an employer that plr-144961-08 is a state a political_subdivision of a state or an entity the income of which is excluded from gross_income under sec_115 may become a participating employer trust is governed by the same board_of trustees board that governs the state retirement_system board consists of nine trustees two trustees are state officials two trustees are selected from the general_public by the state governor the remaining five trustees are also selected by the governor and include employees former employees and elected or appointed officials of participating employers the income of trust is derived from employer contributions and investment_income trust’s assets are held in trust for the exclusive purpose of providing post-employment health care benefits to the employees of the participating employers and defraying the reasonable expenses of administering trust trust proposes to amend the trust agreement to provide that no part of trust’s net_earnings may inure to the benefit of a private person and that private parties do not participate in or benefit from the operation of trust benefits will not be paid_by pre-tax salary_reduction_plan does not provide for any cash-out of unused benefits and is not funded by any conversion of sick or vacation days to post-retirement health benefits in addition reasonable efforts will be made to identify individuals who do not qualify as a spouse or dependent under sec_152 of the code of a retiree who participates in plan any income relating to the coverage of such individuals will be imputed in the income of the retiree the trustees may amend trust at any time trust proposes to amend the trust agreement to provide that in the event trust is dissolved the trustees will distribute the assets of trust solely for the purpose of assisting in the payment of medical benefits for the participants and their eligible spouses and dependents and for related administrative expenses trust further represents that it will amend the trust agreement to provide that in no event will any trust assets be transferred to an entity that is not a state a political_subdivision of a state or an entity the income of which is excluded from gross_income under sec_115 of the code trust proposes to add the following statement to the first page of the trust agreement the trust provides no guaranty that payments or reimbursements to employees former employees retirees spouses or beneficiaries will be tax-free the trust has obtained a ruling from the internal_revenue_service concerning only the federal tax treatment of the trust’s income that ruling may not be cited or relied upon by the employer whatsoever as precedent concerning any matter relating to the employer’s health plan s including post-retirement health_plans in particular that ruling has no effect on whether contributions to the employer’s health plan s or payments from the employer’s health_plans including reimbursements of medical_expenses are excludable from the gross_income of employees former employees or retirees under plr-144961-08 the internal_revenue_code the federal_income_tax consequences to employees former employees and retirees depend on the terms and operation of the employer’s health plan s sec_115 law analysis sec_115 of the code provides that gross_income does not include income derived from any public_utility or the exercise of any essential government function and accruing to a state or any political_subdivision thereof in revrul_77_261 1977_2_cb_45 income from an investment fund established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its participating political subdivisions was excludable from gross_income for federal_income_tax purposes under sec_115 the ruling indicated that the statutory exclusion was intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of a public_utility or the performance of some governmental function that accrued to either a state or municipality the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign to properly conduct in addition pursuant to sec_6012 and the underlying regulations the investment fund being classified as a corporation that is subject_to taxation under subtitle a of the code was required to file a federal_income_tax return each year in revrul_90_74 1990_2_cb_34 the service determined that the income of an organization formed funded and operated by political subdivisions to pool various risks casualty public liability workers’ compensation and employees’ health is excludable from gross_income under sec_115 of the code in revrul_90_74 private interests neither materially participate in the organization nor benefit more than incidentally from the organization trust provides health benefits to retired employees of the participating employers each of trust’s participating employers is required to be a state a political_subdivision of a state or an entity the income of which is excluded from gross_income under sec_115 of the code providing health benefits to current and former public employees constitutes the performance of an essential government function based upon revrul_90_74 and revrul_77_261 trust performs an essential_governmental_function within the meaning of sec_115 of the code plr-144961-08 the income of trust accrues to its participating employers each of which is a state a political_subdivision of a state or an entity the income of which is excluded from gross_income under sec_115 of the code no private interests participate in or benefit from the operation of trust other than as providers of goods and services upon termination of trust its remaining assets will be distributed to fulfill an obligation assumed by the participating employers with respect to providing health benefits to their employees the benefit to the participating employees is incidental to the public benefit see rev ru in no case will trust assets be distributed to an entity that is not a state a political_subdivision of a state or an entity the income of which is excluded from gross_income under sec_115 of the code based on the information and representations submitted by trust we hold that as of the date the amendments described above are adopted the income of trust is derived from the exercise of an essential_governmental_function and will accrue to a state or a political_subdivision thereof for purposes of sec_115 accordingly trust’s income is excludable from gross_income under sec_115 of the code sec_6012 sec_6012 and sec_1_6012-2 of the regulations provide in part that every corporation as defined in sec_7701 subject_to taxation under subtitle a is required to file an income_tax return regardless of whether it has taxable_income or regardless of the amount of its gross_income sec_6012 provides that every trust having for the taxable_year any taxable_income or having gross_income of dollar_figure or over regardless of the amount of taxable_income must file an annual income_tax return sec_7701 and sec_301_7701-4 of the regulations define trust for purposes of sec_6012 if trust is classified as a_trust for federal_income_tax purposes no annual income_tax return is required to be filed by trust pursuant to sec_6012 since any income realized by trust is excluded from gross_income under sec_115 however if trust is a corporation as defined in sec_7701 it will be required to file an income_tax return pursuant to sec_6012 no opinion is expressed on the classification of trust as a_trust or corporation for federal tax purposes no opinion is expressed concerning the federal tax consequences of trust under any other provision of the code other than those cited above in particular no representation is made that contributions to plan or payments to employees former employees retirees spouses or beneficiaries will be tax-free the trust has obtained a ruling concerning only the federal tax treatment of the trust’s income that ruling may not be cited or relied upon whatsoever as precedent concerning any matter relating to plan in particular that ruling has no effect on whether contributions to plan or payments from plan including reimbursements of medical_expenses are excludable plr-144961-08 from the gross_income of employees former employees or retirees under the internal_revenue_code the federal_income_tax consequences to employees former employees and retirees depend on the terms and operation of plan in accordance with a power_of_attorney on file we are sending a copy of this letter to your representative sincerely ________________________ sylvia f hunt assistant chief exempt_organizations branch division counsel associate chief_counsel tax exempt and government entities enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court estate of anthony j tamulis deceased wanda rodgerson executor and trustee petitioner v commissioner of internal revenue respondent docket no filed date hugh j graham iii for petitioner thomas c pliske for respondent memorandum findings_of_fact and opinion gale judge respondent determined a deficiency in federal estate_tax of dollar_figure for the estate of anthony j tamulis the estate the sole issue for decision is whether the estate is entitled to a deduction under section for the remainder_interest of the anthony j tamulis trust the trust we hold that the estate is not findings_of_fact most of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated by this reference anthony j tamulis decedent a roman catholic priest died testate on date in sandwich massachusetts dennis carlile was named executor of the estate and trustee of the trust the estate was administered in illinois where mr carlile resided at the time the petition was filed decedent executed a will on date that was in effect at the time of his death on the same day decedent also executed a third restatement and revision of living_trust instrument governing the terms of the trust the parties have all section references unless otherwise noted are to the internal_revenue_code_of_1986 as in effect for the time of decedent's death decedent was a resident of mt olive ill for most of his life but following a stroke several years before his death had been living in massachusetts so that he could be cared for by his niece wanda rodgerson mr carlile died on date and wanda rodgerson was substituted as executor for the estate and successor trustee for the trust stipulated that decedent amended the trust by means of a letter dated date discussed infra this third restatement and revision of living_trust instrument as amended by the letter was in effect at the time of decedent's death as settlor decedent directed that the trust be governed by illinois law the will directed that all of decedent's property after the payment of debts expenses and taxes pass to the trust the trust's governing instrument provided for specific bequests to various charitable and noncharitable recipients following the satisfaction of these specific bequests the trust's governing instrument provided for annual payments during the term of the trust of specific amounts to several of decedent's relatives provided certain conditions were met as well as the transfer of certain real_property and payment of the real_estate_taxes on that property during the lives of its life tenants with the remainder of the trust's net_income each year to be divided equally between two of decedent's grandnieces more specifically paragraphs b and c of the trust provided that b the trustee is to convey my property at no surrey lane sandwich massachusetts with a life_estate therein to be held by my brother john tamulis and his wife mary or the survivor of them with the remainder therein to my grandniece s erica rodgerson and melissa rodgerson share and share alike during the period of the lives of john and mary tamulis the trust shall pay all real_estate_taxes on said real_estate however utilities and all other costs shall be borne by the life tenants yet as supplemented with the contribution from the trust as provided in c i below c during the term of the trust the trustee is to pay the following amounts to the following individuals i dollar_figure per year to john tamulis and if he should predecease his wife mary tamulis then dollar_figure per year to her said money is for the purposes of defraying the utilities and cost of repair and maintenance of the house in sandwich massachusetts ii dollar_figure per year to wanda rodgerson so long as she is making reasonable progress in pursuit of a ph d in education iii dollar_figure per year to erica rodgerson iv dollar_figure per year to melissa rodgerson v the trustee is to pay the balance of the trust net_income as that is determined in accordance with normal accounting principles to melissa rodgerson and erica rodgerson my grandnieces share and share alike the amendment to the trust by letter of date provided that the trust would pay dollar_figure per year to migle francaite another of decedent's grandnieces until she graduates from medical school i gave same to melissa and erica decedent as settlor gave the trustee authority to act with regard to the trust and the assets making up the trust in all manners consistent with the laws of the states of illinois and massachusetts provided however the trustee is authorized to sell or exchange shares of stock making up the trust account only upon first having received the prior written approval of the intended sale from my niece wanda rodgerson the trust was to operate for the longer of years or the joint lives of john and mary tamulis and upon termination the remainder of the trust's assets was to pass to the roman catholic diocese of fall river massachusetts diocese after obtaining an extension for filing the estate timely filed its federal estate_tax_return on date the estate claimed a charitable_contribution_deduction of dollar_figure representing the claimed value of a charitable_remainder interest given to the diocese on schedule o of the estate's form_706 united_states estate and generation-skipping_transfer_tax return the following statement return statement was made charitable_remainder roman catholic diocese of fall river mass balance that is residue following year term certain charitable_remainder_unitrust pincite quarterly payments to two grand nieces erica and melissa rodgerson where during the term the trustee holds and operates pursuant to the terms and conditions of sec_664 and related provisions with balance at end of year term to the roman catholic diocese of fall river mass a 501_c_3_organization see attached calculations of charitable_remainder deductible the estate states on brief that john and mary tamulis were in their eighties when the trust was created although there is no direct evidence of their age in the record in each of the year sec_2001 through the trust distributed percent of the fair_market_value of the trust assets valued as of january of each year to the trust's beneficiaries an examination of the estate's return commenced sometime before date the date of a letter from respondent to mr carlile seeking additional information in connection with the examination a notice_of_deficiency was issued on date in which respondent determined that the charitable_contribution_deduction claimed by the estate for the remainder_interest should be disallowed because the trust did not satisfy the requirements of sec_2055 during date certain of the interested parties made various efforts to reform the trust mr carlile and the diocese each prepared revised versions of the trust's governing instrument but neither version was ever executed by the trustee or any of the beneficiaries mr carlile also prepared a draft of a complaint for restatement of trust for filing in state court which was circulated to the beneficiaries but never filed with any court in date mr carlile executed a document also titled third restatement and revision of living_trust instrument which by its terms revised the trust's governing instrument amendment all of the beneficiaries of the trust except migle francaite provided written consent to the amendment under the amendment the trustee was required to pay in the aggregate percent of the net fair_market_value of the trust assets each year to the same noncharitable beneficiaries designated in the original instrument with payment to be allocated among them so as generally to equal the annual payments specified for each in the original instrument with any remaining balance paid in equal shares to erica and melissa rodgerson opinion in general for purposes of determining the estate_tax imposed by sec_2001 a deduction is allowed from a decedent's gross_estate for transfers for public charitable or religious uses sec_2055 however this general_rule is restricted for so-called split-interest transfers wherein an interest in property passes from the decedent to a charitable_beneficiary while an interest in the same property passes to a noncharitable beneficiary for less than adequate_and_full_consideration see sec_2055 where the interest passing to the charitable_beneficiary is a remainder_interest no deduction is allowed unless the interest is in a_trust which is a charitable_remainder the amendment's terms further provided that in the event percent of the annual fair_market_value was insufficient to satisfy all of the allocations the allocated payments would be satisfied according to a designated order until the percent was exhausted unitrust crut or charitable_remainder_annuity_trust crat described in sec_664 or a pooled_income_fund pif described in sec_642 sec_2055 74_tc_983 affd without published opinion 676_f2d_685 3d cir congress imposed the sec_2055 requirement that a crat crut or pif be used where there is a bequest of a charitable_remainder interest to remove the incentive to favor the income_beneficiary over the remainder beneficiary by means of manipulating the trust's investments h rept part pincite 1969_3_cb_200 s rept pincite 1969_3_cb_423 it had come to congress's attention that taxpayers were claiming charitable deductions for bequests of remainder interests in trusts based upon valuation assumptions for the remainder interests that were inconsistent with the manner in which the trusts assets were in fact managed where trust assets were invested so as to maximize the income_interest the value eventually passing to charity through the remainder_interest might bear little relationship to the deduction previously taken therefore congress mandated a_trust sec_2055 was enacted as part of the tax reform act of the act publaw_91_172 sec d 83_stat_560 and its requirements for split_interests are often referred to as the act rules mechanism that set the annual payout to the noncharitable income beneficiaries as a fixed dollar amount a crat or fixed percentage of the value of the trust assets a crut thereby minimizing the incentive to skew investment strategy to favor the noncharitable income beneficiaries 75_tc_374 h rept part supra pincite c b pincite s rept supra pincite c b pincite to mitigate the reduction in amounts going to charity that the imposition of this stringent framework could engender congress provided a statutory mechanism in by which a_trust that failed to satisfy the crat crut or pif regime of sec_2055 might nonetheless be modified by means of a qualified_reformation so that a deduction under sec_2055 would be allowed sec_2055 a qualified the third option congress provided a pif is an irrevocable_trust in which the property of the trust is managed by the charitable_organization to which the remainder_interest is contributed and for which the donor retains an income_interest for the life of one or more beneficiaries sec_642 since the assets in a pif are managed by a charitable_organization the incentive to favor the noncharitable income beneficiaries is presumed eliminated sec_2055 enacted by the deficit_reduction_act_of_1984 publaw_98_369 98_stat_1026 was a permanent rule to replace various temporary reformation provisions that preceded it and is effective for reformations made after date reformation for this purpose means a change_of a governing instrument by reformation amendment construction or otherwise which changes a reformable_interest into a qualified_interest subject_to certain conditions sec_2055 a reformable_interest for this purpose is defined as an interest that would qualify for a deduction under sec_2055 but for the crat crut or pif requirement of sec_2055 sec_2055 but only if all payments to be made to noncharitable beneficiaries before the remainder_interest vests are expressed either in specified dollar amounts or as a fixed percentage of the fair_market_value of the trust property sec_2055 the requirement that all such payments be expressed as specified dollar amounts or a fixed percentage of the fair_market_value of the trust property does not apply however if a judicial proceeding is commenced to change such interest into a qualified_interest not later than the 90th day after the last date including extensions for filing the estate_tax_return sec_2055 the sec_2055 prong is intended to incorporate the requirements of prior_law such as that the charitable_remainder interest in a split-interest trust be ascertainable ie severable from the noncharitable interest h rept part pincite see also 279_us_151 sec_20_2055-2 estate_tax regs the legislative_history of sec_2055 indicates that congress intended a more liberal reformation rule for trusts where the creator had made a bona_fide attempt to comply with the provisions of the act ie the requirements of sec_2055 and a more exacting rule namely commencement of a judicial proceeding within days after the due_date of the estate_tax_return for trusts where the creator had not evidenced any intent to comply with the act the committee believes that these reformation rules will permit the correction of major obvious defects such as where the income_interest is not expressed as an annuity interest or a unitrust_interest so long as the taxpayer initiates reformation proceedings before audit while allowing the correction of minor defects such as defects in determining the correct payout in short taxable years in years of additional contributions etc upon audit so long as there was a good_faith attempt to comply with the act rules ie the payout is basically expressed as an annuity interest or a unitrust_interest h rept part pincite s rept vol pincite thus where the payout to the noncharitable beneficiaries has been basically expressed as an annuity interest or a unitrust_interest --that is as specified dollar amounts or as a fixed percentage of the fair_market_value of the trust property in accordance with sec_2055 ii --then a reformation may be effected even after an audit has commenced h rept part supra pincite s rept vol supra pincite see also 93_tc_745 affd without published opinion 941_f2d_1209 6th cir but where the payouts have not been expressed in the trust's governing instrument in conformity with sec_2055 reformation is permitted only if a judicial proceeding to make the appropriate changes to the trust is commenced within days after the due_date of the estate_tax_return the estate has stipulated that the trust as in effect at the time of decedent's death did not qualify as either a crat or a crutdollar_figure consequently the bequest of the remainder_interest to the diocese will qualify as a deduction under sec_2055 only if the remainder_interest was a reformable_interest that underwent a qualified_reformation sec_2055 the remainder_interest to the diocese cannot qualify as a reformable_interest because certain payments to be made to the noncharitable beneficiaries before the remainder vests are not expressed as either a specified dollar amount or a fixed percentage of the fair_market_value of the trust property as required by sec_2055dollar_figure the provision for the similarly because the trust at issue was not maintained by the diocese it cannot qualify as a pif see sec_642 respondent also argues that because the trust instrument provides for payments to wanda rodgerson for so long as she is making reasonable progress in pursuit of a ph d in education and to migle francaite until she graduates from medical school the remainder_interest also does not satisfy sec continued payment of the real_estate_taxes on decedent's sandwich massachusetts residence is not expressed as a specified dollar amount or calculable as such or as a fixed percentage of fair_market_value thus the payment for taxes is not fixed as required under sec_2055 more significantly the provision for payment to melissa and erica rodgerson of the balance of the trust's net_income after satisfaction of the payments directed for other noncharitable beneficiaries is neither a specified dollar amount nor a fixed percentage of fair_market_value indeed by providing for a payout of net_income to a noncharitable beneficiary the trust's terms would enable the specific abuse to which the act rules ie the provisions of sec_2055 were addressed namely the reduction of the value of the remainder_interest actually passing to charity below the amount of the deduction claimed because of the continued e c i ie the remainder_interest would not be an allowable deduction under pre-1969-act law because the payments are not ascertainable we note that the trust instrument provides immediately after directing the foregoing payments that the balance of the trust net_income is to be paid to two other beneficiaries this juxtaposition gives rise to a possible interpretation that the payments to wanda rodgerson and migle francaite are limited to the trust's net_income and the estate makes an argument on similar grounds that the remainder_interest was ascertainable however we find it unnecessary to decide whether the remainder_interest satisfies sec_2055 as the remainder interest's failure to satisfy sec_2055 precludes a finding that it is a reformable_interest in any event trustee's ability to favor a noncharitable income_beneficiary through his management of the trust assets during the period before the remainder vestsdollar_figure see estate of gillespie v commissioner t c pincite h rept part supra pincite c b pincite s rept supra pincite- c b pincite because the noncharitable beneficiaries' interests were not fixed as required in sec_2055 the only remaining option for reformation was commencement of a judicial proceeding to reform the trust within days after the estate's tax_return was due see sec_2055 since no such proceeding was ever commenced the estate has failed to satisfy the requirements of sec_2055 as a result the remainder_interest at issue is not a reformable_interest which precludes any reformation whereby it could meet the requirements for a deduction under sec_2055 while this result may seem harsh the legislative_history makes clear that congress intended a tightly circumscribed reformation rule congress was concerned that an overly liberal rule would permit abuse namely that taxpayers would not reform in this regard we note that although the governing instrument gave the trustee authority to act with respect to the trust assets in all manners consistent with the laws of the states of illinois and massachusetts the trustee could sell stock held by the trust only upon the approval of wanda rodgerson one of the noncharitable beneficiaries trusts to comply with the act rules unless and until defects were discovered by the commissioner upon audit the committee reports accompanying congress's enactment of the reformation provisions of sec_2055 state as follows congress first permitted reformation of charitable_remainder trusts in and since that time the congress has extended the period for reformations several times even so it has come to the attention of the committee that there are still many instruments providing for split-interest charitable_contributions which do not meet the requirements for qualification under the rules of the tax reform act of in light of the repeated need to extend the period to reform such governing instruments and the fact that failure to meet the act rules often results in reduced amounts passing to charity the committee believes that a permanent rule permitting reformation of split-interest charitable_contributions should be permitted as long as there are adequate safeguards to avoid abuse specifically the committee is concerned that governing instruments of charitable split-interest_trusts which evidenced no attempt to comply with the act rules would be reformed only if the defects are found upon audit by the internal_revenue_service in order to prevent this from occurring the committee believes that in order for a governing instrument of a charitable split-interest contribution to be reformable either the creator had to make a bona_fide attempt to comply with the act rules or the taxpayer must initiate reformation proceedings before the internal_revenue_service could reasonably be expected to begin an audit h rept part supra pincite7 s rept vol supra pincite the committee reports go on to clarify what constitutes the creator's bona_fide attempt to comply with the act rules as codified in sec_2055 the governing instrument evidences an intent to comply with the act rules if all current payouts from the trust are expressed solely as a fixed dollar amount or a fixed percentage of the value of the trust's assets id pincite s rept vol supra pincite congress thus intended reformation to be available only if the creator of the trust had made a bona_fide attempt to comply with the act rules ie the governing instrument as established by the trust's settlor expressed noncharitable payouts solely as fixed dollar amounts or a fixed percentage of the value of the trust's assets or a judicial proceeding to reform the trust was commenced within days after the return's filing the estate cobbles together several arguments in an effort to show that a qualified_reformation occurred the estate argues that the return statement served either to amend the trust into a crut or to signify the trustee's intent to operate the trust as a crut furthermore the estate contends the trust was in fact managed in accordance with the requirements for a crut as the total annual distributions to the noncharitable beneficiaries were equal to percent of the fair_market_value of the trust's assets in each of the year sec_2001 through the excerpts from the house and senate committee reports are identical except that the word solely does not appear in the house version we reject the estate's contention that the return statement amended the trust into a crut even if we accept the dubious proposition that a statement on a federal estate_tax_return could operate to amend a_trust created under state law the return statement nowhere contains the words amend or amendment or otherwise suggests this purpose in any way moreover there is no evidence that as of the return's filing either the charitable or the noncharitable beneficiaries consented to the amendment purportedly manifested on the estate's return as required by illinois lawdollar_figure the estate also contends in the alternative that the return statement was equivalent to the commencement of a judicial decedent as settlor directed that the trust be governed by illinois law and the estate on brief takes the position that illinois law governs illinois law requires the consent of all charitable and noncharitable beneficiaries whose interests have not expired before a trustee may amend a charitable_trust instrument to bring it into conformity with the crut requirements of sec_664 see ill comp stat ann west notwithstanding the foregoing provision of illinois law the estate argues that the trustee was authorized acting alone to amend the trust instrument citing as authority revproc_89_20 1989_1_cb_841 revproc_89_20 supra provides a sample form of a declaration of trust that if followed by a taxpayer the commissioner agrees to treat as satisfying the requirements for a crut the sample form contains a provision authorizing the trustee acting alone to amend the trust in any manner required for the sole purpose of ensuring that the trust qualifies as a crut revproc_89_20 supra is conditioned however upon a taxpayer's trust's being a valid trust under applicable local law we conclude that revproc_89_20 supra is neither intended to nor does it abrogate the requirements of illinois law for amending a charitable_trust proceeding within the meaning of sec_2055 which ultimately culminated in the amendment that amended the payment terms for the noncharitable beneficiaries so that a qualified_interest was createddollar_figure we disagree filing a federal estate_tax_return in no way commences a judicial proceeding the commencement_date for a judicial proceeding for purposes of sec_2055 has been strictly construed see 93_tc_745 state court's nunc_pro_tunc effective date for trust reformation disregarded in determining date of commencement of judicial proceeding under sec_2055 in sum the claim that the trust was amended by virtue of the return statement does not withstand scrutiny the estate's argument that the sec_2055 reformation provisions were satisfied because the trust was managed by the trustee in conformance with the requirements of a crut since the payments to noncharitable beneficiaries were in fact equal to percent of the fair_market_value of the trust's assets is similarly unavailing the claim that it should be the amendment fixed the annual payments to the noncharitable beneficiaries in the aggregate pincite percent of the net fair_market_value of the trust's assets allocated among those beneficiaries generally according to the payments specified in the original trust instrument however the amendment was not executed or consented to by any beneficiaries until date sufficient if a trustee chooses to manage a_trust so that the payouts to noncharitable beneficiaries conform to the requirements of a crut even where the governing instrument does not require this result conflicts with the explicit terms of both the act rules sec_2055 and the reformation provisions of sec_2055 sec_2055 provides that no deduction shall be allowed for the charitable_remainder interest in a split-interest trust unless such interest is in a_trust which is a charitable_remainder_annuity_trust or a charitable_remainder_unitrust described in sec_664 or a pooled_income_fund described in sec_642 reformation under sec_2055 is not available unless the governing instrument contains specified terms sec_2055 or is promptly amended sec_2055 thus in both the substantive deduction requirements of sec_2055 and the reformation provisions of sec_2055 the terms of the governing instrument are paramount as the legislative_history explains the requirement in sec_2055 that certain trust forms be used was designed in large part to eliminate a trustee's discretion which might be used to favor noncharitable income beneficiaries see estate of gillespie v commissioner supra pincite h rept part supra pincite c b pincite s rept supra pincite c b pincite the fact that the trustee here was not required by the governing instrument to make payouts conforming to those of a crut--at least not until the untimely amendment--is fatal to the estate's position the estate also appears at times to suggest that we should treat the amendment as a qualified_reformation under sec_2055 since it limited payments to the noncharitable beneficiaries to amounts that could be satisfied annually by percent of the fair_market_value of the trust property we disagree since the payments to noncharitable beneficiaries in the original governing instrument were not expressed as specified dollar amounts or a fixed percentage of the fair_market_value of the trust's assets as required by sec_2055 the only remaining option for reforming the trust was a judicial proceeding commenced within days after the return's filing pursuant to sec_2055 the amendment was executed beyond that deadline--indeed well after respondent had contacted the estate for purposes of an examinationdollar_figure finally the estate argues that the actions of the trustee should satisfy sec_2055 under the doctrine_of we also note that the amendment appears ineffective under illinois law insofar as the record discloses as discussed supra note under illinois law amendment of the trust required the consent of all noncharitable beneficiaries with unexpired interests there is no evidence that migle francaite consented to the amendment or that her interest in the trust had expired at the time the amendment was purportedly made substantial compliance according to the estate the trustee disclosed in the return statement his intention to follow and be bound by the requirements of a crut in operating the trust the payments to the noncharitable beneficiaries in fact conformed with crut requirements and the amendment modified the trust so that it complied with crut requirements thus the estate argues the essential purpose of the 90-day rule in sec_2055 iii --which is to require taxpayers to initiate reformation before being contacted by the commissioner--has been satisfied by the return statement and the eventual amendment of the trust in should be treated as timely especially given the fact that the trustee in fact adhered to crut payout requirements in the interim the foregoing should therefore be treated as satisfying sec_2055 under the doctrine_of substantial compliance in the estate's view we disagree this court's application of the substantial compliance doctrine has been summarized as follows the test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad of cases the critical question to be answered is whether the requirements relate to the substance or essence of the statute if so strict adherence to all statutory and regulatory requirements is a precondition to an effective election on the other hand if the requirements are procedural or directory in that they are not of the essence of the thing to be done but are given with a view to the orderly conduct of business they may be fulfilled by substantial if not strict compliance 67_tc_1071 citations omitted given the antiabuse rationale behind sec_2055 as explained in the legislative_history previously discussed we conclude that congress intended compliance with either sec_2055 or iii as a precondition to effecting a reformation of a_trust to satisfy sec_2055 thus the foregoing requirements relate to the substance or essence of the statute we accordingly conclude that sec_2055 requires strict not merely substantial compliance there was no strict compliance here moreover we are not persuaded that even substantial compliance occurred the estate's contention that the return statement should substantially satisfy the requirement for prompt initiation of reformation proceedings is unpersuasive while the executor trustee may have acted in good_faith the return statement did not put respondent on notice of the trust's defects before audit the return statement is fairly read as asserting that the trust at issue was a crut as it described the charitable_remainder as the balance that is residue following year term certain charitable_remainder_unitrust where the trustee holds pursuant to the terms and conditions of sec_664 and related provisions emphasis added none of the efforts to amend the trust either the unexecuted attempts in date or the amendment in date was commenced before respondent contacted the estate for an audit-- precisely the circumstances where congress intended that reformation could not be initiated if the estate's position regarding substantial compliance were accepted then the reformation requirements of sec_2055 could be circumvented by means of a simple disclosure on the return that a crut or crat was intended without regard to the actual terms of the trust's governing instrument we have considered the estate's remaining arguments and conclude they are without merit or relevance for the foregoing reasons decision will be entered for respondent


t c memo united_states tax_court wendell ray holloway petitioner v commissioner of internal revenue respondent docket no 8779-06l filed date wendell ray holloway pro_se denise a diloreto and paul j krazeise jr for respondent memorandum opinion cohen judge this case was commenced in response to a notice_of_determination concerning collection action s under sec_6320 and or sustaining a proposed levy to collect petitioner’s federal income taxes for and in the notice_of_determination a proposed levy with respect to and was not sustained the issue for decision is whether it was an abuse_of_discretion to sustain the proposed levy unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue background petitioner is a self-employed attorney who resided in kentucky at the time that his petition was filed petitioner was married to tammy s holloway ms holloway or petitioner’s former spouse from date through date petitioner and ms holloway filed joint federal_income_tax returns for and petitioner’s joint_return reflected amounts owed of dollar_figure for dollar_figure for and dollar_figure for the amounts were unpaid and the taxes shown on the returns were assessed in respondent’s innocent spouse unit in covington kentucky determined that ms holloway was entitled to relief under sec_6015 for the underpayments shown on the joint returns for and according to respondent’s records notices were sent to petitioner before and after the decision to grant relief to his former spouse on date revenue_officer sheila stewart stewart sent to petitioner a final notice--notice of intent to levy and notice of your right to a hearing listing the amounts that were owed on petitioner’s tax_liabilities for through as totaling dollar_figure petitioner requested a sec_6330 hearing attached to his request was a document entitled notice of appeal challenge and objection request for production of documents demand for hearing and judicial review and counterclaim and offset and to dismiss notice in that document petitioner set forth a melange of claims including that the revenue_officer had failed to make available to him payment plans that the irs had erroneously granted relief to his former spouse that and liabilities were not properly the subject of levy that petitioner was not liable for penalties and interest that petitioner had a counterclaim and offset for property taken from him when he was a minor and numerous vague and unsupported claims of violation of procedural regulations due process and equal protection petitioner requested a face- to-face hearing close to his residence in a letter dated date he explained his position that he had sold cattle herds during to meet the demands of his former wife who started divorce proceedings in he stated it is my understanding that my ex-wife was granted innocent spouse status about date even though she is the one that spent all the money and that is the reason the two cattle herds had to be sold petitioner requested that the hearing be delayed because of his domestic situation and his professional responsibilities a hearing was subsequently set for date by settlement officer danny l williams williams in a letter dated date petitioner requested a delay and a hearing was set for date prior to and during the hearing petitioner demanded certain information concerning the grant of relief under sec_6015 to his former spouse williams sent to petitioner instructions for submitting a freedom_of_information_act_request a hearing was conducted on date and additional documents were sent by petitioner to williams after the hearing there was no tape-recording or transcript of the sec_6330 hearing conducted by williams with petitioner on date nor was one requested by petitioner prior to the sec_6330 hearing date on date the notice_of_determination concerning collection action s under sec_6320 and or signed by an appeals team manager was sent to petitioner the notice_of_determination set forth petitioner’s various claims and accepted only petitioner’s contention with respect to and the notice analyzed petitioner’s financial information and concluded that an offer-in-compromise was not a viable collection alternative because he had more than sufficient equity in his assets to pay his liability in full the notice stated that petitioner had been given notice of and an opportunity to participate in the action on his former spouse’s sec_6015 claim that he had not responded and that he had admitted receiving the notices but ignored them because contesting them might affect his child custody battle after discussing each of petitioner’s claims the notice sustained the proposed levy action to collect the liabilities owed for and discussion petitioner requested and received a hearing under sec_6330 sec_6330 provides sec_6330 matters considered at hearing --in the case of any hearing conducted under this section-- issues at hearing -- a in general --the person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy including-- i appropriate spousal defenses ii challenges to the appropriateness of collection actions and iii offers of collection alternatives which may include the posting of a bond the substitution of other assets an installment_agreement or an offer-in-compromise b underlying liability --the person may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability petitioner’s liabilities were self-reported and arguably the subject of challenge at the hearing see 122_tc_1 however at no time has petitioner raised a viable challenge to the amounts assessed against him his arguments boil down to a claim that the internal_revenue_service irs is precluded from collecting interest and penalties because of procedural errors although he broadly alleges issues as to the amounts of tax he has not identified or proven any errors as to the assessed amounts petitioner’s primary contention which permeates several different claims of violation of due process is that the irs erroneously granted sec_6015 relief to his former spouse petitioner claims that he is entitled to raise this issue under sec_6330 he argues that his wife and her demands during divorce proceedings caused the unpaid liabilities and that he did not receive adequate notice before she was granted relief he did not however present any persuasive or admissible evidence in support of those claims in the petition in this case in numerous meritless motions and in his posttrial briefs petitioner has merely repeated his broad unsupported assertions that he has been denied due process of law and that the irs has not proceeded properly despite the opportunity to testify at trial petitioner declined to do so preferring instead to submit this case on the stipulation and his written arguments respondent on the other hand filed a motion for summary_judgment based on a declaration of williams setting out the relevant documents contained in the administrative file from the cdp hearing respondent contends that testimony and or evidence outside of the administrative record may be admissible if the administrative record does not completely disclose all of the factors considered by the agency or if there is a dispute over what happened during the hearing process 125_tc_301 new evidence regarding an irregularity in the conduct of a hearing or some defect in the record may be presented at trial even if the record rule is applicable see also robinette f 3d pincite of course where a record created in informal proceedings does not adequately disclose the basis for the agency’s decision then it may be appropriate for the reviewing court to receive evidence concerning what happened during the agency proceedings citation omitted the administrative record in this case however not only completely discloses all of the factors that respondent’s settlement officer considered in making his determination but also confirms that he did not omit any relevant factor required to make such determination and petitioner has failed to allege material facts or otherwise make a prima facie showing that any exceptions to the record rule apply respondent also alleged on date petitioner met with respondent’s revenue_officer sheila stewart in respondent’s owensboro kentucky office to discuss petitioner’s unpaid income_tax liabilities during that meeting petitioner told revenue_officer stewart that he had received the prior correspondence sent to him by respondent’s innocent spouse unit in cincinnati ohio regarding the innocent spouse relief claim filed by tammy s holloway and that he did not contest or otherwise dispute such claim by her because he feared that it may affect the disposition of his child custody dispute with her in their pending divorce action declaration exhibit y the declaration of williams was attached to respondent’s motion but there was no declaration from stewart exhibit y was an unsigned printout of a case history of petitioner and ms holloway because petitioner disputed the completeness of the administrative record and the factual assertions made including his alleged admissions to stewart concerning his receipt of notice of the claims of ms holloway respondent’s motion for summary_judgment was denied respondent did not call any witnesses at trial although respondent repeats in the briefs the allegations of statements made to stewart and claims that those statements are admissions and exceptions to the hearsay rule there is no evidence that petitioner made the statements to stewart petitioner denies making the statements though not under oath thus there is no admissible evidence in the record as to whether the statements were made or not made for the reasons explained below we conclude that the disputed admissions are irrelevant to our decision respondent also argues that we are bound by the administrative record in this case notwithstanding petitioner’s disputes about omissions from and inadequacy of the administrative record because no testimony was offered at trial we do not need to consider whether testimony in addition to the administrative record may be considered the stipulation includes documents that were not included in the administrative record in this case and respondent has maintained a relevance objection to those documents because we agree with respondent’s relevance objection we need not address respondent’s contention that we are limited to the administrative record married taxpayers who elect to file a joint federal_income_tax return are jointly and severally liable for the entire tax due for the year of the return sec_6013 a spouse a requesting spouse may seek relief from joint_and_several_liability by following the procedures established in sec_6015 if the disputed liability involves nonpayment of taxes shown on a joint_return the only relief available is under sec_6015 see 120_tc_137 thus the relief pursued by and granted to ms holloway was relief under sec_6015 under the circumstances of this case petitioner is fully responsible for the unpaid amounts whether or not ms holloway is also responsible petitioner has provided neither reason nor authority supporting his assertion that relief given to ms holloway should preclude the proposed levy against his assets or that his claim is the type of spousal defense contemplated under sec_6330 neither he nor the court has the ability to require the irs to collect unpaid amounts from her rather than from him cf 432_f3d_972 9th cir 128_tc_108 119_tc_267 affd 360_f3d_361 2d cir 115_tc_582 affd 21_fedappx_160 4th cir petitioner contends that the failure to record the hearing and the failure to have certain documents in the form of admissible evidence make the determination null void and unenforceable that the assignment of his hearing to a settlement officer rather than an appeals officer and the issuance of the notice_of_determination signed by an appeals team manager were denials of due process and render the notice unenforceable and that certain irs employees were not competent to take the steps reflected in the administrative record although petitioner had the option under sec_7521 to request in advance that the hearing be recorded he has stipulated that he did not make such a request despite his rhetoric petitioner has not shown any requirement of law that was not followed by the persons involved he has not acknowledged or distinguished law contrary to his contentions see eg 411_f3d_621 6th cir 126_tc_237 elmore v commissioner t c memo petitioner has not addressed his financial circumstances that were determined in the notice to preclude alternative means of collection he raises new issues such as claims that certain assets are exempt only in his reply brief and therefore those issues will not be considered again his arguments are not supported by evidence or authority we need not and will not address all of them the abuse_of_discretion standard requires the court to decide whether the challenged determination was arbitrary capricious or without sound basis in fact or law see 112_tc_19 after considering petitioner’s lengthy submissions and the lack of evidentiary or legal support for his claims we conclude that he has shown neither error nor abuse_of_discretion in the notice_of_determination decision will be entered for respondent


number release date id office uilc cca-326124-09 ------------------ from --------------------- sent to ------------------ cc --------------------- subject u s -belgian treaty question -------- asked me to look into your question first are you sure the social_security payments will be exempt from tax if the tps make this election it looks like only paragraph of article is an exception to the saving clause under paragraph of article paragraph of article applies solely to payments from the united_states to a belgian resident and payments from belgium to a u s resident or belgian resident who is also a u s citizen if the social_security income in question is exempt from u s income_tax sec_301 c iii provides that taxpayers taking the position that a u s treaty reduces or modifies the taxation of income derived from public or private pensions or social_security are not required to disclose this position on their income_tax return for the year in which the distributions are made accordingly your tps would not need to attach a form_8833 to their return or otherwise report the belgian social_security they received as income on form_1040 -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- ---------------------


internal_revenue_service number release date index number ----------------- -------------------------------------------------------- -------------------------------------- --------------------------------------------- ------------------------- in re ----------------------------------------------------- ----- 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 ita b02 plr-103962-11 date july ty ------- ty ------- legend taxpayer ----------------------------------------------------- common parent ---------------------------- parent -------------------------------------- parent -------------------------------------------------- subsidiary reit --------------------------------------------------------------------- accounting firm ---------------------- date --------------------- date -------------------------- date ------------------------- year ------- year ------- year ------- dollar_figureaa ------------------ manager -------------------- employee --------------- partner ---------------------------- dear ---------------- this letter is in response to a ruling_request dated ---------------------- submitted on behalf of taxpayer by parent taxpayer’s successor_in_interest requesting an extension of time to make a consent_dividend election under sec_565 of the internal_revenue_code this request is made pursuant to sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations this letter supersedes the letter dated ---------------- plr-103962-11 facts taxpayer is a corporation that has elected to be treated as a real_estate_investment_trust reit for federal_income_tax purpose since date taxpayer uses the accrual_method of accounting and files its tax returns on a calendar-year basis during year parent owned all of the outstanding common shares and some of the outstanding preferred shares of taxpayer unrelated investors also owned preferred shares of taxpayer parent was a member of common parent’s consolidated_group and was included on common parent’s consolidated federal_income_tax return also during year taxpayer owned common and preferred shares of subsidiary reit and unrelated investors owned preferred shares of subsidiary reit on date both parent and taxpayer were merged into parent with parent assuming all assets and liabilities of taxpayer and in each case with parent surviving as the successor_in_interest taxpayer timely filed its form 1120-reit for tax_year year with its return taxpayer included a form_972 consent of shareholder to include specific amounts in gross_income reflecting consent dividends with respect to common_stock in the amount of dollar_figureaa and a form_973 corporation claim for deduction for consent dividends however instead of showing taxpayer’s information on line and parent as the shareholder including the dollar_figureaa consent_dividend in income the form_972 showed subsidiary reit’s information on line and taxpayer as the shareholder taxpayer’s year federal_income_tax return was prepared by employees in common parent’s tax department and signed by partner at accounting firm as paid preparer during the preparation of taxpayer’s year return employee prepared a first draft of the form_972 using tax preparation software the draft of the form_972 was reviewed by manager who made no changes to the draft form_972 because the draft form_972 correctly reflected parent as the shareholder including the dollar_figureaa of consent dividends in income and taxpayer’s information on line however when taxpayer’s complete federal_income_tax return was prepared common parent’s employees used a different tax preparation software that erroneously populated the form_972 with taxpayer’s name and identifying number as the shareholder including the consent_dividend in income and subsidiary reit’s information on line when common parent’s employees reviewed the completed return they did not notice the error further partner reviewed the completed return and also did not notice the error on date common parent’s employees met with members of the service’s examination team examining common parent’s consolidated federal_income_tax returns for year year and year prior to the meeting common parent’s employees had provided taxpayer’s form_972 among other information to the service’s employees common parent’s employees discovered the errors on the form plr-103962-11 when one of the members of the examination team asked for clarification with regards to the names on the form_972 filed with taxpayer’s year return during the meeting on date law and analysis sec_565 of the internal_revenue_code provides that if any person owns consent_stock as defined in sec_565 in a corporation on the last day of the taxable_year of such corporation and such person agrees in a consent filed with the return of such corporation in accordance with the regulations to treat as a dividend the amount specified in such consent the amount so specified shall except as provided in sec_565 constitute a consent_dividend for purposes of sec_561 relating to the deduction for dividends_paid sec_1_565-1 of the income_tax regulations provides that the dividends_paid deduction as defined in sec_561 includes the consent dividends for the taxable_year a consent_dividend is a hypothetical distribution as distinguished from an actual distribution made by certain corporations to any person who owns consent_stock on the last day of the taxable_year of such corporation and who agrees to treat the hypothetical distribution as an actual dividend subject_to specified limitations by filing a consent at the time and in the manner specified in sec_1_565-1 sec_1_565-1 provides that a consent may be filed not later than the due_date of the corporation’s income_tax return for the taxable_year for which the dividends_paid deduction is claimed under revrul_78_296 1978_2_cb_183 the due_date for purposes of sec_1 b includes the extended due_date of a return filed pursuant to an extension of time to file sec_301_9100-1 provides that the commissioner of internal revenue in exercising his discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i the term regulatory election is defined in sec_301_9100-1 as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government under sec_301_9100-3 except as provided in paragraphs b i through iii a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer requests relief before the failure to make the regulatory election is discovered by the service plr-103962-11 paragraphs b i through iii of sec_301_9100-3 provide that a taxpayer is deemed not to have acted reasonably and in good_faith if the taxpayer i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the due_date for making the election that make the election advantageous to a taxpayer the service will not ordinarily grant relief in such a case the service will grant relief only when the taxpayer provides strong_proof that the taxpayer’s decision to seek relief did not involve hindsight sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment conclusion based upon our analysis of the facts taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government therefore the requirements of sec_301_9100-1 and sec_301_9100-3 have been met under the facts represented taxpayer’s failure to make a proper consent_dividend election was not due to the intentional disregard of the tax rules but was due to inadvertent errors on the part of common parent’s tax professionals taxpayer did not affirmatively choose not to file the election taxpayer is not seeking to alter a return position or to use hindsight to request relief finally taxpayer acted promptly in filing its request for relief before the service discovered the failure to make the regulatory election therefore taxpayer did not act unreasonably or in bad faith furthermore granting relief will not result in taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than taxpayer would have had if the election had been timely made nor will any closed years be affected therefore the interests of the government will not be prejudiced by granting the request for relief plr-103962-11 because taxpayer acted reasonably and in good_faith and because the interests of the government will not be prejudiced if the request for relief is granted taxpayer is granted an extension of days from the date of this ruling to file its consent_dividend election a copy of this letter should be attached to the amended_return filed reflecting the election 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 further no opinion is expressed or implied whether taxpayer subsidiary reit or any entity mentioned in this letter that purports to be a reit qualifies as a reit under part ii of subchapter_m of chapter of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely thomas d moffitt branch chief branch income_tax accounting cc