t c memo united_states tax_court bill max overton petitioner v commissioner of internal revenue respondent docket no filed date bill max overton pro_se donald e edwards and ann o’blenes for respondent memorandum opinion thornton judge respondent determined the following deficiencies and additions to tax in petitioner’s federal income taxes all section references are to the internal_revenue_code in effect for the years at issue except that references to sec_7491 are to that section as added to the internal_revenue_code by the internal_revenue_service restructuring and reform act of continued year deficiency additions to tax sec_6651 sec_6654 dollar_figure big_number big_number dollar_figure dollar_figure the issues for decision are whether petitioner received unreported interest_income as determined in the notices of deficiency and whether petitioner is liable for additions to tax pursuant to sec_6651 and sec_6654 for the years at issue background when he petitioned this court petitioner resided in oklahoma city oklahoma for each year at issue petitioner received interest_income from numerous financial institutions the interest_income totaled dollar_figure dollar_figure and dollar_figure for and respectively petitioner filed no federal_income_tax return for or on date the internal_revenue_service received from petitioner a form_1040 u s individual_income_tax_return for his tax_year this document the purported return continued rra publaw_105_206 sec stat rule references are to the tax_court rules_of_practice and procedure petitioner admits in his petition that he received those amounts of interest_income lists on schedule e supplemental income and loss dollar_figure of royalties received interest offset by dollar_figure of claimed expenses on the purported return petitioner lists no earned_income but claims a loss carry over of dollar_figure a dollar_figure earned_income_credit and a refund of the same amount in the jurat above his signature petitioner scratched out the words under penalty of perjury with respect to each of petitioner’s and tax years respondent prepared a substitute for return sfr petitioner claims to have filed with the internal_revenue_service irs similar purported returns for his tax years and the purported return which is in evidence lists on schedule e supplemental income and loss dollar_figure of royalties received interest offset by dollar_figure of claimed expenses on the purported return petitioner lists no earned_income and claims a loss carry over of dollar_figure a dollar_figure earned_income_credit and a dollar_figure refund similarly the purported return which is also in evidence lists on schedule e dollar_figure of royalties received interest offset by dollar_figure of claimed expenses on the purported return petitioner lists no earned_income and claims a loss carry over of dollar_figure a dollar_figure earned_income_credit and a dollar_figure refund on each of these purported and returns as on his purported return petitioner scratched out the words under penalty of perjury in the jurat above his signature there is no evidence in the record that petitioner ever submitted the purported and returns to the irs pursuant to sec_6702 respondent assessed a frivolous_return penalty with respect to petitioner’s purported return the frivolous_return penalty is not at issue here the term substitute for return sfr has been used to describe a return prepared by the commissioner pursuant to sec_6020 where the taxpayer did not file a return it is continued on date respondent issued notices of deficiency based on the sfrs in the notices of deficiency respondent determined that petitioner received unreported interest_income in the following amounts on the basis of information reports from financial institutions year unreported interest_income dollar_figure big_number big_number on date this case was called for trial in lubbock texas petitioner failed to appear and no appearance was made on his behalf discussion although petitioner failed to appear at trial and to prosecute his case respondent’s counsel chose to proceed with continued unnecessary to decide whether the returns that respondent prepared in this case meet the requirements of sec_6020 for convenience we refer to these returns as sfrs see 121_tc_111 n on forms 1099-int interest_income the financial institutions reported interest_income paid to petitioner totaling at least dollar_figure dollar_figure and dollar_figure for and respectively most if not all of these forms 1099-int listed incorrect taxpayer identification numbers using an automated system the irs matched the forms 1099-int to petitioner’s correct taxpayer_identification_number trial accordingly we regard this case as submitted by the parties see rule a a unreported interest_income the evidence shows that petitioner received interest_income in amounts at least as great as determined in the notices of deficiency in fact by his own admissions in his petition petitioner received more interest_income than was determined in the notices of deficiency respondent has not sought increased deficiencies based on these admissions therefore we sustain respondent’s deficiency determinations rule failure to appear or to adduce evidence a attendance at trials the unexcused absence of a party or a party’s counsel when a case is called for trial will not be ground for delay the case may be dismissed for failure properly to prosecute or the trial may proceed and the case be regarded as submitted on the part of the absent party or parties the parties have not addressed the application of sec_7491 or whether the examination of petitioner’s or tax_year commenced after date the effective date of sec_7491 see rra sec c 112_stat_727 because petitioner’s return was due after date presumably the examination of petitioner’s tax_year commenced after date nevertheless sec_7491 does not affect our analysis for any of the years at issue because with the one exception discussed infra note our holdings do not depend upon which party has the burden_of_proof or production in his petition petitioner claims entitlement to all the deductions listed on his purported returns petitioner has not substantiated any of these deductions and accordingly is not entitled to them see rule a 292_us_435 because petitioner failed to comply with the substantiation and record-keeping requirements continued b additions to tax failure_to_file timely returns for each year at issue respondent determined that petitioner is liable for the sec_6651 addition_to_tax for failing to file a timely federal_income_tax return sec_6651 imposes an addition_to_tax for failing to file a tax_return on or before the specified filing_date unless the taxpayer establishes that the failure is due to reasonable_cause and not due to willful neglect sec_6651 see 469_us_241 respondent offered into evidence form_3050 certificate of lack of record which indicates that no income_tax return for petitioner is on file with the internal_revenue_service for any year at issue in his petition petitioner alleges that he filed a federal_income_tax return for each year at issue on each of these purported returns petitioner crossed out the words under penalty of perjury from the jurat above his signature for this reason if for no other the purported returns do not constitute valid returns see eg 65_tc_68 affd without published opinion 559_f2d_1207 3d cir sochia v commissioner tcmemo_1998_294 see also continued of sec_7491 and to introduce credible_evidence within the meaning of sec_7491 sec_7491 does not place the burden_of_proof on respondent with respect to the claimed deductions 114_tc_136 jenkins v commissioner tcmemo_1989_618 jenkins v commissioner tcmemo_1989_617 petitioner has not shown that his failure_to_file valid returns was due to reasonable_cause to the contrary his purported returns convince us that his failure_to_file valid returns resulted from his deliberate attempt to subvert the tax laws accordingly we sustain respondent’s determination of sec_6651 additions to tax as set forth in the notices of deficiency failure to pay estimated_tax for each year at issue respondent determined that petitioner is liable for the sec_6654 addition_to_tax for underpaying required installments of individual estimated_tax in his petition the only argument that petitioner raises that arguably pertains to the sec_6654 addition_to_tax is that since there is no additional income it follows that the additional claims for penalties are also in error contrary to petitioner’s argument however we have sustained respondent’s deficiency determinations as to the amount of petitioner’s unreported income for each year at issue petitioner does not allege and the evidence does not suggest that any exception in sec_6654 applies accordingly we sustain respondent’s determination of sec_6654 additions to tax as set forth in the notices of deficiency in reaching our holding we have considered all arguments that petitioner raised in his petition arguments not addressed herein are irrelevant or without merit to reflect the foregoing decision will be entered for respondent the evidence shows that petitioner had federal income taxes withheld of dollar_figure and dollar_figure for and respectively in the notices of deficiency for these years respondent appropriately gave petitioner credit for these amounts of withholding for example in his petition petitioner contends that the limitations_period for assessing his tax has expired assessments must be made within years after a return is filed sec_6501 because petitioner filed no return the limitations_period for assessing his tax remains open indefinitely see sec_6501


internal_revenue_service number release date --------------------------------- -------------------------------------------- --------------------------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no -------------- telephone number ---------------------- refer reply to cc psi b02 plr-147725-12 date date x trust ------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------ ----------------------- individual ------------------------------------------------------------------------------------------------------------------------ ------------------------- state date date ------------------- ------------------------ ------------------------ dear ------------------ this letter responds to a letter dated date submitted on behalf of x by its authorized representatives requesting a ruling under sec_1362 and sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in state on date since date x has had two shareholders trust and individual x’s officers intended that x elect s_corporation treatment effective date however a form_2553 election by a small_business_corporation incorrectly identified the effective date of the election as date and incorrectly reported the percentage of ownership that trust and individual held in x in addition an individual who was not an authorized signatory of trust signed the form_2553 on behalf of trust therefore making the election ineffective also x represents that trust qualifies as an electing_small_business_trust esbt within the meaning of sec_1361 however no esbt election was properly filed for trust plr-147725-12 x represents that it meets all of the requirements to be a small_business_corporation under sec_1361 effective date further x represents that its failure_to_file an esbt election was inadvertent x and its shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not 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_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year a at any time during the preceding_taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat such an election as timely made for the taxable_year and sec_1362 shall not apply sec_1362 provides in part that if an election under sec_1362 by any corporation was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents the secretary determines that the circumstances resulting in such ineffectiveness were inadvertent no later than a reasonable period of time after discovery of the event resulting in the ineffectiveness steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness the corporation shall be treated as an s_corporation during the period specified by the secretary based on the facts submitted and representations made we conclude that x established reasonable_cause for failing to make a timely election to be an s_corporation plr-147725-12 effective date thus we conclude that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective date within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 x failed to timely file an election to be treated as an s_corporation effective date had x filed the election it would have been ineffective because trust was an ineligible shareholder on date based solely on the facts submitted and representations made we conclude that x’s election to be treated as an s_corporation effective date would have been ineffective and conclude that the ineffectiveness would have been inadvertent within the meaning of sec_1362 under the provisions of sec_1362 x will be treated as an s_corporation effective date and thereafter provided that x’s s_corporation is not otherwise terminated under sec_1362 this ruling is contingent on x and its shareholders filing their federal_income_tax returns consistent with x being an s_corporation this ruling is also contingent on the trustee of trust filing an esbt election effective date with the appropriate service_center the esbt election must be filed within days following the date of this letter a copy of this letter should be attached to the esbt election if x or its shareholders fail to treat themselves as described above this ruling shall be null and void except for the specific rulings above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the code specifically we express or imply no opinion as to whether x otherwise qualifies as a subchapter_s_corporation under sec_1361 or the qualification of trust as an esbt this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purpose


internal_revenue_service number release date index nos and p o box ben franklin station washington dc department of the treasury person to contact telephone number refer reply to cc ita plr-120634-02 date date ssn taxpayer former spouse state county date a date b date c dollar_figurex dollar_figurey or payment dear this is in response to a private_letter_ruling request dated date submitted by your authorized representative on your behalf specifically you have requested a ruling that a lump sum payment of dollar_figurey payment to be paid_by you to your former spouse pursuant to a court order constitutes deductible_alimony under sec_71 and sec_215 of the internal_revenue_code applicable facts taxpayer is an individual using the cash_method_of_accounting over a calendar_year on date a taxpayer and former spouse were divorced under state law pursuant to an order issued by the circuit_court of county court order the court order was issued subsequent to a separation agreement entered into by the parties separation agreement the court order incorporates the separation agreement by reference sec_3 of the court order provides that taxpayer shall pay former spouse as support and maintenance such sums of money as set out in paragraph of the aforesaid s eparation a greement pursuant to the terms and conditions therein contained sentence of paragraph requires taxpayer to provide monthly alimony payments of dollar_figurex for the support and maintenance of former spouse beginning on date b until she dies a further court order is issued she becomes remarried or after date c sentence of paragraph states that if taxpayer has paid alimony through date c then taxpayer has the option to a lump sum settlement of dollar_figurey or to continue paying alimony as aforesaid or until such time as he chooses to exercise the option to pay dollar_figurey lump sum settlement neither the court order nor paragraph of the separation agreement exclude any of the support and maintenance payments from the former spouse’s income under sec_71 or preclude taxpayer from deducting any of these payments under sec_215 taxpayer and former spouse have maintained separate households at all times since the effective date of the divorce the payments described in the court order in paragraph of the separation agreement are not contingent on events associated with any children of the marriage taxpayer has determined to make a lump-sum payment of dollar_figurey in cash to former spouse in satisfaction of his support and maintenance obligation under sec_3 of the court order pursuant to paragraph sentence of the settlement agreement rulings requested taxpayer’s payment of dollar_figurey for the support and maintenance of former spouse pursuant to the court order is alimony under sec_71 taxpayer may deduct payment from his federal income taxes pursuant to sec_215 law and analysis sec_71 of the code includes amounts received as alimony or separate_maintenance payments in gross_income under sec_71 the term alimony or separate_maintenance payments means any payment in cash if a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income under this section and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse sec_71 defines divorce_or_separation_instrument as a a decree of divorce or separate_maintenance or a written instrument incident to such a decree b a written_separation_agreement or c a decree not described in subparagraph a requiring a spouse to make payments for the support or maintenance of the other spouse sec_215 provides that an individual shall be allowed as a deduction an amount equal to the alimony or separate_maintenance payments paid during such individual’s taxable_year under sec_215 the term alimony_or_separate_maintenance_payment means any alimony_or_separate_maintenance_payment as defined in sec_71 which is includible in the gross_income of the recipient under sec_71 if a payment satisfies all of the factors set forth in sec_71 then it is alimony if it fails to satisfy any one of the above factors it is not alimony jaffe v commissioner tcmemo_1999_196 the facts and representations set forth in your submission indicate that the requirements in subparagraphs a b c and d of sec_71 are satisfied with respect to the payment to be made to former spouse in the instant case the court order is a divorce_or_separation_instrument under sec_71 as it requires taxpayer to make payments for the support and maintenance of former spouse under sec_3 of the court order former spouse will receive the payment in cash pursuant to the court order the court order does not exclude the payment from former spouse’s gross_income or preclude taxpayer from deducting payment under sec_215 taxpayer and former spouse have not shared the same household since the divorce taxpayer is not required to make any payments after former spouse’s death pursuant to paragraph sentence of the settlement agreement which is incorporated within the court order the payment is not a child_support payment because it is not contingent on events associated with any children in the court order accordingly the payment to be made to former spouse is alimony or separate_maintenance within the meaning of sec_71 of the code and thus deductible by taxpayer under sec_215 when payment is made rulings based solely on the facts and representations submitted we conclude and rule as follows taxpayer’s payment of dollar_figurey to former spouse constitutes alimony under sec_71 taxpayer may deduct payment from his federal income taxes pursuant to sec_215 disclaimers and limitations except as specifically ruled above no opinion is expressed as to the federal tax treatment of the transaction under any other provisions of the code and the income_tax regulations that may be applicable or under any other general principles of federal income_taxation neither is any opinion expressed as to the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above ruling this ruling is directed only to the taxpayer s who requested it sec_6110 of the code provides that it may not be cited as precedent sincerely yours clifford m harbourt senior technician reviewer branch associate chief_counsel income_tax accounting 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 plr-126576-16 date january legend taxpayers ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- ------------ statex ------------ partnershipx ------------------------------------------- x y assetsx ---- ------ ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- ------- operations --------------------------------------------------------------------------------- xdre xtrs -------------------------------- ---------------------------------------------- plr-126576-16 xreit z yreit ------------------------------------------------------------- ------ -------------------------------------------------------- partnershipy ------------------------------ date1 zreit statey dear --------------- --------------------- ------------------------------------------- ----------- this is in response to the letter dated date requesting a ruling on a significant issue presented under sec_351 of the internal_revenue_code the code the information provided in that request and in subsequent correspondence is summarized below this letter is issued pursuant to section dollar_figure of revproc_2016_1 2016_1_irb_1 regarding one or more significant issues under sec_332 sec_351 sec_355 sec_368 or sec_1036 of the code the ruling contained in this letter only addresses one discrete legal issue involved in the transactions described in this letter this office expresses no opinion as to the overall tax consequences of these transactions or as to any issue not specifically addressed by the ruling below the ruling contained in this letter is based upon information and representations submitted by the taxpayers and accompanied by respective penalties of perjury statements executed by an appropriate party this office has not verified any of the materials submitted in support of the ruling_request verification of the facts representations and other information may be required as part of the audit process facts taxpayers are statex limited_partnerships lps each of which is treated as a partnership for u s federal_income_tax purposes collectively the tpartnerships all of the general_partner gp interests of the tpartnerships are held by respective statex limited_liability companies llcs that hold no other assets partnershipx also is a statex lp that is treated as a partnership for u s federal_income_tax purposes collectively with the tpartnerships the partnerships plr-126576-16 the predominant assets of the partnerships ranging from all but approximately x to y of their respective gross value consist of assetsx and a small percentage of cash the business operations of the partnerships consist of operations the tpartnerships hold their respective assetsx through lps and llcs that are disregarded as separate from their sole regarded_owner under sec_301 for u s federal_income_tax purposes each such entity a dre partnershipx indirectly holds its assetsx through xdre a dre for u s federal_income_tax purposes and xtrs a taxable_reit_subsidiary specifically partnershipx owns all of the common_stock of xreit a corporation that is taxed as a real_estate_investment_trust reit the assets of xreit consist of approximately z of the outstanding common_stock of yreit a corporation that also is taxed as a reit the remaining common_stock of yreit is owned by partnershipy a statex lp that is treated as a partnership for u s federal_income_tax purposes the assets of yreit consist of all of the interests in xdre and xtrs on date1 partnershipx formed a new statex corporation zreit prior to the completion of step v below zreit's jurisdiction of incorporation will be changed to statey taxpayers intend to engage in a series of transactions that will include the following steps i in a series of transactions each of the tpartnerships and their gps will become a dre for u s federal_income_tax purposes that is wholly-owned by respective successor partnerships of the tpartnerships the new tpartnerships ii xreit will merge into zreit in a reorganization intended to qualify under sec_368 the common shareholder of xreit partnershipx will exchange its stock in xreit for all of the stock of zreit zreit will succeed to xreit’s reit election upon the merger iii the new tpartnerships will transfer all of the interests in all of their dres and thus the respective assets of the dres to zreit in exchange for stock of zreit iv yreit will merge into zreit with zreit surviving in a reorganization intended to qualify under sec_368 partnershipy will exchange all of plr-126576-16 the stock it owns in yreit for stock in zreit and the stock of yreit owned by zreit will be cancelled in the merger v zreit will issue stock to the public market in an initial_public_offering for cash ipo the cash transferred to zreit may be applied to pay transaction costs reduce existing debt establish reserves for working_capital acquire additional assetsx having a similar risk profile as those of the partnerships or some combination thereof steps i - v will all take place pursuant to an agreed upon plan and should occur on approximately the same date and in those steps the new tpartnerships partnershipy and the members of the public transferring cash to zreit in the ipo collectively will receive stock in zreit that will constitute control of zreit as defined under sec_368 ruling the transfers of the new tpartnerships’ dres to zreit in exchange for stock of zreit will not be treated as a transfer to an investment_company within the meaning of sec_351 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of any transaction or item discussed or referenced in this letter under any provision of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from any transaction that is not specifically covered by the above ruling additionally no opinion is expressed concerning whether xreit yreit or zreit otherwise qualify as a reit under subchapter_m part ii of chapter of the code furthermore this letter does not provide any rulings under sec_856 or sec_857 procedural statements this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-126576-16 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely t ian russell t ian russell branch chief branch office of associate chief_counsel corporate


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 b04 plr-119093-11 date october internal_revenue_service number release date index number -------------------------- ------------------- ------------------------------------------------------ --------------------------------------- --------------------------------- re -------------------------------------------- -------------------------- legend grantor_trust trust trust child child child company date date state state court individual statute statute individual trust company --------------------------- -------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------- ------------------------------ -------------------------------- -------------------------- ------------------------------- --------------------------- ------------------- ------------ ------------- ---------------------------------------------------------- ---------------------- ------------------------------------------------- ----------------------------------------------------- ------------------- ------------------------------------------------------ plr-119093-11 dear ----------------- this letter responds to your authorized representative’s letter dated date requesting income estate gift and generation-skipping_transfer gst tax rulings with respect to the proposed modifications of trust the facts and representations submitted are summarized as follows on date a date prior to date grantor created trust for the benefit of child and his descendants the current trustees are trust company and individual pursuant to trust during the life of child the trustees in their discretion may distribute the income and principal of trust to or for the benefit of child his spouse and his issue to provide for their care comfort support maintenance and education and to provide for any illness accident emergency disability or other unusual circumstances upon the death of child child may appoint the trust property by will to any one or more of child 1’s issue if child does not exercise the limited_power_of_appointment on his death then until the termination_date the trustees in their discretion may distribute the income and principal of trust to or for the benefit of child 1’s spouse if child is married at the time of his death and his spouse survives him and issue to provide for their care comfort support maintenance and education and to provide for any illness accident emergency disability or other unusual circumstances any income not distributed shall be accumulated and added to principal if at any time prior to the termination_date there are no living issue of child then the trustees in their discretion may distribute the income and principal to or for the benefit of child 1’s spouse and the issue of the grantor to provide for their care comfort support maintenance and education and to provide for any illness accident emergency disability or other unusual circumstance if at any time prior to the termination_date there are no living issue of the grantor then the trustees in their discretion may distribute the income to the issue of grantor’s sister in such amounts as the trustees determine for their care comfort support maintenance education and best interests and to provide for any illness accident emergency disability or other unusual circumstance any income not distributed shall be accumulated and added to principal trust will terminate years after the last survivor of grantor grantor’s wife child child child and other individuals who were living when trust was created on the termination_date the trust property will be divided and distributed outright in equal shares to the grandchildren of child with the issue of any deceased grandchild receiving by right of representation the share such grandchild would have received if living if there are no grandchildren or more remote issue of child living on the termination_date then the trust property will be distributed one-half to child 2’s plr-119093-11 grandchildren and one-half to child 3’s grandchildren in equal shares if only one of child 1’s brothers has grandchildren or more remote issue living on the termination_date then all of the trust property will be distributed to that family line trust provides that a trustee or a successor trustee may resign upon thirty days notice to the grantor if living to child after the grantor’s death or to child 1’s guardian or to each successor beneficiary or the legal guardian of a successor beneficiary if child is deceased if individual dies resigns or for any reason cannot continue to act as the individual trustee then a successor individual trustee shall be appointed by child if living otherwise by the other living children of the grantor if the corporate trustee resigns or for any other reason cannot continue to act as the corporate trustee then a successor or substitute corporate trustee shall be appointed by child if living otherwise by the other living children of the grantor the primary asset of trust is common_stock of company trust provides that the trustees may not sell transfer exchange or dispose_of company stock without first offering to sell the stock to company if the trustees desire to sell company stock company will have an option for thirty days to redeem such stock for a price per share equal to and on the basis of the net_book_value per share of company on date child filed a petition with court a state court requesting that court accept jurisdiction over trust so that the situs of trust is in state and modify trust by approving the following proposed modifications of trust a distribution adviser is named to make all decisions related to the distribution of the trust property to the beneficiaries the distribution adviser shall direct the trustees to distribute income and principal from time to time pursuant to the standards established in the trust instrument if no distribution adviser is acting the trustees will make such decisions the initial distribution adviser will be individual an investment adviser is named to make all decisions related to the investment of the trust property if no investment adviser is acting the trustees will make such decisions the initial investment adviser will be child a_trust protector is named to make certain administrative changes to the trust agreement from time to time the trust_protector may modify the provisions relating to the identity qualifications succession removal and appointment of any fiduciary or trust_protector however the trust_protector may not modify the prohibition on appointment as officeholder see paragraph below the trust_protector may modify the investment powers granted to the trustees and the investment adviser the trust_protector may remove any trustee or the investment plr-119093-11 adviser the trust_protector may not exercise any power that would cause the trust to extend beyond any applicable rule_against_perpetuities nor cause the trust_protector to possess a general_power_of_appointment the initial trust_protector will be child the terminology used to describe the beneficiaries of trust is changed from issue to descendants while the trust situs remains in state at least one trustee must be a state trust company neither grantor nor grantor’s wife may hold any office under this trust instrument no descendant of grantor no spouse of any such descendant and no party that would be a_related_or_subordinate_party within the meaning of sec_672 as to the grantor the grantor’s wife or any such descendant may act as a trustee or as distribution adviser prohibition on appointment as officeholder state law will govern the administration of trust while state law will continue to govern the validity construction and duration of trust for purposes of determining the purchase_price for company’s purchase of any company stock from trust the definition of book_value is clarified to be the value of the stock as of the month end immediately preceding the date notice of the offer to purchase such stock is given to company child or if he fails to act those persons in the oldest generation of living descendants of child who have reached age or if none or if they fail to act those persons in the oldest generation of living descendants of the grantor who have reached age may appoint an individual or trust company to act in any vacant office of the trust the trustees represent that trust has been irrevocable since its creation and that no property has been added to trust after date trust was created under state law trust does not specify that any particular state law is to govern the administration and construction of trust initially a state bank was the trustee of trust currently trust is being administered in state by the corporate trustee trust company which is based in state statute provides that under state law the duration of a_trust and time of vesting of interests in the trust property shall not change merely because the place of administration of the trust is changed from some other jurisdiction to state statute provides that under the law of state the use of the term issue means an individual’s descendants plr-119093-11 you have requested the following rulings the change_of situs of trust for administrative purposes from state to state will not cause trust to lose its exempt status from gst tax the proposed modifications of trust will not cause trust to lose its exempt status from gst tax the proposed modifications of trust will not cause any beneficiary to have made a gift_for gift_tax purposes the proposed modifications of trust will not subject any portion of trust to estate_tax in the estate of any beneficiary the proposed modifications of trust will not cause trust or any beneficiary to realize or recognize any gain_or_loss under sec_61 or sec_1001 law and analysis ruling sec_1 and sec_2601 of the internal_revenue_code imposes a tax on every gst made after date a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2612 provides that the term taxable_termination means a termination by death lapse of time release of a power or otherwise of an interest in property held in a_trust unless a immediately after such termination a non-skip_person has an interest in such property or b at no time after such termination may a distribution including distributions on termination be made from such trust to a skip_person sec_2612 provides that the term taxable_distribution means any distribution from a_trust to a skip_person other than a taxable_termination or a direct_skip under sec_2612 a direct_skip is a transfer subject_to federal estate or gift_tax of an interest in property to a skip_person under a of the tax_reform_act_of_1986 act and sec_26_2601-1 the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 the gst tax does not apply to a transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus plr-119093-11 added to the trust after date or out of income attributable to corpus so added under sec_26_2601-1 any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under paragraph b or of this section hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in this paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes thus unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph b i a b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 provides that for purposes of this section a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust plr-119093-11 in sec_26_2601-1 example provides as follows in grantor who was domiciled in state x executed an irrevocable_trust for the benefit of grantor's issue naming a state x bank as trustee under the terms of the trust the trust is to terminate in all events no later than years after the death of the last to die of certain designated individuals living at the time the trust was executed the provisions of the trust do not specify that any particular state law is to govern the administration and construction of the trust in state x the common_law rule_against_perpetuities applies to trusts in a state y bank is named as sole trustee the effect of changing trustees is that the situs of the trust changes to state y and the laws of state y govern the administration and construction of the trust state y law contains no rule_against_perpetuities in this case however in view of the terms of the trust instrument the trust will terminate at the same time before and after the change in situs accordingly the change in situs does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the transfer furthermore the change in situs does not extend the time for vesting of any beneficial_interest in the trust beyond that provided for in the original trust therefore the trust will not be subject_to the provisions of chapter if in this example as a result of the change in situs state y law governed such that the time for vesting was extended beyond the period prescribed under the terms of the original trust instrument the trust would not retain exempt status in sec_26_2601-1 example considers the following situation in grantor established an irrevocable_trust for the benefit of grantor's issue naming a bank and five other individuals as trustees in the appropriate local court approves a modification of the trust that decreases the number of trustees which results in lower administrative costs the modification pertains to the administration of the trust and does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the trust will not be subject_to the provisions of chapter in this case grantor created trust in state and the trust agreement does not specify that any particular state law is to govern trust initially a state bank was the trustee of trust currently trust company which is based in state is the corporate trustee of trust child petitioned court a state court requesting that court accept jurisdiction over trust so that the situs of trust is in state in addition the proposed modifications provide that state law will govern the administration of trust while state law will continue to govern the validity construction and duration of trust the proposed change in situs and governing law will not change the termination_date of trust thus the proposed change in situs will not shift any beneficial_interest in trust and will not extend the time for vesting of any beneficial_interest in trust accordingly based upon the facts submitted and plr-119093-11 representations made we conclude that the change in situs of trust for administrative purposes from state to state will not cause trust to lose its exempt status from gst tax the proposed modifications of trust to add a distribution adviser an investment_advisor a_trust protector and to require that while trust situs remains in state at least one trustee must be a state trust company are all administrative in nature and under sec_26_2601-1 will not be considered to shift a beneficial_interest to a lower generation in the trust see example of sec_26_2601-1 further the proposed modification to clarify the definition of book_value is administrative in nature and is considered not to shift any beneficial_interest to a lower generation in the trust finally the proposed modification of trust to change the term issue to descendants is consistent with applicable state law and does not result in a shift in any beneficial_interest to a lower generation nor does it extend the time for vesting of any beneficial_interest in trust accordingly based upon the facts submitted and the representation made we conclude that the proposed modifications of of trust will not cause trust to lose its exempt status from gst tax ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during the calendar_year by any individual sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if the gift is made in property the value thereof at the date of the gift is considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than adequate_and_full_consideration in money_or_money's_worth then the amount by which the value of the property exceeded the value of the consideration is deemed to be a gift and is included in computing the amount of gifts made during the calendar_year in this case the beneficiaries of trust will have the same interests after the proposed modifications that they had prior to the modifications because the beneficial interests of the beneficiaries are substantially the same no transfer of property will be deemed to occur as a result of the modifications accordingly based on the facts submitted and the representations made we conclude that the proposed modifications of trust will not cause any beneficiary to have made a gift_for gift_tax purposes plr-119093-11 ruling sec_2001 provides that a tax is imposed on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2041 provides for the inclusion in the gross_estate of a decedent any property with respect to which the decedent possesses at the time of his death a general_power_of_appointment created after date sec_2041 provides for the inclusion in the gross_estate of a decedent any property with respect to which the decedent by will exercises a power_of_appointment created after date by creating another power_of_appointment which under the applicable local law can be validly exercised so as to postpone the vesting of any estate or interest in such property or suspend the absolute ownership or power of alienation of such property for a period ascertainable without regard to the date of the creation of the first power sec_2041 provides that the term general_power_of_appointment means a power that is exercisable in favor of the decedent decedent's_estate decedent's creditors or the creditors of decedent's_estate except that a power to consume invade or appropriate property for the benefit of the decedent that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent is not deemed a general_power_of_appointment sec_20_2041-1 of the estate_tax regulations provides that a power_of_appointment is not a general_power_of_appointment if by its terms it is either a exercisable only in favor of one or more designated persons or classes other than the decedent or his creditors or the decedent's_estate or the creditors of his estate or b expressly not exercisable in favor of the decedent or his creditors or the creditors of decedent's_estate in revrul_95_58 1995_2_cb_191 the service ruled that a decedent grantor's reservation of an unqualified power to remove a trustee and to appoint an individual or corporate successor trustee that is not related or subordinate to the decedent within the meaning of sec_672 is not considered a reservation of the trustee's discretionary powers of distribution over the property transferred by the decedent grantor to the trust accordingly the trust corpus is not included in the decedent's gross_estate under sec_2036 or sec_2038 sec_672 defines the term related_or_subordinate_party to mean any nonadverse_party who is the grantor's spouse if living with the grantor or any one of the following the grantor's father mother issue brother or sister an employee of the grantor a corporation or any employee of a corporation in which the stock holdings plr-119093-11 of the grantor and the trust are significant from the viewpoint of voting control a subordinate employee of a corporation in which the grantor is an executive in this case child in his capacity as a beneficiary of trust has two powers first child has a testamentary limited_power_of_appointment over trust that may be exercised only in favor of child 1’s descendants this limited_power_of_appointment exists in the original trust instrument this limited_power_of_appointment will not cause trust to be included in child 1’s gross_estate second child has the power to appoint successor fiduciaries the trustees and officeholders of trust these offices include the investment adviser distribution adviser and trust_protector in the original trust instrument child as beneficiary had the power to remove and replace the trustees pursuant to the modifications these powers are expanded to include all officeholders of the trust notwithstanding child 1’s new rights and powers the grantor grantor’s wife any descendants of the grantor any spouses of any descendants of the grantor and any subordinate party as to the grantor the grantor’s wife and any such descendants may not act as a trustee or distribution adviser of trust thus child is not permitted to act as a trustee or distribution adviser of trust further child may not appoint anyone related or subordinate to him as a trustee or distribution adviser accordingly this power will not cause trust to be included in child 1’s gross_estate see revrul_95_58 child will have new rights and powers as the investment adviser and trust_protector of trust as investment adviser child will make all decisions related to the investment of the trust property as trust_protector child may modify the provisions relating to the identity qualifications succession removal and appointment of any fiduciary or protector the trust_protector may modify the investment powers granted to the trustees and investment adviser the trust_protector may remove any trustee or investment adviser the trust_protector may not exercise any power that would cause the trust to extend beyond any applicable rule_against_perpetuities nor cause the protector to possess a general_power_of_appointment although child as trust_protector will have the power to modify provisions relating to the succession removal and appointment of any fiduciary or officeholder of the trust the modifications specify that no trust_protector may modify the prohibition on appointment as officeholder provision thus child or any other descendant of the grantor cannot act as a trustee or distribution adviser of the trust similarly the trustees and distribution adviser appointed by child may not be a_related_or_subordinate_party to child thus the powers of the trustees and distribution adviser will not be attributed to child or any other descendant of the grantor thus child and any beneficiary who may obtain such rights and powers pursuant to the modifications will not be treated as having general powers of appointment by virtue of such powers accordingly based on the facts submitted and the representations made we conclude that the proposed modifications of trust will not subject any portion of trust to estate_tax in the estate of any beneficiary of trust plr-119093-11 ruling sec_61 defines gross_income as all income from whatever source derived under sec_61 gross_income includes g ains derived from dealings in property under sec_61 income from an interest in a_trust is included in gross_income sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized under sec_1001 the entire amount of gain_or_loss must be recognized except as otherwise provided sec_1_1001-1 of the income_tax regulations provides that except as otherwise provided in subtitle a the gain_or_loss realized from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained in 499_us_554 a financial_institution exchanges its interest in one group of residential mortgage loans for another lender’s interest in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution the supreme court concluded that sec_1_1001-1 reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different id pincite in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material so long as their respective possessors enjoy legal entitlements that are different in_kind or extent id pincite the court held that mortgage loans made to different obligors and secured_by difference homes embodied distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans id pincite in this case the beneficiaries will have the same beneficial interests in trust after the modifications as they had prior to the modifications to the trust accordingly based on the facts submitted and the representations made we conclude that the proposed modifications of trust will not cause trust or any beneficiary to realize or recognize any gain_or_loss under sec_61 or sec_1001 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives 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 plr-119093-11 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 the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely _________________________ lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service number release date index number ---------------------------------------- ----------------------------------------- ------------------------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-109487-09 date date legend x ------------------------------------------- ------------------------------------------ d1 d2 y1 ----------------------- ----------------------- -------------------------------------------------- state -------------------------------------- a b c -- --------- --------- dear ---------------- this responds to a letter dated date submitted on behalf of x requesting a ruling that x’s rental income from its rental activities is not passive_investment_income within the meaning of sec_1362 of the internal_revenue_code facts plr-109487-09 the information submitted states that x was incorporated on d1 pursuant to the laws of state x elected to be an s_corporation effective d2 x has accumulated_earnings_and_profits from prior years x owns a separate commercial rental properties that are leased to tenants collectively the properties x through its shareholders provides certain services with respect to the leasing of the properties these services involve maintaining and repairing the buildings appurtenances and grounds of the properties in addition x represents that it negotiates leases and rental arrangements collects rents monitors compliance with lease terms arranges supervises and pays for maintenance and repair works pays property taxes and maintains casualty insurances in y1 x collected approximately dollar_figureb in gross rents and incurred approximately dollar_figurec in relevant operating_expenses law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1362 provides that an election under sec_1362 shall be terminated whenever the corporation has accumulated_earnings_and_profits at the close of each of consecutive taxable years and has gross_receipts for each of such taxable years more than percent of which are passive_investment_income any termination under this paragraph shall be effective on and after the first day of the first taxable_year beginning after the third consecutive taxable_year referred to above sec_1362 provides that except as otherwise provided the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 of the income_tax regulations provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation conclusion plr-109487-09 based solely on the facts and the representations submitted we conclude that the rental income that x derives from the properties is not passive_investment_income as described in sec_1362 except as specifically set forth above we express no opinion as to the federal tax consequences of the transaction described above under any other provision of the code specifically we express no opinion on whether x is a small_business_corporation eligible to make an s election further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of section sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely david r haglund david r haglund senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy of this letter for sec_6110 purposes cc


t c memo united_states tax_court scott a lewis petitioner v commissioner of internal revenue respondent docket no filed date scott a lewis pro_se robert a varra melinda g williams and tamara l kotzker for respondent memorandum findings_of_fact and opinion laro judge petitioner petitioned the court to redetermine a dollar_figure deficiency in petitioner’s federal_income_tax and additions to tax of dollar_figure under sec_6651 dollar_figure under sec_6654 and dollar_figure under sec_6651 following a trial that was held on date we must decide whether petitioner had unreported income in the amounts determined by respondent whether petitioner is liable for the 10-percent additional tax on early distributions from his individual_retirement_account ira whether petitioner is liable for the addition_to_tax determined by respondent under sec_6651 whether petitioner is liable for the addition_to_tax determined by respondent under sec_6651 whether petitioner is liable for the addition_to_tax determined by respondent under sec_6654 and whether the court should impose a penalty against petitioner pursuant to sec_6673 findings_of_fact some of the facts of the case were stipulated and are so found when the petition was filed petitioner resided in denver colorado petitioner received a distribution of dollar_figure from the public employees retirement association in for which he was issued a form_1099 that listed dollar_figure as taxable also in petitioner received dollar_figure of stock proceeds from united shareholder services inc unless otherwise indicated section references are to the applicable versions of the internal_revenue_code rule references are to the tax_court rules_of_practice and procedure some dollar amounts have been rounded petitioner failed to file federal_income_tax returns for and and he did not make any estimated_tax payments for in a notice_of_deficiency dated date respondent determined a deficiency and additions to tax in petitioner’s federal_income_tax attached to the notice_of_deficiency was form_4549 income_tax examination changes in which respondent included in petitioner’s income the amount of dollar_figure reflecting a taxable_distribution of dollar_figure and stock sales of dollar_figure petitioner was allowed a standard_deduction of dollar_figure and one personal_exemption of dollar_figure the form_4549 further provided that petitioner was liable for the 10-percent premature_distribution additional tax in the amount of dollar_figure on the taxable_portion of the distribution petitioner timely petitioned this court following a hearing at which the court granted in part respondent’s motion to strike certain portions of the petition the petition consists of the following first error the notice_of_deficiency errs in its determination that petitioner was a person required to make a return pursuant to sec_6012 or sec_6020 the commissioner made a determination pursuant to sec_6020 the previous examination audit was predicated on an unsigned unverified blank form_1040 similar to irm exhibit dummy form_1040 such a null sum document violate sec_26 u s c sec_6061 sec_6065 and is insufficient for legal purpose as determined by cibrac v c i r u s tax ct 120_tc_163 second the requirement to make a return pincite u s c sec_6012 is triggered only when the petitioner’s income exceeds the exempt_amount sec_6012 assigns the exempt_amount the same meaning as sec_151 second error petitioner disputes the allegation he owes dollar_figure as an increase in tax for tax_year claim of petitioner first respondent alleges petitioner received compensation or remuneration classified as a taxable_distribution in the amount of dollar_figure in petitioner disputes the amount as to accuracy petitioner disputes the amount of the taxable_distribution as gain or income as it represents total_proceeds from the disbursement of brokerage items and not a net amount second respondent alleges petitioner received compensation or remuneration classified as stock sales in the amount of dollar_figure in petitioner disputes the amount of stock sales as gain or income as it represents total_proceeds from the sale of brokerage items and not the net amount third error petitioner disputes the allegation he owes dollar_figure as an sec_6651 penalty for petitioner disputes the allegation he owes dollar_figure as an sec_6651 penalty for petitioner disputes the allegation he owes dollar_figure as an sec_6654 penalty for fourth error petitioner disputes the allegation he owes dollar_figure as interest under sec_6601 for claim of petitioner petitioner further disputes he owes a total deficiency of dollar_figure for tax_year facts upon which petitioner relies the requirement for making a return pincite u s c sec_6012 is dependent upon sec_151 sec_6012 only requires the making of a return if petitioner’s gross_income exceeds the congressionally assigned exempt_amount relief sought the petitioner is not liable for any determination of penalties and or interest in the notice_of_deficiency nor any underlying liability determined by sec_6012 or sec_6020 the petitioner is not liable for any increase in tax of dollar_figure for tax_year pursuant to u s c sec_3512 the petitioner is not liable for a penalty pincite u s c sec_6651 in the amount of dollar_figure for tax_year pursuant to u s c sec_3512 the petitioner is not liable for a penalty pincite u s c sec_6651 in the amount of dollar_figure for tax_year pursuant to u s c sec_3512 the petitioner is not liable for a penalty pincite u s c sec_6654 in the amount of dollar_figure for tax_year pursuant to u s c sec_3512 the petitioner is not liable for interest under sec_6601 in the amount of dollar_figure for tax_year pursuant to u s c sec_3512 the petitioner is not liable for total deficiencies in the amount of dollar_figure for tax_year pursuant to u s c sec_3512 conversely the respondent is liable to petitioner for an amount in excess of dollar_figure as reimbursement of any administrative costs court costs and any other expenses petitioner has expended by reason of respondent’s erroneous determination petitioner failed to submit to the court a pretrial memorandum as required by the court’s standing_pretrial_order on the day of trial the court filed respondent’s motion for sanctions pursuant to sec_6673 petitioner failed to testify at trial and rested his case after his opening statement unreported income opinion sec_61 provides that gross_income means all income from whatever source derived gross_income is an inclusive term with broad scope designed by congress to exert ‘the full measure of its taxing power ’ 348_us_426 quoting 309_us_331 sec_61 specifically lists pension income as includable in a taxpayer’s gross_income sec_61 proceeds from stock sales are likewise includable in a taxpayer’s gross_income thus the distribution of dollar_figure that petitioner received from the colorado public employees retirement association and the dollar_figure in stock proceeds received by petitioner from united shareholders services inc are included in petitioner’s gross_income for while petitioner alleges in his petition that he is entitled to reduce this income to its net amount the record contains no evidence that supports this allegation 10-percent additional tax on early distributions from iras sec_72 generally provides that a taxpayer is liable for a 10-percent additional tax on early distributions from a qualified_retirement_plan see sec_4974 in petitioner received taxable_distributions of dollar_figure from his ira petitioner has not alleged or shown that he qualifies for any exception to the 10-percent additional tax and is thus liable for the additional tax on this amount addition_to_tax under sec_6651 sec_6651 imposes an addition_to_tax for failure_to_file a return when due unless it is shown that such failure is due to reasonable_cause and not due to willful neglect the addition equal sec_5 percent for each month that the return is late not to exceed percent in total the commissioner has the burden of production with respect to the liability of an individual for an addition_to_tax under sec_6651 sec_7491 the burden of showing reasonable_cause under sec_6651 remains on the taxpayer 116_tc_438 reasonable_cause requires petitioner to demonstrate that he exercised ordinary business care and prudence and nevertheless was unable to file his federal_income_tax return by the due_date 469_us_241 sec_301_6651-1 proced admin regs willful neglect is defined as a conscious intentional failure or reckless indifference united_states v boyle supra pincite we have found that petitioner did not file a tax_return for on the record before us we find that respondent has satisfied his burden of production with regard to the sec_6651 addition_to_tax see sec_7491 higbee v commissioner supra petitioner has neither offered an explanation for his failure_to_file nor produced evidence to establish any reasonable_cause for his failure_to_file the return we sustain respondent’s determination of an addition_to_tax under sec_6651 addition_to_tax under sec_6651 sec_6651 generally imposes an addition_to_tax for a failure to pay timely the amount of tax shown on a federal_income_tax return the addition_to_tax under sec_6651 applies only when an amount of tax is shown on a return 120_tc_163 petitioner did not file a return for at trial the court admitted a certified form_4340 certificate of assessments payments and other specified matters covering petitioner’s tax_year the form_4340 indicates that respondent prepared a substitute for return on date the record also includes an individual_master_file tax module for petitioner dated date the form_4549 income_tax examination changes pertaining to petitioner’s tax_year and dated date and a form sec_6020 certification pertaining to petitioner’s tax_year and dated date a return made by the secretary under sec_6020 is treated as the return filed by the taxpayer for purposes of determining the amount of the addition under sec_6651 sec_6651 wheeler v commissioner t c no the return must satisfy the requirements of sec_6020 which provides as follows sec_6020 execution of return by secretary -- authority of secretary to execute return --if any person fails to make any return required by any internal revenue law or regulation made thereunder at the time prescribed therefor or makes willfully or otherwise a false_or_fraudulent_return the secretary shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise status of returns --any return so made and subscribed by the secretary shall be prima facie good and sufficient for all legal purposes we have on several occasions addressed what constitutes a sec_6020 return see wheeler v commissioner supra in wheeler we noted that the commissioner’s burden of production with respect to the sec_6651 addition_to_tax requires that the commissioner introduce evidence that a return showing the taxpayer’s tax_liability was filed for the year in question and that in a case in which the taxpayer did not file a return the commissioner must introduce evidence that an sfr satisfying the requirements of sec_6020 was made wheeler v commissioner supra see cabirac v commissioner supra here respondent did not prove that an sfr meeting the requirements had been made for because the record does not contain evidence that petitioner failed to pay tax shown on a return for we conclude that respondent has failed to satisfy his burden of production under sec_7491 with respect to the sec_6651 addition_to_tax addition_to_tax under sec_6654 respondent determined that petitioner underpaid his estimated income_tax and is liable for an addition_to_tax under sec_6654 for sec_6654 imposes an addition_to_tax on an individual taxpayer who underpays his estimated_tax the addition_to_tax is calculated with reference to four required_installment payments of the taxpayer’s estimated_tax liability sec_6654 wheeler v commissioner supra each required_installment of estimated_tax is equal to percent of the required_annual_payment sec_6654 the required_annual_payment is generally equal to the lesser_of percent of the tax shown on the individual’s return for that year or if no return is filed percent of his or her tax for such year or if the individual filed a return for the immediately preceding_taxable_year percent of the tax shown on that return sec_6654 wheeler v commissioner supra the due dates of the required installments for a calendar_year taxpayer are april june and september of the calendar_year in question and january of the following year sec_6654 wheeler v commissioner supra respondent produced evidence establishing that petitioner did not file a return for and that petitioner had an income_tax_liability of dollar_figure for the evidence was sufficient to permit the court to make the analysis required by sec_6654 see wheeler v commissioner supra because petitioner did not file a return_for_the_preceding_taxable_year respondent has met his burden of producing evidence that petitioner had a required_annual_payment for payable in installments under sec_6654 analysis by the court under sec_6654 does not apply see id respondent has met his burden of production under sec_7491 with respect to the sec_6654 addition_to_tax and we sustain respondent’s determination sec_6673 penalty respondent moves the court to impose a penalty on petitioner under sec_6673 sec_6673 authorizes this court to require a taxpayer to pay to the united_states a penalty not in excess of dollar_figure whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer's position in such proceeding is frivolous or groundless a taxpayer’s position is frivolous or groundless if it is ‘contrary to established law and unsupported by a reasoned colorable argument for change in the law ’ 114_tc_136 quoting 791_f2d_68 7th cir we find that petitioner has advanced frivolous and groundless statements contentions and arguments we further find that petitioner has instituted this proceeding primarily for delay under the circumstances presented we shall impose on petitioner a penalty in the amount of dollar_figure to reflect the foregoing an appropriate order and decision will be entered under rule