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-102843-10 date april internal_revenue_service number release date index number ---------------------------- ------------------------------- ----------------------------- ------------------------- legend x ----------------------------------------- ------------------------------- d1 d2 ---------------------- ---------------------- state ---------- dear -------------- this responds to a letter dated -------------------------- and subsequent information requesting relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated on d1 under the laws of state x intended to be treated as an s_corporation for federal tax purposes effective d2 but the proper election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s plr-102843-10 corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such election as timely made for such taxable_year and effective as of the first day of that year x did not file a timely election to be treated as an s_corporation under sec_1362 effective d2 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d2 if within days from the date of this letter x submits a properly completed form_2553 with a copy of this letter attached to the appropriate service_center 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 specifically no opinion is expressed or implied concerning whether x otherwise qualifies as an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 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 the taxpayer’s authorized representative sincerely s david r haglund branch chief branch office of the associate chief_counsel passthroughs specials industries enclosures copy of this letter copy of this letter for sec_6110 purposes cc


internal_revenue_service department of the treasury number release date index number legend washington dc person to contact telephone number refer reply to cc psi plr-123143-01 date date x trust a b d1 state dear this letter responds to your letter dated date and subsequent correspondence on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 the sole shareholder of x is trust and a and b the trustees of trust decided that x would be an s_corporation the trustees a and b relied on tax advisors to file x's form_2553 election by a small_business_corporation with an effective date of d1 the form_2553 however was not filed timely law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the plr-123143-01 election is made if an s election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year conclusion based solely on the facts submitted and representations made we conclude that trust has established reasonable_cause for x failing to make a timely election and that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 containing an effective date of d1 for the election 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 filed with the service_center a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is an s_corporation for federal tax purposes or whether trust is a valid shareholder of an s_corporation this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours christine ellison chief branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c uilc number release date memorandum for date cc dom fs corp senior attorney from gerald b fleming acting special counsel corporate cc dom fs corp subject lease_stripping the facts are as laid out in the proposed rar the report the analysis described below is stated in general terms that is it is generally applicable to lease_stripping transactions however not all arguments are applicable to all lease_stripping transactions because of the short deadline and informal nature of the request the analysis is not applied to the specific facts of the case consequently we are not stating conclusions or making recommendations if you wish further assistance please submit a formal request for field_service_advice legend x law and analysis step transaction issue the step_transaction_doctrine is a rule_of substance over form that treats a series of formally separate but related steps as a single transaction if the steps are in substance integrated interdependent and focused towards a particular result 88_tc_1415 the step_transaction_doctrine as described above allows the service to argue that certain economically meaningless steps of a transaction can be collapsed or ignored thus the issue is whether the step_transaction_doctrine can be applied in this case to eliminate economically meaningless steps case development hazards and other considerations law and analysis sec_269 issue sec_269 authorizes the service to disallow any deduction or other allowance if any person or persons directly or indirectly acquire control of a corporation or any corporation acquires property from an unrelated corporation in a transaction in which the basis of the property carries over and in either case the principal purpose for the acquisition is to evade or avoid federal_income_tax by securing the benefit of a deduction or other allowance that such person or corporation would not otherwise enjoy in this case it does not appear that the parties acquired control of x in the transaction because it appears that tp already controlled x in that case sec_269 would not apply however we do not have any information when tp first acquired x if tp formed x shortly before the transaction and x conducted no business until this transaction the service may be able to argue that the formation of and the transfer of the property to x should be integrated in that case tp and trust would be treated as having acquired x by formation as part of the transaction we note that the acquisition requirement of sec_269 may be met even if the target_corporation was newly incorporated by the taxpayer in a tax-free_exchange under sec_351 see 405_f2d_673 2d cir in addition x acquired property from a_trust not a corporation therefore sec_269 does not apply to this case law and analysis sec_351 issue note the following analysis applies only if x is claiming depreciation_deductions generally sec_351 provides that investors do not recognize gain_or_loss if they transfer property to a corporation solely in exchange for its stock and if the transferors as a group are in control of the transferee corporation immediately_after_the_exchange for purposes of sec_351 control is defined as ownership of percent of the total combined voting power of all classes entitled to vote and percent of the total number of shares of all other classes of stock of the transferee corporation sec_351 and sec_368 the ownership interests of all transferors participating in a single transaction are aggregated to determine whether the control test is met subject_to certain limitations to determine control a group of transferors may include all of the transferee stock owned by each transferor participating in the transaction not just the shares the transferors receive in the current transaction if sec_351 applies to an exchange under sec_362 the transferee corporation takes the same basis in the assets it received from the transferor as the transferor had in such assets increased by the amount of gain if any recognized to the transferor the facts as stated indicate that trust's basis in the transferred assets exceeded the liabilities assumed see sec_357 thus if sec_351 applies to the transfer of the ownership and leasehold interests to x it appears x will take the same basis in such interest as the transferors had consequently sec_351 will not prevent x from deducting the amounts claimed as depreciation on the other hand if sec_351 does not apply the transfer of the ownership and leasehold interests to x is a taxable_exchange under sec_1001 x still recognizes no gain_or_loss on the transaction under sec_1032 however x determines the basis of the property it receives under sec_1012 under sec_1_1012-1 x takes a basis in the ownership and leasehold interests equal to the fair_market_value of the stock x distributes in the exchange the service could argue that the transfer of the ownership and leasehold interests to x does not qualify under sec_351 because such transfer lacks a business_purpose courts have hinted at the concept of a business_purpose requirement in sec_351 repeatedly opinions discussing other sec_351 issues often indicate that the taxpayer had a valid business_purpose for the transaction in question see 490_f2d_1172 3d cir cert_denied 419_us_826 714_f2d_977 9th cir perhaps the most thorough judicial exploration of the business_purpose doctrine in sec_351 is in 688_fsupp_1129 n d tex aff'd 865_f2d_644 5th cir in caruth the court explains that sec_351 is tied very closely to the reorganization provisions and reasons that the doctrines applicable there are equally valid for capital contributions under caruth the business_purpose requirement for sec_351 transactions appears to be the same as the business_purpose requirement for acquisitive reorganizations generally sec_351 will apply to a transaction if the taxpayer has a valid business_purpose for the transaction other than tax savings see 714_f2d_977 9th cir revrul_60_331 1960_2_cb_189 case development hazards and other considerations law and analysis sec_482 issue generally in order for sec_482 to apply to a transaction the transaction must be between two or more entities owned or controlled by the same interests sec_482 to the extent that it can be shown that a transaction was carried out pursuant to a common design intended to effect an arbitrary shifting_of_income and deductions the participants in the common design may be treated for purposes of the transaction as controlled by the same interests for the purposes of sec_482 accordingly in the lease_stripping context sec_482 may be applied to prevent the arbitrary separation of deductions steered to the entity subject_to the u s ’s taxing jurisdiction from the income associated with those deductions steered to an entity exempt from the u s ’s taxing jurisdiction a sec_482 -- generally sec_482 provides the following in any case of two or more organizations trades_or_businesses owned or controlled directly or indirectly by the same interests the secretary may distribute apportion or allocate gross_income deductions between or among such organizations if he determines that such distribution apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations emphasis added thus in order for sec_482 to apply to a transaction the transaction must be between two or more entities owned or controlled by the same interests as there is no common ownership among the participants to the transaction other than tp's ownership of x the primary question under sec_482 becomes whether any of the participants particularly trust are controlled by the same interests b legal standard for control the sec_482 regulations define control to include any kind of control direct or indirect whether legally enforceable and however exercisable or exercised sec_1_482-1 1968_1_cb_218 sec_1_482-1t 1993_1_cb_90 sec_1_482-1 1994_2_cb_93 see also 1_bta_624 acq 1925_1_cb_2 c ontrol not arising or flowing from legally enforceable means may be just as effective in evading taxation as if found on the most formal and readily enforceable legal instrument the regulations also state that i t is the reality of control that is decisive rather than a rigid focus on record ownership of the entities at issue id accord 42_tc_114 aff'd 358_f2d_342 6th cir cert_denied 385_us_899 17_tc_231 aff'd 202_f2d_873 5th cir cert_denied 346_us_819 acq in part and nonacq in part 1952_2_cb_2 revrul_65_142 1965_1_cb_223 372_f2d_415 4th cir aff'g tcmemo_1966_015 cert_denied 389_us_841 moreover the regulations provide that a presumption of control arises if income or deductions have been arbitrarily shifted sec_1_482-1 see 598_f2d_1382 5th cir rev'g a f t r 2d ria n d tex holding that based on sec_1_482-1 the service properly argued that proof of income_shifting between two corporations establishes a presumption of common_control accord 294_f2d_82 5th cir aff’g 32_tc_390 acq 1959_2_cb_4 referring to reg sec_29 the and regulations also contain this presumption and add that control may exist as a result of the actions of two or more taxpayers acting in concert with a common goal or purpose sec_1_482-1t sec_1_482-1 accord dhl corp v commissioner tcmemo_1998_461 w hen the interests controlling one entity and those controlling another have a common interest in shifting income from the former to the latter entities may be considered commonly controlled in determining whether the control requirement under the regulations is satisfied thus under the regulations joint legal ownership or overlapping ownership is not required for unrelated corporations to come within the purview of sec_482 if income_or_deduction shifting is present or if there is common goal to shift income or deductions but see 5_tc_558 acq c b acq withdrawn and substituted for nonacq revrul_65_142 1965_1_cb_223 54_tc_912 rev'd in relevant part 453_f2d_1144 2d cir cert_denied 407_us_934 reh'g denied 409_us_899 nonacq 1975_2_cb_3 nonacquiescence relates to the tax_court opinion only as the second circuit adopted an interpretation of control that is consistent with and sec_482 regulations where the service seeks to establish common_control due to the presence of an artificial shifting_of_income and deductions it is the service's burden to prove the applicability of sec_482 by establishing a shifting_of_income and deductions dallas ceramic tile co pincite we believe that this burden is met by the stripping of income from the leases to trust an entity that is exempt from u s tax and the reporting of the deductions relating to that income by x see notice_95_53 1995_2_cb_334 t he parties to a stripping transaction are controlled by the same interests because among other factors they act in concert with a common goal of arbitrarily shifting income and deductions between a transferor and a transferee c legal standard for same interests if control is found to exist the service may allocate income and deductions among members of the controlled_group sec_1_482-1 sec_1_482-1t sec_1_482-1 a controlled_group or controlled_taxpayer is defined to mean the entities owned or controlled by the same interests and includes the taxpayer that owns or controls other taxpayers sec_1_482-1 sec_1_482-1t sec_1_482-1 unlike the term control the phrase same interests is not defined in the sec_482 regulations case law as well as the legislative_history of sec_482 provide guidance however sec_482 was enacted to prevent the artificial shifting_of_income between controlled taxpayers to avoid federal taxes and thereby milk a taxable entity ie placing deductions in one entity and income related to those deductions in another entity 598_f2d_1375 5th cir citing h_rep_no 70th cong 1st sess c b part s rep no 70th cong 1st sess c b part see also h_rep_no and s rep no 67th cong 1st sess in using the term same interests congress intended to include more than the same persons or the same individuals brittingham f 2d pincite 366_f2d_890 5th cir aff’g 43_tc_540 cert_denied 386_us_1016 2_bta_229 see also lxi-part cong rec statement of sen king referring to the same forces controlling a number of corporations different persons with a common goal or purpose for artificially shifting income can constitute the same interests for the purposes of the statute south texas rice warehouse f 2d pincite see also brittingham f 2d pincite citing ach t c pincite the phrase same interests should not be narrowly construed to frustrate the intent of sec_482 rishell phonograph b t a pincite if the same interests was intended to mean only the same persons it would have been easy for congress by using the latter term to have avoided all ambiguity accord grenada indus supra thus it is not necessary that the same person or persons own or control each controlled business before sec_482 can be applied but there must be a common design for the shifting_of_income in order for different entities to constitute the same interests indeed this definition of same interests is identical to the definition of control and the presumption relating thereto in the regulations and case law consequently if there is a common design for shifting income or deductions then the requirements for control and same interests will be met d control by the same interests in the transaction common plan theory based on the facts as presented we believe the parties to the transaction likely acted pursuant to a common plan to shift income and deductions in a manner that was beneficial to each participant in the transaction the field should obtain more information on the manner in which each participant expected to be compensated for participating in the transaction further based on the close proximity in time between the various steps and the peculiarly circular cash flows between the parties to the transaction we believe it is likely that each of the parties to the transaction acted pursuant to a common plan to effect the lease_strip below in the last section of this memorandum we suggest types of information that should be developed in order to bolster the application of the common-plan theory alternative control theory -- ability to direct the actions the district may wish to establish control among the participants under an alternative theory that does not rely on evidence of a common plan specifically if it can be shown that certain participants had the ability to direct the actions of other participants control may be found to exist see hall supra t c pincite an arbitrary shifting_of_income coupled with the ability to direct the actions of an entity establishes control for the purposes of sec_482 whether or not ownership exists various facts may aid the service in establishing control under such a theory the fact that a certain entities were shell entities b certain individuals had no experience in the leasing business and relied on other participants to craft their role in the transaction and c other participants in the transaction could direct the actions of other participants -- either by legally enforceable means or by virtue of overlapping employees or officers we ask that the district develop facts accordingly e sec_482's application to the transaction -- in general generally we have considered applying sec_482 to lease_stripping transactions under three alternative analyses the application of these three analyses to a lease_stripping transaction however does not preclude the application of other theories such as the sham and step-transaction doctrines to the transaction the sec_482 analyses should be applied in conjunction with these other theories because sec_482 applies whether or not a transaction is a sham or otherwise colorable where a transaction is merely a device to shift income or deductions sec_1_482-1 sec_1_482-1t sec_1_482-1 88_tc_252 economic_substance sec_482 overlaps with the case law relating to economic_substance and sham doctrines by allowing the service in certain instances to disregard contractual terms and agreements and to recharacterize a transaction see sec_1_482-2t a ii b -2t a sec_1_482-1 - d ii c ex -1 f ii -2 a ii b -2 a -4 f ii a see also b forman supra f 2d pincite and medieval attractions n v v commissioner tcmemo_1996_455 ria applying the sec_482 regulations to analyze the economic_substance of intercompany contracts however the sec_482 regulations expand upon case law principles and provide additional guidance in specific areas specifically the regulations provide the following the contractual terms including the consequent allocation of risks that are agreed to in writing before the transactions are entered into will be respected if such terms are consistent with the economic_substance of the underlying transactions in evaluating economic_substance great weight will be given to the actual conduct of the parties and the respective legal rights of the parties if the contractual terms are inconsistent with economic_substance of the underlying transaction the district_director may disregard such terms and impute terms that are consistent with the economic_substance of the transaction sec_1_482-1 sec_1_482-1t thus sec_482 provides an alternative approach to challenging the transaction by providing additional criteria under which to apply the economic_substance and sham inquiries to the parties' conduct and not restricting the service's allocation authority to instances of colorable or sham transactions see g d searle t c pincite we note that in the context of the transaction and similar tax-shelter transactions this allocation authority would exist only where there is a common tax_avoidance scheme among the participants to arbitrarily shift income and or deductions note the prior sentence does not apply to the alternative theory discussed above for establishing control the ability to direct the actions of certain participants under the first sec_482 analysis the economic_substance of a transaction subject_to sec_482 is analyzed by focusing on the parties' actual conduct the economic risks purportedly transferred and whether from a business perspective the transaction makes objective business sense or under the language of some cases would have been entered into by a hard-headed business person see sec_1_482-1 sec_1_482-1t sec_1_482-1 where the economic_substance of a transaction is inconsistent with the parties' purported characterization the service may disregard the contractual terms underlying the transaction and treat the transaction consistent with its economic_substance this treatment may result in a denial of deductions arising from the transaction at issue see eg b forman supra f 2d pincite medieval attractions supra pincite royalty payments lacked economic_substance under sec_482 because the foreign_payee was not the creator or developer of nor in substance had the ability to transfer intangibles considering whether the participants' conduct was consistent with the transaction's putative substance relevant factors include inter alia whether for state law purposes the registrations of the security interests of the third-party creditors were changed to reflect the sale-lease back transactions whether trust and other entities claimed deductions eg for interest or depreciation expenses for the period they held title to the equipment whether trust claimed rent deductions for the period it was a lessee of the equipment whether the third-party leases permitted the sale of the equipment without the prior consent of the lessees and whether such consent was obtained and whether dividends on preferred_stock issued to trust by x were ever paid assuming the subscription agreement provided for such dividends we suggest other items of factual development in the last section of this memorandum in comparing the consistency of the parties’ conduct to their characterization of the transaction sec_482’s role in nonrecognition transactions the second sec_482 analysis that may be applied to the transaction relates to its role in nonrecognition transactions such as sec_351 transactions specifically sec_482 may apply in nonrecognition transactions to prevent the avoidance of taxes or clearly reflect income for example sec_482 may allocate income and deductions attributable to an entity's disposition of built-in-loss and gain property which it acquired in a nonrecognition_transaction to the contributing shareholder or partner see sec_1_482-1 sec_1_482-1t sec_1_482-1 137_f2d_600 3d cir aff'g 46_bta_562 cert_denied 320_us_794 643_f2d_747 cl_ct on remand cl_ct aff'd without opinion 732_f2d_168 fed cir 556_f2d_889 8th cir aff'g a f t r 2d d minn 811_f2d_543 10th cir aff'g 82_tc_830 80_tc_34 aff'd in relevant part 756_f2d_1430 9th cir cert_denied 474_us_1055 see also 84_tc_996 aff'd in part rev'd in part 856_f2d_855 7th cir restricting sec_482's application to nonrecognition transactions in cases of tax_avoidance the above analysis relating to the re-allocation to the contributing shareholder of the deduction attributable to an entity's disposition of built-in-loss property may also be applied to re-allocate to the contributing shareholder the entity's depreciation_deductions on built-in_loss_property to the extent those deductions are attributable to the portion of the property's basis in excess of the property's fair_market_value at the time of the contribution by analogy see the flush language of sec_382 concerning the treatment of depreciation_deductions attributable to built-in losses because there appears to have been a tax- avoidance purpose underlying the transaction including the sec_351 transaction between tp trust and x the depreciation_deductions to the extent attributable to built-in losses may be allocated to trust a pass-through entity not subject_to the u s tax furthermore in the lease_stripping context this analysis applies by likening the contribution in a nonrecognition_transaction of the obligation to pay rent after the income has been stripped-off to a contribution of built-in-loss property this is because the stripping off of income combined with the continuing obligation to pay rent creates continuing tax deductions losses this is in spite of the fact that the transferee in the nonrecognition_transaction will pay little if any out-of-pocket cash this is attributable to the fact that the cash inflows consisting largely of tax- free principal will offset the deductible outflows for rent accordingly if a tax_avoidance motive is present which is often the case in lease_stripping transactions it is appropriate to allocate the built-in_loss to the tax-exempt contributing shareholder and prevent the evasion of taxes by the investor based on the facts provided the net effect of trust’s transfer to x of equipment that was subject_to pre-existing debt and from which the right to future taxable streams of rental income had been sold is akin to a contribution of built-in_loss_property by trust to x this is due to x’s ability to take substantial tax deductions eg for the deemed rental payments and possibly other expenses related to the equipment without making actual cash disbursements because there appears to have been a tax-avoidance purpose underlying the transaction including the sec_351 transaction between tp trust and x the deductions may be allocated to trust a pass-through entity not subject_to the u s tax clear_reflection_of_income prevention of the evasion of taxes the third theory under which a lease_stripping transaction may be analyzed under sec_482 relates to the service's ability to allocate income and deductions in order to clearly reflect income and or prevent the evasion of taxes sec_482 sec_1_482-1 sec_1_482-1t sec_1_482-1 this analysis and the case law affirming the service's exercise of this allocation authority is not based upon an economic-substance analysis rather it focuses on the distortions in taxable_income caused by the separation of income from deductions see 198_f2d_214 2d cir rev'g 16_tc_882 cert_denied 344_us_874 305_f2d_681 9th cir as stated in notice_95_53 the separation of income from deductions in lease_stripping transactions does not clearly reflect income particularly where they are achieved through a transaction structured to evade taxes lease_stripping transactions are often effected by a creating an artificial separation of the rental income from the associated deductions by accelerating the rental income in the hands of an entity not subject_to the u s 's taxing jurisdiction and b by placing the deductions associated with the rental income in an entity subject_to u s tax see notice_95_53 in such an instance the service may prevent this artificial shifting_of_income and deductions by allocating the rental deductions from the u s taxpayer to the tax-exempt_entity or allocating the rental income from tax- exempt entity to the u s taxpayer see eg 372_f2d_415 4th cir aff'g tcmemo_1966_015 cert_denied 389_us_841 361_f2d_607 4th cir aff'g sub nom 240_fsupp_378 e d n c 198_f2d_214 2d cir rev’g 16_tc_882 cert_denied 344_us_874 305_f2d_681 9th cir 196_f2d_1006 2d cir cert_denied 344_us_835 accordingly it may be appropriate to either allocate x’s deductions to trust during the period trust owned stock of x or allocate income to x in proportion to the period x owned the interest in the equipment and leases if such is the case such an allocation would match the income and the deductions associated with the income and thereby constitute a clearer reflection of income than that which is represented by the transaction concomitantly the evasion of taxes would be prevented case development hazards and other considerations -14-


internal_revenue_service number release date index number -------------------- ----------------------------- --------------------------- ------------------------------------ department of the treasury washington dc person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 - plr-135390-08 date date legend taxpayer ------------------------------------------------------------------ ------------------------------------------------------- ----------------------- ----------------------------------- ------------------------------ ----------------------- ----------------------------- ------------------------------------------------------------------ -------- date trust son daughter attorney law firm a accounting firm ----------------------------------- accountant -------------------------------- year accountant ------------------------------ ------- dear ------------------- this letter responds to a letter from your authorized representative dated date requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to allocate the generation-skipping_transfer gst exemptions of taxpayer to transfers to gst_trust and gst_trust the facts and representations submitted are summarized as follows on date taxpayer established the taxpayer gst_trust trust which upon execution was split into two irrevocable trusts gst trusts each trust for the benefit of one of taxpayer’s children and that child’s descendants gst_trust was named for son and gst_trust was named for daughter the trust agreement was drafted by attorney a partner with law firm each gst_trust provides that in making distributions the trustee shall take into consideration the fact that grantor’s gst_exemption shall have plr-135390-08 been allocated to the property comprising the trusts upon executing the trust agreement taxpayer transferred dollar_figurea in cash to each of the gst trusts taxpayer relied on his accounting firm accounting firm to prepare a form_709 united_states gift and generation-skipping_transfer_tax for year that included the allocation of taxpayer’s gst_exemption to the transfers to the trusts the return was timely filed accountant supervised preparation of the return but failed to report the date transfers to the trusts or to list them on the notice of gst allocation attached to the return thus taxpayer’s gst_exemption was not allocated to either trust recently while reviewing taxpayer’s estate_planning accountant noticed the failure to report the date transfers to the trusts and to allocate taxpayer’s gst_exemption to the transfers taxpayer was immediately advised to report the gifts and request an extension of time to make the election to allocate gst_exemption to them taxpayer has requested an extension of time under sec_2642 and sec_301 and to allocate taxpayer’s gst_exemption to the date transfers to gst_trust sec_1 and sec_2601 imposes a tax on every generation-skipping_transfer a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the gst tax every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 sec_2642 provides in relevant part that if the allocation of the gst_exemption to any transfers of property is made on a timely filed gift_tax_return or is deemed to be made under sec_2632 or c the value of such property for purposes of determining the inclusion_ratio shall be its value as finally determined for gift_tax purposes and such allocation shall be effective on and after the date of such transfer plr-135390-08 sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted into law on date sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers is to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 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 that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied taxpayer is granted an plr-135390-08 extension of time of days from the date of this letter to allocate taxpayer’s available gst_exemption to the date transfers of cash to gst_trust sec_1 and the transfers should be reported and the allocations should be made on a supplemental form_709 united_states gift and generation-skipping_transfer_tax return for the year in which the date transfers were made and filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to each supplemental form_709 a copy is enclosed for this purpose 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 except as specifically ruled herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we are not ruling on whether gst_trust sec_1 and will have zero inclusion ratios as a result of taxpayer’s allocations of gst_exemption to the date transfers to the trusts this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely curtis g wilson associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


tcmemo_2014_162 united_states tax_court gregory scott savoy petitioner v commissioner of internal revenue respondent docket no 12316-12l filed date p has a serious and sometimes disabling illness and did not timely file a return for the tax_year r prepared a substitute for return pursuant to sec_6020 issued a notice_of_deficiency and assessed the tax thereafter r issued p a notice of proposed levy after an initial administrative hearing r issued a notice_of_determination not to sustain the levy for the tax_year the notice_of_determination placed p in currently not collectible status and stated that r would file a notice of lien to protect its interests as creditor p timely petitioned the tax_court to review the initial notice_of_determination before trial r moved to remand the case because it acknowledged that appeals had failed to give proper weight to p’s illness in not allowing him sufficient time to prepare and file the delinquent returns to determine his correct_tax liability for the court granted r’s motion to remand over p’s objection and r conducted a supplemental cdp hearing after the supplemental hearing r issued a supplemental notice_of_determination which again did not sustain r’s levy and again placed p in currently not collectible status but did not state that the irs would file a notice of lien p objects to this supplemental notice_of_determination held appeals properly considered the issues p raised during his cdp hearing when issuing its supplemental notice_of_determination held further appeals did not abuse its discretion in deciding a not to sustain the decision of the irs to issue a levy for the tax_year b to place p in currently not collectible status and c to forgo filing a notice_of_federal_tax_lien gregory scott savoy for himself james g hartford for respondent memorandum opinion gustafson judge this collection_due_process cdp case brought under sec_6330 is before the court on cross-motions for summary_judgment filed by respondent the commissioner of the internal_revenue_service irs and petitioner gregory scott savoy the only issues for decision are whether the irs office of appeals appeals properly considered the issues raised by mr savoy during his cdp hearing and supplemental hearing when unless otherwise indicated all section references are to the internal_revenue_code_of_1986 u s c the code as in effect at the relevant times and all rule references are to the tax_court rules_of_practice and procedure issuing its supplemental notice_of_determination we hold that it did and whether appeals abused its discretion in its final_determination a not to sustain the collection actions of the irs to issue a notice_of_intent_to_levy to collect mr savoy’s federal_income_tax due for the tax_year but rather b to place him in currently not collectible cnc status for all years for which he showed a balance due and c not to file a notice of lien to preserve the government’s interest as a creditor we hold that it did not accordingly we will grant summary_judgment for the commissioner and will deny mr savoy’s cross- motion background there is no dispute as to the following facts petitioner’s circumstances mr savoy is recovering from a serious and sometimes disabling illness despite his illness he is often employed from his assertions that he should be allowed time to file or amend his federal_income_tax returns for a period of years evidently beginning in we assume that he was employed from through at least and that he earned_income in those years tax_liability notice_of_deficiency and notice of proposed levy for the single year at issue in this case mr savoy was required to file a tax_return by mid-date ie more than years ago but he did not do so the irs therefore prepared a substitute for return sfr pursuant to sec_6020 issued a notice_of_deficiency to mr savoy and when he did not file a petition pursuant to sec_6213 challenging that determination assessed the tax mr savoy alleges and we assume for purposes of the commissioner’s motion that he did not receive this notice thereafter the irs issued to mr savoy a notice of proposed levy dated date request for cdp hearing mr savoy timely requested a cdp hearing before appeals by submitting a form request for a collection_due_process or equivalent_hearing dated date ie more than three years ago on that form mr savoy stated the relevant tax periods were the eight years through for the years through the irs denied mr savoy a cdp hearing because it mr savoy alleges that the date notice of proposed levy was sent to the wrong address however he did receive the notice and did timely request his cdp hearing he had apparently not filed a tax_return for at least eight years making it appear likely that the address had once been his address and that he had not notified the irs of his new address and he does not seem to contend that the address was not for the irs his last_known_address emphasis added for purposes of sec_6331 concluded that the request was not timely as to those periods for the years through the irs denied him a cdp hearing because it concluded that no notice of proposed levy or notice_of_federal_tax_lien had been issued to mr savoy for those tax years for the tax_year however the irs acknowledged mr savoy’s cdp request as timely and proceeded with the cdp hearing initial cdp hearing it appears that mr savoy made two principal contentions in the initial cdp hearing first mr savoy attempted to dispute his tax_liability for in that cdp hearing in that connection he filed an amended tax_return on date ie more than three years late and more than 2½ years ago mr savoy asserts--and we assume in his favor--that the date amended_return for had copious errors specifically mr savoy asserted in a letter to appeals dated date tax_liability is in error-- because of the irs’s insensitivity to mr savoy’s medical_condition and related side effects a wholly unrealistic schedule was imposed on the taxpayer under duress of further levy and ten years of returns were mr savoy elsewhere complains that he should now be given more time to prepare the years’ tax returns however in light of his statement that the returns were assembled and done we infer that his point is that he needs to prepare corrected returns for those years his returns for years other than are not at issue here and as we explain below the irs has put him in cnc status and continued assembled hastily despite my on-going pleas for a relaxed schedule i managed to get the returns done yet because of the pressure i omitted one of my larger daily deductions my daily meals in the field as a freelancer that comprises a large number many days i work hours and take two meals within that work period also a single digit not carried over in math resulted in the irs incorrectly refilling sic my tax penalty in great error because i copied the taxes from a worksheet into the archival forms i merely entered the wrong digit in the big_number level of dollars if the irs merely added my components of schedule a they would see that it equals not big_number in other words this is a cosmetic error and if that is changed to a then all of the math adds up thus it is possible that corrections of errors might reduce mr savoy’s tax_liability second on his form mr savoy had checked the box indicating he desired to make an offer_in_compromise oic by letter of date appeals scheduled a telephone cdp hearing for date the letter stated that you must be in full compliance and submit financial information with a request for a face to face hearing but it did not specify what full compliance might require eg submission of returns for certain years nor what the continued thus has effectively permitted him to take whatever time he wishes to file whatever he wishes however mr savoy later volunteered in a motion for extension filed date that indeed it’s also possible that i owe the irs much more money than incorrectly posted currently we simply don’t know--because of the hasty and forceful manner in which the returns were coerced financial information was our record does not show all the communication that may have transpired between the parties but on date appeals sent mr savoy another letter that stated i never received the information from you the record does not show that mr savoy proposed an oic on form_656 the commissioner now acknowledges that i t appears based on the information in the administrative file that respondent’s office of appeals failed to give proper weight to petitioner’s illness in not allowing him sufficient time to prepare and file the delinquent returns to determine his correct liability for tax_year rather at the premature conclusion of the initial cdp hearing appeals issued to mr savoy a notice_of_determination that did not sustain the proposed levy that determined mr savoy should be put in cnc status and that stated that a notice_of_federal_tax_lien will be filed to protect the government’s interest as a creditor tax_court petition and remand on date ie more than two years ago mr savoy timely filed his petition in this court alleging among other things errors in his assessed tax_liability the petition stated a maryland address for mr savoy on date the commissioner moved to remand the case to appeals the commissioner acknowledged that mr savoy had not been given an adequate opportunity to challenge his underlying liability for at the cdp hearing and asked the court to remand for a supplemental hearing mr savoy objected to the remand but the court --over mr savoy’s objection--remanded the case to appeals for further consideration our order of date stated in particular-- if mr savoy intends to show that his income_tax_liability for is less than the irs has assessed then he should present to appeals the information proving his actual liability to the extent mr savoy claims that he is entitled to deductions or credits that the irs did not previously allow he should document the pertinent expenditures and substantiate his entitlement to those deductions and credits mr savoy moved for reconsideration on date by our order dated date issued well over a year ago we denied the motion for reconsideration and confirmed that the case would be remanded supplemental cdp hearing appeals conducted a supplemental cdp hearing pursuant to our order by letter of date the appeals officer stated to mr savoy for me to consider alternative collection methods such as an installment_agreement or offer in compromise you must have filed all federal tax returns required to be filed the letter named in particular the year sec_2011 and sec_2012 for the latter of which the return was due_date the record does not show that mr savoy ever submitted an oic on form_656 or otherwise proposed a specific collection alternative during the supplemental hearing mr savoy mailed the settlement officer a copy of a motion to vacate and motion for default judgment that he had filed with the court attached to his motion to vacate was a copy of the original appeals documentation in which he had contested the underlying liability the settlement officer acknowledged receipt of these items and stated that she considered them before rendering her supplemental notice_of_determination on date that supplemental notice_of_determination stated appeals has determined based on verified financial information that your tax accounts are currently not collectible this does not mean that the liabilities are no longer owed it means that we have determined that they are currently not collectible and no collection actions will be taken except application of future refunds unless or until we determine that collection should resume like the original notice_of_determination this supplemental notice determined not to sustain the levy against mr savoy and put into cnc status all tax years showing a balance due and explicitly stated that the determination did not prevent him from filing amended returns unlike the original notice_of_determination the supplemental notice did not assert that the irs would file a notice_of_federal_tax_lien to protect its interest as a creditor further tax_court proceedings on date the commissioner filed a motion for summary_judgment asking us to sustain the supplemental notice_of_determination which as to collection matters is favorable to mr savoy however the supplemental determination does not reflect any adjustment to mr savoy’s income_tax_liability in his motion the commissioner states that although mr savoy challenged the correctness of the underlying tax_liability during his cdp hearing mr savoy failed to provide documentation regarding his underlying liability during either the initial cdp hearing or the supplemental cdp hearing mr savoy filed an objection on date in which he asserted his desire to present any effect it has all had on the accuracy of this petitioner’s tax_liability as currently misperceived by the irs mr savoy also denied that he failed to participate in the supplemental hearing implying that the documentation provided to appeals should suffice to continue disputing his underlying liability however we could not tell at the time of his objection whether mr savoy had actually presented evidence that would substantiate the meals deductions he claims were omitted from his return or any other adjustment affecting his liability nor whether he had submitted evidence that would suggest an error in a potential tax penalty we therefore issued our order of date in which we-- ordered that mr savoy shall file no later than date a supplemental objection to the irs’s motion for summary_judgment in that supplement he shall succinctly list each adjustment that should be made to his tax_return that he believes will reduce his liability presumably this list will include the meal deduction that he mentioned in his request for a cdp hearing and it should include any other deduction or credit that he believes needs correction for he shall also explain any challenge he has as to any penalty the irs has asserted for and the basis for his challenge to that supplement he shall attach all of the documentary_evidence that he would offer at trial to substantiate his entitlement to those adjustments affecting his underlying tax_liability and penalty liability that is our order asked mr savoy to list the adjustments and attach the documentation by date a date that was-- nine months after we ordered the remand and directed mr savoy to present to appeals the information proving his actual liability and to document the pertinent expenditures and substantiate his entitlement to those deductions and credits a year and a half after he filed his petition in this court challenging his underlying liability as assessed 2½ years after he requested his cdp hearing challenging his underlying liability as assessed and 5½ years after the return was due on date the court received petitioner’s motion for extension of time this motion did not explicitly state the date to which an extension was requested but stated that mr savoy would need six months to assemble an archival form and requested that he be given six months to reassemble the facts of his life into the form of an accurate form the motion was construed as a request for a six-month extension of the court’s date deadline ie an extension to date to provide a list of his proposed adjustments with supporting documentation we denied the requested extension by our order of date because mr savoy had already had months to assemble the information but had not done so our order denying mr savoy the extension that he had requested stated the denial of mr savoy’s motion is however without prejudice to his requesting an extension if by date either a counsel who is admitted to practice in this court files a notice of appearance on mr savoy’s behalf or b an appropriate person files with the court a motion to be recognized as next friend under rule d mr savoy’s filing of date seemed to indicate that he declined this suggestion and since then there has not been any filing on behalf of mr savoy of a notice of appearance or a motion to be recognized as next friend on date mr savoy filed two motions with the court a motion to review and make determination which the court treated as a motion for summary_judgment and a supplemental objection which the court treated as an objection to the commissioner’s motion for summary_judgment in his supplemental objection mr savoy states that he has no further supplemental information or material and the previous objection filed against the motion for summary_judgment still stands emphasis in original despite the court’s repeated and explicit orders to do so mr savoy has not provided either to this court or to appeals an amended form_1040 u s individual_income_tax_return for the tax_year nor has he produced any information that would support his claim that his tax_liability as reported on the return as filed was incorrect discussion i general legal principles a summary_judgment standards where the pertinent facts are not in dispute parties may move for summary_judgment to expedite the litigation and avoid an unnecessary trial fla peach corp v commissioner 90_tc_678 summary_judgment may be granted where there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law rule a and b 98_tc_518 aff’d 17_f3d_965 7th cir the party moving for summary_judgment bears the burden of showing that there is no genuine dispute as to any material fact and factual inferences will be drawn in the manner most favorable to the partying opposing summary_judgment 85_tc_812 this case can be resolved on the basis of the undisputed facts b standard of review where the validity of the underlying tax_liability is properly at issue we review that matter de novo 114_tc_604 114_tc_176 the court reviews for abuse_of_discretion the administrative determinations by the commissioner’s appeals_office regarding nonliability issues 131_tc_197 goza v commissioner t c pincite because nonliability issues are before us we review the determinations regarding those issues for abuse_of_discretion in determining abuse_of_discretion we consider whether the determination was arbitrary capricious or without sound basis in fact or law see eg 125_tc_301 aff’d 469_f3d_27 1st cir 112_tc_19 the court does not conduct an independent review and substitute its own judgment for that of the settlement officer murphy v commissioner t c pincite if the settlement officer follows all statutory and administrative guidelines and provides a reasoned balanced decision the court will not re-weigh the equities 140_tc_173 c tax_court jurisdiction this court is a court of limited jurisdiction it may therefore exercise jurisdiction only to the extent expressly provided by statute 66_tc_61 in addition jurisdiction must be shown affirmatively and a party invoking our jurisdiction bears the burden of proving that we have jurisdiction over the party’s case 65_tc_346 35_tc_177 with respect to collection actions this court’s jurisdiction under sec_6330 depends on the issuance of a valid determination_letter and the filing of a timely petition for review 115_tc_417 114_tc_492 except as specifically provided by the code no suit for the purpose of restraining the assessment or collection of any_tax shall be maintained in any court by any person sec a the court’s jurisdiction in levy actions brought pursuant to sec_6330 is limited to determining whether appeals’ notice_of_determination should be sustained therefore to the extent that mr savoy requests other relief we cannot grant it d collection review procedure sec_6330 generally provides that taxpayers are entitled to administrative and judicial review before the commissioner may collect unpaid tax by way of a levy on the taxpayer’s property administrative review is carried out by requesting a cdp hearing with the irs office of appeals if the taxpayer is dissatisfied with the outcome there he may appeal that determination to the tax_court sec_6330 d the pertinent procedures for the administrative cdp hearing are set forth in sec_6330 first the appeals officer must obtain verification from the secretary that the requirements of any applicable law or administrative procedure have been met sec_6330 the record reflects that the settlement officer obtained proper verification during mr savoy’s initial and supplemental cdp hearing and mr savoy did not contest that verification during his cdp hearing or in his tax_court petition second a taxpayer may raise any issue relevant to the unpaid tax or proposed collection action at the hearing including challenges to the appropriateness of the collection action and offers of collection alternatives such as mr savoy’s suggestion of an oic sec_6330 additionally a taxpayer may contest the existence and amount of the underlying tax_liability but only if he did not receive a notice_of_deficiency or otherwise have an opportunity to dispute the tax_liability sec_6330 ii issues raised at the hearing mr savoy raised five issues in both his cdp hearing and tax_court petition challenging the notice_of_determination a due diligence mr savoy contends that the first levy --ie evidently a notice of proposed levy for income_tax for years prior to 2007--was issued without due diligence because it was sent to a wrong address and that he was therefore deprived of the opportunity for a cdp hearing as to those prior years however mr savoy has not petitioned this court to review such a levy contentions about a notice of proposed levy for years prior to are outside our jurisdiction in this case see sec_6330 125_tc_14 in exercising jurisdiction under sec_6330 we do not determine whether any collection action with respect to the nondetermination year may proceed but only whether collection action may proceed in the determination_year emphasis added because the date notice_of_determination and the date supplemental notice of determination--the sole means by which this court has jurisdiction--concern only the tax_year we lack jurisdiction to consider levies concerning any_tax years other than b civil rights violations mr savoy contends at length and in detail that in light of his medical_condition appeals violated the rehabilitation act of rehabilitation act pub_l_no secs stat pincite codified as amended pincite u s c secs the chief alleged violation appears to be appeals’ to the extent that there might be any supposed connection between the irs’s proposed collection for at issue here and any proposed collection of extra-jurisdictional liabilities see sullivan v commissioner tcmemo_2009_4 slip op pincite those other liabilities are effectively rendered moot since the supplemental notice_of_determination at issue here put into cnc status all years showing a balance due the rehabilitation act of rehabilitation act pub_l_no sec_504 sec_87 stat pincite codified as amended pincite u s c sec a reaches any program or activity conducted by any executive agency mr savoy also complains of violations of the americans with disabilities act of ada pub_l_no 104_stat_327 but the ada does not apply to federal agencies see pitts v commissioner tcmemo_2010_101 slip op pincite however the ada’s definition of disability has been explicitly incorporated into the rehabilitation act for its definition rehabilitation act sec_504 sec_29 u s c sec a refers to sec_705 of u s c and u s c continued insistence that he file multiple returns in a short_period of time to the extent mr savoy seeks a determination that the irs violated the rehabilitation act we lack jurisdiction over that subject matter which jurisdiction has instead been conferred on the district courts the related issue we can decide is whether appeals abused its discretion either in its handling of the cdp hearing or in its determination by refusing to make reasonable accommodations in favor of a disabled taxpayer--an issue implicated in three aspects of this case continued sec_705 provides the term ‘disability’ means for purposes of subchapter_v of this chapter the meaning given it in u s c section that incorporated definition of disability is from u s c section which is part of the codification of the ada the disability definition as it now appears in u s c section was substantially amended by the ada amendments act of pub_l_no sec_4 stat pincite thus the definition of disability as it appears in the rehabilitation act does by means of its incorporation of u s c section reflect the definition of disability as enacted in the ada and as amended in the ada amendments act of the complaint pertains to irs enforcement of levy one ie the levy for pre-2007 taxes but the irs’s motion to remand admits that similar demands were made in the cdp hearing even if the irs violated the rehabilitation act a point which the commissioner denies and which the court does not address the proper remedy for mr savoy is provided in c f_r part and does not involve the tax_court if a disabled person is dissatisfied with a final agency decision under the rehabilitation act he may file an appeal with the appropriate federal district_court see u s c sec a u s c secs 2000d through 2000d-7 opportunity to challenge the liability the irs conceded that appeals did abuse its discretion at the initial cdp hearing by insufficiently taking mr savoy’s disability into account in setting the deadline for his submission of information challenging his underlying liability for ie an amended return and supporting documentation in light of that concession we ordered a remand so that mr savoy could have his due opportunity to challenge that liability he contends that the remand was inadequate and we discuss that contention in part ii c below under his third issue tax_liability is in error non-acceptance of oic on his request for a cdp hearing mr savoy indicated an interest in an oic and he has sometimes seemed to contend that appeals abused its discretion by insisting in date that he file hi sec_2011 and sec_2012 returns as a prerequisite to its considering an oic however mr savoy never actually submitted an oic or proposed any other collection alternative and he has focused instead on challenging his underlying liability for by definition appeals cannot abuse its discretion by failing to accept a collection alternative that the taxpayer never proposed see 141_tc_248 a taxpayer must propose an oic for it to be considered during the collection hearing see also godwin v commissioner tcmemo_2003_289 taxpayers who wish to propose an offer_in_compromise must submit a form_656 offer_in_compromise which requests financial information from the taxpayer so that the irs can determine whether the offer should be accepted aff’d 132_fedappx_785 11th cir collection activity to the extent mr savoy still contends that in its supplemental notice_of_determination appeals abused its discretion by its decisions with respect to collection activity that contention must be rejected appeals did not sustain the notice_of_levy that prompted this proceeding and appeals did not propose even the filing of a notice of lien rather appeals determined to grant mr savoy cnc status for all tax years showing a balance due consequently he may make payments on whatever schedule he is able and the irs will not proceed with involuntary collection certainly appeals did not abuse its discretion in determining not to sustain collection actions and instead to place mr savoy in cnc status for all tax years showing a balance due cnc status grants mr savoy relief from all collection activity and thus by definition accommodates his disability to the maximum extent possible such a determination gives mr savoy an indefinite time within which to assemble the necessary documentation and file amended returns for any_tax period as to which he believes his assessed liability is excessive moreover he can submit an oic or other collection alternative if he wishes to do so c tax_liability is in error mr savoy contends that the tax assessed for several years including on the basis of his self-prepared returns was in error because of the haste with which he was required to prepare his returns since the issue of his liability was not resolved on remand it is now the subject of our review the court considers an underlying tax_liability on review only if the taxpayer properly raised the issue during the cdp hearing sec_301_6320-1 q a-f3 f q a-f3 proced admin regs see also 129_tc_107 a taxpayer does not properly raise the issue of an underlying tax_liability if he requests consideration but fails to present to appeals any evidence with respect to that issue after being given a reasonable opportunity to present such evidence see sec_301_6330-1 q a-f3 proced admin regs we assume in his favor that mr savoy might need as long as six months to assemble the information described in our order of date however since date when his original return was due he has had more than six years to assemble the information but evidently he has not done so he should have assembled the information before the conclusion of his initial cdp hearing in date more than two years ago but evidently he did not do so failing that he should have assembled the information in response to our explicit remand order in date but he evidently did not do so even considering only that latest instance he had not just six months to do so but nine months from the time of our remand order until the deadline of date but evidently he did not do so moreover even at this late date mr savoy admits he does not even know whether the amount assessed against him is too great or too small for all mr savoy knows he owes more than the irs has assessed mr savoy’s motion for an extension might have been understandable had our order of date been a first call for this information but it was not it was instead our attempt to give mr savoy one last chance to present information that he had been obligated to assemble previously on multiple occasions mr savoy missed the court’s date deadline to file his supplemental objection to the commissioner’s motion for summary_judgment mr savoy has failed to present to this court any evidence supporting a challenge to the underlying liability taking into account his disability he has certainly been afforded a reasonable opportunity to provide evidence disputing the tax_liability see sec_301_6330-1 q a-f3 but has not done so we therefore find that mr savoy did not properly challenge the existence or amount of the underlying tax_liability for d currently uncollectible mr savoy agrees with appeals’ decision that he should have cnc status and its decision not to sustain the proposed levy but he disputes the appropriateness of the filing of a notice of lien which was foretold in the explanation attached to appeals’ initial notice_of_determination however unlike the initial notice_of_determination issued date appeals’ supplemental notice_of_determination did not state that the irs would file a notice of lien the record contains no evidence that the irs has filed a notice_of_federal_tax_lien and mr savoy’s petition does not concern such a notice if the irs does file a notice of lien mr savoy will be entitled to a hearing on that filing pursuant to sec_6320 accordingly any contention in this case against the appropriateness of the filing of a notice of lien is moot e full life assay mr savoy contends that an evaluation of the accomplishments of his entire life will show that over the years he has contributed great value to our country and has taken action that saved the government much money he apparently suggests that this should be taken into account in deciding whether the irs should be permitted to collect tax that he owes that is he asks us to make a plenary review of his contributions monetary and otherwise as against his liabilities in general mr savoy’s request for a full life assay will not be granted we have jurisdiction only to review the irs’s proposed collection as to not to review his liabilities for his whole life while our review can and does take account of amounts he has paid in money mr savoy cannot satisfy his tax obligations with intangible contributions or supposed savings that he has facilitated for the government so we will not attempt to assign values to those non-payments iii conclusion the record demonstrates no abuse_of_discretion by appeals in issuing its supplemental notice_of_determination not to sustain the proposed levy but instead to put mr savoy in cnc status as required by sec_6330 the settlement officer evaluated the proposed collection action here the proposed levy by balancing the need for efficient collection_of_taxes with mr savoy’s concerns that such action be no more intrusive than necessary especially in light of his medical_condition and determined not to proceed with collection but instead to put mr savoy into cnc status few determinations could be as beneficial to mr savoy though he continues to owe a tax_liability which accrues interest mr savoy is free from the pressures of a pending levy or notice of lien when preparing amended returns or proposing a collection alternative if he decides to do so we cannot find any abuse_of_discretion in the settlement officer’s supplemental notice_of_determination and we therefore sustain it as to the other issues mr savoy raises the court lacks jurisdiction to grant the relief mr savoy seeks to give effect to this opinion an appropriate order and decision will be entered for respondent


internal_revenue_service number release date index numbers ------------------------ --------------------------------- ------------------------------------------------------------ ------------------------------------------------ --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ---------------- ----------------- telephone number fax number -------------------- refer reply to cc ita b7 plr-122374-18 date date in re request for an extension of time to file a form_3115 application_for change in accounting_method legend p --------------------------------------------------------------- sec_1 -------------------------------------------- sec_2 ---------------------------------------------------------------- firm --------------- year ----------------------------------------------------- year ------ date --------------------- date -------------------------- date ----------------- date ----------------------- date ---------------------- date ---------------------- date ----------------------- period -------------- period ---------------------- dear ------------------- this ruling letter responds to a letter dated date and subsequent correspondence submitted by your representative on behalf of p sec_1 and sec_2 collectively taxpayer requesting an extension of time pursuant to sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an original form_3115 application_for change in accounting_method pursuant to section a i a of revproc_2015_13 2015_5_irb_419 with parent’s timely filed including plr-122374-18 extension consolidated federal_income_tax return for year facts p represents that the facts are as follows p is the common parent and member_of_an_affiliated_group of corporations including sec_1and sec_2 that files consolidated federal_income_tax returns on a calendar_year basis taxpayer’s overall_method_of_accounting is an accrual_method for year taxpayer intended to change its method_of_accounting to i claim additional first year depreciation under sec_168 of the internal_revenue_code for eligible qualified_property and ii correct the recovery_period or useful_life for depreciating computer_software from months to months as required under sec_167 the assets subject_to the changes were placed_in_service on various dates between date and date the accounting_method changes from an impermissible to a permissible method_of_accounting for depreciation were to be made pursuant to the automatic consent procedures of revproc_2015_13 and section dollar_figure of revproc_2017_30 2017_18_irb_1131 designated automatic change number dcn on date taxpayer timely filed a form_7004 application_for automatic_extension of time to file certain business income_tax information and other returns for year which provided taxpayer an extension to file their consolidated federal_income_tax return until date during period prior to date taxpayer engaged firm to assist them in the preparation of the form_3115 under the automatic consent procedures of revproc_2015_13 and revproc_2017_30 to change taxpayer’s methods_of_accounting as described above on date firm provided to taxpayer the final form_3115 including the requisite statements for filing with the internal_revenue_service with a transmittal letter and filing instructions indicating that in order to make an automatic method change a copy of the form_3115 was to be filed with the internal_revenue_service in covington ky covington ky office and the original signed form was required to be attached to taxpayer’s consolidated federal_income_tax return for year on date taxpayer mailed the copy of the form_3115 to the covington ky office on date taxpayer directly efiled its consolidated federal_income_tax return for year but inadvertently failed to attach the original form_3115 to that return the consolidated federal_income_tax return was prepared taking into account the accounting_method change described in the form_3115 including the sec_481 adjustment that was required in the year_of_change in period during the taxpayer’s year financial statement audit firm identified that the original of taxpayer’s form_3115 was not included with the year return and notified taxpayer taxpayer engaged firm to submit this request plr-122374-18 ruling requested taxpayer requests an extension of time pursuant to sec_301_9100-1 and sec_301_9100-3 to file the original form_3115 identical to the copy already filed with the covington ky office that is required by revproc_2015_13 to obtain the consent of the commissioner of internal revenue to change the previously described accounting methods for depreciating certain assets under section dollar_figure of revproc_2017_30 dcn for year law and analysis revproc_2015_13 provides the procedures by which a taxpayer may obtain automatic consent to change certain accounting methods section of revproc_2015_13 provides that consent of the commissioner to change its accounting_method under sec_446 and sec_1_446-1 of the income_tax regulations is granted only if the taxpayer complies with all the applicable provisions of the revenue_procedure and implements the change in method on its federal_income_tax return for the requested year_of_change to which the original form_3115 is attached pursuant to section section a i of revproc_2015_13 provides that a taxpayer changing an accounting_method pursuant to revproc_2015_13 must complete and file a form_3115 in duplicate the original form_3115 must be attached to the taxpayer’s timely filed including any extension original federal_income_tax return for the year_of_change and a copy with signature of the form_3115 must be filed with the appropriate office of the service no earlier than the first day of the year_of_change and no later than when the original is filed with the federal_income_tax return for the year_of_change sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make certain regulatory elections sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government plr-122374-18 sec_301_9100-3 imposes special rules for accounting_method regulatory elections this section provides in relevant part that the interests of the government are deemed to be prejudiced except in unusual and compelling circumstances when the accounting_method regulatory election for which relief is requested is subject_to the procedure described in sec_1_446-1 or the relief requires an adjustment under sec_481 or would require an adjustment under sec_481 if the taxpayer changed to the accounting_method for which relief is requested in a taxable_year subsequent to the taxable_year the election should have been made conclusion based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied in taxpayer’s case accordingly taxpayer is granted calendar days from the date of this letter to file the required original of the form_3115 pertaining to the previously described accounting change for year this filing must be made by parent filing an amended consolidated federal_income_tax return for that year and attaching a copy of this letter_ruling to the amended_return a copy of this letter_ruling is enclosed for that purpose alternatively a taxpayer filing its federal_income_tax return electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of the letter_ruling except as expressly set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the code or regulations specifically no opinion is expressed or implied concerning whether the accounting_method changes that taxpayer has made are eligible to be made under section dollar_figure of revproc_2017_30 and revproc_2015_13 taxpayer otherwise meets the requirements of revproc_2015_13 to make its accounting_method changes using the procedures of revproc_2015_13 taxpayer’s classification depreciation method recovery_period or useful_life of the computer_software under sec_167 are correct or taxpayer’s assets are eligible for additional first year depreciation under sec_168 the ruling contained in this letter_ruling is based upon information and representations submitted on behalf of taxpayer with accompanying penalty of perjury statements executed by appropriate parties while this office has not verified any of the material submitted in support of this request for an extension of time to file the required form_3115 all material is subject_to verification on examination plr-122374-18 this letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that this ruling may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to parent’s authorized representatives we also are sending a copy of this letter_ruling to the appropriate operating division director sincerely deena m devereux senior technician reviewer branch office of associate chief_counsel income_tax accounting enclosures copy of this letter copy for sec_6110 purposes