department of the treasury internal_revenue_service washington d c number release date cc pa cbs br1 lkwilliams wta-n-111039-00 uil date memorandum for sbse associate area_counsel brooklyn from peter j devlin deputy assistant chief_counsel collection bankruptcy summonses subject letter or lt11 to power_of_attorney request for significant service_center advice this memorandum responds to your request for significant service_center advice dated date this document may not be used or cited as precedent sec_6110 issues whether the failure to send the taxpayer’s authorized representative a copy of a notice entitling the taxpayer to a collection_due_process cdp hearing or a collection_appeals_program cap hearing notice would justify reversal or prohibition of a collection action whether any corrective action should be taken if the authorized representative is not sent a copy of a notice entitling the taxpayer to a cdp or cap hearing and the procedural failure is not discovered by the internal_revenue_service irs until the hearing or the date the hearing is requested conclusion while the failure to send a copy of a cdp_notice or a notice entitling the taxpayer to a cap hearing to an authorized representative may constitute a violation of an administrative procedure such failure alone would not justify the reversal or prohibition of a collection action the service_center is not legally required to take any corrective action when the failure to send a copy of the notice to the authorized representative is discovered at the time of the hearing or the date the hearing is requested wta-n-111039-00 facts this request for significant service_center advice was prompted by a request from a settlement officer with the irs office of appeals appeals for an amplification of a routine service_center advice previously issued by your office according to the settlement officer taxpayers have challenged the failure of the irs to send a copy of a letter lt11 final notice - notice_of_intent_to_levy and your notice of a right to a hearing to the representative as an inappropriate collection action because the irs has failed to satisfy an administrative procedural requirement the letter lt11 is a computer-generated letter giving notice to the taxpayer of the irs’s intent to levy and the taxpayer’s right to a cdp hearing under sec_6330 with appeals the administrative procedure the taxpayers are referring to i sec_26 c f_r sec_601_506 which requires irs employees to send to an authorized representative a copy of all notices and other written communications sent to the taxpayer pursuant to this procedural rule the internal_revenue_manual manual applicable to service_center collection employees requires that a copy of any automated collection system acs letter to the taxpayer be sent to the authorized representative irm letter lt12 which is identical to letter lt11 is the copy sent to the taxpayer’s authorized representative the settlement officer has concluded that a violation of administrative procedure occurs if a copy of a cdp_notice or a notice entitling the taxpayer to a cap hearing as applicable is not sent to the authorized representative because the settlement officer is required to verify that the requirements of all applicable law and administrative procedures have been met he would be required to reveal this violation of administrative procedure he is concerned that if he sustains the collection action regardless of whether he is involved in a cdp cap or equivalent_hearing the service_center employee who committed the violation could become subject_to termination under section of irs restructuring and reform act of rra accordingly the settlement officer believes that based on sec_6330 the regulations thereunder and the irm provisions for cdp hearings he may be required to prohibit a proposed levy if a copy of letter lt11 or in limited circumstances a virtually identical letter 1058c was not sent by the service_center to the taxpayer’s authorized representative the settlement officer believes that based on manual provisions for cap hearings he may be required to reverse or prohibit the collection action if copies of other notices relating to collection were not sent by the service_center to the taxpayer’s authorized representative wta-n-111039-00 to avoid this required reversal or prohibition the settlement officer has suggested that the service_center take corrective action because the service_center does not keep any copies of notices electronic or paper sent to taxpayers sending a belated copy of the notice to the authorized representative would not be possible in addition an exact copy of the notice is difficult to recreate because the exact balance due calculated by the computer on the date the letter is generated is not readily available understanding this the settlement officer has suggested that a letter be sent to the representative explaining that a notice_of_intent_to_levy and right to cdp hearing was sent to the taxpayer on a specified date and that although a copy of the notice is not retained a copy of the form letter sent to the taxpayer is enclosed the settlement officer also recommends that if the omission is discovered after the 30-day period for filing a request for a cdp hearing the letter could give the representative days from the date of the letter to inform his client of the availability of a hearing equivalent to a cdp hearing but with no right to judicial review see temp sec_301_6330-1t i this service_center advice assumes that the cdp_notice or notice entitling the taxpayer to a cap hearing has been properly and timely sent to the taxpayer the sole procedural irregularity is that the irs did not forward a copy of the notice to the authorized representative as required by sec_601_506 background two types of appeals proceedings involving taxpayers and their authorized representatives are relevant to this analysis the first type of proceeding is the cdp hearing the right to which was added by rra at such hearing an impartial officer with the office of appeals whether a settlement officer or appeals officer hereinafter both will be referred to as an appeals officer is to determine whether any proposed collection action balances the need for efficient collection_of_taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary sec_6330 taxpayers wishing to challenge the first filing of a notice_of_federal_tax_lien with respect to a particular tax and period or the first levy proposed for the collection of a particular tax and period will be given the opportunity to have a cdp hearing the service_center specifically acs is responsible for sending out letter lt11 or letter 1058c informing the taxpayer of his or her right to a cdp hearing under sec_6330 prior to levy if the taxpayer fails to timely request a cdp hearing on either a lien filing or proposed levy he or she will be given an equivalent_hearing other than judicial the service centers are not responsible for sending out letter notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 which entitles the taxpayer to a cdp hearing in which to challenge the filing of the notice_of_federal_tax_lien wta-n-111039-00 review the provisions of sec_6320 or sec_6330 are fully applicable to an equivalent_hearing sec_6330 requires the appeals officer to obtain verification from the secretary that the requirements of any applicable law or administrative procedure have been met this provision and the regulations make clear that it is not the appeals officer but the irs office or officer pursuing collection that is required to provide the verification see temp sec_301_6320-1t e and 6330-1t e the legislative_history reinforces this interpretation during the hearing the irs is required to verify that all statutory regulatory and administrative requirements for the proposed collection action have been met h rep 105th cong 2d sess p sec_6330 requires the appeals officer in making his or her determination as to the appropriateness of the collection action to take into consideration this verification temp sec_301 1t e q ae1 and 6330-1t e q a-e1 reinforce the statutory language by stating that appeals will consider the following matters in making its determination i whether the irs met the requirements of any applicable law or administrative procedure the manual consistent with the statute and temporary_regulation requires that the appeals officer document in a case memorandum and in the attachment to the notice_of_determination that he or she obtained verification from the service that the requirements of any applicable law or administrative procedures have been met irm the second type of proceeding discussed in this memorandum cap was initiated in to permit taxpayers to appeal a prior or proposed lien levy or seizure action to the irs office of appeals a taxpayer may obtain a cap proceeding to challenge subsequently proposed or completed lien filings or levies involving the same tax and period for which a cdp hearing was offered before a lien notice is filed and therefore before a cdp hearing is offered the taxpayer can obtain a cap proceeding to contest the threatened filing the taxpayer can also challenge the denial or termination of an installment_agreement in a cap proceeding there are a number of ways a cap hearing can result from written notices issued by the service_center when the service_center sends out a letter cp stating that a notice_of_federal_tax_lien may be filed unless the irs receives payment within days or a letter cp sitlp notice the taxpayer is entitled to a cap hearing when a letter cp is sent by the service_center proposing the a cap proceeding would be available to a taxpayer based on the additional lien filing after the taxpayer receives notice via letter notice of additional federal_tax_lien filing this letter is sent to the taxpayer after a lien is filed in a different jurisdiction at a later date for a tax period for which a cdp_notice has already been issued letter is not issued by the service centers wta-n-111039-00 termination of an installment_agreement the taxpayer may obtain a cap hearing when a service_center employee informs the taxpayer by letter if the taxpayer is unavailable by telephone that a proposed installment_agreement is rejected the taxpayer may initiate a cap proceeding publication entitled collection appeal rights informs the taxpayer about his right to a cap hearing and is enclosed along with the above-described letters the cap procedures in the manual provide that appeals should review the case for appropriateness based on law regulations policy and procedures national regional and local considering all the facts and circumstances irm judgment is likely to be an issue in these types of cases although they can also involve legal or procedural issues appeals may reverse collection’s action if evaluation of the taxpayer’s history and current facts and circumstances reveal a more appropriate solution irm the cap training manual states on page on the other hand you may make a determination reversing collection because the collection employee did not follow the law or manual discussion failure to send a copy of the cdp or cap notice to an authorized representative is an administrative procedure violation to be considered under cdp or cap but does not alone justify reversal or prohibition of collection action sec_601_506 states any notice or written communication or a copy thereof required or permitted to be given to a taxpayer in any matter before the internal_revenue_service must be given to the taxpayer and unless restricted by the right of a taxpayer to appeal the proposed termination of an installment_agreement was added by the taxpayer_bill_of_rights ii enacted date and is codified at sec_6159 the right to appeal the rejection of a proposed installment_agreement was added by rra and is codified at sec_7122 once a taxpayer has had a cdp hearing on a proposed levy for a particular tax and period or an opportunity for one he or she may obtain a cap proceeding for subsequent levies to collect the same tax and period either before or after the levy because no written notice is issued with respect to the subsequent levies by the service centers or by field compliance there would not be an occasion to send a copy to the authorized representative wta-n-111039-00 the taxpayer to the representative sec_601_501 states that t hese rules as to the authorized representative apply to all offices of the internal_revenue_service in all matters therefore the procedural rules relating to authorized representatives apply to cdp notices or notices or written communications that would entitle a taxpayer to a cap hearing consequently we believe that failure to send the authorized representative a copy of such notice would be a failure to meet the requirements of an administrative procedure subject_to verification under sec_6330 or under cap procedures sec_6330 requires the appeals officer to obtain from the irs verification that the requirements of any applicable law or administrative procedure have been met moreover the legislative_history of sec_6330 demonstrates that verification applies not only to statutory and regulatory requirements but to internal administrative requirements as well during the hearing the irs is required to verify that all statutory regulatory and administrative requirements for the proposed collection action have been met h report 105th cong 2d sess p whether the failure to send a copy of the notice is deemed a violation of sec_601_506 or a provision of the manual the appeals officer would be required to consider the violation by sec_6330 or under applicable cap procedures although failure to send an authorized representative a copy of the notice sent to the taxpayer as required by sec_601_506 is a failure to follow a required administrative procedure we do not believe that the failure alone to comply with this section and corresponding manual provisions would justify the reversal or a person holding a power_of_attorney for a taxpayer must be a recognized representative of the taxpayer in accordance with sec_601_502 et seq sec_6304 relating to communications with taxpayers and their representatives does not apply when a cdp_notice under either sec_6320 or sec_6330 is sent to the taxpayer because these notices are statutorily required to be sent to the taxpayer moreover where a taxpayer and his or her representative have executed a power_of_attorney form form_2848 sending to the taxpayer other collection notices or communications entitling him or her to a cap hearing does not violate sec_6304 sec_6304 provides in relevant part that without prior consent of the taxpayer the secretary may not communicate with the taxpayer in connection with the collection of any unpaid tax if the secretary knows such person is represented by any person authorized to practice_before_the_irs unless such person consents to direct communication with the taxpayer emphasis added the execution of form_2848 constitutes prior consent of the taxpayer to direct receipt of either the original or a copy of all written communications including written communications in connection with the collection of an unpaid tax by executing such form the taxpayer’s representative is also consenting to such direct contact wta-n-111039-00 prohibition of any collection action sec_601_506 states that failure to give notice or other written communication to the recognized representative of a taxpayer will not affect the validity of any notice based on this language courts have interpreted sec_601_506 as directory not mandatory 478_f2d_398 5th cir swann v alameda county retirement assoc u s t c big_number a f t r 2d 9th cir nuehoff v commissioner 75_tc_36 thus the limiting language of sec_601_506 makes clear that the validity of a cdp_notice or a notice or written communication that would entitle a taxpayer to a cap hearing is not affected by the failure to send the authorized representative a copy in other words even though the irs failed to send a copy of the requisite notice to the authorized representative the notice is valid and in the case of an untimely request for a cdp hearing the only relief the appeals officer can provide is to conduct an equivalent_hearing for this reason an appeals officer would not be justified in withdrawing a lien filing or prohibiting a levy if the only reason was that the procedural failure prevented the taxpayer from receiving a cdp hearing instead of an equivalent_hearing likewise an appeals officer may not reverse or prohibit a lien filing or levy in a cap proceeding solely because the irs failed to send a copy to the authorized representative a reversal or prohibition of a collection action under cdp or cap based on this procedural violation alone would be an implicit determination that the notice was invalid a result prohibited by sec_601_506 on the other hand this procedural violation in combination with the proposal of a viable collection alternative may justify the determination in a cdp hearing under sec_6320 or sec_6330 or equivalent_hearing that the notice_of_federal_tax_lien should be withdrawn or the proposed levy prohibited similarly in a pre-lien in addition the statement of procedural rules including sec_601_506 has not been signed by the secretary_of_the_treasury and is not given the force of law by the courts smith f 2d pincite swann u s t c big_number see also 810_f2d_209 d c cir 304_f2d_560 4th cir as such these rules do not confer any rights on the taxpayer smith f 2d pincite boulez f 2d pincite luhring f 2d pincite this is true whether the requirement to send a copy to the authorized representative is found in sec_601_506 or in the manual the service centers are not responsible for sending out letter notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 which entitles the taxpayer to a cdp hearing in which to challenge the filing of the notice_of_federal_tax_lien although letter is not issued by the service centers a cdp or equivalent_hearing requested in response to this letter is included in this analysis wta-n-111039-00 filing or post-lien filing cap proceeding11 or a pre-levy cap proceeding12 the reversal or prohibition of a lien filing or levy may be justified by the proposal of a viable collection alternative in addition to the failure to send the authorized representative a copy of a notice if the taxpayer is requesting a return of levied property in a post-levy equivalent_hearing or a post-levy cap proceeding elected in lieu of the equivalent_hearing then the return of property is governed by sec_6343 proposed_regulations promulgated thereunder should be issued shortly for public comment the settlement officer whose questions prompted the request for advice was also concerned that he might have to reverse or prohibit any collection action where a copy is not sent to the authorized representative in order to avoid a possible section termination of the service_center employee who failed to send the copy to the taxpayer’s representative we believe that in addition to being a failure to follow sec_601_506 reversing or prohibiting a collection action would be an inappropriate exercise of discretion if such determination is solely because an appeals officer fears approval of the collection action will expose an irs employee to possible termination under section the office of appeals is an independent body and its officers are charged with rendering impartial decisions see sec_6320 and sec_6330 sec_601_106 for an a cap proceeding would be available to a taxpayer based on the additional lien filing after the taxpayer receives notice via letter notice of additional federal_tax_lien filing this letter is sent to the taxpayer after a lien is filed in a different jurisdiction at a later date for a tax period for which a cdp_notice has already been issued although letter is not issued by the service centers the cap proceeding requested in response to this letter is included in this analysis after the cdp_notice under sec_6330 is sent for a particular tax and period no written notices are sent to the taxpayer prior to or after subsequent levies to collect the same tax and period as a result there is nothing to send the authorized representative with respect to subsequent levies accordingly while the taxpayer can obtain cap hearings to challenge these levies he or she could not complain about the failure to send the authorized representative a copy section b is broadly written to include as grounds for termination violations of internal_revenue_code_of_1986 department of treasury regulations policies of the internal_revenue_service including the internal_revenue_manual thus sec_601_506 and corresponding manual provisions are subject_to section b of rra we observe however that such violations must be committed for the purpose of retaliating against or harassing a taxpayer taxpayer_representative or other employee of the internal_revenue_service before the offending employee can be terminated as a result a service_center employee who fails to send a copy of a notice or written communication that would entitle a taxpayer to a cap hearing or a cdp_notice may not be terminated under section unless it is shown that he or she intended to retaliate against or harass the taxpayer or representative wta-n-111039-00 appeals officer to permit his or her decisionmaking to be influenced by the desire to protect a service_center employee from possible termination under section would be a breach of his or her duty to render an impartial determination no action needed by service_center to correct the failure to send a copy to the authorized representative based on the limiting language of sec_601_506 it is our opinion that the irs is not legally required to furnish a duplicate notice or an explanatory letter with a copy of the applicable form letter lt11 1058c cp503 cp cp letter rejecting installment_agreement etc to the authorized representative when the omission is discovered at the time of the hearing or the date the hearing is requested providing the representative a copy at that point would be meaningless however where the service_center can reproduce an accurate duplicate of the notice sent to the taxpayer and there is still sufficient time for the taxpayer to file a timely request for a cdp hearing or for the taxpayer to obtain meaningful review in a cap proceeding a late copy to the representative in this scenario is better than no copy and would be in keeping with sec_601_506 if you have any further questions please call cc cc pa tss attn barbara a johnson tss supervisor office of national chief_of_appeals


t c no united_states tax_court william d little petitioner v commissioner of internal revenue respondent docket no filed date p was the personal representative of d’s estate during administration of the estate p received information indicating possible income_tax liabilities of the estate p gave this information to the estate’s lawyer who erroneously and repeatedly advised p that the estate had no tax_liabilities and advised p to make disbursements and distributions p acting in good_faith followed this advice and eventually closed the estate without paying the estate’s income_tax liabilities r determined that p is liable for the estate’s unpaid income_tax liabilities under u s c sec b which generally imposes personal liability on a fiduciary who pays others before paying claims of the united_states liability under u s c sec b has been judicially limited to situations where a fiduciary knowingly disregards debts due to the united_states held a fiduciary who reasonably and in good_faith relies on an attorney’s legal advice that there are no debts due to the united_states before paying other claims has not knowingly disregarded debts of the united_states p is not liable for the income_tax liabilities of the estate under u s c sec b michael m sayers michael w newport and brian k rull for petitioner robert j burbank for respondent ruwe judge respondent determined that petitioner in his capacity as a fiduciary of the estate of jerry j calton is personally liable under u s c section b for the estate's unpaid income_tax liabilities in the amount of dollar_figure plus interest’ the amounts of the unpaid income_tax liabilities of the estate are not in dispute petitioner acknowledges that he permitted all the estate’s assets to be paid out to creditors and beneficiaries before the estate's income_tax liabilities had been paid petitioner disputes personal liability for these income_tax liabilities on the ground that he did not have knowledge of the estate's unpaid taxes prior to disbursing the estate's assets ‘the income_tax liabilities of the estate are as follows additions to tax_year tax sec_6651 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts is incorporated herein by this reference petitioner resided in st louis missouri at the time he filed his petition jerry j calton decedent died intestate on date petitioner and decedent had been personal friends upon being told of decedent's death petitioner contacted attorney michael cady who advised him to identify decedent's body and suggested that petitioner act as personal representative since decedent had no close family members and out of respect for decedent who had been his personal friend petitioner agreed to act as personal representative petitioner is not a college graduate and has had no prior experience in the administration of an estate petitioner was neither related to nor an heir of decedent petitioner was appointed by the probate_court of the city of st louis to be personal representative of the estate on date on the advice of mr cady the estate engaged the services of roger lahr an attorney licenced in missouri to provide legal services regarding the administration of the estate from date to date debts of the estate in the total amount of dollar_figure were paid_by the estate these debts did not have priority over claims of the united_states during the period from june to date additional nonpriority claims in the total amount of dollar_figure were paid_by the estate from february to date the estate paid additional nonpriority claims of dollar_figure petitioner made a distribution from the estate to beneficiaries in the aggregate amount of dollar_figure on date on date petitioner made a second distribution to beneficiaries in the aggregate amount of dollar_figure on date petitioner made a further distribution to beneficiaries also in the aggregate amount of dollar_figure from date until date the estate made various disbursements totaling dollar_figure to satisfy obligations that had priority over the claims of the united_states petitioner disbursed a total of dollar_figure to the internal_revenue_service in response to a notice from respondent regarding an adjustment to decedent’s income_tax year the total of all disbursements and distributions by the estate was dollar_figure all the disbursements and distributions from the estate were made on the advice of mr lahr petitioner and mr lahr had no actual knowledge of the estate’s income_tax liabilities at the time these disbursements and distributions were made ’ in date petitioner in his capacity as personal representative of the estate received forms w-2 and forms for decedent which indicated that decedent had income in in date petitioner also received forms indicating both petitioner and mr lahr were credible when they testified to their ignorance of the tax_liabilities in question indeed respondent had no objection to petitioner’s requested findings_of_fact which stated mr lahr was unaware of and ignorant of the debts due the government at the time distributions were made to beneficiaries petitioner was unaware of and ignorant of the debts due the government at the time distributions were made to beneficiaries income of the estate in petitioner timely forwarded these forms to mr lahr who repeatedly advised petitioner that because of the size of the estate no taxes were due in date respondent’s kansas city service_center mailed a letter addressed to decedent proposing an income_tax_liability for in date the kansas city service_center sent a notice_of_deficiency for that was addressed to decedent a form letter proposing an income_tax_liability for was mailed addressed to decedent on date on date a notice_of_deficiency for was mailed addressed to in petitioner's capacity as personal representative of the estate he received the following forms w-2 and forms for taxable years and documents forms received date payor amount form_w-2 federal reserve bank dollar_figure form w-2p boatman's nat bank big_number form 1099-g missouri dept of revenue form 1099-int boatman's nat bank form 1099-int united missouri bank form 1099-r thrift_plan for employees big_number form 1099-r boatman's bank big_number form 1099-r boatman's bank big_number form 1099-r boatman's bank big_number form 1099-r boatman's bank big_number form 1099-r boatman's bank big_number documents forms received date payor amount form 1099-r thrift_plan for employees big_number form 1099-r retirement_plan federal big_number form 1099-int united missouri bank big_number form 1099-int united missouri bank big_number form 1099-int united missouri bank big_number form 1099-int united missouri bank big_number form 1099-int united missouri bank big_number form 1099-int united missouri bank big_number decedent these letters and notices were sent to petitioner’s address and petitioner received them when petitioner received these items he gave them to mr lahr who continued to advise petitioner that the estate was not liable for any federal taxes prior to closing the estate in approximately date mr lahr engaged the services of norman dilg a certified_public_accountant to review the administration of the estate upon review of the estate records mr dilg discovered that certain income_tax returns had not been prepared and filed for decedent and the estate mr dilg reconstructed the available financial information and prepared and filed income_tax returns in date for decedent for the year and for the estate for the years and each of these returns reflected an unpaid balance due no payments accompanied the returns mr lahr and petitioner became aware of the estate’s unpaid income_tax liabilities for and when mr dilg informed them sometime after date and before the returns were filed in date the only disbursements made after the returns filed for the estate showed the following unpaid taxes dollar_figure big_number the return for decedent showed an unpaid tax of dollar_figure petitioner became aware of the estate’s income_tax liabilities were to pay debts that had priority over those due to the united_states in date petitioner submitted a form_656 offer_in_compromise to respondent the offer concerned both decedent’s and the estate’s income_tax liabilities and was accompanied by a check drawn on the estate's checking account in the amount of dollar_figure which was the amount petitioner proposed to compromise the liabilities for decedent’s income_tax_liability and the estate’s income_tax liabilities for and the form_656 contained the following statement this offer_in_compromise of dollar_figure represents the remaining value of the estate there are no future sources of funds available respondent did not accept the offer_in_compromise several months later respondent returned the offer_in_compromise and the uncashed check without any explanation after petitioner informed mr lahr and mr dilg of the returned offer and the uncashed check they had a series of meetings and conversations with representatives of respondent including a meeting with supervisory personnel of respondent as a result of these conversations and meetings mr lahr and mr dilg believed they had negotiated a final resolution with respondent mr dilg and mr lahr informed petitioner that the matter had been resolved with respondent resulting in the case being closed petitioner was then advised by mr lahr that there was no tax_liability to be paid_by the estate and that it was appropriate to pay out the remaining funds in the estate and to close the probate case after receiving mr dilg's and mr lahr's advice petitioner used the remaining assets of the estate to pay priority claims against the estate and the estate was closed in date a statement of account and proposed final distribution signed by petitioner and mr lahr was filed in the probate_court of the circuit_court state of missouri which showed that all assets of the estate had been distributed and stated all claims expenses of administration and taxes have been paid in full on date respondent determined that petitioner was liable for income taxes and additions to tax due from the estate and mailed a notice of liability to petitioner opinion respondent argues that under u s c section b petitioner is personally liable for the estate’s unpaid income_tax liabilities title u s c section provides section priority of government claims a a claim of the united_states government shall be paid first when- b the estate of a deceased debtor in the custody of the executor or administrator is not enough to pay all debts of the debtor b a representative of a person or an estate paying any part of a debt of the person or estate before paying a claim of the government is liable to the extent of the payment for unpaid claims of the government this section appears to impose strict_liability ona fiduciary who makes a disbursement which leaves the estate with insufficient funds with which to pay a debt owed to the united_states however courts have long departed from such a rigid interpretation i t has long been held that a fiduciary is liable only if it had notice of the claim of the united_states before making the distribution 280_f2d_777 2d cir see also 72_tc_1105 whether the fiduciary had notice is determined by whether the executor knew or was chargeable with knowledge of the debt the knowledge requirement of u s c sec_192 now u s c sec may be satisfied by either actual knowledge of the liability or notice of such facts as would put a reasonably prudent person on inquiry as to the existence of the unpaid claim of the united_states leigh v commissioner supra pincite citing 36_bta_146 40_f2d_673 b d mo to be chargeable with knowledge of such a debt the executor must be in possession of such facts as to put him on inguiry 48_tc_671 it is this knowing disregard of the debts due to the united_states that imposes liability on the fiduciary leigh v commissioner supra pincite0 citing 313_f2d_946 9th cir it is clear that petitioner had no actual knowledge of the estate’s income_tax liabilities at the time that he made disbursements and distributions from the estate however respondent argues that petitioner's receipt of forms w-2 and and subsequent notices would have put a reasonably prudent person in petitioner's position on inquiry as to the existence of the debts due to the united_states for unpaid income taxes we agree that the receipt of the tax information forms in date and was sufficient to put petitioner on inquiry however petitioner having been put on inquiry acted in a prudent and reasonable manner consistent with his fiduciary duties petitioner forwarded the forms to the estate’s attorney mr lahr and sought his advice mr lahr informed petitioner that because of the estate's size the estate had no income_tax liabilities mr lahr's legal advice was wrong petitioner continued to receive the same advice from mr lahr after giving him other notices from respondent that indicated there might be unpaid income taxes for which the estate might be liable it was not until the summer of when mr dilg was brought in and prepared and filed delinquent returns that the tax_liabilities in issue were discovered by mr lahr but almost all the estate’s assets had already been distributed by then as a result on date petitioner submitted an offer_in_compromise and sent a check for dollar_figure the balance of the estate’s assets to respondent the offer was not accepted and several months later respondent returned the check to petitioner without explanation petitioner immediately informed mr lahr thereafter mr lahr and mr dilg met with representatives of respondent and erroneously concluded that respondent would drop the tax claims against the estate they informed petitioner of this and mr lahr advised petitioner to make the final disbursements and to close the estate relying on the advice of the estate’s attorney and the certified_public_accountant petitioner closed the estate a fiduciary who knows of a debt due to the united_states cannot delegate his responsibility to pay such a debt the act of payment requires no legal expertise if a fiduciary delegates to an attorney responsibility to make payment he assumes the responsibility for the attorney’s actions under such circumstances failure to pay a debt due to the united_states gives rise to personal liability under u s c section b see leigh v commissioner supra pincite3 the question presented here is different the question is whether petitioner had the requisite knowledge at the time that he was disbursing funds to have knowingly disregarded debts due to the united_states it is this knowing disregard of the debts due to the united_states that gives rise to liability under u s c section b see leigh v commissioner supra pincite0 no cases involving u s c section b have been brought to our attention where the fiduciary was put on notice of possible debts due to the united_states made reasonable inquiry of legal counsel and then relied in good_faith on erroneous legal advice that there were no such debts respondent relies on new v commissioner supra pincite where we stated if a fiduciary is put on inguiry the fact that he inguires wrongly or haphazardly is not enough and is no defense to absolve petitioner because his inquiry turned out to be inadequate would be to reward the careless fiduciary and to put a premium on rapid cursory investigations once a fiduciary is put on notice sufficient to put a reasonably prudent person on inguiry he thereafter pursues a unilateral inquiry at his peril any other conclusion would make the fiduciary the final arbiter of what the estate owed in tax a result entirely nullifying all effect of u s c sec_192 the situation described in the above quotation is clearly different from the situation in the instant case the actual facts in new are also distinguishable in that the fiduciary in that case was himself an attorney with experience in the administration of estates and his unilateral inquiries regarding tax_liabilities were found to be severely flawed here petitioner had no prior experience with the administration of estates when he was put on notice of potential income_tax liabilities of the estate had he determined on his own that there were no tax_liabilities or simply ignored this notice and made no further inquiry he would probably be chargeable with notice of the tax_liabilities however petitioner did not ignore the information about potential tax_liabilities petitioner recognized that he did not have the knowledge or experience to determine whether the estate owed tax he therefore gave the information to the estate’s licensed attorney who had been retained to advise petitioner in the administration of the estate and asked for advice petitioner’s inguiry was neither haphazard nor careless rather it was the prudent and reasonable thing to do unfortunately the attorney came up with the wrong advice when he repeatedly told petitioner that there was no tax_liability but what more should petitioner have done as the supreme court observed in 469_us_241 when an accountant or attorney advises a taxpayer ona matter of tax law such as whether a liability exists it is reasonable for the taxpayer to rely on that advice most taxpayers are not competent to discern error in the substantive advice of an accountant or attorney to require the taxpayer to challenge the attorney to seek a second opinion or to try to monitor counsel on the provisions of the code himself would nullify the very purpose of seeking the advice of a presumed expert in the first place see haywood lumber f 2d supra pincite ordinary business care and prudence do not demand such actions regardless of the culpability of the estate’s attorney in failing to ascertain the estate’s income_tax liabilities the -- - facts before us support a conclusion that petitioner fulfilled his duty_of inquiry and was reasonable and acted in good_faith in following the attorney’s advice that no tax was due from the estate in the unique circumstances of this case we find that petitioner lacked knowledge of the estate’s income_tax liabilities at the time he made payments from the estate’s assets and did not knowingly disregard debts due to the united_states we therefore hold that petitioner is not liable under u s c section b for the unpaid tax_liabilities in question decision will be entered for petitioner


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 --------------------- refer reply to cc psi plr-122168-09 date date legend x --------------------------------------------------- ------------------------------------- d1 d2 country ------------------ ---------------- ---------------------- dear -------------- this is in response to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed on d1 under the laws of country x intended to be treated as a disregarded_entity for federal tax purposes effective d2 however x inadvertently failed to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes effective d2 plr-122168-09 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 and iii provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed sec_301_7701-3 provides that an election under sec_301_7701-3 must be signed by - a each member of the electing entity who is an owner at the time the election is filed or b any officer manager or member of the electing entity who is authorized under local law or the entity’s organizational documents to make the election and who represents to having such authorization under penalties of perjury sec_301_7701-3 provides that if a purchasing_corporation makes an election under sec_338 regarding an acquired subsidiary an election under sec_301 c i for the acquired subsidiary can be effective no earlier than the day after the acquisition_date within the meaning of sec_338 under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i section b defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 plr-122168-09 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a properly executed form_8832 effective d2 with the appropriate service_center to elect to be classified as a disregarded_entity a copy of this letter should be attached to the form_8832 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely curt g wilson curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index numbers ------------------------------------------------------- -------------------------------- ------------ ------------------------------------------------------------ ----- - department of the treasury washington dc person to contact --------------------- id no ------------ telephone number --------------------- refer reply to cc psi b03 plr-114001-08 date date legend taxpayer ----------------------- ------------------------------------------------------------- de1 ----------------------------------------------------------- ----------------------------------- de2 ----------------------------------------------------------- -------------------------------------- de3 ------------------------------------------------------------ ----------------------------------------------------------- --------------------------------------------- a ----------------------------------------------------------- -------------------------------------------- b ----------------------------------------------------------- ------------------------------ c ----------------------------------------------------------- -------------------------------------------------------- d ----------------------------------------------------------- --------------------------------- country x a ---------------------- -------------------------- plr-114001-08 dear --------------- we received a letter dated date submitted on behalf of taxpayer and c requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election for c to be classified as disregarded_entity for federal tax purposes this letter responds to that request facts the information submitted discloses that on a taxpayer indirectly acquired de3 a country x public limited_company through taxpayer’s newly formed tiered disregarded entities de1 and de2 de3 was immediately re-registered as a country x private company and elected to be classified as a disregarded_entity for u s federal tax purposes de3 was and continues to be the sole owner of a b c and d de3 subsidiaries the de3 subsidiaries are limited companies formed under the laws of country x which for u s federal tax purposes are classified by default as associations taxed as corporations taxpayer intended that elections be made for the de3 subsidiaries to be disregarded entities effective a however each of the de3 subsidiaries inadvertently failed to timely file form_8832 entity classification election law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in plr-114001-08 sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register 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_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the granting of relief will not prejudice the interests of the government conclusions based on the facts and representations submitted taxpayer has established that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied consequently c is granted an extension of time of days from the date of this letter for electing under sec_301_7701-3 to be treated as a disregarded_entity effective a c must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election plr-114001-08 this ruling is directed only to the taxpayer requesting it according to sec_6110 this ruling may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to taxpayer’s authorized representative sincerely s william p o’shea associate chief_counsel passthroughs special industries enclosures copies of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c contact person identification_number telephone number employer_identification_number tax_exempt_and_government_entities_division release date date date uniform issue list dollar_figure dollar_figure dollar_figure legend c o i i a d i m x i i i z z i o i v i d i m i w o i - r dear we have considered your ruling_request dated date in which you requested certain rulings related to a proposed transaction in the manner and for the purposes described below statement of facts x was established in aa and is exempt from federal_income_tax under sec_501 of the internal_revenue_code and is a private_foundation within the meaning of sec_509 of the code following the deaths of a and his wife the trustees of x were c an employee of a and d a relative of a on cc c and d signed an m to move the situs of the x for administration and for all other purposes from the state of j to the state of k on dd y was incorporated by c and d as a k nonprofit corporation on ee the y received a determination_letter from the internal_revenue_service that it is exempt from federal income taxes under sec_501 of the code and is a private_foundation within the meaning of sec_509 on ff c as managing trustee of x and as a director of the y and d as a director of y executed an n which authorized the x to transfer all of its assets to y prior to the transfer x obtained a ruling from the internal_revenue_service that the transfer met the requirements of b of the code on qq the y accepted receipt of all of the assets of the x as c and d resigned from their roles as trustees the j court appointed e as trustee of the x in order to protect the trust property for the benefit and interest of the beneficiaries the j court instructed e to undertake to secure recognition by the service of the x’s status as an organization described in sec_501 the internal_revenue_service confirmed that the x z2uu8u8042 is an organization exempt from federal_income_tax pursuant to sec_501 and is a private_foundation pursuant to sec_509 subsequent litigation involving x and y and conflicting judicial orders kept the assets intact awaiting an ultimate decision by the courts or the parties as to the proper persons to own and control the use of the assets the parties to the litigation including the attorneys general of j and k have entered into a settlement agreement and the j and k courts have approved the settlement agreement as a result of the judicially-approved settlement agreement the assets will be allocated between x and y assets valued at a the settlement allocation will be under the control of x the balance of the assets will be under the control of y judicial approval was granted for a partial allocation of b to x subject_to return if the rulings requested are not granted the remaining allocation of to the x will take place upon the issuance by the internal_revenue_service of favorable rulings requested by x and y x and y have represented that the distribution will not consist of ownership interests in any s they have further represented that there is nodimitation or material restrictions on the use of the distributions by x except for certain charitable pledges within the purposes of x which have been assumed by x as part of the settlement agreement 2uu8usu rulings requested you have requested the following rulings the distribution of a from to x will not jeopardize the tax-exempt status of either the x or y under sec_501 of the internal_revenue_code the distribution of a is not a transfer of assets within the meaning of sec_507 of the code and the distribution of a from y to x will not result in the imposition of excise_taxes under sec_4941 sec_4942 sec_4943 sec_4944 or sec_4945 of the code law sec_501 of the internal_revenue_code provides in part for the exemption from federal_income_tax for organizations organized and operated exclusively for religious charitable scientific and educational_purposes sec_1_501_c_3_-1 of the income_tax regulations provides that an organization will be operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more exempt purposes specified in sec_501 c revrul_67_149 1967_1_cb_133 provides that an organization that makes distributions to organizations described in sec_501 c of the code is furthering exclusively exempt purposes within the meaning of sec_501 sec_509 of the code provides that the term private_foundation includes organizations described in sec_501 other than organizations described in sec_509 or sec_507 of the code provides that the status of any organization as a private_foundation shall be terminated only if it notifies the secretary of its intent to accomplish a termination or there have been either willful repeated acts or failures to act or a willful flagrant act or failure to act giving rise to chapter liability for tax and the secretary notifies such organization that it is liable for the tax imposed by subsection c and either such organization pays the tax or pays any portion not abated under subsection g sec_507 of the code provides that in the case of a transfer of assets of any private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee foundation shall not be treated as a newly created organization sec_1_507-1 of the foundation and similar excise_taxes regulations provides that if a private_foundation transfers all or part of its assets to one or more other private_foundations pursuant to a transfer described in sec_507 of the code such transferor foundation will not have terminated its private_foundation_status under sec_507 sec_4941 sec_4942 sec_4943 sec_4944 and sec_4945 of the code apply excise_taxes to certain transactions involving private_foundations including taxes on self-dealing failure to distribute income excess_business_holdings jeopardizing investments and taxable_expenditures rationale since the distribution of assets from y a sec_501 organization to x as provided by revrul_67_149 supra a distribution from one charitable_organization to another is an activity that furthers exempt purposes within the meaning of sec_501 of the code another sec_501 organization is without restriction that could limit the ability of x to accomplish its purposes and is undertaken as part of a judicially-approved settlement for which the attorneys general of both states are in agreement the distribution from y to x is consistent with the charitable purposes for which these organizations were formed and will not adversely affect their tax-exempt status the judicially-approved settlement for which the attorneys general of both states are in agreement provides effectively that in exchange for x and y ceding certain of their interest in the assets currently held by y there will be a distribution of a to x this distribution from y to x is more in the nature of a restoration of funds to x rather than a transfer of funds from one private_foundation to another foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization for purposes of sec_507 of the code having concluded that the distribution will not adversely affect the tax-exempt status of x or y and that it does not constitute a transfer of assets under sec_507 we can find no basis to apply the excise_tax provisions under sec_4941 sec_4942 sec_4943 sec_4944 or sec_4945 to the distribution undertaken pursuant to the judicially-approved settlement holdings accordingly based on the information submitted we rule that the distribution of a from y to x pursuant to the settlement agreement is consistent with the charitable purposes for which these organizations were formed and it will not adversely affect the tax-exempt status of x or y the distributions are not a transfer of assets for which transferee_liability applies under sec_507 of the code the distribution of a from y to x will not result in the imposition of excise_taxes under sec_4941 sec_4942 sec_4943 sec_4944 or sec_4945 of the code we express no opinion as to whether any other transactions or activities would jeopardize your tax-exempt status or result in the imposition of excise_taxes applicable to private_foundations this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely theodore r lieber acting manager exempt_organizations technical group enclosure notice


t c summary opinion united_states tax_court nasser and scottiann zamani petitioners v commissioner of internal revenue respondent docket no 12899-05s filed date nasser and scottiann zamani pro sese wesley f mcnamara for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a dollar_figure deficiency in petitioners’ federal_income_tax the issue for decision is whether petitioners are entitled to a deduction for dependency_exemptions for petitioner husband’s son and daughter from a prior marriage background some of the facts have been stipulated and are so found the stipulation of facts with attached exhibits and additional exhibits admitted at trial are incorporated herein by this reference at the time the petition was filed petitioners resided in west linn oregon unless otherwise indicated all references to petitioner are to nasser zamani petitioner was formerly married to alice woodworth ms woodworth petitioner and ms woodworth have three children cyrus zamani born in nathan zamani born in and lila zamani born in petitioner and ms woodworth were divorced on date pursuant to a divorce decree issued by an oregon state court the divorce decree provides in relevant part issues relating to children a custody the parties shall have joint physical custody of the minor children the children are to reside primarily at the mother’s address for medical and educational_purposes c parenting schedule school year mr zamani will have parenting responsibilities with the minor children of the parties during the school year from friday following supper pincite p m through sunday pincite a m following breakfast on one weekend to be followed the next consecutive weekend by a schedule of saturday before lunch at noon through sunday following supper pincite p m additionally mr zamani will parent the children wednesday evenings to begin pincite p m until p m summer the weekend schedule will remain the same as stated for the school year the weekday schedule will change mr zamani will parent the children two days per week which includes overnight time for those days the days will be either monday and wednesday or tuesday and thursday from p m until a m the next morning with respect to holidays and other special occasions the divorce decree generally provides that petitioner and ms woodworth will share or alternate parenting responsibilities it also provides that mr zamani shall be granted the tax exemptions for the three children for and continuing thereafter for so long as he is current with child_support petitioner was current with child_support from the time of the divorce through in addition to their regularly scheduled visits nathan and lila often spent additional time with petitioner for example nathan lived with petitioners for consecutive months toward the end of lila also occasionally lived with petitioners for weeks at a time petitioner did not introduce records of the time nathan and lila spent with him on their joint federal_income_tax return petitioners claimed a deduction for dependency_exemptions for nathan and lila petitioners did not attach to their return a form_8332 release of claim to exemption for child of divorced or separated parents executed by ms woodworth petitioner had asked ms woodworth to sign a form_8332 but she refused to do so respondent issued petitioners a notice_of_deficiency in date disallowing the claimed deduction for dependency_exemptions discussion in general the commissioner’s determinations set forth in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of showing that the determinations are in error rule a 290_us_111 pursuant to sec_7491 the burden_of_proof as to factual matters shifts to respondent under certain circumstances petitioners have neither alleged that sec_7491 applies nor established their compliance with the requirements of sec_7491 and b to substantiate items maintain records and cooperate petitioners did not claim a deduction with respect to cyrus and his status as a dependent is not in issue fully with respondent’s reasonable requests petitioners therefore bear the burden_of_proof a taxpayer may be entitled to claim as a deduction an exemption_amount for each of his or her dependents sec_151 an individual must meet the following five tests in order to qualify as a dependent of the taxpayer support_test relationship or household test citizenship or residency test gross_income_test and joint_return_test sec_151 and sec_152 brissett v commissioner tcmemo_2003_310 if the individual fails any of these tests he or she does not qualify as a dependent with respect to the support_test a taxpayer generally must provide more than half of a claimed dependent’s support for the calendar_year in which the taxable_year of the taxpayer begins sec_152 in the case of a child of divorced parents if the child is in the custody of one or both of his parents for more than half of the calendar_year and receives more than half his support during that year from his parents such child shall be treated for purposes of sec_152 as receiving over half of his support during the calendar_year from the parent having custody for a greater portion of the calendar_year the custodial_parent sec_152 the word custody as used in sec_152 is defined in sec_1_152-4 income_tax regs which provides custody for purposes of this section will be determined by the terms of the most recent decree of divorce or separate_maintenance or subsequent custody decree or if none a written_separation_agreement in the event of so-called split custody or if neither a decree or agreement establishes who has custody custody will be deemed to be with the parent who as between both parents has the physical custody of the child for the greater portion of the calendar_year sec_1_152-4 income_tax regs a custodial_parent may release claim to the exemption pursuant to the provisions of sec_152 which provides sec_152 support_test in case of child of divorced parents etc -- exception where custodial_parent releases claim to exemption for the year --a child shall be treated as having received over half of his support during a calendar_year from the noncustodial_parent if- a the custodial_parent signs a written declaration in such manner and form as the secretary may by regulations prescribe that such custodial_parent will not claim such child as a dependent for any taxable_year beginning in such calendar_year and b the noncustodial_parent attaches such written declaration to the noncustodial parent’s return for the taxable_year beginning during such calendar_year for purposes of this subsection the term noncustodial_parent means the parent who is not the custodial_parent the temporary regulations promulgated with respect to sec_152 provide that a noncustodial_parent may claim the exemption for a dependent_child only if the noncustodial_parent attaches to his her income_tax return for the year of the exemption a written declaration from the custodial_parent stating that he she will not claim the child as a dependent for the taxable_year beginning in such calendar_year sec_1_152-4t a q a-3 temporary income_tax regs fed reg date see also 114_tc_184 affd on another ground sub nom 293_f3d_1208 10th cir the declaration required under sec_152 must be made either on a completed form_8332 or on a statement conforming to the substance of form_8332 miller v commissioner supra pincite brissett v commissioner supra form_8332 requires a taxpayer to furnish the names of the children for which exemption claims were released the years for which the claims were released the signature of the custodial_parent confirming his or her consent the social_security_number of the custodial_parent the date of the custodial parent’s signature and the name and the social_security_number of the parent claiming the exemption miller v commissioner supra pincite temporary regulations are entitled to the same weight as final regulations see peterson marital trust v commission102_tc_790 affd 78_f3d_795 2d cir 98_tc_141 petitioner was not the custodial_parent in petitioner and ms woodworth share custody of nathan and lila however the divorce decree indicates that ms woodworth has custody for the greater portion of the calendar_year accordingly ms woodworth was the custodial_parent for purposes of sec_152 see sec_1_152-4 income_tax regs petitioner credibly testified that nathan and lila often spent time in his home in addition to the visits specified in the divorce decree petitioner estimated that each child lived with him and his wife for approximately to months in with the remainder of the time spent at ms woodworth’s residence petitioner conceded however that his estimates were very approximate because he did not have a clear record of how many days or which days the children spent with him assuming arguendo that the divorce decree does not establish ms woodworth as the custodial_parent petitioner has not demonstrated that he was the custodial_parent in petitioner introduced no records to support his estimates and acknowledged he could not remember exactly how much time his children spent with him in even if we accepted the accuracy of petitioner’s estimates the time nathan and lila spent with him would not constitute a greater portion of the calendar_year sec_152 flush language we therefore conclude that ms woodworth was the custodial_parent and petitioner was the noncustodial_parent in petitioners did not attach a form_8332 or other declaration to their tax_return because petitioner was the noncustodial_parent for purposes of sec_152 petitioners are not entitled to the claimed dependency_exemptions unless they complied with the provisions of sec_152 and the regulations thereunder by attaching to their return a written declaration or form_8332 executed by ms woodworth petitioners did not attach such a declaration or form_8332 to their return and as a result they are not entitled to the deduction for dependency_exemptions for nathan and lila in petitioner nevertheless argues that he is current in his child_support obligation and that under the terms of the divorce decree he is entitled to the deduction for dependency_exemptions petitioner testified that ms woodworth has consistently refused to execute the form_8332 as well as other documents he has given her petitioner considered seeking a court order to compel ms woodworth to execute the form_8332 but based on his past experience in seeking a similar order he believed it would cost approximately dollar_figure in attorney’s fees to do so because this amount exceeds the dollar_figure in issue petitioner believes he is caught in the middle between ms woodworth’s alleged intransigence and the tax laws’ apparent inability to give effect to his divorce decree as we have said in cases involving similar facts we are not unsympathetic to petitioner’s position see brissett v commissioner tcmemo_2003_310 neal v commissioner tcmemo_1999_97 however we are bound by the language of the statute as it is written and the accompanying regulations when consistent therewith 87_tc_1412 the internal_revenue_code is clear as to the precise requirements for a noncustodial_parent to become entitled to a dependency_exemption see neal v commissioner supra because petitioner does not meet those requirements respondent is sustained on this issue reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury index number washington dc cc tf47 l213 y person to contact telephone number refer reply to plr-103369-99 date apr ust fa merger-sub state a year b business c i corp business d corp l u year e country f i corp date g l u plr-103369-99 j syy date h date this is in reply to your letter dated date requesting rulings under sec_1_367_a_-3 and whether based on your representations the exchange of shares by u s persons will qualify for an exception to the general_rule of sec_367 of the internal_revenue_code_of_1986 as amended the code additional information was provided in letters dated date date date and date 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 the rulings it is subject_to verification on examination ust is a domestic_corporation incorporated under the laws of state a ust is the common parent_corporation of an affiliated_group of companies which files a consolidated federal_income_tax return ust was created in year b in a spin-off of business c from corp one of the regional business d companies created upon the breakup of corp in year e ust is engaged in business c with significant interests in the united_states europe and asia ust typically expands its worldwide operations through the acquisition and formation of international joint ventures with board representation and the placement of employees in key management positions ust has issued and outstanding shares of common_stock as well as four classes of preferred shares classes b c d and e the class b preferred_stock is voting_stock the remaining classes of preferred shares are not presently voting_stock but will be voting_stock at the time of the merger ust common shares class b preferred_stock and class c preferred_stock are publicly traded on u s stock exchanges the class b preferred_stock will be converted into ust common shares immediately before the merger option of the holder into ust common shares before the merger the class c preferred_stock is convertible at the ofl plr-103369-99 ust has issued options to its officers and employees as part of its incentive compensation plans any options to acquire ust common shares will vest at the time of the merger ust has the right prior to the merger but subject_to certain restrictions to issue to its officers and employees options to acquire ust common shares fa is a country f corporation and serves as the parent company to a number of subsidiaries operating world-wide fa was formed in year e as a subsidiary of corp by date g fa was fully de-merged from corp and its stock was publicly traded fa is engaged in business c with its principal operations located in country f fa has a number of majority owned and wholly-owned subsidiaries in foreign countries fa also has minority interests in several international joint ventures which operate in foreign countries where fa usually has board representation and significant operating influence fa like ust typically expands its world-wide_operations through the acquisition and formation of such international joint ventures fa has issued and outstanding ordinary shares and options to purchase ordinary shares fa has no other classes of shares issued or outstanding fa's ordinary shares are listed on a foreign stock exchange and depositary shares each of which is equivalent to ten ordinary shares are listed on a u s stock exchange the merger will occur as follows merger sub a newly-organized state a corporation wholly-owned by fa will merge into ust ust will be the surviving corporation and the separate existence of merger sub will cease the holders of ust common shares will receive in exchange for their ust common shares dollar_figureyy cash and five ordinary shares of fa the taxpayers represent that the merger will qualify as a reorganization under sec_368 of the code by virtue of sec_368 of the code after the merger all of the ust common shares will be owned by fa the class c preferred shares not converted into ust common shares before the merger class d preferred_stock and class e preferred_stock will remain outstanding voting_stock of ust the exchange of ust common_stock for fa ordinary shares by u s persons is subject_to sec_367 of the code which provides that the transfer of appreciated_property including stock by a u_s_person to a foreign_corporation in a transaction that would otherwise qualify as a nonrecognition exchange is treated as a taxable transfer unless an exception applies in the case of a sec_367 transaction in which a u_s_person transfers domestic stock to a foreign_corporation the u s transferor will qualify for nonrecognition treatment if the requirements of sec_1_367_a_-3 are satisfied of ll plr-103369-99 among the sec_1_367_a_-3 requirements is the requirement that the u s target company satisfy the reporting requirements of sec_1 a - c and the requirement that each u s transferor who is a 5-percent_shareholder of the transferee foreign_corporation immediately_after_the_exchange enter into a 5-year gain_recognition_agreement as provided in sec_1_367_a_-8 the taxpayers represent that ust as the u s target company will satisfy the reporting requirements of sec_1 a - c the remaining sec_1_367_a_-3 requirements are as follows a u s persons transferring u s target stock must receive in the aggregate percent or less of both the total voting power and total value of the stock in the transferee foreign_corporation taking into account the attribution_rules of sec_318 of the code as modified by the rules of sec_958 of the code the taxpayers represent that u s transferors of ust stock will receive in the aggregate actually or constructively percent or less of both the total voting power and total value of the stock in fa in the ust exchange u s persons who are officers or directors of the u s target_corporation or b who are 5-percent shareholders of the u s target_corporation must own in the aggregate percent or less of each of the total voting power and the total value of the stock of the transferee foreign_corporation immediately_after_the_exchange of the u s target stock taking into account the attribution_rules of sec_318 as modified by the rules of sec_958 the taxpayers represent that u s persons who are officers directors or 5-percent target shareholders of ust wiil own in the aggregate actually or constructively percent or less of each of the total voting power and total value of the stock of fa immediately after the ust exchange c the active trade_or_business test of sec_1_367_a_-3 must be satisfied the three elements of the active trade_or_business test are described below i the transferee foreign_corporation or any qualified_subsidiary or qualified_partnership as defined under sec_1_367_a_-3 and viii must have been engaged in the active_conduct_of_a_trade_or_business outside the united_states within the meaning of sec_1_367_a_-2t b and for the entire 36-month period immediately preceding the exchange of u s target stock the taxpayers represent that fa or its qualified subsidiaries will have been engaged in an active trade_or_business outside the united_states for the entire 36-month period preceding the ust exchange of plr-103369-99 ii at the time of the exchange neither the transferors nor the transferee foreign_corporation or any qualified_subsidiary or qualified_partnership engaged in the active trade_or_business will have the intention to substantially dispose_of or discontinue such trade_or_business the taxpayers represent that neither the shareholders of ust nor fa including its qualified subsidiaries have an intention to substantially dispose_of or discontinue such active trade_or_business iii the substantiality test as defined in sec_1_367_a_-3 must be satisfied under the substantiality test the transferee foreign_corporation must be equal or greater in value than the u s target_corporation at the time of the u s target stock exchange see sec_1_367_a_-3 the taxpayers represent that the market capitalization of fa during the six months before date h the date the merger agreement was signed and the last day of trading before the announcement of the merger agreement was greater than the market capitalization of ust for every day during the six month period except for three days however because fa agreed to pay ust shareholders a significant premium to acquire the ust common shares due in part to a competing bid for ust stock the market capitalization of ust at the time of the exchange the closing date of the merger will in all likelihood be greater than the market capitalization of fa the market capitalization of ust in fact was greater than the market capitalization of fa on date i shortly after date h as a result of the market valuing ust stock in accordance with the premium being paid for ust stock for purposes of the substantiality test the value of the transferee foreign_corporation will include assets acquired outside the ordinary course of business by the transferee foreign_corporation within the 36-month period preceding the exchange only if certain requirements are met see sec_1_367_a_-3 the taxpayers represent that for purposes of the substantiality test of sec_1_367_a_-3 the fair_market_value of fa including the value of stock of any qualified_subsidiary of fa and the value of an interest in any qualified_partnership will not include the fair_market_value of any asset acquired by fa a qualified_subsidiary or a qualified_partnership outside the ordinary course of business within the 36-month period preceding the merger for the principal purpose of satisfying the substantiality test of sec_1 a - c iil also for purposes of this fair_market_value representation the taxpayers represent that the fair_market_value of fa including the value of stock in any qualified_subsidiary or an interest in any qualified_partnership will include assets producing or held for the production of passive_income as defined in sec_1297 formerly sec_1296 b which assets were acquired outside the ordinary course of business within the 36-month period preceding the ust stock exchange only to the extent such plr-103369-99 assets were acquired in a transaction or series of related transactions which was not undertaken for a purpose of satisfying the substantiality test of sec_1 -367 a -3 c iii the taxpayers request a ruling under sec_1_367_a_-3 that there will be substantial compliance with the active trade_or_business test notwithstanding that fa may not be equal or greater in value than ust at the time of closing and notwithstanding that the substantiality test as described in sec_1_367_a_-3 may not be met due to the acquisition by fa or any qualified_subsidiary or qualified_partnership of fa of certain passive_assets not undertaken for a purpose of satisfying the substantiality test under sec_1_367_a_-3 the service may in limited circumstances issue a private_letter_ruling to permit the taxpayer to qualify for an exception to sec_367 if the taxpayer is unable to satisfy all of the requirements of the active trade_or_business test but is in substantial compliance with such test and meets all of the other requirements of sec_1_367_a_-3 based solely on the information submitted and on the representations set forth above it is held as follows the transfer of the ust shares by u s persons in exchange for shares of fa will qualify for an exception to sec_367 sec_1_367_a_-3 and sec_1_367_a_-3 any u_s_person transferring ust shares who is a 5-percent transferee shareholder as defined in sec_1_367_a_-3 will qualify for the exception to sec_367 only upon entering into a 5-year gain_recognition_agreement pursuant to sec_1_367_a_-8 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 in particular no opinion was requested and none is expressed as to whether the ust stock exchange qualifies as a reorganization within the meaning of sec_368 of the code by virtue of sec_368 of the code a copy of this letter must be attached to any income_tax return to which it is relevant this ruling is directed only to the taxpayer s requesting it sec_61 of the code provides that it may not be used or cited as precedent plr-103369-99 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely pho jom philip l tretiak assistant to the branch chief branch office of associate chief_counsel international cc lib