t c memo united_states tax_court d jean bartelma and dan f bartelma petitioners v commissioner of internal revenue respondent cynthia c bartelma and james richard bartelma petitioners v commissioner of internal revenue respondent docket nos filed date d jean bartelma and dan f bartelma pro sese cynthia c bartelma and james richard bartelma pro sese douglas s polsky for respondent memorandum findings_of_fact and opinion cohen judge the petitions in these consolidated cases were filed in response to notices of partial allowance--final determination granting in part and denying in part petitioners’ claims to abate interest on income_tax liabilities for pursuant to sec_6404 the issue for decision is whether the failure to abate the additional interest was an abuse_of_discretion unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioners resided in runnells iowa at the time that they filed their petitions in these cases dan f bartelma dan and james richard bartelma james were equal general partners in bartelma farm partnership the partnership they were also shareholders along with other family members in bartelma farms inc the partnership timely filed its form_1065 u s partnership return of income for petitioners timely filed their individual income_tax returns for on date petitioners were notified that the partnership’s form_1065 for was assigned for examination petitioners met with an agent of the internal_revenue_service irs matthew m mckenney mckenney on date and received the examination results in a letter dated date the examination resulted in adjustments to the partnership’s liabilities that flowed through to petitioners’ individual returns in date the irs sent to petitioners 30-day letters regarding the adjustments made with respect to the partnership’s liabilities petitioners through their representative marvin d berger berger filed protests to the irs determination on or about date and requested that the examination findings be appealed to the irs appeals_office appeals their cases were assigned to an appeals officer eugene h deboer deboer in date deboer sent letters dated date to berger informing him that petitioners’ cases had been referred to him for consideration after a conference with petitioners and after exchanging correspondence for a number of months deboer sent a letter dated date to berger requesting that petitioners sign a proposed agreement this letter stated that by law interest accrues from the due_date of the return in order to stop additional interest from accruing you may enclose full payment payable to the united_states treasury petitioners had also been advised during the examination and audit process that they could make an advance_payment of tax to stop the running of interest on date the irs sent statutory notices of deficiency notices to petitioners the notice sent to dan and d jean bartelma jean determined a deficiency of dollar_figure the notice sent to james and cynthia c bartelma cynthia determined a deficiency of dollar_figure these notices stated that if petitioners did not agree with the deficiency but wished to stop the running of interest they should make a cash bond and mail it to the appeals officer dan and jean filed their petition with the court on date and james and cynthia filed their petition with the court on date they did not make a cash bond to stop the running of interest those cases were consolidated and settled and decisions were entered on date the decisions resulted in deficiencies of dollar_figure against dan and jean and dollar_figure against james and cynthia additionally the decisions stated that interest will be assessed as provided by law on the deficiency due from the petitioners on date interest was assessed against petitioners on date mckenney who had been reassigned to petitioners’ cases sent to petitioners letters estimating the amount of tax petitioners would owe for additionally petitioners were made aware of the interest that was accruing on their deficiencies in a letter dated date berger requested that the irs grant petitioners a 63-percent abatement of interest on the deficiencies due to unreasonable irs delays there was no form_843 claim_for_refund and request for abatement attached to this letter in letters dated may and date mckenney stated that the requested interest abatement was unreasonable however he did include the forms and procedures necessary for petitioners to file a claim properly additionally mckenney recommended that petitioners pay at least the tax due and the amount of interest that you reasonably believe you owe in order to avoid additional interest charges petitioners filed form sec_843 on or about date requesting a 75-percent abatement of interest on date petitioners’ voluntary payments of the tax deficiencies were posted to their accounts these payments included the tax estimated as owed plus what petitioners asserted to be a reasonable amount of interest that being percent of the interest quoted in the date letters from mckenney petitioners had the ability to pay the entire amount due at the time that they made their voluntary payments however they believed that the amount of interest was unreasonable as of date mckenney was also working on petitioners’ and taxable years between date and date mckenney was unable to obtain audit information management system aims controls which allow agents to control their cases for petitioners’ accounts mckenney determined that the process of obtaining aims controls should have taken only days therefore on date the irs partially allowed petitioners’ claims for interest abatement for the period starting date and ending date the irs determined that dollar_figure of interest should be abated with respect to dan and jean and that dollar_figure of interest should be abated with respect to james and cynthia these amounts were posted to petitioners’ accounts on date the notices of partial allowance dated date stated that interest will continue to be charged on any unpaid liability petitioners objected to the irs determination and in letters dated date requested that their cases be sent to appeals their cases were assigned to diane paulson paulson on date paulson contacted petitioners by letters dated date to inform them that she was assigned to their cases and that due to her caseload she would be in touch with them within the next months on date the cases were transferred to another appeals officer al w haring haring after a telephone conversation with james haring transferred petitioners’ cases to appeals officer arthur c welp welp in des moines iowa on date by letters dated date welp told petitioners that he would contact them to schedule a conference in date welp informed petitioners that an interest specialist had discovered errors in the amounts shown as due in the letters dated date these errors had subsequently been corrected on dan and jean’s date tax bill and on james and cynthia’s date tax bill welp determined that petitioners should be granted an interest abatement for the period between date and date therefore dan and jean received extra days of interest abatement because they received their tax bill on date but were allowed interest abatement through date the interest abatement was reduced by the amount of abatement previously allowed for the period between august and date as a result dan and jean received an abatement of dollar_figure and james and cynthia received an abatement of dollar_figure these amounts were reflected in the notices of partial allowance--final determination sent to petitioners on date petitioners paid the disputed balances on date and filed petitions with the court on date the amounts in dispute are dollar_figure for dan and jean and dollar_figure for james and cynthia opinion under sec_6404 the commissioner may abate the assessment of interest on any deficiency if the interest is attributable to an error or delay by an officer_or_employee of the irs acting in his official capacity in performing a ministerial_act amendments to sec_6404 in do not apply to this case because they apply only to interest accruing with respect to deficiencies or payments for tax years beginning after date taxpayer bill of right sec_2 publaw_104_168 110_stat_1457 a ministerial_act is a procedural or mechanical act that does not involve the exercise of judgment or discretion and that occurs during the processing of a taxpayer’s case after all prerequisites to the act have taken place sec_301_6404-2t b temporary proced admin regs fed reg date the mere passage of time during a tax dispute does not establish error or delay in performing a ministerial_act 113_tc_145 the court may order abatement where the commissioner abuses his discretion by failing to abate interest sec_6404 in order to prevail a taxpayer must prove that the commissioner exercised this discretion arbitrarily capriciously or without sound basis in fact or law lee v commissioner supra pincite 112_tc_19 petitioners argue that there were a number of delays and errors throughout the protest and appeals process at trial of these cases however petitioners failed to identify any specific instances that would qualify under the statute as an error or delay by an officer_or_employee of the irs in performing a ministerial_act during the processing of their various protests appeals and tax_court cases only broad allegations regarding a lack of timeliness and accuracy were put forth petitioners made reference to lengthy periods during which they would hear nothing from the irs however with the exception of mckenney’s inability to get aims controls in for which an interest abatement had previously been allowed a review of the work history and correspondence shows that irs personnel were engaged in a managerial decision-making process during these times and that there was no ministerial delay sec_301_6404-2t b temporary proced admin regs supra acts that are either managerial or arise out of general administrative decisions are not ministerial see 389_f3d_601 6th cir deciding how and when to work on cases based on an evaluation of the entire caseload and workload priorities is not a ministerial_act see id petitioners also cite errors and miscalculations made in the amounts of liabilities owed for which were set forth in the date letter from mckenney and later corrected by welp again petitioners were granted an abatement of interest for this period there were no other specific instances of a ministerial error by respondent in addition to denying any ministerial errors or delays respondent argues that petitioners were made aware of the increasing interest on their liabilities in numerous letters and had the ability to pay their liabilities to stop the interest from accruing petitioners could have paid as early as the date of the original notices of deficiency in date or they could have paid upon settlement of the original tax_court cases in date when petitioners made voluntary payments in date they could have paid the entire amounts due and requested refunds in their abatement claims finally petitioners could have paid when they received their final tax bills in date and date respectively however petitioners did not pay the entire amounts due until date petitioners’ delayed payments of their liabilities are not attributable to error or delay by any officer_or_employee of the irs in performing a ministerial_act sec_6404 because petitioners presented neither authority nor evidence to support their claim that there were ministerial errors and delays above and beyond those that had already been identified and remedied there was no abuse_of_discretion in denying an additional abatement of interest in these cases to reflect the foregoing decisions will be entered for respondent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 1-plr-101793-03 date feb legend x d1 dear this responds to your letter dated date requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 the shareholders of x intended that x be treated as an s_corporation effective on d1 but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective d1 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 in relevant part 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_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months plr-101793-03 of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if 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 such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not timely file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the appropriate service_center except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact 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 sincerely s dianna k miosi dianna k miosi chief branch office of the 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 q government entities division uil no oct se t ‘ep la ty legend taxpayer a ccccccceeeee ere e reer seen eee ner ens een eee amount a ccccecc cece ceeeece eens ree eneeeee ene e nae eeenae ene amount b ccccecceeceete eee cece eee eaten eenc ene eeeeenne eee ens amount c ccccccceceec cece ete ee teers ree eeee sere retnneneenneeaees dear this is in response to a ruling_request dated date as supplemented by a letter dated date in which you requested a waiver of the 60-day rollover requirement contained in sec_402 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested to set up the ira of march company o letter dated date taxpayer a wdé informed by plan x’s administrator in a plan x’s rules provide that participants with a market that effective jenuan must take a complete histribution of their account balance value less than the letter further stated that since taxpayer a’s account balance is less than dollar_figure a complete distribution will be made taxpayer a completed a withdrawal distribution form for plan x and received her account balance from plan x in the form of a stock certificate amount a and a check for a partial share amount b for a total_distribution of amount c on january prior to the expiration of the 60-day rollover peridd allowed to rollover the distribution ent ira taxpayer a requested from plan x to an individual retirement arrange ra bank n referred taxpayer a to its bank n to deposit the certificate of stock into an on-site broker company o converted the certificate of stock into cash by depositing the certificate into account a for taxpayer a after commissions and fees acdount a’s balance was amount d again taxpayer a instructed company o to putithe assets of account a into an ira a statement from company o shows the purchase of fund a for amount d after receiving form 1099b taxpayer a contacted bank n and was informed that company o had improperly set up her ira account taxp ayer a represents that it was her belief that fund a was an ira but later discovered that fund a is merely an individual_account based on the above facts and representations you request that the internal_revenue_service waive the 60-day rollover requirement with respect to the distribution from plan x sec_402 of the internal_revenue_code provides in general that any amount distributed form a qualified_trust must be transferred to an eligible_retirement_plan no later than the day following the day 6f receipt in order to avoid inclusion in the distributee’s gross_income sec_402 of the code provides that the term eligible_retirement_plan means i an individual_retirement_account described in retirement annuity described in sec_408 ii a qualified_trust and iv an annuity eferred compensation plan described plan described in sec_403 v an eligible in sec_457 which is maintained by an eligible_employer described in sec_457 and vi an annuity_contract descrited in sec_403 an eligible_rollover_distribution is attributable to designated_roth_account as defined in section respect to such portion shall include only anothey ira sec_402 of the code provides that the secretary may waive the 60-day requirement under sec_402 where the failure to waive such requirement would be against equity or good conscience dollar_figureection a ii an individual lf any portion of payments or distributions from a 402a an eligible_retirement_plan with designated_roth_account and a roth revproc_2003_16 2003_4_irb_359 provides guidance on applying to the internal_revenue_service for a waiver of the 60-day rollover requirement contained in code sec_402 the procedure states that in determining whether to grant a waiver of the 60-day rollover requirement the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented by taxpayer a demonstrates that due to reliance on advice from financial institutions and company o's failure to establish an ira to receive taxpayer a's distribution from plan x as directed taxpayer a did not satisfy the requirement that amount c be deposited in an ira within days of the distribution from plan x the failure to deposit amount c into a rollover ira within the 60-day period was beyond the reasonable control of taxpayer a therefore pursuant to sec_402 of the code the service hereby waives the 60-day rollover requirement with respect to the portion of amount c that constitutes an eligible_rollover_distribution pursuant to sec_402 you are granted a period of days from the issuance of this ruling letter to contribute the portion of amount c that constitutes an eligible_rollover_distribution into one or more iras provided all other requirements of sec_402 except the 60-day requirement are met with respect to such contribution the amount of the contribution will be considered a rollover_contribution within the meaning of sec_402 no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or income_tax regulations thereunder which may be applicable this letter is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited as precedent if have any questions please contact sincerely signed eed uewua do vv eee lll be eeeeeeeeeeeeaees manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice


internal_revenue_service number release date index number ------------------------ ---------------------------------------------- ------------------------------------- ------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no -------------- telephone number ---------------------- refer reply to cc psi b6 plr-138076-13 date february legend taxpayer company a company b company c company d company e company f company g business a individual a individual b individual c individual d utility a utility b licensor state a state b state c state d state e plant a plant b date date date date date ---------------------------------------------- ---------------------- ------------------------------------------------- ------------------------------------------------ ---------------------------------------------------- --------------- 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------------------------------------------------------------------------------------------ --------------------------------------- ---------------------------- plr-138076-13 date date date date date date additive additive center test rep source region a dear ----------------- this is in response to your request for rulings submitted by your authorized representative concerning the federal_income_tax consequences of the transaction described below taxpayer represents the facts to be as follows background taxpayer a state a limited_liability_company is a calendar_year taxpayer and employs the accrual_method of accounting for both book and tax purposes the members of taxpayer are company a and company b each of which is a state a limited_liability_company the ultimate principal owners of company a are individual a individual b individual c and individual d those individuals have worked and invested together in various projects since at least date commencing in date the principals agreed to develop a new refined_coal business including that conducted by taxpayer company b is wholly owned by company c which is a state b corporation and wholly owned indirect subsidiary of company d a publicly traded state a corporation that is primarily engaged through its subsidiaries in business a company b is disregarded as a separate_entity from company c for u s federal tax purposes taxpayer was organized on date to construct a facility for the production of refined_coal that was placed_in_service at a mine site in state c on or about date and produced and sold refined_coal with the expectation that it would be burned to produce steam however due to unforeseen difficulties in identifying customers willing to enter into long-term_contracts to purchase refined_coal taxpayer did not continue producing refined_coal after date plr-138076-13 subsequently on date taxpayer entered into contracts with utility a to locate a refined_coal_production_facility on a site adjacent to plant a in state d and to sell refined_coal produced in that facility to utility a because its existing facility did not meet the functional requirements for producing refined_coal at this new location taxpayer arranged for the construction of two new refined_coal production facilities subsequently on date utility a terminated its agreements with taxpayer which then entered into discussions with other customers for refined_coal produced in its facilities on date taxpayer entered into contracts with utility b as described below to locate one of its facilities on a site adjacent to plant b in state e and to sell refined_coal produced in that facility to utility b taxpayer then commenced to relocate one of its facilities to the new location in state e in connection with the relocation of the facility to state e all essential components of the facility were relocated and retained taxpayer’s original facility was subsequently sold to company e and its other facility was sold to company f which is an affiliate of company e in anticipation of the transaction with company b described below taxpayer was reorganized in date pursuant to that reorganization the membership interests in taxpayer were recapitalized into class a and class b interests the class a interests were contributed to company a and the class b interests were contributed to company e each of company a and company e are classified as partnerships for u s federal tax purposes on date company b acquired all of the class b membership interests in taxpayer from company e in a transaction treated as a taxable sale_or_exchange of an interest in a partnership for u s federal_income_tax purposes simultaneously company a and company b entered into a limited_liability agreement with respect to taxpayer setting forth their agreement regarding the respective rights and obligations of the class a and class b interest in taxpayer the management and related decision- making of taxpayer and certain related matters pursuant to its agreements with utility b taxpayer purchases coal feedstock from utility b the coal supply agreement does not prohibit taxpayer from purchasing coal feedstock from third parties and does not prohibit taxpayer from purchasing more feedstock coal than utility b would expect to buy from taxpayer in the form of refined_coal the feedstock coal purchased by taxpayer typically is coal that utility b itself purchased from third party vendors consistent with its coal specifications taxpayer uses the process as described below to produce refined_coal that it sells to utility b pursuant to a refined_coal sales agreement all of the refined_coal produced in the facility is expected to be used as a fuel at plant b to produce steam for the generation of electricity however any refined_coal not purchased by utility b can be sold to one or more third parties plr-138076-13 taxpayer has no employees rather it entered into an operations and maintenance agreement with company g a state a limited_liability_company and affiliate of company a pursuant to that agreement company g will operate repair and maintain the facility in accordance with an agreed operating plan will make arrangements to coordinate delivery of spare parts and supplies will coordinate deliveries of coal feedstock purchases and sales of refined_coal and will perform certain administrative functions in support thereof in addition company g will arrange for testing of refined_coal as described below description of the process the process at issue for production of refined_coal currently employed at the facility involves the mixing of proprietary chemicals additives with feedstock coal prior to combustion the process the patent for the process is owned by licensor and is licensed to taxpayer licensor is entitled to certain per ton royalties based on production for_the_use_of its technology test results have shown that when mixed with coal the proprietary additives result in reduced nox so2 and mercury emissions during combustion different chemicals are targeted at specific pollutants based on the characteristics of the feedstock coal burned at plant b taxpayer has chosen a combination of additives that target the reduction of nox and mercury in the case of nox taxpayer understands that additive is believed to cause a portion of the nox to adhere to or react with the additive so that it can be captured and is not emitted in the case of mercury taxpayer understands that additive is believed to react with the elemental mercury in the feedstock coal so that it is converted into a chemical species of mercury mercury oxide that can be effectively captured by particulate control devices a by-product of the process is a valuable fly ash that can be used in a diverse array of applications in the steel mining and cement industries emissions reduction testing for purposes of determining emissions reductions under sec_45 taxpayer will arrange for pilot-scale combustion testing and laboratory analysis for redetermination purposes and will not rely on any continuous emissions monitoring system or other field testing taxpayer engaged the research center of a prominent university the center to conduct tests on behalf of taxpayer at its pilot-scale combustion test facility ctf to determine the emission reductions associated with burning the refined_coal compared to the feedstock coal center reports described below state the ctf has been extensively used to research and investigate sox and nox emissions and the transformation of toxic trace metals hg mercury as and pb during the combustion of coal and other fuels or waste materials the ctf is capable of producing gas and particulate samples that are representative of those produced in industrial- and full-scale pulverized coal pc -fired boilers plr-138076-13 the ctf is capable of producing gas and particulate samples that are representative of those produced in industrial and full-scale pulverized coal boilers and has several pollution control devices that may be used to reduce emissions including an electrostatic precipitator or fabric filter baghouse for particulate control a selective catalytic reduction column for nox control and a wet scrubber for control of sulfur emissions for purposes of qualifying the refined_coal produced at the facility center conducted pilot-scale combustion tests at its ctf on date on feedstock coal of the type typically burned at plant b test rep explains that combustion gas analysis is provided by continuous emissions monitors cems at two locations the furnace exit which is used to monitor and maintain a specified excess air level for all test periods and the outlet of the particulate control device which is used to assess any air inleakage that may have occurred so that emissions of interest sampled at the back end of the system can be corrected for the dilution caused by the inleakage flue gas analyses were obtained from the duct at the outlet of the baghouse flue gas mercury measurements were obtained separately by a continuous mercury monitor located at the flue gas ducting at the exit of the particulate control device center conducted a series of tests on the feedstock and refined_coal blend measuring the emissions with these devices test rep states that the test results indicate that the blend of coal and additives achieved the required reductions in both nox and total mercury emissions both determined on a lb btu basis to satisfy the requirements of at least nox reduction and at least mercury reduction test rep states that it is expected the emissions reduction reported would be achieved at full scale using the additive levels tested tested coal plant b currently burns lignite coal from a mine located in state e within source region a taxpayer produces refined_coal using this coal and sells that refined_coal to plant b which burns it to generate electricity from steam the rank of the coal burned at plant b is classified by the american society of testing materials astm as lignite with a gross calorific value of big_number to big_number btu lb taxpayer requested that center test a blend of coal that represents the coal to be used at plant b the tested coal the report issued by center states that the emission reduction requirements outlined in sec_45 for nox and mercury were satisfied when comparing the results of burning the endpoint fuel to the results of burning the feedstock coal taxpayer expects to continue to operate with the blend and additive levels discussed in the center reports which would be consistent with long-term patterns for coal consumed at plant b to that end samples will be taken for redetermination testing within six months after the last emissions test satisfying the qualified emission plr-138076-13 reduction requirement thereafter within six months after such date another set of samples will be taken for redetermination testing in each case samples will be collected and prepared in accordance with sampling and testing procedures set forth in taxpayer’s operating protocols although testing and preliminary reporting is done timely occasionally the center is not able to issue the final report until after the six- month period although taxpayer does not currently anticipate making changes to its coal feedstock or additive levels or using other coal sources or ranks additional testing will be conducted prior to acquiring coal feedstock from a different coal source region or of a different rank than reflected in the tested coal in the case of a change in the additive levels tests will also be run at the new minimum levels of additive as the qualified expert advises is necessary to conclude that a qualified emissions reduction will be expected for the new levels of additive rulings requested based on the foregoing you have requested that we rule as follows the refined_coal produced by using the process constitutes refined_coal within the meaning of sec_45 of the code provided that such refined_coal is produced from feedstock coal that is the same source or rank as the tested coal and provided further that the refined_coal satisfies the qualified_emission_reduction test stated in sec_45 of the code provided that the feedstock coals used to produce refined_coal during any determination_period are from the same coal source regions and of the same rank as the tested coal all feedstock coal that satisfies that criteria shall be treated as feedstock coal of the same source and rank for purposes of section dollar_figure of notice_2010_54 regardless of the mines from which such feedstock coal is purchased testing by center for qualified emissions reduction as set forth in its test reports satisfies the requirements of notice_2010_54 pilot scale testing conducted at center and subsequent permitted laboratory testing as required for a redetermination described in section a or b of notice may be relied upon to satisfy the qualified_emission_reduction test of sec_45 of the code pursuant to section b of notice_2010_54 the redetermination requirement of section dollar_figure of notice_2010_54 may be satisfied by laboratory analysis establishing that the sulfur and mercury content of both the feedstock coal and the refined_coal on average do not vary by more than ten percent below the bottom of nor more than ten percent above the top of the range of sulfur content and the range of mercury content of the feedstock coal and the refined_coal used in the most recent determination that meets the requirements of section dollar_figure of notice_2010_54 plr-138076-13 the results set forth by the center in a redetermination test report for production may be relied upon after the date of the testing even if the report is not received until after the six month period specified in section i of notice_2010_54 provided the facility was placed_in_service prior to date within the meaning of sec_45 relocation of the facility to a different location after date or replacement of part of a facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_45 provided the fair_market_value of the used_property is more than twenty percent of the facility’s total value the cost of the new property plus the value of the used_property at the time of relocation or replacement law and rationale sec_45 of the code generally provides a credit against federal_income_tax for_the_use_of renewable or alternative resources to produce electricity or fuel for the generation of steam sec_45 of the code provides that in the case of a producer of refined_coal the credit available under sec_45 of the code for any taxable_year shall be increased by an amount equal to dollar_figure5 per ton of qualified refined_coal i produced_by_the_taxpayer at a refined_coal_production_facility during the 10-year period beginning on the date that the facility was originally placed_in_service and which is ii sold by the taxpayer to an unrelated_person during such 10-year period and such taxable_year for purposes of sec_45 of the code section dollar_figure of notice_2010_54 provides that the term refined_coal means a fuel which - i is a liquid gaseous or solid fuel including feedstock coal mixed with an additive or additives produced from coal including lignite or high carbon fly ash including such fuel used as a feedstock ii is sold by the taxpayer with the reasonable expectation that it will be used for the purpose of producing steam and iii is certified by the taxpayer as resulting when used in the production of steam in a qualified_emission_reduction section dollar_figure of the notice provides that the term qualified_emission_reduction means in the case of refined_coal produced at a facility placed_in_service after date a reduction of at least twenty percent of the emissions of nitrogen oxide and at least forty percent of the emissions of either sulfur dioxide or mercury released when burning the refined_coal excluding any dilution caused by materials combined or added during the production process as compared to the emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace as of date sec_45 of the code generally provides that the term refined_coal_production_facility means a facility which is placed_in_service after date and before date plr-138076-13 section dollar_figure of notice_2010_54 generally provides that a qualified emissions reduction does not include any reduction attributable to mining processes or processes that would be treated as mining as defined in sec_613 a c or i if performed by the mine owner or operator accordingly in determining whether a qualified_emission_reduction has been achieved the emissions released when burning the refined_coal must be compared to the emissions that would be released when burning the feedstock coal feedstock coal is the product resulting from processes that are treated as mining and are actually applied by a taxpayer in any part of the taxpayer’s process of producing refined_coal from coal sec_613 of the code describes treatment processes that are not considered as mining unless they are provided for in sec_613 or are necessary or incidental to a process provided for in sec_613 any cleaning process such as a process that uses ash separation dewatering scrubbing through a centrifugal pump spiral concentration gravity concentration flotation application of liquid hydrocarbons or alcohol to the surface of the fuel particles or to the feed slurry provided such cleaning does not change the physical or chemical structure of the coal and drying to remove free water provided such drying does not change the physical or chemical identity of the coal will be considered as mining section of the notice provides in part that emissions reduction may be determined using continuous emission monitoring system cems field testing section a provides in part that cems field testing is testing that meets all the following requirements i the boiler used to conduct the test is coal-fired and steam-producing and is of a size and type commonly used in commercial operations ii emissions are measured using a cems iii if epa has promulgated a performance standard that applies at the time of the test to the pollutant emission being measured the cems must conform to that standard iv emissions for both the feedstock coal and the refined_coal are measured at the same operating conditions and over a period of at least hours during which the boiler is operating at a steady state at least percent of full load and v a qualified_individual verifies the test results in a manner that satisfies the requirement of section b section of the notice provides that methods other than cems field testing may be used to determine the emission reduction the permissible methods include a testing using a demonstration pilot-scale combustion furnace if it establishes that the method accurately measures the emission reduction that would be achieved in a boiler described in section a i and a qualified_individual verifies the test results in a manner that satisfies the requirements of section c i ii v and vi of the notice and b a laboratory analysis of the feedstock coal and the refined_coal that complies with a currently applicable epa or astm standard and is permitted under section b i or ii section of the notice provides that a taxpayer may establish that a qualified_emission_reduction determined under section dollar_figure applies to production from a plr-138076-13 facility by a determination or redetermination that is valid at the time the production occurs a determination or redetermination is valid for the period beginning on the date of the determination or redetermination and ending with the occurrence of the earliest of the following events i the lapse of six months from the date of such determination or redetermination ii a change in the source or rank of the feedstock coal that occurs after the date of such determination or redetermination or iii a change in the process of producing refined_coal from the feedstock coal that occurs after the date of such determination or redetermination section of the notice provides that in the case of a redetermination required because of a change in the process of producing refined_coal from the feedstock coal the redetermination required under section dollar_figure must use a method that meets the requirements of section in any other case the redetermination requirement may be satisfied by laboratory analysis establishing that - a the sulfur s or mercury content of the amount of refined_coal necessary to produce an amount of useful energy has been reduced by at least percent percent in the case of facilities placed_in_service after date in comparison to the s or mercury content of the amount of feedstock coal necessary to produce the same amount of useful energy excluding any dilution caused by materials combined or added during the production process b the s or mercury content of both the feedstock coal and the refined_coal do not vary by more than percent from the s and mercury content of the feedstock coal and refined_coal used in the most recent determination that meets the requirements of the notice section dollar_figure of the notice provides that the certification requirement of sec_3 c of the notice is satisfied with respect to fuel for which the refined_coal credit is claimed only if the taxpayer attaches to its tax_return on which the credit is claimed a certification that contains the following a statement that the fuel will result in a qualified emissions reduction when used in the production of steam a statement indicating whether cems field testing was used to determine the emissions reduction if cems field testing was not used to determine the emissions reduction a description of the method used a statement that the emissions reduction was determined or redetermined within the six months preceding the production of the fuel and that there have been no changes in the source or rank of the feedstock coal used in the process of producing refined_coal from feedstock coal since the emissions reduction was most recently determined or redetermined and a declaration signed by the taxpayer in the following form under penalties of perjury i declare that i have examined this certification and to the best of my knowledge and belief it is true correct and complete finally sec_45 of the code provides that a refined_coal_production_facility must be placed_in_service within certain timeframes for purposes of the refined_coal credit allowable with respect to refined_coal other than steel_industry_fuel the facility must be placed_in_service after date and before date section dollar_figure of notice_2010_54 provides that the year in which property is placed in plr-138076-13 service is determined under the principles of sec_1_46-3 of the regulations ie when the property is placed in a condition or state of readiness and availability for a specifically assigned function section dollar_figure of notice_2010_54 provides that a refined_coal_production_facility will not be treated a placed_in_service after date if more than percent of the facility’s total value the cost of the new property plus the value of the used_property is attributable to property placed_in_service on or before date notice_2010_54 also states that the irs will not issue private letter rulings relating to when a refined_coal_production_facility has been placed_in_service with respect to the first issue the process starts with several chemical additives being added to the feedstock coal prior to its combustion in a furnace the additives provide the chemical structure that results in the reduction of emissions of nitrogen oxide and mercury during combustion section dollar_figure of the notice provides generally that a qualified emissions reduction does not include any reduction attributable to mining processes or processes that would be treated as mining if performed by the mine owner or operator in the instant case the process is not a mining process further section dollar_figure of the notice clarifies sec_45 of the code and specifically provides that refined_coal includes feedstock coal mixed with additives thus additive processes that mix certain chemicals or other additives with the coal in order to achieve emissions reductions may qualify for the refined_coal production_tax_credit additionally section dollar_figure defines comparable coal as coal that is of the same rank as the feedstock coal and that has an emissions profile comparable to the emissions profile of the feedstock coal accordingly we conclude that the coal produced by using the process constitutes a refined_coal within the meaning of sec_45 of the code provided that the refined_coal i is produced from feedstock coal that is the same source or rank as the tested coal and ii satisfies the qualified_emission_reduction test stated in sec_45 of the code with respect to the second issue the emissions profile of the refined_coal product is compared to the emissions profile of either the feedstock coal or a comparable coal predominantly available in the marketplace as of date section dollar_figure of the notice provides that a comparable coal is defined as coal that is of the same rank as the feedstock coal and that has an emissions profile comparable to the emissions profile of the feedstock coal section dollar_figure of provides that a determination or redetermination of a qualified emissions reduction is valid until the occurrence of the earliest of the following events i the lapse of six months from the date of such determination or redetermination ii a change in the source or rank of the feedstock coal that occurs after the date of such determination or redetermination or iii a change in the process of producing refined_coal from the feedstock coal that occurs after the date of such determination or redetermination accordingly we conclude that provided that the feedstock coals during any determination_period are from the same coal source regions and of the same rank as the tested coal all feedstock coal that satisfies that criteria shall be treated as feedstock coal of the same source and rank for purposes of section plr-138076-13 dollar_figure of notice_2010_54 regardless of the mines from which such feedstock coal is purchased with respect to the third issue section of the notice provides that any permissible testing method provided for in the notice can be used in emission testing for any pollutant that is a taxpayer can use different testing methods for each of nitrogen oxide sulfur dioxide or mercury provided the method used for any pollutant is a permissible method section provides that an emission test establishing a qualified_emission_reduction qualifies the refined_coal for a six-month period provided there is no change in the process for producing the refined_coal or in the source or rank of the feedstock coal therefore a taxpayer must redetermine the emission reductions to qualify for the succeeding six-month period using one or more approved methods in the instant case pilot-scale combustion testing will occur and there will not be any reliance on any continuous emissions monitoring system or other field testing which is permitted under section dollar_figure of the notice specifically the center will conduct testing including redetermination testing at its ctf to determine the emissions reductions associated with burning the refined_coal product compared to the feedstock for purposes of qualifying the refined_coal produced at the facilities the center has conducted pilot-scale combustion tests at its ctf as documented in test rep in conducting such tests the center conducted tests on the feedstock and then mixed a separate sample of the feedstock with the additives so that it could conduct tests on the refined_coal product in each of its reports the center reported that the test results indicated that the blend of coal and additives achieved the required emissions reductions based on the foregoing we conclude that testing by the center for qualified emissions reductions as set forth in its test reports including interim reports satisfies the requirements of notice_2010_54 qualified emissions reduction through testing by the center at its combustion research facility or similar pilot-scale combustion testing facilities under notice_2010_54 may be relied upon with respect to the fourth issue section of notice_2010_54 provides in part that in the case of a redetermination required because of a change in the process of producing refined_coal from the feedstock coal the redetermination required under section dollar_figure must use a method that meets the requirements of section in any other case the redetermination requirement may be satisfied by laboratory analysis establishing that the sulfur and mercury content of both the feedstock coal and the refined_coal do not vary by more than percent from the sulfur and mercury content of the feedstock coal and refined_coal used in the most recent redetermination that meets the requirements of the notice accordingly we conclude that that the redetermination requirement of section dollar_figure of notice_2010_54 may be satisfied by laboratory analysis establishing that the sulfur and mercury content of both the feedstock coal and the refined_coal on average do not vary by more than ten percent below the bottom of nor more than ten percent above the top of the range of sulfur content and the range of mercury content of the feedstock coal and the refined_coal used in the most recent determination that meets the requirements of section dollar_figure of notice_2010_54 plr-138076-13 with respect to the fifth issue it is intended that redetermination testing will occur every six months or more frequently if required pursuant to notice_2010_54 however the center is not always able to issue the written report required by section a of notice_2010_54 within the six month period thus although redetermination testing is completed within the six month period the report may be received after the six month period nonetheless the center informed taxpayer of the results of the test on the day of the tests so that it was able to take into account the results of the redetermination within the six month period nevertheless the delay by the center in issuing its report cannot be indefinite accordingly we conclude that the results set forth by the center in a redetermination test report for production may be relied upon after the date of testing even if the report is not received until after the six-month period specified in section i of notice_2010_54 so long as taxpayer receives the written report within days from the date of testing the new six-month period will begin on the date the redetermination was completed not the date of receipt of the report with respect to the sixth issue the facility was relocated from state d to state e and in connection with that relocation all essential components of the facility were relocated and retained in addition during the life of the facility it may be necessary to replace certain major components in the event of relocation or replacement of a component there should be no change in the placed_in_service_date of the facility as long as the test described in section dollar_figure of notice_2010_54 has been met based on the foregoing we conclude that provided the facility was placed_in_service prior to date within the meaning of sec_45 relocation of the facility to a different location after date or replacement of part of the facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_45 provided the fair_market_value of the used_property is more than twenty percent of the facility’s total value the cost of the new property plus the value of the used_property at the time of relocation or replacement plr-138076-13 this ruling expresses no opinion regarding any issue not specifically addressed in this ruling letter including whether any person has sold refined_coal to an unrelated_person or when the facility was placed_in_service in particular we express or imply no opinion that the taxpayer has sufficient risk or rewards of the production activity to qualify as the producer of the refined_coal the service may challenge an attempt to transfer the credit to a taxpayer who does not qualify as a producer including transfers structured as partnerships sales or leases that do not also transfer sufficient risks and rewards of the production activity in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives a copy of this ruling must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling this ruling is directed only to the taxpayer who requested it sec_6110 k of the code provides that it may not be used or cited as precedent we are sending a copy of this letter_ruling to the industry director sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs special industries


internal_revenue_service number release date index number ----------------------------------------------- ----------------------------- ------------- -------------------------------------- attn ---------------------------- ty ------- ty ------- legend department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ------------------------- id no ----------------- ----------------------------------------------------- telephone number --------------------- refer reply to cc fip b03 plr-126136-10 date date taxpayer ---------------------------- parent company ----------------------------------------------- company a ---------------------------------- investment_advisor ----------------------------------------------------- x securities ------------------------------- y securities ---------------------------------------- year ------- year ------- year -------- date ---------------------- date -------------------- date -------------------- month ---------------------- amount ----------------- plr-126136-10 amount ---- amount ----- amount ------------------ amount ----- amount ------------------ dear ------------------- this responds to a letter dated date that was submitted on behalf of taxpayer by parent company requesting a ruling that it had made a valid sec_475 election in year by reason of substantial compliance with the sec_475 f election requirements in the alternative if it is found that a valid election had not been made taxpayer requests an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an election under sec_475 of the internal_revenue_code to treat taxpayer as a trader in securities and subject_to mark-to-market accounting under sec_475 facts taxpayer was at all times at issue a wholly owned subsidiary of parent company and was included in its consolidated tax_return taxpayer represents that it was formed on date by a contribution of asset backed securities abs from parent company in a sec_351 transaction taxpayer asserts that during month it bought and sold substantial volumes of x securities and entered into numerous of y securities during the years at issue parent company was known as company a subsequent to the years at issue company a’s name was changed to parent company this statement regarding the contribution of securities is contested by the audit team in the examination of the taxpayer for the relevant years at issue the agent asserts that cash was transferred not securities taxpayer submitted documents it claims supports its position that securities were transferred but based upon our review of these documents we do not see support for the transfer of actual securities if securities were transferred then taxpayer non-dealer would be required to continue to mark only the transferred securities not any securities it acquired outside of the transfer by parent see treas reg sec_1_1502-13 example plr-126136-10 taxpayer asserts that it had bought and sold amount of x securities and that it did so in amount issuances taxpayer represents that parent company was a dealer_in_securities and used a mark-to-market method_of_accounting under sec_475 taxpayer represents that it also used a mark-to-market method_of_accounting even though it did not make an election under sec_475 taxpayer asserts that it did not make that election because it thought that it qualified as a dealer_in_securities and even if it was not a dealer_in_securities it was bound to use the same method_of_accounting as parent company under the consolidated_return_regulations during the year audit of parent company the service proposed to disallow the losses arising from taxpayer’s use of mark-to-market accounting the agent had determined that taxpayer did not qualify as a dealer_in_securities and should not have been marking under sec_475 parent company raised the issue of whether taxpayer qualified as a trader and whether it could be granted relief during the course of its audit examination for year at that time the agent did not object to taxpayer raising the issue as to whether it qualified as a trader and whether it is entitled to relief after discussions with the examining agent taxpayer filed this ruling_request as the audit continued the agent subsequently raised an issue as to whether taxpayer qualified as a trader the examining agent contends that taxpayer acted more like an investor it is the examining team’s position that taxpayer was an investor and through its managed account its investment_advisor bought and sold the above- mentioned securities taxpayer was liquidated on date and no longer exists this ruling_request relates to year furthermore taxpayer makes the following additional representations granting the relief will not result in taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than it would have had if the election had been timely made taking into account the time_value_of_money taxpayer does not seek to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 of the code at the time the company requested relief the audit team asserts that taxpayer had a managed account with investment_advisor investment_advisor bought and sold the securities referenced above taxpayer asserts that under sec_1_1502-17 it was required to use the sec_475 method_of_accounting however neither the audit team nor the various chief_counsel offices that have looked at this issue including lb_i and the national_office agree plr-126136-10 law and analysis sec_475 election sec_475 provides that a taxpayer engaged in a trade_or_business as a trader in securities may elect to apply the mark-to-market method_of_accounting to securities held in connection with such trade_or_business see sec_475 sec_7805 provides that except to the extent otherwise provided by the code any election shall be made at such time and in such manner as the secretary shall prescribe on date the internal_revenue_service published revproc_99_17 1999_1_cb_503 section superseded by revproc_99_49 1999_2_cb_725 which was clarified modified amplified and superseded by revproc_2002_9 c b revproc_99_17 provides the exclusive procedure for traders in securities to make an election to use the mark-to-market method_of_accounting under sec_475 this revenue_procedure applies both to existing taxpayers who are changing to the mark-to-market method_of_accounting for securities and to new taxpayers who are adopting that method sec_5 of revproc_99_17 provides in relevant part that a new taxpayer for which no federal_income_tax return was required to be filed for the taxable_year immediately preceding the election_year may make an election under sec_475 for a tax_year beginning on or after date by placing in its books_and_records no later than two months and days from the first day of the election_year a statement that describes the election being made the first taxable_year for which the election is effective and the trade_or_business for which the election is made to notify the service that the election was made the new taxpayer must attach a copy of the statement to its original federal_income_tax return for the election_year substantial compliance taxpayer seeks a ruling that it has made a valid sec_475 election because it has substantially complied with the election requirements it is taxpayer’s position that under the substantial compliance doctrine it may be deemed to have made an election under sec_475 even though it never technically did so if the requirements for the election that have not been satisfied do not relate to the substance of the applicable election taxpayer argues that because it always marked its securities under sec_475 since its incorporation it has substantially complied with the election requirements of sec_475 plr-126136-10 the substantial compliance doctrine is a narrow equitable doctrine that courts use to avoid hardship in cases where the taxpayer establishes that he or she intended to comply with a provision did everything reasonably possible to comply with the provision but did not comply with the provision because of a failure to meet the provision’s specific requirements the doctrine can only be applied where invocation of it would not defeat the policies of the underlying statutory provisions 719_f2d_1001 9th cir in some cases the courts have held that under the doctrine_of substantial compliance where taxpayers have not complied with all the requirements of an election provision of the statute or regulations an election may nevertheless be deemed to have been made by the taxpayer if the requirements that have not been satisfied do not relate to the substance or essence of the applicable election see wilkerson v commissioner t c memo in those cases the courts held that substantial compliance with regulatory requirements may suffice when such requirements are procedural and when the essential statutory purposes have been fulfilled 67_tc_1071 67_tc_736 the courts have repeatedly held that a taxpayer who has failed to follow the election requirements under revproc_99_17 has not made a valid election under sec_475 see kantor v commissioner t c memo knish v commissioner t c memo acar v united_states u s dist lexis a f t r 2d ria ustc par big_number n d cal aff’d 545_f3d_727 9th cir 76_fedclaims_237 lehrer v commissioner t c memo aff’d non published opinion 278_fedappx_549 9th cir in kohli v commissioner t c memo the tax_court considered the issue of whether substantial compliance can apply in the case of a missed timely election under sec_475 the court found that the substantial compliance doctrine has no place in determining whether a timely election has been made the court made clear that revproc_99_17 fixes a deadline by which the election must be made and taxpayer’s failure to timely make the election prevents the application of the substantial compliance doctrine because the tax_court has specifically addressed the applicability of the substantial compliance doctrine to a late sec_475 election and determined that it cannot apply we do not need to address each of taxpayer’s arguments as to how it meets the five factors discussed in other non sec_475 cases for purposes of determining whether it has substantially complied with the election requirements section relief sec_301_9100-1 of the income_tax regulations 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 plr-126136-10 under all subtitles of the internal_revenue_code except subtitles e g h and i a regulatory election is defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin sec_301_9100-3 through c ii sets forth rules that the internal_revenue_service generally will use to determine whether under the particular facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 for automatic extensions the general_rule for relief to be granted under this section is based upon taxpayer establishing that it acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government sec_301_9100-3 and provide the qualifying circumstances for being deemed to have acted reasonably and in good_faith the exceptions to these qualifying circumstances are listed in paragraphs b i through iii of sec_301_9100-3 generally when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith also when 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 it can fall within the deemed to have acted reasonably and with good_faith test sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money or if the taxable_year in which a timely regulatory election should have been made is closed sec_301_9100-3 describes three situations where a taxpayer is deemed to have not acted reasonably and in good_faith first under sec_301_9100-3 a taxpayer seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 is not acting reasonably and in good_faith second under sec_301_9100-3 a taxpayer who was informed in all material respects of the required election and the tax related consequences but chose not to timely file the election is not acting reasonably and in good_faith in requesting permission to make a late election third sec_301_9100-3 provides that a taxpayer is deemed to have not acted reasonably and in good_faith if the taxpayer uses hindsight in requesting relief if specific facts have changed since the due_date for making the election that make the election advantageous to the taxpayer the service will not ordinarily grant relief in such a case the service will grant relief only when the taxpayer provides strong_proof that the taxpayer’s decision to seek relief did not involve hindsight taxpayer did not raise this issue before the failure to make the election was discovered by the service but the examining agent did not object to taxpayer raising the request however the agent subsequently determined that taxpayer does not even qualify as a trader plr-126136-10 sec_301_9100-3 provides special rules for accounting_method regulatory elections this section provides in relevant parts that the interests of the government are deemed to be prejudiced by granting an extension of time except in unusual and compelling circumstances in several situations first if the accounting_method regulatory election is subject_to the procedure described in sec_1_446-1 requiring the advance written consent of the commissioner see sec_301_9100-3 second if the accounting_method regulatory election for which relief is requested requires an adjustment under sec_481 or would require an adjustment under sec_481 if the taxpayer changed to the method_of_accounting for which relief is requested in a taxable_year subsequent to the taxable_year the election should have been made see sec_301_9100-3 third if the accounting_method regulatory election involves certain changes from an impermissible method_of_accounting see sec_301 c iii or fourth if the accounting_method regulatory election would provide a more favorable method_of_accounting or more favorable terms and conditions if the election is made by a certain date or taxable_year see sec_301_9100-3 sec_4 of revproc_99_17 states that the election under sec_475 determines the method_of_accounting an electing trader is required to use for federal_income_tax purposes for securities subject_to the election if an electing trader's method_of_accounting for its taxable_year immediately preceding the election_year is inconsistent with sec_475 the taxpayer is required to change its method_of_accounting to comply with its election a taxpayer that makes a sec_475 election but fails to change its method_of_accounting to comply with that election is using an impermissible method because the election is integrally related to the change in accounting_method to mark- to-market it is an accounting_method regulatory election subject_to sec_301_9100-3 revproc_2011_14 provides procedures by which a taxpayer may obtain automatic consent to change to the mark-to-market accounting_method however the automatic change applies to a taxpayer only if the taxpayer has made a valid election under sec_475 by complying with the requirements of revproc_99_17 and is required to change its method_of_accounting to comply with the election sec_23 a of the appendix to revproc_2011_14 taxpayer requests an extension of time to make an accounting_method regulatory election that is subject_to the provisions of sec_301_9100-3 relief under this section of the regulations will only be granted when taxpayer provides evidence satisfactory to the commissioner that the taxpayer acted reasonably and in good_faith and the granting of the relief will not prejudice the interests of the government if specific facts have changed since the due_date for making the election that make the election advantageous to a taxpayer sec_301_9100-3 provides that the service will only grant relief when the taxpayer provides strong_proof that its decision to seek relief did not involve hindsight without such proof a taxpayer is deemed to have not acted reasonably or in good_faith plr-126136-10 taxpayer was a new taxpayer in year and if it properly adopted a method_of_accounting under sec_475 it should have done so by placing a statement that it was making the election in its books_and_records not later than months and days after the beginning of its first taxable_year in year taxpayer is now asking for a late election for adoption of an accounting_method based upon all the facts and representations submitted we conclude that taxpayer has not satisfied the requirements for our granting a reasonable extension of time to make an election under sec_475 to be a trader in securities and to use the mark-to-market method_of_accounting first taxpayer’s failure to make the regulatory election was discovered by the service before taxpayer filed for relief see sec_301_9100-3 second taxpayer has failed to demonstrate that it acted reasonably and in good_faith under sec_301_9100-3 taxpayer did not file its request for relief until date years after it knew that its securities transactions had resulted in losses losses it would like to carry back to offset income from profitable years although taxpayer was marking under sec_475 its improper marking as a dealer does not prevent hindsight from being used to decide to make the trader election under sec_475 therefore taxpayer has failed to demonstrate its decision to seek relief did not involve hindsight in addition the interests of the government would be prejudiced by the granting of relief in this case under the special rules for accounting_method regulatory elections under sec_301_9100-3 and iii finally in the interests of sound tax_administration relief should not be granted when it becomes apparent that the taxpayer may not even qualify to make the election in this case the commissioner at the conclusion of its examination determined that taxpayer was not a trader but rather was an investor conclusion based on the information submitted and representations made we conclude that taxpayer has not substantially complied with the sec_475 election requirements nor has it satisfied the requirements under the section regulations for granting a reasonable extension of time to elect under sec_475 of the code to be treated as a trader in securities under sec_475 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-126136-10 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely robert b williams senior counsel branch financial institutions products


t c memo united_states tax_court nersonn d justine and carline charlot justine petitioners v commissioner of internal revenue respondent docket no filed date nersonn d justine and carline charlot justine pro sese tara p volungis for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined deficiencies in and accuracy- related penalties under sec_6662 a on petitioners’ federal_income_tax tax as follows 1all section references are to the internal_revenue_code code in effect for the years at issue all rule references are to the tax_court rules_of_practice and procedure year deficiency dollar_figure big_number big_number accuracy-related_penalty under sec_6662 dollar_figure dollar_figure dollar_figure the issues remaining for decision for each of the years at issue are is petitioner nersonn d justine entitled to deduct certain claimed miscellaneous expenses we hold that he is not does petitioner nersonn d justine have certain unreported income from a certain business that he operated we hold that he does is petitioner nersonn d justine entitled to deduct certain claimed expenses relating to a certain business that he operated we hold that he is not is petitioner nersonn d justine liable for the accuracy-related_penalty under sec_6662 we hold that he is findings_of_fact some of the facts have been stipulated and are so found 2although petitioner carline charlot justine ms justine signed the stipulation of facts she did not appear at the trial in this case respondent filed a motion to dismiss for lack of prosecution as to her we shall grant that motion and continued petitioners resided in massachusetts at the time they filed the petition during at least and two of the years at issue mr justine was a taxicab driver for boston cab co taxicab business during at least the last three months of through he was also a driver for uber uber business we shall sometimes refer collectively to the taxicab business and the uber business that mr justine operated as the transportation business throughout the years at issue mr justine received in cash most of the remuneration from and he paid in cash many of the expenses for the transporta- tion business that he operated however during those years he did not maintain books or adequate_records with respect to the receipts or expenses relating to that business with respect to mr justine’s taxicab business during and boston cab co through an organization known as creative mobile technologies llc cmt often paid him for his work in cash by having money deposited into a commercial prepaid card account that he maintained in his name at bank of continued shall enter a decision with respect to ms justine that is the same as the decision that we shall enter with respect to petitioner nersonn d justine mr justine 3the record is not clear as to whether mr justine operated the taxicab business during america cmt issued to mr justine for each of his taxable_year sec_2012 and sec_2013 form 1099-k payment_card and third party network transactions form 1099-k form 1099-k for mr justine’s taxable_year showed dollar_figure as the gross amount of merchant card third party network payments form 1099-k for mr justine’s taxable_year showed dollar_figure as the gross amount of merchant card third party network payments with respect to mr justine’s uber business at least during the last three months of through uber through an organization known as rasier llc rasier often paid him for his work in cash by having money deposited into a bank account that ms justine and her mother florisane estime ms estime maintained in their names at eastern bank rasier issued to mr justine for his taxable_year form 1099-k that showed dollar_figure as the gross amount of payment_card third party network transactions rasier also issued to mr justine for his taxable_year form 1099-misc miscellaneous income that showed dollar_figure as nonemployee compensation 4the record is not clear as to whether boston cab co also paid mr justine in cash for his work by giving him cash directly instead of having money deposit- ed into an account maintained at a bank or other financial_institution 5the record is not clear as to whether uber also paid mr justine in cash for his work by giving him cash directly instead of having money deposited into an account maintained at a bank or other financial_institution in addition to operating the transportation business mr justine worked during and as a bus driver for nrt bus inc nrt for which he was paid wages the wages that nrt paid mr justine during for his work were not deposited into a bank account in that year beginning in date nrt paid mr justine in cash for his work by having money deposited into a bank account that he maintained in his name at bank of america which was in addition to the commercial prepaid card account that he maintained in his name at that bank nrt issued form_w-2 wage and tax statement form_w-2 to mr justine for each of the years at issue for the work that he had performed for it during each of those years during at least and mr justine also worked as a truck driver for robert e florence trucking inc florence trucking for which he was paid wages florence trucking issued form_w-2 to mr justine for each of his taxable tear sec_2013 and sec_2014 for the work that he had performed for it during each of those years during at least mr justine operated a tax_return preparation service known as justine tax plus for which he charged each customer a fee he did not maintain any books_or_records with respect to the receipts or expenses relating to that business during and ms justine worked for northeast profes- sional registry of nurses nursing registry as a nursing assistant during and she also worked for northeast arc arc as a nursing assistant those respective organizations paid ms justine wages for the work that she had performed for them during one or more of the years at issue nursing registry issued form_w-2 to ms justine for each of the years at issue for the work that she had performed for it during each of those years arc issued form_w-2 to ms justine for each of her taxable_year sec_2012 and sec_2014 for the work that she had performed for it during each of those years petitioners filed form_1040 u s individual_income_tax_return return for their taxable_year return that mr justine had prepared in that return petitioners showed wages of dollar_figure petitioners included schedule a itemized_deductions schedule a as part of their return schedule a in that schedule they claimed inter alia medical and dental expenses of dollar_figure claimed medical_expenses taxes you paid of dollar_figure claimed taxes paid gifts to charity of 6the claimed taxes paid consisted of claimed state_and_local_income_taxes of dollar_figure claimed real_estate_taxes of dollar_figure and claimed personal_property_taxes of dollar_figure dollar_figure claimed charitable gifts and job expenses and certain miscellaneous deductions of dollar_figure claimed unreimbursed employee_expenses petitioners included schedule c profit or loss from business schedule c with respect to mr justine’s transportation business as part of their return schedule c in that schedule petitioners reported gross_receipts or sales and gross_income of dollar_figure and claimed total expenses of dollar_figure claimed schedule c expenses the claimed schedule c expenses consisted of the following expense advertising rent lease--vehicle rent lease--other repairs maintenance supplies taxes licenses meals entertainment utilities amount dollar_figure big_number big_number big_number big_number big_number big_number 7the claimed charitable gifts consisted of claimed charitable gifts by cash or check of dollar_figure and claimed charitable gifts other than by cash or check of dollar_figure petitioners filed a return for their taxable_year return that mr justine had prepared in that return petitioners showed wages of dollar_figure petitioners included schedule a as part of their return schedule a in that schedule they claimed inter alia medical and dental expenses of dollar_figure claimed medical_expenses taxes you paid of dollar_figure claimed taxes paid gifts to charity of dollar_figure claimed charitable gifts and job expenses and certain miscellaneous deductions of dollar_figure claimed unreimbursed employee_expenses petitioners included schedule c with respect to mr justine’s transportation business as part of their return schedule c in that schedule petition- ers reported gross_receipts or sales and gross_income of dollar_figure and claimed total expenses of dollar_figure claimed schedule c expenses the claimed schedule c expenses consisted of the following 8the claimed taxes paid consisted of claimed state_and_local_income_taxes of dollar_figure claimed real_estate_taxes of dollar_figure and claimed personal_property_taxes of dollar_figure 9the claimed charitable gifts consisted of claimed charitable gifts by cash or check of dollar_figure and claimed charitable gifts other than by cash or check of dollar_figure expense amount advertising car truck insurance other than health rent lease--other repairs maintenance supplies taxes licenses meals entertainment utilities dollar_figure big_number big_number big_number big_number big_number big_number petitioners filed a return for their taxable_year return that mr justine had prepared in that return petitioners showed wages of dollar_figure petitioners included schedule a as part of their return schedule a in that schedule they claimed inter alia taxes you paid of dollar_figure claimed taxes paid gifts to charity of dollar_figure claimed charitable 10the claimed taxes paid consisted of claimed state_and_local_income_taxes of dollar_figure claimed real_estate_taxes of dollar_figure and claimed personal_property_taxes of dollar_figure gifts and job expenses and certain miscellaneous deductions of dollar_figure claimed unreimbursed employee_expenses petitioners included schedule c with respect to mr justine’s transportation business as part of their return schedule c in that schedule petition- ers reported gross_receipts or sales and gross_income of dollar_figure and claimed total expenses of dollar_figure claimed schedule c expenses the claimed schedule c expenses consisted of the following expense depreciation sec_179 insurance other than health rent lease--other repairs maintenance supplies taxes licenses meals entertainment utilities other--gas amount dollar_figure big_number big_number big_number big_number big_number big_number 11the claimed charitable gifts consisted of claimed charitable gifts by cash or check of dollar_figure and claimed charitable gifts other than by cash or check of dollar_figure petitioners did not include schedule c with respect to mr justine’s tax_return preparation business as part of their return at a time not established by the record respondent commenced an examina- tion of petitioners’ taxable_year sec_2012 sec_2013 and sec_2014 as part of that examina- tion respondent’s revenue_agent revenue_agent assigned to that examination prepared a bank_deposits analysis for each of those years respondent’s bank_deposits analysis on the basis of his examination of the various respective accounts that mr justine and ms justine and her mother ms estime maintained at bank of america and eastern bank collectively accounts respondent’s bank_deposits analysis showed for each of petitioners’ taxable_year sec_2012 sec_2013 and sec_2014 inter alia the total amount of deposits into each of the accounts during each month in preparing respondent’s bank_deposits analysis the revenue_agent attempted to ascertain whether any of the deposits into each of the accounts during each of the years at issue is nontaxable or was previously taxed in this connec- tion in preparing respondent’s bank_deposits analysis for each of the years at issue the revenue_agent reduced the total deposits into each of the accounts during each of those years by any of the following nontaxable deposits or previously taxed deposits mr justine’s wages ms justine’s wages ms estime’s social_security payments tax refunds transfers from credit cards and creditor refunds of returned items the revenue_agent concluded that after those reductions the balance of the total deposits into each of the accounts during each of the years at issue constitutes unreported schedule c gross_receipts for each of those years respondent issued a notice_of_deficiency notice to petitioners for their taxable_year sec_2012 sec_2013 and sec_2014 in that notice respondent determined to disallow the following expenses that petitioners claimed in their schedule a claimed schedule a expenses their schedule a claimed schedule a expenses and their schedule a claimed schedule a expenses all of their claimed medical_expenses all of their claimed medical_expenses dollar_figure of their claimed charitable gifts dollar_figure of their claimed taxes paid dollar_figure of their claimed taxes paid dollar_figure of their claimed taxes paid all of their claimed unreimbursed employee 12respondent also determined to increase certain of the expenses that petitioners claimed in their schedule a their schedule a and their schedule a 13respondent disallowed in the notice the respective entire amounts of the claimed charitable gifts other than by cash or check and the claimed charitable gifts other than by cash or check however respondent increased the respective entire amounts of the claimed charitable gifts by cash or check and the claimed charitable gifts by cash or check in such respective amounts that respondent allowed petitioners in the notice respective charitable_contribution deductions for their taxable_year sec_2013 and sec_2014 in respective amounts that exceeded the deductions that they had reported in their respective return and return expenses all of their claimed unreimbursed employee_expenses and all of their claimed unreimbursed employee_expenses we shall refer collectively to the claimed schedule a expenses the claimed schedule a expenses and the claimed schedule a expenses that respondent disal- lowed in the notice and that petitioners dispute here as the claimed schedule a expenses at issue in the notice respondent also determined to increase gross_receipts that petitioners reported in their schedule c their schedule c and their schedule c in the respective amounts of dollar_figure dollar_figure and dollar_figure in doing so respondent relied on respondent’s bank_deposits analysis we shall refer to the respective increases in the notice in gross_receipts that petitioners reported in their schedule c their schedule c and their schedule c in and that they dispute here as the unreported schedule c gross_receipts at issue in the notice respondent further determined to disallow all of their claimed 14respondent points out on brief that the amount of total deposits reduced by nontaxable or previously_taxed_income for petitioners’ taxable_year ie dollar_figure that respondent reflected in the notice is dollar_figure less than the actual amount of such deposits for that year ie dollar_figure determined under respon- dent’s bank_deposits analysis respondent stipulated that respondent will use the lesser amount reflected in the notice respondent also conceded at trial and concedes on brief that the amount of unreported gross_receipts for petitioners’ taxable_year ie dollar_figure that respondent determined in the notice should be reduced to dollar_figure by dollar_figure of unemployment_compensation schedule c expenses all of their claimed schedule c expenses and all of their schedule c expenses we shall refer collectively to the claimed schedule c expenses the claimed schedule c expenses and the claimed schedule c expenses that respondent disallowed in the notice and that petitioners dispute here as the claimed schedule c expenses at issue respondent also determined in the notice that petitioners are liable for each of the years at issue for the accuracy-related_penalty under sec_6662 opinion mr justine bears the burden of establishing that the determinations in the notice that remain at issue are erroneous see rule a 290_us_111 moreover deductions are a matter of legislative grace and mr justine bears the burden of proving entitlement to any deduction claimed see 503_us_79 the code and the regulations thereunder required mr justine to maintain records sufficient to establish the amount of any deduction claimed see sec_6001 sec_1_6001-1 income_tax regs we begin by summarizing our evaluation of the testimony of mr justine the only witness at the trial in this case we found his testimony to be uncorrobo- rated self-serving and or conclusory in certain material respects we are unwilling to and we shall not rely on mr justine’s uncorroborated self- serving and or conclusory testimony to establish his position with respect to each of the issues presented see eg 87_tc_74 mr justine presented no documentary_evidence that establishes his respective positions with respect to the claimed schedule a expenses at issue the unreported schedule c gross_receipts at issue and the claimed schedule c expenses at issue that we must decide for each of the years at issue based upon our examination of the entire record before us we find that mr justine has failed to carry his burden of establishing that for each of the years at issue he is entitled to deduct the claimed schedule a expenses at issue he does not have the unreported schedule c gross_receipts at issue from a certain business that he operated that respondent determined pursuant to respondent’s bank_deposits analysis and he is entitled to deduct the claimed schedule c expenses at issue we turn to the remaining issue presented under sec_6662 sec_6662 imposes an accuracy-related_penalty of percent on the underpayment to which sec_6662 applies sec_6662 applies to the portion of any underpay- ment which is attributable to inter alia negligence or disregard of rules or 15see supra note regulations sec_6662 or a substantial_understatement of tax sec_6662 the term negligence in sec_6662 includes any failure to make a reasonable attempt to comply with the code sec_6662 negligence has also been defined as a failure to do what a reasonable person would do under the circumstances see 963_f2d_907 6th cir aff’g tcmemo_1991_179 91_tc_686 aff’d 893_f2d_656 4th cir the term negligence also includes any failure by the taxpayer to keep adequate books_and_records or to substantiate items properly sec_1_6662-3 income_tax regs the term disregard includes any careless reckless or intentional disregard sec_6662 for purposes of sec_6662 an understatement is equal to the excess of the amount of tax required to be shown in the tax_return over the amount of tax shown in the return sec_6662 an understatement is substantial in the case of an individual if the amount of the understatement for the taxable_year exceeds the greater of percent of the tax required to be shown in the tax_return for that year or dollar_figure sec_6662 the accuracy-related_penalty does not apply to any portion of an underpay- ment if it is shown that there was reasonable_cause for and that the taxpayer acted in good_faith with respect to such portion sec_6664 the determination of whether the taxpayer acted with reasonable_cause and in good_faith depends on all the pertinent facts and circumstances including the taxpayer’s efforts to assess the taxpayer’s proper tax_liability the knowledge and experience of the taxpayer and the reliance on the advice of a professional such as an accountant sec_1 b income_tax regs respondent bears the burden of production with respect to the accuracy- related penalties under sec_6662 that respondent determined in the notice see sec_7491 116_tc_438 to satisfy respondent’s burden of production respondent must come forward with sufficient evidence indicating that it is appropriate to impose the penalty higbee v commissioner t c pincite although respondent bears the burden of production with respect to the penalty under sec_6662 respondent need not introduce evidence regarding reasonable_cause or similar provisions the taxpayer bears the burden_of_proof with regard to those issues id on the record before us we find that respondent has satisfied respondent’s burden of production under sec_7491 with respect to the accuracy-related_penalty under sec_6662dollar_figure at trial mr justine testified that he should not be liable for each of the years at issue for the accuracy-related_penalty because he contends that there is no underpayment for any of those years our holdings above reject that contention on the record before us we find that mr justine has failed to carry his burden of establishing that there was reasonable_cause for and that he acted in good_faith with respect to the underpayment for each of the years at issue based upon our examination of the entire record before us we find that mr justine has failed to carry his burden of establishing that he is not liable for each of the years at issue for the accuracy-related_penalty under sec_6662 we have considered all of the contentions and arguments of the parties that are not discussed herein and we find them to be without merit irrelevant and or moot 16for example mr justine kept no books or adequate_records with respect to his transportation business in addition mr justine failed to substantiate properly the claimed schedule a expenses at issue and the claimed schedule c expenses at issue for each of petitioners’ taxable_year sec_2012 sec_2013 and sec_2014 to reflect the foregoing and the concession of respondent with respect to taxable_year an order granting respondent’s motion to dismiss for lack of prosecution as to petitioner carline charlot justine and decision under rule will be entered