t c memo united_states tax_court robert l anderson petitioner v commissioner of internal revenue respondent docket no 18154-15l filed date robert l anderson pro_se william d richard and daniel j bryant for respondent memorandum opinion thornton judge in this collection_due_process cdp case petitioner seeks review pursuant to sec_6330 of the determination by the internal all section references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated all monetary amounts have been rounded continued revenue service irs sustaining a proposed levy to collect sec_6672 trust fund recovery penalties tfrps assessed against him for failing to collect and pay over employment_taxes of lanahan reilly llp a law firm of which he was a partner respondent has moved for summary_judgment under rule for the reasons explained below we will grant his motion background the following undisputed facts are derived from the petition respondent’s motion for summary_judgment and exhibits thereto and petitioner’s response petitioner resided in california when he petitioned this court the earlier quarters in respondent determined that petitioner was responsible for the failure of lanahan reilly llp to pay over to the united_states payroll_taxes withheld from its employees during the taxable quarter ending date and during the taxable quarters ending date to date collectively earlier quarters respondent assessed tfrps for these quarters and petitioner appealed on date the irs office of appeals appeals_office affirmed the tfrps nothing in the record suggests that petitioner ever requested a cdp continued to the nearest dollar hearing with respect to the earlier quarters or that respondent issued any notice_of_determination relating to them the later four quarters on date respondent sent petitioner a letter trust fund recovery penalty letter determining that he was responsible for the failure of lanahan reilly llp to pay over to the united_states payroll_taxes withheld from its employees for the four taxable quarters ending date date date and date collectively later four quarters respondent proposed to assess tfrps against petitioner of dollar_figure dollar_figure dollar_figure and dollar_figure for these quarters respectively petitioner appealed the proposed tfrps for the later four quarters by a written protest filed date in response the appeals_office held an in-person hearing on date petitioner contended that he was not responsible for and had not willfully refrained from paying the tax_liabilities upon which the tfrps were based petitioner participated in the hearing by showing documents asking questions and providing explanations in response to questions from the appeals_office on date the appeals_office issued petitioner a letter sustaining the proposed tfrps for the later four quarters respondent assessed the tfrps against petitioner on date on date respondent issued petitioner a letter final notice_of_intent_to_levy and notice of your right to a hearing with respect to the later four quarters petitioner responded by timely filing a form request for a collection_due_process or equivalent_hearing on date petitioner’s request for a cdp hearing stated that it was for taxable quarters date through date petitioner did not check any boxes indicating he was interested in a collection alternative he checked only the other box stating i contend that i am not responsible for these taxes on date respondent sent petitioner a letter acknowledging receipt of his request for a cdp hearing on date respondent sent petitioner another letter proposing a telephone hearing to be held on date before that hearing could be held however respondent suspended petitioner’s cdp case while the irs criminal office conducted an investigation on date petitioner filed an offer-in-compromise based on doubt as to liability oic-datl offering to pay dollar_figure in satisfaction of all tfrps assessed against him ie for the earlier quarters and the later four quarters also at some point before the cdp hearing petitioner requested that these the record does not reveal specifically when the irs criminal investigation began and concluded but the record suggests that it was concluded by date liabilities be abated both the oic-datl and the request for abatement were predicated on petitioner’s argument that he was not responsible for the tfrps on date a grand jury which was convened in the u s district_court for the northern district of california indicted petitioner for wire fraud money laundering and conspiracy to commit money laundering the district_court issued an order on date setting conditions of release and an appearance bond the order required among other things that petitioner not harass threaten intimidate injure tamper with or retaliate against any witness and that he have no contact with any codefendant out of the presence of counsel on date the settlement officer so to whom petitioner’s case was assigned contacted him and proposed a cdp hearing to be held by telephone on date on date petitioner requested a six-month delay of the cdp hearing claiming that in his criminal proceeding the district_court had prohibited him from contacting certain persons who were familiar with his responsibilities at lanahan reilly llp the record indicates that petitioner entered a guilty plea on date and that sentencing has been set for date the so requested that petitioner provide a written request with supporting documentation so that she could present the request for a six-month extension to her manager on date petitioner called the so back and requested a to 60-day extension of the cdp hearing so he could consult with attorneys on date the so upon her manager’s instructions denied petitioner’s request for a six-month delay but agreed to a new cdp hearing date of date on date petitioner called the so to request an in-person cdp hearing to be held on date the so agreed and the hearing was once again postponed on date gordon oliver petitioner’s attorney called the so to inform her that petitioner would be unable to attend the in-person hearing on date consequently the hearing was once again rescheduled and a cdp hearing was held by telephone on date before the hearing the so reviewed petitioner’s tfrp administrative file apparently consisting of four or five large boxes of materials the so concluded that there was sufficient evidence in these files to support the tfrp assessment and to reject petitioner’s oic-datl and his abatement request at the date hearing the so discussed these conclusions with mr oliver on date the appeals_office issued petitioner a notice of determination sustaining the proposed levy for the tfrps associated with the later four quarters and rejecting his oic-datl and his request for abatement the notice_of_determination states with regard to denial of the oic-datl appeals determined by a review of the trust fund recovery penalty tfrp administrative file that the assessment was valid and the taxpayer was a responsible and willful person in regards to the tfrp assessment the offer_in_compromise is rejected the notice_of_determination also rejected petitioner’s abatement claim stating that the appeals_office had reviewed the claim and determined that there is no basis to allow any part of the claim the notice_of_determination indicated that the appeals_office had verified that the requirements of applicable law and administrative procedure had been met and that the appeals_office had considered the issues raised and balanced the collection action with petitioner’s legitimate concern that the action be no more intrusive than necessary petitioner timely petitioned this court on date respondent filed a motion for summary_judgment petitioner filed his response late on date a day before the court’s scheduled hearing on respondent’s motion discussion a summary_judgment the court may grant summary_judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law rule b 98_tc_518 aff’d 17_f3d_965 7th cir the purpose of summary_judgment is to expedite litigation and avoid unnecessary and time-consuming trials fla peach corp v commissioner 90_tc_678 where the moving party properly makes and supports a motion for summary_judgment an adverse_party may not rest upon the mere allegations or denials of such party’s pleading but must set forth specific facts by affidavit or otherwise showing that there is a genuine dispute for trial rule d b the earlier quarters--lack of jurisdiction respondent asserts that this court lacks jurisdiction over the earlier quarters even though they are referenced in the petition we agree the tax_court is a court of limited jurisdiction 85_tc_527 and may exercise jurisdiction only to the extent expressly provided by statute 66_tc_61 jurisdiction must be shown affirmatively and petitioner bears the burden of proving that this court has jurisdiction see 114_tc_268 aff’d 22_fedappx_837 9th cir in a cdp case the court has jurisdiction only if the irs has issued a valid notice_of_determination to the taxpayer and the taxpayer has timely petitioned for review sec_6330 123_tc_1 aff’d 412_f3d_819 7th cir petitioner does not appear to dispute that no notice_of_determination was issued with respect to the earlier quarters and he has not otherwise established any jurisdictional basis for our review of his claims as related to the earlier quarters we will dismiss for lack of jurisdiction so much of this case as relates to the earlier quarters c the later four quarters income and employment_tax withholdings by an employer are commonly referred to as trust_fund_taxes because the internal_revenue_code characterizes such withholding as a special fund in trust for the united_states see sec_7501 132_tc_301 the commissioner may impose a penalty--known as a tfrp--on any person who while under a duty to collect account for and pay over trust_fund_taxes wilfully fails to do so see sec_6671 and sec_6672 mason v commissioner t c pincite such a person is commonly referred to as a responsible_person mason v commissioner t c pincite petitioner has repeatedly argued that he was not responsible for the trust_fund_taxes of lanahan reilly llp and that he is therefore not liable for the tfrps assessed against him petitioner first raised the issue of responsibility when--after receiving a letter 1153--he appealed the proposed tfrps to the appeals_office the appeals_office considered the issue during an in-person hearing and ruled against petitioner later in connection with his cdp hearing petitioner submitted an oic-datl and requested abatement of tfrps including those for the later four quarters solely on the basis of his argument that he was not a responsible_person within the meaning of sec_6672 in this proceeding petitioner continues to challenge these tfrps by arguing that he was not a responsible_person respondent argues that sec_6330 precludes any challenge to petitioner’s underlying liabilities in this collection proceeding we agree respondent also argues that petitioner’s challenge to his underlying liabilities is precluded by sec_6330 which provides that an issue may not be raised at a cdp hearing if the issue was raised and considered at a previous hearing under sec_6320 or in any other previous administrative or judicial proceeding and the person seeking to raise the issue participated meaningfully in such hearing or proceeding because we hold for respondent on the basis of our continued sec_6330 permits a taxpayer to challenge the existence or amount of his underlying liability in a cdp proceeding only if the taxpayer did not receive a notice_of_deficiency or otherwise have a prior opportunity to contest that liability receipt of a letter constitutes a prior opportunity to dispute the taxpayer’s liability solucorp ltd v commissioner tcmemo_2013_118 at morgan v commissioner tcmemo_2011_290 wl at mcclure v commissioner tcmemo_2008_136 wl at see mason v commissioner t c pincite petitioner does not dispute that he received a letter furthermore a taxpayer’s challenge to his status as a responsible_person constitutes a dispute of the taxpayer’s liability morgan v commissioner wl at mcclure v commissioner wl at holding that where the taxpayer had a previous opportunity to dispute a liability he is not entitled to dispute during review of a cdp hearing by the court his status as a responsible_person and the consequent liabilities for the underlying tfrps totten v united_states a f t r 2d ria w d wash rejecting the taxpayer’s attempt to raise responsibility for tfrps at continued application of sec_6330 it is unnecessary to decide whether petitioner’s challenge to his underlying liabilities is also precluded by sec_6330 his cdp hearing aff’d 298_fedappx_579 9th cir see mason v commissioner t c pincite in 129_tc_178 this court held that a challenge to the amount of the tax_liability made in the form of an oic-datl by a taxpayer who has received a notice_of_deficiency is a challenge to the underlying tax_liability but we acknowledged that in a cdp case involving an oic-datl relating to tfrps a district_court had stated that an offer based on doubt as to liability is not synonymous with a challenge to the underlying liability id pincite quoting siquieros v united_states a f t r 2d ria w d tex aff’d 124_fedappx_279 5th cir in affirming totten v united_states a f t r 2d ria w d wash aff’d 298_fedappx_579 9th cir the court_of_appeals for the ninth circuit observed that because totten had not explained why he did not immediately challenge the result of the first administrative hearing by paying the tfrp and filing suit_for_refund see sec allowing him to dispute the tfrp here would undermine the statutory regime for contesting tax_liability totten f app’x pincite similarly petitioner has not explained why he did not challenge the result of the first appeals_office hearing by instituting a refund action and the same concerns that the court_of_appeals expressed about preserving the statutory regime for contesting tax_liability arise here we note that petitioner included as an attachment to his response to respondent’s motion for summary_judgment an undated and unsigned draft complaint to the u s court of federal claims apparently disputing the appeals office’s initial denial of his request for relief the record does not reveal whether petitioner has in fact filed such a complaint with the u s court of federal claims or a federal district_court which would be the proper forums for any refund claim characterizing this statement as the thinnest of supports for any general proposition that an oic-datl is not a challenge to an ‘underlying tax liability’ we concluded in baltic that the decisive difference between the situations presented in baltic and siquieros was that siquieros had no opportunity before the cdp hearing to challenge her responsibility for the unpaid tax whereas the baltics who had received a notice_of_deficiency did have an opportunity to challenge that deficiency id in short the decisive difference between siquieros and baltic was the availability of opportunity and not the argument in the oic- datl unlike siquieros--but like the baltics--petitioner had an opportunity before his cdp hearing to challenge his responsibility for tfrps in that as discussed he received a letter for the later four quarters and in fact petitioner took advantage of his prior opportunity to dispute responsibility--the appeals_office held an in-person hearing at which he unsuccessfully contested the tfrps for these reasons the issue of petitioner’s responsibility under sec_6672 was not properly at issue in the cdp hearing and cannot be raised as an issue in this proceeding consequently our review of the notice_of_determination is for abuse_of_discretion see eg 114_tc_176 abuse_of_discretion exists when a determination is arbitrary capricious or without sound basis in fact or law see eg 125_tc_301 aff’d 469_f3d_27 1st cir see also 568_f3d_710 9th cir aff’g in part tcmemo_2006_ petitioner suggests that the so abused her discretion by denying his request for a six-month delay of the cdp hearing his petition asserts that he was unable to present defenses at his cdp hearing because his release on unsecured bail provides that he cannot contact potential witnesses consequently petitioner suggests he was denied the opportunity at the cdp hearing to present facts which he asserts would have shown that he was not liable for the tfrps assessed against him we disagree for several reasons contrary to petitioner’s assertion the district court’s order as included in the record of this case does not prohibit him from contacting potential witnesses rather it orders him not to harass threaten intimidate injure tamper with or retaliate against any witness victim informant juror or officer of the court and orders him not to have contact with any codefendant out of the presence of counsel even drawing factual inferences in the light most favorable to petitioner we do not see that the district court’s order prevented him from developing in a timely manner any relevant factual information to submit to the so furthermore petitioner’s circumstances delayed his cdp hearing for a long time and gave him ample time to prepare for it even without the additional delay that he sought his cdp hearing was originally scheduled for date long before his criminal indictment because the cdp proceedings were suspended during the irs criminal investigation and owing to additional delays that petitioner requested and was allowed his cdp hearing was not held until date about a year and a half after it was originally scheduled there is no requirement that the commissioner wait a certain amount of time before making a determination as to a proposed levy gazi v commissioner tcmemo_2007_ wl at sec_301_6330-1 q a-e9 proced admin regs rather the regulations provide that the appeals_office should attempt to conduct a cdp hearing and issue a notice_of_determination as expeditiously as possible under the circumstances sec_301_6330-1 q a-e9 proced taxpayers do not have the right to subpoena and examine witnesses at a cdp hearing but they may submit facts in the form of affidavits or declarations under penalty of perjury 115_tc_329 115_tc_35 sec_301_6330-1 q a-d6 proced admin regs for this reason we find no merit in petitioner’s complaint that he was denied the opportunity to present and examine witnesses at his cdp hearing admin regs the scheduling of petitioner’s cdp hearing was entirely reasonable in the light of this requirement and the attendant circumstances in any event the only issue petitioner had raised--his underlying liabilities-- was not properly subject_to review during the cdp hearing there was no good reason to further delay petitioner’s cdp hearing to provide him an additional opportunity to develop an issue that he was not entitled to raise for this additional reason the so did not abuse her discretion in declining to grant further delays on the basis of our review of the record we conclude that the so properly verified that all requirements of applicable law and administrative procedure were met we also conclude that the so properly considered all relevant issues that petitioner raised at his cdp hearing she also properly balanced the need for efficient collection_of_taxes with petitioner’s legitimate concern that the collection action be no more intrusive than necessary respondent did not waive the restriction set forth in sec_6330 by the so’s considering petitioner’s challenge to responsibility at the cdp hearing see 118_tc_572 upholding the validity of sec_301_6320-1 q a-e11 proced admin regs which provides that any determination made by the appeals_office with respect to such a precluded issue shall not be considered part of the notice_of_determination finding no abuse_of_discretion in any respect we will grant summary_judgment for respondent and sustain the notice_of_determination as relates to the proposed levy for the later four quarters to reflect the foregoing an appropriate order and decision will be entered


internal_revenue_service p o box cincinnati oh release number release date date date legend b program c city d dollars amount e dollars amount dear department of the treasury employer_identification_number contact person - id number contact telephone number uil you asked for advance approval of your educational grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax our determination we approved your procedures for awarding educational grants based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding educational loans meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable description of your request your letter indicates you will operate an educational grant program called the b your purpose is to provide grants of up to d dollars to individuals from low-income communities in c to work on grassroots social change projects for the specific objectives of improving the quality of individuals living and working in such blighted areas of c improving and cultivating the skill of the recipients and fostering the development of creative solutions to the issues facing disadvantaged communities in c your mission is to improve the quality of life of individuals living and working in c and surrounding communities you have pursued this mission through grants to organizations in c but you would now like to make grants to individuals pursuing projects that fit within your mission the grant making strategy is to develop more accessible and equitable ways to fund and support transformative social change in c the grants are to be made to individuals and will be used to fund programs relating to grassroots community building leadership development cultural work community organizing and other community work where the primarily participants and leadership of the projects are representative of the communities to be impacted the goals of the grant program are to nurture community level social change in c to support grassroots advocacy and community organizing in c and to model grant making that more closely reflects c’s demographics examples of the types of projects that could be funded by your grant program will include e e e e e forming a tenant group to fight for safe comfortable affordable housing senior services and strong tenants’ rights forming a coalition to organize for a safe reliable and affordable public transportation system to bring the voices of traditionally marginalized riders to the conversation so that needs and concerns about community safety accessibility and equity in a public transit system are heard starting a business boot camp for low-income mothers to develop leadership business management and collective governance skills that will help them start run and operate a childcare cooperative establishing a youth-led collective to create spaces for youth to discuss process and combat oppressive forces that cause trauma and inspire a generation of strong resilient self-actualized leaders who advocate on behalf of themselves and their peers founding a worker-owned cooperative that provides quality employment to returning citizens and troubled youth while providing excellent moving landscaping cleaning and other home improvement services you do not provide educational loans you are in the process of hiring a grant manager who will use word of mouth and paid advertising print digital and radio to market directly to potential grantees c community- based organizations cultural organizations schools and social service agencies that engage with individuals from low-income communities the information about your grant program will be hosted on your website and a separate website dedicated to the grant program your website will host the on-line applications along with a printable version faq’s information session dates and deadlines and contact information your grant manager will maintain the case histories of your grant recipients including names addresses purpose of awards amounts manner of selection and relationships if any to officers directors or donors of funds to be eligible for your grant the applicant must satisfy the following criteria e e e the applicant must seek to pursue a project that is connected to building the political economic and or social power of low income communities in c the applicant must be impacted by the issue addressed by the project the applicant must not be seeking more than d dollars and letter catalog number 58222y e the applicant may not be related to any of your officers directors or staff members your grants will be made to individuals with the eligibility criteria set forth above based on the following selection criteria e e e e need - whether the project the applicant intends to carry out seeks to solve or address an important problem in c community involvement - whether the applicant has demonstrated meaningful impact in their community through past actions ability - whether the applicant has the skills necessary to carry out their project successfully collaboration - whether the applicant is connected to the networks or resources needed to advance their work your grant applications will be reviewed and evaluated using the following process e e e e reading and discussion - each application will be read by all the members of the selection committee but will have three primarily readers all committee members will be expected to be familiar with each application primary readers will lead the discussion and make initial recommendations with the input from the entire panel ranking - committee members will use a five-point metric based on the selection criteria set forth above each applicant will be scored numerically and ranked deliberation - the ranked list will be separated into top middle and bottom tiers the committee will review the list and deliberate to ensure cohort diversity and potential for impact the ranked list will then be edited as needed and finalized award amounts - based on the scope of projects and amounts requested panelists will make finalist recommendations to you you anticipate allocating e dollars each year to fund grants awarded under your program and you will make grants until the annual funds are expended generally each of your grantees will receive the amount requested in their application however your selection committee reserves the right to use their own discretion to make a larger or smaller grant your grant recipients must sign a grant agreement which indicates e e e e e the grant monies must be spent within one year of the award your grantee must submit two reports describing progress made on their project the midterm report is due six months after the grant is awarded and the final report twelve months after the grant is awarded the grantee must keep records of expenditures and enable such records to be readily reviewed the grantee must notify you should any significant change occur in the project plan or in the planned expenditures of the grant funds as specifically set out in the project plan and budget no portion of the grant funds may be used to i influence the outcome of any specific public election ii to carry on propaganda or otherwise to attempt to influence within the meaning of sec_4945 or iii to undertake any letter catalog number 58222y activity for any purpose other than a charitable educational etc purpose described in sec_170 grantees must acknowledge your support in written materials relating to the project you may include information about the grantee and their activities in your annual reports website and social media e e grant recipients will receive their awards in three payments e e e upon grant notification and return of a signed grant agreement recipients receive percent of their grant award amount after submission of a midterm report six months after the grant is awarded recipients receive percent of their grant award amount and after submission of a final report twelve months after the grant is awarded recipients receive the final percent of their grant award amount additionally your grant manager will communicate regularly with grantees through monthly newsletters quarterly meetings and grant-related events if the terms of the grant agreement are violated then all pending and future payments will be suspended until an investigation is completed and any violations are corrected payments already made will not typically be required to be refunded except in cases of extreme negligence and mismanagement the selection committee will be comprised of five members who make a commitment to serve for two years the initial members of the selection committee have not yet been identified you will seek out individuals to join the selection committee to ensure that the selection committee members have the appropriate knowledge cultural competency and sensibilities suited to review the applications you will look for selection committee members who are organizers leaders and artists involved in social change in c committee members will bring a broad range of experiences with community projects grassroots organizing and philanthropy they will also serve as community ambassadors for the program you represent that you will arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversions of funds from their intended purposes and take all reasonable and appropriate steps to recover diverted funds ensure other grant funds held by a grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees’ assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversions from occurring you represent that you will maintain all records related to the following individual grants including information to evaluate grantees grantees which are identified as a letter catalog number 58222y disqualified_person how the amount and purpose of each grant was established and how you established supervision and investigation of the grants basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure e e e the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is - - - ascholarship or fellowship subject_to sec_117 and is to be used for study at an educational_organization described in sec_170 or aprize or award subject_to the provisions of sec_74 if the recipient of the prize or award is selected from the general_public or to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar skill or talent of the recipient to receive approval of its educational grant procedures sec_53_4945-4 requires that a private_foundation show e e e the grant procedure includes an objective and nondiscriminatory selection process the grant procedure results in the recipients performing the activities the grants were intended to finance the foundation plans to obtain reports to determine whether the recipients have performed the activities that the grants were intended to finance other conditions that apply to this determination e e e this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh letter catalog number 58222y e e e you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely stephen a martin director exempt_organizations rulings and agreements letter catalog number 58222y


tcmemo_2008_93 united_states tax_court blake sime atkin and susan m atkin petitioners v commissioner of internal revenue respondent docket no filed date blake sime atkin and susan m atkin pro sese richard w kennedy for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined a dollar_figure deficiency in petitioners’ federal_income_tax and a dollar_figure sec_6662 penalty after a concession the issues remaining for decision are whether a dollar_figure simplified_employee_pension individual_retirement_account sep-ira distribution received by blake s atkin mr atkin in is includable in income in the distribution whether the percent additional tax pursuant to sec_72 applies to the distribution and whether petitioners are liable for an accuracy-related_penalty pursuant to sec_6662 for findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time they filed the petition petitioners resided in utah in date mr atkin wa sec_45 years old when he requested and received the distribution of dollar_figure from his sep- ira mr atkin the sole shareholder of an incorporated law firm deposited the distribution into his law firm’s operating account on date within days of depositing the distribution mr atkin instructed his law firm’s bookkeeper to write a dollar_figure check and mail it to scott barben mr barben a unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure petitioners concede that dollar_figure in wages mr atkin received from the state of utah in are taxable broker who mr atkin instructed to roll the funds over into a new individual_retirement_account ira mr barben never received the funds consequently mr barben never opened a new ira for mr atkin petitioners did not report the distribution on their timely filed form_1040 u s individual_income_tax_return or their form 1040x amended u s individual_income_tax_return in mr atkin segregated dollar_figure from his law firm’s operating account into a separate non-interest-bearing account as of the date of trial petitioners had not deposited the distribution into an ira petitioners did not spend any of the distribution on any expense that qualifies as an exception pursuant to sec_72 opinion petitioners have neither claimed nor shown that they satisfied the requirements of sec_7491 to shift the burden_of_proof to respondent with regard to any factual issue accordingly petitioners bear the burden_of_proof see rule a i ira distribution includable in gross_income a 60-day requirement petitioners stipulated that they received a sep-ira distribution of dollar_figure in generally a distribution from an ira is includable in the distributee’s income in the year of distribution as provided in sec_72 sec_408 110_tc_1 sec_408 provides an exception to this rule for rollover_contributions to qualify as a rollover_contribution an ira distribution must be rolled over pursuant to sec_408 within days of receipt the 60-day requirement sec_408 smithsi v commissioner tcmemo_1981_652 handy v commissioner tcmemo_1981_411 petitioners argue that they were unaware that they did not roll over the sep-ira distribution within the 60-day requirement until they received the deficiency_notice from respondent on date upon becoming aware of the failed rollover mr atkin requested that his law firm’s current bookkeeper ms heidi atkin4 ms atkin inquire into the status of the dollar_figure check that mr atkin’s prior bookkeeper had written in an affidavit ms atkin stated that a dollar_figure check was written but for purposes of this case the distinctions between a sep-ira and an ira are not relevant ms atkin is petitioners’ daughter-in-law never cashed in an affidavit mr barben stated that he never received any funds from mr atkin petitioners rely on 93_tc_114 in arguing that the distribution is excludable from their gross_income even though they failed to meet the 60-day requirement in wood the court held that the taxpayers’ rollover of stock into an ira was timely even though the ira trustee recorded the stock in the wrong account and did not correct this error until approximately months after the 60-day requirement had expired id in holding that the taxpayers had effected a rollover of the distribution within the 60-day requirement the court noted that within days of the distribution the taxpayers had opened the ira delivered the stock to the trustee instructed the trustee to roll over the stock into the ira and been assured by the trustee that the rollover would be consummated as instructed id in wood the failed rollover occurred as a result of a clerical_error on the part of the broker the facts in this case are distinguishable from those in wood mr atkin waited over years before inquiring into the status of the distribution mr atkin claims that the check was lost in the mail and thus the failed rollover was not his fault whether the check was lost in the mail is not dispositive mr atkin should have been alert to the fact that he never received a statement regarding the ira account he thought he had opened never discussed investment strategies with mr barben and never noticed that the dollar_figure had not been withdrawn from his law firm’s operating account b amendment allowing waiver of 60-day requirement after petitioners discovered the dollar_figure check was not cashed they asked internal_revenue_service irs representatives what options were available to correct the failed rollover according to petitioners the irs representatives told them that nothing could be done to correct the failed rollover and their only recourse would be to petition the court regarding the deficiency during petitioners’ research for trial they discovered that sec_408 i granted the secretary the authority to waive the 60-day requirement however as of the date of trial petitioners had not applied to the secretary for a waiver of the 60-day requirement c advice of irs representatives the fact that petitioners may have received inaccurate advice from irs representatives after the 60-day rollover period does not alter the result herein see smithsi v commissioner supra it is the statute which governs the determination of sec_408 provides t he secretary may waive the 60-day requirement on rollovers and partial rollovers where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement petitioners’ substantive tax_liability and the statements of irs representatives while understandably nettlesome to petitioners do not alter this rule see 54_tc_1691 affd 457_f2d_1 3d cir accordingly we conclude the distribution petitioners received in is taxable as ordinary_income ii sec_72 sec_72 provides for a 10-percent additional tax on early distributions from a qualified_retirement_plan petitioners stipulated that they did not spend the distribution on any expense that qualifies for an exception under sec_72 and that mr atkin was only at the time of the distribution accordingly the distribution to petitioners is subject_to the 10-percent additional tax pursuant to sec_72 iii accuracy-related_penalty respondent determined petitioners are liable for an accuracy-related_penalty pursuant to sec_6662 of dollar_figure for respondent determined that petitioners’ entire underpayment_of_tax for was attributable to negligence or disregard of rules or regulations and or a substantial_understatement_of_income_tax pursuant to sec_6662 and b and taxpayers may be liable for a penalty of percent of the portion of an underpayment_of_tax due to negligence or disregard of rules or regulations or attributable to a substantial_understatement_of_income_tax the term negligence in sec_6662 includes any failure to make a reasonable attempt to comply with the internal_revenue_code and any failure to keep adequate books_and_records or to substantiate items properly sec_6662 sec_1_6662-3 income_tax regs negligence has also been defined as the failure to exercise due care or the failure to do what a reasonable person would do under the circumstances see 92_tc_1 affd 925_f2d_348 9th cir 85_tc_934 the term disregard includes any careless reckless or intentional disregard sec_6662 the term understatement means the excess of the amount of tax required to be shown on a return over the amount of tax imposed which is shown on the return reduced by any rebate within the meaning of sec_6211 sec_6662 generally an understatement is a substantial_understatement when the understatement exceeds the greater of dollar_figure or percent of the amount of tax required to be shown on the return sec_6662 the commissioner has the burden of production with respect to the accuracy-related_penalty sec_7491 to meet this burden the commissioner must produce sufficient evidence indicating that it is appropriate to impose the penalty see 116_tc_438 once the commissioner meets this burden of production the taxpayers must come forward with persuasive evidence that the commissioner’s determination is incorrect rule a see higbee v commissioner supra pincite the taxpayers may meet this burden by proving that they acted with reasonable_cause and in good_faith with respect to the underpayment see sec_6664 see also higbee v commissioner supra pincite sec_1_6664-4 income_tax regs respondent satisfied the burden of production petitioners’ income_tax return contains an understatement_of_tax greater than dollar_figure and greater than percent of the amount of tax required to be shown on the return see sec_6662 petitioners bear the burden of proving that with respect to the resulting underpayment they acted with reasonable_cause and in good_faith see sec_6664 higbee v commissioner supra pincite petitioners argue that the accuracy-related_penalty should not be imposed because they were unaware that the check was not cashed and that the ira was not opened we disagree and find that petitioners failed to exercise due care or to act as a reasonable person would under the circumstances petitioners were allegedly unaware that the dollar_figure check was not cashed until respondent brought it to their attention after years had passed petitioners never received monthly statements from the ira and never followed up with mr barben to make sure that he had opened the ira further mr atkin should have been aware that his law firm’s operating account had dollar_figure more than he thought it should have after mr atkin told his bookkeeper to write a check to open an ira he took no steps to follow up in over years accordingly we sustain respondent’s determination as to the accuracy-related_penalty pursuant to sec_6662 for in reaching all of our holdings herein we have considered all arguments made by the parties and to the extent not mentioned above we conclude they are irrelevant or without merit to reflect the foregoing decision will be entered for respondent


cca_2013062611315743 id ----------------------------- office uilc number release date from --------------------- sent wednesday date am to ------------------------------ cc ------------------------------------------- subject re quick disclosure question ------------ to the extent you wish to use -------- return_information ie information gathered as part of a determination of------- liability under the code in a later examination of ----- you are free to do so sec_6103 allows us to disclose a party’s own info in an exam of that party regardless of the year under exam additionally sec_6103 allows us to use internally return_information needed as part of our official duties thanks -------


internal_revenue_service department of the treasury number release date index no p o box ben franklin station washington dc person to contact telephone number refer reply to cc psi -- plr-140752-02 date date legend taxpayer parent transferor substation substation state year year year year date b c d e f plr-140752-02 g dear this letter responds to your letter dated date and subsequent correspondence submitted on behalf of taxpayer requesting a letter_ruling concerning whether the transfer of an intertie by transferor to taxpayer will be a nonshareholder contribution_to_capital excludable from income under sec_118 of the internal_revenue_code taxpayer represents that the facts are as follows facts taxpayer is an investor-owned utility organized under state law that supplies electricity to various parts of state taxpayer owns and operates an integrated transmission system for the transmission of electrical energy generated by itself as well as other generating utilities taxpayer is a member of the parent affiliated_group_of_corporations parent is a global energy company that is engaged through various subsidiaries in electricity generation distribution and trading and related_services parent owns manages or has an interest in power plants in the united_states and abroad and serves as a holding_company for utilities in various states parent files a consolidated federal_income_tax return for all members of the affiliated_group including taxpayer the affiliated_group reports its income using a calendar tax_year and the accrual_method of accounting transferor is a rural electric cooperative in state transferor was organized in year and is exempt from federal_income_tax under sec_501 transferor is a generation and transmission cooperative under the terms of the year interconnection agreement ia between transferor and taxpayer transferor must utilize taxpayer’s transmission grid for the wheeling of power in order to sell any portion of its generation in the off-system area the wheeling of transferor’s sales of electric power across taxpayer’s transmission system are governed under the terms of the interconnection agreement this agreement addresses the terms and conditions of such sales as well as the applicable tariff for each type of transaction because transferor has the responsibility to provide generation for its members in the off-system area a location that is generally in taxpayer’s service territory load and generation must be balanced between transferor and taxpayer and their respective service areas to allow for service during contingencies this situation requires the installation of generation facilities by transferor in the on-system as well as the off-system area plr-140752-02 in order to better serve its members in the off-system area facilitate its members’ economic development efforts and provide generation to balance its generation with load in the on-system and off-system areas and taxpayer’s transmission system transferor is planning to construct a new generation site approximately b miles east of substation criteria for selection of this site included access to high-pressure natural_gas service the existence of a stream into which wastewater could be discharged access to existing transferor and taxpayer transmission lines and availability of water the existing transferor transmission lines are radial in nature and serve discrete member loads substation site is landlocked within an existing service territory of one of transferor’s members and is adjacent to an area served by taxpayer accordingly the proposed generator units will not be physically attached to or part of any other generating facility owned or operated by transferor in addition to fostering economic development the substation site was chosen by transferor to eliminate a recurring energy imbalance that creates inefficiencies in the integrated transmission systems of taxpayer and transferor elimination of this energy unbalance will result in more efficient operation of the transmission system reduced transmission cost to transferor improved reliability of substation and improved operation of the entire taxpayer transmission grid transferor will construct a total of b c-mw gas-fired combustion turbines on the site facilities construction on the first unit is commencing in year with the final unit scheduled to be completed by the summer of year the facilities are being constructed primarily to meet the electrical demand of transferor’s members in the off- system area during times of peak usage accordingly these facilities may be idle for extended periods of time until needed transferor may also use these facilities to make sales at wholesale to other utilities including taxpayer taxpayer represents that the intertie intertie includes the following with the exception of substation in order to make the facilities fully functional transferor will build d e kv lines from the generating site to the vicinity of substation adjacent to substation transferor will construct substation a new e kv substation that will serve as the terminus for these new transmission lines transferor will also relocate d existing transmission lines which are currently served by substation to the new substation transferor will construct substation to taxpayer’s specifications and will lease substation to taxpayer which will operate and maintain the new site for transferor several d of taxpayer’s existing e kv transmission lines will also be relocated to the new substation taxpayer employees will be used to do the work and transferor will pay for the relocation costs upon completion substation will be interconnected with the substation transferor will pay for the cost to make the interconnection additionally taxpayer must upgrade system protection devices on the d existing taxpayer e kv transmission lines prior to the reconnection of these lines to substation on date transferor and taxpayer executed a memorandum of understanding mou relating to the implementation and administration of the year interconnection operating_agreement ioa applicable solely to the facilities according to the mou plr-140752-02 the ioa is intended by the parties as a complimentary but stand-alone addendum to and not as a substitute or replacement of the ia the parties intend that the ioa be effective only as to the interconnection and interconnected operation of the facilities although taxpayer has yet to determine a final cost estimate the costs charged to transferor for completion of the intertie may total between dollar_figuref and dollar_figureg taxpayer will not include the costs of the intertie in its rate base taxpayer makes the following additional representations first the intertie will become a permanent part of taxpayer’s working_capital structure second the transfer of the intertie by transferor to taxpayer will not be compensation_for a specific quantifiable service provided by taxpayer third the proposed transfer of the intertie was subject_to negotiations between transferor and taxpayer and consequently the transfer was bargained for fourth the intertie will foreseeably benefit taxpayer in an amount commensurate with its value for the reasons stated above regarding the benefits that taxpayer will derive from the more efficient operation of its transmission grid in this area fifth the intertie will be employed in or contribute to the production of additional income to taxpayer and consequently the value of the intertie will be assured in that respect transferor represents that the costs for the intertie contributed to taxpayer by transferor will be capitalized by transferor as an intangible asset and recovered using a straight_line method over a useful_life of years ruling requested taxpayer requests the service to rule that the transfer of the intertie by transferor to taxpayer will not be a contribution_in_aid_of_construction under sec_118 and will be excludable from taxpayer’s gross_income as a nonshareholder contribution_to_capital under sec_118 law and analysis sec_61 and sec_1_61-1 of the income_tax regulations provide that gross_income means all income from whatever source derived unless excluded by law sec_118 provides that in the case of a corporation gross_income does not include any contribution_to_the_capital_of_the_taxpayer sec_118 as amended by a of the tax_reform_act_of_1986 the act and a of the small_business job protection act of provides that for purposes of subsection a except as provided in subsection c the term contribution to the capital of taxpayer does not include any ciac or any other contribution as a customer or potential customer sec_1_118-1 of the income_tax regulations provides in part that sec_118 also applies to contributions to capital made by persons other than shareholders for plr-140752-02 example the exclusion applies to the value of land or other_property contributed to a corporation by a governmental_unit or by a civic group for the purpose of enabling the corporation to expand its operating facilities however the exclusion does not apply to any money or property transferred to the corporation in consideration for goods or services rendered or to subsidies paid to induce the taxpayer to limit production the legislative_history to sec_118 indicates that the exclusion_from_gross_income for nonshareholder contributions to capital of a corporation was intended to apply to those contributions that are neither gifts because the contributor expects to derive indirect benefits nor payments for future services because the anticipated future_benefits are too intangible the legislative_history also indicates that the provision was intended to codify the existing law that had developed through administrative and court decisions on the subject h_r rep no 83rd cong 2d sess s rep no 83d cong 2d sess notice_88_129 1988_2_cb_541 as modified and amended by notice_90_60 1990_2_cb_345 and notice_2001_82 2001_52_irb_619 provides specific guidance with respect to the treatment of transfers of property to regulated public_utilities by qualifying small power producers and qualifying cogenerators collectively qualifying facilities as defined in sec_3 of the federal power act as amended by section of purpa the amendment of sec_118 by the act was intended to require utilities to include in income the value of any ciacs made to encourage the provision of services by a utility to a customer see h_r rep no 99th cong 2d sess in a ciac transaction the purpose of the contribution of property to the utility is to facilitate the sale of power by the utility to a customer in contrast the purpose of the contribution by a qualifying_facility to a utility is to permit the sale of power by the qualifying_facility to the utility accordingly the fact that the amendments to sec_118 render ciac transactions taxable to the utility does not require a similar conclusion with respect to transfers from qualifying facilities to utilities notice_88_129 provides in part that with respect to transfers made by a qualifying_facility to a utility exclusively in connection with the sale of electricity by the qualifying_facility to the utility a utility will not realize income upon transfer of interconnection equipment intertie by a qualifying_facility an intertie may include new connecting and transmission facilities or modifications upgrades or relocations of a utility’s existing transmission network the possibility that an intertie may be used to transmit power to a utility that will in turn transmit the power across its transmission network for sale by the qualifying_facility to another utility wheeling will not cause the contribution to be treated as a ciac further the notice provides in part that a transfer from a qualifying_facility to a utility will not be treated as a qualifying_facility transfer qf transfer under this notice to the extent the intertie is included in the utility’s rate base moreover a transfer of an plr-140752-02 intertie to a utility will not be treated as a qf transfer under this notice if the term of the power purchase contract is less than ten years the notice also provides in part that a utility that constructs an intertie in exchange for a cash payment from a qualifying_facility pursuant to a purpa contract will be deemed to construct the property under contract and will recognize income from the construction in the same manner as any other taxpayer constructing similar_property under contract subsequent to the construction of the property the qualifying_facility will be deemed to transfer the property to the utility in a qf transfer that will be treated in exactly the same manner as an in-kind qf transfer notice_2001_82 amplifies and modifies notice_88_129 notice_2001_82 extends the safe_harbor provisions of notice_88_129 to include transfers of interties from non- qualifying facilities and transfers of interties used exclusively or in part to transmit power over the utility’s transmission grid for sale to consumers or intermediaries wheeling the notice requires that ownership of the electricity wheeled passes to the purchaser prior to its transmission on the utility’s transmission grid this ownership requirement is deemed satisfied if title passes at the busbar on the generator’s end of the intertie further notice_2001_82 provides that a long-term interconnection agreement in lieu of a long-term power purchase contract may be used to satisfy the safe_harbor provisions of notice_88_129 in wheeling transactions finally notice_2001_82 requires that the generator must capitalize the cost of the property transferred as an intangible asset and recovered using the straight-line method over a useful_life of years in the instant case the proposed transfer of the intertie will be subject_to the guidance set forth in notice_88_129 notice_90_60 and notice_2001_82 for the following reasons the facilities will be a stand-alone generator as contemplated under notice_2001_82 transferor and taxpayer have entered into a long-term interconnection agreement the intertie will be used in connection with the transmission of electricity primarily for sale to third parties wheeling the cost of the intertie will not be included in taxpayer’s rate base it is projected that during the first ten taxable years of the facilities no more than percent of the projected total power flows over the intertie will flow to transferor it is represented that transferor will not own the electricity prior to its transmission on taxpayer’s transmission grid and the cost of the intertie will be capitalized by transferor as an intangible asset and recovered using the straight-line method over a useful_life of years thus we conclude that the transfer of the intertie by transferor to taxpayer will meet the safe_harbor requirements of notice_88_129 as amended and modified by notice_90_60 and notice_2001_82 next we must decide whether the contribution will qualify as a contribution_to_capital under sec_118 the legislative_history of sec_118 provides in part as follows plr-140752-02 this sec_118 in effect places in the code the court decisions on the subject it deals with cases where a contribution is made to a corporation by a governmental_unit chamber of commerce or other association of individuals having no proprietary interest in the corporation in many such cases because the contributor expects to derive indirect benefits the contribution cannot be called a gift yet the anticipated future_benefits may also be so intangible as to not warrant treating the treating the contribution as a payment for future services s rep no 83d cong 2d sess in 319_us_98 the court held that payments by prospective customers to an electric utility company to cover the cost of extending the utility’s facilities to their homes were part of the price of service rather than contributions to capital the concerned customers’ payments to a utility company for the estimated cost of constructing service facilities primary power lines that the utility company otherwise was not obligated to provide the customers intended no contribution to the company’s capital later in 339_us_583 1950_1_cb_38 the court held that money and property contributions by community groups to induce a shoe company to locate or expand its factory operations in the contributing communities were nonshareholder contributions to capital the court reasoned that when the motivation of the contributors is to benefit the community at large and the contributors do not anticipate any direct benefit from their contributions the contributions are nonshareholder contributions to capital id pincite finally in 412_us_401 the court in determining whether a taxpayer was entitled to depreciate the cost of certain facilities that had been funded by the federal government held that the governmental subsidies were not contributions to the taxpayer’s capital the court recognized that the holding in detroit edison co had been qualified by its decision in brown shoe co the court in chicago burlington quincy railroad co found that the distinguishing characteristic between those two cases was the differing purpose motivating the respective transfers in brown shoe co the only expectation of the contributors was that such contributions might prove advantageous to the community at large thus in brown shoe co since the transfers were made with the purpose not of receiving direct services or recompense but only of obtaining advantage for the general community the result was a contribution_to_capital the court in chicago burlington quincy railroad co also stated that there were other characteristics of a nonshareholder contribution_to_capital implicit in detroit edison co and brown shoe co from these two cases the court distilled some of the characteristics of a nonshareholder contribution_to_capital under both the and codes first the payment must become a permanent part of the transferee’s working_capital structure second it may not be compensation such as a direct plr-140752-02 payment for a specific quantifiable service provided for the transferor by the transferee third it must be bargained for fourth the asset transferred foreseeably must benefit the transferee in an amount commensurate with its value fifth the asset ordinarily if not always will be employed in or contribute to the production of additional income and its value assured in that respect the proposed transfer of the intertie by transferor to taxpayer possesses the characteristics of a nonshareholder contribution_to_capital as described in chicago burlington quincy railroad co first the intertie will become a permanent part of taxpayer’s working_capital structure second the intertie is not compensation_for a specific quantifiable service provided by taxpayer third the proposed transfer of the intertie was subject_to negotiations between transferor and taxpayer consequently it was bargained for fourth the intertie will foreseeably benefit taxpayer in an amount commensurate with its value for the reasons stated above regarding the benefits that taxpayer will derive from the more efficient operation of the grid in this area fifth the intertie will be employed in or contribute to the production of additional income to taxpayer and consequently the value of the intertie will be assured in that respect therefore taxpayer’s receipt from transferor of the intertie will be a contribution_to_capital under sec_118 accordingly based solely on the foregoing analysis and the representations made by taxpayer and transferor we rule that the transfer of the intertie by transferor to taxpayer will not be a ciac under sec_118 and will be excludable from the gross_income of taxpayer as a nonshareholder contribution_to_capital under sec_118 except as specifically set forth above no opinion is expressed or implied concerning the federal_income_tax consequences of the above described facts under any other provision of the code or regulations specifically no opinion is expressed or implied as to whether your representation that less than percent of the total projected power flows over the intertie from taxpayer to transferor is a reasonable projection for purposes of the percent test in notice_88_129 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely walter h woo senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosure copy


internal_revenue_service national_office technical_advice_memorandum number release date index uil no case mis no tam-118390-02 cc psi b2 director sbse taxpayers' names taxpayers' address taxpayers' identification no years involved date of conference legend husband wife son trust farm date date year year year issue whether income of a testamentary_trust that is generated by farming activity and distributed by the trust to individuals who are both beneficiaries and trustees of the trust is considered net_earnings_from_self-employment to the individuals and subject_to self- employment_tax under sec_1402 of the internal_revenue_code conclusion the income of the trust that is derived from operations of the farm is not in itself considered net_earnings from self employment under sec_1402 of the internal_revenue_code for individuals who are both beneficiaries and trustees of the trust however to the extent that the distributions are payments for any services that these individuals are also providing to the trust as part of any trade_or_business of such individuals such amounts will generally be considered net_earnings from self- employment subject_to self-employment taxes a determination should be made whether the payments received by the individuals for any services they provided to the trust as part of a trade_or_business were reasonable and of sufficient amount facts according to the trust instrument and other information provided to us following the death of husband the trust became an irrevocable testamentary_trust the assets in the trust included the farm effective date the wife and the son were appointed primary trustees with equal trustee powers as co-trustees the wife and son are also the beneficiaries of the trust under a contract with the trust the son is paid a fee for managing the operations of the farm as part of his trade_or_business the wife is also paid a fee by the trust for maintaining records for the operations of the farm as part of her trade_or_business according to the trust document all decisions concerning the operations of the farm are made by both co-trustees upon the earlier of date or the death of wife the trust will terminate and distribute its assets to son if son dies prior to the trust’s termination the trust provides for contingent beneficiaries additionally if disputes arise among the trustees the trust provides for an arbitration trustee defined as a third trustee who is not involved in the day to day operation of trust to settle the disputes since the inception of the trust form_1041 u s income_tax return for estates and trusts has been filed annually on behalf of the trust the wife and son each annually filed their separate form_1040 u s individual_income_tax_return when wife and son receive their individual income distributions from the trust as beneficiaries of the trust the trust distributions are shown on form_1041 and each beneficiary reports the amount of the distribution received on their respective form_1040 return self- employment contributions act seca_tax is not reported on the distributions to the beneficiaries however the son includes and reports the management fees he receives for operating the farm as being subject_to seca and the wife includes and reports the fees she receives for maintaining the records of the farm as being subject_to seca the years that are under examination are year year and year law and analysis sec_1402 generally defines net_earnings from self- employment as the gross_income derived by an individual from any trade_or_business carried on by such individual less deductions allowed by this subtitle which are attributable to such trade_or_business plus his distributive_share whether or not distributed of income or loss described in sec_702 from any trade_or_business carried on by a partnership of which he is a member with certain exceptions that are not applicable here sec_1_1402_a_-2 of the income_tax regulations provides that a trade_or_business must be carried on by the individual either personally or through agents or employees the regulation further provides a ccordingly income derived from a trade_or_business carried on by an estate_or_trust is not included in determining the net_earnings_from_self-employment of the individual beneficiaries of such estate_or_trust when the employment-tax provisions were enacted the congressional committee reports provided the trade_or_business must be carried on by the individual either personally or through agents or employees in order for the income to be included in his net_earnings form self-employment accordingly gross_income derived by an individual from a trade_or_business carried on by him does not include income derived by a beneficiary from an estate_or_trust even though such income is derived from a trade_or_business carried on by the estate_or_trust s rep no 81st cong 2nd sess 1950-2c b the requirement that income for purposes of sec_1402 of the code must be from the trade_or_business carried on by the individual is illustrated in revrul_59_162 1959_1_cb_224 the example in the revenue_ruling involves distribution of an insurance renewal commission under the terms of a contract between the husband and his insurance_company following the death of the husband the insurance renewal commission earned by the husband would be paid to the wife although the insurance renewals would be net_earnings_from_self-employment for the husband the ruling found that the insurance renewals would not be considered net_earnings from self- employment for the widow because they were not derived by a trade_or_business carried on by her see also revrul_59_168 1959_1_cb_625 sec_1402 of the code and the regulations thereunder provide that income derived from a trade_or_business maintained by trust is not included in determining net_earnings_from_self-employment by the individual beneficiaries thus where a trade_or_business is carried on by a_trust and not an individual the income derived from property maintained by the trust would not be includible in determining the net_earnings_from_self-employment of an individual beneficiary unless there is basis for disregarding the trust for purposes of the code and finding that the net_earnings are actually derived from a trade_or_business maintained by the individual beneficiary sec_301_7701-4 of the procedure and administration regulations addresses ordinary trusts and provides that the term trust as used in the internal_revenue_code refers to an arrangement created either by a will or by an inter_vivos declaration whereby trustees take title to property for the purpose of either protecting or conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts usually the beneficiaries of such a_trust do no more than accept the benefits thereof and are not the voluntary planners or creators of the trust arrangement however the beneficiaries of such a_trust may be the persons who create it and it will be recognized as a_trust under the internal_revenue_code if it was created for the purpose of protecting or conserving the trust property for beneficiaries who stand in the same relation to the trust as they would if the trust had been created by others for them generally speaking an arrangement will be treated as a_trust under the internal_revenue_code if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint enterprise for the conduct of business for profit sec_301_7701-4 of the procedure and administration regulations addresses business trusts and provides that there are other arrangements which are known as trusts because the legal_title to property is conveyed to trustees for the benefit of beneficiaries but which are not classified as trusts for purposes of the internal_revenue_code because they are not simply arrangements to protect or conserve the property for the beneficiaries these trusts which are often known as business or commercial trusts generally are created by the beneficiaries simply as a device to carry on a profit- making business which normally would have been carried on through business organizations that are classified as corporations or partnerships under the internal_revenue_code however the fact that the corpus of the trust is not supplied by the beneficiaries is not sufficient reason in itself for classifying the arrangement as an ordinary_trust rather than as an association or partnership the fact that any organization is technically cast in the trust form by conveying title to property to trustees for the benefit of persons designated as beneficiaries will not change the real character of the organization if the organization is more properly classified as a business_entity under sec_301_7701-2 sec_301_7701-2 of the procedure and administration regulations provides that a business_entity includes any entity recognized for federal tax purposes including an entity with a single owner that may be disregarded as an entity separate from its owner under sec_301_7701-3 that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code based solely on the facts submitted and the representations made we conclude that upon the death of husband the trust became an irrevocable_trust that is considered a_trust under sec_301_7701-4 and not a business_trust under sec_301_7701-4 see 86_tc_1207 wife and son were paid_by the trust for services that they each performed for the trust as part of his or her trade_or_business income that wife and son received from the trust as beneficiaries is separate from any payments wife and son should receive for the performance of services as part of a trade_or_business on behalf of the trust as an owner of the farm although we have found that the trust qualifies as a_trust under sec_301_7701-4 there could be an issue of whether the wife and son received adequate payments for the services they performed for the trust as part of a trade_or_business in this regard we suggest that a determination be made as to whether the wife and son received payments that were reasonable and of sufficient amount for services they provided on behalf of the trust as part of a trade_or_business caveat a copy of this technical_advice_memorandum is to be given to the taxpayers sec_6110 of the code provides that it may not be used or cited as precedent


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 b02 plr-114841-09 date date x ------------------------------------------------------------------------------------------------------ ---------------------- state ---------- date ------------------ dear ------------- this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in state on date it was intended for x to be an s_corporation effective date however no form_2553 election by a small_business_corporation was timely filed for x sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s_corporation will be effective generally 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 sec_1362 provides that if an s election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and the plr-114841-09 secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective date accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective date within days following the date of this letter then such election will be treated as timely made for date a copy of this letter should be attached to the form_2553 except as expressly provided herein no opinion is expressed or implied concerning the federal_income_tax consequences of the facts described above under any other provision of the code including whether x is in fact an s_corporation for federal tax purposes 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 sincerely bradford r poston senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court robert serenbetz and karen j serenbetz petitioners v commissioner of internal revenue respondent docket no filed date robert and karen j serenbetz pro sese margaret s rigg for respondent memorandum findings_of_fact and opinion jacobs judge by separate notices of deficiency both dated date respondent determined the following deficiencies in petitioners' federal income taxes year deficiency dollar_figure dollar_figure the dispute between the parties concerns the deductibility of losses reported by petitioners in and that are attributable to their vermont resort condominium in this regard we must decide whether the losses constitute passive_activity_losses under sec_469 which in turn depends upon whether petitioners materially participated in the rental of their condominium all section references are to the internal_revenue_code in effect for the years under consideration all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioners husband and wife resided in newtown pennsylvania at the time they filed their petition they timely filed joint federal_income_tax returns for and the years under consideration in another notice_of_deficiency dated date respondent determined a deficiency in petitioners' income_tax that deficiency was also based on respondent's disallowance of a loss attributable to petitioners' vermont resort condominium petitioners disputed the determinations set forth in all three notices of deficiency in a letter to the court dated date which we received and filed as an imperfect petition on date the letter was delivered to the court by federal express and thus did not bear a united_states postmark because date is the 93rd day after the notice_of_deficiency for was mailed to petitioners we granted respondent's motion to dismiss and strike year robert serenbetz is a business executive during the years under consideration he was the president and chief operating officer of dna plant technology corporation an agricultural biotechnology company prior thereto he was a vice president of warner-lambert co and the president of american chicle mrs serenbetz is a homemaker during the years under consideration petitioners owned a condominium in notch brook resort condominiums a 50-unit development located in stowe vermont the vermont condominium all condominium_owners were members of the condominium association and those condominium_owners who wished to rent their units to third parties were partners in the notch brook hotel condominium partnership the partnership petitioners were members of the partnership as were about other owners the condominium association was governed by a board_of directors mr serenbetz was a member of the board_of directors of the condominium association in both and that board met on a regular basis and mr serenbetz sometimes participated in meetings by telephone in mr serenbetz spent hours preparing for and attending meetings reviewing minutes of meetings and discussing the meetings with his wife mr serenbetz spent hours in preparing for and attending board meetings and reviewing minutes of the board meetings the day-to-day rental operation of the partnership was run and managed by an on-site staff of nine employees of both the partnership and the condominium association the employees include a manager assistant manager bookkeeper front-desk staff person housekeepers and maintenance staff the employees maintained the partnership books_and_records maintained the units and grounds and marketed and advertised the rental operation the partnership pays for the property insurance utilities and repairs of the units owned by its partners the expenses from all of the partners' units were pooled and shared ratably among the partners based on the partner's partnership_interest which was based on his interest in the condominium association and the number of days each unit was available for rent during the year petitioners shared in partnership rental income for each day their unit was available for rent even if it was not actually rented under the partnership_agreement each unit owner is entitled to use his unit without charge for no more than weeks during the winter season and weeks during the summer season should the unit owner occupy his unit more than his her allotted time he is charged percent of the established regular seasonal hotel rate there is no limitation on the owner's occupancy during the other periods of the year petitioners and or their children used their condominium less than days during each year under consideration for the years under consideration petitioners reported the income and expenses of their vermont condominium as a trade_or_business activity on schedule c of their tax_return in they reported rental receipts of dollar_figure and expenses of dollar_figure resulting in a loss of dollar_figure in they had dollar_figure in rental receipts and dollar_figure in expenses resulting in a loss of dollar_figure petitioners used these losses to offset other income in and petitioners reported taxable_income of dollar_figure and dollar_figure respectively respondent determined that the losses from the vermont condominium constitute passive_activity_losses within the meaning of sec_469 and accordingly disallowed most of the losses in the years under consideration opinion pursuant to sec_469 a passive_activity_loss is generally not allowed as a deduction for the year sustained sec_469 defines a passive_activity_loss as the amount by which a the aggregate losses from all passive activities for the taxable_year exceed b the aggregate income from all passive activities for such year passive activities are those activities which involve the conduct_of_a_trade_or_business in which the taxpayer does not materially participate sec_469 rental_activity ordinarily is treated as a passive_activity irrespective of whether there was material_participation sec_469 however an exception exists for rental_activity in which the average rental is no more than days sec_1_469-1t temporary income_tax regs fed reg date in the instant case the parties agree that the average rental period for petitioners' vermont condominium was less than days petitioners contend that they materially participated in the rental of their vermont condominium thus making sec_469 not applicable material_participation in an activity is defined as regular continuous and substantial involvement sec_469 petitioners contend that they satisfy the safe_harbor requirements of sec_1_469-5t temporary income_tax regs fed reg date for material_participation that section permits a finding of material_participation if the individual participates in the activity for more than hours during the taxable_year and such individual's participation in the activity for the taxable_year is not less than the participation in the activity of any other individual including individuals who are not owners of interests in the activity for such year id petitioners claim they spent hours in the involvement of the operations of the rental of their vermont condominium in and hours in in this regard they testified by using a written activities list that was prepared from a contemporaneously kept diary as to specific tasks they performed during the years under consideration their written activities list for shows hours spent preparing federal and state_income_tax returns hours traveling to and from vermont for the annual meeting and party of the condominium association and hours preparing for attending discussing and reviewing minutes of meetings of the condominium association its board_of directors and the partnership the written activities list also records several hours for reviewing equipment and operating budgets and for paying property taxes special condominium assessments housekeeping bills and maintenance bills similar activities were recorded on the written activities list investor activities do not qualify as participation in a trade_or_business unless the individual is directly involved in the day- to-day management or operations of the activity sec_1 5t f ii temporary income_tax regs fed reg date much of petitioners' activities during and like those described above are investor activities or activities of a personal nature that do not qualify as participation in a trade_or_business see toups v commissioner tcmemo_1993_359 sec_1_469-5t temporary income_tax regs fed reg date the financial work done by petitioners was in connection with their investment the treasury regulations provide that work done by an individual in the individual's capacity as an investor in an activity shall not be treated as participation in the activity for purposes of this section sec_469 unless the individual is directly involved in the day-to-day management or operations of the activity sec_1_469-5t temporary income_tax regs fed reg date here the day-to-day management or operations of the partnership was by a full-time staff rather than petitioners see mordkin v commissioner tcmemo_1996_ based on the record before us we are unable to conclude that petitioners spent more than hours participating in the rental activities of their vermont condominium during or however assuming arguendo that they did we believe that petitioners' participation in the rental activities of their vermont condominium was less than that of other individuals thus they do not come within the safe_harbor requirements of sec_1_469-5t temporary income_tax regs fed reg date petitioners contend that although the partnership's rental activities were conducted by an on-site staff of nine employees the number of on-site employees should be divided by the number of units in the partnership and when that is done it is unlikely that any of the nine on-site employees could have spent more than hours on petitioners' unit during or we do not agree with petitioners' logic the language of sec_1 5t a temporary income_tax regs contains nothing which suggests that participation should be computed on a per unit basis see goshorn v commissioner tcmemo_1993_578 it is settled law that taxpayers bear the burden of proving the determinations of the commissioner in a notice_of_deficiency are in error rule a 290_us_111 petitioners have failed to establish that they were material participants in the rental activities of their vermont condominium in or consequently we sustain respondent's determination that petitioners' losses during those years constitute passive_activity_losses under sec_469 to reflect the foregoing decision will be entered under rule


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division u l jul ce tep bat a legend taxpayer a ira x bank b amountd bank c countryu country p company f amount e individual m bank g dear - this is in response to your letter dated date as supplemented by correspondence dated date date and date submitted on your behalf by your authorized representative in which you request a waiver of the day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalties of perjury in support of your request taxpayer a maintained ira x with bank b on july _ taxpayer a withdrew amount d from ira x and deposited amount d into an account with bank c on september a check in the amount of amount d was drawn on bank c in order to redeposit amount d into ira x at bank b however due to banking problems and other restrictions between country u and country p the check was denied as funds were never received from country u a letter submitted by the senior financial advisor of company f indicates that on november amount of amount d into an ira sponsored by company f company f’s representative states that the check was returned on december _- payable taxpayer a attempted to deposit a check in the as non- on march with the assistance of individual m taxpayer a’s in a letter dated july daughter a wire transfer in the amount of amount e was made from bank g to bank b clearing house for the wire transfer of amount e from bank c to bank b the wire transfer of amount e was deposited into taxpayer a’s checking account at bank b as supported by taxpayer a’s checking account statement for march - you state that bank g acted as a on april amount e was transferred from taxpayer a’s checking account at bank b to ira x also at bank b as supported by taxpayer a’s bank b member account statement for taxpayer a states that because of the banking restrictions imposed by country p he was unable to roll over amount d to ira x within the 60-day time period based upon the foregoing facts and representations you request that the service waive the day rollover requirement with respect to the distribution of amount d from ira x sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i ii the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual received the payment or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at the time during the 1-year period ending in the day of such receipt such individual received any other amount described in sec_408 from an ira which was not included in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity and good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occur after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 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 or hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of 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 submitted in this case indicates that a distribution in the amount of amount d was made to taxpayer a from ira x on july taxpayer a attempted to redeposit amount d back into ira x within the 60-day rollover period as supported by the check drawn on bank c dated september however account statements further indicate that the check in the amount of amount d was not negotiated and taxpayer a’s account was debited for a return item because bank b was unsuccessful in obtaining funds in the amount of amount d from country p documentation submitted also supports taxpayer a’s intention to redeposit amount d bank into an ira as supported by company f’s statement with respect to taxpayer a’s attempt to establish an ira at company f company f personnel has asserted that it too was unable to obtain amount d from country p finally account statements and documentation submitted also indicate that amount e was transferred to bank b from bank g and deposited into taxpayer a’s checking account on march to ira x where such funds continues to be held and one day later transferred therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d from ira x on date taxpayer a transferred amount e to ira x at bank b provided all other requirements of sec_408 of the code except the 60-day requirement is met with respect to’such contribution amount e will be considered a valid rollover_contribution within the meaning of sec_408 of the code 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 regulations which may be applicable thereto this ruling does not authorize the rollover of the amounts that are required to be distributed by code sec_401 a this ruling assumes that ira x meets the requirements of code sec_408 at all times relevant to this transaction this ruling is directed only to the taxpayer who requested sec_6110 of the code provides that it may not be used or cited as precedent a copy of this ruling has been sent to your authorized representative pursuant to the provisions of a power_of_attorney on file in this office if vou h2ve any questions about this ruling please contact _se t ep ra t2 at - sincerely yours joyce e floyd manager employee_plans technical group enclosures deleted copy of the ruling letter notice of intention to disclose cc