department of the treasury internal_revenue_service washington d c jan - uniform issue list tep rts tax exept and government entities binision legend taxpayer a company b amount a amount amount c amount d amount e dear plan y date date plan x this is in response to your request dated date as supplemented by correspondence dated date date and fram information gathered during your conference of right held on date and supplemented by an additional conference on date in which you request a waiver of the 60-day roltover requirement contained in sec_402 c of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested page taxpayer a was a participant in plan x a profit-sharing pian that was intended to be qualified under sec_401 a of the code taxpayer a received a distribution from plan x in the form of a check dated date company b the administrator of plan x executed a distribution check of amount a to taxpayer a company b withheld amount b in federal_income_tax from amount c the gross distribution amount amount a was distributed to taxpayer a in the form of a paper check that was delivered by regular mall via the united_states postal service taxpayer a on date attempted to roll over amount c into plan y plan y is a profit-sharing_plan sponsored by taxpayer 4's employer and is intended to be qualified under sec_401 a of the code taxpayer a on date endorsed the paper check representing amount a and executed a cashier's check for amount d taxpayer a on date mailed both checks to the administrator of plan y date was ten days after the expiration of the 60-day period prescribed by sec_402 c of the code during this 70-day period taxpayer a was the care provider for his ill fancée taxpayer a’s fiancée had endured multiple surgeries prior to date and had various treatments appointments and persistent pain during this 70-day period documentation submitted by taxpayer a indicates that no medical procedures occurrad during or shortly before or after the 60-day rollover period taxpayer a provided information reflecting that he and his fiancée both continued to work primarily from their home during the 60-day rollover period taxpayer a stated during the conference of right that during the rollover period he missed no personal appointments and was able to timely meet other outstanding financial obligations based on these facts and representations you request a ruling that the internal_revenue_service waive the 60-day rollover requirement with respect to the distribution of amount e contained in sec_402 c of the code in this instance sec_402 a of the code provides that except as otherwise provided in this section any amount actually distributed to any distribute by any employees’ trust described in sec_407 a which is exempt from tax under saction a shall be taxable to the distribute in the taxable_year of the distributee in which distributed under sec_72 of the code sec_402 c of the code provides that if any portion of the balance_to_the_credit of an employee in a qualified_trust is paid to the employee in an eligible_rollover_distribution and the distributee transfers any portion of the property received in such distribution to an eligible_retirement_plan and in the case of a cistribution of property other than money the amount so transferred consists of the property distributed then such distribution to the extent transferred shall not be includible in gross_income for the taxable yeer in which paid sec_402 c a states that such rollover must be accomplished within days following the day on which the distributes received the property sec_402 b of the code pravides in relevant part that the secretary may waive the 60-day requirement under sec_402 c where the fallure 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 only distributions that occurred after date are eligible for the waiver under sec_402 c b of ihe code se page sec_401 a of the code provides the rules for governing direct transfers of eligible rollover distributions sec_1 a of the income_tax regulations question and answer-15 provides in relevant part that an eligible roliover distribution that is paid to an eligible_retirement_plan in a direct_rollover is a distribution and rollover and not a transfer of assets and liabilities revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 c of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a raliover dus to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred taxpayer a has not demonstrated that his inability to complete a timely rollover of amount was caused by any of the factors cited in revproc_2003_16 amount e is amount a plus amount d taxpayer a asserts that his failure to timely execute a rollover was due to hardship caused by his fianoée’s serious medical_condition the relevant facts and circumstances do not support this finding by his own testimony taxpayer a was able to continue to meet existing work and personal obligations during the rollover period despite his fiancé’s illness nothing in the facts would suggest that the ability to execute a timely rollover was beyond taxpayer a's control therefore pursuant to sec_402 c b of the code the service hereby declines to waive the 60-day rollover requirement with respect to the distribution of amount a from plan x 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 letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may nat be used or cited as precedent f you wish to inquire about this ruling please contact d at please address all correspondence to se t ep ra t3 sincerely yours enclosures deleted copy of letter_ruling notice of intention to disclose


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 b03 plr-110851-15 date august legend --------------------------------------------------------------------------------------------- x ---------------------------------------------------------------------------------------------------------------- ----------------------------------------------- d1 d2 ---------------------- ------------------- year ------- dear ----------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by x's authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the code facts the information submitted states that x is a domestic_corporation that elected to be an s_corporation effective d1 this initial election was rejected by the service but x was unaware of the rejection until d2 x represents that its shareholders have filed tax returns consistent with x being an s_corporation for year x further represents that the circumstances resulting in the termination of x's s_corporation_election were inadvertent and were not motivated by tax_avoidance or retroactive tax planning x and its shareholders have agreed to make plr-110851-15 adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for the year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1362 provides that an election under this section shall be valid only if all persons who are shareholders in such corporation on the day on which such election is made consent to such election sec_1_1362-6 provides that a small_business_corporation makes an election under sec_1362 to be an s_corporation by filing a completed form_2553 the election form must be filed with the service_center designated in the instructions applicable to form_2553 the election is not valid unless all shareholders of the corporation at the time of the election consent to the election in the manner provided in paragraph b of this section however once a valid election is made new shareholders need not consent to that election sec_1_1362-6 provides in relevant part that the taxable_year of a new corporation begins on the date that the corporation has shareholders acquires assets or begins doing business whichever is the first to occur the existence of incorporators does not necessarily begin the taxable_year of a new corporation sec_1_1362-6 provides in relevant part that a shareholder's consent required under paragraph a of this section must be in the form of a written_statement that sets forth the name address and taxpayer_identification_number of the shareholder the number of shares of stock owned by the shareholder the date or dates on which the stock was acquired the date on which the shareholder's taxable_year ends the name of the s_corporation the corporation's taxpayer_identification_number and the election to which the shareholder consents the statement must be signed by the shareholder under penalties of perjury the election is not valid if any required consent is not filed in accordance with the rules contained in this paragraph b the consent statement should be attached to the corporation's election statement plr-110851-15 sec_1362 provides in part that if an election under sec_1362 by any corporation was not effective for the taxable_year for which made by reason of a failure to meet the requirements of sec_1361 the secretary determines that the circumstances resulting in the ineffectiveness were inadvertent no later than a reasonable period of time after the discovery of the circumstances resulting in the ineffectiveness steps were taken so that the corporation for which the election was made is a small_business_corporation and the corporation for which the election was made and each person who was a shareholder in such corporation at any time during the period specified by sec_1362 agrees to makes such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness the corporation is treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and the representations made we conclude that x's s_corporation_election may have been ineffective we further conclude that if the election was ineffective the ineffectiveness was inadvertent within the meaning of sec_1362 therefore x will be treated as an s_corporation effective d1 and thereafter provided x's s_corporation_election is not otherwise terminated under sec_1362 this ruling is contingent on x filing a corrected form_2553 election by a small_business_corporation with the appropriate service_center within days from the date of this letter effective d1 a copy of this letter should be attached to the election except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion regarding whether x is otherwise eligible to be treated as an s_corporation this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file we are sending a copy of this letter to x's authorized representatives plr-110851-15 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely richard t probst senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


__ significant index number department of the treasury tax_exempt_and_government_entities_division internal_revenue_service washington d c apr terra ad re plan no ein plan taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of - for the above-named plan which are described in sec_431 and sec_431 of the internal revenue-code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning this extension applies to the eligible amortization charge bases established as of the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided _ we have sent a copy of this letter to the manager ep classification inv and to the manager ep compliance unit in this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact id at sincerely yours cc david m ziegler manager ep actuarial group


t c memo united_states tax_court jung k yoon and hee s yoon petitioners v commissioner of internal revenue respondent docket no filed date john e leeper and towner s leeper for petitioners frank r hise and gerald l brantley for respondent memorandum findings_of_fact and opinion cohen chief_judge respondent determined deficiencies an addition_to_tax and penalties in petitioners' federal income taxes as follows year deficiency dollar_figure big_number big_number addition_to_tax and penalty sec_6651 sec_6663 -- -- dollar_figure dollar_figure dollar_figure dollar_figure respondent's answer asserted the sec_6662 accuracy-related_penalty in the alternative to the sec_6663 fraud_penalty unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure after concessions by respondent the issues remaining for decision are whether petitioners received unreported income during the years in issue including income from their wholly owned s_corporation during whether petitioners are liable for the sec_6651 addition_to_tax for and whether petitioners are liable for the sec_6662 accuracy-related_penalty for the years in issue preliminary matter due to petitioners' failure to comply with this court's standing_pretrial_order and hearsay objections by the parties set forth in the stipulations many of the exhibits offered into evidence were not received at the trial of this case during the trial petitioners' counsel offered to withdraw all objections to respondent's exhibits if respondent would in turn withdraw all objections to petitioners' exhibits thereafter the court received a document from respondent in which respondent's objections were withdrawn we have therefore proceeded with the disposition of this case considering all of the exhibits attached to the stipulation of facts and supplemental stipulation of facts and an additional exhibit produced at trial findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference at the time the petition was filed jung k yoon and hee s yoon petitioners resided in el paso texas jung k yoon yoon was born in seoul korea yoon immigrated to the united_states in during and petitioners owned and operated a general merchandise store specializing in low-cost items in south el paso under the name l a trading most of petitioners' customers came into the united_states from juarez mexico during the years in issue yoon worked hours a day days a week and he never took a vacation in l a trading was operated as a sole_proprietorship on date petitioners incorporated jung k yoon inc jky electing treatment as an s_corporation jky operated the merchandise business that was previously operated as a sole_proprietorship during and petitioners owned percent of the stock of jky by the end of petitioners closed the store as a result of the downturn in the mexican economy and the devalued peso jky's suppliers mainly korean-owned businesses were primarily located in los angeles california yoon entertained jky's suppliers on occasion in hopes of getting better prices and better payment plans jky purchased over dollar_figure million in inventory in each of the years in issue yoon frequently traveled to los angeles to purchase merchandise yoon also traveled to las vegas nevada two or three times each year to attend trade shows and to purchase merchandise yoon has no relatives in los angeles or las vegas petitioners maintained several personal and business accounts in at least two banks during the years in issue petitioners' children also maintained bank accounts during the years in issue during the years in issue petitioners acquired the following properties date address south stanton south stanton 8th street cherry hill purchase_price dollar_figure dollar_figure dollar_figure dollar_figure petitioners incurred the following indebtedness for the purchase of real_property during the years in issue_date amount lender reason dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure big_number jae gilpin teresa baca julia samaniego roberto okubo su chon han doo sung doo sung purchase of south stanton purchase of south stanton purchase of south stanton purchase of e 8th purchase of cherry hill purchase of cherry hill 1the record is not clear as to the purpose of this loan petitioners paid interest on the loan from jae gilpin gilpin petitioners were required to pay interest on at least a portion of the loan from su chon han petitioners also incurred debt related to their purchase of several automobiles during the years in issue petitioners had the following personal credit card account balances date credit card balance date date date dollar_figure dollar_figure dollar_figure jky had the following nontaxable receipts during description loan from sunwest loan from shareholder loans from suppliers price mart almar sales la coqurto total amount 1dollar_figure big_number big_number big_number big_number dollar_figure 1respondent allowed these amounts in the notice_of_deficiency jky had dollar_figure of sales returns chargebacks during income_tax returns patrick caufield caufield prepared petitioners' form_1040 u s individual_income_tax_return and jky's form_1120s u s income_tax return for an s_corporation caufield did not review the tax returns with yoon because of the difficulty in communicating with him thomas hwang prepared petitioners' and form sec_1040 and jky's form_1120s the return preparers did not use the cash register tapes from the business when calculating the amount of gross_receipts to be reported on petitioners' or jky's federal_income_tax returns petitioners prepared monthly written statements of how much gross_receipts were received by the business these statements along with other information supplied by petitioners were used in the preparation of petitioners' and jky's returns petitioners filed joint federal_income_tax returns on a cash_basis for each of the years in issue petitioners' return was filed on date jky filed forms 1120s for its taxable years ended date and date respectively respondent's examination and determination during an examination of petitioners' returns the examining revenue_agent requested that petitioners produce bank records and various other documents petitioners did not produce check registers or all of the bank statements and canceled checks from petitioners' various accounts or other records adequate to determine petitioners' taxable_income the agent therefore reconstructed petitioners' income as described below respondent's net_worth calculations respondent computed petitioners' beginning net_worth by calculating bank balances inventory personal_property real_property and other assets owned at the end of and reducing this amount by loans and accumulated depreciation any apparent mathematical errors are the result of respondent's rounding off various amounts the following is respondent's computation of petitioners' increase in net_worth plus personal living_expenses for assets bank account balance sec_12 dollar_figure dollar_figure cash on hand dollar_figure sunwest - sun world - dollar_figure surety savings - dollar_figure surety savings - dollar_figure sun world - dollar_figure dollar_figure sun world - dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure inventory dollar_figure dollar_figure dollar_figure personal_property store equipment steel gate improvements chevrolet van display case fixtures cash register isuzu cadillac real_property s stanton s stanton e 8th street dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure other assets deposits passive loss carryover dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure total assets dollar_figure dollar_figure liabilities loans and mortgage sec_515 s stanton - baca dollar_figure dollar_figure s stanton - samaniego dollar_figure e 8th - okubo dollar_figure note payable - sunwest dollar_figure note payable - autos dollar_figure mortgage payable - gilpin dollar_figure note payable - cadillac dollar_figure dollar_figure note payable - han dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure accumulated depreciation s stanton s stanton e 8th store equipment steel gate improvements chevrolet van display case fixtures cash register isuzu dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure total liabilities dollar_figure dollar_figure dollar_figure net_worth dollar_figure 1dollar_figure dollar_figure beginning net_worth change in net_worth personal living_expenses big_number dollar_figure dollar_figure dollar_figure adjusted_gross_income as corrected dollar_figure dollar_figure adjusted_gross_income per return big_number unidentified income dollar_figure dollar_figure 1respondent has conceded that this amount should be reduced by dollar_figure the trade-in value of a buick traded in on the purchase of the isuzu the following is respondent's computation of petitioners' increase in net_worth plus personal living_expenses for assets bank account balance sec_12 dollar_figure dollar_figure cash on hand dollar_figure sunwest - dollar_figure sun world - dollar_figure sunwest bank - dollar_figure sunwest bank - dollar_figure sun world - sun world - dollar_figure sunwest bank - dollar_figure sunwest bank - dollar_figure cash transferred to jky dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure big_number dollar_figure dollar_figure inventory dollar_figure dollar_figure dollar_figure dollar_figure personal_property store equipment steel gate improvements chevrolet van display case fixtures cash register isuzu cadillac real_property dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure s stanton s stanton e 8th street dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure capital_account - jky dollar_figure dollar_figure dollar_figure dollar_figure unused passive losses dollar_figure dollar_figure dollar_figure dollar_figure total assets dollar_figure dollar_figure liabilities loans and mortgage sec_515 s stanton - baca dollar_figure dollar_figure dollar_figure dollar_figure s stanton - samaniego dollar_figure dollar_figure e 8th - okubo dollar_figure dollar_figure dollar_figure note payable - sunwest dollar_figure dollar_figure dollar_figure note payable - ford motor dollar_figure note payable - cadillac dollar_figure note payable - han dollar_figure dollar_figure dollar_figure note payable - gilpin dollar_figure dollar_figure dollar_figure dollar_figure accumulated depreciation s stanton s stanton e 8th store equipment steel gate improvements chevrolet van display case fixtures cash register isuzu dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure total liabilities dollar_figure dollar_figure dollar_figure net_worth dollar_figure dollar_figure dollar_figure dollar_figure beginning net_worth change in net_worth personal living_expenses big_number dollar_figure dollar_figure dollar_figure cash withdrawal from jky capital_account big_number adjusted_gross_income as corrected dollar_figure dollar_figure adjusted_gross_income per return big_number unidentified income dollar_figure dollar_figure the following is respondent's computation of petitioners' increase in net_worth plus personal living_expenses for assets bank account balances cash on hand dollar_figure dollar_figure sun world - dollar_figure sunwest bank - dollar_figure sunwest bank - dollar_figure sunwest bank - dollar_figure sunwest bank - dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure personal_property cadillac real_property dollar_figure dollar_figure dollar_figure cherry hill s stanton s stanton e 8th street dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure capital_account - jky dollar_figure dollar_figure dollar_figure dollar_figure unused passive losses dollar_figure dollar_figure dollar_figure dollar_figure total assets dollar_figure dollar_figure liabilities loans and mortgage sec_515 s stanton - baca dollar_figure dollar_figure dollar_figure dollar_figure s stanton - samaniego dollar_figure dollar_figure e 8th - okubo dollar_figure dollar_figure dollar_figure note payable - sunwest dollar_figure dollar_figure note payable - chase dollar_figure dollar_figure dollar_figure note payable - han note payable - prudential dollar_figure dollar_figure big_number note payable - yi dollar_figure dollar_figure note payable - gilpin dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure accumulated depreciation s stanton dollar_figure s stanton e 8th dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure total liabilities dollar_figure dollar_figure dollar_figure net_worth dollar_figure dollar_figure dollar_figure beginning net_worth change in net_worth personal living_expenses big_number dollar_figure dollar_figure dollar_figure cash withdrawal from jky capital_account big_number adjusted_gross_income as corrected dollar_figure dollar_figure adjusted_gross_income per return big_number unidentified income dollar_figure respondent prepared the computations of beginning and ending bank account balances from monthly bank statements and deposit slips respondent computed petitioners' increase in ownership of personal_property by calculating the personal_property owned at the end of the year less personal_property owned at the beginning of the year third-party records petitioners' depreciation schedules and department of motor vehicles' records were used to calculate petitioners' ownership of personal_property respondent computed petitioners' increase in the ownership of real_property by determining the real_property owned at the end of the year less what was owned at the beginning of the year respondent obtained the records relating to petitioners' acquisition of real_property from third-party sources respondent used amortization tables to calculate loan balances at the end of each taxable_year all payments from petitioners' personal bank accounts on credit card account balances were treated as personal living_expenses in respondent's computation of petitioners' net_worth respondent determined petitioners' date investment in jky by netting assets and liabilities transferred to jky as follows assets cash-sunwest cash-sun world deposits depreciable assets business store equipment steel gate improvements chevrolet van display cases fixtures cash register isuzu inventory liabilities note payable-chevrolet van note payable-sunwest bank accumulated depreciation investment in jky dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure respondent computed petitioners' date investment in jky by adding the date investment to shareholder loans made during the year and income reported by jky less distributions made during the year investment as of dollar_figure increased by income loans to jky decreased by dollar_figure dollar_figure distributions big_number investment as of dollar_figure respondent computed petitioners' date investment in jky by adding the date investment to shareholder loans made during the year and income reported by jky less distributions made during the year investment as of dollar_figure increased by income loans to jky dollar_figure dollar_figure decreased by distributions big_number investment as of dollar_figure income pass-through--form 1120s adjustment respondent based the proposed adjustments to jky's and income on the bank_deposit_method respondent conceded the form_1120s adjustment for taxable_year in the amount of dollar_figure based upon information supplied by petitioners during the preparation of this case for trial opinion unreported income the first issue for resolution is whether petitioners underreported their taxable_income for each of the years in issue in this case the evidence of unreported income consists of respondent's net_worth and bank deposit analyses the validity of those analyses must be examined by applying the standards set forth in 348_us_121 under those standards respondent must establish with reasonable certainty an opening net_worth and she must establish that either a likely source of unreported income existed or that she conducted a reasonable investigation of leads to negate the existence of nontaxable sources of income id pincite under the net_worth_method income is computed by determining a taxpayer's net_worth at the beginning and end of a period the difference between the amounts is the increase in net_worth an increase in a taxpayer's net_worth plus his nondeductible expenditures less nontaxable receipts may be considered taxable_income id pincite where the commissioner has determined a deficiency by using the net_worth_method we may adjust a determination of opening net_worth shown by the trial record to be unrealistic 298_f2d_784 3d cir affg in part tcmemo_1960_160 251_f2d_311 9th cir affg tcmemo_1956_112 22_tc_912 affd sub nom 230_f2d_336 7th cir any such adjustments do not invalidate the presumption of correctness attaching to other aspects of the commissioner's deficiency determination if the determination was not arbitrary hoffman v commissioner supra pincite petitioners have raised four areas of dispute with respondent's calculations and we address each of these areas below outstanding liabilities petitioners contend that respondent failed to reduce petitioners' net_worth by outstanding liabilities mainly credit card debts and debts to friends and relatives a credit cards respondent did not include in her net_worth determination petitioners' personal credit card liabilities petitioners failed to provide any reliable evidence from which we can establish or even estimate their credit card liabilities as of date or date at trial petitioners presented as part of their personal living expense calculations schedules prepared by caufield that state alleged opening dates of certain credit card accounts no supporting documents were attached to these schedules and yoon did not testify regarding the establishment of any of the credit card accounts without a reliable opening balance as of date we cannot determine whether this debt increased or decreased during the year thus we cannot adjust respondent's net_worth determination for by any credit card liabilities at trial petitioners produced a schedule of credit card balances at the end of and with copies of certain monthly credit card statements attached these schedules and copies of statements are reliable evidence of petitioners' credit card liabilities however the total reflected on petitioners' schedule should be reduced by the balance of a corporate credit card and by a balance for which there is no supporting monthly statement the total reflected on petitioners' schedule should be reduced by the balances of two corporate credit cards and increased by dollar_figure to correct an apparent mathematical error because during petitioners operated l a trading as a sole_proprietorship we need not reduce the total reflected on petitioners' schedule by the business corporate credit card we have determined from the evidence that petitioners had the personal credit card balances set forth in our findings_of_fact respondent's calculations of petitioners' net_worth for and must be adjusted to reflect the credit card balances as liabilities b debts to friends and relatives petitioners contend that respondent failed to take into account several liabilities that petitioners incurred to various friends and relatives yoon testified at trial that he borrowed dollar_figure in and dollar_figure in from doo sung doo sung also testified to the existence of these loans their testimony regarding the dollar_figure loan in was corroborated by a copy of doo sung's checking account statement for a period ended date that showed that a check in the amount of dollar_figure had cleared the bank on date yoon's and doo sung's testimony regarding the dollar_figure loan and the dollar_figure loan is neither incredible nor controverted petitioners' net_worth for and must be adjusted to reflect these increased liabilities petitioner also testified that he borrowed dollar_figure in addition to the dollar_figure allowed by respondent from gilpin he testified that he did not sign a promissory note for either the dollar_figure loan or the dollar_figure loan from gilpin gilpin was not called to testify at trial the evidence presented regarding the dollar_figure loan is sparse ambiguous and consists only of canceled checks reflecting dollar_figure in in payments to gilpin a letter stating that the checks represent the repayment of the dollar_figure loan with interest and a copy of a receipt from a title company indicating a dollar_figure deposit from gilpin to an account for the purchase of stanton street petitioners present two alternative arguments regarding the alleged dollar_figure loan from gilpin first petitioners argue that their liabilities should be increased by dollar_figure as of date and reduced as of date by documented payments in the alternative if the dollar_figure is not recognized as a liability petitioners ask that the excess over dollar_figure that petitioners paid to gilpin be treated as an interest_deduction in in any event petitioners argue that the excess payments were not personal living_expenses as determined by respondent we are not persuaded that an additional dollar_figure debt to gilpin existed we conclude however that petitioners did have an interest obligation to gilpin on the dollar_figure debt and paid interest in petitioners are entitled to an interest_deduction of dollar_figure in relating to property they owned pincite stanton street no other_payments have been established to be interest during that year petitioners argue that at least six additional loans in amounts ranging from dollar_figure to dollar_figure existed during the years in issue the only evidence of these loans is petitioners' testimony at trial as to the amount and approximate date of each alleged loan petitioner does not claim that any promissory notes were issued that any interest was charged or that any portion of any of the alleged loans has been repaid yoon and doo sung testified that korean custom dictates that no promissory notes are executed to represent indebtedness because a friend's word is enough of a promise to repay petitioners are required however to establish by a preponderance_of_the_evidence that the loans existed yoon's uncorroborated testimony as to the existence of additional loans is insufficient see 338_f2d_602 9th cir affg 41_tc_593 asset balances a bank account balances petitioners contend that respondent erred in failing to reduce yearend bank balances by outstanding checks respondent argues that she has been consistent in her treatment of the outstanding checks over the years in issue and that in any event the treatment sought by petitioners would result in a wash generally bank balances are reduced by outstanding checks see lanier v commissioner tcmemo_1966_14 however we cannot be certain that all outstanding checks have been identified for each of the years in issue at trial both caufield and the revenue_agent testified that the check registers and all canceled checks and bank statements from petitioners' various accounts were not presented during the examination of petitioners' returns furthermore petitioners have not presented evidence regarding any outstanding checks as of date this information would be necessary for consistency in the net_worth computations respondent's determination of petitioners' bank account balances will be sustained petitioners also argue that respondent erred in including the bank accounts of petitioners' children in petitioners' net_worth at trial the revenue_agent testified that it appeared that deposits into the children's accounts included business receipts yoon testified at trial that neither of petitioners deposited business money into their children's bank accounts and that family gifts generally made up any deposits into the accounts yoon also testified however that his wife received a salary from l a trading and that he did not know what she did with those paychecks petitioners have not persuaded us that petitioners' own funds were not deposited into these accounts respondent's determination that petitioners' children's bank accounts are included in petitioners' net_worth will be sustained b buick petitioners contend that respondent failed to include in their net_worth a buick they purchased in yoon testified at trial that the buick cost dollar_figure when he purchased it in petitioners traded the buick when they purchased their isuzu respondent has not argued that the buick was not owned by petitioners in and has conceded that petitioners' net_worth should be reduced by dollar_figure the trade- in value of the buick in making use of the net_worth_method actual cost not fair_market_value is to be used see kelley v commissioner tcmemo_1964_267 we conclude that petitioners' net_worth on date should be increased by dollar_figure and that petitioners' net_worth on date should be decreased by dollar_figure to reflect the ownership and subsequent sale of the buick c jky capital_account petitioners argue that respondent erred in three ways in the calculation of petitioners' jky capital_account first petitioners argue that respondent did not subtract outstanding checks from the balances of the bank accounts transferred to jky we incorporate herein the above discussion of that argument second petitioners argue that the actual transfer to jky consisted of dollar_figure of business_assets and dollar_figure of depreciation not dollar_figure of business_assets and dollar_figure of depreciation as respondent determined petitioners offered an undated document prepared by caufield entitled s_corporation transfer as evidence that respondent's calculation of assets and depreciation was incorrect no supporting documents were presented caufield testified at trial that this document represented his initial computation of petitioners' sec_351 transfer he noted that at least one of the liabilities represented on the document was in fact paid_by the date of the transfer and thus its inclusion was an error caufield also testified that his calculation of the category fixed assets unlike respondent's did not include a chevrolet van that was sold by petitioners prior to the sec_351 transfer yoon did not testify about the transfer of assets to jky other than caufield's testimony that the chevrolet van was not included in his calculation of fixed assets we are provided with nothing other than a summary with preliminary numbers and no support or explanation petitioners have not presented sufficient evidence that respondent's computation of the assets and depreciation transferred to jky was in error finally petitioners argue that jky assumed certain payroll_taxes that should reduce petitioners' capital_account balance for each of the years in issue caufield testified that jky assumed various payroll tax_liabilities as part of the sec_351 transfer these payroll_taxes were included on caufield's s_corporation transfer respondent determined that jky did not assume these liabilities by caufield's own admission at trial the s_corporation transfer represented his initial computation petitioners have not provided any evidence through yoon's testimony or canceled checks of jky's assumption or payment of these payroll tax_liabilities respondent's determination that jky did not assume various payroll tax_liabilities will be sustained personal living_expenses petitioners argue that their personal living_expenses for were less than those calculated by respondent petitioners claim that certain expenditures mainly life_insurance payments and income_tax payments were incurred in and not in this petitioners claim would make a difference because respondent used a discounted figure to determine petitioners' personal living_expenses if only the recurring items of expense were included for both years before the discount was applied a lesser amount would be arrived at for petitioners have chosen to rely on a discounted figure less the above-mentioned expenses instead of producing their books_and_records so that a calculation of actual personal living_expenses for could be made petitioners have offered no explanation for their failure to produce any books_and_records for without proof of actual personal living_expenses for we cannot conclude that respondent's determination of petitioners' personal living_expenses for is incorrect or unreasonable petitioners also object to respondent's use of a plugged figure of dollar_figure in her computation of personal living_expenses for the revenue_agent testified that this amount represented the difference between the bank account balances and the analysis of personal living_expenses for provided to respondent by petitioners the revenue_agent also testified that petitioners did not provide any explanations or canceled checks to support any other treatment of this amount petitioners also failed at trial to offer any explanation of the difference between the bank account balances and petitioners' calculation of their personal living_expenses respondent's determination that petitioners' personal living_expenses for include dollar_figure of unexplained expenses will be sustained petitioners also argue that respondent erred in determining that other unidentified expenses were personal living_expenses petitioners have failed to identify the specific instances when this occurred and have failed to offer any proof that any additional unidentified expenses determined by respondent to be personal living_expenses were not such petitioners have not proven by a preponderance of evidence that additional adjustments are warranted to respondent's calculation of their personal living_expenses for the years in issue respondent's determination that unidentified expenses were personal living_expenses will be sustained jky income respondent now contends that she understated jky's total receipts for by dollar_figure because certain deposits were not included in the reconciliation of gross_receipts respondent has conceded that she understated sales returns chargebacks in by dollar_figure in her initial determination the correct amount of sales returns chargebacks for is dollar_figure respondent asks us to sustain her original form_1120s pass-through adjustment for even though these computational adjustments respondent now seeks result in an increased deficiency petitioners contend that respondent has raised a new issue this issue involves a new_matter because the evidence necessary for resolution of it differs from that relevant to the original determination respondent bears the burden_of_proof as to any new_matter rule a respondent did not question the revenue_agent regarding this alleged error in the notice_of_deficiency respondent presented us with proof of bank_deposits constituting gross_receipts into account number that she alleges were not included in the notice_of_deficiency petitioners agree that respondent has produced sufficient proof of this account balance but they argue that this proof is not sufficient proof that this amount was omitted from respondent's determination in the notice_of_deficiency respondent has attempted to bolster her position by introducing a supporting schedule a bank_deposits account summary and a bank deposit detail prepared by the revenue_agent during the examination of petitioners' returns to show that this account balance was omitted from the determination in the notice_of_deficiency we have looked to these workpapers not for the truth of the facts and figures contained therein but for the presence or absence of deposits into account no upon examination of the revenue agent's schedules we can see that no deposits were included for account no for in calculations on certain schedules however many of the schedules have handwritten notations and various corrections that we cannot reconcile with respondent's argument because of these apparent revisions we cannot be certain that these schedules reflect the final product of the revenue_agent especially in light of her failure to testify regarding this omission respondent has failed to prove that she understated jky's gross_receipts for in making her determination at trial yoon also testified as to the existence of certain liabilities to his suppliers resulting from cash advances received from the suppliers these liabilities petitioners claim increase jky's nontaxable receipts respondent allowed dollar_figure of other nontaxable receipts petitioners have presented yoon's testimony and several deposit slips with the names of jky's korean-owned suppliers listed next to amounts of the checks deposited as evidence of these debts yoon testified that no notes were executed that no interest was charged and that he could not recall when he repaid the debts yoon also testified that jky had outstanding credit balances with the companies that loaned him money at trial respondent questioned why the suppliers would have loaned jky cash instead of reducing the outstanding account balances yoon responded that there was a need for money at the time because jky was a big customer of these suppliers and yoon often entertained the suppliers to garner favor it is not incredible that suppliers would advance to jky relatively small amounts of cash when compared to the purchases jky was making from the suppliers jky's nontaxable receipts for should be increased by dollar_figure to reflect the advances from suppliers claimed by petitioners petitioners now contend that credit card charges in addition to those allowed by respondent are deductible as business_expenses respondent treated all payments on personal credit cards as personal living_expenses petitioners argue that it was unreasonable for respondent to treat the payments in that manner petitioners claim that they are entitled to additional business_expense deductions of dollar_figure on jky's return and dollar_figure on jky's return for expenses charged to personal credit cards petitioners have offered schedules of credit card charges prepared by caufield that categorize each credit card expenditure the underlying credit card statements are not part of the record in this case also the schedules show that certain statements were not available at the time the schedule was created caufield testified at trial that he prepared the schedules and consulted yoon only when caufield was unclear as to the classification of a charge as business or personal numerous items claimed as business deductions by petitioners appear to be for travel and entertainment ie restaurant charges and airline charges petitioners claim that percent of these expenses is deductible ignoring the 80-percent limit on deductibility under sec_274 furthermore to prove entitlement to deductions for travel and entertainment_expenses the taxpayer must meet the specific substantiation requirements of sec_274 including the date time place amount and business_purpose of the expense as well as the business relationship of those entertained by the taxpayer 725_f2d_1183 9th cir sec_274 precludes our making an estimate under 39_f2d_540 2d cir with respect to travel and entertainment_expenses see eg meridian wood products co v united_states supra pincite0 even if sec_274 were not applicable there is insufficient evidence here to support an estimate of petitioners' claimed travel and entertainment_expenses there is also insufficient evidence to support an estimate under cohan v commissioner supra for the remaining claimed deductions that fall outside of the substantiation requirements of sec_274 such as business repair expenses petitioners have not indicated which expenditures have already been deducted on jky's and returns from the evidence before us we cannot be certain that any of the claimed expenditures were actually for business purposes yoon did not testify as to the purpose of the expenditures also from his testimony it appears that caufield not yoon classified most of the expenditures on the schedules we have been provided only with the amount of the alleged charges and the name of the place where the credit purchase was allegedly made for the foregoing reasons caufield's schedules are not reliable petitioners have failed to prove by a preponderance_of_the_evidence jky's entitlement to additional deductions respondent's determination that charges on personal credit cards are to be treated as personal living_expenses will be sustained conclusion we have examined the arguments of petitioners that respondent's determination is arbitrary and erroneous and have determined that they are without merit we also conclude that petitioners' argument that respondent has failed to establish a likely source_of_income or to conduct a reasonable investigation of leads to negate the existence of nontaxable sources of income is without merit petitioners' claims of nontaxable sources were the alleged loans from friends and relatives and advances to jky by suppliers respondent considered those claims made by petitioners during the examination included some of the claimed liabilities in her net_worth determinations and determined others were not valid where relevant leads are not forthcoming from petitioners respondent is not required to negate every possible source_of_income 348_us_121 while we have adjusted the net_worth determination to include other liabilities such corrections do not invalidate respondent's entire determination 298_f2d_784 3d cir affg in part tcmemo_1960_160 sec_6651 addition_to_tax respondent also determined that petitioners are liable for the sec_6651 addition_to_tax for sec_6651 imposes an addition_to_tax for failure_to_file timely a return unless the taxpayer establishes that the failure did not result from willful neglect and that the failure was due to reasonable_cause the addition_to_tax equal sec_5 percent of the tax required to be shown on the return for the first month with an additional percent for each additional month or fraction of a month during which the failure_to_file continues not to exceed a maximum of percent sec_6651 willful neglect has been interpreted to mean a conscious intentional failure or reckless indifference 469_us_241 reasonable_cause requires the taxpayers to demonstrate that they exercised ordinary business care and prudence and were nonetheless unable to file a return within the prescribed time id pincite sec_301 c proced admin regs petitioners bear the burden of proving that respondent’s determination is incorrect rule a 105_tc_324 petitioners failed to offer any evidence or explanation regarding the late filing of their return thus respondent’s determination that petitioners are liable for the sec_6651 addition_to_tax for will be sustained sec_6662 accuracy-related_penalty sec_6662 imposes a penalty in an amount equal to percent of the underpayment_of_tax attributable to one or more of the items set forth in sec_6662 respondent asserts that the entire underpayment of petitioners’ tax was due to negligence or intentional disregard of rules or regulations sec_6662 or a substantial_understatement sec_6662 because respondent raised the accuracy-related_penalty in her answer respondent bears the burden_of_proof on this issue rule a negligence includes a failure to make a reasonable attempt to comply with the provisions of the internal revenue laws sec_6662 sec_1_6662-3 income_tax regs disregard includes any careless reckless or intentional disregard of rules or regulations sec_6662 sec_1_6662-3 income_tax regs petitioners' failure to maintain and to produce reliable records of their financial transactions and taxable_income supports a conclusion of negligence 92_tc_899 40_tc_30 they cannot avoid the penalty based on reliance on their tax preparers because they did not provide the preparers with sufficient and accurate information to prepare their returns 88_tc_654 the evidence justifies the penalty for negligence to reflect the foregoing and concessions by respondent decision will be entered under rule


internal_revenue_service number release date index number --------------------------- --------------------------------------------- -------------------------------------- ---------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc corp plr-116684-11 date date legend taxpayer parent llc llc llc llc reit - ----------------------------------------- ----------------------------------------------------- ------------------------- ------------------------------------------- ----------------------------- ------------------------- ------------------------------------------------------ --------------------------------------------- ------------------------- -------------------------------------------------- ------------------------------------------ -------------------------------------- --------------------------------------------- --------------------------------------------- ------------------------- ----------------------------------------------------- -------------------------- ------------------------- --------------------------------------------- ----------------------------------------- plr-116684-11 a b date year year state a company official tax professional tax professional dear ----------------- ---- ---- ---------------------------- ------- ------- ------------- ----------------------------- --------------------------------------------- -------------------------------------- ---------------------------------- ---------------------------------------------- -------------------------------------- ----------------------------------------- this letter responds to a letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election additional information was submitted in letters dated date and date the extension is being requested in order to allow taxpayer and parent to file an election under sec_362 with respect to the year transfer as defined below the election the material information is summarized below taxpayer is a state a business_trust that is treated as a partnership for federal_income_tax purposes taxpayer wholly and directly owns parent a state a corporation and the common parent of a u s affiliated_group that files a consolidated federal_income_tax return parent directly owns all common interests in llc which owns a of all interests in llc parent owns the remaining b each of llc and llc is a state a limited_liability_company treated as a partnership for federal_income_tax purposes immediately before date taxpayer also directly owned all interests in llc a state a limited_liability_company treated as a disregarded_entity for federal_income_tax purposes llc directly owned all common interests in llc a state a limited_liability_company treated as a partnership for federal_income_tax purposes which directly owned all the common_stock in reit a state a corporation treated as a real_estate_investment_trust within the meaning of sec_856 plr-116684-11 on date taxpayer contributed its llc ownership interests to parent in a transaction intended to qualify as a non-taxable transfer under sec_351 the year transfer taxpayer’s basis in its llc partnership interests and llc 4’s basis in its reit stock exceeded the fair_market_value of the partnership interests and stock respectively immediately before the year transfer in year reit sold substantially_all of its assets ceased to qualify as a real_estate_investment_trust thus becoming taxable as a regular c_corporation and converted to a limited_liability_company in a transaction treated as a taxable liquidation under sec_331 taxpayer has submitted information establishing that these year transactions were completed or contemplated before the due_date for the election sec_362 generally provides that if property is transferred to a corporation as a capital_contribution or in an exchange to which sec_351 applies and the aggregate basis of the transferred property exceeds its aggregate value immediately after the transaction then the transferee corporation’s basis in such property shall not exceed the fair_market_value of such property under sec_362 however the transferor and transferee can make a joint election to reduce the transferor’s basis in the stock received to its fair_market_value and no reduction of the transferee’s basis in the property received will be required sec_362 provides that the election shall be made at such time and in such form and manner as the secretary may prescribe and once made shall be irrevocable notice_2005_70 2005_2_cb_694 which provides guidance on how to make the election generally provides that the transferor may make a valid election by including the certification described therein on or with its tax_return filed by the due_date including extensions for filing its original return for the taxable_year in which the transaction occurred the election was required to be filed on or with taxpayer’s timely filed income_tax return for year for various reasons however taxpayer failed to file the election in a timely manner under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the plr-116684-11 taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by notice_2005_70 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time to file the election provided taxpayer and parent acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the government information affidavits and representations submitted by taxpayer company official and tax professional sec_1 and explain the circumstances that resulted in the failure to timely file the election the information establishes that the request for relief was filed before the irs discovered the failure to make the election and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 taxpayer and parent also have represented that they do not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 at the time they requested relief taking into account any qualified_amended_return filed within the meaning of sec_1_6664-2 and the new position requires or permits a regulatory election for which relief is requested see sec_301 b i based on the facts and information submitted including the affidavits submitted and the representations made we conclude that taxpayer and parent acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter to file the election this extension of time is conditioned on the tax_liability if any of taxpayer the parent consolidated_group llc llc llc and reit being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the federal_income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction discussed in this letter specifically no opinion is expressed as to whether the transaction is described in sec_351 nor is any opinion expressed concerning the basis or fair_market_value of any asset in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the election late that are not specifically set forth in the above ruling plr-116684-11 representations for purposes of granting relief under sec_301_9100-3 we have relied on certain statements and that taxpayer company official and tax professional sec_1 and made under penalties of perjury however the director should verify all essential facts moreover notwithstanding that the extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable still apply the letter_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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


t c memo united_states tax_court william w howard petitioner v commissioner of internal revenue respondent docket no filed date william w howard pro_se michael a pesavento for respondent memorandum findings_of_fact and opinion beghe judge respondent determined the following deficiencies in and additions to petitioner's federal_income_tax year deficiency dollar_figure big_number additions to tax sec_6651 dollar_figure big_number sec_6654 dollar_figure big_number all section references are to the internal_revenue_code as in effect for the taxable years in issue and all rule references are to the tax_court rules_of_practice and procedure the issues for decision are whether for the years and petitioner had unreported embezzlement income and whether he is liable for additions to tax for his failures to file income_tax returns and make estimated_tax payments we hold that petitioner had unreported embezzlement income and that he is liable for the additions to tax findings_of_fact we find and incorporate the stipulated facts and exhibits petitioner resided in lakeland florida at the time he filed his petition petitioner is a graduate of emory university school of law and prior to had practiced law in the state of florida for years in the early 1970's petitioner became acquainted with the family of zelda willey putman mrs putman who lived in his neighborhood over the years petitioner became a close friend of the putmans mrs putman's daughters called petitioner uncle bill respondent has conceded that petitioner's embezzlement income for is slightly less than the amount determined in the statutory_notice_of_deficiency petitioner drafted mrs putman's will which left her entire estate to her three daughters in equal shares the will also named petitioner sole personal representative of mrs putman's estate on date mrs putman died in a house fire in winter haven florida the fair_market_value of all assets owned by mrs putman at the time of her death was approximately dollar_figure on date petitioner was appointed by the circuit_court of polk county to serve as the personal representative of her estate on date petitioner opened an estate_trust account at the barnett bank of polk county in winter haven florida for mrs putman's estate petitioner deposited into this account the proceeds from the sale of estate assets petitioner was the sole authorized signatory on the estate_trust account jesse putman mrs putman's husband was not a named beneficiary of the will and he relinquished his statutory elective share in his wife's estate however he was entitled to receive and retain life_insurance and homeowner's insurance proceeds in the amount of dollar_figure less dollar_figure to be paid to the daughters petitioner advised mr putman that marshaling all assets into a gross cash estate would be in the best interest of the beneficiaries and would simplify computation of the estate_taxes due the internal_revenue_service mr putman agreed and handed over the insurance proceeds to petitioner which he deposited into his own personal trust account petitioner told the putmans that the estate would be processed in approximately months to a year and that in the interim they could get cash advances as necessary for important expenses from date to date the putmans periodically requested and received cash advances from petitioner in date petitioner misrepresented to the putmans that the probate judge had restricted their allowances to dollar_figure each per month until the estate was settled which he promised would be any day in date petitioner misrepresented to the putmans that the judge had frozen the assets of the estate and that they could not get any money from it on date petitioner admitted to the putmans that he could not disburse the estate moneys to them petitioner's deposits from the estate_trust account into three separate bank accounts owned or controlled by him when netted against payments made to the beneficiaries of the estate amounted to dollar_figure in and to dollar_figure in these are the amounts respondent has determined after giving effect to respondent's concession see supra note that are included in petitioner's gross_income for these years only petitioner and perhaps one of his secretaries had signature_authority over these three accounts the three bank accounts were in the following names william howard p a_trust william howard p a and heartland management petitioner was the sole shareholder officer and director of heartland management a corporation which held title to real_property that was used by petitioner as a personal_residence and did not generate any income during and william howard p a was a florida professional services corporation of which petitioner was the sole shareholder officer and director neither petitioner nor william howard p a nor heartland management filed federal_income_tax returns for the years and during and petitioner wrote large checks from these three accounts for his personal benefit spending the bulk of the putmans' inheritance among other things petitioner used estate proceeds of approximately dollar_figure to pay down the mortgage loan on his personal_residence approximately dollar_figure to pay his personal tax obligations and approximately dollar_figure to settle a lawsuit unrelated to mrs putman's estate petitioner also made other expenditures including the construction of a boathouse and jacuzzi as well as paying himself and his secretaries salaries from the estate proceeds all these expenditures were made without the knowledge and consent of the putmans the record include sec_28 promissory notes in varying amounts totaling in excess of the amounts of income charged to petitioner in the statutory notice dated from date through date with stated_interest of percent to be paid at the time the estate of zelda willey putman is closed signed by petitioner in connection with purported loans to petitioner from the estate petitioner signed the notes and made the purported loans to himself without the knowledge or consent of any of the beneficiaries of the putman estate petitioner pledged no collateral to secure any of the alleged loans or any of the other_payments he made to himself from the estate on date following pleas of nolo contendere petitioner was convicted on three counts of grand theft in the circuit_court of polk county florida in addition to receiving a prison sentence petitioner was ordered to pay restitution in the amount of dollar_figure to the estate of mrs putman and dollar_figure to mr putman in compliance with the judgment and order of probation petitioner for a period of years has made timely monthly payments in the amount of dollar_figure per month toward restitution to the putman estate in the circuit_court of polk county entered a civil judgment against petitioner in favor of each of the putmans individually in an aggregate amount including treble_damages substantially in excess of the circuit court's restitution order in the criminal proceeding with interest pincite percent from date in petitioner was disbarred by the florida supreme court on the complaint of the florida bar and an uncontested referee's report for his misconduct in handling the putman estate opinion the primary issue for decision is whether petitioner's appropriations of estate moneys constitute income from embezzlement or whether they are loan proceeds to the extent petitioner embezzled money from the estate he has income for those years under sec_61 it is well established that gross_income under sec_61 includes income earned from illegal activity such as the proceeds of embezzlement 366_us_213 collins v commissioner tcmemo_1992_478 affd 3_f3d_625 2d cir petitioner maintains that amounts he appropriated from the putman estate are loans and are not proceeds of embezzlement he proffer sec_28 promissory notes in support we are entirely unpersuaded whether the transactions between petitioner and the estate were loans depends ultimately on whether the beneficiarie sec_3 respondent does not argue that petitioner is precluded by the judgments in the criminal civil or disciplinary proceedings against him from arguing that the amounts appropriated by him should not be included in his gross_income petitioner does not argue that the amounts paid to heartland management and william howard p a should be excluded from his gross_income on the ground that they were received by persons other than himself the stipulated facts and the entire record require the conclusion that these names even if they are entities separate from petitioner were alter egos of petitioner and that all receipts received by them during the years in issue must be attributed to petitioner of the estate were aware of and consented to the distributions at the times they were made in order for a distribution of estate funds to be a loan there must be evidence of a consensual recognition express or implied of an obligation to repay james v united_states supra pincite katz v commissioner tcmemo_1990_533 attorney's withdrawal of funds from an estate he represented were includable in his gross_income despite promissory notes executed by him payable to the estate petitioner has the burden of proving the facts that would support his claim and of overcoming the presumption of correctness of respondent's determination rule a 290_us_111 in the present case this burden requires petitioner to prove that the beneficiaries of the estate not only were aware of his withdrawals of estate funds but also consented to them because petitioner has stipulated that the beneficiaries had no knowledge of his withdrawals--a lack of knowledge corroborated by the testimony of mr putman and the two daughters who attended the trial--he cannot carry this burden petitioner mishandled mrs putman's estate from its inception he lied to the putmans about the administration of the estate and when the estate would be closed while he was secretly misappropriating and spending most of their inheritance for his own personal benefit petitioner took advantage of what the putmans believed was his close friendship with them and his position as an attorney to steal their inheritance petitioner's engaging in the solitary activity of writing up promissory notes did not create loans between him and the estate the promissory notes evidence no more than an inchoate intention to repay the amounts petitioner withdrew from the estate such an intention even if there was one cannot transform misappropriations into loans 412_f2d_974 5th cir as the court stated the reasoning of james is that while an embezzler has a legal_obligation to repay and may intend to repay his legal_obligation and intent are not the same as an actual agreement between lendor and borrower entailing consensual recognition of an obligation to repay and exact conditions of repayment the absence of a consensual agreement between the party providing the money and the party receiving it is fatal to the trustee's contention that the money should be excluded from gross_income on a loan theory therefore it must be treated as income id katz v commissioner supra petitioner's writing up of promissory notes was insufficient to create a consensual relationship between him and the beneficiaries of the estate petitioner's stipulation that the beneficiaries of the estate were unaware of his withdrawal sec_4 even if petitioner continues to make the monthly restitution payments of dollar_figure per month for the rest of his life these amounts are so small that the monthly payments will never begin to reduce the principal obligation to any extent it is unfortunate for mrs putman's heirs that the obligations that will be generated by our decision herein may interfere with petitioner's ability to pay his obligations under the outstanding criminal and civil judgments requires the conclusion that no consensual relationship was formed petitioner's withdrawals constitute embezzlement income and are not proceeds of loans petitioner argues that he needed no consents from the beneficiaries to his withdrawals of estate proceeds because he had legal_title to the estate assets as personal representative he was only borrowing from himself petitioner's argument is an incorrect statement of florida law the personal representative may hold legal_title but does not hold beneficial title to the assets and has no right to dispose_of estate assets for his own use the estate assets are not the personal representative's property but are held by the personal representative for the benefit of the estate and ultimately for distribution to the beneficiaries state v lahurd so 2d fla dist ct app review denied so 2d fla in state v lahurd supra the defendant argued that he could not be criminally charged with grand theft for converting estate proceeds inasmuch as he had legal_title to such proceeds and no one can steal from himself the court clarified the limited nature of the legal_title held by a personal representative holding that a personal representative does take the 'property of another' when he or she converts estate assets to his or her the parties unnecessarily argue over the timing of the writing up of the promissory notes whether they were prepared contemporaneously with the withdrawals as petitioner maintains or simultaneously in preparation for trial as respondent maintains is irrelevant in either event no loans between petitioner and the estate resulted inasmuch as the essential consensual relationship was lacking own use id so that a personal representative can be charged with grand theft for converting estate assets without the consent or approval of the estate's beneficiaries id pincite3 although mr howard had legal_title to the estate assets in his capacity as personal representative he had no right to dispose_of the estate assets for his personal_use mr howard has stipulated and the record clearly shows that he spent the money he withdrew from the estate for his personal_use under state v lahurd supra when a personal representative converts estate proceeds for personal_use such proceeds are the property of another consequently mr howard was not merely borrowing money from himself and he did need consents from the beneficiaries to create legitimate loans between the estate and himself we also hold that petitioner is liable for the additions to tax under sec_6651 and sec_6654 if a taxpayer fails to file a return by the due_date and cannot show that the failure is due to reasonable_cause and not willful neglect then sec_6651 imposes an addition equal to percent of the underpayment_of_tax for each month such failure continues not to exceed percent in the aggregate petitioner bears the burden of proving that his failure_to_file a timely return was due to reasonable_cause and not willful neglect rule a 469_us_241 petitioner did not file income_tax returns for and he has offered no evidence or argument in explanation or mitigation accordingly we hold him liable for additions to tax under sec_6651 sec_6654 imposes an addition_to_tax for failure to pay estimated income_tax when there has been a failure to pay estimated_tax the addition under sec_6654 is mandatory and no inquiry is made as to possible reasonable_cause or lack of willful neglect 82_tc_235 petitioner also has the burden of proving that he is not liable for this addition_to_tax rule a 78_tc_304 petitioner has failed to explain why he should not be held liable for the addition accordingly we hold him liable for the addition_to_tax under sec_6654 for the years in issue to reflect the foregoing and respondent's concession decision will be entered under rule


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 3-plr-163311-01 date date legend corporation president shareholders trust state date dear this letter responds to a letter dated date and subsequent correspondence requesting a ruling under sec_1362 of the internal_revenue_code facts corporation first issued stock on date corporation intended to be taxed as an s_corporation but failed to file timely a form_2553 election by a small_business_corporation applicable law sec_1362 generally provides that a small_business_corporation may elect to be an s_corporation for federal tax purposes sec_1362 governs the timeliness of such an election as well as its effective date generally if an election to be treated as an s_corporation 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 beginning in the year in which the election was made if the election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as having made an effective election to be treated as an s_corporation for federal tax purposes until the following taxable_year sec_1362 provides that if an election to be treated as an s_corporation for federal tax purposes is either made untimely or not made at all and the secretary determines that there was reasonable_cause for the failure to make a timely election then the secretary may treat the corporation as having made a timely election conclusion based on the facts submitted and representations made we conclude that corporation has established reasonable_cause for failing to make a timely election to be an s_corporation accordingly provided corporation files a completed form_2553 effective date with the appropriate service_center within following the date of this letter such election will be treated as timely made a copy of this letter should be attached to the form_2553 and is enclosed for that purpose except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code specifically we express or imply no opinion concerning whether corporation is an s_corporation for federal tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to your representative sincerely yours jeanne m sullivan senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes