department of the treasury internal_revenue_service te_ge eo examinations commerce street mc dal dallas tx tax_exempt_and_government_entities_division number release date date may person to contact identification_number contact telephone number in reply refer to ein last date for filing a petition with the tax_court uil code certified mail - return receipt requested dear a is final adverse determination_letter as to your exempt status under section thi sec_501 of the internal_revenue_code irc the denial of your tax-exempt status under sec_501 iseffectivejanuary our adverse determination was made for the following reasons you have not established that you are operated substantially for pleasure and recreation of its members or other non-profitable purposes and no part of the earnings inures to the benefit of private shareholder within the meaning of sec_501 you have made your services available to income test for tax_year ending december 20xx use of recreational and social facilities public you have exceeded the non-member the general you failed to keep and maintain books_and_records as required by revproc_71_17 you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the year ending december 20xx and for all years thereafter processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code for declaratory if you decide to contest this deterinination in court you must initiate judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment suit a the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights we can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs ifyou qualify for our assistance which is always free we will do everything possible to help you visit taxpayeradvocate irs gov or call ifyou have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours maria hooke director exempt_organizations examinations enclosures publication fh department of the treasury internal_revenue_service irs tax_exempt_and_government_entities_division date date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers phone number fax number manager's name id number manager's contact number phone number response due_date certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action - sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_501 after we issue the final revocation letter we’ll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the letter rev catalog number 34809f irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn’t apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn’t a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely maria hooke director eo examinations enclosures report of examination form_6018 publication publication letter rev catalog number 34809f schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number years period ended 20xx issue whether code irc sec_501 facts continues to qualify for exemption under internal revenue filed form_202 certificate of formation nonprofit corporation with the secretary of state for the state of private club for recreation the form stated that the club would only be supported by membership dues with all receipts going to expenses the form was organized and executed by 20xx the directors of the organization are the club was granted sec_501 exempt status november 20xx on october 20xx their purpose is to operate a and the registered agent for filed form_205 certificate of formation limited_liability_company with the secretary of state for the state of company was formed to operate a restaurant the is the registered agent of on october 20xx the registered agent and governing authority is secretary of state reports that the and is the for 20xx through 20xx franchise tax public information report list 20xx as the officer of on november the club signed a management services agreement with 20xx the agreement was to be effective for one year and would automatically be renewed if both parties agreed would provide the following services e e e e e use of employee time for purpose of serving and complying with all certifications use of point of sale system for tracking sales to members use of utilities use of supplies office and machines use of entertainment leases space for at signed a sublease agreement with club access to the space the agreement requires the club to pay of the gross revenue derived from the service charge of alcoholic beverages from on november 20xx allowing the a monthly rental of for the leased space there is one entrance for club members and another entrance for café customers once inside the premises the examiner didn’t note a barrier separating the entities or anything other than the entrances that distinguished the restaurant from the bar see diagram form 886-a rev page department of the treasury - internal_revenue_service schedule number or exhibit form 886-a rev date name of taxpayer tax identification_number years period ended explanations of items 20xx diagram deleted was selected for examination on january 20xx with the following potential issues non-member and investment income-exemption or unrelated_business_income ubi missing form 990-t exempt_organization business income_tax return missing form_1099 originally during the examination 20xx provided the history of the club operates sell alcoholic beverages in 20xx per could not be for profit residents of and was good for days the member’s driving license was swiped each visit to prevent nonmembers from receiving alcohol nonmembers were allowed temporary membership charter member for a day by paying dues of dollar_figure no records were maintained as required by revproc_71_17 county the membership dues were dollar_figure for the initial visit was formed as a neighborhood club for told her that a private club county was unable to she stated that and for the year under examination 20xx still had members but they didn’t have to pay membership dues nonmembers the public could also purchase alcohol without becoming a member and paying dues the club was operating as a commercial establishment county allowed the sale of alcohol the club audit issue no questioned whether the reported revenue was from nonmember sources or investments this issue pertains to the gross_receipts_test for a c organization a c organization can receive up to of their gross_receipts including investment_income from sources outside their membership without losing their exempt status within the not more than should come from the use of the social club’s facilities or services by the public nonmembers the club's form_990 didn’t indicate the source_of_income other than stated that the club’s income came solely from that it was program service revenue the sale of alcohol to their members as explained above in 20xx the club wasn’t charging membership dues to the county residents or any of the visitors to the establishment audit issue no mentions investment-type income with no form 990-t filed this issue is the subsequent action required if the club had unrelated_business_income audit issue no states that there was compensation and form_1099 wasn't filed tne club reported management fees of dollar_figure she said she wasn’t aware of the requirement to file and issue a form_1099 she said the income was included because she prepared the returns for all stated that the management fees were for companies and website lists the kitchen’s hours of operation form 886-a rev page department of the treasury - internal_revenue_service schedule number or exhibit form 886-a explanations of items name of taxpayer rev date tax identification_number years period ended 20xx monday and tuesday --------------------- 5pm-opmi wednesday ----------------- 11ami-apm 5pml-10pm thursday ----------------- i1am-cpm spm-9 30pm friday ------------------ --- iiam-2pm 5pm-1opm saturday and sunday---------------------11am-10pm the bars hours of operation were posted in the facility bar hours wednesday - friday sunday saturday cceeeeeee scence ees i1am-12am 11am-1am monday - tuesday 3pm-12am the website lists available features and activities flat screen tvs projection screen tv golden tee poker pool darts cornhole buzztime trivia live trivia video poker the café’s online calendar lists activities and specials on alcoholic beverages margaritas dollar_figure draft oz dollar_figure tuesdays dollar_figure sundays crown down dollar_figure margaritas cosmos dollar_figure wells shot specials dollar_figure bloody mary’s mimosas dollar_figure chart deleted form 886-a rev page department of the treasury - internal_revenue_service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number 20xx years period ended chart deleted liquor license january 20xx it’s for the premises of following permits from the was issued january 20xx and expires the club has the fb - food and beverage certificate - a food and beverage certificate may be issued to the holder of a beer retailer's on-premise permit or wine and beer retailer's permit if food service is the primary business being operated on the licensed premise or to the holder of a mixed beverage permit or private club permit if food service is available on the premises and the gross_receipts of alcoholic beverages do not exceed of total gross_receipts the holder must meet requirements of the code and rule concerning minimum number of entrees served hours_of_service etc certificate allows holder to be exempt from posting a conduct surety bond pe - beverage cartage permit - permit authorizes a mixed beverage private club registration private club wine and beer or private club exemption_certificate permittee who holds this permit to transport alcoholic beverages to the licensed premises from the place of purchase law sec_501 of the internal_revenue_code exempts from income_tax clubs organized for pleasure recreation and other nonprofitable purposes substantially_all the activities of which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder sec_1_501_c_7_-1 of the federal tax regulations states that the exemption provided by sec_501 for organizations described in sec_501 applies only to clubs which are organized and operated exclusively for pleasure recreation and other nonprofitable purposes but does not apply to any club if any part of its net_earnings inures to the benefit of any private shareholder in general this exemption extends to social and recreation clubs which are supported solely by membership fees dues and assessments however a club otherwise entitled to exemption will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities sec_1_501_c_7_-1 of the federal tax regulations states that a club which engages in business such as making its social and recreational facilities available to the general_public or by selling real_estate timber or other products is not organized and operated exclusively for pleasure recreation and other nonprofitable purposes and is not exempt under sec_501 solicitation by advertisement or otherwise for public patronage of its facilities is prima facie evidence that the club is engaging in business and is not being operated exclusively for pleasure recreation or social purposes form 886-a rev page department of the treasury - internal_revenue_service schedule number or exhibit form 886-a rev date explanations of items years period ended tax identification_number name of taxpayer 20xx public law provides that social clubs are permitted to receive up to of their gross_receipts from sources outside of their membership without losing their tax-exempt status and that within that not more than of gross_receipts should be derived from the use of a social club’s facilities or services by the general_public in 222_fsupp_151 the court ruled that refreshments goods and services furnished to members of a charitable nonprofit corporation from business_enterprise net profits constituted benefits inuring to individual members and therefore corporation was not exempt from federal_income_tax judge powell further stated but it is clear that when a club otherwise exempt engages in a business from which it derives profits from outside sources wholly disproportionate to its nontaxable purposes and such profits inure to the benefit of its members in the nature of permanent improvements and facilities it loses its exempt status under the definitive provisions of the statute be exempt from taxation the club must not only be organized exclusively for pleasure recreation and other nonprofitable purposes but it must be operated exclusively for those purposes as well it should be noted that to in aviation club of utah v commissioner of internal revenue 162_f2d_984 the court upheld the position taken by the tax_court in a previous ruling whereby the income received by the club from non-exempt activities was so disproportionate to the income received from exempt purposes that the club lost its exempt status judge murrah invoked the same concept as that in spokane motorcycle club v united_states whereby if a club engages in a business from which it derives profits from outside sources wholly disproportionate to nontaxable purposes and such profits inure to the benefit of its members in the nature of permanent improvements and facilities the club loses its exempt status in revrul_65_63 1965_1_cb_240 an organization conducts various sports car events for the pleasure and recreation of its members and their guests the events end up attracting the general_public the general_public is admitted on a recurring basis upon payment of an admission fee public patronage is solicited by advertising the service ruled that public patronage or participation in club activities is permissible if incidental to and in furtherance of the club purposes and if the net_income therefrom does not inure to its members here however the activities of the club in permitting public patronage of its facilities are of such a magnitude and recurrence as to constitute engaging in business and the club uses the income derived therefrom to acquire additional assets and to pay club expenses normally borne by its members it was thus held that the organization in the instant case does not qualify for exemption under sec_501 of the internal_revenue_code in revrul_68_119 1968_1_cb_268 an equestrian social_club that holds an annual one- day steeplechase meet which is open to the general_public is found to be tax-exempt under sec_501 in this case the club is said to derive a small amount of income from nonmembers in excess of expenses attributable to their participation and attendance if any profit results it is turned over to charity other club activities are supported by member dues therefore the ruling holds the income from non-members does not inure to the club’s members form 886-a rev page department of the treasury - internal_revenue_service schedule number or exhibit form 886-a rev date explanations of items years period ended tax identification_number name of taxpayer 20xx in t c memo clements buckaroos vs commissioner of internal revenue the organization has managed and promoted an annual one-day public event in the nature of a rodeo all of the entry fees of the contestants with other funds of the organization are used for the payment of prize money for participants in the various events there is no profit to the organization from such fees in ruling that the organization is exempt from income_tax the judge specified that traffic with outsiders was purely incidental’ the judge also added that it would of course be possible for the rodeo activities to become so preponderant that they could no longer be viewed as merely incidental’ in 338_fsupp_272 the court ruled among other things that the association was exempt from federal_income_tax as a social_club despite practically all of the association’s income having been derived from calcutta pools participated in by non-members in the instant case the social affairs at which the calcuttas were featured were open only to members and their invited guests the association took a cut of of the gross amount raised in these pools revrul_58_589 1958-2cb examines the criteria for determining whether an organization qualifies for exemption under sec_501 as an organization described in sec_501 of the code this ruling states it is clear under the foregoing regulations that a club which engages in business such as making its social and recreational facilities available to the public or by selling real_estate etc may not be considered as being organized and operated exclusively for pleasure recreation or social purposes it is equally clear that the solicitation by advertisements or otherwise of public patronage of its facilities may be averse to the establishment of an exempt status revproc_71_17 wl 1971_1_cb_683 sets forth guidelines for determining the effect gross_receipts derived from use of a social club's facilities by the public have on the club's exemption from federal_income_tax under sec_501 of the code the club must maintain books_and_records of each such use and the amount derived therefrom this requirement applies even though the member pays initially for such use in each instance the record must contain the following information the date the total number in the party the number of nonmembers in the party the total charges the charges attributable to nonmembers the charges paid_by nonmembers where a member pays all or part of the charges attributable to nonmembers a statement signed by the member indicating whether he has been or will be reimbursed for such nonmember use and if so the amount of the reimbursement where the member's employer reimburses the member or makes direct payment to the club for the charges attributable to nonmembers a statement signed by the member indicating the form 886-a rev page department of the treasury - internal_revenue_service schedule number or exhibit form 886-a rev date name of taxpayer tax identification_number years period ended 20xx explanations of items name of his employer the amount of the payment attributable to the nonmember use the nonmember's name and business or other relationship to the member and the business personal or social purpose of the member served by the nonmember use where a nonmember other than the employer of the member makes payment to the club or reimburses a member and a claim is made that the amount was paid gratuitously for the benefit of a member a statement signed by the member indicating the donor's name and relationship to the member and containing information to substantiate the gratuitous nature of the payments or reimbursement exceptions to these records keeping requirements are where a group of eight or fewer individuals at least one of whom is a member uses club facilities it will be assumed for audit purposes that the nonmembers are the guests of the member provided payment for such use is received by the club directly from the member or the member's employer where percent or more of a group using club facilities are members it will likewise be assumed for audit purposes that the nonmembers in the group are guests of members provided payment for such use is received by the club directly from one or more of the members or the member's employer solely for purposes of and above payment by a member's employer will be assumed to be for a use that serves a direct business objective of the employee- member where a club makes its facilities available to the public to a substantial degree the club is not operated exclusively for pleasure recreation or other non-profitable purposes taxpayer’s position taxpayer's position has not been provided government’s position based on the examination does not qualify for exemption as a social_club as described in sec_501 and sec_1 c which extends exemptions to social and recreation clubs which are supported solely by membership fees dues and assessments the club is operated as a commercial venture and is an integral part of a taxable organization the organization’s treatment of nonmembers or the public is inconsistent with the term club as used in sec_501 and disqualifies it from exemption the membership requirements are vaguely stated and there are no dues or initiation charges as per revproc_71_17 without records of non-member sales all income from alcohol sales can be assumed to be from non-members form 886-a rev page department of the treasury - internal_revenue_service schedule number or exhibit form 886-a rev date name of taxpayer tax identification_number years period ended 20xx explanations of items the registered agent of operates of activities the cafe serves the club’s members as well as its own patrons in the restaurant that’s within the shared premises all waitresses bartenders and other persons working at the club are employees of the café all receipts from the alcoholic beverages are received directly by the café and its personnel and is an officer the registered agent has close physical and financial ties to club is listed as the sole member of who owns and is is a taxable organization that controls the club through the control it has over the governing body entertainment and services to not only the club and its members but to the customers of the café uses this control to carry on a commercial enterprise by providing states that the holder the club must meet the rule states that the primary business on the premises is food the food and beverage certificate from requirements of the code and rule concerning minimum number of entrees served hours_of_service etc services and it would be the responsibility of the license holder the club to provide financial and accounting_records related to food and alcohol sales of all business entities sharing the licensed premise the cafe permits unrestricted use of its facilities by the public and advertises to that effect the club has an open liquor license allowing them to serve the public without a restriction to serve club members only part of the café this further illustrates how the club was an integral conclusion from the information described above the city of their restaurant business the club is not organized and operated exclusively for pleasure recreation and other nonprofitable purposes accordingly it does not qualify for exemption under sec_501 of the code and should be revoked county to serve alcoholic beverages as an integral part of organized the club to sell alcoholic beverages in and the proposed date of the revocation is january 20xx form_1120 u s_corporation income_tax return should be filed for 20xx and thereafter as long as the organization continues to be subject_to income_tax form 886-a rev page department of the treasury - internal_revenue_service


department of the treasury internal_revenue_service washington d c jun set er aen tax_exempt_and_government_entities_division uniform issue list legend taxpayer a ira b financial_institution c account d financial_institution e amount dear this letter is in response to a request for a letter_ruling dated date as supplemented by additional correspondence dated january january march and date in which you have requested a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age represents that she took a distribution of amount from ira b taxpayer a asserts that her failure to accomplish a rollover within the 60-day period prescribed by code sec_408 was due to her medical_condition which impaired her ability to manage her financial affairs taxpayer a further asserts that amount has not been used for any purpose taxpayer a maintained ira b an individual_retirement_account ira under sec_408 of the code with financial_institution c taxpayer a represents that on date she withdrew amount from ira b seeking to deposit it in another ira which had a higher earnings performance taxpayer a’s rollover deadline was date taxpayer a represents she misinterpreted some articles she read on the internet causing her to believe she had more than days to complete the rollover during the month prior to the withdrawal of amount from ira b taxpayer a had surgery for a medical_condition following the surgery and during the 60-day period she was on pain medication and antibiotics taxpayer a represents that she had difficulty managing her family financial affairs during that time the ruling_request is supported by a letter from her physician's office that explains taxpayer a’s medical_condition it states that the stress of surgery and medications caused taxpayer a to be confused for a prolonged period of time this impacted her thinking process and ability to manage her financial affairs including her inability to complete the rollover timely into the proper account based on the above facts and representations you request that the internal_revenue_service service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount sec_408 of the code provides that except as otherwise provided in sec_408 of the code 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 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 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 receives the payment or distribution or ii 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 of the code 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 any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible 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 rollover treatment is denied for amounts required to be distributed under subsection a or b sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code 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 only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and the documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a timely rollover of amount was due to her medical_condition which impaired her ability to manage her financial affairs therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira b taxpayer a is granted a period of days from the issuance of this letter_ruling to contribute not more than amount into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution the contribution will be considered a 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 amounts that are required to be distributed by sec_401 of the code sec_408 of the code this letter 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 if you wish to inquire about this ruling please contact i d at sincerely yours cotte a wath manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice


department of the treasury washington n d d c ep ea ‘ tax_exempt_and_government_entities_division aug - ‘ legend taxpayer a taxpayer b company c company d attorney e ira w ira x roth_ira y roth_ira z month dear this is in response to your letter of correspondence dated authorized representative request relief under sec_301_9100-3 of the procedure and administration regulations the following facts and representations support your ruling_request in which you through your and as supplemented by page taxpayer a is married to taxpayer b during month of calendar_year taxpayer a converted a traditional individual_retirement_arrangement ira ira w maintained with company d to a roth_ira roth_ira y also maintained with company d also during month of calendar_year taxpayer b converted a traditional_ira ira x to a roth_ira roth_ira z ira x and roth_ira z were also set up and maintained with company d iras w and x represented traditional iras that had been transferred from company c the documentation that accompanied this ruling_request indicates that although taxpayers a and b had converted their traditional iras iras w and x to roth iras roth iras y and z during company d did not follow all of its procedures in doing so thus when taxpayers a and b filed their federal_income_tax return form_1040 they were not sure that their conversion s had in fact occurred taxpayers a and b subsequently discovered that the conversions had occurred furthermore documentation that accompanied this ruling_request indicates that the conversions had occurred pursuant to taxpayers a and b’s requests with respect to calendar_year taxpayers a and b timely filed a joint federal_income_tax return form_1040 furthermore with respect to calendar_year since the adjusted_gross_income of taxpayers a and b did not exceed the limit found in sec_408a of the internal_revenue_code taxpayers a and b were eligible to convert their traditional iras iras w and x to roth iras roth iras y and z taxpayers a and b did not reflect on their joint federal_income_tax return that one quarter of the amount of the traditional iras converted to roth iras represented taxable_distributions from their traditional iras thus as of the date of this ruling_request the portion s of the amount s converted from traditional iras to roth iras by taxpayers a and b that should have been reflected on their joint federal_income_tax return form_1040 have not been so reflected your authorized representative has asserted on your behalf that taxpayers a and b are aware that certain statutes of limitations with respect to calendar_year have expired thus they are of the opinion and have been so advised by counsel that there is a degree of uncertainty as to whether the internal_revenue_service may be able to collect federal_income_tax on one quarter of the amounts that had been converted from traditional iras to roth iras even if calendar years and represent open tax years however since calendar_year is a closed tax_year taxpayers a and taxpayer b have also been advised that they may be liable for federal income taxes on a portion of any distribution or distributions received by either from his or her roth_ira thus taxpayers a and b are uncertain as to the federal tax ramifications of their filing the joint federal_income_tax return in the manner in which they did additionally mee taxpayers a and b wish to avoid future difficulties that may arise if they continue their iras as roth iras relief under sec_301_9100-3 of the regulations represents the most efficient method of resolving the above-described difficulties taxpayers a and b are of the belief that their filing this request for during calendar_year taxpayers a and b contacted attorney e regarding taxpayers a and b’s failure s to timely recharacterize their roth iras y and z this request for relief under sec_301_9100-3 of the regulations was filed shortly thereafter during calendar_year based on the above facts and representations the following letter_ruling is requested that pursuant to sec_301_9100-3 of the regulations taxpayers a and b are granted a period not to exceed sixty days from the date of this letter_ruling to recharacterize their roth iras y and z as traditional iras with respect to the above request for relief under sec_301_9100-3 of the regulations sec_408a of the internal_revenue_code and sec_1_408a-5 of the income_tax regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira ina recharacterization the ira contribution is treated as having been made to the transferee ira and not the transferor ira under sec_408a of the code and sec_1_408a-5 of the regulations this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer’s federal_income_tax returns for the year of contributions sec_1_408a-5 of the regulations question and answer-6 describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer’s intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer code sec_408a provides in short that a taxpayer shall not be permitted to make a qualified conversion contribution from a traditional_ira to a roth_ira if his adjusted_gross_income for the taxable_year of conversion exceeds dollar_figure page sec_1_408a-4 of the regulations q a-2 provides in summary that an individual with modified_adjusted_gross_income in excess of dollar_figure for a taxable_year is not permitted to convert an amount to a roth_ira during that taxable_year sec_1_408a-4 q a-2 further provides in summary that an individual and his spouse must file a joint federal_income_tax return to convert a traditional_ira to a roth_ira and that the modified_adjusted_gross_income subject_to the dollar_figure limit for a taxable_year is the modified agi derived from the joint_return using the couple’s combined income sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the procedure and administration regulations in general provide guidance concerning requests for relief submitted to the service on or after december sec_301 c of the regulations provides that the commissioner of internal revenue in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 of the regulations lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 of the regulations generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 - sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if taxpayer’s request for sec_301_9100-3 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii if the taxpayer failed to make the election because after exercising reasonable dili gence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have not acted reasonably and in good_faith if the taxpayer uses hindsight in page requesting relief if specific facts have changed since the due_date for making the election that make the election advantageous to the taxpayer the internal_revenue_service will not ordinarily grant relief in such a case the service will grant relief only when the taxpayer provides strong_proof that the taxpayer’s decision to seek relief did not involve hindsight sec_301_9100-3 of the regulations provides that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money similarly if the tax consequences of more than one taxpayer are affected by the election the government’s interests are prejudiced if extending the time for making the election may result in the affected taxpayers in the aggregate having a lower tax_liability then if the election had been timely made sec_301_9100-3 of the regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it - been timely made are closed by the statute_of_limitations befo e the taxpayer's receipt of a ruling granting relief under this section in this case taxpayers a and b converted their traditional iras ira w and ira x to roth_ira y and roth_ira z during taxpayers a and b were eligible to convert said traditional iras to roth iras taxpayers a and b timely filed their joint federal tax_return taxpayers a and b had until date to timely recharacterize their roth iras y and z as traditional iras taxpayers a and b filed this request for sec_301_9100-3 relief shortly after contacting attorney e furthermore documentation submitted on behalf of taxpayers a and b indicates that they were unsure as to whether they had in fact converted their traditional iras to roth iras and that such uncertainty was not unreasonable the facts of this case indicate that although taxpayers a and b did convert their traditional iras ira w and ira x to roth iras y and z they were unaware of having done so at the time they filed their federal_income_tax return furthermore as a result of their uncertainty as to whether they had converted their traditional iras to roth iras they have never filed a federal_income_tax return form_1040 consistent with said conversions thus if the service granted sec_301_9100-3 relief in this case taxpayers a and b would not need to file an amended f ederal income_tax return for page since the return which they have already filed reflects the federal tax consequences of timely recharacterization thus with respect to your request for relief we believe that based on the information submitted and the representations contained herein the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been met and that you have acted reasonably and in good_faith with respect to not making the election to recharacterize your roth iras as traditional iras therefore you are granted an extension of sixty days from the date of the issuance of this letter_ruling to so recharacterize 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 taxpayers who requested it section 6100g of the code provides that it may not be used or cited as precedent this letter_ruling assumes that all of the iras referenced herein will meet the requirements of either code sec_408 or code sec_408a to the extent applicable at all times relevant thereto this ruling letter was prepared by group he may be contacted at of this page pursuant to a power_of_attorney on file with this office a copy of this ruling letter is being sent to your authorized representative sincerely yours frances v sloan‘ manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of ruling letter 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 tege eoeg teb presp-142952-06 date date dear ----------------- pursuant to sec_54 of the internal_revenue_code the code and notice_2005_98 2005_52_irb_1211 and after review of your application submitted on date including supplements thereto we have determined that the projects described in appendix a attached hereto are qualified for purposes of sec_54 and will be owned by one or more qualified borrowers we allocate authority to ----------------- ----------------------- the issuer a qualified issuer under sec_54 to issue up to dollar_figure-------- ----------------of clean renewable energy bonds crebs bonds issued pursuant to this allocation must be designated by the issuer as bonds for purposes of sec_54 for the projects described in appendix a up to the amount allocated for each project described in appendix a bonds so designated must be issued on or before date please be aware that in order for bonds to be crebs the applicable_requirements of the code including without limitation sec_54 notice_2005_98 and notice_2006_7 2006_10_irb_559 must be met please note that creb proceeds may be used to reimburse capital expenditures paid_by qualified borrowers for qualified projects only if the provisions of sec_54 are met if you have any questions with respect to this allocation please contact --------------------- ---------or -----------------------------of the office of division counsel associate chief_counsel tax-exempt and government entities on --------------------- not a toll-free call except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter presp-142952-06 for purposes of the renewable_electricity_production_credit under sec_45 of the code no inference may be drawn from this allocation that any project listed in appendix a is a qualified_facility or that electricity to be produced at such project s is electricity from a qualified_energy resource at a qualified_facility within the meaning of sec_45 this determination is directed only to the applicant named above 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 form 8038-g information_return for tax- exempt governmental obligations filed for bonds issued pursuant to this allocation the allocation contained in this letter is based upon information and representations submitted by the applicant for the creb allocation 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 application_for an allocation it is subject_to verification on examination sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-142952-06 borrower name -------------------------- ------------- -------------------------- ------------- appendix a project type project location qualified hydropower facility qualified hydropower facility -------------------------------- ----------------------- -------------------------------- ----------- total amount allocated dollar_figure------------- dollar_figure------------- dollar_figure------------------------ --------------


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 b04 plr-103280-17 date date legend decedent spouse date date dear ------------- -------------------- --------------------- --------------------------- ---------------------------- this letter responds to your personal representative’s letter of date and subsequent correspondence requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date the estate discovered its failure to elect portability after the due_date for making the election plr-103280-17 decedent’s estate represents that the value of decedent’s gross_estate including taxable_gifts is less than the basic exclusion amount in the year of decedent’s death decedent’s estate requests an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-103280-17 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a plr-103280-17 see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date decedent’s estate represents that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-103280-17 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by karlene m lesho karlene m lesho senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c date number release date cc dom fs corp uilc internal_revenue_service national_office field_service_advice memorandum for from deborah a butler assistant chief_counsel cc dom fs subject srly subgroup issues this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend x pre-merger x subs 1the new name of post-merger x is z for simplicity we will refer to z as x z’s name prior to the name change y pre-merger y subs z year year year year year year date a dollar_figureb issue with respect to net_operating_loss carryovers of x and the pre-merger x subs whether x the new common parent of the y group following the reverse_acquisition is a member of a srly subgroup composed of members of the terminating x group for year and year conclusion from the facts provided to us we believe the taxpayer has not complied with sec_1_1502-21t as a result the taxpayer is not eligible to use srly subgroup rules for year and year however assuming arguendo the taxpayer is entitled to use srly subgroup rules for year and year we believe x the new common parent of the y group following the reverse_acquisition is a member of a srly subgroup composed of members of the terminating x group with respect to net_operating_loss carryovers of x and the pre-merger x subs issue whether the portion of the pre-acquisition nols of the former x group attributable to x are subject_to the separate_return_limitation_year srly limitations conclusion the portion of the pre-acquisition nols of the former x group attributable to x are subject_to the separate_return_limitation_year srly limitations facts during year x and its subsidiaries filed for protection under chapter of the united_states bankruptcy code during year the boards of directors of x and y agreed to the merger of x and y as part of the plan_of_reorganization plan of x’s debtors under the plan y would be merged with and into x with x becoming the surviving corporation thereafter x would be renamed while x would operate the existing businesses of x and y the directors and officers of y immediately before the merger would become the directors and officers of x the plan projected that x’s affiliated_group would have at least dollar_figureb amount of nols as of the date of the merger the bankruptcy court approved both the merger agreement and the plan the merger ultimately took place on date a as a result of owning shares of y the shareholders of y immediately after the acquisition owned more than of the fair_market_value of the outstanding_stock in x consequently the x group terminated x became the common parent of the y group and the pre-merger x subs also became members of the y group short_period returns were filed by the x group for the period ended date a each of the y group’s consolidated_returns for year year and year reflected x as part of the y subgroup that included the pre-merger y subs rather than part of x subgroup that included the pre-merger x subs however the y group’s consolidated_return 2as already indicated the new name of post-merger x is z for simplicity we will refer to z as x z’s name prior to the name change for year reflected x as part of the x subgroup rather than as part of the y subgroup discussion law and analysis law sec_1_1502-1 provides that the term separate_return_year means a taxable_year of a corporation for which it files a separate_return or for which it joins in the filing of a consolidated_return by another group sec_1_1502-1 provides that except as otherwise provided the term separate_return_limitation_year means any separate_return_year of a member or of a predecessor of such member as a general_rule net operating losses reported on a separate_return can be carried over and used on a consolidated_return under the rules of sec_172 sec_1_1502-21a and former sec_1_1502-21 limits a consolidated group’s ability to use net operating losses sustained by any members of the group in separate_return limitation years sec_1_1502-21a and former sec_1_1502-21 provides that the net_operating_loss of a member_of_an_affiliated_group arising in a separate_return_limitation_year that may be included in the consolidated_net_operating_loss_deduction of the group shall not exceed the amount of the consolidated_taxable_income contributed by the loss member for the taxable_year at issue sec_1_1502-21t provides srly subgroup rules that are generally effective for consolidated_return years beginning on or after date under these subgroup rules the srly limitation is applied on a subgroup basis rather than a member-by-member basis sec_1_1502-21t generally provides that a consolidated_group may apply the subgroup rules of this section to all consolidated_return years ending on or after date and beginning before date provided that - i the group's tax_liability as shown on an original or an amended_return is consistent with the application of the rules of this section other than this paragraph g and sec_1_1502-15t sec_1_1502-22t sec_1_1502-23t sec_1_1502-91t through 1502-96t and 1502-98t for each such year for which the statute_of_limitations does not preclude the filing of an amended_return on date ii each section described in paragraph g i of this section and sec_1_1502-1 is applied by substituting taxable years ending on or after date for taxable years beginning on or after date and before date for before date in the case of consolidated_return changes of ownership as the context requires iii the rules of paragraph c of this section and sec_1_1502-15t and sec_1_1502-22t c are applied only with respect to the losses and deductions of those corporations that became members of the group including members of a subgroup and to acquisitions occurring on or after date and only with respect to such losses and deductions iv the rules of sec_1_1502-15a sec_1_1502-21a and sec_1_1502-22a are applied with respect to the losses and deductions of those corporations that became members of the group and to acquisitions occurring before date and v appropriate adjustments are made in the earliest subsequent open_year to reflect any inconsistency in a year for which the statute_of_limitations precludes the filing of an amended_return on date discussion issue the tax years in the instant case are year and year which are tax years beginning before date to be eligible to use srly subgroup rules for these years the taxpayer needed to have complied with each of the specific requirements under sec_1_1502-21t from the facts provided to us we believe the taxpayer has not complied with each of these sec_1 21t g requirements consequently the taxpayer is not eligible to use srly subgroup rules in year and year the facts indicate the taxpayer failed in at least the following respect to consistently apply the rules under sec_1_1502-21t to all applicable years the taxpayer treated x as part of the y subgroup for year year and year but we have insufficient facts to know if the taxpayer failed to consistently apply the rules under sec_1_1502-21t in other respects treated x as part of the x srly subgroup for year you confirmed to us that this inconsistency for each of these years involved pre-acquisition losses of x and the pre-merger x subs that became loss_carryovers in the y group although you believe the taxpayer intends to file amended returns to consistently apply the rules under sec_1_1502-21t to all applicable years sec_1 21t g also requires the taxpayer to consistently apply the rules of treas reg sec_1_1502-15t sec_1_1502-22t sec_1_1502-23t sec_1_1502-91t through 1502-96t and 1502-98t for each year for which the statute_of_limitations does not preclude the filing of an amended_return on date in applying the sec_382 rules to consolidated groups under sec_1_1502-91t through 1502-96t and 1502-98t sec_1 99t d provides that a taxpayer must have made the amended returns under that section of the regulations by date thus the taxpayer cannot now file any necessary amended returns under that section consequently if the taxpayer needs to file amended returns under that section the group has failed to comply with the requirements under sec_1_1502-21t in not consistently applying sec_1_1502-21t and sec_1_1502-91t through 1502-96t and 1502-98t discussion issue sec_1_1502-1 provides that the portion of the pre-acquisition nols of the former x group attributable to x are subject_to the separate_return_limitation_year srly limitations sec_1_1502-1 provides that in the event of an acquisition to which sec_1_1502-75 applies all taxable years of the first_corporation and of each of its subsidiaries ending on or before the date of the acquisition shall be treated as separate_return limitation years and the separate_return years if any of the second corporation and each of its subsidiaries shall not be treated as separate_return limitation years unless they were so treated immediately before the acquisition for example if corporation p merges into corporation t and the persons who were stockholders of p immediately before the merger as a result of owning the stock of p own more than percent of the fair_market_value of the outstanding_stock of 4we have insufficient facts to know if the taxpayer failed in other respects to consistently apply the rules under treas reg sec_1_1502-15t sec_1_1502-21t sec_1_1502-22t sec_1_1502-23t sec_1_1502-91t through 1502-96t and 1502-98t t then a loss incurred before the merger by t even though it is the common parent or by a subsidiary of t is treated as having been incurred in a separate_return_limitation_year conversely a loss incurred before the merger by p or by a subsidiary of p in a separate_return_year during all of which such subsidiary was a member of the group of which p was the common parent and for which sec_1562 was not effective is treated as having been incurred in a year which is not a separate_return_limitation_year emphasis added however in determining the srly limitation not using the subgroup rules under sec_1_1502-21 the amount of income against which the pre- acquisition nols attributable to x are applied is as follows the consolidated_taxable_income of the group computed without regard to the consolidated_net_operating_loss_deduction minus such consolidated_taxable_income recomputed by excluding the items of income and deduction of post-merger x ie z reg sec_1_1502-1 provides in part that the term separate_return_year means any separate_return_year of a member or of a predecessor of such member the term predecessor’ means a transferor or distributor of assets to a member in a transaction to which sec_381 applies the reorganization transaction is a transaction to which sec_381 applies under the reverse_acquisition_rules x is treated as a transferor_corporation for purposes of sec_381 see sec_1_1502-75 accordingly under sec_381 post-merger x ie z succeeds to and takes into account x’s loss_carryovers and the separate_return_limitation_year rule_of sec_1_1502-21 is computed with respect to post-merger x ie z cf revrul_75_378 1975_2_cb_355 case development hazards and other considerations as discussed above we believe the taxpayer did not comply with sec_1_1502-21t and consequently may be ineligible to use srly subgroup rules for year and year however the taxpayer may attempt to obtain an extension to elect the subgroup rules under the provisions of sec_301 on this matter it is unclear to us whether the taxpayer would be able to obtain this relief 5as in the case of x the pre-merger x subs are also subject_to srly limitations assuming the srly subgroup rules are not applicable the losses of any particular pre- merger x sub can only be used against the income of that particular x sub whereas if the srly subgroup rules had been applicable losses of the pre-merger x subs could have been used against the collective income of those subs as well as the income of post-merger x i e z lastly the following issue is not suitable to be addressed in an fsa because the service has no published position on the issue however this issue is suitable to be addressed in a tam the issue involves taxpayer’s treatment of x as part of the y subgroup for year year and year and the treatment of x as part of the x srly subgroup for year you believe the instant case is similar to general motors v commissioner t c no date hence the service’s position may be that taxpayer’s change in subgroup treatment constitutes a change in method_of_accounting we believe no published position considers whether taxpayer’s change in subgroup treatment constitutes a change in method_of_accounting the srly rules generally involve a limitation on the use of losses by one or more members the srly subgroup rules generally refer to when the losses of certain group members generated in pre-affiliation years can be used absorbed against the income of other group members recognized or reported in affiliated years in contrast a method_of_accounting generally refers to timing for purposes of determining when to recognize or report items of income and expense from transactions events and activities the srly subgroup rules do not involve when a member recognizes or reports items of income and expense from transactions events and activities but rather when a member or subgroup is able to use the losses generated as a result of or at the time that the member recognized or reported the items of income and deduction from the transactions events or activities if you have any further questions please call assistant chief_counsel deborah a butler by steven j hankin special counsel corporate cc assistant regional_counsel tl cc ser regional_counsel cc ser


t c memo united_states tax_court peter wood petitioner v commissioner of internal revenue respondent docket no filed date peter wood pro_se david l zoss for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined the following deficiencies in and additions to petitioner’s federal_income_tax tax_year deficiency dollar_figure big_number big_number additions to tax sec_6651 sec_6654 sec_6651 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure in an amendment to answer respondent’s amendment to an- swer respondent alleged increases of dollar_figure and dollar_figure in the additions to tax under sec_6651 for and respectively the issues remaining for decision are did petitioner operate during each of the years at issue a sole_proprietorship engaged in the business of selling jewelry and certain other items we hold that he did does petitioner have unreported schedule c net profit for each of the years at issue in the amount that respondent determined in the notice we hold that he does is petitioner’s filing_status for each of the years at issue married_filing_separately we hold that it is 1all section references are to the internal_revenue_code code in effect for the years at issue all rule references are to the tax_court rules_of_practice and procedure 2in respondent’s amendment to answer respondent conceded the determinations under sec_6651 for and that respondent determined in the notice_of_deficiency notice issued to petitioner 3in addition to the issues remaining for decision listed below there are other questions relating to certain determina- tions in the notice that are computational in that their resolu- tion flows automatically from our resolution of the remaining issues that we address herein is petitioner liable for an addition_to_tax under sec_6651 for each of the years at issue we hold that he is is petitioner liable for an addition_to_tax under sec_6654 for each of the years at issue we hold that he is findings_of_fact most of the facts have been deemed established pursuant to rule c and pursuant to the court’s order under rule f dated date at the time he filed the petition in this case petitioner’s mailing address was in excelsior minnesota beginning in and continuing throughout each of the years at issue petitioner operated a sole_proprietorship under the name native skies we shall refer to petitioner’s sole_proprietorship native skies as petitioner’s sole_proprietorship at all relevant times including during each of the years at issue petitioner’s sole_proprietorship was engaged in the business of selling jewelry and certain other items such as rugs on date the secretary of state of minnesota secretary of state issued a certificate of incorporation to a corporation identified in that certificate as native skies inc during the years at issue native skies inc was inactive during those years no corporate bylaws for native skies inc and no minutes of any meetings of native skies inc existed during and native skies inc did not file an annual registration form with the secretary of state and was not in good standing in the state of minnesota native skies inc did not file any federal_income_tax return any federal employment_tax return or any information_return with the internal_revenue_service for any of the years at issue nor did native skies inc issue any form_w-2 or any form_1099 for any of those years during each of the years at issue petitioner maintained a business bank account in the name of native skies inc at first national bank of the lakes petitioner’s corporate business bank account during each such year petitioner deposited into petitioner’s corporate business bank account business receipts from petitioner’s sole_proprietorship and withdrew from that account funds to pay expenses associated with petitioner’s sole_proprietorship during each of the years at issue petitioner and his spouse maintained two personal joint bank accounts at first national bank of the lakes petitioner’s personal bank accounts during each month of each of the years at issue between dollar_figure and 4the deemed admissions and matters deemed stipulated indi- cate that during native skies inc did not file an annual registration form with the secretary of state and was not in good standing in the state of minn respondent acknowledges that that deemed admission and deemed stipulation is not accurate dollar_figure was automatically transferred from petitioner’s corporate business bank account into one of petitioner’s personal bank accounts during each such year petitioner and his spouse used petitioner’s personal bank accounts primarily for the payment of their personal expenses in order to calculate the gross_receipts that petitioner derived from petitioner’s sole_proprietorship during each of the years at issue respondent used the bank_deposits method with respect to petitioner’s corporate business bank account and petitioner’s personal bank accounts according to the bank_deposits method petitioner had the following gross deposits nontaxable deposits and gross_receipts derived from petitioner’s sole_proprietorship for each of the years at issue year gross deposits nontaxable deposits gross_receipts dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure in addition to using the bank_deposits method in order to calculate the gross_receipts that petitioner derived from peti- tioner’s sole_proprietorship during each of the years at issue respondent used billing invoices and or purchase orders generated by that business petitioner’s billing invoices and or purchase orders in order to calculate such gross_receipts according to petitioner’s billing invoices and or purchase orders petitioner had the following gross_receipts derived from petitioner’s sole_proprietorship for each of the years at issue year gross_receipts dollar_figure dollar_figure dollar_figure on date respondent sent petitioner a letter respondent’s first notice of inadequate records notifying him that he was not keeping adequate_records with respect to peti- tioner’s sole_proprietorship as required by the code which would enable him to report accurately and respondent to verify accurately petitioner’s tax_liability respondent’s first notice of inadequate records directed petitioner to send respon- dent within six months an explanation required explanation of how petitioner had corrected his recordkeeping in order to meet the requirements of the code on date respondent sent petitioner a letter respondent’s second notice of inadequate records informing petitioner that respondent had not received from him the required explanation respondent’s second notice of inadequate records directed petitioner to notify respondent within days about the steps that he had taken to correct the recordkeeping problems described in respondent’s first notice of inadequate records 5respondent’s first notice of inadequate records did not indicate the year or years to which that notice pertained 6respondent’s second notice of inadequate records indicated that it pertained to petitioner’s taxable years and petitioner did not file a tax_return for any of his taxable years or petitioner made estimated_tax pay- ments in the amounts of dollar_figure dollar_figure and dollar_figure for those respective years on date respondent issued a notice to petitioner with respect to his taxable years and in that notice respondent determined inter alia that petitioner had the following unreported schedule c net profit8 for the years at issue 7in date petitioner and his spouse filed an appli- cation for a mortgage petitioner’s mortgage application on their secondary residence in deerwood minn as noted above petitioner did not file a tax_return for any of the years at issue however attached to petitioner’s mortgage application were copies of unfiled returns petitioner’s unfiled returns for those respective years schedule c profit or loss from business schedule c of each of petitioner’s unfiled returns for the years at issue reflected that petitioner operated a sole propri- etorship which was engaged in the business of selling jewelry and gift items those respective schedules c claimed net profit of dollar_figure dollar_figure and dollar_figure respectively 8in determining in the notice petitioner’s schedule c net profit for each of the taxable years and respondent accepted as substantiated by petitioner the following amounts of cost of sales incurred by petitioner’s sole propri- etorship year cost of sales dollar_figure dollar_figure dollar_figure year schedule c net profit1 dollar_figure dollar_figure dollar_figure 1the schedule c net profit that respondent determined in the notice for each of the years and is equal to peti- tioner’s gross_receipts calculated in accordance with peti- tioner’s billing invoices and or purchase orders minus the cost of sales that respondent accepted in the notice as substantiated by petitioner with respect to petitioner’s gross_receipts calculated in accordance with petitioner’s billing invoices and or purchase orders ie dollar_figure was larger than petitioner’s gross_receipts calculated under the bank_deposits method ie dollar_figure with respect to petitioner’s gross_receipts calculated in accordance with petitioner’s billing invoices and or purchase orders ie dollar_figure was smaller than petitioner’s gross_receipts calculated under the bank_deposits method ie dollar_figure the schedule c net profit that respondent determined in the notice for is equal to petitioner’s gross_receipts calculated under the bank_deposits method minus the cost of sales that respondent accepted in the notice as substantiated by petitioner with respect to petitioner’s gross_receipts calculated under the bank_deposits method ie dollar_figure was smaller than petitioner’s gross_receipts calculated in accordance with petitioner’s billing invoices and or purchase orders ie dollar_figure the record does not disclose the reasons for the foregoing actions of respondent respondent further determined in the notice that petitioner was liable for each of the years at issue for additions to tax under sec_6651 and sec_6654 opinion respondent concedes that sec_7491 is applicable in the instant case with respect to sec_7491 respondent maintains that petitioner has not introduced credible_evidence under sec_7491 or complied with sec_7491 and that therefore the burden_of_proof with respect to respondent’s deficiency determinations for the years at issue does not shift to respondent on the instant record we agree with respondent we conclude that petitioner has the burden of proving that respondent’s deficiency determinations are wrong rule a 290_us_111 respondent however has the burden_of_proof with respect to the increase in the addition_to_tax under sec_6651 for each of the years and that respondent alleged in respondent’s amendment to answer rule a at trial the only issue about which petitioner testified related to whether during each of the years at issue petitioner’s sole_proprietorship or native skies inc operated a business engaged in selling jewelry and certain other items petitioner testified that native skies inc and not petitioner’s sole_proprietorship operated that business petitioner’s testimony is contrary to the matters deemed established in the instant case we are unwilling to rely on that testimony the matters deemed established show that during each of the years at issue petitioner’s sole_proprietorship and not native skies inc operated a business engaged in selling jewelry and certain other items such as rugs on the record before us we find that petitioner has failed to carry his burden of showing that during each of the years at issue petitioner’s sole_proprietorship did 9although the court provided petitioner an opportunity to file a brief in this case petitioner declined to do so not operate a business engaged in selling jewelry and certain other items we turn now to the determinations in the notice with respect to the determinations regarding petitioner’s schedule c net profit petitioner proffered certain documentary_evidence at trial presumably in support of his position that he does not have the schedule c net profit for each of the years at issue that respondent determined in the notice the court allowed that documentary_evidence into the record as nothing more than peti- tioner’s self-serving uncorroborated and unsubstantiated summaries of the gross_receipts and the expenses that he claims he has for each of the years at issue we are unwilling to rely on those summaries on the record before us we find that petitioner has failed to carry his burden of showing that respon- dent was wrong in determining that petitioner has schedule c net profit for each of the years at issue in the amount that respon- dent determined in the notice with respect to the determinations regarding petitioner’s filing_status petitioner has failed to carry his burden of showing that respondent was wrong in determining that peti- tioner’s filing_status for each of the years at issue is married_filing_separately with respect to the determinations under sec_6651 the matters deemed established show that petitioner did not file a tax_return for any of the years at issue on the record before us we find that respondent has carried respondent’s burden of production under sec_7491 with respect to the addition_to_tax under sec_6651 for each of the years at issue that respondent determined in the notice on that record we further find that petitioner has failed to carry his burden of showing that respondent was wrong in determining that petitioner is liable for each such year for such addition_to_tax with respect to the increase in the addition_to_tax under sec_6651 for each of the years and which respondent alleged in respondent’s amendment to answer and on which respondent has the burden_of_proof respondent claims that such an increase for each such year is appropriate for the following reasons as discussed above in respondent’s amendment to answer respondent conceded the respective determinations in the notice under sec_6651 for the years and according to respondent respondent’s concession requires that the amount of the addition_to_tax under sec_6651 be calculated under that section without regard to sec_6651 we agree on the record before us we find that respondent has carried respondent’s burden of showing that the amount of the addition_to_tax under sec_6651 that respondent determined in the notice for each of the years and should be increaseddollar_figure with respect to the determinations under sec_6654 the matters deemed established show that petitioner did not file a tax_return for any of the years at issue those matters also show that petitioner made an estimated_tax payment for each of the years at issue in an amount significantly less than the amount of the deficiency in tax that respondent determined and that we have sustained for each such year on the record before us we find that respondent has satisfied respondent’s burden of production with respect to the addition_to_tax under sec_6654 for each of the years at issue on that record we further find that petitioner has failed to establish that any of the exceptions in sec_6654 apply in the instant case on the record before us we find that petitioner has failed to carry his burden of showing that respondent was wrong in determining that petitioner is liable for each such year for such addition_to_tax 10it appears that respondent may have made an error in respondent’s amendment to answer in computing the increase in the addition_to_tax under sec_6651 for it appears that in that computation respondent failed to credit petitioner with petitioner’s dollar_figure estimated_tax payment with respect to see sec_6651 any such computational error shall be taken into account by the parties in the computations under rule to reflect the foregoing and the concessions of respondent under sec_6651 decision will be entered under rule