t c summary opinion united_states tax_court jay douglas haskett and cynthia s webb-haskett petitioners v commissioner of internal revenue respondent docket no 17571-11s filed date jay douglas haskett and cynthia s webb-haskett pro sese michelle m robles for respondent summary opinion guy special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency of dollar_figure in petitioners’ joint federal_income_tax for and an accuracy-related_penalty of dollar_figure under sec_6662 petitioners filed a timely petition for redetermination with the court pursuant to sec_6213 after concessions the issues remaining for decision are whether petitioners are entitled to a dependency_exemption deduction for ms webb-haskett’s mother entitled to a deduction for charitable_contributions in excess of the amount respondent allowed entitled to deductions for various expenses reported on schedule c and liable for an accuracy-related_penalty under unless otherwise indicated section references are to the internal_revenue_code code as amended for and rule references are to the tax_court rules_of_practice and procedure monetary amounts are rounded to the nearest dollar the parties agree that petitioners are entitled to deductions on schedule c profit or loss from business as follows tax and license expenses of dollar_figure comprising dollar_figure reported on schedule c plus additional expenses of dollar_figure and meals and incidental_expenses of dollar_figure after the application of the limitation prescribed in sec_274 petitioners concede that they are unable to substantiate the deduction of dollar_figure claimed on schedule c for telephone expenses sec_6662 to the extent not discussed herein other issues are computational and flow from our decision in this case background some of the facts have been stipulated and are so found the stipulation of facts and the accompanying exhibits are incorporated herein by this reference petitioners husband and wife resided in florida at the time the petition was filed dr haskett is a board-certified emergency room physician and has practiced medicine since he earned a doctor of medical dentistry degree from the university of kentucky and a medical doctor degree from the university of oklahoma ms webb-haskett earned a doctoral degree in education although she retired in she previously worked as a public school teacher and administrator and as an instructor at indian river state college i lottie saputa lottie saputa was ms webb-haskett’s mother petitioners testified that because of her failing health ms saputa moved out of her residence in port st lucie florida and came to live with them in date ms webb-haskett respondent determined petitioners’ tax_deficiency after allowing a standard_deduction of dollar_figure and an additional deduction of dollar_figure for real_property tax the notice_of_deficiency also states that respondent denied ms webb-haskett’s claim for spousal relief ms webb-haskett did not allege in the petition that she is entitled to spousal relief and she did not raise the issue at trial generally assisted her mother with daily activities and took her to medical appointments in date ms saputa moved to lawnwood commons lawnwood a nursing home the record includes several lawnwood invoices addressed to lottie saputa c o cynthia haskett the invoices are dated may may june and date and reflect payments of dollar_figure including a dollar_figure admission fee dollar_figure dollar_figure and dollar_figure respectively during ms saputa received dollar_figure in benefits from the social_security administration unspecified medicare benefits dollar_figure per month from the u s department of veterans affairs paid directly to lawnwood and dollar_figure from the state of florida paid directly to lawnwood ms saputa passed away on date petitioners testified that during they paid ms saputa’s daily living_expenses a portion of her medical_expenses property taxes and insurance on her port st lucie residence dollar_figure per month to lawnwood for the four months from may to date and dollar_figure toward her funeral_expenses petitioners’ bank records show that they paid dollar_figure to lawnwood dollar_figure for a walker and dollar_figure to a medical aide ii charitable_contributions ms webb-haskett served on the board_of directors of the humane society of vero beach indian river county humane society during petitioners made separate contributions of dollar_figure and dollar_figure by cash or check to the humane society in connection with certain fundraising events the humane society acknowledged receipt of the dollar_figure contribution in a letter to petitioners which refers to their attendance at two events a charitable auction preview party and the charitable auction itself the letter states in relevant part that d onations are tax deductible to the extent that they exceed the dollar_figure per person value of refreshments at the auction ms webb-haskett testified that having recently retired she began to downsize her professional wardrobe during and donated numerous items of clothing to the humane society petitioners produced a number of receipts for donations that they received from the humane society thrift shop thrift shop by way of example a thrift shop receipt dated date consists of a standard form addressed to ms webb-haskett and signed by a thrift shop employee along with a schedule prepared by ms webb-haskett listing items of clothing eg blazers trousers jeans sweaters etc and bed linens and estimates of the cost of the items new dollar_figure and the value of the items in used condition dollar_figure the reverse side of the schedule includes an appraisal of the donated items generally consistent with the value that ms webb-haskett had assigned to them and a statement that the thrift shop received the items listed on the schedule the items were in good to excellent condition and no goods or services were provided in exchange for the donated items the appraisal is initialed--apparently by the person who signed the standard form described above petitioners believed that the appraisers were volunteer employees of the thrift shop some of the schedules also include a statement indicating that an appraisal was performed by goodwill industries but the statements do not include the name or qualifications of the appraiser the remaining thrift shop receipts dated february march april june and date are similar in format to the receipt described above and indicate that petitioners donated items with aggregate values of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure respectively in sum petitioners claim that they donated approximately items of clothing with an aggregate value of approximately dollar_figure and housewares with an aggregate value of approximately dollar_figure iii dr haskett’s physician activities a medical doctor associates llc during dr haskett worked in arizona and florida as an independent_contractor providing medical services for medical doctor associates llc mda a health care staffing company arizona dr haskett traveled from florida to san carlos indian hospital in san carlos arizona to provide medical services for residents of an apache indian_reservation on the following dates date to date january to february to and april to date dr haskett’s travel_expenses between florida and arizona including airfare rental car charges hotel charges and meals and incidental_expenses normally were billed directly to and paid_by mda mda’s records reflect that when traveling to arizona dr haskett normally flew round trip between orlando florida and phoenix arizona mda preferred that its doctors stay at dream manor a hotel near san carlos but dr haskett testified that he often chose to stay elsewhere dr haskett testified that he stayed at a quality inn during his date trip to arizona and that he paid the hotel charges himself mda’s business records indicate that it paid dollar_figure to dream manor to cover dr haskett’s hotel charges for february to san carlos is approximately miles from phoenix dr haskett rented a car during his trips to arizona and mda paid all rental car charges except dr haskett’s gasoline purchases dr haskett did not retain gasoline receipts the record includes rental car receipts which reflect that he drove big_number and big_number miles during his trips to arizona ending january january february and date respectively during his trip to arizona from april to date dr haskett worked five shifts may to may he spent five nights april to may at a comfort inn in globe arizona at a daily rate including taxes and other charges of dollar_figure and he spent two nights may to at a ramada hotel in phoenix at a daily rate including taxes and other charges of dollar_figure although mda paid these hotel charges it withheld dollar_figure the charges for a two-night stay at the comfort inn from dr haskett’s paycheck dated date florida dr haskett also provided medical services for mda at solantic a medical_care provider with clinics in port st lucie and vero beach florida and at hendry regional medical center hrmc in clewiston florida dr haskett testified that mda’s vero beach and port st lucie clinics were miles and miles from his home respectively mda’s business records indicate that dr haskett worked at a solantic clinic or hrmc on november and december and at two of the clinics on date and at a clinic and hrmc on date although dr haskett appeared for work at one or more of solantic’s clinics on a few other days during date he was sent home and did not work those days because of scheduling errors mda’s parent_corporation was acquired by another corporation in the latter half of as a result dr haskett received separate forms 1099-misc miscellaneous income issued by mda and crystal m inc reporting nonemployee compensation of dollar_figure and dollar_figure respectively for b medical resources inc during dr haskett worked as an attending physician for medical resources inc mri at five medical clinics in south florida referred to herein as vero beach okeechobee port st lucie west port st lucie south and ft pierce and a rehabilitation center consulate health care chc dr haskett testified that he normally drove from his home to the vero beach okeechobee and chc facilities daily monday through friday adding trips to port st lucie west on mondays and wednesdays port st lucie south on tuesdays and thursdays and ft pierce on fridays dr haskett further testified that he routinely drove miles between clinics on both mondays and wednesdays miles between clinics on both tuesdays and thursdays and miles on fridays he also testified that he drove round trips of miles from his home to chc on saturdays and sundays dr haskett did not maintain a daily mileage log related to his work for mri but he kept a calendar listing his four daily clinic assignments ie by name address and time of day he was expected to arrive at each clinic the entries for some days are stricken with a handwritten notation that dr haskett was off that day dr haskett testified that he paid continuing medical education expenses cme expenses of dollar_figure during and that mri reimbursed him for the expenses but nevertheless included the reimbursements in his wages reported on form_w-2 wage and tax statement the record includes copies of dr haskett’s mri earnings statements for the pay periods ending july and date both statements include an item for cme of dollar_figure under the heading for earnings the record does not include a copy of dr haskett’s final mri earnings statement for mri issued two forms w-2 to dr haskett for reporting wages of dollar_figure and dollar_figure respectively for a total of dollar_figure there are no entries on the forms w-2 indicating that dr haskett received any payments other than wages or suggesting that dr haskett’s wages included reimbursements for cme expenses iv petitioners’ joint tax_return petitioners filed a joint form_1040 u s individual_income_tax_return for they did not report any dependents on line 6c of the return a itemized_deductions petitioners attached a schedule a itemized_deductions to their return and claimed a deduction of dollar_figure for charitable_contributions made by cash or check dr haskett testified that this item was erroneously reported inasmuch as most of during the trial of this case dr haskett produced letters which stated that mri had included cme expense reimbursements in the calculation of his wages for dr haskett conceded that he did not know who signed the letters he testified that mri’s owners would not return his phone calls before trial and therefore he was unable to call any witnesses to authenticate the letters under the circumstances the court sustained respondent’s objection and declined to admit the letters into evidence petitioners’ charitable donations consisted of contributions of property he further testified that he attached to the return a form_8283 noncash charitable_contributions reporting substantial contributions of clothing and housewares to the thrift shop respondent’s records indicate that no form_8283 was attached to petitioners’ return when it was filed the form_8283 that dr haskett purportedly attached to the return is handwritten and is signed and dated by him part iii of the form requiring a declaration by an appraiser is blank and part iv requiring the donee’s acknowledgment is not signed but rather is initialed by an otherwise unidentified volunteer employee from the thrift shop b schedule c petitioners attached a schedule c to their return related to dr haskett’s physician activities the schedule c reports gross_receipts of dollar_figure including dollar_figure that mda reported on forms 1099-misc expenses of dollar_figure and net profit of dollar_figure although petitioners claimed a deduction of dollar_figure for vehicle expenses they did not complete part iv of schedule c information on your in the event a taxpayer claims a deduction for a charitable_contribution of property valued at more than dollar_figure sec_1_170a-13 i b i b income_tax regs requires the taxpayer to attach to his or her tax_return a fully completed appraisal_summary bearing the signatures of a qualified_appraiser and a qualified_representative of the donee vehicle petitioners also claimed deductions of dollar_figure for travel_expenses and dollar_figure for cme expenses v tax_return preparation everett a slone has prepared petitioners’ tax returns since and he prepared their tax_return for dr haskett conceded at trial that he did not review petitioners’ tax_return in sufficient detail before it was filed mr slone is not a certified_public_accountant discussion the commissioner’s determination of a taxpayer’s liability in a notice_of_deficiency normally is presumed correct and the taxpayer bears the burden of proving that the determination is incorrect rule a 290_us_111 we consider as a preliminary matter petitioners’ contention that the burden_of_proof has shifted to respondent pursuant to sec_7491 sec_7491 provides that the burden_of_proof may shift to the commissioner as to any factual issue relevant to a taxpayer’s liability for tax if the taxpayer introduces credible_evidence with respect to that issue and the taxpayer satisfies certain other conditions including substantiation of any item and cooperation with the government’s requests for witnesses documents other information and meetings sec_7491 and see also rule a the taxpayer bears the burden of proving that the requirements of sec_7491 have been met see 135_tc_471 aff’d 668_f3d_888 7th cir as we explain below petitioners failed to present credible_evidence sufficient to substantiate most of the items in dispute on those issues the burden_of_proof remains with petitioners petitioners presented credible_evidence sufficient to substantiate a portion of their vehicle expenses however because we decide that issue in petitioners’ favor on the preponderance_of_the_evidence the allocation of the burden_of_proof is immaterial see 131_tc_185 deductions are a matter of legislative grace and the taxpayer generally bears the burden of proving entitlement to any deduction claimed rule a 503_us_79 292_us_435 a taxpayer must substantiate deductions claimed by keeping and producing adequate_records that enable the commissioner to determine the taxpayer’s correct_tax liability sec_6001 65_tc_87 aff’d per curiam 540_f2d_821 5th cir 43_tc_824 a taxpayer claiming a deduction on a federal_income_tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that the expense to which the deduction relates has been paid_or_incurred sec_6001 hradesky v commissioner t c pincite i lottie saputa petitioners contend that they spent approximately dollar_figure for ms saputa’s support and maintenance during and that they are therefore entitled to a deduction for the exemption_amount allowed for dependents under sec_151 respondent contends that petitioners failed to show that they provided more than one-half of ms saputa’s support we agree with respondent sec_151 provides that a taxpayer generally is allowed a deduction for the applicable exemption_amount for each individual who is a dependent sec_152 defines a dependent to include a qualifying_child or a qualifying_relative as relevant herein a taxpayer’s parent is a qualifying_relative if the parent’s gross_income for the calendar_year in which the taxable_year begins is less than the exemption_amount prescribed in sec_151 and if the taxpayer provides over one-half of the parent’s support sec_152 and any amount that the parent contributes toward his or her own support including the applicable exemption_amount for is dollar_figure see revproc_2007_66 sec_3 2007_2_cb_970 respondent concedes that after some or all of her social_security_benefits are excluded from gross_income in accordance with sec_86 ms saputa’s gross_income was less than the exemption_amount income which is ordinarily excluded from gross_income such as social_security_benefits must be taken into account in determining whether the taxpayer has provided over one-half of a parent’s support sec_1_152-1 income_tax regs the record does not establish that ms saputa was petitioners’ qualifying_relative within the meaning of sec_152 during ms saputa received social_security_benefits of dollar_figure monthly assistance of approximately dollar_figure from the u s department of veterans affairs while she resided at lawnwood and approximately dollar_figure from the state of florida--a total of slightly more than dollar_figure although we accept petitioners’ testimony that ms saputa resided with them for the first four months of the bank records that they offered into evidence show only that they made the following payments dollar_figure to lawnwood dollar_figure for a walker and dollar_figure for a medical aide these expenditures are far short of one-half of ms saputa’s total support during moreover petitioners did not offer any documentation to support the proposition that ms saputa’s social_security_benefits were used solely to maintain her port st ms saputa’s funeral_expenses are not considered in determining whether petitioners furnished more than one-half of her support see revrul_65_307 1965_2_cb_40 lucie residence and to pay for her medical_care as opposed to being used to cover lawnwood charges and her other daily expenses we are not required to nor will we rely on petitioners’ testimony alone to establish their entitlement to the disputed dependency_exemption deduction see eg 112_tc_183 on the record presented we hold that petitioners are not entitled to claim ms saputa as a dependent ii charitable_contributions petitioners claimed an itemized_deduction of dollar_figure on schedule a for charitable_contributions by cash or check during the examination process however petitioners asserted that they had made contributions by cash or check of dollar_figure and contributions of used clothing and housewares to the thrift shop totaling approximately dollar_figure respondent determined that petitioners are entitled to a deduction for charitable_contributions of dollar_figure comprising contributions by cash or check of dollar_figure and noncash contributions clothes and housewares of dollar_figure respondent disallowed dollar_figure of petitioners’ contributions by cash or check to the humane society in connection with the auction events described above to account for the value of refreshments served to two guests at the two events eg dollar_figure guests events dollar_figure charitable_contributions are deductible under sec_170 only if verified under regulations prescribed by the secretary sec_170 sec_170 provides that the taxpayer must obtain a contemporaneous written acknowledgment from the donee for any claimed charitable_contribution_deduction of dollar_figure or more sec_170 provides in relevant part that the contemporaneous written acknowledgment must include the amount of cash and a description of any property other than cash contributed whether the donee organization provided any goods or services in consideration in whole or in part for any cash or property contributed and if so a description and good-faith estimate of the value of any goods or services provided by the donee sec_1_170a-13 income_tax regs see thorpe v commissioner tcmemo_1998_123 sec_170 provides that a written acknowledgment is contemporaneous when the taxpayer obtains it on or before the earlier of the date the taxpayer files a return for the year of contribution or the due_date including extensions for filing that return in addition to the written acknowledgment requirement sec_170 and related regulations establish more detailed requirements for substantiating contributions of property other than money for noncash contributions of dollar_figure or less the taxpayer must substantiate the contribution with a receipt from the donee indicating the donee’s name the date and location of the contribution and a description of the property in detail reasonably sufficient under the circumstances sec_1_170a-13 income_tax regs for noncash contributions in excess of dollar_figure the taxpayer normally must maintain written records showing the manner in which the item was acquired the approximate date_of_acquisition and the cost or adjusted_basis of the property sec_1 170a- b income_tax regs see lattin v commissioner tcmemo_1995_233 lastly for noncash contributions in excess of dollar_figure the taxpayer must obtain a qualified_appraisal for the contributed_property attach a fully completed appraisal_summary ie form to the tax_return on which the deduction is claimed and maintain records pertaining to the claimed deduction in accordance with sec_1_170a-13 income_tax regs see sec_1_170a-13 income_tax regs for noncash contributions in general the value of the contribution is the fair_market_value of the property at the time of contribution 109_tc_258 aff’d without published opinion if information regarding the acquisition_date or cost_basis of the property is not available and the taxpayer attaches a statement to his return setting forth reasonable_cause for not being able to provide such information the taxpayer’s charitable_contribution_deduction shall not be disallowed on that account sec_1_170a-13 income_tax regs f 3d 4th cir sec_1_170a-1 income_tax regs the fair_market_value of contributed_property is the price at which the property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts sec_1_170a-1 income_tax regs for purposes of determining whether a taxpayer’s donation of property exceeds the dollar_figure and dollar_figure thresholds prescribed in sec_170 all similar items of property donated to one or more donees are treated as one property ie the values of all similar items of property contributed to one or more donees are considered in the aggregate see sec_170 sec_1 170a- c i iii income_tax regs sec_170 provides that a qualified_appraisal is an appraisal carried out by a qualified_appraiser pursuant to regulations or other guidance prescribed by the secretary sec_170 provides that a qualified_appraiser generally means an individual who has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education experience and other requirements set forth in regulations prescribed by the secretary and regularly performs appraisals for which the individual receives compensation sec_1_170a-13 income_tax regs provides that a qualified_appraisal must be prepared signed and dated by a qualified_appraiser sec_1_170a-13 and d income_tax regs provides that the donee or an employee of the donee of property cannot serve as a qualified_appraiser a contributions by cash or check there is no dispute that petitioners made contributions of dollar_figure by cash or check to the humane society respondent reduced by dollar_figure the amount of the contribution that petitioners made in connection with the two related auction events however purportedly to account for the value of refreshments served at the events in this regard the humane society’s letter stated donations are tax deductible to the extent that they exceed the dollar_figure per person value of refreshments at the auction contrary to respondent’s interpretation of this letter we understand that refreshments were served at the actual auction event as opposed to the preauction event taking this fact into account we hold that petitioners have adequately substantiated charitable_contributions of dollar_figure by cash or check b noncash contributions petitioners contributed clothing and housewares to the thrift shop during as evidenced by receipts and related schedules for purposes of determining whether petitioners have satisfied the substantiation requirements for noncash contributions set forth in the code and regulations we are obliged to consider the aggregate value of the various categories of petitioners’ noncash contributions in this regard petitioners contend that they contributed clothing with an aggregate value of approximately dollar_figure and housewares with an aggregate value of approximately dollar_figure under the circumstances petitioners were obliged to maintain written records showing the manner in which the donated items were acquired the approximate date_of_acquisition and the cost or adjusted_basis of the property sec_1_170a-13 income_tax regs petitioners failed to offer such written records at trial and they did not show reasonable_cause for not being able to provide such information see sec_1_170a-13 income_tax regs in addition petitioners claim a deduction for a charitable_contribution of clothing valued at dollar_figure yet they did not obtain qualified appraisals for the contributed_property as required by sec_1_170a-13 c income_tax regs although petitioners could not definitively identify the various persons whose initials appeared on the appraisals they assumed the appraisers were volunteer employees of the thrift shop in accordance with sec_1 170a- c iv c and d income_tax regs the donee or an employee of the donee cannot serve as a qualified_appraiser consistent with the foregoing we hold that petitioners are not entitled to a deduction for noncash charitable_contributions in excess of the amount respondent allowed iii trade_or_business_expenses dr haskett claimed various deductions on schedule c including vehicle expenses of dollar_figure travel_expenses of dollar_figure and cme expenses of dollar_figure respondent disallowed these deductions for lack of substantiation under sec_162 a deduction is allowed for ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business a deduction normally is not available however for personal living or family_expenses sec_262 whether an expenditure satisfies the requirements for deductibility under sec_162 is a question of fact see 320_us_467 the term trade_or_business includes performing services as an employee 54_tc_374 however an employee_business_expense is not ordinary and necessary if the employee is entitled to in addition petitioners failed to attach to their return a form_8283 bearing the signatures of a qualified_appraiser and a qualified_representative of the donee see sec_1_170a-13 i b i b income_tax regs reimbursement from his or her employer see 24_tc_21 noz v commissioner tcmemo_2012_272 sec_274 prescribes more stringent substantiation requirements before a taxpayer may deduct certain categories of expenses including expenses related to the use of listed_property as defined in sec_280f see 50_tc_823 aff’d 412_f2d_201 2d cir as relevant here the term listed_property includes passenger automobiles sec_280f to satisfy the requirements of sec_274 a taxpayer generally must maintain adequate_records or produce sufficient evidence corroborating his own statement establishing the amount date and business_purpose for an expenditure or business use of listed_property sec_1_274-5t c temporary income_tax regs fed reg date sec_1_274-5t temporary income_tax regs fed reg date provides in relevant part that adequate_records generally consist of an account book a diary a log a statement of expense trip sheets or similar record made at or near the time of the expenditure or use along with supporting documentary_evidence sec_1_274-5 income_tax regs provides that the strict substantiation requirements for vehicle expenses prescribed in sec_274 must be met even where the optional standard mileage rate is used moreover the court may not use the rule established in 39_f2d_540 2d cir to estimate expenses covered by sec_274 sanford v commissioner t c pincite sec_1_274-5t temporary income_tax regs fed reg date a vehicle expenses dr haskett testified at trial that the travel_expenses of dollar_figure that he reported on schedule c actually represented transportation_expenses he incurred driving between the various clinics that he covered for mri and for trips from home to mda’s clinics including hrmc with regard to his work for mri dr haskett testified that he routinely drove miles between clinics on both mondays and wednesdays miles on both tuesdays and thursdays miles on fridays and miles round trip from home to chc on saturdays and sundays dr haskett further testified that mda’s vero beach and port st lucie clinics were miles and miles from his home respectively the commissioner generally updates the optional standard mileage rate annually see sec_1_274-5 income_tax regs revproc_2007_70 sec_5 2007_2_cb_1162 established a standard mileage rate of cents per mile effective for transportation_expenses incurred on or after date the standard mileage rate was modified midyear however by announcement 2008_2_cb_114 which increased the standard rate to cents per mile for transportation_expenses paid_or_incurred on or after date as an employee of mri dr haskett’s transportation costs related to his employment with that firm are deductible if at all as unreimbursed employee business_expenses on schedule a subject_to the floor of sec_67 in contrast dr haskett’s transportation_expenses related to his work as an independent_contractor for mda would be deductible if at all on schedule c mri although dr haskett did not maintain a daily mileage log related to his work for mri he kept a calendar listing his four daily clinic assignments by name address and the time of day he was expected to arrive at each location some of the daily listings are stricken with a handwritten notation that dr haskett was off that day his days off were largely attributable to the days that he worked for mda in arizona and florida respondent contends that dr haskett has failed to satisfy the strict substantiation requirements for transportation_expenses prescribed in sec_274dollar_figure sec_1_274-5t temporary income_tax regs fed reg date provides that the level of detail required in an adequate record to substantiate business use of a vehicle may vary depending upon respondent does not contend that dr haskett could have obtained reimbursement for his transportation_expenses from mri the facts and circumstances including the fact that the taxpayer travels an established route having observed dr haskett’s demeanor at trial we find him to be credible with respect to the weekly routes that he drove between mri’s various clinics we conclude that his testimony considered in conjunction with his calendar establishes that he drove miles per week between mri clinics over a total of weeks during the year or big_number miles in computing the big_number miles for which dr haskett may claim a deduction for vehicle expenses on schedule a we exclude the miles that he drove from his home to chc on saturdays and sundays in short these trips represent nondeductible personal commuting expenses see eg 32_tc_947 aff’d 283_f2d_865 5th cir mda as for dr haskett’s transportation costs related to his work for mda nearly all of those costs were attributable to round trips from his home to mda’s clinics like his round trips to chc the trips to mda’s clinics in south florida constitute nondeductible personal commuting expenses see eg id consistent of the big_number miles that dr haskett drove during we find that he drove half of those miles before date and the other half thereafter the parties will compute the amount of the schedule a deduction pursuant to rule with the foregoing we hold that petitioners are not entitled to a deduction for vehicle expenses on schedule c related to dr haskett’s work for mda in florida b travel_expenses dr haskett conceded at trial that the dollar_figure deduction reported on schedule c for vehicle expenses was incorrect moreover he could not identify with any specificity most of the expenditures deducted in addition to a small deduction for meals and entertainment_expenses that the parties have agreed to dr haskett asserted that a portion of the deduction was attributable to his work for mda including vehicle expenses he incurred driving miles round trip from his home to the airport in orlando in connection with each of his four trips to arizona and the cost of the gasoline that he purchased for rental cars while working in arizona mda’s records reflect that dr haskett normally flew round trip between orlando and phoenix considering mda’s records dr haskett’s testimony that he used his personal vehicle for transportation to and from the airport and the distance between petitioners’ home and orlando we hold that petitioners have adequately substantiated a deduction on schedule c for travel vehicle expenses equal to the applicable standard mileage rate multiplied by miles ie miles round trip trips dollar_figure although mda did not reimburse dr haskett for gasoline he purchased while traveling in arizona the record does not include any receipts credit card records or similar documentation to substantiate these expenses moreover although dr haskett’s rental car statements arguably provide enough information to permit the court to estimate the amount of the deduction such travel expenditures fall within the strict substantiation requirements of sec_274 which preclude such an estimate see sanford v commissioner t c pincite sec_1_274-5t temporary income_tax regs supra dr haskett also asserts that a portion of the dollar_figure deduction was attributable to hotel charges that he paid out-of-pocket when he declined to stay at dream manor in arizona although dr haskett testified that he stayed at a quality inn during his date trip to arizona and paid the hotel charges himself he failed to produce a hotel receipt or a credit card statement all of dr haskett’s trips to orlando are subject_to the standard mileage rate in effect before date dr haskett’s rental car statements show that he drove big_number and big_number miles during his trips to arizona ending january january february and date respectively dr haskett did not explain the wide variance in the miles that he drove on these trips demonstrating that he paid any amount to quality inn in the absence of any credible_evidence substantiating dr haskett’s testimony we decline to allow a deduction for quality inn hotel charges on the other hand the record reflects that mda deducted dollar_figure comfort inn charges for two nights from dr haskett’s paycheck dated date mda’s business records do not clearly explain the adjustment to dr haskett’s paycheck because the record shows that dr haskett was working for mda in san carlos while he was staying at the comfort inn during date we conclude that dr haskett is entitled to an additional deduction of dollar_figure on schedule c for travel hotel expenses c cme expenses dr haskett claimed a deduction of dollar_figure on schedule c for cme expenses he maintains that he enrolled in and paid for cme courses and that mri reimbursed him for these expenses but inexplicably included the reimbursements in his taxable wages reported on form_w-2 dr haskett’s amounts paid to an employee as reimbursement under an accountable_plan are excluded from the employee’s gross_income are not reported as wages or other compensation on form_w-2 and are exempt from withholding and payment of employment_taxes 118_tc_467 aff’d 351_f3d_982 9th cir sec_1_62-2 income_tax regs it appears that dr haskett contends in the alternative that cme expense reimbursements should be continued earnings statements issued during the middle of arguably lend some support to the proposition that mri included payments for cme expenses in dr haskett’s wages the record however does not include dr haskett’s final earnings statement from mri for and the forms w-2 that mri issued to him for do not indicate whether cme expenses were included in his total wages as he contends moreover there is no evidence in the record as to the specific cme programs that dr haskett participated in or canceled checks credit card records or similar documentation to substantiate the amounts if any that dr haskett paid for cme on this record we conclude that dr haskett is not entitled to a schedule c deduction for cme expenses or to exclude any amount from his taxable_income for cme reimbursements iv accuracy-related_penalty sec_6662 and b imposes a penalty equal to of any portion of an underpayment attributable to negligence or disregard of rules or regulations the term negligence includes any failure to make a reasonable attempt to comply with tax laws and disregard includes any careless reckless or intentional disregard of rules or regulations sec_6662 negligence also continued excluded from his taxable_income includes any failure to keep adequate books_and_records or to substantiate items properly sec_1_6662-3 income_tax regs see 139_tc_19 sec_6664 provides an exception to the imposition of the accuracy- related penalty if the taxpayer establishes that there was reasonable_cause for and the taxpayer acted in good_faith with respect to the underpayment sec_1 a income_tax regs the determination of whether the taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account the pertinent facts and circumstances sec_1_6664-4 income_tax regs a taxpayer may be able to demonstrate reasonable_cause and good_faith and thereby escape the accuracy-related_penalty of sec_6662 by showing reliance on professional advice see id however reliance on professional advice is not an absolute defense to the sec_6662 penalty 89_tc_849 aff’d 904_f2d_1011 5th cir aff’d 501_us_868 a taxpayer asserting reliance on professional advice must prove that the adviser was a competent professional with sufficient expertise to justify reliance the taxpayer provided the adviser necessary and accurate information and the taxpayer actually relied in good_faith on the adviser’s judgment see 115_tc_43 aff’d 299_f3d_221 3d cir as a defense to the penalty petitioners bear the burden of proving that they acted with reasonable_cause and in good_faith see 116_tc_438 with respect to a taxpayer’s liability for any penalty sec_7491 places on the commissioner the burden of production thereby requiring the commissioner to come forward with sufficient evidence indicating that it is appropriate to impose the penalty id once the commissioner meets his burden of production the taxpayer must come forward with persuasive evidence that the commissioner’s determination is incorrect id pincite see rule a welch v helvering u s pincite respondent discharged his burden of production under sec_7491 by showing that petitioners failed to keep adequate_records and properly substantiate most of their claimed deductions see sec_1_6662-3 income_tax regs although petitioners relied on a paid tax preparer and trusted him to properly prepare their tax_return there is no evidence in the record regarding the return preparer’s experience or qualifications that would support the conclusion that they reasonably relied on him dr haskett admitted that the return that mr slone prepared contained significant errors and that he did not carefully review the return before filing it taxpayers have a duty to review their tax returns before signing and filing them and the duty_of filing accurate returns cannot be avoided by placing responsibility on a tax_return_preparer 88_tc_654 70_tc_465 aff’d 651_f2d_1233 6th cir in sum on the record presented petitioners failed to show that they acted with reasonable_cause and in good_faith within the meaning of sec_6664 accordingly respondent’s determination that petitioners are liable for an accuracy-related_penalty under sec_6662 is sustained consistent with the preceding discussion decision will be entered under rule


number release date internal_revenue_service index numbers - ---------------------------------------- --------------------------- ------------------------- ------------------------- --------------------- department of the treasury washington dc person to contact ----------------------------------------------------- -------- telephone number -------------------- refer reply to cc psi - plr-100393-06 date date legend x --------------------------- --------- -------------- ------------------ ---------- d1 country dear -------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election to be treated as a disregarded_entity under the laws of country was acquired by a single owner with limited_liability on d1 x intended to be treated as a disregarded_entity for federal tax purposes effective d1 however x did not timely file a form_8832 entity classification election according to the information submitted all of the interest in x an entity formed sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes under sec_301_7701-3 except as provided in sec_301 b unless it elects otherwise a foreign eligible_entity is classified as an association if all members have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a sec_301_7701-3 provides that an election under sec_301_7701-3 member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than 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 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to based on the facts submitted and representations made we conclude that the determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief 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 granting relief will not prejudice the interests of the government requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 and elect to be treated as a disregarded_entity for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 the federal tax consequences of the transaction described above under any other provision of the code except as specifically set forth above no opinion is expressed or implied as to sec_6110 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer on whose behalf it was requested in accordance with the power_of_attorney on file with this office a copy of this sincerely letter is being sent to x’s authorized representative enclosures copy of this letter copy for sec_6110 purposes heather c maloy associate chief_counsel passthroughs and special industries


t c memo united_states tax_court kurt a strode petitioner v commissioner of internal revenue respondent docket nos filed date r issued notices of deficiency determining deficiencies in federal income taxes for p’s and tax years and an sec_6662 accuracy-related_penalty for the deficiencies stem primarily from r’s determination that p could not deduct losses from an activity reported on schedule c held p is liable for the deficiencies held further p is liable for the accuracy-related_penalty for douglas e klein for petitioner jenny r casey for respondent memorandum findings_of_fact and opinion wherry judge these cases are before the court on petitions for redetermination of petitioner’s income_tax deficiencies for and and penalty for as determined by respondent the issues for decision are whether petitioner is entitled to loss deductions claimed on schedules c profit or loss from business of dollar_figure and dollar_figure for the and tax years respectively and whether petitioner is liable for a sec_6662 accuracy-related_penalty for the tax_year 1an adjustment to petitioner’s student_loan interest deductions for and and an adjustment to itemized_deductions for are computational and will depend on the outcome of this issue 2all section references are to the internal_revenue_code_of_1986 as amended and in effect for the tax years at issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated the stipulated facts and the accompanying exhibits are incorporated by this reference at the time petitioner filed his petitions he resided in california petitioner did not testify at trial and the only evidence submitted at the trial consists of the stipulated facts and exhibits the court has taken judicial_notice of the state bar of california records reflecting that petitioner is an attorney and has been a member of the state bar of california since date petitioner filed form sec_1040 u s individual_income_tax_return for the and tax years attaching to each a schedule c which listed his principal business as international consulting and the business name as intcom petitioner incorporated intcom inc in california on date by filing articles of incorporation with the california secretary of state 3at trial respondent objected to exhibits 17-p 20-p through 23-p and 25-p exhibit 17-p was rejected at trial on the grounds of relevance ruling on exhibit 20-p was reserved this court overrules respondent’s objection and finds that the exhibit was not being introduced for the truth of the matter but rather to show that petitioner was exploring business options exhibit 21-p was rejected on the grounds of relevance the objection to exhibit 22-p was overruled and exhibit 22-p was admitted at trial and exhibit 23-p was rejected for the through tax years petitioner reported on his form sec_1040 the following amounts of salary income gross_income from the activity expenses from the activity net profit or from the activity and gross_income year salary income dollar_figure big_number big_number big_number big_number big_number total big_number gross_income from activity --- --- --- --- --- --- --- expenses of activity dollar_figure big_number big_number big_number big_number big_number big_number net_profit_or_loss from activity dollar_figure big_number big_number big_number big_number big_number big_number adjusted_gross_income dollar_figure big_number big_number big_number big_number big_number big_number on date respondent issued petitioner a statutory_notice_of_deficiency determining an income_tax deficiency of dollar_figure for the tax_year petitioner timely filed a petition with this court on date at docket no 27274-08s on date respondent issued petitioner a statutory_notice_of_deficiency determining an income_tax deficiency of dollar_figure and a 4on petitioner’s motion and following a hearing this court removed the sec_7463 small case s designation by order on date thereby converting this matter to regular case status and changing the docket number to sec_6662 penalty of dollar_figure for the tax_year petitioner timely filed a petition with this court on date at docket no on date respondent filed a motion for leave to file an amendment to answer in docket no which was granted on date respondent submitted an amendment to answer in docket no which was filed date asserting that petitioner’s activity reported on his schedule c was not entered into for profit and therefore under sec_183 he was not entitled to deduct any losses greater than that activity’s gross_income this answer increased the determined deficiency to dollar_figure and aligned respondent’s arguments in the two cases the two cases were consolidated for trial briefing and opinion on date a trial was held in los angeles california on date 5on brief petitioner claims that the amounts in dispute are a deficiency of dollar_figure and a penalty of dollar_figure for and a deficiency of dollar_figure and a penalty of dollar_figure including a proposed penalty of dollar_figure for it is unclear how petitioner arrives at these figures apparently he failed to use the increased deficiency and penalty and he perhaps added interest 6the case at docket no was initially set for trial on date on date it was set for trial on date it was again continued on date this time on respondent’s request the two cases were then consolidated on date and set for trial on date petitioner again requested a continuance on date which was granted on date the consolidated cases were then set for trial on may continued opinion i burden_of_proof the commissioner’s determination_of_a_deficiency is presumed correct and the taxpayer bears the burden of proving that the determination is improper see rule a 290_us_111 however pursuant to sec_7491 the burden_of_proof as to a factual issue that affects the taxpayer’s tax_liability may be shifted to the commissioner sec_7491 petitioner did not argue that the burden should shift and as we find below failed to maintain the required records or comply with the substantiation and cooperation continued on date the court issued an order for a joint status report noting that absent a real emergency it would not even consider a continuance unless and until the parties demonstrate significant progress toward either settlement or preparing for trial on date petitioner hand delivered another motion for continuance explaining that in date he was assigned a very sensitive and extremely confidential project involving a highly complex transaction involving the issuance of securities a task that is expected to last through mid to late date the motion was denied on date because it was filed less than days before the scheduled calendar and no sufficient cause for the delay is reflected therein the court did offer that petitioner may renew his motion for continuance at the calendar call but absent significant and meaningful progress towards settlement or trial it will again be denied absent true emergency at the calendar call on date petitioner renewed his motion for a continuance which was again denied at trial on date petitioner’s counsel again renewed this motion because petitioner contended that he could not leave work at any time during the scheduled trial session the motion for continuance was again denied requirements of sec_7491 accordingly the burden_of_proof remains on petitioner however the increased deficiency for the tax_year was not part of the statutory_notice_of_deficiency and is therefore a new_matter within the meaning of rule a as to which respondent has the burden_of_proof ii sec_183 hobby loss respondent contends that the losses related to petitioner’s activity are not deductible because the activity was not engaged in for profit within the meaning of sec_183 sec_183 generally disallows deductions attributable to activities not engaged in for profit to the extent they would exceed the gross_income from such activity sec_183 defines an activity_not_engaged_in_for_profit as any activity other than one with respect to which deductions are allowable for the taxable_year under sec_162 or under paragraph or of sec_212 the court_of_appeals for the ninth circuit to which an appeal in these cases would lie absent stipulation to the contrary has held that an activity is engaged in for profit if the taxpayer’s predominant primary or principal objective in engaging in the activity was to realize an economic profit independent of tax savings 4_f3d_709 9th cir aff’g tcmemo_1991_212 sec_1_183-2 income_tax regs sets forth a nonexclusive list of factors to be considered in determining whether an activity is engaged in for profit the manner in which the taxpayer carries on the activity the expertise of the taxpayer or his advisers the time and effort expended by the taxpayer in carrying on the activity the expectation that assets used in the activity may appreciate in value the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer’s history of income or losses with respect to the activity the amount of occasional profits if any which are earned from the activity the financial status of the taxpayer and elements of personal pleasure or recreation no single factor or set of factors is conclusive in determining whether an activity is engaged in for profit nor is the number of these factors for or against the taxpayer necessarily conclusive in that respect 72_tc_411 aff’d without published opinion 647_f2d_170 9th cir sec_1_183-2 income_tax regs all facts and circumstances with respect to the activity must be taken into account sec_1_183-2 income_tax regs a the manner in which the taxpayer carries on the activity the fact that the taxpayer carries on the activity in a businesslike manner may indicate that the activity is engaged in for profit sec_1_183-2 income_tax regs three common inquiries are considered in this context whether the taxpayer maintained complete and accurate books_and_records for the activity whether the taxpayer conducted the activity in a manner substantially_similar to those of other comparable activities that were profitable and whether the taxpayer changed operating procedures adopted new techniques or abandoned unprofitable methods in a manner consistent with an intent to improve profitability giles v commissioner tcmemo_2005_28 sec_1_183-2 income_tax regs petitioner did not prepare any business or profit plans profit or loss statements balance sheets or financial break-even analyses for the activity see dodge v commissioner tcmemo_1998_89 aff’d without published opinion 188_f3d_507 6th cir the record does not contain any evidence as to the type of business or whether it was conducted in a manner substantially_similar to those of other comparable activities that were profitable nor whether petitioner changed operating procedures or abandoned unprofitable methods this factor favors respondent b the expertise of the taxpayer or his advisers preparation for the activity by extensive study of its accepted business economic and scientific practices or consultation with those who are expert therein may indicate that the taxpayer has a profit_motive where the taxpayer carries on the activity in accordance with such practices sec_1_183-2 income_tax regs there is little evidence relating to petitioner’s expertise in the activity this factor is neutral c the time and effort expended by the taxpayer in carrying on the activity the fact that the taxpayer devotes much of his personal time and effort to carrying on an activity particularly if the activity does not have substantial personal or recreational aspects may indicate an intention to derive a profit a taxpayer’s withdrawal from another occupation to devote most of his energies to the activity may also be evidence that the activity is engaged in for profit sec_1_183-2 income_tax regs petitioner did not devote a substantial amount of time to the activity petitioner was a full-time attorney during the years at issue earning a significant income this factor favors respondent d the expectation that assets used in the activity may appreciate in value the term ‘profit’ encompasses appreciation in the value of assets such as land used in the activity sec_1_183-2 income_tax regs the value of the assets if any used in the activity and their anticipated appreciation or depreciation were not discussed nor was any evidence submitted on this issue this factor is neutral e the success of the taxpayer in carrying on other similar or dissimilar activities the fact that the taxpayer has engaged in similar activities in the past and converted them from unprofitable to profitable enterprises may indicate that he is engaged in the present activity for profit even though the activity is presently unprofitable sec_1_183-2 income_tax regs petitioner did not address this factor and there is no evidence that petitioner carried on any successful businesses in a manner substantially_similar to that of the intcom activity he has apparently successfully run and operated a legal practice some elements of which may be similar to intcom’s needs this factor is neutral f the taxpayer’s history of income or losses with respect to the activity a series of losses during the initial or start-up stage of an activity may not necessarily be an indication that the activity is not engaged in for profit however where losses continue to be sustained beyond the period which customarily is necessary to bring the operation to profitable status such continued losses if not explainable as due to customary business risks or reverses may be indicative that the activity is not being engaged in for profit sec_1_183-2 income_tax regs in the two years at issue petitioner claimed dollar_figure in losses from an activity that has never been profitable although we recognize that an activity may sustain losses during the initial startup phase this activity has lost significant amounts of money over a number of years there is no indication that losses are subsiding with time therefore we find this factor favors respondent g the amount of occasional profits if any from the activity the amount of profits in relation to the amount of losses_incurred and in relation to the amount of the taxpayer’s investment and the value of the assets used in the activity may provide useful criteria in determining the taxpayer’s intent sec_1_183-2 income_tax regs the activity has continued to lose large amounts of money and was not profitable in either of the years at issue we find this factor favors respondent h the financial status of the taxpayer substantial income from sources other than the activity particularly if the losses from the activity generate substantial tax benefits may indicate that the activity is not engaged in for profit especially if there are personal or recreational elements involved sec_1_183-2 income_tax regs petitioner earns substantial income from his full-time job as an attorney and the losses from the activity resulted in substantial tax benefits during the years at issue petitioner earned in excess of dollar_figure a year from his outside job and deducted in excess of dollar_figure per year on his federal_income_tax returns on account of losses related to the activity we find this factor favors respondent i elements of personal pleasure or recreation the presence of personal motives in carrying on of an activity may indicate that the activity is not engaged in for profit especially where there are recreational or personal elements involved sec_1_183-2 income_tax regs however we also note that a business will not be turned into a hobby merely because the owner finds it pleasurable suffering has never been made a prerequisite to deductibility 59_tc_312 petitioner did not testify at trial to explain his personal views as to the activity petitioner contends that he could not spare time to testify at his trial if that is true it remains unexplained why no one else knowledgeable about the facts appeared on his behalf perhaps there were none although several years have passed since the asserted business commenced we note that petitioner’s failure to introduce evidence which if true would be favorable to him gives rise to the presumption that if produced it would be unfavorable see 6_tc_1158 aff’d 162_f2d_513 10th cir the activity required regular travel by petitioner depending on the nature of this travel it could have been for pleasure or it could have been for business this factor is neutral after considering all of the above factors as applied to the unique facts and circumstances of these cases and all other facts we consider relevant we conclude that the activity was not engaged in for profit within the meaning of sec_183 therefore petitioner is not entitled to deduct expenses in excess of gross_income from the activity iii sec_6662 penalty respondent determined that petitioner is liable for a sec_6662 accuracy-related_penalty for his tax_year pursuant to sec_7491 the commissioner has the burden of production with respect to a taxpayer’s liability for a penalty and is therefore required to come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty see 116_tc_438 subsection a of sec_6662 imposes an accuracy-related_penalty of of the portion of any underpayment attributable to causes specified in subsection b respondent determined that there was a substantial_understatement_of_income_tax justifying the penalty see subsec b 7in addition to finding that the activity was not engaged in for profit we find that petitioner did not adequately substantiate his expenses related to the activity petitioner never explained how his expenses related to his business_purpose nor for which of the assortment of different businesses his specific expenses were incurred there is a substantial_understatement_of_income_tax for any_tax year where the amount of the understatement exceeds the greater of of the tax required to be shown on the return for the tax_year or in the case of an individual dollar_figure sec_6662 respondent met his burden of production and petitioner did not address the sec_6662 penalty petitioner presented no evidence that he had reasonable_cause for any portion of any underpayment and he is liable for the penalty the court has considered all of petitioner’s contentions arguments requests and statements to the extent not discussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing decisions will be entered under rule


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p q box cincinnati oh release number release date date legend b name c name f dollars amount g number h dollars amount dear you asked for advance approval of your educational grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax our determination we approved your procedures for awarding educational grants based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding educational grants meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable description of your request you have previously received approval under sec_4945 for your individual grant program which awarded grants to individuals for the payment reimbursement of reasonable travel_expenses for individuals attending third party educational conferences your letter indicates that you will operate other individual grant programs consisting of b and c under b and c you will make grants stipends available to individuals and pay reasonable travel_expenses to enable them to improve a literary artistic musical scientific or other similar capacity skill or talent within the meaning of code sec_4945 b and c further your charitable purposes by helping provide educational opportunities to improve the grantees’ skills talents etc to better understand how free societies advance the wellbeing of mankind you will publicly announce b and c through broad email announcements individual communications by email telephone or in- person or other appropriate means that may include internet-based and other media announcements candidates for both b and c may also be drawn from the multitude of educational public_charities to which you provide grants candidates may also be drawn from your broader network of scholars community leaders and other individuals who have expressed an interest in b and c grants made under b is to enable individuals to engage in unpaid internships and fellowships the purpose of b pincite c educational public_charities under b you will provide grants stipends and possibly pay for reasonable travel_expenses b will allow college students or graduates who have shown an interest in the non-profit sector to intern with a c public educational charity you plan to provide each recipient in the range of f dollars to help subsidize costs incurred and to award in the range of g grants each year in the first and last week of the program b is expected to run approximately nine weeks in length during the program recipients will travel to and engage in study through internships at a variety of c public_charities throughout the united_states recipients will attend classes with each other which are designed to improve their skills and talents during the remaining weeks recipients will obtain unpaid internships pincite c public_charities and be exposed to many of the facets of and opportunities in the non-profit sector including public policy research and publication news media and communications donor development business and management and other skills and talents during this same time period recipients will also participate in a weekly two to four hours classroom sessions with each other which will be carried out by an educational public charity classified as a school under code sec_170 the recipients will learn about free societies and in particular how they advance the well-being of mankind throughout the term of the internship recipients will receive coaching and guidance from and work alongside experienced professionals working at the c public_charities to improve and enhance their skills and talents is to enable individuals to engage in internships and fellowships at grants made under c the purpose of c news organizations and or media organizations c will allow college students or graduates who have shown an interest in a career in the media to intern with an organization working in news and or media organizations referred to as media organizations you are in the process of identifying one or more media organizations and you expect that they will be taxable organizations but they may also be nonprofit_organizations none of the media organizations considered for participation will be considered a disqualified_person with respect to you within the meaning of code sec_4946 the internships will be between six and twelve months in order for recipients to develop skills that will be valuable and useful through this internship program recipients will be exposed to many facets of contemporary newsgathering and communications be exposed to traditional and new media techniques learn how to build accuracy and fairness into their work using advanced research techniques and work closely with journalists and other media experts recipients will have frequent opportunities to letter catalog number 58222y conduct interviews co-report stories and prepare documentaries videos and other media the recipients will receive coaching training and guidance from experienced professional journalists news media experts and other leaders in the field the recipients may be treated as employees of the media organization in this situation you will require the media organization to submit a proposal and budget covering the internship-related costs for which you will reimburse the media organization if the budget is reasonable you will then make payments directly to the media organization and the funding will be used to pay the salaries and benefits of the recipients significant deviations from the grant budget will require your prior approval if the interns are not treated as employees you will make a stipend available to the interns directly the stipend amount will be set on a case-by-case basis considering the normal earnings_of the intern the part of the country that the intern may be required to reside during his or her internship and other_relevant_factors the stipend is expected to be in the range of h dollars per month presently you anticipate awarding two or three internships each year during the term of the internship the intern shall be subject_to the media organization's policies and procedures violation of these policies may result in early termination of the internship the media organization shall maintain complete editorial control_over the intern’s work and shall be solely responsible for the content of any work produced by the intern the selection process will take a number of factors into consideration which application and selection process for b and c you will select proposed individual candidates using a nomination and selection process that is objective nondiscriminatory and aimed at achieving your charitable and educational_purposes individual candidates will apply directly to you or possibly an organization offering an internship through you such as one of the educational public_charities may include grade point average current course of study or degree awarded a biographical record and supporting material including a report on their academic and professional experience a detailed statement of their career plans letters of reference lists of publications or examples of their writings curriculum vitae recommendations from professors scholars and others the ability to contribute to scholarly debate and the body of knowledge research publications personal interviews financial need a short essay interest in and overall potential for advancing and promoting the particular subject of the grant program and other information that reflects the qualifications of the candidate eg honors awards and extracurricular activities each individual candidate’s name and other supporting information will be provided to a selection committee comprised of your representatives and possibly other individuals from the nonprofit and or educational community the selection committee will review the materials provided by the candidates and select individuals they feel will be in the best position to advance your charitable and educational purpose as well as the skills and talents of the candidate recipients cannot be related to a member of the selection committee or to any disqualified_person as defined under code sec_4946 in addition letter catalog number 58222y a candidate selected for c cannot be related to any officer or director of the media company reports and follow-up for b and c you will require reports from the individual grantee stating the use of the funds and the progress made by the individual grantee towards achieving the purpose for which the grant was made if the grant expands more than a year you will require annual reports describing the grantee’s accomplishments with respect to the grant and the accounting for the funds received under the grant you will also obtain reports from the third party public charity and or the media organization as applicable for the funds received under the grant you will also investigate the use of grant funds if the reports indicate that the funds are being used for a purpose not in furtherance of the grant you will take actions described in code sec_53_4945-4 for all jeopardized grants including withholding future grant funds not already paid and will take reasonable steps to recover funds used for an improper purpose none of the grants are automatically renewable basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure e e e the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is - - - ascholarship or fellowship subject_to sec_117 and is to be used for study at an educational_organization described in sec_170 or aprize or award subject_to the provisions of sec_74 if the recipient of the prize or award is selected from the general_public or toachieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar skill or talent of the recipient to receive approval of its educational grant procedures sec_53_4945-4 requires that a private_foundation show e e e the grant procedure includes an objective and nondiscriminatory selection process the grant procedure results in the recipients performing the activities the grants were intended to finance the foundation plans to obtain reports to determine whether the recipients have performed the activities that the grants were intended to finance other conditions that apply to this determination_letter catalog number 58222y this determination covers only the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request this determination applies only to you it may not be cited as precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you may report any significant changes to your program by completing form_8940 and sending it to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot make grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and must further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary e e e e e please keep a copy of this letter in your records if you have any questions please contact the person listed at the top of this letter sincerely director exempt_organizations letter catalog number 58222y


internal_revenue_service national_office technical_advice_memorandum may number release date index uil no case mis no tam-106637-03 taxpayer's name taxpayer's address taxpayer's identification no date of death date of conference legend spouse decedent date child child class a stock class b stock x revocable_trust date dollar_figurea family_foundation dollar_figureb tam-106637-03 issue if a_trust for the benefit of spouse is funded in part with stock that has never paid dividends does that portion of the trust qualify for the federal estate_tax_marital_deduction as qualified_terminable_interest_property qtip under sec_2056 of the code conclusion the entire qualified marital trust including the portion of the trust funded with non-dividend producing stock qualifies for the federal estate_tax_marital_deduction under sec_2056 facts decedent a resident of died on date survived by spouse child and child decedent’s assets at the time of his death included shares of class a stock and class b stock of x a closely-held corporation decedent executed revocable_trust on date revocable_trust generally provides that all assets other than two pecuniary distributions of class a stock and class b stock equal to decedent’s available exemption from the generation-skipping_transfer_tax shall be distributed to the qualified marital trust article dollar_figure of revocable_trust sets forth the provisions governing the qualified marital trust article provides that all the net_income shall be paid to spouse article provides in part that the trustee shall pay to spouse such sums of principal as the trustees deem necessary for spouse’s health support or maintenance in her accustomed manner of living article i provides that upon spouse’s death the trustee shall distribute the sum of dollar_figurea to family_foundation provided that such distribution be reduced by any gifts made by decedent or spouse to family_foundation prior to their deaths article ii provides that spouse shall have a limited testamentary_power_of_appointment over the remaining trust assets other than class a stock and class b stock spouse is authorized to exercise the power_of_appointment in favor of any one or more of decedent’s issue the spouses of decedent’s issue or any charitable organizations in any amounts or proportions tam-106637-03 article ii provides for the alternate disposition of the remaining trust assets in the event spouse fails to effectively exercise her limited testamentary_power_of_appointment article entitled general trust provisions provides in part that despite any other provision of this agreement to the contrary marital_deduction qualification all provisions of this agreement shall be construed and applied so that the gifts to the qualified marital trust shall be capable of qualifying for the marital_deduction and any provision of this agreement incapable of being so construed or applied shall be inapplicable to such gifts and trust the trustee shall not exercise any power under this agreement other than the power to make an election under sec_2056 of the internal_revenue_code in a manner that would disqualify all or any portion of the gifts to the qualified marital trust for the marital_deduction spouse shall have the right at any time to require the trustee of the qualified marital trust to make the trust assets productive or to convert the trust assets into productive assets intent regarding class a stock and class b stock i intend that while x is a privately held company all class a stock will be retained in the qualified marital trust or restricted trusts for the benefit of child and her issue and all class b stock will be retained in the qualified marital trust or restricted trusts for the benefit of child and her issue accordingly i have authorized the disposition of such stock only under very limited circumstances article enumerates certain provisions that apply to the exercise of all trustee functions under this agreement included among these provisions is a proviso regarding shares of class a stock and class b stock article v f addresses extraordinary stock decisions related to the shares of class a stock and class b stock article v f defines extraordinary stock decisions as all determinations by the trustee in connection with any sale redemption conversion exchange or other_disposition of shares of either class a stock or class b stock article v f provides in part that while x is a privately owned company no extraordinary stock decision shall be made without the concurrence of shareholders holding at least of all shares of class a stock and class b stock taken collectively including the shares affected by such decision tam-106637-03 article dollar_figure provides that except as otherwise limited by this agreement the trustees shall have the following powers or where so provided duties exercisable without approval order or license of any court principal and income to allocate receipts and disbursements between principal and income in the trustee’s discretion without limiting the generality of the foregoing the trustee shall have the power to allocate expenses of administration of the trust to income or principal or partly to each in such manner as the trustee deems advisable provided that the trustee shall have no power to allocate to income an amount of administration_expenses that would constitute a material limitation on the rights or interests of my wife or any charitable_beneficiary within the meaning of the treasury regulations under sec_2056 and or of the internal_revenue_code pursuant to the terms of revocable_trust the qualified marital trust was funded with both income producing assets and shares of class a stock and class b stock on decedent’s federal estate_tax_return form_706 decedent’s estate claimed a marital_deduction under sec_2056 for the entire qualified marital trust in the amount of dollar_figureb law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or a resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse sec_2056 provides in pertinent part that no deduction shall be allowed under sec_2056 where on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur an interest passing to the surviving_spouse will terminate or fail sec_2056 provides that in the case of qualified_terminable_interest_property the entire property is treated as passing to the surviving_spouse for purposes of sec_2056 and no part of such property shall be treated as passing to any person other than the surviving_spouse for purposes of sec_2056 sec_2056 provides that the term qualified_terminable_interest_property means property i which passes from the decedent ii in which the surviving tam-106637-03 spouse has a qualifying_income_interest_for_life and iii to which an election under sec_2056 applies sec_2056 provides that the surviving_spouse will be considered to have a qualifying_income_interest_for_life if the surviving_spouse is entitled to all of the income from the property payable annually or at more frequent intervals and no person has a power to appoint any part of the property to any person other than the surviving_spouse sec_2056 provides that an election under sec_2056 with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 such an election once made shall be irrevocable sec_20_2056_b_-7 of the estate_tax regulations provides that in general the principles outlined in sec_20_2056_b_-5 relating to whether the spouse is entitled_for_life to all the income from a_trust qualifying for a marital_deduction under sec_2056 are applicable in determining whether the spouse is entitled to all the income from the property as required under sec_2056 sec_20_2056_b_-5 provides that if an interest is transferred in trust the surviving_spouse is regarded as entitled_for_life to all the income from the property only if the spouse has that degree of beneficial_enjoyment of the property which is accorded to a person who is unqualifiedly designated as a life_beneficiary the requisite degree of enjoyment is given only if it was the decedent’s intention as manifested by the instrument and surrounding circumstances that the property should produce for the surviving_spouse during life such an income or that the spouse should have such use of the property as is consistent with the value of the corpus and with its preservation sec_20_2056_b_-5 provides that a trustee’s power to retain the trust assets which consist substantially of unproductive property will not disqualify the spouse’s lifetime income_interest if the applicable rules for the trust administration require or permit the spouse to require that the trustee either make the property productive or convert it into productive property within a reasonable_time sec_20_2056_b_-5 provides that the spouse’s lifetime income_interest will be disqualified if the primary purpose of the trust is to safeguard the property without providing the spouse with the required beneficial_enjoyment such trusts include those that expressly provide for the accumulation of income and those that indirectly accomplish a similar purpose the example is given in which the corpus of a_trust consists substantially of property unlikely to be income producing during the spouse’s life and the spouse cannot compel the trustee to convert or otherwise deal with the property as described in sec_20_2056_b_-5 such a_trust would not meet the requisite standards for deductibility tam-106637-03 as a general_rule interpretation of a_trust instrument must be made under the law of the jurisdiction governing the agreement 964_f2d_959 9th cir 94_tc_666 under law trusts are interpreted by ascertaining the intent of the settlor as expressed in the language used in the trust instrument where possible effect should be given to all words in the trust instrument in this case the central issue is whether the shares of class a stock and class b stock held as part of the qualified marital trust qualify for the marital_deduction article dollar_figure of revocable_trust provides that spouse is entitled to all of the net_income of the qualified marital trust as well as discretionary distributions of principal article dollar_figure provides that despite any other provision to the contrary spouse has the right at any time to require the trustee of the qualified marital trust to make the trust assets productive or to convert the trust assets into productive assets thus although shares of class a stock and class b stock comprise a portion of the assets held in the qualified marital trust the terms of revocable_trust expressly grant spouse the power to make those assets productive as contemplated under sec_20_2056_b_-5 article dollar_figure provides that the trustees may dispose_of the shares of class a stock and class b stock only under limited circumstances this provision does not mean that there are no circumstances under which the trustees may dispose_of the shares of class a stock and class b stock rather spouse’s right under article dollar_figure to make the trust assets productive is one of the limited circumstances under which the trustee may dispose_of shares of class a stock and the class b stock article v f defines extraordinary stock decisions as all determinations by the trustee if spouse exercises her right under article dollar_figure to compel the trustees to make the class a stock and class b stock productive or to convert those shares into productive assets spouse and not the trustees will have made a determination in connection with the disposition of shares thus the requirements set forth in article v f do not limit or usurp spouse’s productive property power we believe the terms of revocable_trust are not ambiguous even if the language of the trust instrument were deemed to be ambiguous we could look to the first two sentences of article as an aid in trust construction see revrul_75_440 1975_2_cb_372 those sentences generally provide that i all provisions of revocable_trust shall be construed so that the gifts to the qualified marital trust shall tam-106637-03 be capable of qualifying for the marital_deduction and ii the trustee shall not exercise any power in a manner that would disqualify all or any portion of the gifts to the qualified marital trust for the marital_deduction given the statements of intent contained in the savings clauses and the overall construction of revocable_trust we would interpret the language of revocable_trust in such manner as to provide that the trustee of the qualified marital trust may dispose_of the shares of class a stock and class b stock if spouse exercises her power to make those assets productive based on the foregoing we conclude that the entire qualified marital trust including the shares of class a stock and class b stock qualifies for the estate_tax_marital_deduction under sec_2056 caveat a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 provides that it may not be used or cited as precedent


internal_revenue_service number release date index number ---------------------------- ------------------------------------- -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ----------------- telephone number --------------------- refer reply to cc intl b01 plr-127107-11 date date -------------------- legend a -------------------------------- ------------------------ rrsp ---------------------------------------- ------------------------------------------------------ tax years year year year --------------- ------- ------- ------- dear --------------------- this is in reply to a letter dated date requesting an extension of time under sec_301_9100-3 for a to elect the provisions of revproc_2002_23 2002_1_cb_744 for tax years 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 requested rulings it is subject_to verification on examination the information submitted for consideration is substantially as set forth below plr-127107-11 facts a was born and raised in canada while a canadian citizen and resident a established and contributed to rrsp a’s employer transferred him to the united_states in year a married a u s citizen the following year and became a u s citizen in year a has no tax-related education skills or training given his belief that his tax and financial issues were relatively straightforward he prepared his own form sec_1040 each year until year in year a retired and became eligible to receive benefits from two canadian pension plans in addition a’s mother a canadian citizen and resident passed away in year because of these two events a started doing independent research on various tax issues and he consulted a local accounting firm at this point a first learned of the potential tax issues concerning rrsps including the need to make an election to defer u s taxation on income accruing in an rrsp pursuant to article xviii of the united states-canada income_tax convention the treaty in an effort to become and remain fully compliant a retained tax attorneys with experience in international issues as of the date of the ruling_request the internal_revenue_service had not communicated with a or his representatives about rrsp ruling requested a requests the consent of the commissioner for an extension of time under sec_301_9100-3 to make an election pursuant to revproc_2002_23 to defer u s federal income_taxation on income accrued in rrsp as provided for in article xviii of the treaty for tax years law and analysis sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is plr-127107-11 prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation the election provided in revproc_2002_23 is a regulatory election within the meaning of sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant a an extension of time provided that a satisfies the standards set forth in sec_301_9100-3 based solely on the information submitted and representations made we conclude that a satisfies the standards of sec_301_9100-3 accordingly a is granted an extension of time until days from the date of this ruling letter to make an election under revproc_2002_23 as provided in sec_301_9100-1 the granting of an extension of time is not a determination that a is otherwise eligible to make the above-described election pursuant to section dollar_figure of revproc_2002_23 the election once made cannot be revoked except with the consent of the commissioner for tax years a must file amended u s income_tax returns to which he attaches forms for rrsp for each subsequent tax_year through the tax_year in which a final distribution is made from rrsp a must attach a form_8891 for rrsp to his u s income_tax return 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 a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling and should be associated with a’s amended returns for tax years this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-127107-11 pursuant to a power_of_attorney on file with this office a copy of this letter will be sent to your authorized representatives sincerely m grace fleeman senior technical reviewer branch international enclosure copy for purposes cc