t c memo united_states tax_court john m mekulsia petitioner v commissioner of internal revenue respondent docket no filed date terri a merriam and wendy s pearson for petitioner thomas a dombrowski catherine l campbell julie l payne thomas n tomashek and dean h wakayama for respondent memorandum findings_of_fact and opinion dawson judge this case was assigned to special_trial_judge stanley j goldberg pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_183 the court agrees with unless otherwise stated all section references are to the internal_revenue_code in effect at the time the petition was continued and adopts the opinion of the special_trial_judge which is set forth below opinion of the special_trial_judge goldberg special_trial_judge on date respondent issued a notice of final_determination denying petitioner’s claim under sec_6404 for abatement of interest related to petitioner’s through taxable years petitioner timely filed a petition with this court under sec_6404 i and rule sec_280 through to review respondent’s determination shortly before the scheduled trial date respondent filed a motion under rule a for judgment on the pleadings the motion was taken under consideration and the trial proceeded on the merits the only issue for decision is whether respondent abused his discretion in denying petitioner’s request to abate interest continued filed and all rule references are to the tax_court rules_of_practice and procedure sec_6404 was redesignated sec_6404 by the victims of terrorism tax relief act of publaw_107_134 115_stat_2435 sec_6404 as cited throughout this opinion was originally enacted as sec_6404 by the taxpayer bill of right sec_2 tbor publaw_104_168 110_stat_1457 sec_6404 was redesignated sec_6404 by the internal_revenue_service restructuring reform act of publaw_105_206 sec_3309 112_stat_743 related to the taxable years through findings_of_fact some of the facts in this case have been stipulated and are so found the stipulation of facts and the accompanying exhibits are incorporated herein by reference at the time the petition was filed petitioner resided in painesville ohio a brief overview of the hoyt organization from about through walter j hoyt iii jay hoyt organized promoted to thousands of investors and operated as a general_partner more than partnerships the partnerships were organized to own breed and manage cattle jay hoyt was the tax_matters_partner tmp for a majority of the partnerships and was also an enrolled_agent with the internal_revenue_service irs dating back to the early 1980s the record-keeping practices of the hoyt organization were very poor during the years at issue often no records were kept at all many of the documents records and tax returns the hoyt organization prepared relating to the cattle partnerships were inaccurate unreliable and in many instances falsified the hoyt organization’s poor record keeping made the irs’s efforts to examine the partnerships difficult for a detailed discussion of the hoyt organization and cattle operations see durham farms j v v commissioner tcmemo_2000_159 affd 59_fedappx_952 9th cir after approximately the irs regularly examined many of the partnership returns of the numerous hoyt investor partnerships and the individual returns of their partners believing the partnerships to be abusive tax_shelters the irs generally disallowed the partnership tax benefits that each investor partnership and its respective partners claimed resulting in those partnerships’ and partners’ commencing numerous cases in the tax_court the hoyt organization is no stranger to this court since the hoyt organization’s investor partnerships have been involved in tax_court litigation for tax years from through see durham farms j v v commissioner tcmemo_2000_159 affd 59_fedappx_952 9th cir river city ranches j v v commissioner tcmemo_1999_209 affd 23_fedappx_744 9th cir shorthorn genetic engg ltd v commissioner tcmemo_1996_515 bales v commissioner tcmemo_1989_568 on date jay hoyt was convicted in the u s district_court for the district of oregon of count of conspiracy to commit fraud counts of mail fraud counts of bankruptcy fraud and counts of money laundering see united_states v barnes no cr 98-529-jo-04 d or date affd 47_fedappx_834 9th cir he was sentenced to months of imprisonment and ordered to pay restitution to the victims of his crimes b criminal tax investigations of jay hoyt after the initial irs examinations of the many cattle partnerships several criminal investigations relating to jay hoyt’s activities were commenced by the irs’s criminal_investigation_division cid from date until date cid conducted an investigation of jay hoyt for allegedly backdating documents to enable investor-partners to claim improper deductions and credits on date cid referred the case to irs district_counsel recommending prosecution on date the irs district counsel’s office in sacramento california referred the matter to the department of justice doj for prosecution the doj then forwarded the matter to the u s attorney’s office in sacramento for review and consideration on date the u s attorney’s office declined to prosecute jay hoyt on or about date a member of the irs examination_division team examining hoyt partnership returns for the through taxable years recommended that the cid investigate jay hoyt for allegedly making and or assisting in fraudulent or false tax_return statements in connection with his promotion and operation of the cattle partnerships on date the u s attorney’s office requested that the cid review certain information and determine whether irs special agents from the cid should join in an ongoing grand jury investigation of jay hoyt for possible violations of the internal revenue laws on date the cid accepted the examination division’s fraud_referral and commenced an investigation on date the irs regional counsel’s office requested that irs special agents be authorized to participate in the grand jury investigation on date the u s attorney’s office ended the grand jury investigation of jay hoyt without an indictment on or about date the cid commenced an investigation of jay hoyt for possible criminal violations of the internal revenue laws on account of his alleged misrepresentation of the total number and value of purported cattle that the hoyt cattle partnerships allegedly owned the cid closed the investigation on or about date without a recommendation that the irs attempt to have jay hoyt prosecuted on or about date the cid commenced an investigation of jay hoyt for possible criminal violations of the internal revenue laws relating to the alleged shortage of cattle from the hoyt cattle partnerships the cid closed this investigation on date without a recommendation that the irs attempt to have jay hoyt prosecuted on at least four separate occasions from date through date jay hoyt was under criminal investigation for violation of the internal revenue laws respondent never notified jay hoyt that he was under criminal investigation or removed him as the tmp of shorthorn genetic engineering sge as a result of any of these criminal tax investigations c petitioner’s involvement with the hoyt organization starting in petitioner began investing in cattle partnerships promoted by the hoyt organization according to the petition filed in this case petitioner was a partner in sge timeshare breeding syndicate j v and timeshare breeding syndicate as the interest of which he seeks abatement in this case accrued on assessments of income_tax against petitioner for tax years through solely on the basis of his participation in sge during and our analysis is limited to the tax implications of petitioner’s association with the sge partnership only petitioner was a partner in sge from through sge was a partnership subject_to the provisions of sec_6221 through on sge’s and partnership tax returns jay hoyt was designated the tmp the unified partnership audit and litigation provisions of secs were first enacted as part of the tax equity and fiscal responsibility act of publaw_97_248 96_stat_648 and are generally applicable to partnership taxable years beginning after date for the tax_year sge issued petitioner a schedule_k-1 partner’s share of income credits deductions etc reporting petitioner’s distributive_share of the ordinary_loss from the partnership in the amount of dollar_figure and property eligible for investment_credit in the amount of dollar_figure on his form_1040 individual_income_tax_return petitioner deducted from his total income the dollar_figure of ordinary_loss passed through from sge and claimed a dollar_figure general_business_credit relating to sge after his income_tax return was filed petitioner filed a form_1045 application_for tentative refund requesting a refund of income_tax for the and tax years petitioner’s refund request was based on carrying back to those tax years unused general business credits relating to his distributive_share of qualified_investment property from sge for sge issued petitioner a schedule_k-1 for reporting petitioner’s distributive_share of the ordinary_loss from the partnership in the amount of dollar_figure on his individual tax_return petitioner deducted from his total income the dollar_figure of ordinary_loss passed through from sge and claimed an dollar_figure general_business_credit relating to sge that he carried forward from the previous year on petitioner’s individual_income_tax_return he claimed a dollar_figure general_business_credit relating to sge that he carried forward from his income_tax return d respondent’s examination of sge for and on date respondent sent a notice of beginning of administrative_proceeding nbap to jay hoyt the tmp of sge the notice informed the tmp that respondent was beginning an examination of sge for the and tax years on date respondent sent an nbap to petitioner notifying him that an examination was beginning on sge for the tax_year on date respondent sent petitioner an nbap relating to sge for the tax_year on date an examiner with the irs signed form_4665 report transmittal and form 4605-a examination changes-- partnerships fiduciaries small_business corporations and domestic international sales corporations both forms related to the irs’s examination of sge for the tax_year in the report transmittal the examiner discussed the difficulties encountered in obtaining sge’s records from the tmp the examiner recommended issuing a notice of final_partnership_administrative_adjustment fpaa because the lack of adequate_records did not allow respondent to perform a normal examination and the parties were in complete disagreement over the issues on form 4605-a the examiner made examination changes to sge’s partnership tax_return as follows an adjustment reducing the partnership’s ordinary_loss of dollar_figure to zero and an adjustment reducing the cost or other basis of qualified_investment property from dollar_figure to zero on date the same examiner signed form_4665 and form 4605-a for sge’s tax_year the report transmittal for the tax_year was essentially identical in all material respects to the report completed for the previous year on form 4605-a the examiner made examination changes to sge’s partnership tax_return as follows an adjustment reducing the partnership’s ordinary_loss of dollar_figure to zero and an adjustment reducing payments to individual_retirement_accounts ira and keogh accounts totaling dollar_figure to zero on date respondent issued an fpaa to petitioner and jay hoyt as tmp of sge relating to the partnership return filed for the tax_year in the explanation of adjustments included with the fpaa respondent adjusted the claimed partnership expenses totaling dollar_figure to zero and adjusted the value of the qualified_investment property claimed from dollar_figure to zero the explanation listed reasons why sge was entitled to no items of ordinary_loss deduction credit or other items of tax_benefit further the explanation stated that the partners of sge were not entitled to their distributive shares of partnership items reported on the partnership return for on date respondent issued an fpaa to petitioner and sge’s tmp relating to the partnership return filed for the tax_year in the explanation of adjustments included with the fpaa respondent made adjustments to sge’s partnership return reducing all items reported during the tax_year to zero the following items reported on sge’s partnership return were reduced to zero farm income totaling dollar_figure farm deductions totaling dollar_figure guaranteed payments totaling dollar_figure ira payments totaling dollar_figure keogh payments totaling dollar_figure and self-employment loss totaling dollar_figure again the explanation listed the various reasons why sge was not entitled to the items reported and why the partners were not entitled to their distributive shares of those items e litigation relating to sge for tax years and on date a petition was filed in the tax_court at docket no contesting the determinations made by respondent in the fpaa for sge’s tax_year on date a petition was filed with this court at docket no contesting the determinations made in the fpaa for sge’s tax_year by date the tmps of many of the hoyt partnerships had filed tax_court petitions on date respondent and jay hoyt acting as tmp entered into a memorandum of understanding mou the mou outlined a basis for a settlement of all outstanding cattle partnership cases pending before the court for the through tax years the mou included a basis of settlement for the sge partnership with respect to its and tax years after memorializing the mou the parties were unable to reach an agreement on settlement documents reflecting the terms outlined in the mou as a result on or about october the parties jointly moved to consolidate several of the cattle partnership cases including docket nos and for trial briefing and opinion on date the court issued its opinion with respect to the consolidated cases resulting from the mou see shorthorn genetic engg ltd v commissioner tcmemo_1996_515 the court held that the settlement agreement reflected in the mou was binding on the parties accordingly on date the court entered orders and decisions reflecting its determinations with respect to the and tax years of sge on date the following documents were filed in the consolidated cases a motion for leave to file out of time a motion to vacate a motion for leave to file out of time a motion for reconsideration of findings_of_fact and opinion and a request for a rehearing on date the court granted both of the motions and the request on date the court denied the motion to vacate the motion for reconsideration of findings_of_fact and opinion and the request for a rehearing f assessment of income_tax and computation of interest on date respondent sent petitioner a form 4549a-cg income_tax examination changes for each of the tax years through for each of those tax years the form and attached explanations detailed the adjustments made to petitioner’s individual tax returns and calculated the deficiencies in each year’s income_tax in addition the explanations for each year informed petitioner that respondent had determined that a part of his underpayment_of_tax was attributable to tax-motivated transactions as defined in sec_6621 the through adjustments made to petitioner’s tax returns were based on his participation in sge during the the omnibus budget reconciliation act of obra publaw_101_239 sec b 103_stat_2399 repealed sec_6621 this repeal was effective for returns the due_date for which determined without extensions is after date see obra sec c 103_stat_2400 and tax years and the holding in shorthorn genetic engg ltd v commissioner supra on the basis of the disallowed tax benefits claimed by petitioner relating to sge respondent assessed income_tax deficiencies against petitioner in the amounts determined for each year in each form 4549a-cg the tax years the assessment dates and the amounts of income_tax deficiencies assessed petitioner are as follows tax_year assessment_date assessment amount dollar_figure big_number big_number big_number big_number respondent prepared an interest and penalty detail report for each tax_year from through based on the total amount of income_tax assessed and the applicable_interest rates determined pursuant to sec_6621 each report shows in detail the computations used to determine the amount of interest on petitioner’s income_tax deficiencies the tax_year of each deficiency the dates during which the interest accrued and the total amount of interest calculated are as follows dates interest accrued total amount year from to of interest dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure as a result of petitioner’s making a deposit in the nature of a cash bond in the amount of dollar_figure on date respondent stopped interest from accruing on that date g petitioner’s interest abatement claim on date petitioner initiated correspondence with respondent requesting an explanation for respondent’s imposing interest relating to a tax-motivated transaction pursuant to sec_6621 more specifically petitioner wanted respondent to provide his basis for determining that petitioner’s investment in sge was a tax-motivated transaction respondent treated this letter as an informal claim for interest abatement on date respondent denied petitioner’s informal claim_for_abatement of interest for the through tax years respondent stated that tax-motivated interest was applicable on account of the abusive nature of the sge partnership in addition respondent determined that there was no delay or error relating to the performance of a ministerial_act warranting abatement of interest the correspondence from respondent informed petitioner that he could request reconsideration of respondent’s findings with the irs appeals_office on date petitioner appealed respondent’s denial of the informal interest abatement claim specifically petitioner requested an abatement of all the interest accrued on his assessed income_tax liabilities for tax years through petitioner based the request for interest abatement on his assertion that the interest accrued because of delays caused by employees of the irs in performing ministerial or managerial acts when conducting the audits of sge further petitioner argued for abatement of the increased sec_6621 interest because he claimed that respondent lacked any factual or legal predicate for imposing tax motivated interest on date petitioner sent respondent a letter supplementing his interest abatement appeal petitioner asserted the same arguments as those raised in the date appeal but acknowledged that for the years prior to only delays caused by ministerial acts were considered for interest abatement claims on date petitioner sent respondent another letter further supplementing his interest abatement appeal in this supplement petitioner asserted that respondent’s failure to remove jay hoyt as the tmp of sge after he was under a criminal tax investigation was an error in performing a ministerial_act that caused delays resulting in the accrual of interest petitioner based this assertion on his claim that sec_6231 and sec_301_6231_c_-5t temporary proced admin regs fed reg date require the commissioner to remove a tmp under a criminal investigation for the violation of internal revenue laws on date an associate chief in the appeals_office approved the recommendation of an appeals officer denying petitioner’s appeal of the denial of his informal interest abatement claim in form 5402-c appeals transmittal_memorandum and case memo the appeals officer addressed each of petitioner’s arguments and determined that interest abatement was not warranted specifically the appeals officer concluded that the decision to remove a tmp under criminal investigation pursuant to sec_6231 and the corresponding regulation is not a ministerial_act but rather is an act involving the commissioner’s judgment and discretion on the basis of the determination that failure to remove jay hoyt as the tmp was not an error or delay in performing a ministerial_act the appeals officer recommended that interest not be abated further the appeals officer addressed petitioner’s other arguments that actions taken by respondent showed a pattern of unfair conduct and concluded that these claims did not warrant interest abatement in addition the appeals officer made a determination that the increased interest rate pursuant to sec_6621 was correctly determined because of petitioner’s involvement in a tax-motivated transaction on date respondent issued petitioner a final_determination letter disallowing petitioner’s request for interest abatement for the tax years through respondent based the disallowance on the fact that no errors or delays that merit interest abatement were discovered in respondent’s review of available records and other information respondent informed petitioner that he could file a tax_court petition for a review of respondent’s denial of interest abatement if he disagreed with the final_determination opinion a the commissioner’s authority to abate interest in general interest on an underpayment of income_tax begins to accrue on the due_date of the return for the tax and continues to accrue compounded daily until payment is made see sec_6601 sec_6622 pursuant to sec_6404 as it applies in this case the commissioner may abate the assessment of interest on any deficiency attributable to any error or delay by an officer_or_employee of the irs in performing a ministerial_act or any payment of any_tax described in sec_6212 to the extent that any error or delay in payment is attributable to the officer’s or employee’s being erroneous or dilatory in performing a ministerial_act a ministerial error or delay by an officer_or_employee without distinction employee of the irs is taken into account only if no significant aspect of the error or delay can be attributed to the taxpayer sec_6404 in addition only errors or delays occurring after the irs has initially contacted the taxpayer in writing with respect to the deficiency or payment are taken into account id thus abatement of interest for the period between the date the tax_return is filed and the date the commissioner commences an audit is not permitted under sec_6404 sims v commissioner tcmemo_1999_414 citing h rept pincite 1986_3_cb_1 the temporary regulations interpreting sec_6404 define the term ministerial_act as a procedural or mechanical act that does not involve the exercise of judgment or discretion and that occurs during the processing of a taxpayer’s case after all prerequisites to the act such as conferences and review by supervisors have taken place sec_301_6404-2t b temporary proced admin regs fed reg aug sec_6404 was amended by tbor sec_301 and 110_stat_1457 to permit the commissioner to abate interest with respect to an unreasonable error or delay resulting from managerial or ministerial acts the amendment applies to interest accruing with respect to deficiencies for taxable years beginning after date accordingly the amendment is inapplicable in the present case a ministerial_act is a nondiscretionary procedural act that the commissioner is required to perform camerato v commissioner tcmemo_2002_28 in contrast acts that either are managerial or arise out of general administrative decisions are not ministerial id abatement is not available for managerial acts during the tax years at question and has never been available for actions or nonactions attributable to general administrative decisions id further a decision concerning the proper application of federal tax law or other applicable federal or state laws is not a ministerial_act see sec_301_6404-2t b temporary proced admin regs supra even where errors or delays are present the commissioner’s decision to abate interest remains discretionary see sec_6404 when congress enacted sec_6404 it did not intend the provision to be used routinely to avoid payment of interest rather congress intended abatement of interest to be used sparingly only where failure to do so would be widely the final regulations under sec_6404 as issued on date contain the same definition of ministerial_act see sec_301_6404-2 proced admin regs the final regulations generally apply to interest accruing on deficiencies or payments of tax described in sec_6212 for taxable years beginning after date see sec_301_6404-2 proced admin regs accordingly as the final regulations are inapplicable in the present case sec_301_6404-2t temporary proced admin regs fed reg date effective for taxable years beginning after date but before date applies see sec_301_6404-2t c temporary proced admin regs supra perceived as grossly unfair h rept pincite 1986_3_cb_1 s rept pincite 1986_3_cb_1 b jurisdiction of the tax_court the tax_court is a court of limited jurisdiction and we may exercise our jurisdiction only to the extent authorized by congress sec_7442 85_tc_527 in proceedings brought by a taxpayer for a review of the commissioner’s denial of the taxpayer’s request to abate interest as in the present case the jurisdiction of this court is limited solely to a determination as to whether the commissioner abused his discretion in declining to abate any portion of the interest under sec_6404 see sec_6404 vanstone v commissioner tcmemo_2002_133 when reviewing the commissioner’s determination pursuant to sec_6404 our inquiry is a factual one and we proceed on a case-by-case basis jacobs v commissioner tcmemo_2000_ since the commissioner’s power to abate interest involves the exercise of discretion we give the commissioner’s determination due deference 112_tc_19 we review the commissioner’s determination not to abate interest applying an abuse_of_discretion standard see sec_6404 camerato v commissioner supra the taxpayer bears the burden_of_proof with respect to establishing an abuse_of_discretion rule a in order to prevail the taxpayer must establish that in not abating interest the commissioner exercised his discretion arbitrarily capriciously or without sound basis in fact or law 113_tc_145 woodral v commissioner supra pincite as a prerequisite to our reviewing the respondent’s actions for an abuse_of_discretion petitioner must show that the assessment of interest is attributable to some error or delay by an employee of the irs in performing a ministerial_act banat v commissioner tcmemo_2000_141 affd 5_fedappx_36 2d cir in addition petitioner must establish a correlation between the alleged error or delay and a specific period over which interest should be abated as a result of that error or delay donovan v commissioner tcmemo_2000_220 c whether respondent’s refusal to abate interest from date to date was an abuse_of_discretion petitioner argues that errors and delays occurred in the audit of sge for the and tax years that warrant interest abatement from date until date petitioner bases his interest abatement claim on his contentions that respondent had sufficient information as of the date of first contact9 to issue the fpaas yet delayed issuing the fpaas for almost years and the original and tax_year audits were so replete with errors that respondent had to completely reaudit sge starting in date petitioner’s first claim alleges that through document requests in related to respondent’s trial preparation in bales v commissioner tcmemo_1989_568 and respondent’s inspection and count of the hoyt cattle in and respondent obtained and reviewed all the information necessary to issue fpaas for sge’s and tax years by petitioner concludes that delays in performing a ministerial_act occurred during the audits because the and fpaas were issued well after however petitioner has failed to show that respondent’s issuance of fpaa’s after constituted delay in the performance of a ministerial_act it appears that petitioner considers himself entitled to the relief sought merely because of the time that transpired from the date the audits began until the dates the fpaas were issued the mere passage of time however does not establish error or delay in performing a ministerial_act hawksley v commissioner tcmemo_2000_354 respondent’s first contact with petitioner for purposes of sec_6404 was date the date that respondent sent the notice of beginning of administrative_proceeding nbap to the tax_matters_partner for the tax_year determining the precise date on which to issue an fpaa requires the exercise of judgment and discretion on the commissioner’s part the commissioner’s determination of when to issue an fpaa depends on various factors including but not limited to the nature and persuasiveness of the evidence gathered during the examination the level of cooperation received from the taxpayer the legitimacy of the information received during the examination the likelihood of obtaining additional evidence from other sources the impact of recently decided litigation dealing with similar issues the impact of a criminal tax investigation involving the taxpayer the recommendations set forth in the examiner’s report transmittal and an overall evaluation of the evidence to determine whether the record supports the adjustments accordingly respondent’s determination of when to issue the fpaas was not a ministerial_act see sec_301_6404-2t b temporary proced admin regs fed reg date respondent’s decision of how and when to work on these cases based on an evaluation of his entire caseload and his workload priorities was not a ministerial_act see jean v commissioner tcmemo_2002_256 contrary to petitioner’s claim that respondent had all the records sufficient to issue the fpaas in the facts reveal that respondent’s difficulty in obtaining accurate records during the audits hindered the audit process the record also establishes that respondent believed the partnerships were abusive tax_shelters such delay in completing an examination because of the difficulties in obtaining documentation or because of the commissioner’s suspicion of fraud does not prove that the commissioner was erroneous or dilatory in performing ministerial acts banat v commissioner supra accordingly issuing the fpaas after was not a delay in performing a ministerial_act petitioner’s second claim alleges that the audits of sge for and were so replete with errors that the audits had to be completely redone petitioner asserts that four of respondent’s agents were assigned to district_counsel in date to reaudit sge for and while the parties have stipulated that the four agents were assigned to district_counsel to assist in trial preparation of the hoyt investor partnerships docketed tax_court cases for the through taxable years petitioner argues that the agents’ work was not limited to trial preparation and appeared to be work traditionally done at the audit stage petitioner concludes that the existence of the second audit is sufficient evidence that the first audit was replete with errors petitioner’s conclusion is without merit his argument fails to specify an error or delay in performing a ministerial_act the entire record establishes that the four agents were assigned to district_counsel to assist in trial preparation relating to the hoyt investor partnerships docketed tax_court cases contesting the determinations made in the fpaas petitioner has failed to show that respondent performed the functions of traditional audit work during trial preparation in any event no conclusion can be drawn from the work performed during the trial preparation that the and sge audits were replete with errors because of respondent’s being erroneous or dilatory in performing any ministerial_act since we have rejected both of petitioner’s claims described above finding that he failed to establish any error or delay by respondent in performing a ministerial_act we hold that respondent’s failure to abate interest from date until date was not an abuse_of_discretion d whether respondent’s refusal to abate interest from date to date was an abuse_of_discretion petitioner contends that interest should be abated from date until date because respondent’s failure to remove jay hoyt as the tmp of sge after he was under a criminal tax investigation was an error in performing a ministerial_act petitioner argues that jay hoyt’s removal as tmp was required by the interrelationship of sec_6231 sec_301_6231_c_-5t temporary proced admin regs fed reg date and sec_301_6231_a_7_-1 proced admin regs our understanding of petitioner’s argument is based on the following progression pursuant to sec_6231 the secretary is granted discretion by congress to prescribe regulations concerning the special enforcement areas enumerated in sec_6231 this discretion allows the secretary to promulgate regulations to determine when treating items as partnership items will interfere with the effective and efficient enforcement of the internal revenue laws once such a determination is made by the secretary it is mandatory that a partner’s partnership items be treated as nonpartnership_items sec_6231 by regulation the secretary has determined that the treatment of items as partnership items with respect to a partner under criminal investigation for violation of the internal revenue laws relating to income_tax will interfere with the effective and efficient enforcement of the internal revenue laws sec_301_6231_c_-5t temporary proced admin regs supra the regulation requires that notice be sent to the partner that his partnership items will be treated as nonpartnership_items id and therefore at the initiation of a criminal investigation of a tmp it is mandatory that a the partner’s partnership items become nonpartnership_items b the partner be sent notice and c the partner be removed as tmp pursuant to sec_301_6231_a_7_-1 proced admin regs while this court and court_of_appeals for the ninth circuit have interpreted the interaction of sec_6231 and sec_301_6231_c_-5t temporary proced admin regs supra in 114_tc_115 affd 272_f3d_1172 9th cir petitioner contends that his argument is distinguishable and therefore phillips does not control the taxpayer in phillips argued that sec_301_6231_c_-5t temporary proced admin regs supra was invalid and or that the commissioner abused his discretion by not issuing the notice however while acknowledging that the statute and regulation were held valid in phillips petitioner argues that the regulation contains language requiring the commissioner to send notice at the commencement of a criminal investigation he asserts that the commissioner has no discretion in sending the notice and failure to do so is an error in performing a ministerial_act he further attempts to distinguish his case from phillips by asserting that abuse_of_discretion concerning the regulation is not an issue in the instant case in sum petitioner asserts that the language of sec_6231 and sec_301_6231_c_-5t temporary proced admin regs supra taken together required respondent to notify jay hoyt that his partnership items would be treated as nonpartnership_items at the commencement of a criminal investigation against him petitioner further asserts that since respondent could exercise no judgment or discretion in issuing the notice once the criminal investigation of jay hoyt began the procedure in the regulation requiring notification is a ministerial_act accordingly he concludes that respondent’s failure to send the required notification to jay hoyt was an error in performing a ministerial_act that contributed to the accrual of interest petitioner asserts that had respondent notified jay hoyt on date the date of the first criminal investigation of jay hoyt after the first contact by respondent relating to the audit of sge petitioner would have become aware of jay hoyt’s fraud and could have made informed decisions about the sge deductions and credits he claimed further petitioner claims that respondent’s failure to send jay hoyt the notification concealed jay hoyt’s fraud until date the date petitioner alleges that investors had sufficient information concerning the fraud on the basis of these claims petitioner requested that respondent abate interest from date until date he contends that respondent’s failure to abate interest for this period was an abuse_of_discretion respondent’s first contact with petitioner for purposes of sec_6404 was date see supra note contrary to petitioner’s assertion that phillips is distinguishable from the instant case we find that phillips is controlling in all pertinent respects petitioner attempts to limit phillips to a mere determination that sec_301_6231_c_-5t temporary proced admin regs supra was a valid regulation however this court in phillips v commissioner supra pincite went well beyond that sole determination stating pursuant to the provisions of sec_301_6231_c_-5t temporary proced admin regs supra the commencement of a criminal tax investigation of a partner in a tefra partnership does not necessarily or immediately interfere with the effective and efficient enforcement of the internal revenue laws and require the treatment of partnership items as nonpartnership_items in every situation emphasis added from the above language in phillips it is clear that sec_301_6231_c_-5t temporary proced admin regs supra does not require the commissioner to treat partnership items as nonpartnership_items at the commencement of every criminal tax investigation of a partner accordingly the commissioner has discretion to determine in which instances a criminal investigation interferes with the effective and efficient enforcement of the internal revenue laws in affirming this court in phillips the court_of_appeals for the ninth circuit addressed the principal issue of whether a criminal tax investigation of a tmp does or must end the tmp’s power to act for a partnership phillips v commissioner f 3d pincite the court_of_appeals held that pursuant to sec_301_6231_c_-5t temporary proced admin regs supra a criminal tax investigation of a tmp does not impose an obligation on the commissioner to treat partnership items as nonpartnership_items id pincite further the court_of_appeals held that the regulation in question vests discretion in the commissioner to notify a partner that he or she is under criminal investigation and that until such notice is given partnership items remain partnership items id emphasis added in phillips the tax_court and the court_of_appeals both held that sec_301_6231_c_-5t temporary proced admin regs supra is not a mandatory regulation requiring the commissioner to act in every instance of a criminal tax investigation as petitioner asserts to the contrary the regulation at issue vests discretion in the commissioner to determine if and when to notify a partner that he or she is under criminal investigation phillips v commissioner t c pincite f 3d pincite in the instant case as in phillips respondent did not provide jay hoyt with notice that he was under criminal investigation contrary to petitioner’s argument respondent clearly had no obligation to notify jay hoyt of such activity because the act of notifying a partner about a criminal investigation pursuant to sec_301_6231_c_-5t temporary proced admin regs supra involves the exercise of the commissioner’s discretion and is not a mandatory procedure the act of notification is not a ministerial_act see camerato v commissioner tcmemo_2002_28 defining ministerial_act as a nondiscretionary procedural act sec_301_6404-2t b temporary proced admin regs supra same therefore respondent’s failure to send jay hoyt notice of the criminal investigation was not an error in performing a ministerial_act because there was no error in performing a ministerial_act we hold that respondent’s failure to abate interest from date until date was not an abuse_of_discretion e petitioner’s claims that respondent’s denial of interest abatement was an abuse_of_discretion petitioner sets forth various assertions that respondent failed to provide discoverable documents adequately investigate his interest abatement claim and provide a sufficient explanation for denying the claim petitioner makes these arguments in an attempt to establish that respondent’s decision not to abate interest was an abuse_of_discretion because we have held that petitioner failed to establish an error or delay by an employee of the irs in performing a ministerial_act we reject petitioner’s arguments that the interest abatement denial was an abuse of respondent’s discretion see banat v commissioner tcmemo_2000_141 on the basis of the conclusions herein respondent’s motion for judgment on the pleadings is deemed moot to reflect the foregoing an order denying respondent’s motion as supplemented will be issued and decision will be entered for respondent


internal_revenue_service p o box cincinnati oh release number release date date date legend x number y dollars amount z dollars amount dear department of the treasury employer_identification_number contact person - id number contact telephone number vil you asked for advance approval of your scholarship 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 you requested approval of your scholarship program to fund the education of certain qualifying students also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provide in code sec_117 our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships 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 will operate a scholarship program providing funds to assist underprivileged individuals in completing an undergraduate or graduate degree your board will determine the number of awards grants and the amount of each based on the budget need and number of applicants you anticipate the number of awards will be up to x and the amount of each will range from y to z dollars per semester your program will be publicized through foreign aid societies places of worship high schools and colleges and social networks you will also consider nominations from clergy personal contacts and local institutions both high school students entering college and enrolled college students may apply letter catalog number 58263t high school students entering college must apply by submitting official transcripts and records bearing grade point average gpa rank in class sat or act scores a copy of a college acceptance letter and a written essay on a topic of your choosing students attending an accredited two- or four-year college must apply by submitting official transcripts and records bearing most recent gpa and cumulative gpa to demonstrate enrollment and a written essay on a topic of your choosing your selection committee considers academic performance test performance instructor recommendations financial need and each applicant’s motivation character ability and potential recipients are selected on an objective and nondiscriminatory basis relatives of members of the selection committee relatives of your officers directors nor substantial contributors are eligible for awards made under your program your selection committee will be appointed by and may consist of your board_of directors awards may be used for tuition and fees required for enrollment books and supplies and room and board and will typically be paid directly to the educational_institution payment is made directly to the recipient you will request reports showing how funds were used if awards are given on a semester by semester basis but may be for a longer period you may consider renewal on a case-by-case basis according to the recipient's status to qualify for continued participation in the program each recipient must maintain a minimum grade average of b submit official transcripts and records bearing most recent gpa and cumulative gpa to demonstrate current enrollment you will maintain case histories showing the recipients of scholarships fellowships educational loans or other educational grants including names addresses purposes of awards amount of each manner of selection and relationship if any to officers trustees or donors of funds to you you will maintain all records relating to awards including information obtained to evaluate applicants identify whether a recipient is a disqualified_person establish the amount and purpose of each award and establish you undertook the supervision and investigation of awards you will arrange to receive and review reports annually and upon completion of the purpose for which awards were made investigate diversions of funds from their intended purposes and take all reasonable and appropriate steps to recover diverted funds ensure other funds held by a recipient are used for their intended purposes and withhold further payments until you obtain assurances that future diversions will not occur and recipients will take extraordinary precautions to prevent future diversions from occurring 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 letter catalog number 58263t 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 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 a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 other conditions that apply to this determination e e e e e e this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don’t differ significantly from those described in your original request this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter letter catalog number 58263t sincerely stephen a martin director exempt_organizations rulings and agreements letter catalog number 58263t


internal_revenue_service number release date index number --------------------------------- --------------------------------------- ------------------------- ----------------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number -------------------- refer reply to cc psi b1 plr-124213-08 date october legend x -------------------------------------------------- --------------------------------- y -------------------------------------------------- ----------------------------------------- country date ------------ -------------------- dear -------------- this is in response to a letter dated date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file an election to treat x as a disregarded_entity for federal tax purposes under sec_301 c facts the information submitted states that on date y formed x pursuant to the laws of country x represents that pursuant to sec_301_7701-3 x is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes x has a single member that has limited_liability as defined in sec_301_7701-3 x intended to elect to be treated as a disregarded_entity for federal tax purposes effective date however x inadvertently failed to timely file form_8832 entity classification election plr-124213-08 law and analysis 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 an eligible_entity with a single owner can elect either to be classified as an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally unless the entity makes an election to be treated otherwise a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability if a foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if a foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 further provides that an entity classification election must be filed on form_8832 entity classification election and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 plr-124213-08 conclusion based solely upon the information submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result an extension of days from the date of this letter is granted to elect to treat x as a disregarded_entity for federal tax purposes effective date the entity classification election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose 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 this ruling is directed only to the taxpayer s requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely william p o’shea william p o’shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court edgar doris brown petitioners v commissioner of internal revenue respondent docket no filed date edgar brown and doris brown pro sese charles pillitteri for respondent memorandum opinion thornton judge respondent issued a final_determination denying petitioners’ claim_for_abatement of interest pursuant to sec_6404 petitioners timely filed a petition pursuant unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure - to sec_6404 and rule the sole issue for decision is whether respondent’s denial of petitioners’ request to abate interest was an abuse_of_discretion background the parties have stipulated some of the facts which are incorporated in our findings by this reference when they petitioned this court petitioners resided in lucedale mississippi petitioners timely filed joint federal_income_tax returns for taxable years and on date respondent’s examining agent mailed petitioners a letter informing them that their return had been selected for examination during the examination the examining agent solicited petitioners’ consent to extend the period of limitations to assess tax with respect to taxable_year and they agreed on date respondent mailed petitioners a 30-day_letter proposing deficiencies of dollar_figure and dollar_figure and accuracy-related_penalties of dollar_figure and dollar_figure for taxable years and respectively on date petitioners responded by filing a protest requesting consideration of their case by respondent’s appeals_office by sec_6404 was redesignated sec_6404 by the internal_revenue_service restructuring reform act of publaw_105_ sec_3305 sec_3309 112_stat_743 with respect to taxable years beginning after date - - letter dated date respondent advised petitioners that their case was being forwarded to respondent’s appeals_office for consideration on date petitioners’ case was received in the birmingham alabama appeals_office and assigned to appeals officer dennis smith who worked out of respondent’s jackson mississippi suboffice shortly thereafter smith mailed petitioners two letters advising them that the case had been referred to the appeals_office and requesting they schedule an appointment on date smith met with petitioner wife as scheduled on date smith mailed petitioners a letter asking their consent to extend indefinitely the period of limitations to assess tax with respect to both taxable years and on date petitioners executed a form a special consent to extend the time to assess tax on date smith mailed petitioners a letter transmitting a copy of the executed form 872-a on date after attempting unsuccessfully to settle the case respondent mailed petitioners a notice_of_deficiency from the birmingham appeals_office in the notice respondent determined that petitioners were liable for deficiencies of dollar_figure and dollar_figure and accuracy-related_penalties of dollar_figure and dollar_figure for taxable years and respectively the notice was sent by certified mail to petitioners’ last known - - address petitioners however never actually received the notice on date the notice_of_deficiency was returned to the birmingham appeals_office the envelope containing the notice had been stamped with a notation indicating that it was returned to sender because it was unclaimed the 90-day period for filing a tax_court petition with respect to petitioners’ notice_of_deficiency expired on date without petitioners’ having filed a tax_court petition on date the deficiencies and accuracy- related penalties determined by respondent as well as interest accrued thereon were assessed also on date respondent mailed petitioners a separate notice of tax due on federal tax_return for each of the taxable years and on date respondent’s memphis service_center received from petitioners copies of these notices each bearing petitioner husband’s handwritten notation i don’t agree with this finding and am appealing it to tax_court respondent’s memphis service_center mailed petitioners subseguent notices culminating in the issuance of notices of intent to levy dated date by letter dated date petitioners responded that they were still seeking to appeal their case but had learned that it would be necessary to file a court petition - - on date respondent received dollar_figure pursuant toa notice_of_levy on petitioners’ bank account this amount was applied to petitioners’ balance due for taxable_year on date petitioners paid in full the balances due for taxable years and including interest of dollar_figure for and dollar_figure for on date petitioners filed form_843 claim_for_refund and request for abatement for taxable years and petitioners requested abatement of interest in the amounts of dollar_figure for taxable_year and dollar_figure for taxable_year on date petitioners also filed form sec_843 requesting refunds approximating the total_tax penalties and interest assessed for taxable years and on date respondent issued a notice of final_determination disallowing petitioners’ date claim_for_abatement of interest on date respondent issued a notice disallowing petitioners’ date claims for refunds discussion in seeking abatement of respondent’s assessment of interest petitioners have alleged that respondent erred in the determination assessment and collection of their federal income taxes and that they were improperly denied their right to petition this court to review respondent’s deficiency -- - determination because they never received their statutory_notice_of_deficiency we construe petitioners’ claim for interest abatement as arising under sec_6404 which authorizes the treasury secretary to abate interest on any deficiency or payment of income gift estate and certain excise_taxes to the extent that any error or delay in payment is attributable to any error or delay by an officer_or_employee of the internal_revenue_service acting in his or her official capacity and performing a ministerial_act such an error or delay in performing a ministerial_act is taken into account only if it is in no significant aspect attributable to the taxpayer and only if it occurs after the irs has contacted the taxpayer in writing regarding the deficiency or payment sec_6404 provides abatement of interest attributable to errors and delays by internal_revenue_service --- in general --in the case of any assessment of interest on- a any deficiency attributable in whole or in part to any error or delay by an officer_or_employee of the internal_revenue_service acting in his official capacity in performing a ministerial_act or b any payment of any_tax described in sec_6212 to the extent that any error or delay in such payment is attributable to such officer_or_employee being erroneous or continued - j- the temporary regulations define ministerial_act as a procedural or mechanical act that does not involve the exercise of judgment or discretion and that occurs during the processing of a taxpayer’s case after all prerequisites to the act such as conferences and review by supervisors have taken place sec_301_6404-2t b temporary proced admin regs fed reg date sec_6404 is not intended to be used routinely to avoid payment of interest but rather is to be utilized in instances where failure to abate interest would be widely perceived as grossly unfair h rept 1986_3_cb_844 s rept 1986_3_cb_208 for interest abatement claims made after date the tax_court has jurisdiction to determine whether the continued dilatory in performing a ministerial_act the secretary may abate the assessment of all or any part of such interest for any period for purposes of the preceding sentence an error or delay shall be taken into account only if no significant aspect of such error or delay can be attributed to the taxpayer involved and after the internal_revenue_service has contacted the taxpayer in writing with respect to such deficiency or payment in sec_6404 e was amended to permit abatement of interest for unreasonable error or delay resulting from the performance of ministerial or managerial acts taxpayer bill of right sec_2 publaw_104_168 and 110_stat_1452 the amended provision applies to tax years beginning after date see id sec_301 therefore the amendment is inapplicable to the instant case --- - commissioner’s failure to abate interest under sec_6404 was an abuse_of_discretion see sec_6404 woodral v commissioner t cc sec_6404 does not authorize the treasury secretary to abate assessments of taxes and does not confer jurisdiction on this court to review the denial of such requests petitioners cannot point to nor does the record credibly suggest any erroneous or dilatory performance of a ministerial_act by an officer_or_employee of the commissioner that contributed to a delay or error in the payment of the interest which has accrued on petitioners’ outstanding tax_liabilities cf douponce v commissioner tcmemo_1999_398 petitioners argue generally that respondent’s agent improperly performed the examination of their tax returns that respondent’s determinations in the statutory notice were improper and that the appeals officer gave inadequate consideration to their protest the actions of respondent’s agent and appeals officer in applying federal tax law to petitioners’ facts and circumstances required the exercise of discretion and judgment a decision concerning the proper application of federal tax law is not a ministerial_act see sec_301_6404-2t b temporary proced admin regs fed reg date and hence cannot provide a basis for abating interest under sec_6404 --- - petitioners also suggest that respondent’s error or delay caused them not to receive their notice_of_deficiency and thus to be denied their right to petition this court regarding respondent’s determination of their tax_liability we do not believe however that the interest which petitioners seek to have abated was attributable to ministerial errors or delays in respondent’s processing their unclaimed statutory notice it is undisputed that the notice_of_deficiency was mailed to petitioners’ last_known_address respondent was under no statutory obligation to remail a notice_of_deficiency that had been properly mailed to a taxpayer and returned unclaimed see 857_f2d_676 9th cir affg 88_tc_1042 93_tc_22 as in effect when the notice_of_deficiency was issued in this case the internal_revenue_manual directs that an unclaimed notice_of_deficiency should be returned to the appeals officer and states that if the appeals officer wishes and there is enough time remaining before the period of limitations runs the appeals officer may direct additional checks of respondent’s computer files to verify the taxpayer’s last_known_address appeals internal_revenue_manual cch sec_363 pincite the internal_revenue_manual states if after checking all possible sources another address cannot be found and the appeals officer determines that -- - the notice was sent to the last_known_address he she should initial the statutory notice and no further action need be taken to try to deliver the notice i1d because further action with regard to the unclaimed statutory notice was left to the appeals officer’s discretion and judgment his inaction in this regard did not constitute error or delay in performing a ministerial_act for purposes of applying sec_6404 petitioners further suggest that after their taxes were assessed by default on date they were led to believe that the notice_of_deficiency would be forthcoming or reissued at which time they could contest the deficiency in the tax_court or that respondent intended to take other action in response to their protest again however the record does not credibly suggest any basis for concluding that petitioners’ delay in paying the assessed taxes after receiving the notice of tax due on date was attributable to ministerial errors or delays by respondent’s officers or employees accordingly we conclude that respondent’s failure to abate petitioners’ interest under sec_6404 was not an abuse_of_discretion to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury number release date index no 2601-dollar_figure p o box ben franklin station washington dc person to contact telephone number refer reply to cc psi - plr-139685-01 date july in re legend settlor trust_beneficiary a court state dear this responds to your letter dated date and subsequent correspondence requesting rulings regarding the generation-skipping_transfer gst tax consequences of the proposed modification of certain trusts facts the facts submitted and representations made are as follows over many years settlor has created separate irrevocable trusts for the benefit of each of his grandchildren and great-grandchildren the terms of all the trusts are substantially identical the trust at issue in this ruling_request trust was created after date for the benefit of beneficiary a is currently serving as trustee you represent that trust has an inclusion_ratio of greater than for purposes of the gst tax article five paragraph b of the trust instrument provides as follows the trustee shall accumulate the income of the trust estate and may pay to the beneficiary as much of the accumulated income and principal thereof as the trustee shall determine in the trustee’s discretion to be necessary and plr-139685-01 appropriate for the beneficiary’s support education care and maintenance in accordance with the beneficiary’s accustomed standard of living article five paragraph b provides upon the last to occur of i the attainment of age by the beneficiary or ii the death of all trustees identified in exhibit a hereto as the measuring lives this trust shall terminate and the trust estate shall be distributed free of trust to the beneficiary if the beneficiary dies before becoming entitled to distribution of the trust estate the trust estate shall be distributed free of trust to the beneficiary’s then living issue by right of representation or if there are no such then living issue to such of the issue of the trustees identified in exhibit a hereto as the measuring lives as are then living by right of representation however if any part of the trust would be distributed to a person for whose benefit a_trust is then being administered which is substantially identical to the trust created by this instrument that part shall instead be added to that trust and shall thereafter be administered according to its terms article six paragraph i of trust provides that any other provision of trust notwithstanding income and principal of the trust estate shall not be utilized to discharge the legal_obligation of any person to support a_trust beneficiary the parties desire to facilitate trust’s qualification as a qualified_subchapter_s_trust for purposes of sec_1361 of the internal_revenue_code therefore as permitted under the laws of state the parties propose to petition the court with jurisdiction over trust to obtain an order from the court approving the following proposed modification of article five paragraph b of the trust instrument to read as follows the trustee shall distribute all of the income within the meaning of sec_643 of the internal_revenue_code of the trust estate currently and may pay to the beneficiary as much of the principal thereof as the trustee shall determine in the trustee’s discretion to be necessary and appropriate for the beneficiary’s support education care and maintenance in accordance with the beneficiary’s accustomed standard of living we have been asked to rule that the proposed modification will not constitute an addition to corpus and will not alter the inclusion_ratio of trust for generation-skipping_transfer_tax purposes law and analysis sec_2601 imposes a tax on every generation-skipping_transfer under a of the tax_reform_act_of_1986 gst tax is generally applicable to generation- skipping transfers made after date however under b a of the tax reform act and sec_26_2601-1 of the generation-skipping_transfer_tax plr-139685-01 regulations the tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date sec_2602 provides that the amount of the tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any generation-skipping_transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2642 provides that the inclusion_ratio is the excess if any of over the applicable_fraction determined for the trust from which the transfer is made or in the case of a direct_skip the applicable_fraction determined for the skip the applicable_fraction is a fraction in which the numerator is the generation-skipping_transfer_tax_exemption allocated to the trust or in the case of a direct_skip allocated to the property transferred and the denominator is the value of the property transferred to the trust or transferred in the direct_skip reduced by any federal estate_tax or state death_tax actually recovered from the trust attributable to the property and any charitable deduction allowed under sec_2055 and sec_2522 with respect to the property sec_2631 a provides that for purposes of determining the inclusion_ratio in the case of generation-skipping transfers on or before date every individual is allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer no guidance has been issued regarding the gst tax consequences of a modification of a_trust that was created after date or to which contributions have been made after that date however a modification that would not affect the gst tax status of a_trust that is exempt from tax under sec_26_2601-1 or should similarly not affect the gst tax status of a_trust to which contributions have been made after date in this case the proposed modification will not result in a shift of any beneficial_interest in trust to a lower generation beneficiary plr-139685-01 nor will the modification extend the time for vesting of any beneficial_interest in trust accordingly we conclude that the proposed modification of trust will not effect the inclusion_ratio with respect to trust except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours chief branch office of the associate chief_counsel passthroughs and special industries by_________________________ george l masnik enclosure copy for sec_6110 purposes cc


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l date number release date cc pa apjp br2 tl-n-1287-01 uilc internal_revenue_service national_office chief_counsel_advice memorandum for associate area_counsel - area large and mid-size business cc lm fsh har from assistant chief_counsel administrative provisions judicial practice cc pa apjp subject fraud exception to the year period of limitations this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice is not to be used or cited as precedent legend taxpayer taxpayer’s husband date date industry year issue whether the fraud of taxpayer’s husband in valuing a gift can be used as the basis for holding the period of limitations open pursuant to sec_6501 with respect to taxpayer’s gift_tax_return when taxpayer’s husband and taxpayer elect split gift treatment under sec_2513 conclusion sec_6501 provides an exception to the general 3-year period of limitations in the case of a fraudulent return with the intent to evade tax we conclude that the fraudulent intent of taxpayer’s husband will not under the facts of this case tl-n-1287-01 provide a sufficient basis for applying sec_6501 to taxpayer’s gift_tax_return facts prior to date taxpayer’s husband owned of an s corporation’s issued and outstanding_stock taxpayer’s husband is a highly sophisticated businessman and is well-known in the industry for his knowledge of the industry on date taxpayer’s husband gifted of his stock to his children on date taxpayer’s husband and taxpayer timely filed separate gift_tax returns form_709 taxpayer’s husband hired a return preparer to prepare form sec_709 for himself and taxpayer and provided the return preparer false information as to the value of the stock on each form_709 taxpayer’s husband and taxpayer identically valued the aggregate shares and split the value in accordance with sec_2513 of the internal_revenue_code on taxpayer’s husband’s form_709 taxpayer indicated her consent to the split gift similarly taxpayer’s husband indicated his consent to split the gift by signing taxpayer’s form_709 neither taxpayer nor taxpayer’s husband paid any gift_tax on the split gift more than three years have passed since the filing of the gift_tax returns by taxpayer and taxpayer’s husband the service maintains that the fair_market_value of the stock substantially exceeded the amounts reported on the gift_tax returns of taxpayer and taxpayer’s husband the service proposes to issue notices of deficiency to taxpayer and taxpayer’s husband for year for the deficiencies in gift_tax the service intends to assert the sec_6663 fraud_penalty against taxpayer’s husband because the service has determined that he intentionally undervalued the stock on his form_709 the service does not intend to assert the fraud_penalty against taxpayer because the service has no evidence establishing fraudulent intent on her part the period of limitations on assessment for taxpayer’s husband’s year gift_tax liability remains open based on fraud despite the passage of more than three years from the filing of his gift_tax_return sec_6501 the service has raised the question of whether it may rely on the fraud of taxpayer’s husband as a defense to the argument that the period of limitations for assessing deficiencies has expired with respect to taxpayer’s year gift_tax liability based on the factual development of this case to date the service has no reason to believe taxpayer or anyone directly involved in the preparation of the return eg the return preparer had any knowledge of the fraudulent undervaluation we suggest that you consider the possibility of further factual development in this regard law and analysis tl-n-1287-01 sec_2502 provides that gift_tax shall be paid_by the donor as an exception to the general_rule sec_2513 provides that if the spouses each consent a gift made by one spouse to any person other than his spouse shall be considered as made one-half by him and one-half by his spouse consequently both spouses will be treated as the donor under sec_2513 and each is obligated to pay any resulting gift_tax liability by consenting to split gift treatment under sec_2513 the entire gift_tax liability of each spouse for that tax_year is joint_and_several sec_2513 sec_25_2513-4 sec_6501 of the internal_revenue_code provides that except as otherwise provided tax must be assessed within years after the return was filed whether or not such return was filed on or after the date prescribed as an exception sec_6501 provides that in the case of a false_or_fraudulent_return with the intent to evade tax the tax may be assessed or a proceeding in court for collection of such tax may be begun without assessment at any time sec_6501 to determine whether sec_6501 applies to taxpayer’s return an understanding of the concept of fraud is necessary neither the code nor the treasury regulations provide a definition of fraud however the tax_court has indicated that w hen the commissioner alleges that a taxpayer filed a false and fraudulent return with the intent to evade tax the commissioner must prove that the taxpayer underpaid income_tax and filed the tax_return with the specific intent to evade a tax believed to be owed chin v commissioner tcmemo_1994_54 citing sec_6501 in addition the service has defined tax_fraud as an intentional wrongdoing on the part of a taxpayer with the specific purpose of evading a tax known or believed to be owing i r m emphasis added thus a return that contains both an underpayment_of_tax and a fraudulent intent on the part of the taxpayer is a fraudulent return you note that sec_6501 phrases the fraud exception to the usual 3-year period of limitations in terms of a fraudulent return with intent to evade tax and does not explicitly require fraudulent intent on the part of the taxpayer also the supreme court has noted that statutes of limitation sought to be applied to bar rights of the government must receive a strict construction in favor of the government 464_us_386 quoting e i du pont de n264_us_456 statutes of limitation on assessment of tax are no exception 474_f2d_565 5th cir a fraudulent return places the service at a special disadvantage in discovering and ascertaining the fraud and this disadvantage is present whether the fraud is that of taxpayer or taxpayer’s husband by its very nature a fraudulent return generally appears correct on its face and the true facts concerning the tax_liability are deliberately withheld from the service as noted in badaracco v commissioner supra fraud cases ordinarily are more difficult to investigate than cases marked for tl-n-1287-01 routine tax audits where fraud has been practiced there is a distinct possibility that the taxpayer’s underlying records will have been falsified or even destroyed u s pincite moreover three years may not be enough time for the commissioner to prove fraudulent intent u s pincite to compensate for the burden imposed on the service of having to prove fraudulent intent and ascertain the correct_tax liability sec_6501 provides the service with an unlimited time in which to ascertain the correct_tax liability and establish the facts necessary to prove that the return is fraudulent only in this way can the government’s interest be protected you argue that this rationale applies whether the fraud is that of taxpayer or taxpayer’s husband in the present case taxpayer’s husband filed his own gift_tax_return but he is not a taxpayer with respect to taxpayer’s return nor is taxpayer’s husband a return preparer or an agent of taxpayer acting in a capacity similar to that of a return preparer further because the present case involves joint_and_several tax_liability you have drawn an analogy between the present case and court cases holding that the fraud of one spouse on a joint income_tax return holds the period of limitations on assessment open as to both spouses 740_f2d_659 8th cir sec_6501 lifts the statute_of_limitations on tax assessments against both spouses when they file jointly and one has defrauded the government in the process see also 416_f2d_737 7th cir aff’g tcmemo_1968_123 175_f2d_240 6th cir aff’g 10_tc_859 54_tc_1011 the rationale is that sec_6501 is an impersonal provision applying to the situation arising from a fraudulent return 33_bta_105 in addition to joint_and_several_liability other factors may suggest an analogy between this case and the joint_return situation in the cases cited above each form_709 in this case contains the signatures of both spouses the consent of taxpayer’s husband is signified on line of taxpayer’s return and the consent of taxpayer is signified on line of taxpayer’s husband’s return see sec_25_2513-2 further the instructions to form_709 instruct the spouses to mail their form sec_709 in the same envelope we conclude however that this case cannot be analogized to court cases holding that the period of limitations on a joint income_tax return remains open as to both spouses when only one has committed fraud those cases may be distinguished as follows in the income_tax context there are two taxpayers reporting a single tax_liability on one return this liability is computed based on the aggregate incomes deductions exemptions and credits of the spouses under sec_6013 each spouse is jointly and severally liable for the liability if one spouse commits fraud the joint_return is thereby rendered fraudulent and the period of limitations remains open as to both taxpayers under sec_6501 because there is only tl-n-1287-01 one tax_liability and one tax_return a different period of limitations cannot apply to each spouse in contrast in the split gift_tax context there are two taxpayers each of whom reports a separately computed gift_tax liability on a separate_return depending on each spouse’s available unified_credit and annual exclusion amounts their overall gift_tax liabilities for the year may not be equal the husband is not a taxpayer with respect to the wife’s return and the wife is not a taxpayer with respect to the husband’s return we think it is of crucial importance that taxpayer’s return is not a joint_return notwithstanding the possible analogy to the present case and a situation involving a joint income_tax return see 354_f2d_323 ct_cl j oint returns are not part of the procedure for the collection of the gift_tax thus in this case taxpayer’s return is not rendered fraudulent simply because the return of taxpayer’s husband is fraudulent two separate liabilities and two separate returns are involved and therefore an analysis of whether sec_6501 applies to taxpayer’s return must be separate from the analysis of whether sec_6501 applies to taxpayer’s husband’s return in the present situation the service determined the actual fair_market_value of the stock to be substantially higher than the value reported on taxpayer’s return this results in a deficiency in taxpayer’s gift_tax liability this underpayment_of_tax was not the result of taxpayer’s intent to defraud the government based on the factual development of this case to date the service has no reason to believe taxpayer or her agents in preparing the return eg the return preparer had any knowledge of taxpayer’s husband’s fraudulent undervaluation moreover taxpayer had no reason to suspect that taxpayer’s husband had committed fraud in undervaluing the stock thus taxpayer’s return is not a fraudulent return because it does not reflect a fraudulent intent on the part of taxpayer or her agent in jackson v commissioner tcmemo_1964_330 aff’d 380_f2d_661 6th cir cert_denied 389_us_1015 the tax_court held that when a husband and wife file separate_income tax returns proof that a husband’s return is fraudulent is not clear_and_convincing evidence that a wife’s return for the same tax_year is also fraudulent we believe a similar rule applies in a gift_tax context where spouses file separate returns for split_gifts absent information indicating that taxpayer knew that taxpayer’s husband gave the return preparer fraudulent information about the value of the gifted stock we do not believe that the service could prove fraud by taxpayer by clear_and_convincing evidence see sec_7454 case development hazards and other considerations tl-n-1287-01 this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views if you have questions please contact curt g wilson by michael l gompertz assistant to the branch chief branch


internal_revenue_service number info release date index number -------------------------------------- ------------------------------------------------- --------------------------- --------------------------- - department of the treasury washington dc person to contact -----------------no ------------- telephone number --------------------- refer reply to cc psi b01 - genin-115639-04 date june -------------------------------------- taxpayer dear -------------------- we are responding to your letter on behalf of the taxpayer dated date requesting a late s election although we are unable to respond to the request as submitted this letter provides useful information relating to the request announcement copy enclosed provides guidance on seeking relief for late s_corporation elections and inadvertent invalid s_corporation elections generally to request relief for a late or invalid s_corporation_election you must request a private_letter_ruling from the national_office the procedures for requesting a private_letter_ruling are set out in revproc_2004_1 copy enclosed in addition revproc_2003_1 requires taxpayers to submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their last-filed tax_return qualify for a reduced user_fee in the amount of dollar_figure if you are eligible to use the reduced fee provision you must include the statement described in ' b b of appendix a with your request please review appendix b for a sample format for requesting a private_letter_ruling if you decide to submit a formal request for a private_letter_ruling please include the proper user_fee if applying under the reduced fee provisions send a statement certifying gross_income and refer your request to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi room by way of introduction the irs has a small_business website which provides information and various useful links visit this special site at www irs gov smallbiz additionally you can order a single free copy of the small_business resource guide cd-rom by calling the cd-rom provides critical tax information including forms instructions and publications as well as valuable information from a variety of government agencies non-profit organizations and educational institutions we hope that the above information proves helpful s dianna k miosi sincerely yours dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures announcement revproc_2004_1


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh release number release date date date legend b company c organization d scholarship x dollars amount dear you asked for advance approval of your employer-related scholarship 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 you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding employer-related scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding employer-related scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provided in code sec_117 description of your request your letter indicates you will operate an employer-related scholarship program called d you sponsor d for children of employees of b d is a four-year college scholarship for up to two eligible students x dollars per year for up to four years of undergraduate study to be eligible for d the individual must be a child of an employee of b and must also meet the requirements for participation in the c’s scholarship program c is an independent not-for-profit organization the annual competition criteria selection of letter catalog number 58264e winners and the administration of their awards are handled by c c will inform you annually about the progress of the recipients students enter c’s nationwide scholarship competition by taking a test the purpose of the program is to identify and recognize high-performing students and encourage them to pursue rigorous college studies around the country participate in the competition annually those students scoring within the top one-half of one percent on a state-by-state basis approximately designated as semifinalists the semifinalists may advance to the finalist level by confirming their scores on a second test and by submitting an application that includes a high school record provided by their high school officials showing strong academic performance a personal essay extra-curricular accomplishments and the recommendation of their high school principal or school official designated by the principal there will be about students that advance to the finalist status students from high schools are finalists and eligible to receive the awards accordingly the chance that any student entering the competition will become a finalist is less than shows that your scholarships comply with the facts_and_circumstances_test under sec_4 of revproc_76_47 because the probability of attaining finalist level is extremely low each of these facts the formal offer of your scholarship that c sends to each winner specifies the terms for acceptance of the award the winners must enter college in the fall term following selection and must enroll as a full-time undergraduate in a college or university in the united_states that holds accredited status with a regional accrediting commission on higher education scholarship stipends are not payable for attendance at service academies virtual universities and certain institutions that are limited in their purposes or training the scholarships are paid directly to the college or university final aid office c obtains information from the college or university regarding the recipients’ status as a student in good standing if there is evidence of misuse of the scholarship funds c will follow up with the college or university and the recipients to investigate neither you nor b will use the scholarships as a means of inducement to recruit employees the selection committee is comprised of the staff of c who are experienced in the selection of scholarship recipients the individuals on the selection committee are experienced in the education and scholarship fields and are totally independent and separate from you b and c the courses of student for which grants are available are not limited so long as the recipient is in any course of study leading to one of the traditional baccalaureate degrees the only continued obligation on the part of the recipients is to remain enrolled during the day in a course of study leading to one of the traditional baccalaureate degrees and remain in good academic and disciplinary standing letter catalog number 58264e you represent that you will arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversions of funds from their intended purposes and take all reasonable and appropriate steps to recover diverted funds ensure other grant funds held by a grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees’ assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversions from occurring you represent that you will maintain all records related to the following individual grants including information to evaluate grantees grantees which are identified as a disqualified_person how the amount and purpose of each grant was established and how you established supervision and investigation of the grants basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all the following requirements of code sec_4945 is not a taxable_expenditure 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 a scholarship or fellowship subject_to code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 revproc_76_47 1976_2_cb_670 provides guidelines to determine whether grants a private_foundation makes under an employer-related program to employees or children of employees are scholarship or fellowship grants subject_to the provisions of code sec_117 if the program satisfies the seven conditions in sections dollar_figure through dollar_figure of revproc_76_47 and meets either the applicable_percentage tests described in section dollar_figure of revproc_76_47 or relevant facts and circumstances we will assume the grants are subject_to the provisions of code sec_117 these tests require that e e e the number of grants awarded to employees’ children in any year won't exceed percent of the number of employees’ children who were eligible for grants were applicants for grants and were considered by the selection committee for grants or the number of grants awarded to employees’ children in any year won't exceed percent of the number of employees’ children who were eligible for grants whether or not they submitted an application or the relevant facts and circumstances to ensure the primary purpose of letter catalog number 58264e the program is not to provide extra compensation or other employment incentive and the primary purpose is to educate recipients in their individual capacities you represented that your procedures for awarding grants under this program will meet the requirements of revproc_76_47 in particular an independent selection committee whose members are separate from you your creator and the employer will select individual grant recipients you will not use grants to recruit employees nor will you end a grant if the employee leaves the employer you will make prior recipients automatically eligible without regard to any employment status your selection criteria are based upon objective standards that are completely unrelated to employment with b you will not limit the recipient to a course of study that would particularly benefit you or the employer other conditions that apply to this determination this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don’t differ significantly from those described in your original request this determination is in effect as long as your procedures comply with sections dollar_figure through dollar_figure of revproc_76_47 and either the applicable_percentage tests described in section dollar_figure of revproc_76_47 or relevant facts and circumstances if you establish another program covering the same individuals that program must also meet the percentage_test or relevant facts and circumstances this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 letter catalog number 58264e e you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely stephen a martin director exempt_organizations rulings and agreements letter catalog number 58264e