t c summary opinion united_states tax_court john c and joan f stukes petitioners v commissioner of internal revenue respondent docket no 16648-05s filed date john c stukes pro_se david b mora for respondent jacobs judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and rule references are to the tax_court rules_of_practice and procedure respondent determined a dollar_figure deficiency in petitioners’ federal_income_tax the issues for decision are the amount of petitioners’ loss from farming and the amount of the excess unreimbursed employee and other miscellaneous expenses deduction1 to which petitioners are entitled background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time they filed the petition petitioners resided in katy texas petitioners timely filed a joint form_1040 u s individual_income_tax_return for in which they claimed a loss from farming and itemized_deductions for excess unreimbursed employee and other miscellaneous expenses respondent determined that a portion of the amount claimed as a farm loss and the entire amount claimed as itemized_deductions for excess unreimbursed employee and other miscellaneous expenses were not 1the excess unreimbursed employee and other miscellaneous expenses deduction is claimed on schedule a itemized_deductions the amount of the deduction equals the sum of unreimbursed employee expenses--job travel union dues job education etc tax preparation fees and other expenses--investment safe deposit box etc less an amount equal to percent the percent floor of the taxpayer’s adjusted_gross_income see sec_67 allowable on the basis of those determinations respondent calculated a deficiency in tax of dollar_figure and on date sent petitioners a notice_of_deficiency petitioners timely petitioned this court for a redetermination of the disallowed amounts discussion as a general_rule the commissioner’s determinations in the notice_of_deficiency are presumed correct and the burden of proving an error is on the taxpayer rule a 290_us_111 however pursuant to sec_7491 the burden_of_proof with respect to any factual issue relating to ascertaining the liability for tax shifts to the commissioner if the taxpayer maintained adequate_records satisfied the substantiation requirements cooperated with the commissioner’s agents and during the court_proceeding introduced credible_evidence with respect to the factual issue involved except for the substantiation requirements for some items discussed infra we find that petitioners satisfied these requirements issue loss from farming during petitioners owned a 45-acre farm in williamson county texas in calculating their gross_income petitioners included a loss of dollar_figure which was supported by schedule f profit or loss from farming the schedule f does not report any farm income the entire reported loss was due to claimed expenses the expenses petitioners reported on schedule f were car and truck expenses dollar_figure chemicals dollar_figure custom hire dollar_figure depreciation dollar_figure fertilizers dollar_figure gasoline dollar_figure insurance dollar_figure repairs and maintenance dollar_figure supplies purchased dollar_figure taxes dollar_figure and tractor repairs dollar_figure in the notice_of_deficiency respondent determined that petitioners did not substantiate any of the items reported on schedule f and therefore none were allowable at trial respondent conceded petitioners’ entitlement to deduct dollar_figure for custom hire dollar_figure for depreciation dollar_figure for taxes and dollar_figure for gasoline and petitioners conceded that dollar_figure of claimed depreciation expense was not allowable a taxpayer who is carrying_on_a_trade_or_business generally may deduct ordinary and necessary expenses paid_or_incurred in connection with the operation of the business sec_162 see also 403_us_345 110_tc_402 respondent does not dispute that petitioners’ farming activity qualifies as a trade_or_business and that the expenses from this activity if incurred were ordinary and necessary thus we need address only whether the claimed expenses were incurred and if so through substantiation the amounts paid and hence allowable as deductions when a taxpayer establishes that he she has incurred deductible expenses but is unable to establish the exact amounts we can estimate the deductible amounts but only if the taxpayer presents sufficient evidence to establish a rational basis for making the estimates see 39_f2d_540 2d cir 85_tc_731 in estimating the amount allowable we bear heavily on the taxpayer whose inexactitude in substantiating the amount of the expense is of his own making see cohan v commissioner supra pincite however without a rational basis for making the estimate any allowance we make would amount to unguided largesse 245_f2d_559 5th cir in the case of expenses paid_or_incurred with respect to certain listed_property sec_274 overrides the cohan doctrine and those expenses are deductible only if the taxpayer meets the stringent substantiation requirements of sec_274 50_tc_823 affd per curiam 412_f2d_201 2d cir sec_274 contemplates that no deduction may be allowed for specified expenses on the basis of any approximation or the unsupported testimony of the taxpayer sec_1_274-5t temporary income_tax regs fed reg date at a minimum the taxpayer must substantiate the amount of the expense the time and place the expense was incurred and the business_purpose for which the expense was incurred the strict substantiation requirements of sec_274 apply to deductions with respect to any listed_property as defined in sec_280f sec_280f in turn includes passenger_automobile in the definition of listed_property further sec_1_274-5t temporary income_tax regs fed reg date includes the cost of maintenance and repairs for listed_property as subject_to the sec_274 substantiation rules petitioners claimed automobile expenses of dollar_figure these expenses related to petitioners’ pickup truck mr stukes testified that some substantiating documents pertaining to the automobile mileage were lost when petitioners moved however he introduced a truck mileage log the mileage log with entries the mileage log which shows that petitioners drove the truck big_number miles for farm-related business was not prepared contemporaneously with the incurrence of the claimed expenses but rather was a reconstruction by petitioners of their use of the truck the mileage log shows the date of each use and the specific destination such as home depot wal-mart farm equipment vendors gas stations and truck supplies vendors the mileage log is supplemented by bank records which show purchases from the retail establishments or vendors on specific dates the date claimed for the business use of the truck in the mileage log does not correspond in every instance to the date of the related purchase shown on the bank records further neither the mileage log nor the bank records show the specific merchandise purchased from each seller and it is possible that petitioners purchased items for their personal consumption as well as for their farm when they made these excursions using the truck it is equally possible that petitioners made additional trips to acquire farm equipment or supplies but did not actually make a purchase so that there might have been additional mileage costs that do not appear in the mileage log in any event mr stukes testified that the trips shown on the mileage log were made for the purpose of acquiring farm equipment or supplies and we found that testimony credible therefore we find that petitioners have met the substantiation requirements of sec_274 with respect to trips on dates for which there is a corresponding purchase from a vendor of farm equipment or supplies consequently we hold that petitioners are entitled to deduct the cost of using their truck on those occasions of the occasions on which petitioners claim to have used their truck for the purpose of acquiring farm supplies or equipment there are records which confirm farm-related purchases on of those occasions or within a day or two of the claimed date for those occasions the total number of miles petitioners drove the truck for the purpose of acquiring farm equipment or supplies on those occasions was big_number petitioners did not present receipts for the actual cost of this use but we may apply the standard mileage rate to determine the allowable deduction the standard mileage rate for wa sec_36 cents per mile accordingly the total allowable expense for farm-related use of the truck amounted to dollar_figure petitioners’ mileage log contains three entries pertaining to automobile maintenance and repair that are corroborated by bank records showing purchases of dollar_figure in addition petitioners submitted a credit card receipt for dollar_figure of repairs to the truck 2the dates of use that are matched by substantiating purchases are feb and mar and may and july and aug two purchases on aug and sept two purchases on sept and oct and and nov 3the standard mileage rate is a matter of administrative convenience by which a taxpayer may compute the amount of deductible automobile expenses using a standard rate rather than separately establishing the amount of an expenditure for travel or transportation sec_1_274-5 income_tax regs in part grants the commissioner the authority to establish a method under which a taxpayer may use mileage rates to substantiate for purposes of sec_274 the expense of using a vehicle for business purposes see revproc_2001_54 2001_2_cb_530 4these dates are mar mar and nov the corresponding claimed expenses are dollar_figure dollar_figure and dollar_figure thus petitioners have substantiated that they spent dollar_figure for maintenance and repair of the truck the deduction for automobile expenses based on the standard rate may be used only in lieu of all operating and fixed costs of the automobile allocable to business purposes such as depreciation maintenance and repairs tires gasoline including all taxes thereon oil insurance and license and registration fees see sec_1_274-5 income_tax regs revproc_2001_ 2001_2_cb_530 as stated previously petitioners are entitled to a deduction based on the standard rate this amount dollar_figure exceeds the amount of the deduction to which petitioners would be entitled for the corroborated maintenance and repair of the truck dollar_figure on schedule f of their return petitioners claimed dollar_figure of expenses for purchase of chemicals for use on their farm petitioners’ mileage log described supra indicates that petitioners purchased chemicals from home depot on various occasions in petitioners’ bank records establish that payment was made to home depot at or near the date indicated by petitioners on nine occasions the total amount of these purchases was dollar_figure consequently we hold that petitioners are entitled to a deduction of dollar_figure for farm chemicals other_amounts petitioners claimed as deductible farm expenses and disallowed by respondent include custom hire dollar_figure depreciation dollar_figure fertilizers dollar_figure insurance dollar_figure supplies purchased dollar_figure and taxes dollar_figure of these amounts we find substantiation for dollar_figure for supplies in addition we accept mr stukes’s testimony that petitioners paid dollar_figure for farm insurance for we therefore hold that these amounts are allowable deductions the amounts for custom hire and depreciation were unsubstantiated the amounts claimed as deductions for fertilizers and taxes were also unsubstantiated as there is no rational basis upon which we can estimate the amounts of these expenses we hold that they are not deductible issue schedule a deductions we now turn to the amount of the excess unreimbursed employee and other miscellaneous expenses deduction to which petitioners are entitled on schedule a of their return petitioners reported itemized_deductions of dollar_figure respondent disallowed dollar_figure of this amount which consisted of claimed unreimbursed employee business_expenses of dollar_figure attorney’s and accountant’s fees of dollar_figure and tax preparation fees of dollar_figure reduced by percent of petitioners’ adjusted_gross_income 5petitioners’ mileage records and corresponding bank records show purchases of supplies on sept and oct 6see supra note the unreimbursed employee business_expenses consisted of job search expenses_incurred by mr stukes mr stukes worked in the computer industry and during part of had been employed in austin texas as a software development manager for a company that produced energy software in he was involuntarily terminated from that job which led him to file a complaint with the equal employment opportunity commission eeoc alleging that his termination was the result of age discrimination while that matter was pending mr stukes commenced an intensive search for a new job and succeeded in finding employment in january of during his search for employment mr stukes provided his attorney with documentation to assist with the preparation of the eeoc proceeding he testified that this documentation had subsequently been destroyed job search expenses are deductible under sec_162 to the extent they are incurred in searching for new employment in the employee’s same trade_or_business see 54_tc_374 however if the employee is seeking a job in a new trade_or_business the expenses are not deductible under sec_162 see 20_tc_511 job search expenses include preparation expenses postage and travel and transportation_expenses see murata v commissioner tcmemo_1996_321 petitioners’ claimed deduction for job search expenses of dollar_figure consisted of the cost of transportation to job interviews the cost of retaining a search firm to assist with the search and the cost of preparing and printing mr stukes’s calling cards résumé and envelopes respondent does not dispute that petitioners would be entitled to deduct these expenses if they substantiated them adequately but respondent maintains that they failed to do so as discussed supra sec_274 which imposes strict substantiation requirements applies to transportation_expenses involving a passenger_automobile in order to establish the number of miles mr stukes drove pursuant to his job search petitioners submitted a log captioned job search mileage expenses deductions petitioners’ job search mileage log which was not prepared contemporaneously with the interviews but rather was prepared on the basis of contemporaneous calendar records and bank statements that show costs incurred on specific dates it appears from the record that mr stukes was terminated from his employment in date we find that petitioners’ job search mileage log taken together with the calendar bank records and mr stukes’s credible testimony substantiates the transportation expense in search of a job between june and date to the extent of big_number miles the standard mileage rate for wa sec_36 cents per mile consequently the total allowable mileage expense is dollar_figure petitioners incurred expenses in retaining a search firm to help mr stukes with his job search we find that petitioners’ records and mr stukes’s testimony substantiate these expenses to the extent of dollar_figure petitioners also incurred expenses in preparing and printing mr stukes’s calling cards résumé and envelopes we find that petitioners’ records and mr stukes’s testimony substantiate these expenses to the extent of dollar_figure on schedule a of their return petitioners reported attorney’s fees and accountant’s fees of dollar_figure all of which was disallowed by respondent the attorney’s fees stem from a controversy involving the sale of real_property in may of petitioners had acquired the property the lakeshore property in at the time of acquisition petitioners intended to renovate the lakeshore property and resell it at a profit petitioners were successful and they reported dollar_figure of capital 7in reaching this amount we excluded miles driven before mr stukes was terminated from his job miles driven in pursuit of the equal employment opportunity commission eeoc claim and miles for which there is no corresponding bank record or calendar entry 8see supra note gain from the sale of the lakeshore property on their federal_income_tax return difficulty arose at the time of closing the sale of the lakeshore property in petitioners believed that the real_estate agent who had organized the sale had damaged the lakeshore property and the contents of the house consisting of furnishings appliances and other personal_property petitioners therefore refused to pay the realtor’s commission and instead placed an amount equal to the realtor’s commission in an escrow account when negotiation and mediation attempts failed the realtor brought suit against petitioners in the district_court of llano county texas seeking payment of the commission as well as recovery_of attorney’s fees petitioners counterclaimed alleging negligence conversion breach of contract and violation of the texas deceptive trade practices- consumer protection act set forth in tex bus com code ann secs 41-dollar_figure vernon specifically petitioners alleged that they had been deprived of personal_property consisting of household furnishings and appliances that had been in the lakeshore property the realtor prevailed in the district_court proceeding and the amount of the realtor’s commission was released from the escrow account the realtor was also awarded 9at the trial of this case mr stukes testified that the personal_property was already in the house when petitioners bought it his attorney’s fees of dollar_figure which petitioners paid in september of during petitioners paid their attorney10 for services in connection with the lawsuit brought by the realtor and paid dollar_figure for mediation services we are unable to determine the exact amount that petitioners paid their attorney because although petitioners submitted bank records which show that such payments were made they redacted the amounts respondent contends that petitioners have not shown that the lakeshore property was other than their second home for which schedule a itemized_deductions are not available further respondent contends that even if schedule a itemized_deductions were appropriate in connection with the lawsuit involving the lakeshore property petitioners have not shown the extent to which the litigation costs were related to the realtor’s demand for the commission on the sale of the property as opposed to petitioners’ counterclaims with respect to damage to their personal_property payment of litigation costs may result in a tax_benefit in one of three ways sec_162 governs the deductibility of litigation costs as a business_expense sec_162 allows an individual to deduct all of the ordinary and necessary expenses of carrying on his trade_or_business closely related to this 10at trial petitioners conceded that they had erroneously included in the schedule a amount some payments to their attorney that had been made in provision is sec_212 which allows an individual to deduct all of the ordinary and necessary expenses paid_or_incurred in producing income managing conserving or maintaining property_held_for_the_production_of_income or determining collecting or refunding a tax sec_162 and sec_212 are considered in_pari_materia except the income-producing activity of sec_162 is a trade_or_business whereas the income- producing activity of sec_212 is a pursuit of investing or other profit-making that lacks the regularity and continuity of a business 112_tc_325 a deduction under a reduces gross_income to arrive at adjusted_gross_income while a deduction under sec_212 reduces adjusted_gross_income to arrive at taxable incomedollar_figure id neither party contends that the lakeshore property was property used in a trade_or_business under sec_162 a third possible treatment of litigation costs that may confer a tax_benefit is as a capital_expenditure see sec_1221 397_us_572 litigating costs that are incurred in connection with the sale of a capital_asset are capital expenditures sec_1211 a capital_asset is property held by the taxpayer and not specifically excluded from capital_asset status by sec_1221 sec_11the sec_212 deduction is reported on schedule a and is subject_to the 2-percent floor see supra note a the regulations under sec_1221 provide that property_held_for_the_production_of_income but not used in a trade_or_business of the taxpayer is not excluded from the term ‘capital assets’ sec_1_1221-1 income_tax regs the lakeshore property was a capital_asset in petitioners’ hands and petitioners properly reported the gain on the sale of the lakeshore property as capital_gain in petitioners’ expenditures_for the legal fees and expenses arose in connection with the disposition of the lakeshore property rather than with its conservation or maintenance and are therefore capital expenditures respondent contends that the legal costs borne by petitioners did not relate to the sale of the lakeshore property but rather at least in part to petitioners’ counterclaim against the realtor for damages with respect to petitioners’ personal_property consequently according to respondent the legal costs are personal items which under sec_262 are not deductible the proper characterization of legal fees and expenses is governed by the origin_of_the_claim_test woodward v commissioner supra pincite the object of the origin_of_the_claim_test is to find the transaction or activity from which the taxable_event proximately resulted 372_us_39 the origin is determined by analyzing the facts and determining the nature of the transaction 688_f2d_675 9th cir affg tcmemo_1978_350 petitioners do not dispute that commissions are generally payable to a realtor in connection with the sale of property petitioners believed that the commission they owed the realtor should have been reduced or entirely offset by damages due to them from the realtor petitioners withheld the realtor’s commission in an attempt to ensure that they would be compensated for the loss allegedly caused by the realtor a lawsuit ensued and petitioners incurred legal fees in defending their actions but for the sale of the lakeshore property petitioners would not have incurred realtor’s commission had they not disputed the realtor’s commission petitioners would not have incurred the legal fees at issue thus the origin of the realtor’s claim and the proximate cause of all of petitioners’ legal fees was the sale of the lakeshore property a capital_asset in the hands of petitioners therefore we hold that petitioners’ payment of legal fees in constituted a capital expendituredollar_figure 12petitioners showed that they paid dollar_figure for the purchase of tax preparation software this expense might be deductible but for the fact that it appears to have been incurred and paid in therefore respondent properly disallowed this amount for petitioners may offset any capital_gains they had in with their capital losses and they are allowed an additional capital_loss deduction of up to dollar_figure per year for the excess losses that cannot be offset by capital_gains sec_1211 petitioners’ excess capital losses may be carried over to subsequent years sec_1212 on their return petitioners reported a capital_loss_carryover of dollar_figure from as well as a short-term_capital_loss from the expenses petitioners incurred in relating to the sale of the lakeshore property in should be aggregated with and increase the capital_loss_carryover petitioners already reported for petitioners realized no tax_benefit in from the payment of attorney’s fees relating to the disposition of their capital_asset in however those expenditures may be beneficial in future periods only the year is before us we do not address the treatment of petitioners’ capital losses in subsequent years to reflect the foregoing and concessions by the parties decision will be entered under rule


department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date cc ita b04 conex-135567-10 o f f i c e o f t h e c h i e f c o u n s e l number release date uil ----------------------- -------------------------------------- -------------------------------- dear ---------------- i am responding to your letter dated date you ask for clarification of revrul_70_604 1970_2_cb_9 and whether a condominium_management_association must recognize excess member income attributable to excess assessments collected during the taxable_year that is accumulated in a working_capital reserve i hope that the following general information is helpful except as provided under sec_528 of the internal_revenue_code a condominium_management_association that is classified as a corporation for federal_income_tax purposes must include in income funds it collects for its normal operating_expenses any funds accumulated as contingency reserves are also includible in the association’s gross_income because the internal_revenue_code does not provide for such accumulations without tax consequences see revrul_75_371 1975_2_cb_52 revrul_70_604 1970_2_cb_9 addresses a different situation in which a condominium management_corporation directly or indirectly returns excess assessments to its shareholder-owners the corporation’s sole authorized activity is limited to assessing its stockholder-owners for the purposes of managing operating maintaining and replacing the common elements of the condominium property the stockholder-owners of the corporation meet each year to decide whether to return excess assessments to themselves or to have the excess applied against the following year's assessments in this situation the corporation is not taxable on the excess assessments because the excess has been returned in effect to the stockholder-owners whether in the form of cash or in the form of a credit against next year's assessment revrul_70_604 does not provide that a condominium_management_association may exclude from income amounts it accumulates in a working_capital reserve see revrul_75_371 which states that a condominium_management_association generally must include in income amounts accumulated in a contingency reserve conex-135567-10 this letter calls your attention to certain general principles of the law it is intended for informational purposes only and does not constitute a ruling see section dollar_figure of revproc_2010_1 2010_1_irb_1 if you have any additional questions please contact ----- ---------------------------- or me at --------------------- sincerely michael j montemurro branch chief office of associate chief_counsel income_tax accounting


t c memo united_states tax_court robert and ella m tolbert petitioners v commissioner of internal revenue respondent docket no filed date martin b king for petitioners ruth perez for respondent memorandum findings_of_fact and opinion cohen chief_judge respondent determined deficiencies in and additions to petitioners' federal income taxes as follows year deficiency dollar_figure big_number big_number addition_to_tax sec_6651 -0- dollar_figure dollar_figure unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure after concessions the issues remaining for decision are whether petitioners overstated gross_income on their schedule c whether petitioners are entitled to a theft_loss deduction in whether petitioners are entitled to deductions for charitable_contributions in and whether for petitioners are entitled to additional deductions on schedule c or to an additional deduction for mortgage interest and whether petitioners are liable for the sec_6651 addition_to_tax for and findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference at the time of the filing of their petition petitioners resided in hyattsville maryland during the years in issue robert tolbert petitioner operated a construction business known as tolbert's construction petitioner reported the income and expenses from this business on schedule c petitioner did not maintain any books_or_records for tolbert's construction during or tolbert's construction had several different jobs during including the following phillip h and susan m hecht government of the district of columbia bryant street n w i street s e k street n w capital cab 3rd street southern baptist church l street the hecht job was not completed until sometime during petitioner received cash payments for jobs performed at bryant street n w_i street s e and k street n w petitioners reported dollar_figure as gross_receipts on their schedule c the amount reported was derived from a schedule generated by petitioners' tax_return_preparer david richardson richardson richardson generated the schedule based on conversations with petitioner and on limited bank statements provided to richardson by petitioner in date during the course of the examination of their and returns petitioners submitted a form 1040x amended u s individual_income_tax_return for indicating dollar_figure in gross_receipts the form 1040x computed gross_receipts based solely on bank_deposits and included no gross_receipts from cash transactions petitioners were not members of any specific church during or instead petitioners attended from time to time one of three or four different churches petitioners made cash contributions when they attended church petitioners did not receive and did not request a record of their contributions from any of the churches that they attended petitioners timely filed their federal_income_tax return petitioners' federal_income_tax return was filed on date petitioners' federal_income_tax return was filed on date petitioners did not request or receive any extension of time to file their returns for or opinion petitioners bear the burden of proving that respondent's determination is erroneous rule a 503_us_79 512_f2d_882 9th cir affg tcmemo_1972_133 this burden includes substantiating the amount_of_deductions claimed 65_tc_87 affd per curiam 540_f2d_821 5th cir schedule c income--1989 petitioners argue that respondent should be required to accept their form 1040x which reflects decreased gross_receipts for tolbert's construction petitioners contend that their original schedule c was incorrect because it included amounts received in for the hecht job petitioners cite c h mead coal co v 106_f2d_388 4th 38_bta_1163 in support of their position in c h mead coal co the taxpayer filed an amended_return to make an election for computation of a depletion_allowance when the election was omitted from the original return in deciding that the commissioner abused her discretion in failing to accept the amended_return the court_of_appeals for the fourth circuit stated if an amendment made to correct a mistake presented within a reasonable_time is rejected through a narrow and harsh construction of the law to the detriment of the taxpayer such rejection is arbitrary and unjust it certainly is not the duty_of the commissioner to deprive a taxpayer of any rights justly due him id pincite this case however does not involve an election made on an amended_return and in our view it was not presented within a reasonable_time the issue is whether petitioners in fact overreported gross_receipts on the return originally filed by them the gross_receipts reported on that return are admissions that must be overcome by cogent evidence 92_tc_312 62_tc_739 affd without published opinion 521_f2d_1399 3d cir 28_tc_121 affd 255_f2d_833 3d cir if a portion of the hecht payments were reported in error in discovery of the error should have occurred in when the return was prepared not in when petitioners' and returns were being examined the belatedness of this claim reflects on its validity petitioner testified that tolbert's construction had four jobs during his testimony is contradicted by other more contemporaneous and more reliable evidence including the admissions on the original return tolbert's construction had at least seven jobs during and received cash payments for work performed petitioners failed to keep accurate records of those cash receipts petitioner testified that the gross_receipts calculation in the amended_return was based solely on bank_deposits from the hecht job the d c government job the capitol cab job and the southern baptist church job tolbert's construction was paid in cash for jobs at bryant street n w_i street s e and k street n w petitioners did not include these receipts in their calculation of their schedule c gross_receipts on the amended_return the evidence shows that the amended_return is incorrect petitioners have not established that they overreported their gross_receipts for respondent committed no error in failing to accept petitioners' amended_return theft loss--1989 respondent disallowed petitioners' claimed theft_loss on their return the only evidence of the claimed loss is petitioner's testimony that certain items were purportedly stolen and that the cost of the stolen items was about dollar_figure petitioner did not produce a police report and testified that he did not report all of the alleged thefts to the police without corroborating evidence we decline to accept petitioner's vague testimony 440_f2d_688 9th cir affg tcmemo_1969_159 petitioner has failed to prove either that the loss occurred or the correct amount of the loss 79_tc_714 affd 731_f2d_1417 9th cir charitable contributions--1989 and respondent disallowed all claimed charitable_contribution deductions on petitioners' and returns petitioners claimed dollar_figure dollar_figure and dollar_figure in and respectively for deductions for gifts to charity at trial petitioners testified regarding the churches they attended the church pastors' names and the frequency of their church attendance petitioners claimed that they each gave dollar_figure to dollar_figure cash on every occasion that they attended church petitioners' testimony was the only evidence presented they now assert that they are entitled to deduct dollar_figure per year-- substantially less than they claimed on their returns we conclude that petitioners' testimony as to the contributed amounts is not reliable we have found however that petitioners attended church during the years in issue and made cash contributions to the churches they attended we conclude that petitioners are entitled to a deduction of dollar_figure for gifts to charity in each of the years in issue see 39_f2d_540 2d cir other deductions--1991 in the notice_of_deficiency respondent determined that petitioners were entitled to deduct dollar_figure of cash expenses on their schedule c respondent has allowed an additional dollar_figure in cash expenses for petitioners presented no evidence at trial and no argument on brief to support the allowance of any additional cash expenses respondent determined that petitioners were entitled to dollar_figure of the dollar_figure claimed as mortgage interest and points on their return petitioners presented no evidence at trial and no argument on brief regarding the remaining dollar_figure disallowed by respondent petitioners have either abandoned these issues or failed to carry their burden_of_proof respondent's determination with respect to these issues will be sustained sec_6651 addition to tax--1990 and sec_6651 imposes an addition_to_tax for failure_to_file timely a return unless the taxpayer establishes that the failure did not result from willful neglect and that the failure was due to reasonable_cause the addition_to_tax equal sec_5 percent of the tax required to be shown on the return for the first month with an additional percent for each additional month or fraction of a month during which the failure_to_file continues not to exceed a maximum of percent sec_6651 petitioners bear the burden of proving that respondent’s determination is incorrect rule a 105_tc_324 petitioners failed to offer any evidence or explanation regarding the late filing of their and returns thus respondent’s determination that petitioners are liable for the sec_6651 addition_to_tax for and will be sustained to reflect the foregoing and the concessions of the parties decision will be entered under rule


internal_revenue_service department of the treasury number release date index number in re washington dc person to contact telephone number refer reply to cc psi 9-plr-102153-02 date date legend decedent spouse date date dear this is in response to your authorized representative’s letter dated date in which you request a ruling that the service disregard the qualified_terminable_interest_property qtip_election made on the decedent’s federal estate_tax_return the facts and representations are as follows decedent died testate on date survived by spouse after providing for certain outright bequests to spouse article sixth of decedent’s will directs the trustee to divide the residue into two parts to be designated as part a and part b article sixth provides that part a is to consist of an amount that equals in pecuniary value the maximum amount exempt from federal estate_tax in the year of decedent’s death pursuant to sec_2010 of the internal_revenue_code article sixth further provides that part a is to be set_aside in trust with the income payable in quarter-annual or more frequent intervals to spouse for her life and principal payable to spouse as is necessary for her health support maintenance or education upon the death of spouse the trust holding part a is to be divided into equal shares for each of his children and then distributed outright to each of his children at certain ages article sixth provides that part b will consist of the balance of the residue of decedent’s estate and is to be distributed outright to spouse as directed in decedent’s will the part a residuary assets which the estate valued at dollar_figure the maximum amount exempt from federal estate_tax in the year of decedent’s death were placed in trust for spouse’s lifetime benefit while the balance of the residue passed outright to spouse decedent’s federal estate_tax_return form_706 was prepared by a certified_public_accountant and filed on date on schedule m an election was made under sec_2056 to claim a marital_deduction for qualified_terminable_interest_property part of schedule m lists as zero the total value of property interests not subject_to a qtip_election part of schedule m lists the total value of decedent’s gross_estate as the value of property interests that are subject_to the qtip_election you have asked that we disregard the qtip_election made on decedent’s form_706 and treat it as null and void for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 sec_2056 provides that the value of a decedent’s taxable_estate shall be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse sec_2056 provides that a deduction is not allowed for terminable interests that pass to the spouse an interest is a terminable_interest if the interest passing to the surviving_spouse will terminate or fail on the lapse of time or on the occurrence of an event or contingency or on the failure of an event or contingency to occur and on termination an interest in the property passes to someone other than the surviving_spouse sec_2056 provides that qualified_terminable_interest_property shall be treated as passing to the surviving_spouse and no part of such property shall be treated as passing to any person other than the surviving_spouse thus the value of such property is deductible from the value of the gross_estate under sec_2056 and is not treated as a terminable_interest under sec_2056 qualified_terminable_interest_property is property that passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under sec_2056 applies sec_2056 provides that an election under sec_2056 with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 such an election once made shall be irrevocable a qtip_election has transfer_tax consequences for the surviving_spouse sec_2044 and b provides generally that the value of the gross_estate includes the value of any property in which the decedent has a qualifying_income_interest_for_life and with respect to which a deduction was allowed for the transfer of the property to the decedent under sec_2056 under sec_2519 and b any disposition of all or part of a qualifying_income_interest_for_life in any property with respect to which a deduction was allowed under sec_2056 is treated as a transfer of all interests in the property other than the qualifying_income interest further the surviving_spouse will in the absence of a reverse_qtip_election under sec_2652 be treated as the transferor of the property for generation-skipping_transfer_tax purposes under sec_2652 in the case of a qtip_election to which revproc_2001_38 2001_24_irb_1335 applies the service will disregard a qtip_election made under sec_2056 and treat it as null and void for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 revproc_2001_38 applies to qtip elections under sec_2056 where the election was not necessary to reduce the estate_tax liability to zero based on values as finally determined for federal estate_tax purposes revproc_2001_38 does not apply in situations where a partial_qtip_election was required with respect to a_trust to reduce the estate_tax liability and the executor made the election with respect to more trust property than was necessary to reduce the estate_tax liability to zero nor does it apply to elections that are stated in terms of a formula designed to reduce the estate_tax to zero in this case the election under sec_2056 to treat property as qualified_terminable_interest_property was not necessary to reduce the estate_tax to zero because no estate_tax would have been imposed whether or not the election was made the outright bequests to spouse and the part b share qualify for the marital_deduction under sec_2056 because both pass directly from decedent to spouse the remaining assets in the gross_estate were valued by the estate at dollar_figure and allocated to the part a share after applying the unified_credit amount under sec_2010 the estate’s federal estate_tax liability is reduced to zero although an election was made under sec_2056 to treat the entire value of the gross_estate as qualified_terminable_interest_property the only qualified_terminable_interest_property in decedent’s estate consisted of the assets in the part a share which the estate valued at dollar_figure therefore the qtip_election made by decedent’s estate could have only applied to the assets in part a because the qtip_election in this case was not necessary to reduce the estate_tax liability to zero revproc_2001_38 2001_24_irb_1335 applies and the service will disregard the qtip_election and treat it as null and void for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party 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 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 representative sincerely melissa c liquerman chief branch office of associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


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-140012-07 date date legend x state date dear -------------- ------------------------------------------- ----------------------- --------- ------------------ this letter responds to your letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts the information submitted states that x was incorporated on date under the laws of state the shareholder of x intended that x be treated as an s_corporation effective date but the election to be treated as an s_corporation was not timely filed law and analysis corporation sec_1362 provides that a small_business_corporation may elect to be an s sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 plr-140012-07 however if an s election is made after the first two and one-half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no sec_1362 election is made for any x did not timely file an election to be treated as an s_corporation under sec_1362 taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply as of date x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date within days from the date of this letter x should submit a properly completed form_2553 effective date with a copy of this letter attached to the relevant service_center the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes the code provides that it may not be used or cited as precedent letter will be sent to your authorized representative in accordance with the power_of_attorney on file with this office a copy of this this ruling is directed only to the taxpayer s requesting it sec_6110 of except as specifically set forth above no opinion is expressed or implied as to sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------- ------------------------------------ ------------------------------------ ---------------------------- --------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ----------------- telephone number --------------------- refer reply to cc corp b2 plr-107781-15 date date legend distributing parent fdistributing 3x fsub dre dre fdre fdre fdistributing 2x fsub fsub fsub ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- 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------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ -------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- plr-107781-15 fsub fsub fdistributing 1y fsub ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- foreign_partnership ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- business x fpartnership ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- business y fpartnership ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- fsub fdre fdre fdre fcontrolled 1x fcontrolled 2y fcontrolled 3y ---------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ 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------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ plr-107781-15 spinco business x business y business x business y business y ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ----------------------------------- -------------------------------- ------------------------------------------ ----------------------------------------- a b c d e f g h i j k l m n o --- --- --- --- --- --- --- --- --- --- -- -- --- --- --- plr-107781-15 p q r s t u v w x y -- --- --- --- --------------- --------------- --- --- --- --- dear ----------- this letter responds to your authorized representatives' letter dated date requesting rulings on certain federal_income_tax consequences of a proposed transaction the proposed transaction the information provided in that request and in subsequent correspondence is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this letter is issued pursuant to section dollar_figure of revproc_2015_1 2015_1_irb_19 regarding one or more significant issues under sec_351 sec_355 and sec_368 the rulings contained in this letter only address one or more discrete legal issues involved in the transaction this office expresses no opinion as to the overall tax consequences of the transactions described in this letter or as to any issue not specifically addressed by the rulings below facts plr-107781-15 distributing parent is the common parent of an affiliated_group_of_corporations that file a u s consolidated federal_income_tax return distributing parent and its subsidiaries are engaged in two businesses business x and business y currently distributing parent wholly owns indirectly through disregarded entities dres fdistributing 3x and fsub specifically distributing parent owns fdistributing 3x through a chain of dres - dre dre fdre and fdre with fdre directly owning fdistributing 3x fdistributing 3x wholly owns fdistributing 2x and fsub fsub through a dre wholly owns fsub fsub and fdistributing 2x jointly own fsub approximately a by fsub and approximately b by fdistributing 2x and fsub approximately c vote and d value by fsub approximately e vote and f value by fdistributing 2x fsub is engaged in business y through its affiliates fdistributing 2x through dres wholly owns fsub fdistributing 2x together with fsub and fdistributing 3x owns fdistributing 1y approximately g vote and h value by fdistributing 2x approximately i vote and j value by fsub approximately k vote and l value by fdistributing 3x fdistributing 1y and fsub jointly own fsub approximately m by fdistributing 1y and approximately n by fsub fdistributing 1y together with fsub through a wholly owned subsidiary and fsub through dres own the majority interest in foreign_partnership a de_minimis amount of foreign_partnership interests are held by other related entities the foreign_partnership is engaged in business x and business y through dres proposed transaction distributing parent is entering into the proposed transaction in order to distribute business y to its public shareholders the steps of the proposed transaction relevant to the significant issues addressed herein are set forth below global restructuring i ii distributing parent will form a new corporation spinco fsub will divide its interest in fsub into two separate blocks block approximately o vote and p value and block approximately q vote and r value fsub will sell the block interest to fdistributing 2x for cash at fair_market_value the fsub sale as a result of the sale fdistributing 2x will own a greater than s of vote and value in fsub plr-107781-15 iii iv v vi vii viii ix x foreign_partnership will form various foreign dres in order to separate its business x and business y operations including business x and business y into the business x fpartnership and the business y fpartnership business x fpartnership will initially be a dre of business y fpartnership and foreign_partnership will become a dre of business x fpartnership and therefore of business y fpartnership as described below business x fpartnership will subsequently transform into a partnership with foreign_partnership as its dre in a series of distributions fdistributing 3x fsub fsub and fsub will distribute cash to their respective shareholders the first property distributions except for fsub the other shareholders in the first property distributions will then distribute the cash up the chain to distributing parent distributing parent will contribute certain entities to spinco as part of the spinco contribution defined later spinco will borrow dollar_figuret from third parties the cash proceeds which will be supported by a distributing parent guarantee the guarantee will automatically expire pursuant to its terms upon the completion of the external distribution defined below business x fpartnership initially a dre of business y fpartnership will transform into a partnership for u s federal_income_tax purposes when a subsidiary of fsub3 which is a business x entity that remains within distributing parent’s group contributes assets to business x fpartnership in exchange for a newly issued equity_interest fsub will transfer its approximately n interest in fsub to fdistributing 1y in exchange for fdistributing 1y equity of equal value following the exchange fsub will elect to be treated as a dre for u s federal_income_tax purposes the transfer together with the election the fsub acquisition first distribution one of business y fpartnership’s foreign dres fsub which relates to business x will elect to be treated as a corporation for u s federal_income_tax purposes the fsub contribution in a non-pro rata distribution business y fpartnership will distribute various foreign dres including the foreign dre that holds the equity of fsub and equity in business x fpartnership to fdistributing 1y the business y fpartnership distribution the business y fpartnership distribution will plr-107781-15 xi xii xiii xiv xv effectively be a distribution of the business x operations including business x under business x fpartnership to fdistributing 1y a dre of fdistributing 1y will form a new entity that elects to be treated as a corporation for u s federal_income_tax purposes fcontrolled 1x fdistributing 1y will contribute its interest in fcontrolled 1x and certain foreign dres that either hold business x assets or are engaged in the operation of business x to its foreign dre fdre after the contribution fdistributing 1y will own fcontrolled 1x indirectly through fdre and its disregarded entities fdistributing 1y will contribute certain assets to fcontrolled 1x for new direct equity_interest in fcontrolled 1x fdre will contribute the foreign dre that holds fsub8 among other assets to fcontrolled 1x together with the direct contribution by fdistributing 1y the fcontrolled 1x contribution fdistributing 1y will distribute its direct equity_interest in fcontrolled 1x to fsub in complete redemption of fsub 6’s stock in fdistributing 1y fdistributing 1y will also distribute its interest in fdre to a foreign dre under fdistributing 2x in partial_redemption of fdistributing 2x’s indirect interest in fdistributing 1y together with the distribution to fsub the first distribution fdre 3’s only asset will be its interest in fcontrolled 1x second distribution fdistributing 2x will contribute subsidiaries that relate to business y including its approximately b of fsub the indirectly owned fdistributing 1y as well as a dollar_figureu fsub receivable to newly formed fcontrolled 2y in exchange for fcontrolled 2y stock the fcontrolled 2y contribution xvi fdistributing 2x will distribute all of the stock of fcontrolled 2y to fdistributing 3x the second distribution third distribution xvii fdistributing 3x will contribute business y related assets including stock of fcontrolled 2y to newly formed fcontrolled 3y in exchange for fcontrolled 3y stock fcontrolled 3y notes the fcontrolled 3y notes and or fcontrolled 3y securities the fcontrolled 3y securities the fcontrolled 3y contribution xviii fdistributing 3x will use the fcontrolled 3y notes and or f controlled 3y securities to pay off certain fdistributing 3x receivables held by lower-tier plr-107781-15 entities the fdistributing 3x internal creditors that will be indirectly contributed to fcontrolled 3y in the fcontrolled 3y contribution the fdistributing 3x internal debt exchange xix fdistributing 3x will distribute all of the stock of fcontrolled 3y to an existing foreign dre fdre of distributing parent the third distribution xx xxi xxii xxiii xxiv external distribution fdre will contribute assets including fcontrolled 3y to a newly formed foreign dre fdre for foreign law purposes fdre will transfer fdre to fdre for a note that fdre will transfer back to fdre fdre1 will contribute fdre to newly formed fdre for foreign law purposes distributing parent will contribute its indirect interest in fcontrolled 3y to spinco using the following structure a fdre will transfer fdre to spinco in exchange for a note of equal value b fdre will distribute the spinco note to dre c dre will distribute the spinco note to dre d dre will distribute the spinco note to distributing parent e distributing parent will contribute the spinco note back to spinco distributing parent will contribute business y assets and liabilities and cash to spinco in exchange for spinco stock spinco financial instruments the spinco instruments and the cash proceeds together with distributing parent‘s contribution of fcontrolled 3y the spinco contribution following the spinco contribution and within v months following the date of the external distribution distributing parent will transfer the cash proceeds to i satisfy any distributing parent indebtedness existing at the time of receipt of the cash proceeds or subsequently incurred during the v-month period in the ordinary course of business ii redeem distributing parent stock and or iii make distributions to distributing parent shareholders the cash proceeds purge xxv distributing parent will exchange the spinco instruments for the dp internal debt the dp external debt and the investment bank debt as defined below more specifically plr-107781-15 a prior to the external distribution distributing parent will use a portion of the spinco instruments received the spinco internal debt instruments to pay off certain distributing parent receivables the dp internal debt held by lower-tier entities the dp internal creditors that will be indirectly contributed to spinco in the spinco contribution the dp internal debt exchange the spinco internal debt instruments will consist of notes the spinco internal notes and or securities the spinco internal securities the amount of spinco internal notes in relation to the amount of spinco internal securities remains to be determined b distributing parent will also use a portion of the spinco instruments received the spinco external debt instruments to pay off certain external debt the dp external debt by entering into a debt-for-debt_swap arrangement with targeted existing distributing parent debt holders the dp direct debt exchange c one or more investment banks the investment banks acting as principals for their own account will purchase a portion of the distributing parent external debt such acquisition the investment bank tender and such debt the investment bank debt distributing parent will enter into an exchange_agreement with the investment banks the investment bank debt exchange_agreement no sooner than five days after the investment bank tender pursuant to the investment bank debt exchange_agreement the investment banks will exchange the investment bank debt for a portion of the spinco instruments the investment bank debt exchange the exchange will occur at least days after the investment bank tender distributing parent will distribute all the spinco stock to its shareholders except that any distributing parent stock owned by its direct and indirect subsidiaries that will become subsidiaries of spinco after the spinco contribution will be redeemed in exchange for spinco stock of equal value the external distribution xxvi following the external distribution distributing parent may use a portion of the spinco instruments to engage in the investment bank debt exchange the exchange_period will not exceed w months from the date of the external distribution pursuant to the proposed transaction distributing parent will contribute approximately x of its assets by fair_market_value to spinco distributing parent will also allocate approximately y of its external debt to spinco distributing parent’s use of the spinco external debt instruments issued by spinco in the dp direct debt exchange will not result in a change in payment expectations pursuant to sec_1_1001-3 after taking into account all amounts due from distributing parent to spinco and from spinco to distributing parent pursuant to various separation agreements offset by any cash distributing parent will transfer to spinco in the spinco contribution the total amount that distributing parent owes to spinco may be less than the total amount that spinco owes to distributing parent the net excess plr-107781-15 moreover in connection with the spinco contribution distributing parent and spinco will each receive certain royalty-free licenses to use the house trademarks patents and other intangible_property rights currently owned by distributing parent and its subsidiaries whether legal and or economic ownership of such rights remain in distributing parent or its subsidiaries following the external distribution or instead are transferred to spinco or its subsidiaries as part of the external distribution for the purposes of enabling distributing parent and spinco to further their respective businesses collectively the intellectual_property rights representations the taxpayer has made the following representations in connection with the proposed transaction a b c d e global restructuring fdistributing 1y has owned more than 33⅓ of foreign_partnership capital as well as foreign_partnership profits from the business x and business y operations throughout the five-year period preceding the proposed transaction first distribution after the first distribution fdistributing 1y will own more than 33⅓ of business y fpartnership capital as well as business y fpartnership profits from business y operations after the first distribution fcontrolled 1x will own more than 33⅓ of business x fpartnership capital as well as business x fpartnership profits from the business x operations second distribution after the second distribution the fdistributing 2x separate_affiliated_group within the meaning of sec_355 sag will own more than 33⅓ of business x fpartnership capital as well as business x fpartnership profits from the business x operations third distribution after the third distribution the fdistributing 3x sag will own more than 33⅓ of business x fpartnership capital as well as business x fpartnership profits from the business x operations plr-107781-15 f g h i j k l m n o the fcontrolled 3y securities issued to fdistributing 3x if any in connection with the fcontrolled 3y contribution will qualify as securities for u s federal_income_tax purposes the fcontrolled 3y notes issued to fdistributing 3x if any in connection with the fcontrolled 3y contribution will qualify as indebtedness for u s federal_income_tax purposes none of the receivables involved in the fdistributing 3x internal debt exchange were issued in anticipation of the proposed transaction the total adjusted bases of the assets transferred by fdistributing 3x to fcontrolled 3y in the fcontrolled 3y contribution will equal or exceed the sum of i the liabilities assumed by fcontrolled 3y as determined under sec_357 and ii the fair_market_value of other_property within the meaning of sec_361 received by fdistributing 3x and transferred by it to its creditors in the third distribution external distribution after the external distribution the distributing parent sag will own more than 33⅓ of business x fpartnership capital as well as business x fpartnership profits from business x operations after the external distribution the spinco sag will own more than 33⅓ of business y fpartnership capital as well as business y fpartnership profits from business y operations the spinco internal securities issued by spinco to distributing parent if any in connection with the spinco contribution will qualify as securities for u s federal_income_tax purposes the spinco internal notes issued by spinco to distributing parent if any in connection with the spinco contribution will qualify as indebtedness for u s federal_income_tax purposes the dp internal debt dp external debt and investment bank debt was not issued in anticipation of the proposed transaction the total adjusted bases of the assets transferred by distributing parent to spinco in the spinco contribution will equal or exceed the sum of i the liabilities assumed by spinco as determined under sec_357 and ii the total amount of money and the fair_market_value of other_property within the meaning of sec_361 received by distributing parent and transferred by it to its creditors in the external distribution plr-107781-15 p q the exchange_period for distributing parent’s use of the spinco instruments following the external distribution is for the principal purpose of allowing the investment banks sufficient time to efficiently acquire distributing parent debt for the investment bank debt exchange distributing parent’s use of the spinco instruments after the external distribution shall in no event exceed w months following the external distribution by which time the spinco instruments will be distributed to distributing parent’s creditors including the investment banks and or shareholders or otherwise_disposed_of rulings based solely on the information submitted and the representations set forth above we rule as follows the distributions made by fdistributing 2x and fdistributing 3x in the first property distributions will each be treated as a distribution_of_property to which sec_301 applies by reason of sec_356 provided the second distribution qualifies as a distribution under sec_355 earnings_and_profits if any of fdistributing 2x will be allocated between fdistributing 2x and fcontrolled 2y in accordance with sec_312 and sec_1_312-10 and after decreasing fdistributing 2x’s earnings_and_profits by reason of the first property distributions provided the third distribution qualifies as a distribution under sec_355 earnings_and_profits if any of fdistributing 3x will be allocated between fdistributing 3x and fcontrolled 3y in accordance with sec_312 and sec_1_312-10 and after decreasing fdistributing 3x’s earnings_and_profits by reason of the first property distributions the business y fpartnership distribution and the first distribution will not preclude the fsub7 acquisition from satisfying the continuity of business_enterprise requirement under sec_1_368-1 the business y fpartnership distribution fcontrolled 1x contribution and the first distribution will not preclude the fsub contribution from satisfying the control requirement of sec_351 the fdistributing 3x internal creditors will be treated as creditors for purposes of sec_361 and c the transfer of fdre to spinco in exchange for a spinco note will be treated together with the related transfers of the spinco note as if for u s federal plr-107781-15 income_tax purposes distributing parent contributed fdre to spinco under sec_361 sec_355 will not treat as other_property any part of the spinco stock issued by spinco to distributing parent pursuant to the spinco contribution in exchange for the intellectual_property rights the dp internal creditors will be treated as creditors for purposes of sec_361 and c the involvement of the investment banks in the investment bank tender and the investment bank debt exchange will not preclude the application of sec_361 to the investment bank debt exchange the spinco external debt instruments will constitute securities for purposes of sec_355 and sec_361 distributing parent’s completion of the investment bank debt exchange and if necessary any distribution of the spinco instruments to distributing parent’s creditors other than the investment banks and or distributing parent’s shareholders following the date of the external distribution will not preclude i the spinco contribution ii the external distribution or iii the investment bank debt exchange from qualifying under sec_355 and sec_361 the cash proceeds purge will be treated as being distributed pursuant to the external distribution plan_of_reorganization for purposes of sec_361 and c the interest in the business y fpartnership held by each of fdistributing 1y and the spinco sag will be treated as a significant interest within the meaning of revrul_2007_42 2007_2_cb_44 the interest in the business x fpartnership held by each of fcontrolled 1x the fdistributing 2x sag the fdistributing 3x sag and the distributing parent sag will be treated as a significant interest within the meaning of revrul_2007_42 2007_2_cb_44 with respect to the first distribution the relative fair_market_value of the gross assets of business y as compared to the fair_market_value of all the gross assets of fdistributing 1y and the relative fair_market_value of the gross assets of business x as compared to the fair_market_value of all the gross assets of fcontrolled 1x will not prevent business y or business x from respectively qualifying as an active trade_or_business for purposes of sec_355 with respect to the second distribution the relative fair_market_value of the gross assets of business x as compared to the fair_market_value of all the gross plr-107781-15 assets of fdistributing 2x and the relative fair_market_value of the gross assets of business y as compared to the fair_market_value of all the gross assets of fcontrolled 2y will not prevent business x or business y from respectively qualifying as an active trade_or_business for purposes of sec_355 with respect to the third distribution the relative fair_market_value of the gross assets of business x as compared to the fair_market_value of all the gross assets of fdistributing 3x and the relative fair_market_value of the gross assets of business y as compared to the fair_market_value of all the gross assets of fcontrolled 3y will not prevent business x or business y from respectively qualifying as an active trade_or_business for purposes of sec_355 with respect to the external distribution the relative fair_market_value of the gross assets of business x as compared to the fair_market_value of all the gross assets of distributing parent and the relative fair_market_value of the gross assets of business y as compared to the fair_market_value of all the gross assets of spinco will not prevent business x or business y from respectively qualifying as an active trade_or_business for purposes of sec_355 except for purposes of sec_355 payments from distributing parent or any of its affiliates to spinco or any of its affiliates or vice versa under any of the continuing relationships regarding liabilities indemnities or other obligations that i have arisen or will arise for a taxable_period ending on or before the external distribution and ii will not become fixed and ascertainable until after the external distribution will be treated as occurring immediately before the external distribution see 344_us_6 revrul_83_73 1983_1_cb_84 provided that the net excess if any is used within v months from the date of receipt and in the same manner as the cash proceeds purge the net excess will be treated as being distributed pursuant to the external distribution plan_of_reorganization for purposes of sec_357 and sec_361 b caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transaction under any provision of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transaction that is not specifically covered by the above rulings temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are plr-107781-15 inconsistent with any conclusion in the letter_ruling see section dollar_figure of revproc_2015_1 2015_1_irb_1 however when the criteria in section dollar_figure of revproc_2015_1 2015_1_irb_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances in particular no opinion is expressed regarding i ii the tax treatment of the fsub sale or whether the transfer of intellectual_property rights in the spinco contribution constitutes transfers of property see revrul_69_156 c b moreover no opinion is expressed as to whether any of the transactions constitute direct or indirect repatriations of untaxed foreign earnings_and_profits resulting in an income inclusion to a domestic_corporation including under sec_956 procedural statements this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that this letter may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of this ruling letter pursuant to the power_of_attorney on file in this matter a copy of this letter is being sent to your authorized representatives sincerely ______________________________ gerald b fleming senior technician reviewer branch office of associate chief_counsel corporate


t c summary opinion united_states tax_court andrew a shah petitioner v commissioner of internal revenue respondent docket no 21833-08s filed date andrew a shah pro_se nicole c lloyd for respondent jacobs judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency of dollar_figure and a sec_6662 penalty of dollar_figure for and a deficiency of dollar_figure and a sec_6662 penalty of dollar_figure for the issues for decision are whether petitioner is entitled to the following claimed business_expense deductions for a dollar_figure for college tuition and book expenses b dollar_figure for travel_expenses and c dollar_figure for office expenses whether petitioner is entitled to the following claimed business_expense deductions for a dollar_figure for college tuition and book expenses b dollar_figure for travel_expenses and c dollar_figure for office expenses and whether petitioner is liable for the sec_6662 accuracy-related_penalty for and or unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure background some of the facts have been stipulated and are so found the stipulation of facts the supplemental stipulation of facts and the attached exhibits are incorporated herein by this reference petitioner resided in california when the petition was filed during and petitioner was an undergraduate student at new york university nyu where he majored in film and television studies to meet his graduation requirements petitioner was required to complete both the core courses of his major and elective courses from other fields of study a substantial number of the elective courses petitioner enrolled in consisted of computer science web design and multimedia courses petitioner has long been interested in computer and web design work while attending high school in chicago illinois petitioner began performing information_technology it services for several of the clients of physicians tax services inc physicians tax services a company owned by petitioner’s father ashvin shah physicians tax services provides accounting tax preparation payroll and tax planning services for to clients most of whom are doctors part of petitioner’s work involved working on the web sites of clients of physicians tax services petitioner earned between dollar_figure and dollar_figure during and his junior and senior years in high school providing these services petitioner generally returned to chicago during nyu’s summer winter and spring breaks petitioner stayed with his parents and he worked for physicians tax services petitioner again performed it and web design services for that company’s clients using skills he learned in some of his classes at nyu after petitioner graduated from nyu in he began working in the entertainment industry in california at the time of trial he was employed by a late-night television talk show creating multimedia content for the show’s web site on his and form sec_1040 u s individual_income_tax_return petitioner attached schedules c profit or loss from business for his work as an it consultant-web designer on his schedule c petitioner deducted office expenses travel_expenses and other expenses which consisted of tuition and books although petitioner’s federal_income_tax return is not in the record the parties submitted a certified tax_return transcript representing petitioner’s federal_income_tax return the certified transcript indicates that petitioner filed a schedule c and deducted office expenses travel_expenses and other expenses that were made up of his tuition and book expenses petitioner’s father an accountant and professional tax preparer prepared petitioner’s federal tax returns for both and and signed both returns as the return preparer respondent issued a notice_of_deficiency to petitioner for and on date discussion in general the commissioner’s determinations in the notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving error rule a 290_us_111 the commissioner has the burden of producing sufficient evidence to show that it is appropriate to impose the relevant penalty addition_to_tax or additional_amount sec_7491 116_tc_438 deductions are a matter of legislative grace and are allowable only as specifically provided by statute see 503_us_79 joseph v commissioner tcmemo_2005_169 taxpayers bear the burden of proving that they are entitled to any deductions claimed 292_us_435 singh v commissioner tcmemo_2009_36 the taxpayer is required to maintain adequate_records to substantiate the amounts of any deductions or credits claimed sec_6001 sec_1_6001-1 income_tax regs sec_162 authorizes a deduction for all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business a trade_or_business expense is ordinary for purposes of sec_162 if it is normal or customary within a particular trade business or industry and is necessary if it is appropriate and helpful for the development sec_7491 which could shift the burden_of_proof to respondent was not raised by petitioner of the business 320_us_467 308_us_488 in contrast personal living or family_expenses are generally nondeductible sec_262 for reasons specified infra we uphold respondent’s determinations in the notice_of_deficiency with respect to petitioner’s claimed business_expense deductions a petitioner’s education expenses petitioner claimed a business_expense deduction for a portion of his nyu tuition and book expenses for and petitioner provided a copy of form 1098-t tuition statement for which states that petitioner was billed dollar_figure in qualified_tuition_and_related_expenses and received dollar_figure in scholarships or grants petitioner did not provide a form 1098-t with respect to amounts billed for qualified_tuition_and_related_expenses for petitioner failed to provide any evidence with respect to the payment of the tuition for either or hence we do not know the exact amounts of the tuition payments and more importantly that it was petitioner who actually paid the tuition expenses we therefore hold that petitioner has not established that he paid the claimed educational expenses for either year see eg udoh v commissioner tcmemo_1999_174 even were we to find that petitioner substantiated his educational expenses the claimed deductions for the expenses would not be allowed because expenses for education which is part of a program of study being pursued by a taxpayer that leads to qualifying the taxpayer for a new trade_or_business are not deductible sec_1_162-5 i income_tax regs these expenses are not deductible as ordinary and necessary business_expenses even though the education may maintain or improve skills required by the individual in his employment or other trade_or_business or may meet the express requirements of the individual’s employer or of applicable law or regulations sec_1_162-5 income_tax regs see 55_tc_581 warren v commissioner tcmemo_2003_ malek v commissioner tcmemo_1985_428 with respect to courses taken as part of an undergraduate degree we stated in kersey v commissioner tcmemo_1993_641 affd without published opinion 50_f3d_15 9th cir it is difficult if not impossible for a taxpayer to satisfy the requirements of the code and regulations in order to obtain a deduction for expenses_incurred in attaining a bachelor’s degree malek v commissioner tcmemo_1985_428 such degrees generally qualify the graduate for a new trade_or_business in some field and that field would not necessarily be in the same area as was previously engaged in petitioner maintains that he deducted only tuition and book costs for those classes related to his computer work specifically petitioner posits that since he was employed in web design and multimedia while in high school classes he took at nyu related to those fields should be considered to be qualifying work-related education that improved skills and not a program of study that qualifies him for a new trade_or_business petitioner is incorrect in his analysis while his computer and web design courses may have improved his skills they also helped qualify petitioner for a new trade_or_business these courses were necessary for him to earn his bachelor’s degree since he could not have graduated from nyu without those credits therefore these courses were part of a course of study that will lead to qualifying petitioner in a new trade_or_business as we stated in warren v commissioner supra what is important under the regulations is that the degree ‘will lead’ petitioner to qualify for a new trade_or_business sec_1_162-5 income_tax regs fn ref omitted consequently we hold that petitioner may not deduct his tuition and book expenses for and b petitioner’s travel_expenses petitioner deducted travel costs he incurred in traveling between nyu and chicago in and asserting that the trips were for the purpose of providing services to clients of physicians tax services sec_162 permits a deduction for traveling expenses while away from home in the pursuit of a trade_or_business initially we note petitioner has not established a tax_home from which he was away the question of whether petitioner has a tax_home is factual and the burden_of_proof is on petitioner see rule a welch v helvering u s pincite 85_tc_462 affd without published opinion 807_f2d_177 9th cir petitioner provided no evidence or legal theory with respect to this issue he merely asserts that he qualified for all three factors to determine that his tax_home is new york we have previously held that a college student’s tax_home may be where he or she is regularly employed and not the location of the school see weiberg v commissioner tcmemo_1980_147 taxpayer’s tax_home was his principal place of employment and not the location of the school he attended affd 639_f2d_434 8th cir waggener v commissioner tcmemo_1963_2 taxpayer’s tax_home was wherever she was regularly employed as a clerk-typist while attending college upon the record before us we cannot determine that petitioner’s tax_home is new york furthermore sec_274 imposes strict substantiation requirements for deductions related to traveling expenses the taxpayer must substantiate by adequate_records or sufficient evidence the amount of the expense the time and place of the travel the business_purpose of the expense and the business relationship to the taxpayer sec_274 sec_1_274-5t temporary income_tax regs fed reg date to meet the ‘adequate records’ requirement of sec_274 a taxpayer shall maintain an account book diary log statement of expense trip sheets or similar record and documentary_evidence sec_1_274-5t temporary income_tax regs fed reg nov petitioner does not meet these strict substantiation requirements to substantiate his expenses petitioner offered credit card invoices for and a noncontemporaneous schedule he created entitled andrew shah tax_year log for expenses that lists amounts allegedly paid for travel and the dates they were incurred the credit card invoices petitioner submitted relate to a credit card in his mother’s name petitioner’s name is not on that credit card the record does not show whether petitioner paid the travel-related expenses or whether they were paid_by his parents while there are three travel-related entries date other travel--travelocity com date air travel ata air and date air travel ata air it is unclear to what travel these entries relate further these entries do not provide the information required by the regulations as discussed supra p petitioner’s log for expenses suffers from these same defects petitioner provided no documentation with respect to we therefore conclude that he did not meet the substantiation requirements for his travel_expenses c petitioner’s office expenses petitioner deducted office expenses he stated he incurred with respect to the work he performed for physicians tax services’ clients in and petitioner used the credit card invoices and the log for expenses mentioned supra p to substantiate these expenses neither document states the items that were purchased or their business_purpose we have no way of determining whether those expenses are business or personal expenses consequently we cannot conclude that the proffered documentation substantiates petitioner’s office expense deduction see rudnick v commissioner tcmemo_2009_ alemasov v commissioner tcmemo_2007_130 as stated supra p petitioner provided no documentation with respect to we therefore find that he did not meet the substantiation requirements for his office expenses d sec_6662 accuracy-related_penalty sec_6662 imposes an accuracy-related_penalty equal to percent of the underpayment_of_tax attributable to inter alia a substantial_understatement_of_income_tax as provided in sec_6662 or negligence or disregard of rules or regulations as provided in sec_6662 an understatement of income_tax pursuant to sec_6662 is equal to the excess of the amount of tax required to be shown on the tax_return over the amount of tax_shown_on_the_return sec_6662 the understatement is substantial in the case of an individual if it exceeds the greater of percent of the tax required to be shown on the return or dollar_figure sec_6662 negligence is the lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances jean baptiste v commissioner tcmemo_1999_96 respondent has the burden of production with respect to the sec_6662 accuracy-related_penalties see sec_7491 respondent has met his burden of production the accuracy-related_penalty does not apply to any part of an underpayment_of_tax if it is shown that the taxpayer acted with reasonable_cause and in good_faith sec_6664 this determination is made on a case-by-case basis taking into account all the pertinent facts and circumstances sec_1 b income_tax regs reliance on the advice of a professional tax adviser may constitute reasonable_cause and good_faith if the reliance was reasonable id petitioner bears the burden of proving that he had reasonable_cause and acted in good_faith see higbee v commissioner t c pincite the record demonstrates that petitioner’s father ashvin shah an accountant was an experienced tax preparer thus despite the close familial relationship we find petitioner had reasonable_cause to rely on his father’s advice cf 100_tc_650 affd 67_f3d_29 2d cir consequently we do not sustain respondent’s determination with respect to the imposition of the sec_6662 accuracy-related_penalties for and decision will be entered for respondent as to the deficiencies and for petitioner as to the accuracy- related penalties