internal_revenue_service national_office technical_advice_memorandum date third party communication none date of communication not applicable number release date index uil no case-mis no tam-139384-12 chief appeals_office chicago taxpayer's name taxpayer's address taxpayer's identification no year s involved date of conference -------------------------------------------------------------- ----------------------------------------------- ---------------------------------- ----------------- ------- ------------------------ legend taxpayer --------------------------------------------------------------- year year year year year year year year year year year year year date date ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ---------- -------------------- ------------------------ tam-139384-12 date date date date date date date date date date date date date date date date date date date date date date date date date date date date date date ------------------------ ------------------------ --------------------- -------------------------- -------------------------- --------------------------- -------------------- -------------------- ---------------------- --------------------- -------------------------- ------------------- ---------------------- -------------------- ------------------------ ------------------- ------------------- -------------------------- ------------------- ------------------- ---------------------------- --------------------- --------------------- ----------------------- ---------------------- --------------------------- ---------------------------- ---------------------- -------------------- -------------------- amount ---------------- amount ---------------------- ------------------ amount ---------------- amount amount ---------------- -------------- amount ---------------- amount -------------- amount amount ---------------- ---------------- amount ------------------ amount ---------------- amount amount -------------- tam-139384-12 ---------------- ---------------- -------------- ------------------ -------------- ---------------- ---- ---------------- ---------------- -------------- ---------------- -------------- ---------------- ---------------- -------------- ---------- ------------------ ---------------- ------------------ -------------------- ---------------- -------------- ------- -------------------- -------------- -------------------- amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount amount issues does the statute_of_limitations bar the date assessment of an income_tax deficiency for tax_year in the amount of amount if yes is taxpayer entitled to any refund of tax as a result of the barred assessment can the service now assess and collect any additional interest it determines to be due from taxpayer for tax_year based on either the date or the date assessment can the service recover any overpayment interest erroneously paid out for tax_year conclusions no the date assessment of amount for tax_year was properly assessed within the period provided for by sec_6501 of the internal_revenue_code tam-139384-12 the deficiency assessed was attributable to an adjustment to a net_operating_loss_carryback from taxpayer’s tax_year and the period of limitations on assessment was open for year pursuant to an extension under sec_6501 even if the statute_of_limitations barred the assessment done on date taxpayer may not be entitled to a refund of tax for year although the date assessment would have to be abated any resulting refund should be offset by additional underpayment interest due for year and by any overpayment interest erroneously paid to taxpayer no the service may not assess additional underpayment interest that it determines to be due based on the date assessment such interest may only be recovered through offset of a refund for an amount_paid before the assessment statute expiration date ased for the underpayment interest on the other hand additional underpayment interest related to the date tax_assessment may be assessed and collected up through date because the periods of limitation on filing an erroneous refund_suit for tax_year sec_1 and have expired excessive overpayment interest can only be recovered by offset against any refund due taxpayer for the same type of tax and tax period facts taxpayer filed a u s_corporation income_tax return form_1120 for its year tax_year on which it reported a tax_liability of amount which was assessed and paid on date on date taxpayer received an amount tentative refund for year which resulted from carrying back to year tentative net operating losses and credits from its year tax_year on date taxpayer received an amount tentative refund for year this one from carrying back tentative net operating losses and credits from its year tax_year audit of tax_year the service audited and adjusted taxpayer’s year and tax years the service completed a form 4549-a income_tax changes reflecting the proposed examination changes to taxpayer’s tax_liabilities for the tax_year sec_2 and as of date these proposed adjustments included a net deficiency in income_tax due from taxpayer for tax_year in the amount of amount taxpayer and the service entered into an agreement under sec_6501 to extend the period for assessment of a deficiency for tax_year to date before date taxpayer executed a waiver_of_restrictions_on_assessment_and_collection of deficiency in tax and acceptance of overassessment form_870 whereby taxpayer agreed to waive the restrictions on assessing the amount income- tax_deficiency for its year tax_year the form 4549-a is attached as exhibit a tam-139384-12 this agreed deficiency of amount consisted of a decrease in taxpayer’s year tax_liability of amount attributable to year general adjustments an increase in taxpayer’s year tax_liability of amount attributable to the partial recapture of the amount tentative carryback allowance from year and an increase in taxpayer’s year tax_liability of attributable to the partial recapture of the amount tentative carryback allowance from year computations based on an erroneous form_2285 because the agreed deficiency of amount included partial recaptures of the tentative allowances resulting from the carrybacks from year and year an interest computation under the restricted-interest provisions of the internal_revenue_code was required to compute this restricted interest the revenue_agent prepared a form_2285 concurrent determinations of deficiencies increases in tax and overassessments decreases in tax in cases involving restricted interest provisions of the internal code this form correctly reflected the amount net deficiency to be assessed for the tax_year however and contradicting the form 4549-a the form_2285 mistakenly reflected that this deficiency consisted of a decrease in taxpayer’s year liability of amount rather than amount attributable to year general adjustments form line column a and an increase in taxpayer’s year tax_liability of amount rather than amount attributable to a partial recapture of the tentative carryback allowance from year form line column d the form_2285 correctly reflected that this deficiency consisted of an increase in taxpayer’s year tax_liability of amount attributable to a partial recapture of the tentative carryback allowance from year form line column c the above two errors on this form_2285 were caused when the revenue_agent mistakenly included on line column a current tax_credits an amount minimum_tax_credit that originated in year this error resulted in an incorrectly stated line column a amount of amount the line column a amount should have included only those credits attributable to the year tax_year itself in this case amount like a domino effect this error caused another error on this form the year tax_liability attributable to general adjustments instead of the correct amount of amount this form_2285 is attached as exhibit b this amount actually resulted from the carryback of a net_operating_loss from year to year and further carried forward to year tam-139384-12 was shown as amount a difference of amount see line column a net increase decrease in tax and again like a domino effect this error caused another error the year tax_liability attributable to recapture of the tentative carryback allowance from the tax_year was shown to be amount rather than the correct amount of amount again a difference of amount see line column d these entries on the form_2285 made it seem as though the service had recaptured amount more of the amount tentative operating loss from year that taxpayer had carried back to year than had actually been recaptured during the audit ie amount adjustments made to the year account including interest based upon the entries on the form_2285 both the correct and erroneous entries the service made the following assessments and abatements on the taxpayer’s year account code date entered effective date date date date date date date amount of assessment or abatement amount amount amount the result of the foregoing assessments and abatement was a net assessment of amount the correct amount of the net deficiency in income_tax due from taxpayer for the tax_year although the result of these adjustments was a net deficiency the amount abatement placed taxpayer’s account into an overpaid status as of its effective date date because the abatement was overstated by amount the running balance on the account was overstated by that amount -- until that overstatement was corrected by the amount assessment which as outlined above was overstated by the same amount but this correction did not occur until date the effective date of the overstated assessment as a result overpayment interest accrued on an erroneously high running balance for over two years resulting in a windfall of interest to taxpayer to wit the transcript reflects tc allowances of credit overpayment interest of amount and amount on date and date respectively on date taxpayer received a refund in the amount of amount audit of tax_year the increase in the year liability attributable to the year nol capital_loss_carryback was correctly reflected on the form_2285 at line c as amount and was correctly assessed by the service in addition the year net deficiency of amount remained the same amount amount amount amount compare amount amount amount amount transaction code is abatement of tax by examination transaction code is additional tax_assessment with interest taxpayer’s transcript for tax_year is attached as exhibit c tam-139384-12 subsequently taxpayer’s year year and year tax years were examined during this audit taxpayer and the service executed an agreement under sec_6501 to extend the period for assessment of a deficiency in income_tax for the tax_year to date taxpayer appealed the examination findings for those tax years to appeals where all issues were settled on date taxpayer signed form 870-ad offer to waive restrictions on assessments and collection of tax_deficiency and to accept overassessment reflecting that settlement although there was no deficiency for year the year settlement resulted in a number of adjustments as reflected on the audit statement form and supporting statement of income_tax changes form including reducing the allowable net_operating_loss_carryback from year to year by increasing the alternative_tax net_operating_loss_carryback from year to year amount by amount and reducing the general_business_credit utilized for year by amount as indicated in the form_3610 audit statement these adjustments resulted in a amount overpayment of income_tax due to taxpayer for the tax_year and the amount deficiency for year at issue herein correction of the first form_2285 because the year deficiency of amount resulted from the foregoing adjustments to carrybacks from the year tax_year a form_2285 again needed to be prepared in preparing the new form_2285 the appeals tax computation specialist tcs discovered the errors on the prior form_2285 discussed above to reiterate the revenue_agent who prepared the prior form_2285 mistakenly included as a year general adjustment an amount minimum_tax_credit that was from year the tcs sought to correct this error by preparing a new form_2285 for year dated date dollar_figure on this new form the tcs entered the correct current tax_credit general adjustment amount of amount and accounted for the amount minimum_tax_credit as a tax_credit carryback arising in the year tax_year the shifting of this minimum_tax_credit to the year column where it belonged resulted in as indicated in taxpayer’s letter dated date taxpayer initially contended that the period of limitations for assessing an income-tax deficiency for its year tax_year expired on date but now agrees that the period of limitations for that year was validly extended to date the form_3610 is attached as exhibit d this form_5278 is attached as exhibit e this corrected form_2285 is attached as exhibit f tam-139384-12 an increase of amount in the year tax_liability attributable to general adjustments the first form_2285 erroneously had amount rather than the correct amount of amount a difference of amount and an offsetting decrease in the year tax_liability attributable to the recapture of the tentative allowance the first form_2285 erroneously had amount rather than the correct amount of amount again a difference of amount and a tax_deficiency of amount for year none of these adjustments are reflected on the transcript of the year form_1120 account however based upon this corrected date form_2285 the service made interest assessments of amount and amount for year on date then based on the corrected amounts in the date form_2285 the tcs prepared another form_2285 on date to correctly reflect the adjustments agreed to for the tax_year dollar_figure after adjusting the year tax_liability to account for the losses and credits carried back from year and year to which taxpayer had agreed the date form_2285 showed that taxpayer was liable for a net deficiency in income_tax for the tax_year in the amount of amount adjustments to tax_year based on the audit of tax_year the net deficiency of amount was comprised of an amount decrease in year tax due to an increased carryback allowance from year an amount increase in year tax due to the increased alternative_tax net_operating_loss_carryback from year to year because more of the year alternative_tax net_operating_loss was applied to year there was less alternative_minimum_tax in year and less alternative_minimum_tax_credit in year and an amount decrease in year tax due to a carryback allowance from year the amount net deficiency for year was assessed on date within the date period of assessment under sec_6501 for assessments of deficiencies attributable to carrybacks from year but after the period of limitations under sec_6501 for year which had expired on date this time the service assessed only the net deficiency for year instead of making the three separate adjustments outlined above further adjustments to the year account including interest related to this amount assessment the service on date abated underpayment interest of amount and credited overpayment interest of amount which when the date form_2285 is attached as exhibit g tam-139384-12 combined with the interest entries made on date to correct the earlier form_2285 resulted in a net interest assessment of amount the service allowed additional overpayment interest of amount on date the service also allowed and refunded additional overpayment interest of amount on date in date payment of this amount deficiency for the tax_year was satisfied in large part by transferring amount from taxpayer’s year account which amount was originally paid_by taxpayer on date the remaining portion of the deficiency and related interest amount was satisfied by a portion of the advance interest payment of amount that was applied to the year account from --------- year form_1120 account on or about date dollar_figure the current controversy on date taxpayer filed a claim_for_refund of all amounts used to satisfy the date assessment of the year deficiency of amount plus interest specifically taxpayer claimed a refund of amount which is the un-refunded portion of taxpayer’s amount advance interest payment made on date and the amount payment applied from taxpayer’s year account in processing cycle -------------- approximately date with an effective date of date the claim totals amount including allowable interest taxpayer argues that the second assessment on date based on the year carryback could not be made because the service had already made an assessment for that year in the full amount of the sec_6411 tentative refund to support its position taxpayer points to the transcript showing a tc assessment of amount on date which assessment was based on the erroneous form_2285 -- where the year tax_liability attributable to recapture of the tentative carryback allowance from the tax_year was shown to be amount rather than the correct amount of amount by letter to taxpayer dated date the service formally disallowed taxpayer’s claim_for_refund taxpayer appealed taxpayer and appeals now seek technical_advice regarding the issues set forth abovedollar_figure the advance interest payment of amount that was applied to the year account from taxpayer’s year form_1120 account on or about date was ultimately applied as follows amount was transferred to --------- year form_1120 account amount was transferred to its year form_1120 account amount was transferred to a civil penalty account for year and amount was refunded to taxpayer along with amount of overpayment interest that left amount remaining on taxpayer’s year form_1120 account taxpayer and appeals have timely executed successive agreements to extend the time to bring suit form which have extended the period of time for taxpayer to file suit on taxpayer’s claim_for_refund in the amount of amount for the taxable_year until date tam-139384-12 law and analysis the assessment made on date was timely because it was made within the sec_6501 period of limitations for deficiencies attributable to a net_operating_loss_carryback in general the amount of any_tax must be assessed within three years after the return was filed sec_6501 this three-year period may be extended by a number of circumstances including when the service and the taxpayer agree in writing to extend the time for assessment sec_6501 further when a deficiency in tax is attributable to the application to the taxpayer of a net_operating_loss_carryback or a capital_loss_carryback such deficiency may be assessed at any time before the expiration of the period within which a deficiency for the tax_year of the net_operating_loss or net_capital_loss that results in such carryback may be assessed sec_6501 if a taxpayer receives a tentative refund under sec_6411 the service will be able to assess a deficiency attributable to any adjustment in the loss_year but only up to the amount of the tentative refund sec_6501 the overarching general principle to be applied when analyzing limitations periods is the principle that statutes of limitation barring the collection_of_taxes must be strictly construed in favor of the government 464_us_386 there is no definition of attributable to in either sec_6501 itself or the internal_revenue_code in general case law has defined the term to mean that the proposed assessment may be traced directly to the carryback 742_f2d_1102 7th cir 65_tc_506 in first chicago the tax years at issue were and the taxpayer sustained an operating loss in which it carried back to this reduced the tax due for which in turn reduced the amount of tax carried over from to resulting in a deficiency at the time of the assessment the sec_6501 period of limitations had expired for that year however the period of limitations for assessments remained open the seventh circuit found that the assessment was timely because the adjustment was in fact an automatic mechanical adjustment due directly to the carryback id pincite while the statute refers only to a carryback the court further found that a deficiency resulting from a carry-forward was still directly traceable to the carryback in this case the audit of tax_year resulted in an increased alternative_tax net operating carryback loss atnol for that year this increased atnol was carried back to year where it decreased the total alternative_minimum_tax for that yeardollar_figure then the reduced year alternative_minimum_tax resulted in a reduced minimum_tax_credit carryover to year and thus a net deficiency for that year year audit statement this generated a refund for tax_year audit statement schedule lines a and tam-139384-12 schedule line sec_15 and sec_21 thus the year assessment was a mechanical automatic_adjustment directly traceable to the year carryback adjustment the present case is not distinguishable in any meaningful way from first chicago and the assessment made for year on date was timely taxpayer asserts that the second assessment based on the year carryback could not be made because the service had already made an assessment for that year in the full amount of the sec_6411 tentative refund in support of this argument taxpayer cites sec_6501 while it is true that amounts that may be assessed solely by reason of sec_6501 may not exceed the amount of a prior tentative refund the assessment at issue in this case was not assessed under sec_6501 when a deficiency is directly traceable to a carryback the relevant assessment statute is sec_6501 and not sec_6501 see suivski v commissioner tcmemo_1993_291 sec_6501 allows the service to make an assessment of deficiencies that are not attributable to the carryback and it is those types of assessments that are limited in amount when making an assessment solely under sec_6501 as was done in this case there is no amount limitation id see also 71_tc_391 explaining the difference between sec_6501 and sec_6501 now k sec_301_6501_m_-1 example explaining that the amount limitations apply when an assessment is made for a deficiency not attributable to the loss carryback because sec_6501 does not apply to the assessment made for tax_year in year no amount limitation applies further the erroneous year assessment of amount did not recapture the year tentative allowance in full because that assessment was offset by the equally erroneous abatement of amount again these errors contradicted the form 4549-a audit statement which both parties agree is correct and were made due to the incorrect form_2285 which was prepared solely for purposes of making an interest computation to that end the only entry on the transcript that ties the assessment to year is the interest computation_date of date on the other hand the abatement had an interest computation_date of date linking that adjustment to the year tax_year when these two erroneous adjustments were combined with the correct assessment of amount the result was a net deficiency of amount that matched the amount determined on the form 4549-a the only true error on the account was that interest was calculated incorrectly in taxpayer’s favor due to the overstated abatement applied as of date this error also prevented the correct amount of underpayment interest to be computed on the net deficiency and resulted in taxpayer receiving overpayment interest when in fact it owed a deficiency accordingly the assessment of the amount deficiency for the taxable_year was timely made on date because it was attributable to an adjustment of a net operating carryback from the taxable_year and was made within the sec_6501 period of limitations for that taxable_year if the assessment made on date must be abated because it was made beyond the period of limitations any refund would be offset by additional underpayment tam-139384-12 interest due for the tax_year and by offset of overpayment interest erroneously paid to taxpayer abatement of the date assessment the term overpayment includes that part of the amount of the payment of any federal tax that is assessed or collected after the period of limitation expires sec_6401 in the case of an overpayment the service may credit the amount of such overpayment including interest against any liability in respect of a federal tax on the part of the person who made the overpayment and shall refund any balance to such person sec_6402 a claim for credit or refund of any overpayment of any federal tax of which the taxpayer is required to file a return shall be filed by the taxpayer within three years from the time the return was filed or two years from the time the tax was paid whichever period expires later sec_6511 any_tax assessed and paid after the period of limitations on assessment expires constitutes an overpayment under sec_6401 that should be refunded under sec_6402 if the taxpayer has filed a timely refund claim in accordance with sec_6511 see revrul_74_580 1974_2_cb_400 accordingly a payment of tax that was assessed and paid after the period of limitations on assessment had expired as provided in sec_6501 can be refunded within two years after payment if a claim_for_refund is filed id irm credits applied via offset with tc or have a refund statute of two years from the cycle date the credit was applied irm 613_f2d_518 ndollar_figure 5th cir here with respect to its year form_1120 account taxpayer made an amount advance_payment of interest on date on or about date in processing cycle ------------ an unrefunded portion of this advance_payment amount was offset to the year account with tc with respect to its year form_1120 account taxpayer made an amount payment on date in date in processing cycle ------------ this amount was offset to the year account with tc both the date and date offset payments were within two years from the date of taxpayer’s date refund claim assuming the period of limitations on assessment for the taxable_year expired on date then the assessment made on date was barred by the statute_of_limitations and the payments of amount and amount made on date and date respectively would be subject_to refund because they would constitute an overpayment under sec_6401 that is refundable under sec_6402 see revrul_74_580 offset of additional underpayment interest any underpayment interest on any_tax may be assessed and collected at any time during the period within which the tax to which such interest relates may be collected sec_6601 the service can offset any additional underpayment interest against tam-139384-12 any_tax refund owed the taxpayer under sec_6402 even if the statute_of_limitations on assessment of the underpayment interest has expired as long as the refund is for an amount_paid before the ased for the underpayment interest 80_f3d_1576 fed cir revrul_85_67 1085_1_cb_364 even though the service did not assess before the ased a payment made before the ased does not constitute an overpayment_of_tax under sec_6401 underpayment interest is part of a taxpayer’s tax_liability and is assessable in the same manner as a tax see fisher f 3d pincite sec_6601 stating that interest on tax underpayments shall be assessed collected and paid in the same manner as taxes and that any reference to any_tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax thus underpayment interest that is owed is taken into account in determining whether an overpayment exists if an overpayment does not exist because of the additional underpayment interest owed the government is permitted to offset the underpayment interest against a claimed tax_refund even if the statute_of_limitations on assessment of the interest has expired as long as the refund claim is for an amount_paid before the ased for the underpayment interest see fisher f 3d pincite revrul_85_67 because of the erroneous transcript entries made in year overpayment interest accrued on an erroneously high credit balance for over two years resulting in a windfall of interest to taxpayer similarly this credit balance prevented underpayment interest from correctly running on the assessed tax_liability any additional underpayment interest taxpayer owes on the year assessments may be used to offset any refund of payments made in year and year because the year assessment was satisfied by amounts paid in date and date and the sec_6601 period of limitation on assessment of interest on the year assessment did not expire until date offset of erroneously allowed overpayment interest excessive statutory interest on overpayments under sec_6611 cannot be assessed because there is no statutory authority for assessing the amount of money erroneously paid as overpayment interest see 663_f3d_181 3d cir overpayment interest ie interest owed to the taxpayer by the government is not ‘a part of or even related to a taxpayer's tax liability’ and is not ‘assimilated in treatment to the principal_amount of a tax ’ citations omitted thus the erroneous payment of overpayment interest may only be recovered by voluntary payment by filing suit for an erroneous refund under sec_7405 or by the common- law right of offset see i r m the period of limitations on bringing an in the case of any overpayment the secretary within the applicable_period of limitations may credit the amount of such overpayment including any interest allowed against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall refund any balance to such person sec_6402 tam-139384-12 erroneous refund_suit is two years from the making of the refund sec_6532 the common-law right of offset however is not subject_to any period of limitationdollar_figure see 507_us_258 under the doctrine_of common-law recoupment a claim that involves the setting off against asserted_liability of a counterclaim arising out of the same transaction is generally not barred by a statute_of_limitations so long as the main action is timely 284_us_281 when considering a taxpayer’s refund claim the service has the right to recompute amounts owed by a taxpayer without a period of limitation so long as the recomputation involves the same taxpayer the same tax and the same tax_year as the refund claim fisher f 3d pincite 340_f2d_624 ct_cl the erroneous payment of overpayment interest may be offset without a period of limitation against any refund otherwise due the taxpayer so long as the offset involves the same taxpayer the same type of tax and the same tax period to which the refund is related in this case therefore the service may offset any refund of the year assessment with overpayment interest erroneously paid to taxpayer additional underpayment interest that the service determines to be due from taxpayer for the year tax_year with respect to the year tax_assessment can be recovered only through offset if the assessment made on date was not barred by the statute_of_limitations any additional underpayment interest that the service determines to be due from taxpayer for the tax_year with respect to that date assessment can be assessed and collected overpayment interest cannot be recovered unless it is offset against any additional refund owed taxpayer for year as discussed in issue above any underpayment interest on any_tax may be assessed and collected at any time during the period within which the tax to which such interests relates may be collected sec_6601 when the assessment of tax has been made within the period of limitations the tax may be collected within ten years after the assessment of the tax sec_6502 any additional underpayment interest that the service determines to be due from taxpayer attributable to the deficiency assessed in year must have been assessed before date ten years after the original assessment because this period has expired the service cannot now assess any additional underpayment interest related to the federal_circuit held in 417_f3d_1375 fed cir that the common-law right to offset erroneous overpayment interest against a taxpayer’s refund for the same taxable_year is subject_to the statute of limitation that applies to erroneous refund suits under sec_7405 and sec_6532 the federal circuit’s decision in pacific gas is erroneous see aod-2006-02 wl congress has not imposed any statute_of_limitations on the recovery_of overpayment interest by means of offset against a taxpayer’s refund claim see 118_us_120 the sovereign is not bound by any statute_of_limitations unless congress has clearly manifested its intention that they should be so bound tam-139384-12 this year assessment as discussed above the service can offset any additional underpayment interest against any_tax refund owed taxpayer sec_6402 as also discussed above erroneous payments of overpayment interest may be recovered by voluntary repayment by filing suit for an erroneous refund under sec_7405 or by offset offset may be applied without regard to any period of limitation against any refund otherwise due the taxpayer as long as the offset involves the same taxpayer the same type of tax and the same tax period to which the refund is related if the erroneous payment of overpayment interest and the refund to be offset do not arise from the same type of tax and same tax period of the same taxpayer the offset must be made within the applicable erroneous refund statute expiration date which is two years from the date of the erroneous payment see sec_6532 irm irm d the credits of overpayment interest to taxpayer in the amounts of amount amount amount and amount on date date date and date respectively cannot be assessed because overpayment interest is not a tax_liability neither can these overpayment interest credits be recovered through an erroneous refund_suit under sec_7405 because the two-year statute_of_limitations for bringing suit expired in year and year similarly the refunds of overpayment interest to taxpayer in the amounts of amount and amount made on date and date respectively cannot be recovered because the two-year statute_of_limitations for bringing an erroneous refund_suit expired in year and year these credits and refunds of overpayment interest however may be offset against any refund due taxpayer as long as the offset involves the same type of tax and tax period to which the refund is relateddollar_figure because insufficient information has been provided we cannot determine whether the underpayment interest abatement of amount made on date was due to clerical_error or mistake of fact thus until such information is provided the service should not reverse the underpayment interest abatement of amount instead the service would have to reassess before date when the statute_of_limitations on assessing the interest expires see sec_6601 sec_6502 because the amount tax_deficiency to which the underpayment interest of amount relates was assessed on date the statute_of_limitations for assessing underpayment interest on this tax_assessment will expire on date - ten years from the date of the tax_assessment because the periods of limitations for recovering an erroneous refund have expired the service cannot recover the overpayment interest by offset against any refund owed taxpayer that relates to a different type of tax or tax period tam-139384-12 caveat s a copy of this technical_advice_memorandum is to be given to taxpayer but it may not be used or cited as precedent sec_6110


internal_revenue_service number release date index number ---------------------------------------------------------- ---------------------------------------------------------- ----------------------- ---------------------------------- in re ----------- 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 b05 plr-147912-13 date december legend taxpayer -------------------------------------------------------------------------------------------- -------------------------------- project ----------- n -- bin address -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- agency -------------------------------------------------------------------------------------------- dear ------------------ this letter responds to taxpayer’s authorized representative’s letter dated date and subsequent correspondence requesting an extension of time pursuant to sec_301_9100-1 of the procedure and administration regulations to elect to identify all of the buildings in project for which a building_identification_number bin was assigned as part of a single multiple-building project under sec_42 of the internal_revenue_code on taxpayer’s irs forms low-income_housing_credit allocation and certification project consists of n buildings identified by bin address according to information submitted taxpayer through inadvertence failed to make an effective election for all n buildings in project for which forms were issued by agency consistent with plr-147912-13 taxpayer’s intent to treat these buildings as part of a single multiple-building project under sec_42 sec_42 provides that a project will consist of only one building unless prior to the end of the first calendar_year in the project_period as defined in sec_42 each building that will comprise the project is identified in the form and the manner that the secretary provides sec_301_9100-8 of the procedure and administration regulations provides that the election under sec_42 must be made by the due_date taking into account any extensions of time of the tax_return for the first taxable_year for which the election is effective sec_301_9100-8 provides that the election under sec_42 generally must be made for the taxable_year in which the building is placed_in_service or the succeeding taxable_year if the sec_42 election is made to defer the start of the credit_period and must be made in the certification required to be filed pursuant to sec_42 and sec_42 sets forth the certifications for the first year of the credit_period regarding any qualified_low-income_building that a taxpayer must certify to the secretary at such time and in such manner as the secretary prescribes sec_1_42-1 of the income_tax regulations requires that a building owner ie taxpayer must file a completed form_8609 with the service in accordance with the form instructions the election under sec_42 for a building is made on part ii of form_8609 and requires the inclusion of an accompanying informational statement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government plr-147912-13 in the instant case based solely on taxpayer’s facts submitted and its representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been met accordingly taxpayer is granted an extension of time to make the election under sec_42 to treat all n buildings in project for which forms were issued by agency as part of a single multiple-building project by filing within days from the date of this letter amended forms and accompanying information statement s that include this intended election the amended forms and statement s along with a copy of this letter are to be filed with the philadelphia service_center at the address provided for the service_center in that form a copy of this letter is enclosed for this purpose no opinion is expressed or implied regarding the application of any other provisions of the code or regulations specifically we express no opinion on whether the forms for the n buildings in project were timely or correctly filed the effect of taxpayer’s election under sec_42 for any closed_year or whether project buildings otherwise qualify for low-income_housing tax_credits under sec_42 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs and special industries by _____________________________ christopher j wilson senior counsel branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court david matthew hanson and melinda d hanson petitioners v commissioner of internal revenue respondent docket no filed date david matthew hanson and melinda d hanson pro sese michael w bitner and jessica r nolen for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined a deficiency in and an addition under sec_6651 to petitioners’ federal_income_tax tax for their taxable_year of dollar_figure and dollar_figure respectively 1all section references are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure the issues remaining for decision for petitioners’ taxable_year are are petitioners entitled to a dependency_exemption deduction under sec_151 for zh we hold that they are not are petitioners entitled to a child_tax_credit under sec_24 with respect to zh we hold that they are not findings_of_fact most of the facts have been deemed established pursuant to rule f at all relevant times including at the time petitioners filed the petition they resided in iowa petitioner david matthew hanson mr hanson and jodi linnea hanson jodi hanson his former spouse are the parents of zh who was born in on date in anticipation that the iowa district_court for union county iowa iowa district_court would grant them a decree of dissolution of marriage mr hanson and jodi hanson entered into an agreement titled stipulation agreement divorce settlement thereafter the iowa district_court granted them such a decree pursuant to the terms of the divorce settlement that settlement is considered to be a part of that decree 2the respective social_security numbers of jodi hanson and mr hanson appeared on the first page of the divorce settlement but have been redacted pursuant to rule a mr hanson and jodi hanson set forth in the divorce settlement their agreement regarding all their property rights interest and any and all claims of any kind or character which have arisen now exist or may hereafter arise between them because of their marriage relationship as pertinent here the divorce settlement provides that the care custody and control of the minor child zh born shall be jointly with the petitioner jodi hanson and the respondent mr hanson as defined in chapter code of iowa however pursuant to the divorce settlement the physical care of the child zh shall be with the petitioner jodi hanson subject_to reasonable visitation rights on the part of the respondent mr hanson pursuant to the divorce settlement mr hanson is required to make child_support payments for zh as follows the respondent shall pay child_support for said child through the union county clerk of court union county courthouse creston iowa zip in the sum of dollar_figure per month commencing date and continuing on the first day of each month thereafter pursuant to legal obligations for support as support is defined in the iowa code section the petitioner shall be awarded a judgment for any child_support which becomes due and remains due both parties shall file with the clerk of court or child_support recovery unit as appropriate an y up-to-date information on the location and identity of each party including social_security_number residence residential and mailing addresses telephone numbers driver’s license number name address and telephone of the party’s employer the information filed pursuant to this requirement with the clerk of court shall be made available to the child_support recovery unit upon request and to either party upon request but shall otherwise not be of public record the divorce settlement further provides that so long as the respondent mr hanson is current on child_support payments the respondent shall be entitled to claim zh as a dependent on his federal and state_income_tax returns during the year at issue mr hanson made all of the child_support payments for zh that the divorce settlement required on date petitioners filed form_1040 u s individual_income_tax_return for their taxable_year return in that return petitioners claimed a dependency_exemption deduction and a child_tax_credit with respect to zh petitioners included with their return a copy of the divorce settlement they did not include with their return form_8332 release of claim to exemption for child of divorced or separated parents form respondent issued to petitioners a notice_of_deficiency notice for their taxable_year in that notice respondent determined inter alia that petition- 3during certain other years mr hanson also made all of the child_support payments for zh that the divorce settlement required ers are not entitled to a dependency_exemption deduction or a child_tax_credit with respect to zh opinion petitioners have the burden of establishing that the determinations in the notice that remain at issue are wrong see rule a 290_us_111 claimed dependency_exemption deduction sec_151 provides that the exemptions provided by this section shall be allowed as deductions to a taxpayer sec_151 provides an exemption for each dependent of the taxpayer as defined in sec_152 sec_152 defines the term dependent to mean either a qualifying_child or a qualifying_relative petitioners concede that zh is not mr hanson’s qualifying_child as defined in sec_152 and do not claim that zh is a qualifying_relative of mr hanson as defined in sec_152 the sole argument in support of petitioners’ position that they are entitled for their taxable_year to a dependency_exemption deduction under sec_151 for zh is that pursuant to sec_152 they are entitled for that year to treat zh as mr hanson’s qualifying_child as pertinent here sec_152 prescribes special rules that permit provided certain conditions are satisfied the noncustodial parent4 to treat a child as that parent’s qualifying_child or as that parent’s qualifying_relative for a calendar_year and thus as the noncustodial parent’s dependent under sec_151 for a taxable_year beginning in that calendar_year the conditions that must be met in order for a noncustodial_parent to be entitled under sec_152 to treat a child as the noncustodial parent’s dependent include the following the custodial_parent must sign a written declaration in the manner and the form that the secretary_of_the_treasury may prescribe that the custodial_parent will not claim the child as a dependent for the taxable_year sec_152 and the noncustodial_parent must attach the custodial parent’s written declaration to the noncustodial parent’s return for the taxable_year sec_152 4the parties do not dispute that mr hanson is the noncustodial_parent for purposes of sec_152 5as pertinent here the following requirements in sec_152 also must be satisfied in order for the noncustodial_parent to treat a child pursuant to sec_152 as a qualifying_child under sec_152 or as a qualifying_relative under sec_152 the child must receive over one-half of the child’s support during the calendar_year from the child’s parents sec_152 the parents must be divorced and have lived apart at all times during the last six months of the calendar_year id and the child must be in the custody of one or both parents for more than one-half of the calendar_year sec_152 the parties do not disagree that these requirements of sec_152 are satisfied in this case the written declaration that sec_152 requires must be made on form_8332 or on a statement conforming to the substance of that form 114_tc_184 aff’d on another ground sub nom 293_f3d_1208 10th cir see sec_1_152-4t a q a-3 temporary income_tax regs fed reg date in order to qualify as a statement conforming to the substance of form_8332 a document must contain substantially the same information that form_8332 requires miller v commissioner t c pincite form_8332 requires the following the name of each child with respect to whom the custodial_parent is releasing such parent’s claim to a dependency_exemption the year or years for which an exemption claim is being released the signature of the custodial_parent confirming such parent’s consent to the release of his or her claim to a dependency_exemption the date of the custodial parent’s signature the social_security_number of the custodial_parent and the name and the social 6on brief respondent relies on sec_1_152-4 income_tax regs sec_1_152-4 income_tax regs which includes para e on which respondent relies applies to taxable years that began after date sec_1_152-4 income_tax regs and thus does not apply for petitioners’ taxable_year sec_1_152-4t a q a-4 temporary income_tax regs fed reg date provides that the exemption may be released for a single year for a number of specified years for example alternate years or for all future years as specified in the declaration security number of the noncustodial_parent claiming the dependency_exemption see id pincite petitioners did not attach form_8332 to their return instead they included with that return the divorce settlement we must decide whether the divorce settlement conforms to the substance of form_8332 it is petitioners’ position that it does respondent disagrees the only argument that respondent advances in support of respondent’s position that the divorce settlement does not conform to the substance of form_8332 is that that settlement does not contain an unconditional release of the custodial parent’s jodi hanson’s claim since the release is subject_to the payment of child_support by the noncustodial_parent petitioner david matthew hanson in advancing that argument respondent relies on the following provision in the divorce settlement so long as the respondent mr hanson is current on child_support payments the respondent shall be entitled to claim zh as a dependent on his federal and state_income_tax returns we agree with respondent that because of the sentence in the divorce settlement just quoted sentence in question the divorce settlement does not contain an unconditional release of the claim of jodi hanson the custodial_parent of zh for her taxable_year to a dependency_exemption for zh see armstrong v commissioner t c __ __ slip op pincite date gessic v commissioner tcmemo_2010_88 thomas v commissioner tcmemo_2010_11 the condition in the sentence in question suggests that mr hanson’s compliance with his support obligations regarding zh may vary from year to year and as a result his entitlement to a dependency_exemption deduction for zh also may vary from year to year the conditional language in the sentence in question gives rise to an ambiguity regarding the taxable_year or years with respect to which jodi hanson was releasing her claim to a dependency_exemption for zh that is because the sentence in question provides that her release of that claim is contingent on the fulfillment by mr hanson of the condition set forth in that sentence see armstrong v commissioner supra at __ slip op pincite gessic v commissioner tcmemo_2010_88 on the record before us we find that the divorce settlement does not conform to the substance of form_8332 on that record we further find that the divorce settlement does not constitute a written declaration under section 8although we have found that during mr hanson made all of the child_support payments for zh that the divorce settlement required it would be unreasonable to expect respondent to police divorce decrees divorce agree- ments and separation agreements and to determine taxpayer compliance with the provisions thereof see armstrong v commissioner t c __ __ slip op pincite date gessic v commissioner tcmemo_2010_88 e a and that petitioners did not comply with sec_152 on the record before us we find that petitioners have failed to carry their burden of establishing that pursuant to sec_152 and they are entitled for their taxable_year to treat zh as mr hanson’s qualifying_child based upon our examination of the entire record before us we find that petitioners have failed to carry their burden of establishing that they are entitled for their taxable_year to a dependency_exemption deduction under sec_151 for zh claimed child_tax_credit sec_24 provides a credit with respect to each qualifying_child of the taxpayer as pertinent here sec_24 defines the term qualifying_child as a qualifying_child of the taxpayer as defined in sec_152 who has not attained age petitioners concede that zh is not a qualifying_child of mr hanson as defined in sec_152 we have found that petitioners have failed to carry their burden of establishing that pursuant to sec_152 and they are entitled for their taxable_year to treat zh as mr hanson’s qualifying_child based upon our examination of the entire record before us we find that petitioners have failed to carry their burden of establishing that they are entitled for their taxable_year to a child_tax_credit under sec_24 with respect to zh we have considered all of petitioners’ contentions and arguments that are not discussed herein and we find them to be without merit irrelevant and or moot to reflect the foregoing and the concessions of respondent decision will be entered under rule


internal_revenue_service number release date index number 6050s ---------------------- ----------------------------------- -------------------------- ---------------------------------------- in re department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- telephone number ------------------- refer reply to cc pa apjp plr-154351-04 date date ------- ----------------------- ------------------------------- ----------------------- ------------------------------ ---------------------- -------------------------------- legend university academic year ------------------------------------------------------------------------------------------ calendar_year dear --------------- this letter responds to your request for a private_letter_ruling dated date submitted on behalf of your client university specifically you request a ruling that under sec_6050s of the internal_revenue_code code for calendar_year university may report amounts billed during calendar_year for qualified_tuition_and_related_expenses qualified expenses based on an annual bill that includes charges for qualified expenses for academic year as well as other_amounts previously billed during calendar_year the ruling contained in this letter is based upon information submitted by university under penalty of perjury and representations made by university based on the initial and supplemental submissions the facts are as follows facts university is an eligible_educational_institution institution as defined in sec_25a of the code that enrolls students in undergraduate and graduate programs university’s academic periods are based on quarter and semester terms plr-154351-04 students register for each upcoming term before the beginning of the term during the registration period university represents that it considers a student to be enrolled for each academic period when the student registers for classes for each term at the time of the initial letter_ruling submission university billed its students at the beginning of each term for the qualified expenses for that term supplemental information indicates that university now bills full-time students who are enrolled in an undergraduate program for academic year in the fall of calendar_year because university charges a flat tuition fee for full-time undergraduate students who register for a minimum of credit hours to a maximum of credit hours in a term university can calculate an annual bill based on the student’s elected curriculum and full-time undergraduate status the annual bill includes charges for tuition fees and room and board for academic year the bill also reflects university grants federal grants scholarships and loans payment for the net amount owed for academic year is due by the beginning of the fall term students may elect to make payments in installments under an installment_plan agreement after the initial bill university sends monthly statements reflecting any payments or adjustments to the students’ financial_account payment for any increase in charges reflected on a subsequent billing statement is due at the beginning of the following month requested ruling whether under sec_6050s of the code for calendar_year university may report amounts billed during calendar_year for charges of qualified expenses that relate to academic year as well as other_amounts previously billed during calendar_year authority sec_6050s of the code requires any eligible_educational_institution that enrolls any individual for any academic period to file information returns described in sec_6050s with the internal_revenue_service service and to furnish information statements described in sec_6050 to students sec_6050s of the code provides in part that the return must contain the name address and taxpayer_identification_number of any individual who is or has been enrolled at the institution and for whom a transactions described in sec_6050s is made during the calendar_year sec_6050s provides that the return must contain either the aggregate amount of payments received or the aggregate amount billed for qualified expenses with respect to the individual described in sec_6050s during the calendar_year the income_tax regulations regulations provides guidance on the information reporting requirements for qualified expenses specifically sec_1_6050s-1 plr-154351-04 provides that any eligible_educational_institution that enrolls as determined under sec_1_6050s-1 any individual for any academic period as defined in the regulations under sec_25a must file an information_return described in sec_1_6050s-1 with the service with respect to each individual described in sec_1_6050s-1 and must furnish a statement as described in sec_1_6050s-1 to the individual sec_1_6050s-1 of the regulations provides the reporting requirements for institutions that elect the billed method of reporting for qualified expenses in general an institution reporting amounts billed for qualified expenses must file an information_return on form 1098-t tuition statement for each individual enrolled as determined in sec_1_6050s-1 for an academic period beginning during the calendar_year or during a prior calendar_year and for whom a transaction described in sec_1_6050s-1 e f or g is made during the calendar_year sec_1_6050s-1 of the regulations provides that an institution reporting amounts billed must include on form 1098-t the amount billed for qualified expenses with respect to the individual during the calendar_year sec_1_6050s-1 provides that an institution must include on form 1098-t an indication whether amounts billed for qualified expenses reported for the calendar_year relate to an academic period that begins during the first three months of the next calendar_year sec_1_6050s-1 of the regulations provides that an institution may determine its enrollment for each academic period under its own rules and policies for determining enrollment or as of any of the following dates days after the first day of the academic period a date during the academic period on which enrollment data must be collected for purposes of the integrated post secondary education data system administered by the department of education or a date during the academic period on which the institution must report enrollment data to the state the institution’s governing body or some other external governing body sec_25a of the code provides the requirements for the education tax_credit in general sec_25a allows an individual taxpayer to claim an education tax_credit for amounts of qualified expenses paid during the calendar_year for an academic period beginning during the calendar_year or during the first three months of the following calendar_year sec_1_25a-2 of the regulations defines an academic period to mean a quarter semester trimester or other period of study as reasonably determined by an eligible_educational_institution analysis in general sec_6050s of the code and the regulations require an institution that enrolls any individual for any academic period to file a form 1098-t and furnish an plr-154351-04 information statement reporting either the aggregate amount of payments received or the aggregate amount billed for qualified expenses during the calendar_year with respect to an individual who is enrolled at the institution during the calendar_year or has been enrolled during a prior calendar_year sec_1_6050s-1 example i illustrates the rules in sec_1_6050s-1 the example provides that in early date university x bills enrolled student a dollar_figure for qualified expenses and dollar_figure for room and board for the fall semester in late date student a pays dollar_figure to university x in early date student a drops to half-time enrollment for the fall semester in late date university x adjusts student a’s account and reduces the charges for qualified expenses by dollar_figure to reflect half-time enrollment in late date university x applies the dollar_figure account balance toward current charges in addition in early date college x bills student a dollar_figure for qualified expenses and dollar_figure for room and board for the spring semester the example concludes that college x is required to report dollar_figure amounts billed for qualified expenses during dollar_figure for the fall semester and dollar_figure for the spring semester in addition college x is required to indicate that a portion of the amounts billed for qualified expenses reported for relate to an academic period that begins during the first three months of the next calendar_year the example illustrates that under sec_6050s an institution that enrolls a student for an academic period fall semester beginning during the calendar_year must file an information_return that includes the aggregate amounts billed during the calendar_year in the present case under university’s annual billing system full-time students in the undergraduate program will be enrolled for the fall term during calendar_year university must file a form 1098-t for each individual enrolled for an academic period beginning during calendar_year and must report the aggregate amounts billed during calendar_year with respect to the individual accordingly under sec_6050s of the code and the regulations for calendar_year university may report the amounts billed during calendar_year for qualified expenses that relate to academic year as well as other_amounts previously billed during calendar_year although the service expresses no formal opinion as to whether an individual taxpayer would be allowed an education tax_credit under sec_25a of the code for amounts paid under the annual billing system the service notes that the annual billing system may create undesirable results for individuals seeking to claim an education tax_credit under the annual billing system an individual may pay tuition in calendar_year for an academic period that begins after march of the following calendar_year the form 1098-t will not alert taxpayers to this possibility because sec_1_6050s-1 of the regulations requires institutions to indicate on form 1098-t that amounts billed relate to academic periods beginning january through march of the following year and not academic periods beginning after march plr-154351-04 the service suggests that university consider alerting individuals to the fact that amounts reported on the form 1098-t may relate to an academic period beginning after march of the following calendar_year and that in general the education tax_credit is allowed for amounts of qualified expenses paid during the calendar_year only for an academic period beginning during the calendar_year or during january through march of the following calendar_year conclusion accordingly under sec_6050s of the code and the regulations for calendar_year university must file forms 1098-t for students enrolled for an academic period beginning during calendar_year and may include amounts billed during calendar_year for qualified expenses that relate to academic year as well as other_amounts previously billed during calendar_year this ruling is directed only to the person requesting it sec_6110 of the code provides that it may not be used or cited as precedent if you have questions please contact sincerely assistant chief_counsel administrative provisions judicial practice by donna welch senior counsel administrative provisions judicial practice procedure administration


t c memo united_states tax_court union ganadera regional de chihuahua inc petitioner v commissioner of internal revenue respondent docket no filed date blizabeth a copeland and stanley l blend for petitioner blizabeth a owen for respondent memorandum findings_of_fact and opinion jacobs judge respondent made the following determinations which petitioner contests -- - re federal_income_tax deficiencies year deficiency dollar_figure big_number re deficiencies for withholding of income_tax at source and additions to tax withholding additions to tax_year deficiency sec_6651 a sec_6656 dollar_figure dollar_figure dollar_figure big_number big_number big_number all section references are to the internal_revenue_code the code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure following a concession by each party we must decide whether petitioner a u s_corporation that owned and operated a cattle- crossing facility on the united_states u s side of the u s - mexican border is entitled to deduct amounts paid to its mexican parent company in and with respect to costs incurred by the parent company for inspection and bathing of cattle crossing the border if we conclude that the amounts are not deductible then we must decide whether petitioner’s payments to its parent company constitute dividend payments for which petitioner was required to withhold percent pursuant to sec_1442 whether petitioner was regquired to file federal withholding_tax returns form sec_1042 annual withholding_tax return for u s source income of foreign persons for and and whether petitioner is liable for additions to tax pursuant to sections - - a and with regard to the withholding of income_tax at source findings_of_fact some of the facts have been stipulated and are so found the stipulations of facts and the attached exhibits are incorporated herein by this reference background union ganadera regional de chihuahua union mexico was a mexican nonprofit agricultural_cooperative established in it was organized to assist its members namely individual cattle associations totaling approximately big_number mexican cattle ranchers in the crossing of cattle from mexico into the united_states and vice versa union mexico was the parent company of union ganadera regional de chihuahua inc petitioner a new mexico corporation organized in at all relevant times petitioner maintained its principal_place_of_business in santa teresa new mexico petitioner assisted union mexico in the crossing of cattle over the u s -mexican border it employed eight individuals in conducting its cattle-crossing activities on the u s side of the border whereas union mexico employed individuals in conducting its cattle-crossing activities on the mexican side of the border - - the cattle export import business prior to the establishment of petitioner’s facilities union mexico owned three cattle-crossing facilities in the state of chihuahua mexico ciudad juarez ojinaga and palomas ’ at each of these facilities cattle were inspected and bathed to rid the cattle of parasites bathing before crossing into the united_states before petitioner was incorporated union mexico did not own any cattle-crossing facilities in the united_states rather cattle crossed into the united_states from mexico by way of unrelated privately owned u s stockyards ’ union mexico organized petitioner to own and operate a cattle- crossing facility the santa teresa facility on the u s side of the u s -mexican border directly across the border from its san jeronimo facility the santa teresa facility was located in santa at the time of trial only the ojinaga and palomas facilities operated kattle kare inc operated by butch stevens owned a stockyard in columbus new mexico directly across the u s border from union mexico’s palomas facility prior to the construction of the san jeronimo santa teresa facility the palomas columbus cattle crossing was the predominant u s -mexican cattle crossing during the years in issue kattle kare inc charged dollar_figure per head of cattle for crossing the border and day of boarding including hay for day in addition several privately owned corrals existed with respect to the ojinaga facility used to house the livestock on the u s side of the border - - teresa new mexico just outside the city limits of el paso texas it began its cattle-crossing operations in the combined cattle-crossing facilities at san jeronimo and santa teresa were integrated facilities consisting of acres that straddle the u s -mexican border petitioner owned percent of the total acreage at santa teresa and union mexico owned percent at san jeronimo to cross the u s -mexican border cattle walked approximately feet from the san jeronimo facility in mexico to the santa teresa facility in the united_states the santa teresa facility together with the san jeronimo facility provided efficiencies of scale for crossing cattle over the u s -mexican border by providing an integrated cattle- crossing location improved the guality of the u s facilities that receive mexican cattle reduced theft stress and weight loss of the cattle and reduced union mexico’s losses in exporting cattle the san jeronimo facility included a building with bathing facilities cattle pens weighing facilities and offices it housed union mexico’s cattle-crossing operations and provided office space for u s department of agriculture usda inspectors and their mexican counterparts at this location union mexico coordinated the receipt of cattle from the trucks the holding and feeding of cattle the weighing of cattle the inspection of cattle the bathing of cattle and the -- - corralling of cattle acceptable for export to the united_states the santa teresa facility included a building sorting and weighing facilities and cattle pens petitioner accepted the usda-approved cattle from the san jeronimo facility and sorted and temporarily housed the cattle until a u s purchaser arrived usually this occurred within hours or less union mexico provided all of petitioner’s electricity and water the cattle generally spent to hours at the san jeronimo facility and hours at the santa teresa facility before the cattle left petitioner’s facility a customs broker an independent_contractor unrelated to petitioner or union mexico collected fees from the mexican rancher seller including a dollar_figure fee for each head of cattle that crossed through the facility thereafter the the operations at the san jeronimo santa teresa facilities were as follows a mexican rancher delivered his cattle to one or more of the eight unloading docks at the san jeronimo facility at a scheduled date the cattle were counted weighed and then housed fed and watered the cattle rested for to hours union mexico’s employees thereafter herded the cattle into inspection chutes where usda inspectors and their mexican counterparts inspected the livestock rejected cattle remained in mexico union mexico provided offices water and electricity free of charge to the usda and mexican inspectors the usda-approved cattle were herded out of the inspection chutes into bathing pools where the cattle were dipped fully in chemicals and sent to clean holding pens after the cattle were dried they were moved through the mexican corrals and herded on foot approximately feet to petitioner’s santa teresa facility here the cattle were herded through chutes reweighed and housed in feeding watering pens and finally the cattle were loaded onto trucks for shipment to the u s buyer - customs broker remitted the dollar_figure per head of cattle fee to petitioner this fee also included the cost of necessary paperwork and feed for day if the cattle remained overnight petitioner charged an additional dollar_figure fee for each bale of hay consumed petitioner agreed to pay union mexico dollar_figure of the dollar_figure per head of cattle fee as petitioner’s share of the water electrical inspection and bathing expenses this dollar_figure per head of cattle fee was determined by estimating the costs union mexico incurred in connection with crossing the cattle into the santa teresa facility from the san jeronimo facility and allocating one-half of these costs to petitioner the financial arrangement between petitioner and union mexico was set forth in a date contract’ the contract in relevant part states first --union ganadera regional de chihuahua as the party in charge of facilitating the export of cattle to the united_states is obligated to program deliveries of cattle through the san jeronimo installations so that said cattle reach the stockyards of union ganadera regional de chihuahua inc in santa teresa second --union ganadera regional de chihuahua is also obligated to provide union ganadera regional de chihuahua inc various services that are necessary its sic effective operation and that are described as follows water by means of extraction and pumping from a well located on the property of union ganadera regional de chihuahua that will be delivered to the piping to union ganadera regional de chihuahua inc at the north american border electrical energy through adequate technical connections located in the installations of union ganadera regional de chihuahua inc’s at the north american border sanitary continued petitioner's federal_income_tax returns and the notices of deficiency on its form 1120x amended u s_corporation income_tax return petitioner claimed a dollar_figure deduction for amounts it paid to union mexico respondent disallowed that portion of the claimed deduction totaling dollar_figure that related to payment for inspection and bathing costs but allowed that portion relating to union mexico’s furnishing of water and electricity to petitioner continued inspection and parasitical bath required by the governments of both countries for the exportation of cattle for the cattle that are exported to santa teresa to be performed by its personnel in its installations at san jeronimo third --as payment for the referenced services union ganadera regional de chihuahua inc is obligated to pay union ganadera regional de chihuahua the amount established by both parties as annexed to this agreement for each head of cattle that is exported through the sanitary unit at san jeronimo to the stockyeards sic at santa teresa the attachment to the contract states as follows in conformity with the third clause of the contract both parties agree on a charge of ussdollar_figure one dollar and fifty cents per head of cattle that crosses from the sanitary unit at san jeronimo to the stockyards at santa teresa new mexico --- - subsequently respondent reduced the disallowed amount to dollar_figure to reflect an additional allowance of dollar_figure for water and electricity costs on its form_1120 u s_corporation income_tax return petitioner claimed a dollar_figure deduction for amounts it paid to union mexico respondent again disallowed that portion totaling dollar_figure that related to payment for inspection and bathing costs respondent disallowed the payment for inspection and bathing costs on the basis that the costs for these expenses were not properly allocable to petitioner but rather were those of union mexico as a consequence of this determination respondent characterized petitioner’s payments to union mexico as constructive dividends representing a distribution of petitioner’s earnings_and_profits to its foreign parent company respondent further determined that petitioner should have withheld income_tax at the source pursuant to sec_1442 with respect to purported dividends dollar_figure for and dollar_figure for for the following summarizes the processing fees adjustment total processing fees claimed inspection bathing water and electricity dollar_figure processing fees allowed water big_number blectric big_number processing fees disallowed inspection bathing big_number additional allowance water and electric big_number disallowance big_number - lo - thus respondent determined withholding deficiencies of dollar_figure for and dollar_figure for lastly respondent determined that petitioner was liable for sec_6651 and sec_6656 additions to tax ultimate findings_of_fact the amount petitioner paid union mexico with respect to the costs for inspection and bathing of cattle was an ordinary and necessary sec_162 expense opinion our task is to decide whether petitioner is entitled to deduct the payments it made to union mexico for costs of inspection and bathing of cattle crossing into the united_states at petitioner’s santa teresa facility from mexico petitioner maintains that these payments were ordinary and necessary business_expenses respondent disagrees and further argues that the disallowed fees represented disguised dividends_paid by petitioner to its sole shareholder respondent further maintains that inasmuch as the inspection and bathing processes occurred at union mexico’s san jeronimo facility prior to the cattle crossing into the united_states the fees for these expenses insofar as petitioner is concerned are neither customary nor appropriate the applicable code provision is sec_162 which provides that there shall be allowed as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business the test for determining whether an expense is ordinary and necessary is whether a hard-headed businessperson under the circumstances would have incurred the expense see eg 481_f2d_872 2d cir affg tcmemo_1972_177 because of the relationship between petitioner and union mexico the expenses at issue are subject_to close scrutiny see 308_us_473 in the case at bar the record reflects that petitioner reimbursed union mexico for its share of the inspection and bathing expenses and not for any nefarious reason petitioner’s and union mexico’s businesses were directly linked the inspection and bathing expenses were shared business-related expenses and petitioner and union mexico benefited equally from the inspection and bathing functions carried out by union mexico the benefits derived from the inspection and bathing of cattle ensured the continued viability of petitioner’s cattle-crossing business thus we are satisfied that the entire amount petitioner paid to union mexico constituted an ordinary and necessary business_expense the inspection and bathing of cattle on the mexican side of the border was required before petitioner could import the cattle into the united_states petitioner’s revenues were based on the flow of usda-approved cattle originating in mexico to u s buyers the parties agree that sec_482 is not at issue we reject respondent’s argument that the costs union mexico incurred for inspection and bathing of the cattle are strictly union mexico expenses which should not be passed on to petitioner the cattle-crossing operation was an integrated operation petitioner paid union mexico the disputed fees for its share of the expenses_incurred to perform necessary activities in the ordinary course of its business to conclude the expenses at issue were critical and indispensable to petitioner's business and therefore were ordinary and necessary business_expenses accordingly we hold that the expenses relating to the costs of inspection and bathing of cattle in mexico were properly deductible as ordinary and necessary business_expenses and did not constitute constructive dividends because of this holding the remaining issues go by the wayside in reaching our holding we have considered all of the arguments presented and to the extent not discussed above find them to be irrelevant or without merit to reflect the foregoing and the parties’ concessions decision will be entered under rule


internal_revenue_service number release date index number ------------------------------------- ------------------------------------------------- ------------------------------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-133265-10 date date legend x y z a state date date date ------------------------------------------------- ------ ---------------- ------------------------------------------ ------ ---------------- ------------------------------ ----------------------- ----------------------- ------------------------ ------------------- ------------------- ------------------- -------------------- dear ---------------- this responds to a letter dated date and additional correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in state on date x made an election to be treated as an s_corporation effective date x’s election was inadvertently terminated effective date when y and z both ineligible shareholders plr-133265-10 each acquired x stock in exchange for capital contributions prior to date a was the sole shareholder of x on date y and z entered into a redemption agreement with x and as a result a became the sole shareholder of x x represents that the termination was not motivated by tax_avoidance or retroactive tax planning x and its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that the termination of x’s s_corporation_election on date was inadvertent within the meaning of sec_1362 we further hold that pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided x’s s_corporation_election was valid and provided that the election was not otherwise terminated under sec_1361 this ruling is conditioned upon the shareholders of x including in income their pro_rata share of the separately_stated and nonseparately computed items of x as provided in sec_1366 making any adjustments to basis as provided in sec_1367 and taking into account any distributions made by x as provided in sec_1368 if x or its shareholders fail to treat themselves as described above this letter_ruling shall be null and void except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent plr-133265-10 pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely charlotte chyr senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court keith and dinah m freese petitioners v commissioner of internal revenue respondent docket no 29452-07s filed date keith and dinah m freese pro sese lisa r woods for respondent swift 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 dollar_figure deficiency in petitioners’ federal_income_tax for the issue for decision is whether petitioners’ gambling activity qualifies as a trade_or_business unless otherwise indicated section references are to the internal_revenue_code in effect for the year in issue background some of the facts have been stipulated and are so found petitioners resided in minnesota over the years including petitioners have been employed full time as employees--petitioner dinah freese in a paper manufacturing plant and petitioner keith freese as a cabinetmaker petitioner keith freese was also self-employed as a cabinetmaker conducting that activity out of his home and garage in because of health problems that prevented petitioners from participating in outdoor recreational activities petitioners began gambling together at a casino on an indian_reservation petitioners gambled one or two evenings a week and only on slot machines petitioners gambled with cash that they either brought with them from home or obtained at the casino by writing personal checks or by withdrawing cash from an atm petitioners did not keep a log of the cash gambled or the time spent gambling petitioners did not maintain a separate bank account did not maintain books_and_records and did not otherwise keep track of their gambling income and expenses petitioners did not maintain any meaningful records relating to their gambling activity each time each petitioner won a slot machine jackpot of dollar_figure or more petitioners received from the casino a record thereof on form w-2g certain gambling winnings and petitioners did keep copies of these forms petitioners occasionally used player cards given to them by the casino which if inserted into slot machines enabled the casino to keep track of petitioners’ gambling activity petitioners however did not consistently use the player cards when they gambled because petitioners believed that using player cards enabled the casino to skew against them the winning odds on the slot machines casino printouts in evidence showing petitioners’ gambling activity for are incomplete and do not accurately reflect all of petitioners’ gambling activity as indicated petitioners kept no record of the amount of cash they put into slot machines and there are no records available of petitioners’ slot machine winnings in amounts less that dollar_figure for which petitioners did not use player cards petitioners state that their gambling activity every year is pretty much a wash on their federal_income_tax returns for through petitioners did not treat themselves as professional gamblers and they did not report their gambling income and expenses as a trade_or_business on a schedule c profit or loss from business rather petitioners reported income relating to their gambling activity as other income on the first page of their federal_income_tax returns and they reported gambling expenses on schedule a itemized_deductions to prepare their federal and state_income_tax returns however petitioners hired jerome marshik jerome a tax_return_preparer and certified_public_accountant who practices in minnesota in connection with the preparation of petitioners’ federal_income_tax return jerome did not ask for and petitioners did not provide jerome any casino records or other underlying records relating to their gambling activity jerome asked for and petitioners provided him only an estimated total dollar amount for their slot machine jackpots of dollar_figure or more as reflected on the forms w-2g which petitioners received from the casino jerome did not ask for and petitioners did not provide him any amount for slot machine gambling income not involving jackpots of dollar_figure or more with regard to gambling expenses jerome asked for and petitioners gave him only an estimated total dollar amount for their gambling expenses petitioners calculated that amount by adding up the checks they wrote to the casino in for cash and their atm cash withdrawals the total expense amount petitioners gave to jerome did not include cash that petitioners brought with them from home and played at the slot machines jerome advised petitioners that to avoid the cap on the deduction of gambling expenses that would apply if gambling expenses were reported on a schedule a petitioners could report their gambling activity as that of a trade_or_business petitioners’ federal_income_tax return as filed with respondent reported petitioners’ gambling activity on two schedules c one for each petitioner on her schedule c for dinah freese reported gambling income of dollar_figure gambling expenses of dollar_figure and a net_income of dollar_figure jerome marshik also erroneously advised petitioners that he should not attend the trial herein because he would not be allowed to testify relying on that erroneous advice petitioners did not ask jerome to attend the trial and to be a witness on his schedule c keith freese reported gambling income of dollar_figure gambling expenses of dollar_figure and a net_loss of dollar_figure during respondent’s audit petitioners requested and obtained from the casino a list of slot machine jackpots petitioners won during and petitioners provided that list to respondent on audit respondent determined that each petitioner’s gambling activity did not rise to the level of a trade_or_business and respondent moved petitioners’ gambling income from the schedules c to other income and petitioners’ gambling expenses to a schedule a and respondent disallowed any gambling expenses greater than petitioners’ gambling income discussion petitioners’ gambling activity in clearly did not qualify as a trade_or_business petitioners did not gamble with continuity and regularity petitioners regarded their gambling activity as recreation they shared and petitioners did not expect to earn a profit from gambling petitioners did not maintain books_and_records relating to their gambling activity they did not conduct their gambling activity in a businesslike manner see 480_us_23 sec_1_183-2 income_tax regs petitioners’ gambling activity did not rise to the level of a trade_or_business and petitioners are not allowed to deduct gambling expenses in excess of gambling income we sustain respondent’s adjustments to petitioners’ gambling income and expenses decision will be entered for respondent