internal_revenue_service number release date index number ------------------- ------------------------------ ------------------------------------------------ ------------------------------- ----------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------- telephone number -------------------- refer reply to cc corp b03 plr-134084-06 date september ----------------------- -------------------------- ---------------------------- ------------------------------------- -------------------------------------------------- legend legend parent ----------------------------------------------------------- subsidiary ----------------------------------------------------------- date date date date company official ------------------------------------------------------------------ ------------------------------------------------------------------------------------ tax professional ---------------------------------------------- ---------------------------------------------------------------------------- dear -------------- this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election the original letter was -------------------------- --------------------- --------------------- plr-134084-06 supplemented by a letter dated date parent is requesting an extension to elect under sec_1_1502-75 of the income_tax regulations to file a consolidated federal_income_tax return with subsidiary the election effective for the taxable_year ending date taxable_year the material information is summarized below on date parent formed subsidiary as a wholly owned llc and parent still wholly owned subsidiary throughout taxable_year it is assumed for purposes of this ruling letter that subsidiary is classified as a corporation and is otherwise an includible member_of_an_affiliated_group an election under sec_1_1502-75 for the parent affiliated_group to file a consolidated federal_income_tax return for taxable_year was due on date however the election was not timely filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 for parent's or subsidiary's taxable_year for which it desires to make the election or for any taxable years that would be affected by the election had it been timely filed has not expired nor will expire until at least date parent has represented that the filing of a consolidated_return will not impact the tax_liability in the aggregate for parent and subsidiary for taxable_year sec_1_1502-75 provides that a group that did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation that has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents to the regulations under sec_1502 if a group wishes to exercise its privilege of filing a consolidated_return such consolidated_return must be filed not later than the last day prescribed by law including extensions of time for filing the common parent's return under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 plr-134084-06 in this case the time for filing the election is fixed by the regulations ie sec_1 a therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent shows it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent tax professional and company official explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the interests of the government will not be prejudiced if relief is granted see sec_301 b v based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent to file the election for taxable_year parent and subsidiary must amend their previously filed returns and attach a copy of this letter alternatively if parent and subsidiary file their return electronically this requirement to attach a copy of this letter may be satisfied by attaching to the return a statement that provides the date and control number of the letter_ruling the above extension of time is conditioned on the parent group's tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers' parent and subsidiary tax_liability for the years involved a determination thereof will be made by the appropriate office of the service upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers' tax_liability is lower sec_301_9100-3 we express no opinion as to whether in fact parent and subsidiary qualify substantively to file a consolidated_return in addition we express no opinion as to the tax consequences of filing the election and or return late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election and or return late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayers and their representatives the director should however verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to plr-134084-06 file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely _____________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


t c memo united_states tax_court matti kosonen petitioner v commissioner of internal revenue respondent docket no filed date andrew i panken and robert a devellis for petitioner carmino j santaniello bradford a johnson gerald a thorpe and frances regan for respondent memorandum opinion colvin judge respondent determined that petitioner is liable for deficiencies in income_tax of dollar_figure for and dollar_figure for the issue for decision is whether as petitioner contends petitioner elected under sec_469 to treat his seven - - rental_real_estate_activities as one activity for and we hold that he did not section references are to the internal_revenue_code in effect during the years in issue rule references are to the tax_court rules_of_practice and procedure background the parties submitted this case fully stipulated under rule a petitioner petitioner lived in stamford connecticut when he filed his petition he was a pilot for united airlines in and he worked hours for united airlines in and hours in b petitioner’s rental_real_estate_activities in and petitioner owned seven single and two- family residential properties that he rented to others the seven properties six of the seven properties are in stamford connecticut and one is in st petersburg florida petitioner bought six of the properties from to and the seventh on date petitioner performed hours_of_service relating to his real_estate rentals in and hours_of_service in he did not use any of the seven properties for personal purposes in or - - petitioner had passive losses from six of the properties before as of date he had suspended losses ie losses which he could not deduct totaling dollar_figure from his seven properties c proposed regulation on date the secretary proposed a regulation which stated that a taxpayer may make an election under sec_469 by filing a statement with the taxpayer’s original return in which the taxpayer declares that he or she is a qualifying taxpayer for the taxable_year and that the election is under sec_469 a see sec_1_469-9 proposed income_tax regs fed reg date ' sec_1_469-9 proposed income_tax regs fed reg date provides in pertinent part as follows g election to treat all interests in rental real_estate as a single rental real_estate activity-- in general a qualifying taxpayer may make an election to treat all of the taxpayer’s interests in rental real_estate as a single rental real_estate activity this election is binding for the taxable_year in which it is made and for all future years in which the taxpayer is a qualifying taxpayer however if there is a material_change in a taxpayer’s facts and circumstances the taxpayer may revoke the election using the procedure described in paragraph g of this section filing a statement to make or revoke the election a qualifying taxpayer makes the election to treat all interests in rental real_estate as a single rental real_estate activity by filing a statement with continued - - d petitioner’s income_tax return sec_1 preparation john l berry associates prepared petitioner’s and income_tax returns in date john l berry berry contacted the technical support department for commerce clearing house cch to ask how a real_estate_professional can elect to treat all of his or her real_estate interests as one activity the record does not state how cch answered berry’s question petitioner timely filed his return petitioner’s form_1040 schedule ek forms and statements in support of forms a petitioner’s form_1040 and schedule e the instructions for the form_1040 u s individual_income_tax_return and schedules a b c d e f and se the instructions direct a taxpayer to list on schedule e supplemental income and loss each rental property report the income and loss for each property calculate the net gain_or_loss for each property and report the combined net gains and losses on line of form_1040 continued the taxpayer’s original income_tax return for the taxable_year this statement must contain a declaration that the taxpayer is a qualifying taxpayer for the taxable_year and is making the election pursuant to sec_469 a the taxpayer may make this election for any taxable_year in which sec_469 1s applicable - - petitioner reported losses of dollar_figure on line of the schedule e that he attached to his income_tax return and on line rental real_estate income or loss on his federal_income_tax return he subtracted dollar_figure from his other income to calculate his adjusted_gross_income for petitioner attached three first pages and one second page of schedule e to his income_tax return he reported the income and expenses for six of his rental properties on two of the first pages three on each and income and expenses for the seventh rental property and totals for the seven rental properties on the third first page petitioner reported the following on line sec_22 and sec_23 of his schedule e line line income deductible property or loss loss cold springs dollar_figure dollar_figure cold springs big_number big_number hamilton big_number big_number cold spring big_number big_number lst st big_number big_number belltown big_number big_number lawn big_number big_number the explanation for line of the schedule e instructs taxpayers to add positive amounts shown on line but not to include any losses petitioner reported dollar_figure on line the explanation for line of the schedule e instructs taxpayers to enter the total amount of royalty losses from line and rental real_estate losses from line petitioner reported a dollar_figure loss on line - - the explanation for line on the schedule e instructs taxpayers to combine line sec_24 and sec_25 and enter the total amount of rental real_estate income or loss on line sec_26 and sec_40 on schedule e and on line on form_1040 petitioner reported a dollar_figure loss on line sec_26 and sec_40 the explanation for line on the schedule e instructs real_estate professionals to enter the net_income or loss they report anywhere on form_1040 from all rental_real_estate_activities in which they materially participate petitioner entered a dollar_figure loss on line of his schedule e b petitioner’s forms and supporting statements attached to his return petitioner attached to his income_tax return two forms passive_activity_loss limitations petitioner added alternative_minimum_tax to the top of his second form_8582 on the first form_8582 he reported dollar_figure for activities with net_income and dollar_figure as prior year unallowed losses for a net_loss of dollar_figure in part ii special allowance for rental real_estate with active_participation of the first form_8582 he reported that his modified_adjusted_gross_income exceeded dollar_figure in part iii total losses allowed of both forms he reported dollar_figure on line total income and line total losses allowed from all passive activities for petitioner attached to his income_tax return statements in support of the forms on statement form_8582 active - rental of real estate---worksheet petitioner reported net_income of dollar_figure no current net_loss for any property prior year unallowed loss of dollar_figure and a total overall loss of dollar_figure on statement form_8582 allocation of unallowed losses and on statement form_8582 allowed losses petitioner reported that his total loss and total unallowed loss was dollar_figure on statement form_8582 summary of passive activities petitioner reported that each rental property except for lawn avenue stamford connecticut had a passive gain_or_loss of zero that his prior years’ carryover after his current_year net rental_activity income was dollar_figure and that the total allowed losses for reported on form_8582 line was dollar_figure on statement form_8582 modified agi petitioner reported that his rental loss was dollar_figure petitioner attached no other statements or other information relating to his first form_8582 petitioner did not attach a statement to his return stating that he was electing to treat his real_estate activities as one activity he did not combine his schedule e rental real_estate losses with his previously suspended losses eb final regulations sec_1_469-9 income_tax regs providing how to make an election under sec_469 became final on december - - see t d 1996_1_cb_73 the final_regulation which is substantially like the proposed regulation is generally effective for taxable years beginning on or after date and is also effective for elections under sec_469 a and paragraph g of this regulation that are made with returns filed on or after date see t d c b pincite f petitioner’s and returns petitioner timely filed his return he reported the seven rental properties on his return as he had on his return petitioner attached a statement to his return indicating that he qualified as a real_estate_professional and elected to treat all of his rental_real_estate_activities as one activity under sec_469 discussion a passive_loss_rules for real_estate professionals the issue for decision is whether as petitioner contends petitioner elected for and to treat his seven rental_real_estate_activities as one activity under sec_469 a taxpayer may not deduct passive_activity_losses claimed by the taxpayer in any taxable_year see sec_469 a passive_activity_loss is the amount if any by which losses from all passive activities for a taxable_year exceed income from all --- - passive activities for that year see sec_469 a passive_activity is a trade_or_business in which the taxpayer does not materially participate see sec_469 rental activities are automatically passive per se passive see sec_469 whether or not the taxpayer materially participates in the activity see sec_469 however rental activities are not per se passive in taxable years beginning after date for taxpayers in the real_property business real_estate professionals see sec_469 respondent determined but no longer contends that petitioner is not a real_estate_professional under sec_469 b we treat that as respondent’s concession that sec_469 applies to petitioner for the years in issue if sec_469 applies each interest of the taxpayer in rental real_estate is treated as a separate activity for purposes of sec_469 unless the taxpayer elects to treat all sec_469 became effective for taxable years beginning after date see omnibus_budget_reconciliation_act_of_1993 publaw_103_66 sec a c 107_stat_312 petitioner said in his opening brief that respondent conceded that petitioner is a real_estate_professional for purposes of sec_469 respondent did not address that issue in the reply brief and we treat it as conceded by respondent see 82_tc_546 n affd 774_f2d_644 4th cir wolf v commissioner tcmemo_1992_432 affd 13_f3d_189 6th cir - interests in rental real_estate as one activity see sec_469 a and flush language of sec_469 petitioner may deduct the net losses from his rental_real_estate_activities in and if as he contends he elected in to treat them as one activity under sec_469 b whether petitioner materially participated in any of the seven rental_real_estate_activities petitioner contends in the petition that he materially participated in each of his rental_real_estate_activities however petitioner did not so contend on brief we deem that issue to be waived see 82_tc_546 n affd 774_f2d_644 4th cir wolf v commissioner tcmemo_1992_432 affd 13_f3d_189 6th cir even if petitioner contended that he materially participated in each of his rental_real_estate_activities the record does not show that he did so an individual taxpayer materially participates in an activity if a he or she participates more than hours during the year b his or her participation is substantially_all of the participation of individuals in that activity for the year c he or she participates more than hours and that participation equals the participation of all other individuals during the year d the activity is a significant participation activity’ and his or her aggregate participation in all significant participation activities for the year exceeds hours e he or she materially participates for out of years immediately preceding the present year f the activity is a personal_service_activity and he or she materially participated for any years preceding the present year or 9g he or she participated on a regular continuous and substantial basis during the year see sec_1_469-5t temporary income_tax regs fed reg date petitioner spent a total of hours on his seven real_estate rental activities but there is no evidence of how many hours he spent on any specific rental property for any year respondent concedes that petitioner materially participated in his rental_real_estate_activities if they are treated as one activity thus respondent concedes that petitioner may deduct a significant_participation_activity is one in which the taxpayer participates for more than hours but does not materially participate under one of the other six tests see sec_1_469-5t and temporary income_tax regs fed reg date thus for an activity to be a significant_participation_activity the taxpayer must have more than hours of participation must have less than hours of participation because participation greater than hours would meet the test in sec_1_469-5t temporary income_tax regs fed reg date and must not be the individual with the most participation in the activity because a person with the most participation in the activity if greater than hours meets the test in sec_1_469-5t temporary income_tax regs fed reg date his rental losses if he elected under sec_469 to treat his rental_real_estate_activities as one activity c whether petitioner eflected on his income_tax return to treat his rental_real_estate_activities as one activity whether aggregating net losses from schedule eb on line of form_1040 is an election under sec_469 petitioner contends that the fact that he aggregated his losses from his rental_real_estate_activities on his tax returns for and shows that he elected under sec_469 c to treat them as one activity we disagree to make an election a taxpayer must clearly notify the commissioner of the taxpayer’s intent to do so see 743_f2d_781 11th cir to make an election the taxpayer must exhibit in some manner his unequivocal agreement to accept both the benefits and burdens of the tax treatment afforded by the governing statute 83_tc_831 affd 783_f2d_1201 5th cir a taxpayer has not made an election if it is not clear from the return that an election has been made see young v commissioner f 2d pincite the instructions for the form_1040 and schedules a b c d e f and se require petitioner to aggregate his rental real_estate losses on line of form_1040 thus the fact that petitioner aggregated his losses is not clear notice that he intended to elect under sec_469 whether reporting that net losses were active is an election under sec_469 petitioner argues that he treated his net losses as active rather than passive and that he thereby elected to treat his rental_real_estate_activities as one activity under sec_469 as evidence that he treated his net losses as active he points out that he reported on line sec_22 through and of schedule e line 1d of form_8582 and statements in support of form_8582 of his return that except for one property none of the properties had a passive gain_or_loss and that he did not add his losses to previously suspended losses on line of schedule e he reported the loss of dollar_figure as though he were a real_estate_professional and had sustained that loss in an activity or activities in which he materially participated petitioner contends that this shows that he elected to treat his rental_real_estate_activities as one activity under sec_469 we disagree petitioner’s reporting that his net losses were active is not clear notice that he elected under sec_469 because he would also have reported that his net losses were active if he had materially participated in each of the seven rental_real_estate_activities and had not elected under sec_469 see sec_469 and d sec_1_469-5t temporary income_tax regs supra instructions for form_1040 and schedules a b c d e f and se at e-3 thus petitioner’s return did not give respondent clear notice that he was electing to treat all of his rental_real_estate_activities as one activity under sec_469 whether petitioner’s intention to elect under sec_469 establishes that he did so petitioner contends that he intended to elect under sec_469 and that we should take his intent into account in deciding whether he did so we disagree see young v commissioner f 2d pincite taxpayer’s intent is irrelevant to making an election whether the lack of guidance on how to elect under sec_469 excuses petitioner from clearly notifying respondent that he wanted to elect petitioner points out that when he filed his return the commissioner had issued no guidance other than proposed_regulations about how to elect under sec_469 and contends that as a result his return satisfied the election requirement we disagree the lack of guidance does not eliminate the statutory requirement to elect see young v commissioner f 2d pincite the statute requires a binding election with or without regulations in any event petitioner’s argument would not excuse his failure to elect for because the regulations were adopted in final form well before his return was due -- - whether the result of concluding that petitioner did not elect under sec_469 is too harsh petitioner contends that in deciding whether a taxpayer properly elected we must consider whether the sanction imposed on the taxpayer for failure to comply would be excessive and out of proportion to the default petitioner contends that the result here is harsh and out of proportion to any failure to elect properly petitioner cites 81_tc_709 to support his contention that we must consider the harshness of the result if we find that he did not elect as he claimed in american air filter co v commissioner supra we considered whether the result was harsh as a factor in deciding whether the taxpayer substantially complied with regulations which stated how to make an election american air filter co does not apply here because the issue here is not whether petitioner substantially complied with a regulation if petitioner did not elect under sec_469 in as he contends then his and losses are suspended under sec_469 as they were in years before and he may not deduct the rental losses that he incurred in and we do not believe that result is harsh or out of proportion to petitioner’s failure to elect -- - whether petitioner substantially complied with the requirement to flect under sec_469 petitioner contends that he substantially complied with the requirement to elect under sec_469 we disagree for reasons stated above petitioner has not shown that he gave respondent clear notice that he was making an election under sec_469 for or d conclusion petitioner treated the rental_real_estate_activities on his return in the same manner as his return we conclude that petitioner did not elect on his or return to treat his rental_real_estate_activities as a single activity under sec_469 to reflect the foregoing decision will be entered for respondent in light of our conclusion we need not decide respondent’s contention that sec_1_469-9 income_tax regs requiring a taxpayer to attach a statement to his or her original return applies to petitioner’s return


internal_revenue_service number release date index no department of the treasury washington dc person to contact telephone number refer reply to cc ita - plr-159949-02 date date in re letter_ruling request regarding an extension of time to make an election legend x y firm a firm b year year year dear this is in response to a request for a private_letter_ruling dated date submitted by your authorized representative requesting relief under sec_301_9100-3 of the procedure and administration regulations to make the consent_dividend election under sec_565 of the internal_revenue_code facts x the parent of an affiliated_group the taxpayer which files a consolidated_return is engaged in the business of providing financial services y the wholly owned subsidiary plr-159949-02 of x was included in the affiliated group’s consolidated federal_income_tax return beginning in year firm a is the independent auditor of the consolidated_group neither x nor y employ any in-house tax professionals firm b provides tax_advice to y and prepared y’s proforma return_information to be included on the consolidated_return prepared by firm a neither firm a nor firm b advised the taxpayer that y was a personal_holding_company as defined under sec_542 that there existed a potential liability for a tax on undistributed_personal_holding_company_income under sec_541 or of the availability or consequences of a consent dividends election under sec_565 the taxpayer’s consolidated federal_income_tax return for year was filed without declaring the sec_565 consent_dividend election in year subsequent to filing the year consolidated federal_income_tax return firm a recognized y’s status as a personal_holding_company consequently form sec_972 consent of shareholder to include specific amount in gross_income and corporation claim for deduction of consent dividends declaring the consent_dividend election were filed with the taxpayer’s consolidated federal_income_tax return for year ruling requested that x and y be granted an extension of time to make a consent_dividend election under sec_565 for year law and analysis sec_565 provides that if any person owns consent_stock as defined in sec_565 in a corporation on the last day of the taxable_year of such corporation and such person agrees in a consent filed with the return of such corporation in accordance with the regulations to treat as a dividend the amount specified in such consent the amount so specified shall except as provided in sec_565 constitute a consent_dividend for purposes of sec_561 relating to the deduction for dividends_paid sec_1_565-1 of the income_tax regulations provides that the dividends_paid deduction as defined in sec_561 includes the consent dividends for the taxable_year a consent_dividend is a hypothetical distribution as distinguished from an actual distribution made by certain corporations to any person who owns consent_stock on the last day of the taxable_year of such corporation and who agrees to treat the hypothetical distribution as an actual dividend subject_to specified limitations by filing a consent at the time and in the manner specified in sec_1_565-1 sec_1_565-1 provides that a consent may be filed not later than the due_date of the corporation's income_tax plr-159949-02 return for the taxable_year for which the dividends_paid deduction is claimed under revrul_78_296 1978_2_cb_183 the due_date for purposes of sec_1_565-1 includes the extended due_date of a return filed pursuant to an extension of the time to file sec_301_9100-1 provides that the commissioner of internal revenue in exercising his discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i the term regulatory election is defined in sec_301_9100-1 as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government under sec_301_9100-3 except as provided in paragraphs b i through iii of this section a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer requests relief before the failure to make the regulatory election is discovered by the service sec_301_9100-3 ii and iii provide that a taxpayer is deemed to have not acted reasonably and in good_faith if the taxpayer i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the due_date for making the election that make the election advantageous to a taxpayer the service will not ordinarily grant relief in such a case the service will grant relief only when the taxpayer provides strong_proof that the taxpayer's decision to seek relief did not involve hindsight in the present case relief was requested before the failure to make the regulatory elections properly was discovered by the service further the taxpayer is not seeking to alter a return position for which an accuracy-related_penalty could have been imposed nor was the taxpayer informed of the required elections but chose not to file the elections moreover there is no indication that the taxpayer is using hindsight in requesting relief specific facts material to the issue under consideration have not plr-159949-02 changed since the due_date for making the elections that make the elections advantageous to the taxpayer sec_301_9100-3 provides that commissioner will grant a reasonable extension of time to make a regulatory election only when the interests of the government will not be prejudiced by the granting of relief under sec_301_9100-3 the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made sec_301 c ii provides that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under this section in this case the affiliated_group will not have a lower tax_liability for the taxable_year in which the elections apply than it would have had if the elections had been made timely also the taxable_year that would be affected by the elections had they been timely made is not closed by the period of limitations on assessment ruling the taxpayer is granted an extension of days from the date of this letter within which to execute and file form sec_972 and for year a copy of this letter must be attached to any income_tax return to which it is relevant we enclose a copy of the letter for this purpose also enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 of the internal_revenue_code except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent sincerely tajuana e nelson hyde assistant branch chief office of associate chief_counsel income_tax accounting enclosures


internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to cc intl br5 plr-102111-99 date date ty taxpayer xx y date a date b date c date d dear this is in reply to your letter dated date requesting rulings under sec_865 of the internal_revenue_code the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification upon examination taxpayer has approximately subsidiaries as of the end of date a of these subsidiaries approximately are banks within the meaning of sec_585 of the code n addition taxpayer has a significant number of wholly owned subsidiaries that are financial service entities as defined within the meaning of sec_1_904-4 of the regulations on date b taxpayer which prior to the merger was named x acquired y in a tax-free transaction under sec_368 the acquisition will constitute a reverse_acquisition within the meaning of sec_1_1502-75 consequently the cc intl br5 plr taxpayer's affiliated_group will terminate as of the merger date and become part of the y's affiliated_group taxpayer through several of its financial service entities holds foreign loans pursuant to separate rulings as requested by y on date c and x on date d prior period consolidated tax returns did include all banks and all financial services entities within one affiliated_group for purposes of allocating and apportioning losses with respect to eligible loans as defined by sec_4 of notice_89_58 the allocation and apportionment of losses derived from eligible loans of banks as defined in sec_585 included in an affiliated_group as defined in sec_1_861-11t are determined by applying notice_89_58 notice_89_58 generally provides that losses recognized with respect to certain loans made in the ordinary course of the bank's trade_or_business are allocated to the class of interest_income generated by such instruments and will be apportioned between u s source interest_income and one or more separate categories of foreign source interest_income included within the class_of_gross_income the losses must be apportioned according to the asset method of apportionment that is based upon the outstanding amount of loans generating interest_income in such groupings sec_4 of the notice permits by ruling the inclusion in the affiliated_group of banks as defined in sec_4 of the notice corporations that are financial services entities within the meaning of sec_1_904-4 of the regulations and that are members of the affiliated_group under sec_1_861-11t taxpayer represents that both the bank and the financial services subsidiaries of taxpayer are members of the same affiliated_group as defined in sec_1_861-11t and that both the bank and the financial services subsidiaries of taxpayer are financial services entities as defined in sec_1_904-4 for all years for which this ruling is requested based solely on the information and representations submitted it is held as follows taxpayer for purposes of allocating and apportioning losses with respect to eligible loans as defined by sec_4 of notice_89_58 shall include all banks and financial services entities within one affiliated_group and shall also include in such affiliated_group any subsequently created or acquired subsidiaries engaged in substantially_similar activities provided that such corporations are financial services entities as defined in sec_1_904-4 and that all such corporations are members of the affiliated_group that includes taxpayer as defined in sec_1_861-11t p47 e e i n a e n e c e e c cc intl brs plr debt instruments held by bank or financial services subsidiaries of taxpayer or any subsequently created or acquired subsidiaries engaged in substantially_similar activities that are financial services entities as defined in sec_1_904-4 and that are members of the affiliated_group that includes taxpayer as defined in sec_1_861-11t and that are eligible loans as defined in sec_585 but for the fact that the debt instruments are not held by a financial_institution as defined in sec_1_585-1 shall be treated as eligible loans for purposes of allocation of losses under notice_89_58 notwithstanding the above in the event taxpayer is eligible and chooses to apply the rules of temporary reg sec_1_865-1t to taxable_year data a or to any taxabie year prior to taxable_year date a taxpayer must in accordance with the requirements of sec_1_865-1t f apply the temporary regulations to all subsequent years including taxable_year date a accordingly if taxpayer chooses to apply temporary reg sec_1_865-1t to taxable_year date a or to any taxable_year prior to taxable_year date a notice_89_58 and holding sec_1 and of this ruling will be superceded by the temporary regulations in taxable_year date a and any prior year to which the temporary regulations are made applicable no opinion is expressed as to the tax treatment of the transaction under other provisions of the code and regulations including whether the loans are eligible loans under sec_585 b or about the tax treatment of any conditions existing at the time of or effects resulting from transactions that are not specifically addressed by the above ruling a copy of this ruling must be attached to the appropriate federal_income_tax returns this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours paul epstein senior technical reviewer branch office of associate chief_counsel international badge number cc dd examination


id office uilc cca_2009090211263332 -------------- number release date from -------------------- sent wednesday september am to ----------------- cc subject re quick question thanks since the last day to perform the act required by the code falls on a saturday under sec_7503 the taxpayer has until the next succeeding day which is not a saturday sunday or legal_holiday which in your case is monday the 17th ------------------------ -------------------------------------------------------------------------------------------------------------------------------------------- ------------- ------------------


internal_revenue_service number release date index number ------------------------------ ---------------------------------------------- -------------------------------------------- ---------------------------------- - department of the treasury washington dc person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 - plr-144332-05 date date -------------------------- ---------------------------------------------- ---------------------------------------------- ein ---------------- -------------------- ssn ----------------- this letter responds to a letter dated date submitted on behalf of x x x a d1 dear ----------- requesting a ruling under sec_1362 of the internal_revenue_code facts the information submitted states that x was incorporated on d1 a the director of x represents that the shareholders of x intended that x elect to be an s_corporation effective d1 however x inadvertently failed to timely file a form_2553 election by a small_business_corporation accordingly x requests a ruling that it will be treated as an s_corporation effective d1 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 plr-144332-05 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if - a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year conclusion based solely on the facts and representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d1 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 effective d1 along with a copy of this letter with the appropriate service_center within days from the date of this letter then such election will be treated as timely made for d1 federal tax consequences of the facts described above under any other provision of the code include whether x was or is a small_business_corporation under sec_1361 provides that it may not be used or cited as precedent being sent to x’s authorized representative except as specifically set forth above no opinion is expressed concerning the pursuant to a power_of_attorney on file with this office a copy of this letter is this ruling is directed only to the taxpayer requesting it sec_6110 sincerely beverly katz senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures cc copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------------------- ----------------------------- ----------------------------------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------- telephone number -------------------- refer reply to cc psi b01 plr-149870-09 date date legend legend x ------------------------------------------- ----------------------------- d1 d2 ------------------- ---------------------- dear ----------------- this responds to the letter dated ----------------------- submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 the shareholders of x intended that x be treated as an s_corporation effective on d2 but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective d2 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of plr-149870-09 a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not timely file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective d2 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the appropriate service_center this ruling is conditioned on x and x’s shareholders filing within days following the date of this letter federal_income_tax returns to report consistent with x being an s_corporation for all taxable years following d2 accordingly x’s shareholders in determining their respective income_tax liabilities must include their pro_rata shares of separately and nonseparately computed items of x under sec_1366 make any adjustments to stock basis under sec_1367 and take into account any distributions made by x under sec_1368 if x or x’s shareholders fail to treat x as described above this letter_ruling will be null and void a copy of this letter should be attached to each of the returns described above except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-149870-09 pursuant to the power_of_attorney on file with this office a copy of this letter will be sent to x’s authorized representative sincerely faith p colson senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c summary opinion united_states tax_court daniel charles mcdermott petitioner v commissioner of internal revenue respondent docket no 19830-04s filed date daniel charles mcdermott pro_se michael w lloyd for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code as in effect at the time the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code_of_1986 as amended the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority the petition in this case was filed in response to a notice_of_determination concerning collection action s under sec_6320 and or pursuant to sec_6320 and sec_6330 petitioner seeks review of respondent's filing of a notice_of_federal_tax_lien for his and tax_liabilities the issue for decision is whether respondent abused his discretion by filing the notice_of_federal_tax_lien as a method of collecting petitioner’s tax_liabilities background the stipulated facts and exhibits received into evidence are incorporated herein by reference at the time the petition in this case was filed petitioner resided in colorado petitioner failed to file tax returns for any of the years through petitioner’s federal_income_tax returns were examined by respondent beginning in february of as part of the audit petitioner appeared at the office of the internal_revenue_service irs respondent proposed a determination that petitioner despite earning substantial income failed to file federal_income_tax returns for all the years under examination when asked petitioner admitted to not filing tax returns but objected to the proposed deficiency asserting that respondent’s proposed action was unconstitutional petitioner advised the examining agent of his then current address stating that he was staying with friends a statutory_notice_of_deficiency was mailed by certified mail and a duplicate notice was sent by regular mail to petitioner the duplicate notice was returned with the envelope marked insufficient address the certified mailing of the notice_of_deficiency was not returned discussion sec_6320 entitles a taxpayer to notice of his right to request a hearing with the irs office of appeals after a notice of lien is filed by the commissioner in furtherance of the collection of unpaid federal taxes the taxpayer requesting the hearing may raise any relevant issue with regard to the commissioner’s intended collection activities including spousal defenses challenges to the appropriateness of the commissioner’s intended collection action and alternative means of collection sec_6320 and c c see 114_tc_604 114_tc_176 the taxpayer may raise challenges to the existence or amount of the underlying tax_liability however only if he did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute 1the record does not reveal why or to what address the duplicate notice_of_deficiency was sent but respondent represents in his trial memorandum that the duplicate notice was sent to an alternate address thought to be an additional address of petitioner such tax_liability sec_6330 where the validity of the tax_liability is not properly part of the appeal the taxpayer may challenge the determination of the appeals officer for abuse_of_discretion sego v commissioner supra pincite goza v commissioner supra pincite questions about the appropriateness of the collection action include whether it is proper for the commissioner to proceed with the collection action as determined in the notice_of_determination and whether the type and or method of collection chosen by the commissioner is appropriate see eg 121_tc_111 challenge to appropriateness of collection reviewed for abuse_of_discretion in order for petitioner to prevail under the abuse_of_discretion standard it is not enough for the court to conclude that the court would not have authorized collection the court must conclude that in authorizing collection the appeals officer has exercised discretion arbitrarily capriciously or without sound basis in fact 101_tc_412 accord 91_tc_1079 the sum total of petitioner’s evidence is his testimony at trial that well my case is simply that i don’t owe the irs money the court finds petitioner’s evidence to be insufficient to cast doubt on either the validity and amount of the underlying tax_liability or the appropriateness of the collection action the court finds that respondent did not abuse his discretion in issuing his determination in this case reviewed and adopted as the report of the small_tax_case division for respondent decision will be entered


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi 3-plr-143042-01 date date number release date index number legend x a date year year dear this letter responds to your letter dated date requesting a ruling under sec_1362 of the internal_revenue_code facts the information submitted states that x was incorporated on date in year a as the president and sole shareholder of x represents that x was intended to be treated as an s_corporation for federal tax purposes as of year the year operations were to begin x filed a form_1120s u s income_tax return for an s_corporation for its year taxable_year however no form_2553 election by a small_business_corporation was timely filed with the internal_revenue_service law and analysis sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year conclusion plr-143042-01 based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code 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 x’s authorized representative enclosures copy of this letter copy for sec_6110 purposes sincerely jeanne m sullivan senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries


robert k and joan l paschall petitioners v commissioner of internal revenue respondent docket nos filed date r determined sec_4973 i r c excise_tax deficiencies and additions to tax under sec_6651 i r c for ps’ through tax years the determinations stem from r’s assertion that p-h made excess_contributions to his roth individual_retirement_account held ps are liable for the excise_tax deficiencies and additions to tax to the extent decided herein howard s fisher for petitioners ronald s collins jr john a guarnieri and cindy park for respondent wherry judge these consolidated cases are before the court on petitions for redetermination of respondent’s deter- minations in notices of deficiency that petitioners owe excise_tax deficiencies and sec_6651 additions to tax for their through tax years as well as an income_tax deficiency and a sec_6662 accuracy-related_penalty for their tax_year the issues for decision are whether petitioner husband made an excess_contribution to his roth individual retire- ment account roth_ira and is liable for sec_4973 excise_tax deficiencies for the through tax years whether petitioner husband is liable for additions to tax under sec_6651 for failure_to_file forms addi- tional taxes on qualified_plans including iras and other tax-favored accounts for the through tax years and whether the statute_of_limitations bars respondent the case at docket no involves petitioners’ and tax years the case at docket no involves petitioners’ and tax years the cases were con- solidated for trial briefing and opinion on date unless otherwise indicated all section references are to the internal_revenue_code_of_1986 code as amended and in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure verdate 0ct date jkt po frm fmt sfmt v files paschall sheila paschall v commissioner from assessing and collecting deficiencies for the and tax years findings_of_fact some of the facts have been stipulated and the stipula- tions with the accompanying exhibits are incorporated herein by this reference at the time they filed their peti- tions petitioners resided in california petitioners filed timely joint form sec_1040 u s individual_income_tax_return for all relevant years this case stems from petitioner husband robert k paschall’s attempt to convert a traditional_ira to a roth_ira roth restructure the roth restructure was designed and implemented by a blair stover jr mr stover and his colleagues at the accounting firm of grant thornton l l p grant thornton i petitioners’ background mr paschall graduated from massachusetts institute of technology with a bachelor of science degree in physics and from the university of illinois with a master of science degree in physics he also received a management certificate for technical personnel from the university of california los angeles mr paschall spent his entire career until his retire- ment working at north american aviation which eventually became rockwell international petitioner wife joan l paschall has a degree in secretarial science and from through worked as a teacher’s assistant ii roth_ira restructuring a introduction to jim patton as he was nearing retirement mr paschall attended semi- nars where jim patton a financial adviser was one of the respondent’s dollar_figure reduction in petitioners’ allowable itemized_deductions is computa- tional and need not be addressed in this opinion the basic tax characteristics of a traditional_ira are deductible contributions the ac- crual of tax-free earnings except with respect to sec_511 unrelated_business_income and the inclusion of distributions in gross_income see sec_219 sec_408 d e the basic tax characteristics of a roth_ira are nondeductible_contributions the accrual of tax-free earn- ings and the exclusion of qualified distributions from gross_income sec_408a c d a 133_tc_202 verdate 0ct date jkt po frm fmt sfmt v files paschall sheila united_states tax_court reports speakers at one of the seminars mr paschall gave mr patton his name and telephone number mr patton would occasionally call mr paschall on one occasion he claimed that he had a client who was performing a transaction that was perfectly legal and would convert a traditional_ira to a roth_ira and that met all the tax require- ments he also contended that it was in full compliance with the tax laws and was a good investment he recommended that mr paschall pursue this transaction the client mr patton spoke of fred nardi eventually sent mr paschall the notes he had taken on his own roth restructure mr paschall assumed mr patton was a very knowledge- able financial adviser with considerable experience and knowledge of the taxes and the finances and the legality of anything that he would recommend he further assumed mr patton would recommend legal things and investments that were to my advantage b introduction to mr stover mr patton introduced mr paschall to mr stover mr paschall first met mr stover in mr patton’s office in early at this time mr stover was a partner at grant thornton at the meeting mr stover gave a presentation and explained the roth restructure to mr paschall who did not fully understand it although he acknowledged that he did not understand the roth restructure mr paschall believed it was completely compliant with the tax law at that time and was not a tax_shelter mr paschall decided to engage in the roth restructure his stated purpose being to save money on taxes c engagement letter on date mr paschall executed an engagement letter with grant thornton for professional tax and financial consulting services specifically the roth restructure the engagement letter contemplated a fee of dollar_figure and con- tained a clause providing that grant thornton would rep- mr paschall explained grant thornton was the fifth largest accounting company in the country and i believed them to be completely legal and experts in this business of accounting and tax preparation and i put complete faith in what they told me and did for me verdate 0ct date jkt po frm fmt sfmt v files paschall sheila paschall v commissioner resent and defend mr paschall or any related_entity at no additional cost in case of audit by the internal_revenue_service irs the engagement letter also contained an indemnity clause providing that grant thornton would reimburse and indemnify the paschalls and any related_entity for any civil negligence or fraud_penalty assessed against them by federal or state authorities mr paschall paid the dollar_figure fee for the roth restruc- ture the engagement letter provided that the fee was to be split equally between grant thornton and nevada corpora- tion associations inc a law firm mr paschall never asked for nor did he receive an opinion letter regarding the roth restructure d kruse mennillo l l p and individuals other than mr stover in addition to mr stover mr paschall had contact with other grant thornton employees including ruth donovan allen davison and angela parker in date mr stover left grant thornton for kruse mennillo l l p kruse mennillo another accounting firm neither party presented evidence explaining the rea- soning behind mr stover’s abrupt move when mr stover moved to kruse mennillo certain individuals he worked with at grant thornton went with him at the time mr stover moved to kruse mennillo mr paschall followed him and began using kruse mennillo instead of grant thornton to mr paschall’s knowledge kruse mennillo did not receive any of the dollar_figure fee that was paid to grant thornton for the roth restructure mr stover eventually stopped dealing with mr paschall and at that time marc sommers a tax lawyer at kruse mennillo and a former irs employee took over mr paschall’s federal tax work as explained further infra note mr paschall did not directly pay grant thornton dollar_figure to implement the roth restructure rather the fee was paid indirectly from mr paschall’s ira through a corporation petitioners request that we take judicial_notice of a date department of justice press release and a complaint for permanent injunction against mr stover filed date this court will grant petitioners’ request and has taken judicial_notice of the documents re- quested and 731_fsupp2d_887 w d mo holding that mr stover had reason to know that various structures he promoted lacked any legitimate business_purpose and granting injunctive relief against him the case focused on three multiple business_entity structures sold and arranged by mr stover the third structure referred to continued verdate 0ct date jkt po frm fmt sfmt v files paschall sheila united_states tax_court reports e independent advice and knowledge despite the remarkable promised tax benefits of converting taxable ira_distributions to nontaxable roth_ira distribu- tions mr paschall did not ask anyone else’s opinion on the viability of the roth restructure mr paschall did not do any research on contribution limits to iras taxation of excess_contributions to iras or taxation of distributions from iras mr paschall understood that contributions to traditional iras were made tax free and distributions from them were taxable he also understood that roth iras were different in that while the contributions were not deductible the dis- tributions were not taxed iii the roth restructure grant thornton specifically mr stover orchestrated and oversaw all of the steps in the roth restructure papers were prepared and then sent to mr paschall for his signa- ture mr paschall explained that he did not doubt anything they did and believed that the roth restructure was a firm- sanctioned grant thornton transaction as opposed to a mr stover individually conceived transaction the roth restruc- ture was implemented as follows date-the paschalls maintained an invest- ment account with calvert group with account number ending in calvert account date-in date mr paschall opened a self directed roth_ira at george k baum trust co with account number ending in baum roth_ira on date the baum roth_ira was funded with a dollar_figure contribution made from the calvert account date-two corporations telesis acquisition investment co inc telesis and west star global holdings inc west star were organized in the state of nevada by nevada corporation associations telesis and west star had the same principal_place_of_business and mr by the district_court as the roth s structure skirted the contribution limits applicable to roth iras id pincite allen davison has also been enjoined from organizing establishing pro- moting and selling certain tax structures united_states v davison aftr 2d ustc par big_number w d mo affd as modified and remanded 407_fedappx_997 8th cir verdate 0ct date jkt po frm fmt sfmt v files paschall sheila paschall v commissioner paschall served as president secretary and treasurer of both corporations during all relevant periods date-mr paschall opened a roth_ira with first union securities inc with account number ending in first union roth_ira telesis had any employees at any time date-as of this date the paschalls main- tained a traditional_ira account at resources trust with account number ending in resources trust ira on date mr paschall opened a self directed tradi- tional ira at first national bank of onaga with account number ending in fnbo ira on date mr paschall funded the fnbo ira via a rollover of dollar_figure from the resources trust ira date-the baum roth_ira purchased all of the shares of stock of telesis for dollar_figure on date the fnbo ira purchased all of the shares of stock in west star for dollar_figure on or about date west star transferred dollar_figure to telesis on date dollar_figure was transferred from telesis to the baum roth_ira also on date dollar_figure was transferred from the baum roth_ira to the first union roth_ira the money was invested in various publicly_traded_securities and mutual funds date-telesis and west star executed articles of merger with each share of west star stock being converted into share of telesis stock and with telesis being the surviving corporation the articles of merger were filed with the nevada secretary of state on date west star was dissolved as of date telesis was dissolved on date date-the paschalls received a dollar_figure dis- tribution from their first union roth_ira on date the paschalls received a dollar_figure distribution from for and west star filed forms u s_corporation income_tax return re- porting zero gross_receipts and zero deductions for each year west star reported assets of dollar_figure cash as of date and assets of dollar_figure stock as of date for through telesis filed forms reporting zero receipts and zero deductions for each year telesis reported assets of dollar_figure cash as of date dollar_figure cash as of date and and zero assets as of date and neither west star or the dollar_figure difference between what the fnbo ira purchased the stock in west star for and the amount west star transferred to telesis was used to pay grant thornton’s fee verdate 0ct date jkt po frm fmt sfmt v files paschall sheila united_states tax_court reports their first union roth_ira which by that time had been renamed h_r block financial advisors roth_ira iv reporting the roth restructure mr paschall personally prepared and completed his and mrs paschall’s income_tax returns from until stuart jaeger prepared the paschalls’ income_tax returns from through mr paschall did not ask mr jaeger his opinion on the viability of the roth restructure as part of the fee mr paschall paid for the roth restruc- ture grant thornton prepared the paschalls’ tax returns for kruse mennillo prepared the paschalls’ tax returns beginning in and therefore prepared all of the returns for the tax years that are in issue before this court mr paschall paid kruse mennillo to prepare the tax returns starting in in order to facilitate the preparation of the returns mr paschall would provide the information and copies of perti- nent documents asked for each year by either grant thornton or kruse mennillo because they were prepared by reputable accounting firms mr paschall asserts that he thought that his through tax returns were com- pletely accurate v the result of the roth restructure and the audit in the paschalls’ returns were audited by the cali- fornia franchise tax board with the california franchise tax board concluding that the paschalls did not owe any additional taxes the paschalls were defended in the audit by michael coopit of kruse mennillo who told the paschalls at that time that the roth restructure was completely legal and that there was no problem at all in either or mr paschall received a letter stating that grant thornton was turning over the names of people who had engaged in roth restructures to the irs mr stover at this time advised mr paschall that the roth restructure was legal but that he might want to disclose on his income_tax returns the structure mr paschall there- after attached to telesis’ and his personal tax returns forms reportable_transaction_disclosure_statement some- the form_8886 contained little information stating in the expected tax benefits section verdate 0ct date jkt po frm fmt sfmt v files paschall sheila paschall v commissioner time in mr paschall received via mr coopit a memo concluding that the roth restructure was legal and met with all tax laws the paschalls timely filed form sec_1040 for all years in issue they did not file form_5329 for any of the years in issue on february and date respondent issued notices of deficiency showing the following deficiencies addi- tions to tax and penalties tax_year deficiency addition_to_tax sec_6651 penalty sec_6662 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure - - - - - - - - - dollar_figure - - - the paschalls timely petitioned this court trial was held on date in los angeles california at that trial the paschalls’ attorney asked mr paschall what advice he had received from professional advisers respondent objected to this testimony as hearsay and the court sus- tained those objections the paschalls later requested that the record be reopened to permit mr paschall’s testimony regarding expert advice in the light of 493_f3d_1002 9th cir that request was granted and additional testimony was heard on date opinion i whether respondent’s proposed assessments of excise_tax for the and tax years are barred by the statute_of_limitations mr paschall argues that the statute_of_limitations bars respondent from assessing deficiencies for hi sec_2002 and tax years the deficiencies as determined by respondent for these years are excise_tax deficiencies under sec_4973 and additions to tax under sec_6651 for the potential benefits if any could be either a tax savings or cost de- pending on the taxpayers rate the company has had no activity for the past three tax years the notice_of_deficiency for the and tax years was issued on date the notice_of_deficiency for the and tax years was issued on date the dollar_figure deficiency for the tax_year comprised an excise_tax deficiency of dollar_figure and an income_tax deficiency of dollar_figure verdate 0ct date jkt po frm fmt sfmt v files paschall sheila united_states tax_court reports failure_to_file forms the tax form on which the sec_4973 excise_tax is computed and disclosed sec_6501 provides the general_rule that the amount of any_tax imposed by the code shall be assessed within years of the filing of the return however in case of a failure_to_file a return the tax may be assessed at any time sec_6501 mr paschall did not file form_5329 for any year at issue however he timely filed form sec_1040 for all years he asserts that form_5329 is not a separate tax_return from form_1040 that the statute_of_limitations started running when he filed the form sec_1040 and that the period of limitations had expired before respondent issued the notices of deficiency for the and tax years respondent asserts that form_5329 is a separate tax_return from form_1040 and that since mr paschall never filed forms the sec_4973 excise_tax may be assessed at any time the resolution of this issue is governed by the supreme court’s decision in 321_us_219 88_f3d_750 9th cir a taxpayer does not start the statute_of_limitations running by filing one return when a different return is required if the return filed is insufficient to advise the commissioner that any liability exists for the tax that should have been disclosed on the other return the relevant inquiry is whether the return filed sets forth the facts establishing liability id citing commissioner v lane-wells co supra pincite of crucial importance is whether the return as filed included sufficient information to allow the irs to compute the taxpayer’s liability 790_f2d_853 11th cir sec_4973 imposes an excise_tax on excess_contributions to roth iras which is to be reported and disclosed on form_5329 upon review of mr paschall’s form sec_1040 respondent was not reasonably able to discern that mr paschall was potentially liable for a sec_4973 excise_tax while a line on each form_1040 ie line for line for line for line for line for and line for and states tax on qualified_plans including iras and other tax-favored accounts attach verdate 0ct date jkt po frm fmt sfmt v files paschall sheila paschall v commissioner if required mr paschall left these lines blank giving respondent no indication of his excess_contribution we hold that the filing of the form sec_1040 did not start the statute_of_limitations running for purposes of the sec_4973 excise_tax in the absence of accompanying forms see eg springfield v united_states supra pincite holding that because form_1099 requests information about non- employee compensation and form_941 requests information about employee compensation filing form_1099 does not start the statute_of_limitations running for purposes of form atl land improvement co v united_states supra pincite holding that a payroll tax_return fica filed by an employer did not start the statute_of_limitations running for the employer’s railroad tax_liability rrta because the fica return did not contain all the information necessary to com- pute the rrta because mr paschall failed to file forms for the years in issue respondent may assess the excise_tax deficiencies at any time ii sec_4973 excise_tax deficiencies for the through tax years a burden_of_proof as a general_rule the commissioner’s determination of a taxpayer’s liability in the notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving that the determination is improper see rule a 290_us_111 however pursuant to sec_7491 in certain circumstances the burden_of_proof on factual issues that affect the taxpayer’s tax_liability for any_tax imposed by subtitle a or b may shift to the commissioner mr paschall claims that pursuant to sec_7491 respondent bears the burden_of_proof however sec_7491 applies only to subtitles a and b which include income taxes and estate_and_gift_taxes the excise_tax defi- ciencies determined by respondent were computed under sub- title d sec_7491 is therefore inapplicable and mr paschall bears the burden_of_proof verdate 0ct date jkt po frm fmt sfmt v files paschall sheila united_states tax_court reports b analysis the amount of contributions a taxpayer may make in any given year to a roth_ira is limited sec_408a and sec_4973 defines an excess_contribution to a roth_ira as the excess of the amount contributed over the amount allowable as a contribution there is imposed for each tax- able year an excise_tax of percent for excess_contributions computed on the lesser_of the amount of the excess con- tribution and the fair_market_value of the account as of the end of the taxable_year sec_4973 the excise_tax is imposed each year until the excess_contribution plus earnings is eliminated mr paschall presented no evidence to establish that he did not make an excess_contribution to his roth_ira however he disputes respondent’s calculation of the sec_4973 excise_tax stating that the issue is how the excise_tax is cal- culated under code sec_4973 with regards to excess funding respondent asserts that the entire dollar_figure contribu- tion from telesis to the baum roth_ira on date was an excess_contribution respondent further asserts that the excise_tax calculations for the through tax years should be based on the value of the baum roth_ira at the end of each respective tax_year because those amounts are less than the initial excess_contribution the value of the baum roth_ira at the end of each tax_year was as follows a taxpayer may convert an amount from an ira to a roth_ira if before date modified agi is dollar_figure or less the married taxpayer files jointly and the taxpayer reports the conversion amount in income sec_408a sec_1_408a-4 income_tax regs if these rules are not followed the taxpayer has a failed conversion which triggers the sec_4973 excise_tax on the amount transferred from the ira to the roth_ira sec_1_408a-4 q a-3 b income_tax regs on or after date conversions may occur without consideration of the dollar_figure modified agi limitations mr paschall never argued that he converted an amount from his ira to his roth_ira nor did he report the conversion amount in income respondent has chosen not to assert a income_tax deficiency arising from the conver- sion against mr paschall because the period of limitations for assessment for that year has expired the funds held in the baum roth_ira on date were transferred to the first union roth_ira because the parties on brief continue to refer to mr paschall’s roth_ira as the baum roth_ira we do so as well on brief respondent provided the court with the fair_market_value of the baum roth_ira at the end of each tax_year apparently mr paschall had provided respondent with the fair market values immediately before trial but did not introduce them into the record respondent has accepted the fair market values as accurate and correct verdate 0ct date jkt po frm fmt sfmt v files paschall sheila paschall v commissioner as of dec fair_market_value dollar_figure big_number big_number big_number big_number mr paschall asserts that the excise_tax should be based on the dollar_figure he used to initially fund the baum roth_ira and which was contributed to telesis when the baum roth_ira purchased all of the stock of telesis in arguing this he places significance on the merger of west star and telesis which occurred on date months after the date transfers moving the dollar_figure initially in mr paschall’s traditional_ira to the baum roth_ira occurred we find mr paschall’s assertion unavailing it is well set- tled that the substance of a transaction controls tax_liability 293_us_465 58_tc_854 affd 513_f2d_824 9th cir where a series of transactions taken as a whole shows either that the transactions themselves are shams or that the transactions have no purpose substance or utility apart from their anticipated tax consequences the transactions are nullified and not recognized 364_f2d_734 2d cir affg 44_tc_284 the substance of what happened in the instant case is that approximately dollar_figure million began the year in mr paschall’s traditional_ira and was transferred to his roth_ira by the end of the year with no taxes being paid mr paschall did not attempt to provide a nontax business financial or investment purpose for what he did and this court cannot ascertain one instead mr paschall incited by and at the urging of mr stover used corporate formations transfers and mergers in an attempt to avoid taxes and disguise excess_contributions to his roth_ira mr paschall states that the excise_tax should be based upon the contribution to the roth-ira we agree the april as stated supra the allowable_amount of contributions to roth iras is limited under the code this limit was dollar_figure for the tax_year sec_219 sec_408a hence as respondent has acknowledged the dollar_figure initially contributed to the baum roth_ira generated no tax con- sequences verdate 0ct date jkt po frm fmt sfmt v files paschall sheila united_states tax_court reports contribution to the baum roth_ira via a transfer from mr paschall’s traditional_ira to west star to telesis to the baum roth_ira was an excess_contribution as respondent contends mr paschall sought to have his cake and eat it too contributing the funds tax-free into the traditional_ira and withdrawing them tax-free from the roth_ira paying no tax on the conversion stratagem accordingly we sustain respondent’s determination and hold that mr paschall is liable for sec_4973 excise_tax deficiencies for hi sec_2002 through tax years these deficiencies are to be calculated upon the fair_market_value of the baum roth_ira at the end of each tax_year iii sec_6651 additions to tax for failure_to_file forms a burden_of_proof respondent bears the burden of production with regard to the sec_6651 additions to tax see sec_7491 116_tc_438 to meet his burden respondent must produce sufficient evi- dence that it is appropriate to impose the determined addi- tions to tax see higbee v commissioner supra pincite how- ever respondent does not have to produce evidence of reason- able cause substantial_authority or lack of willful neglect see id b analysis sec_6651 in the case of a failure_to_file on time any return required under sec_6011 imposes an addi- tion to tax of percent of the tax required to be shown on the return for each month or fraction thereof for which there is a failure_to_file not to exceed percent in the aggregate generally any person made liable for any_tax shall make a return or statement according to the forms and regu- lations prescribed by the secretary sec_6011 the addi- tion to tax will not apply if it is shown that such failure is due to reasonable_cause and not due to willful neglect taxpayers who have made excess_contributions to an ira are required to file form_5329 each year that they have excess_contributions hellweg v commissioner tcmemo_2011_58 frick v commissioner tcmemo_1989_86 affd verdate 0ct date jkt po frm fmt sfmt v files paschall sheila paschall v commissioner without published opinion 916_f2d_715 7th cir sec_54 a excise_tax regs form_5329 is a tax_return within the meaning of sec_6011 and failure_to_file form_5329 can result in sec_6651 additions to tax frick v commissioner supra further as discussed supra part i form_5329 is a separate tax_return from form_1040 see also 92_tc_1173 concluding that the same requirements apply in deciding both whether a return is sufficient for statute_of_limitations purposes and whether a return is considered filed for sec_6651 purposes mr paschall stipulated that he did not file form_5329 for any of the years at issue respondent has therefore met his burden of production we now turn to the question of whether mr paschall has proven that his failure_to_file was due to reasonable_cause and not due to willful neglect the failure to timely file a tax_return is considered due to reasonable_cause where a taxpayer is unable to file the return within the prescribed time despite exercising ‘ordi- nary business care and prudence ’ 86_tc_492 quoting sec_301_6651-1 proced admin regs affd 864_f2d_1521 10th cir w illful neglect is defined as a conscious inten- tional failure or reckless indifference 469_us_241 mr paschall citing united_states v boyle supra pincite argues that his reliance on tax advisers constitutes reasonable_cause for avoiding a failure_to_file_penalty under sec_6651 generally circumstances considered to constitute reason- able cause arise as a result of factors beyond a taxpayer’s control and include situations such as unavoidable postal delays timely filing of a return with the wrong office death or serious illness of the taxpayer or a member of his imme- diate family the taxpayer’s unavoidable absence from the united_states destruction by casualty of the taxpayer’s records or place of business and reliance on the erroneous advice of an irs officer_or_employee 114_f3d_366 2d cir affg tcmemo_1995_547 see also gagliardi v commissioner tcmemo_2008_10 reliance on a mistaken legal opinion of a competent tax adviser that it was unnecessary to file a return also con- verdate 0ct date jkt po frm fmt sfmt v files paschall sheila united_states tax_court reports stitutes reasonable_cause mcmahan v commissioner supra pincite however while good-faith reliance on profes- sional advice may provide a basis for a reasonable_cause defense it is not absolute 89_tc_849 affd 904_f2d_1011 5th cir affd 501_us_868 laplante v commissioner tcmemo_2009_226 the advice must be from competent and independent par- ties not from promoters of the investment or advisers who have a conflict of interest swanson v commissioner tcmemo_2009_31 citing 94_tc_637 affd without published opinion 956_f2d_274 9th cir see 471_f3d_1021 9th cir affg tcmemo_2004_269 courts have repeatedly held that it is unreasonable for a taxpayer to rely on a tax adviser actively involved in plan- ning the transaction and tainted by an inherent conflict of interest 135_tc_199 see also 990_f2d_893 6th cir affg donahue v commissioner tcmemo_1991_181 laverne v commissioner supra pincite- a promoter is ‘an adviser who participated in structuring the transaction or is otherwise related to has an interest in or profits from the transaction ’ 136_tc_67 quoting tigers eye trading llc v commissioner t c memo a promoter’s self- while the supreme court has indicated that reliance on a tax adviser as to whether a tax- payer needs to file can constitute reasonable_cause reliance on a tax adviser to prepare the re- turn does not constitute reasonable_cause 469_us_241 86_tc_492 affd 864_f2d_1521 10th cir we have held that for a taxpayer to rely reasonably upon advice the taxpayer must prove that the taxpayer meets each requirement of the following three-prong test the ad- viser was a competent professional who had sufficient expertise to justify reliance the tax- payer provided necessary and accurate information to the adviser and the taxpayer actually relied in good_faith on the adviser’s judgment 115_tc_43 affd 299_f3d_221 3d cir see also 425_f3d_1203 n 9th cir quoting with approval the above three-prong test affg 121_tc_89 we have held that a tax adviser was not a promoter of a transaction when he had a long- term and continual relationship with his client did not give unsolicited advice regarding the tax_shelter advised only within his field of expertise and not because of his regular involvement in the transaction being scrutinized followed a regular course of conduct in rendering his ad- vice and had no stake in the transaction besides what he bills at his regular hourly rate 136_tc_67 citing 132_tc_347 verdate 0ct date jkt po frm fmt sfmt v files paschall sheila paschall v commissioner interest makes ‘advice’ inherently unreliable tigers eye trading llc v commissioner supra at a minimum mr stover and his colleagues charged a dollar_figure flat fee mr stover set up the various entities and coordinated the deal from start to finish ltd v commissioner supra pincite grant thornton and mr stover were paid a flat fee for implementing the roth restructure and wouldn’t have been compensated at all if mr paschall decided not to go through with it see id mr paschall blindly followed mr stover to kruse mennillo without questioning the reasons for his departure from grant thornton hence mr paschall cannot argue this alleged reliance on mr stover and or grant thornton estab- lishes reasonable_cause and good_faith see hansen v commissioner supra pincite1 affirming the tax_court holding when the taxpayers relied solely on the organization promoting the transaction and did not independently verify their tax returns despite warnings by the irs citing 775_f2d_1092 9th cir see also laverne v commissioner supra pincite to support his argument mr paschall cites 178_f2d_769 2d cir modifying 12_tc_735 166_f2d_601 d c cir and 162_f2d_628 3d cir unlike the case at hand in those mr paschall relies on there is no evidence that the tax advisers were not independent see haywood lumber mining co v commissioner supra pincite orient inv fin co v commissioner supra pincite hatfried inc v commissioner supra pincite while mr paschall argues that he also relied on mr patton there is no evidence other than mr paschall’s testi- mony what the two talked about mr patton is not com- petent in tax matters he introduced mr paschall to mr stover and mr paschall did not seek mr patton out for an independent review of the roth restructure rather mr paschall contacted mr stover mr paschall also appears to rely on individuals who signed his individual and corporate tax returns including angela parker kelly webb and jennifer swearinger however there is no evidence that he ever spoke to any of these individuals about the roth restructure in any event they also have conflicts of interest because they worked with mr stover on the roth re- structure and were employees of grant thornton and or kruse mennillo verdate 0ct date jkt po frm fmt sfmt v files paschall sheila united_states tax_court reports only mr paschall testified mr paschall appears to believe that his own self-serving testimony is enough to establish reasonable_cause we disagree we have found reliance to be unreasonable where a taxpayer claimed to have relied upon an independent adviser because the adviser either did not testify or testified too vaguely to convince us that the tax- payer was reasonable in relying on the adviser’s advice swanson v commissioner supra see also heller v commis- sioner tcmemo_2008_232 in upholding a penalty stating that aside from the taxpayer’s self-serving testimony there was no evidence in the record as to the specific nature of the professional’s advice affd 403_fedappx_152 9th cir mr paschall’s failure to introduce evidence which if true would be favorable to him gives rise to the presumption that if produced it would be unfavorable 6_tc_1158 affd 162_f2d_513 10th cir mr paschall should have realized that the deal was too good to be true see laverne v commissioner supra pincite- mr paschall is a highly educated and successful businessman he explained to this court that because he grew up in the depression he was conservative with his investments and worried about having enough money to last through retirement yet he paid dollar_figure for a trans- action that he did not fully understand mr paschall had doubts repeatedly asking whether the roth restructure was legal despite these doubts he never asked for an opinion letter or sought the advice of an inde- pendent adviser including mr jaeger who was preparing his tax returns at the time he met mr stover this was even after he received a letter warning him that there might be problems with the roth restructure and that his name was being turned over to the irs mr paschall has failed to establish that he meets the reasonable_cause and not willful neglect exception to the sec_6651 addition_to_tax therefore we sustain respondent’s imposition of the sec_6651 additions to tax for the paschalls’ through tax years mr paschall also stated that he relied on the audit by the california franchise board and resulting no-change letter issued by that entity because of mr paschall’s lack of evidence we attribute little significance to his alleged reliance on the california franchise board verdate 0ct date jkt po frm fmt sfmt v files paschall sheila paschall v commissioner iv income_tax deficiency and sec_6662 accuracy- related penalty for petitioners’ tax_year in petitioners received a dollar_figure distribution from mr paschall’s roth_ira which they did not report on their form_1040 to guard against a whipsaw respondent determined an income_tax deficiency and a sec_6662 accuracy-related_penalty for petitioners’ tax_year that were based on petitioners’ possible argument that the baum roth_ira should be deemed a traditional_ira respondent has stipulated that he would concede the income_tax deficiency and the related sec_6662 accuracy-related_penalty for petitioners’ tax_year if this court held that mr paschall was liable for sec_4973 excise_tax deficiencies as we have found mr paschall liable for excise_tax deficiencies the issue of whether petitioners are liable for an income_tax deficiency and a sec_6662 accuracy-related_penalty for the tax_year is conceded the court has considered all of petitioners’ contentions arguments requests and statements to the extent not dis- cussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing decisions will be entered under rule f verdate 0ct date jkt po frm fmt sfmt v files paschall sheila