t c memo united_states tax_court susan l abelein petitioner v commissioner of internal revenue respondent docket no filed date terri a merriam wendy s pearson and jennifer a gellner for petitioner robert v boeshaar and julie l payne for respondent memorandum findings_of_fact and opinion marvel judge this case arises from a request for relief under section with respect to petitioner’s and taxable years respondent determined 1all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure petitioner was not entitled to any relief under sec_6015 petitioner timely filed a petition seeking review of respondent’s determination after concessions the issue for decision is whether petitioner is entitled to relief under sec_6015 or f for and findings_of_fact some of the facts have been stipulated and are so found the first second and third stipulations of facts are incorporated herein by this reference petitioner resided in boring oregon when her petition in this case was filed petitioner’s education petitioner attended year of college and then enrolled in a 1-year licensed practical nurse lpn program petitioner graduated from the program and worked as an lpn for several years petitioner eventually attended a registered nursing rn program and is currently employed as an rn petitioner has worked as an rn in triage dermatology internal medicine obstetrics and gynecology and hospice care petitioner has never taken any courses in finance bookkeeping or tax 2at trial the court reserved ruling on exhibit 243-p and ordered the parties to brief the issue of its admissibility in his opening brief respondent conceded the admissibility of exhibit 234-p from the descriptions of the exhibit in the transcript and the brief and based on our review of exhibits 234-p and 243-p however it is clear respondent intended to concede the admissibility of exhibit 243-p consequently we shall treat respondent’s concession on brief as a concession with respect to exhibit 243-p petitioner’s relationship with daniel abelein petitioner and daniel abelein mr abelein married in as of the date of trial they were still married and living together petitioner generally had no desire to understand and no interest in business matters and did not attempt to understand business documents or read fine print petitioner was however responsible for paying the household bills and during the years at issue she did so from her joint account with mr abelein according to petitioner although mr abelein made all of the family’s financial decisions petitioner and mr abelein decided on and saved for large purchases together petitioner sometimes disagreed with mr abelein’s decisions but was never threatened by mr abelein into making investments signing their tax returns or signing checks mr abelein never deceived petitioner about their finances or hid mail from her mr abelein answered petitioner honestly if she asked him about their finances mr abelein never abused petitioner during the years at issue petitioner and mr abelein lived in the same house that they built in drove used cars took 3mr abelein graduated from high school and completed years of college and an apprenticeship as an electrician mr abelein worked as an electrician and recently started his own general contracting company as of mr abelein had no formal education in finance or tax and no experience in cattle ranching or selling cattle inexpensive vacations and had no investments other than their hoyt partnership investments and a hoyt individual_retirement_account ira hoyt partnerships walter j hoyt iii mr hoyt was the son of a prominent shorthorn cattle breeder who along with other members of his family organized promoted and operated more than cattle breeding partnerships from to each partnership was organized and marketed in the same manner and mr hoyt served as the general_partner of each partnership for an overview of the hoyt organization see bales v commissioner tcmemo_1989_ see also river city ranches ltd v commissioner tcmemo_2003_150 mekulsia v commissioner tcmemo_2003_138 durham farms v commissioner tcmemo_2000_159 affd 59_fedappx_952 9th cir river city ranches v commissioner tcmemo_1999_209 affd 23_fedappx_744 9th cir investment in durham genetics engineering ltd in mr abelein learned of the hoyt organization from his brother after speaking with another friend who had invested in the hoyt partnerships mr abelein contacted an accountant to inquire whether the investment was legal although mr abelein did not pay the accountant or provide the accountant with any of the hoyt promotional materials the accountant advised him the hoyt partnership was legal mr abelein also contacted a local internal_revenue_service irs agent to determine whether the investment was legal the agent would not discuss the hoyt investment with mr abelein and only answered mr abelein’s general questions regarding the relationship of the federal government and the cattle industry before investing petitioner reviewed a hoyt brochure and had access to other hoyt materials petitioner and mr abelein also attended a hoyt partnership meeting where two hoyt representatives were present mr abelein asked petitioner to go to the meeting because he wanted petitioner to hear about the hoyt organization directly from those involved in the company rather than from him mr abelein was very forthcoming towards petitioner with respect to what he knew about the hoyt partnerships he explained to petitioner that they would claim losses from the partnership on their joint tax returns and should not expect to earn a profit until the 8th to 10th year of the partnership petitioner knew that she and mr abelein could get refunds from previous years’ tax returns and invest them in the hoyt cattle business petitioner and mr abelein agreed that they should invest in the hoyt organization to help pay for their children’s college tuition in both petitioner and mr abelein signed three separate subscription agreements for series a b and c units in the timeshare breeding service ltd also known as durham genetics engineering ltd hereinafter dge partnership mr abelein asked petitioner to sign the necessary subscription agreements to invest and become partners in the hoyt partnership mr abelein did not threaten petitioner to induce her to sign the hoyt agreements each subscription agreement stated that the parties’ signatures evidenced their intent to subscribe to the units and to enter into a partnership_agreement and the subscription agreement for series a units also granted mr hoyt a power_of_attorney over partnership matters mr hoyt signed the partnership_agreement as attorney in fact for petitioner and mr abelein on all three subscription agreements for dge mr abelein signed on the line for subscriber to the investment on the dge subscription agreements for series b and c units petitioner signed on the line for signature of spouse subscriber if purchase is made jointly on the series a agreement a checkmark was placed on the line next to community_property an ownership option which only required one signature petitioner nevertheless signed on the line indicated for signature of spouse on the series a agreement this agreement also contained the following language the undersigned recognize the partnership has no history of operations or earnings and this investment therein is a speculative venture and if they elect to participate they may lose the total amount of their investment dge issued a schedule_k-1 partner’s share of income credits deductions etc for and an amended schedule_k-1 for to petitioner and mr abelein that listed them both as partners petitioner and mr abelein also received schedules k-1 from their other hoyt investments each year from to that always listed both petitioner and mr abelein as partners petitioner never questioned why she was listed as a partner or made any effort to remove her name from partnership-related documents after investing in dge mr abelein attended partnership meetings at least once a month and asked petitioner to attend with him petitioner attended approximately half of the meetings petitioner did not ask any questions at the meetings in or petitioner and mr abelein also visited the hoyt ranches 4from through petitioner and mr abelein invested in several other hoyt partnerships durham genetic engineering 1986-a florin farms and shorthorn genetic engineering the record does not disclose whether the abeleins invested in these partnerships jointly or separately the abeleins’ treatment of hoyt documents the abeleins received correspondence from the hoyt organization including monthly newsletters advertisements and newspaper articles which informed them of recent developments in the cattle breeding industry and events taking place within the hoyt organization mr abelein would typically read the correspondence and then leave it for petitioner to read or file with their other hoyt-related materials petitioner looked at the pictures and read the social news in the correspondence but chose not to read the materials that were business-related or contained a lot of words petitioner had access to the correspondence at all times in addition the abeleins received a brochure entitled the big_number lb tax_shelter a round-up of data and a quick course in cattle breeding tax_shelters from the hoyt organization the specific risks involved section of the brochure stated a change in the tax law or an audit and disallowance by the irs could take away all or part of the tax benefits plus the possibility of having to pay back the tax savings with penalties and interest the brochure highlighted that the partnership sec_5this same language was used in the registered livestock purchase guide another hoyt brochure petitioner received this brochure also compared investing in a hoyt partnership to a roller coaster ride and cautioned the cattle business today cannot be separated from tax law any more than cattle can be separated from grass and water don’t have anything to do with continued would be subject_to constant audits by the irs the brochure even warned if you don’t have a tax man who knows you well enough to give you specific personal advice as to whether or not you belong in the cattle business stay out and don’t have anything to do with any aspect of the cattle business without thorough tax_advice the brochure also echoed the language of the subscription agreements noting if you invest in a cattle partnership you may lose every last dime you put into it mr abelein occasionally asked petitioner to follow up on the hoyt information they received mr abelein asked petitioner to call the hoyt organization and to ask questions for him about the materials mr abelein also reviewed bills from the hoyt organization and made payment decisions when necessary including decisions about additional participation in hoyt opportunities mr abelein explained to petitioner what the bills were for and told or asked her to pay them petitioner wrote numerous checks to the hoyt organization from her joint account with mr abelein including a check for dollar_figure in when the hoyt bills differed from petitioner’s expectations she questioned the discrepancies and asked mr abelein to discuss them with the hoyt organization according to continued any aspect of the cattle business without having a good tax pro working with you all the time as a continuing part of the deal petitioner she relied on mr abelein because she felt he had more business sense than she did tax returns petitioner and mr abelein filed joint federal_income_tax returns for and on or about may petitioner and mr abelein filed form_1045 application_for tentative refund on which they carried back an investment_credit from dge and applied it to their and taxable years petitioner and mr abelein received refunds of dollar_figure dollar_figure and dollar_figure for and respectively as a result petitioner and mr abelein paid no income taxes for those years on their federal_income_tax returns for petitioner and mr abelein reported the following total income sch e ira investment year before sch e loss loss contribution credit dollar_figure -- big_number -- -- -- -- -- -- -- dollar_figure dollar_figure -- dollar_figure big_number big_number big_number big_number -- the schedule e supplemental income schedule losses were the losses attributable to dge that were allocated to petitioner and mr abelein on the schedules k-1 they received from the hoyt organization the ira contribution represented an amount allegedly contributed to an ira established for petitioner and mr abelein before petitioner and mr abelein invested in the hoyt partnerships mr abelein prepared the returns himself or had a tax_return_preparer or accountant prepare the returns after petitioner and mr abelein invested in the hoyt partnerships the tax office of w j hoyt sons management company prepared their returns when mr abelein received the completed returns from the hoyt organization he looked over the returns and signed them petitioner also signed the returns petitioner knew she was not allowed to deduct expenses on the returns that she did not incur and that it was important to review the returns before she signed them mr abelein did not threaten petitioner to obtain her signature on the returns petitioner could identify the hoyt-related items on their and returns petitioner even asked mr abelein about the numbers on their form_3468 computation of investment_credit which accompanied their tax_return because she did not understand where they came from in later years petitioner asked mr abelein other questions about the effect of the investment on their tax returns including how can you legally go back on your taxes and how can you have so many deductions when you really don’t have that many kids the hoyt partnership litigation and settlement the commissioner initiated audits of the hoyt partnerships including but not limited to dge and sent appropriate notices to the partners including petitioner and mr abelein mr hoyt the tax_matters_partner for the partnerships represented the hoyt partnerships during the audits as a result of the audits the commissioner proposed adjustments to the hoyt partnership tax returns the hoyt partnerships filed petitions in this court to contest the partnership adjustments the partnership-level proceedings were resolved as a result of our opinions in shorthorn genetic engg ltd v commissioner tcmemo_1996_515 and bales v commissioner tcmemo_1989_568 involving dockets filed by partners in similar hoyt partnerships that were tried as test cases and covered taxable years before and a memorandum of understanding between the irs and mr hoyt dated date the settlement agreement that set forth the basis for settling all hoyt cattle partnership cases for through in bales v commissioner supra we held inter alia that although the hoyt partnerships at issue were not lacking in economic_substance and would be respected for tax purposes 6for example on date respondent sent petitioner and mr abelein a notice of beginning of an administrative_proceeding at the partnership level concerning the audit of dge for the taxable_year on date respondent sent petitioner and mr abelein a notice of beginning of an administrative_proceeding at the partnership level concerning the audit of dge for the taxable_year on date respondent sent petitioner and mr abelein a notice of final_partnership_administrative_adjustment concerning the audit of dge for the taxable_year adjustments to the hoyt partnerships’ proportionate shares of losses generated from the acquisition management and sale of hoyt cattle were required and the recalculated losses were deductible by the limited partners to the extent of the partners’ adjusted bases the settlement agreement which was executed after we issued bales in provided in pertinent part as follows deductions for contributions to an individual_retirement_arrangement -- also called an investment retirement account -- are limited to cash actually paid to custodial banks on or before the due_date of the return for which the deduction is to be claimed the total number of cattle in service and subject_to depreciation by the investor partnerships in each of the following respective years is -- big_number -- big_number -- big_number -- big_number -- big_number -- big_number -- big_number for federal_income_tax purposes all the cattle are adult breeding cattle each having an original depreciable basis of dollar_figure the number of cattle to be depreciated during any year will be determined by the following method the depreciable cattle in the herd of each investor partnership will be adjusted by multiplying the number listed in the partnership’s books_and_records by the ratio of the aggregate number of cattle in service in all the partnerships as indicated immediately above over the aggregate number of cattle listed in the partnerships’ books_and_records and subject_to depreciation for example in the year the books_and_records of florin farms indicate that the partnership claimed head of cattle subject_to depreciation the aggregate number of cattle listed in the depreciation schedules of all the investor partnerships was big_number for purposes of this case then florin farms would be considered to have head of cattle subject_to depreciation computed as follows x big_number big_number depreciation for all cattle placed_in_service in will be computed using the straight_line method and a year useful_life -- without regard to the adr system or any other methods previously used all cattle which were already in partnerships on date will be considered placed_in_service in such cattle would therefore be eligible for depreciation for only years -- and they would then be considered fully depreciated depreciation for all cattle placed_in_service after will be computed using the accelerated_cost_recovery_system considering the cattle year property all purchases of cattle after are in the year the partnership is formed investment_tax_credit will be allowed on the number of cattle in service during the first year of the partnership’s existence as revised by the formula discussed above times dollar_figure per head cattle will be considered placed_in_service in the year the partnership is formed all cattle purchased are new sec_38 property satisfaction of obligations for interest principal payments and management fees by transferring calves and culled cows will constitute ordinary_income to the investor partnerships this convention is consistent with the tax court’s decision in bales v commissioner which provides that calves are not sec_1231 property and although culled cattle are sec_1231 property the gain on which may be long term capital_gain depending on the holding_period depreciation allowed must be recaptured as ordinary_income under the provisions of sec_1245 for all years after management company is comprised of mr hoyt who is entitled to of the profits and the investor partnerships in existence at date the investor partnerships are each entitled to of the remaining of the profits the investor partnerships are each entitled to of of any net losses each partner’s profit and loss sharing percentage is determined annually by comparing the partner’s capital_account to the aggregate of the capital accounts of all partners in the partnership this determination is made based on the total capital owned not the total capital originally subscribed partners in the investor partnerships are divided into two categories partners who continue to honor their note obligations to ranches and who continue to participate in the hoyt cattle partnership for purposes of this memorandum will be referred to as the active partners partners who have walked away from their note obligations and or who no longer participate in the partnership for purposes of this memorandum will be referred to as the inactive partners the determination of when and whether a partner is active or inactive and the status of the partner’s ownership_interest will be made using all appropriate records of ranches the investor partnerships and the individual partners including but not limited to ranches’ note records whether or not schedules k-1 were issued to partners whether the partners continued to claim items from the partnership on federal_income_tax returns correspondence and forms the amount of liabilities assumed personally by the partners during the first year of the partnership will be based on original subscription agreements and will be provided by walter j hoyt iii within one week after the partnership spreadsheet is submitted to him for review and or correction for federal_income_tax purposes the maximum amount of partnership debt which can be assumed by all partners in an investor partnership is determined by multiplying the number of cattle in service during the first year of the partnership’s existence -- as indicated above -- by the fair_market_value of the cattle for federal_income_tax purposes dollar_figure for example poison creek ranches is considered to have put in service head of cattle in the cost_basis of the cattle for purposes of depreciation is dollar_figure per head therefore the maximum amount of the note due to ranches incident to depreciation and which is includible in the partner’s basis is dollar_figure calculated as follows cattle in service cost_basis per head total partnership note includible in basi sec_118 dollar_figure big_number dollar_figure all partners who originally assumed personal liability for a portion of the partnership debt during the first year of the partnership -- whether they are now determined to be active or inactive partners -- will be assigned a share of the lower amount of recognized partnership debt described above each partner’s share will be the exact same percentage as his her share of the partnership debt originally assumed inactive partners are deemed to have liquidated their respective partnership_interest when they abandon it according to the following guidelines the amount_realized by partners on the liquidation of their partnership_interest will be the amount of the assumed liability for which they remained liable when they abandoned their interest in the partnership this amount is the partner’s share of the lower recognized partnership debt described above the deemed liquidation of partnership_interest by inactive partners will occur on december of the year they become inactive as described above in computing at risk active partners are entitled to include their prorated share of partnership debt which was previously attributable to inactive partners for purposes of at risk and basis active partners assume this additional debt on the date an inactive partner is deemed to have liquidated his her partnership_interest as described in the immediately preceding paragraph profits losses and credits -- after considering mr hoyt’s share -- are allocated strictly on the basis of capital_account this means that each partner’s interest in the credits profits and or loss is calculated annually by comparing the partner’s capital_account to the aggregate of the capital accounts of all partners in the partnership for purposes of computing a partner’s capital_account all partners are entitled to include their share of partnership debt for which they assumed personal liability until they liquidate their interest in the partnership any partner having a capital_account below zero has a basis in the partnership below zero pursuant to and in accordance with the settlement agreement and our opinion in shorthorn genetic engg ltd v commissioner tcmemo_1996_515 the capital_account of petitioner and mr abelein was recomputed and computational adjustments were made to the distributive shares of hoyt partnership losses claimed by petitioner and mr abelein resulting in deficiencies for each of the years at issue the adjustments were primarily attributable to the fact that the hoyt organization had sold more cattle to the various hoyt limited_partnerships than it actually owned see id and had failed to properly account for income generated by the sales of calves in calculating partnership losses see bales v commissioner tcmemo_1989_568 on date respondent mailed petitioner and mr abelein a letter that explained how respondent’s examination of dge’s partnership returns affected the abeleins’ income_tax_liability for taxable years through 7respondent’s adjustments resulted in reductions of the schedule e losses and investment credits the abeleins claimed and a disallowance of their ira contribution deduction so that the abeleins’ tax_liability was increased for the taxable years in issue as follows dollar_figure for dollar_figure for dollar_figure continued petitioner and mr abelein handled irs correspondence in the same way as the hoyt materials so that it was available to petitioner at all times over the years petitioner told mr abelein she did not want to be a part of the partnership anymore despite her concerns and notice of the partnership_audits petitioner made no efforts to extricate herself from the hoyt partnership and continued to invest in the organization with mr abelein petitioner’s innocent spouse claim on or around date petitioner submitted a form_8857 request for innocent spouse relief and separation of liability and equitable relief on which she requested relief pursuant to sec_6015 for the taxable years through on date respondent sent petitioner a preliminary determination_letter denying petitioner’s request for relief under sec_6015 c and f for taxable years through respondent denied relief on the basis that petitioner had actual knowledge or reason to know of the item giving rise to the understatement petitioner did not show continued for dollar_figure for and dollar_figure for 8on date respondent sent petitioner a letter indicating her request for relief for through was premature on date respondent sent petitioner a letter indicating her request for relief for tax years and was premature the erroneous items were attributable to her spouse petitioner did not demonstrate that it would be inequitable to hold her liable for the deficiency attributable to the understatement and petitioner did not meet the marital status requirements of sec_6015 on date petitioner timely submitted a written appeal of respondent’s determination on date respondent issued a notice_of_determination in which he concluded that petitioner did not qualify for relief from joint_and_several_liability under sec_6015 c or f with respect to his determination under sec_6015 respondent stated that you failed to meet all the requirements of sec_6015 therefore you do not qualify for relief under the law with respect to his determination under sec_6015 respondent stated that you are not eligible for relief under the law since the majority of the factors weighs against relief on date petitioner timely filed a petition with this court pursuant to sec_6015 seeking review of respondent’s determination with respect to sec_6015 and f for petitioner’s taxable years 9we consider petitioner’s request for relief under sec_6015 even though she originally requested relief on form_8857 request for innocent spouse relief and separation of liability and equitable relief under sec_6015 only respondent continued opinion in general taxpayers filing joint federal_income_tax returns are each responsible for the accuracy of the return and are jointly and severally liable for the full tax_liability sec_6013 114_tc_276 in certain circumstances however a taxpayer may obtain relief from joint_and_several_liability by satisfying the requirements of section dollar_figure sec_6015 provides that a spouse who has made a joint_return may elect to seek relief from joint_and_several_liability under sec_6015 dealing with relief from liability for an understatement_of_tax on a joint_return sec_6015 provides that a spouse who is eligible to do so may elect to limit that spouse’s liability for any deficiency with respect to a joint_return under sec_6015 relief from joint_and_several_liability under sec_6015 or c is available only with respect to a deficiency for the year for continued treated the application as a request for relief under sec_6015 c and f and denied relief under each subsection in his preliminary and final_determination letters petitioner does not dispute respondent’s determination with respect to his denial of sec_6015 relief sec_6015 applies to tax_liabilities arising after date and to tax_liabilities arising on or before date that remain unpaid as of such date internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_740 which relief is sought sec_6015 and c see h conf rept pincite 1998_3_cb_747 if relief is not available under either sec_6015 or c an individual may seek equitable relief under sec_6015 which may be granted by the commissioner in his discretion in this case petitioner contends that she is entitled to full relief from liability under sec_6015 or f our jurisdiction to review petitioner’s request for relief is conferred by sec_6015 which allows a spouse who has requested relief from joint_and_several_liability to contest the commissioner’s denial of relief by filing a timely petition in this court we address petitioner’s request under subsections b and f of sec_6015 in turn a sec_6015 sec_6015 authorizes respondent to grant relief from joint_and_several_liability if the taxpayer satisfies each requirement of subparagraphs a through e sec_6015 provides sec_6015 procedures for relief from liability applicable to all joint filers -- in general --under procedures prescribed by the secretary if-- a a joint_return has been made for a taxable_year b on such return there is an understatement_of_tax attributable to erroneous items of individual filing the joint_return c the other individual filing the joint_return establishes that in signing the return he or she did not know and had no reason to know that there was such understatement d taking into account all the facts and circumstances it is inequitable to hold the other individual liable for the deficiency in tax for such taxable_year attributable to such understatement and e the other individual elects in such form as the secretary may prescribe the benefits of this subsection not later than the date which i sec_2 years after the date the secretary has begun collection activities with respect to the individual making the election then the other individual shall be relieved of liability for tax including interest penalties and other_amounts for such taxable_year to the extent such liability is attributable to such understatement the requirements of sec_6015 are stated in the conjunctive therefore if the requesting spouse fails to meet any one of them she does not qualify for relief 119_tc_306 affd 101_fedappx_34 6th cir except as provided by sec_6015 the requesting spouse bears the burden of proving that she satisfies each requirement of sec_6015dollar_figure see rule a 11petitioner does not contend that sec_7491 applies to this case and has not produced evidence to show she satisfied the requirements of sec_7491 respondent does not dispute that petitioner meets the requirements of subparagraphs a and e of sec_6015 but contends that petitioner has not satisfied the requirements of subparagraphs b c and d of sec_6015 petitioner disagrees with respect to subparagraph b of sec_6015 petitioner argues that the understatement_of_tax is attributable entirely to the erroneous items of mr abelein because the investment in dge was not a joint investment and mr abelein was solely responsible for the partnership investment respondent argues that the understatement_of_tax is not solely attributable to the erroneous items of mr abelein because both petitioner and mr abelein owned the partnership_interest in dge and petitioner participated in the investment respondent relies on ellison v commissioner tcmemo_2004_57 to support his position in ellison v commissioner supra we held that the taxpayer failed to prove that the understatement_of_tax was solely attributable to the erroneous items of the nonrequesting spouse under sec_6015 because the requesting spouse was a partner in the hoyt partnerships agreed to invest in the hoyt partnerships and did so jointly with her spouse the taxpayer in ellison also signed partnership documents and checks payable to the hoyt organization and used funds from a joint account she held with her spouse to invest in the partnership the hoyt organization also treated the taxpayer as a partner issuing schedules k-1 that listed both the taxpayer and her spouse as partners id the facts of ellison are indistinguishable from those in the present case and support the conclusion that the erroneous items are not solely mr abelein’s petitioner signed the partnership documents required for her to become a partner and begin the investment and she indicated she was making the investment jointly with mr abelein petitioner and mr abelein invested in the hoyt partnerships using funds from their joint bank account petitioner wrote and signed personal checks that were payable to the various hoyt entities for their partnership interests the hoyt organization viewed petitioner and mr abelein as joint investors petitioner contends however that joint_ownership of the investment is not determinative of whether the erroneous item giving rise to the understatement is attributable to one or both spouses petitioner argues that the erroneous items should be attributed to the individual who made the decisions relating to the investment that produced those items and cites rowe v commissioner tcmemo_2001_325 to support her contention we reject petitioner’s argument because rowe is distinguishable from the present case in deciding whether the taxpayer in rowe was entitled to sec_6015 relief we did not allocate the erroneous losses of the taxpayer’s spouse’s farming activities to her even though she was listed as a proprietor on their joint returns because she made no decisions related to the farm her spouse withheld relevant financial documents from her and other than attending occasional horse shows to support her children the taxpayer was not involved in the farming activity in capehart v commissioner tcmemo_2004_268 we also rejected petitioner’s argument for reasons that are equally applicable to the present case in capehart the taxpayer was involved in the hoyt partnership that generated the erroneous losses at issue even though her spouse initiated the investment the taxpayer jointly invested in the partnership with her spouse met with mr hoyt toured the hoyt ranches received promotional and informational materials from the hoyt partnerships became a partner with her spouse by signing a subscription agreement made calls to the hoyt organization to obtain answers to questions about the investment and signed the income_tax returns prepared by the hoyt organization consequently we held in capehart that the erroneous items giving rise to the understatements of tax were attributable to the taxpayer and her spouse as in capehart the record demonstrates that petitioner was actively involved along with mr abelein in matters relating to their investment in dge so that rowe is distinguishable petitioner and mr abelein met hoyt representatives toured the hoyt ranches received and read various promotional and informational materials from the hoyt partnerships became partners by signing the subscription agreements attended hoyt partnership meetings paid hoyt bills made phone calls to the hoyt organization and reviewed and signed income_tax returns prepared by the hoyt organization additionally petitioner admitted that she and mr abelein agreed they should invest in the hoyt partnership regardless of whether mr abelein proposed the dge investment to petitioner and at times petitioner simply complied with mr abelein’s requests out of lack of interest in business matters petitioner ultimately agreed to invest in the partnership invested jointly with mr abelein and actively participated in the investment this is sufficient for us to find that the erroneous items giving rise to the understatement_of_tax are attributable to both petitioner and mr abelein capehart v commissioner supra bartak v commissioner tcmemo_2004_83 ellison v commissioner tcmemo_2004_57 see also 117_tc_279 doyel v commissioner tcmemo_2004_35 we conclude that petitioner has failed to prove that the erroneous items giving rise to the understatement_of_tax are mr abelein’s alone because petitioner’s failure to satisfy the requirement of subparagraph b of sec_6015 is sufficient for us to deny relief pursuant to that section we need not decide or address whether petitioner satisfied the requirements of sec_6015 and d however for the sake of completeness we conclude that petitioner did not meet the requirements of sec_6015 and d for the reasons set forth in our analysis of sec_6015 infra accordingly we sustain respondent’s determination to deny petitioner relief from joint_and_several_liability under sec_6015 b sec_6015 sec_6015 provides an alternative means of relief for a requesting spouse who does not otherwise qualify for relief under subsection b or c of sec_6015 sec_6015 we review the commissioner’s determination to deny equitable relief under sec_6015 using an abuse_of_discretion standard butler v commissioner t c pincite under this standard of review we defer to the commissioner’s determination unless it is arbitrary capricious or without sound basis in fact 118_tc_106 affd 353_f3d_1181 10th cir the question of whether the commissioner’s determination was an abuse of his discretion is a question of fact 115_tc_183 affd 282_f3d_326 5th cir a requesting spouse bears the burden of proving that the commissioner abused his discretion in denying relief under sec_6015 because we have determined petitioner does not qualify for sec_6015 relief and petitioner does not seek review of respondent's denial of relief under sec_6015 we must decide whether respondent abused his discretion in denying petitioner relief from joint_and_several_liability under sec_6015 cheshire v commissioner supra pincite butler v commissioner supra pincite pursuant to sec_6015 the commissioner has prescribed procedures in revproc_2000_15 2000_1_cb_447 for determining whether the requesting spouse qualifies for relief under that sectiondollar_figure in this case although the notice_of_determination does not state that respondent utilized the procedures specified in revproc_2000_15 supra to make his determination that petitioner is not entitled to relief under sec_6015 the notice_of_determination refers to respondent’s analysis of factors and we assume that respondent’s reference to factors in the notice_of_determination is to the factors enumerated in revproc_2000_15 supra this court has upheld the use of the guidelines specified in revproc_2000_15 12on date the commissioner issued revproc_2003_61 2003_32_irb_296 which supersedes revproc_2000_15 2000_1_cb_447 the new revenue_procedure is effective for requests for relief filed on or after date and therefore is inapplicable here supra and has analyzed the factors listed in revproc_2000_15 supra in reviewing the commissioner’s negative determination under sec_6015 see eg 120_tc_137 jonson v commissioner supra pincite moreover petitioner has not objected to the use of these guidelines and she has addressed the factors in her posttrial briefs revproc_2000_15 sec_4 c b pincite lists seven threshold conditions that must be satisfied before the commissioner will consider a request for relief under sec_6015 respondent concedes that petitioner satisfies the seven threshold conditions revproc_2000_15 sec_4 c b pincite provides that in cases where the threshold conditions set forth in revproc_2000_15 sec dollar_figure have been satisfied but the requesting spouse does not qualify for relief under revproc_2000_15 sec_4 c b pincite equitable relief may be granted under sec_6015 if taking into account all facts and circumstances it is inequitable to hold the requesting spouse liable revproc_2000_15 sec_4 and c b pinciterev proc sec_4 2000_1_cb_447 lists the circumstances under which equitable relief under sec_6015 will ordinarily be granted in cases where a liability reported on a joint_return is unpaid because this case involves deficiencies not unpaid liabilities reported on joint returns revproc_2000_15 sec dollar_figure does not apply see mellen v commissioner tcmemo_2002_280 contains a list of positive and negative factors that the commissioner must take into account in determining on the facts and circumstances whether to grant full or partial equitable relief under sec_6015 as revproc_2000_15 sec dollar_figure makes clear no single factor is determinative in any particular case all factors are to be considered and weighed appropriately and the listing of factors is not intended to be exhaustive see also washington v commissioner supra pincite jonson v commissioner supra pincite revproc_2000_15 sec_4 lists the following six positive factors that the commissioner will weigh in favor of granting equitable relief a marital status the requesting spouse is separated or divorced from the nonrequesting spouse b economic hardship the requesting spouse would suffer economic hardship within the meaning of sec_4 c of this revenue_procedure if relief from the liability is not granted c abuse the requesting spouse was abused by the nonrequesting spouse but such abuse did not amount to duress d no knowledge or reason to know in the case of a liability that was properly reported but not paid the requesting spouse did not know and had no reason to know that the liability would not be paid in the case of a liability that arose from a deficiency the requesting spouse did not know and had no reason to know of the items giving rise to the deficiency e nonrequesting spouse’s legal_obligation the nonrequesting spouse has a legal_obligation pursuant to a divorce decree or agreement to pay the outstanding liability this will not be a factor weighing in favor of relief if the requesting spouse knew or had reason to know at the time the divorce decree or agreement was entered into that the nonrequesting spouse would not pay the liability f attributable to nonrequesting spouse the liability for which relief is sought is solely attributable to the nonrequesting spouse revproc_2000_15 sec_4 lists the following six negative factors that the commissioner weighs against granting equitable relief a attributable to the requesting spouse the unpaid liability or item giving rise to the deficiency is attributable to the requesting spouse b knowledge or reason to know a requesting spouse knew or had reason to know of the item giving rise to a deficiency or that the reported liability would be unpaid at the time the return was signed this is an extremely strong factor weighing against relief nonetheless when the factors in favor of equitable relief are unusually strong it may be appropriate to grant relief under sec_6015 in limited situations where a requesting spouse knew or had reason to know that the liability would not be paid and in very limited situations where the requesting spouse knew or had reason to know of an item giving rise to a deficiency c significant benefit the requesting spouse has significantly benefitted beyond normal support from the unpaid liability or items giving rise to the deficiency see sec_1 b d lack of economic hardship the requesting spouse will not experience economic hardship within the meaning of sec_4 c of this revenue_procedure if relief from the liability is not granted e noncompliance with federal_income_tax laws the requesting spouse has not made a good_faith effort to comply with federal_income_tax laws in the tax years following the tax_year or years to which the request for relief relates f requesting spouse’s legal_obligation the requesting spouse has a legal_obligation pursuant to a divorce decree or agreement to pay the liability the knowledge or reason to know factor the economic hardship factor and the legal_obligation factor in revproc_2000_15 sec_4 b d and f respectively are the opposites of the knowledge or reason to know factor the economic hardship factor and the legal_obligation factor in revproc_2000_15 sec_4 d b and e respectively the attribution factor in revproc_2000_15 sec_4 a is substantially the opposite of the attribution factor in revproc_2000_15 sec_4 f consequently in our review of the commissioner’s determination denying relief under sec_6015 we have held that a finding with respect to the reason to know economic hardship legal_obligation and attribution factors ordinarily will weigh either in favor of or against granting equitable relief under sec_6015 122_tc_32 we have also held that a finding that a requesting spouse did not receive a significant benefit from the item giving rise to the deficiency weighs in favor of granting relief under sec_6015 id finally we treat evidence that the remaining positive and negative factors are not applicable as evidence weighing neither in favor of nor against granting equitable relief ie as neutral id in accordance with the above we shall consider each of the positive and negative factors enumerated in revproc_2000_15 sec_4 we shall also consider whether any additional facts alleged by the parties affect the analysis of whether respondent abused his discretion in denying petitioner equitable relief under sec_6015 positive factors a marital status petitioner is still married and living with mr abelein consequently this positive factor does not apply ewing v commissioner supra pincite b economic hardship an analysis of economic hardship under revproc_2000_15 supra is conducted using rules similar to those under sec_301_6343-1 proced admin regs and focuses on the requesting spouse’s inability to pay reasonable basic living_expenses revproc_2000_15 sec_4 c sec_301_6343-1 proced admin regs provides that the commissioner will evaluate a requesting spouse’s claim of economic hardship by considering any information offered by the requesting spouse that is relevant to the determination including but not limited to the requesting spouse’s income assets and liabilities age ability to earn responsibility for dependents and the amount reasonably necessary for basic living_expenses petitioner offered no evidence of her income expenses assets or liabilities other than her own testimony and that of her spouse that they continued to live in the same house they built in drove used cars and took inexpensive vacations in the absence of corroborating evidence we are not required to accept petitioner’s self-serving testimony 87_tc_74 consequently we conclude that petitioner has failed to carry her burden of proving that requiring her to pay the liabilities from which she seeks relief would result in economic hardship within the meaning of sec_301_6343-1 proced admin regs because petitioner has failed to establish that she will suffer an economic hardship we conclude that this positive factor does not apply c abuse by nonrequesting spouse mr abelein never abused petitioner and he did not persuade petitioner to invest in the hoyt partnerships by threatening to abuse her this positive factor does not apply ewing v commissioner supra pincite washington v commissioner t c pincite d no knowledge or reason to know the tax_liabilities at issue in this case arose from deficiencies petitioner argues that she did not know or have any reason to know of the items giving rise to those deficiencies in order to ascertain the level of the requesting spouse’s knowledge of the items giving rise to the deficiency for purposes of sec_6015 we must examine whether the requesting spouse knew or had reason to know of the factual basis for the denial of the deductions capehart v commissioner tcmemo_2004_268 see also mora v commissioner t c pincite- 116_tc_198 with respect to sec_6015 our review of the record convinces us that petitioner did not have actual knowledge of the items giving rise to the deficiency however we still must decide whether petitioner had reason to know of the items giving rise to the deficiency in order to resolve the issue we must examine whether and to what extent petitioner had reason to know of the factual basis for respondent’s adjustment to the hoyt partnership loss deductions and the ira deduction claimed by petitioner and her husband during the years at issue at the time she filed her petition petitioner resided in oregon in the absence of a stipulation to the contrary the u s court_of_appeals for the ninth circuit is presumably the proper venue for an appeal in this case see sec_7482 we believe that the court_of_appeals would require an analysis of the reason to know requirement like the one it articulated in 887_f2d_959 9th cir dollar_figure consequently we first examine whether petitioner had reason to know of the items giving rise to the deficiency applying the same factors used in price the spouse’s level of education the spouse’s involvement in the family’s business and financial affairs the presence of expenditures that appear lavish or unusual when compared to the family’s past levels of income standard of living and spending patterns and the culpable spouse’s evasiveness and deceit concerning the couples’ finances id pincite if we conclude that petitioner did not have reason to know we next examine whether petitioner had knowledge of sufficient facts to impose upon her a duty to inquire id finally we examine whether petitioner satisfied her duty to inquire id in this case petitioner who graduated from both an lpn course and an rn course was actively involved in the family’s financial affairs she was responsible for paying the family’s household bills wrote and signed checks drawn on the joint checking account and together with mr abelein decided on and saved for large purchases 14we believe this to be so even though 887_f2d_959 9th cir involves a different statute for a discussion of the reason to know analysis used in price and its applicability see capehart v commissioner tcmemo_2004_268 mr abelein never deceived petitioner about their finances or partnership investments or concealed financial or partnership information from her with respect to the hoyt partnership investments mr abelein encouraged petitioner to attend partnership meetings to call the hoyt organization and to pay the hoyt partnership bills petitioner also had the opportunity to review the promotional materials they received but she chose not to do so see morello v commissioner tcmemo_2004_181 we have consistently applied the principle that the provisions providing relief from joint_and_several_liability are ‘designed to protect the innocent not the intentionally ignorant ’ quoting dickey v commissioner t c memo those promotional materials warned potential investors that the promised tax savings may be disallowed by the irs and that potential investors should consult independent tax advisers before making an investment in the partnership neither petitioner nor mr abelein hired a competent professional to verify critical factual representations made by the hoyt organization moreover petitioner was aware of the large_partnership deductions being claimed on the tax returns for not only was she able to identify the hoyt-related items on their returns but in later years she even questioned mr abelein about the legitimacy of their deductions and their ability to go back on their taxes we conclude therefore that petitioner has not shown that she had no reason to know of the items giving rise to the deficiency even assuming we were to conclude that a reasonably prudent person in petitioner’s position at the time she signed the returns for the years at issue could not be expected to know the facts leading to the disallowance of the hoyt partnership deductions and the ira contribution deduction we would still conclude that petitioner failed to satisfy her duty_of inquiry petitioner and mr abelein did not make any effort to verify the most important and most basic facts essential for the viability of the hoyt partnership investments and their tax consequences for example they conducted no investigation of whether the hoyt partnerships in which they were investing actually owned cattle in sufficient numbers and with sufficient value to support the projected loss deductions they did not ask a knowledgeable tax professional to investigate or verify that they would have sufficient basis in their hoyt partnership investments to claim their distributive shares of partnership tax deductionsdollar_figure they allowed the promoter of the hoyt partnerships to prepare their personal income_tax returns and they apparently never requested or obtained verification that the ira contribution claimed on 15while mr abelein testified he contacted an accountant and an irs agent about the legality of the hoyt partnerships he admitted that he only discussed the partnerships in general terms and that the irs agent would not discuss the actual hoyt organization with him at all their joint returns had actually been made by the contribution deadline we conclude therefore that this factor weighs against granting equitable relief e nonrequesting spouse’s legal_obligation because petitioner is not separated or divorced from her husband this positive factor does not apply f liabilities solely attributable to nonrequesting spouse we concluded earlier in this opinion that because petitioner and mr abelein were joint investors and petitioner participated in the investment the erroneous items giving rise to the deficiency are items of both petitioner and mr abelein because petitioner has failed to establish that any of the items giving rise to the deficiency are solely attributable to mr abelein we conclude that this positive factor does not apply negative factors a attributable to the requesting spouse respondent argues that the erroneous items giving rise to the deficiencies are attributable to both petitioner and mr abelein we agree with respondent’s argument for reasons stated earlier in this opinion the record adequately establishes that the hoyt partnership investments made by petitioner and mr abelein were joint investments and that petitioner actively participated in making those investments this factor weighs against granting petitioner equitable relief under sec_6015 b knowledge or reason to know for the reasons stated in our analysis of the corresponding positive factor we conclude that petitioner had reason to know of the items giving rise to the deficiencies in this case and or failed to satisfy her duty_of inquiry regarding the items this factor weighs heavily against granting petitioner equitable relief under sec_6015 revproc_2000_15 sec_4 b c significant benefit petitioner argues she did not significantly benefit beyond normal support from the hoyt partnership losses and investment tax_credits giving rise to the deficiencies yet because of the investment petitioner and mr abelein received tax savings of dollar_figure they otherwise would not have received in doyle v commissioner tcmemo_2003_96 affd 94_fedappx_949 3d cir we held that a requesting spouse significantly benefited from the items giving rise to the deficiency which were tax_shelter deductions because she received significant tax refunds as a result of the items likewise in this case petitioner and mr abelein received substantial income_tax refunds as a result of the items giving rise to the deficiencies that petitioner and mr abelein decided to reinvest all or a portion of their tax savings in dge rather than in a new home or new cars does not protect petitioner from a conclusion that she and mr abelein received a significant benefit in the form of increased disposable cashflow this negative factor applies and weighs against granting petitioner’s claim for equitable relief under sec_6015 ewing v commissioner t c pincite capehart v commissioner tcmemo_2004_268 d lack of economic hardship as we noted in our discussion of the positive counterpart of this factor petitioner did not introduce credible_evidence to enable us to ascertain her current salary and other income assets debts and reasonable living_expenses although she was in a position to do so a taxpayer’s failure to call witnesses and produce relevant documentary_evidence within her control supports an inference that such testimony and documentation would not support the taxpayer’s position 6_tc_1158 affd 162_f2d_513 10th cir because of the negative inference that we draw from petitioner’s failure to produce evidence of her current financial condition we conclude that requiring petitioner to pay the liabilities from which she seeks relief would not result in economic hardship as that term is defined under revproc_2000_15 2000_1_cb_447 consequently this negative factor applies and weighs against granting petitioner equitable relief in our analysis e noncompliance with federal_income_tax laws in subsequent years respondent did not determine that this factor applies and weighs against granting petitioner equitable relief moreover respondent did not argue in his posttrial briefs that petitioner did not make a good_faith effort to comply with her federal_income_tax obligations in the years subsequent to the ones at issue here consequently we conclude that this negative factor does not apply see ewing v commissioner supra pincite f requesting spouse’s legal_obligation with respect to the positive counterpart to this factor we concluded that petitioner and mr abelein were married during the relevant times and remain so and that neither petitioner nor mr abelein had assumed sole responsibility to pay the liabilities at issue in this case these conclusions also dictate our treatment of this factor because petitioner was not solely responsible for paying the liabilities at issue in this case this negative factor does not apply other_relevant_factors petitioner argues that in determining whether it is inequitable to hold petitioner liable for the deficiency we must consider the complexity of the transactions and mr hoyt’s intentional deception of petitioner about the underlying circumstances that gave rise to the understatement although we may consider other factors in addition to those set forth in revproc_2000_15 supra we have previously rejected petitioner’s argument and denied innocent spouse relief in cases where neither spouse knew of the facts that provided the basis for the disallowance of partnership losses on their joint returns capehart v commissioner supra bartak v commissioner tcmemo_2004_83 ellison v commissioner tcmemo_2004_57 doyel v commissioner tcmemo_2004_35 the purpose of sec_6015 is to protect one spouse from the overreaching or dishonesty of the other spouse bartak v commissioner supra citing 826_f2d_470 6th cir affg 86_tc_228 where the understatement is attributable to the mistaken belief of both the requesting spouse and the other spouse as to the legitimacy of the tax_shelter deductions we have held that it is not inequitable to hold both spouses jointly and severally liable 94_tc_126 affd 992_f2d_1132 11th cir 57_tc_732 bartak v commissioner supra ellison v commissioner supra doyel v commissioner supra after considering all of the facts and circumstances we find that respondent did not abuse his discretion in denying petitioner equitable relief from joint_and_several_liability under sec_6015 c conclusion we have carefully considered all remaining arguments made by the parties for results contrary to those expressed herein and to the extent not discussed above find those arguments to be irrelevant moot or without merit to reflect the foregoing decision will be entered for respondent


t c no united_states tax_court warbelow’s air ventures commissioner of internal revenue docket no inc petitioner v respondent filed date p leased land from the state of alaska to operate an airport the leased land is surrounded by lands owned by a native_corporation and a federally recognized native entity employment credit iec on with respect to wages paid substantially_all of their airport r disallowed the held i r c sec reservation the term held further because the airport is not reservation within the meaning of i r c within an indian_reservation 45a c b means located on p claimed the indian its corporate tax_return to employees who perform services for p at the iec in an indian p does not qualify for the iec located within an indian sec_45a -- - michael j walleri for petitioner ’ stephen p baker for respondent opinion vasquez judge respondent determined the following deficiencies in petitioner’s federal income taxes tye apr deficiency dollar_figure big_number the issue for decision is whether petitioner qualified for the indian_employment_credit iec pursuant to sec_45a for its fiscal years ended date ty date ty and date ty background the parties submitted this case fully stipulated pursuant to rule the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time the petition was filed petitioner had its mailing address and principal office in fairbanks alaska the city of galena galena is located approximately miles west of fairbanks on the north bank of the yukon river ' mr walleri began representing petitioner on date all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure galena was traditionally inhabited by the athabascan indians galena village galena village refers to an undefined tribal territory within which galena is located and also refers to a federally recognized native entity within alaska that has the same status as tribes in the contiguou sec_48 states the alaska native claims settlement act ancsa publaw_92_ 85_stat_688 current version pincite u s c secs 1601-1629e created native regional corporations native residents of galena are shareholders in the doyon native regional corporation doyon under ancsa the area on which galena is located was made available for land selections by doyon native residents in galena are also shareholders of the gana-a’ yoo native village corporation gana-a’ yoo which was also created under state law in accordance with ancsa petitioner operates an air charter service which maintains a ground facility in galena galena airport the facility comprises a hangar and an office building the galena airport serves the villages in the middle yukon and koyukuk river areas the galena airport is located on land that petitioner leases from the state of alaska department of transportation and public galena village is also known as louden village gana-a’ yoo is the successor to the village corporation of notaaghleedin ltd q4e- facilities during the taxable years at issue the state of alaska and the galena air station a u s air force installation owned and administered the land on which the galena airport is located on this land substantially_all of petitioner’s services are performed by alaska native employees the galena airport’s land is bordered on the south by the galena village townsite gana-a’ yoo pursuant to ancsa owns the lands that border the galena airport on the north east and west on its amended corporate tax returns for ty ty and ty petitioner claimed the iec in the notice_of_deficiency respondent disallowed the iec because petitioner had not demonstrated that it met the requirements to claim the credit and allowed an additional deduction for wages or salary expense because of the disallowed credit ’ discussion sec_38 allows a taxpayer to claim against his tax a general_business_credit which includes the amount of the current_year_business_credit sec_38 the amount of the current the u s air force transferred this land to the state of alaska in subject_to certain reservations respecting continuing use as a military base a small portion of the southern border adjoins the yukon river and a federal air navigation site in its petition petitioner also claimed an overpayment of dollar_figure for ty year business_credit includes the iec determined under sec_45a sec_38 sec_45a provides sec_45a amount of credit --for purposes of sec_38 the amount of the indian_employment_credit determined under this section with respect to any employer for any taxable_year is an amount equal to percent of the excess if any of-- the sum of-- a the gualified wages paid_or_incurred during such taxable_year plus b qualified_employee_health_insurance_costs paid_or_incurred during such taxable_year over the sum of the qualified_wages and gualified employee health insurance costs determined as if this section were in effect which were paid_or_incurred by the employer or any predecessor during calendar_year emphasis added qualified_wages are defined as any wages paid_or_incurred by an employer for services performed by an employee while such employee is a qualified_employee sec_45a emphasis added a qualified_employee is defined in sec_45a as in general --except as otherwise provided in this subsection the term qualified_employee means with respect to any period any employee of an employer if-- a the employee is an enrolled member of an indian_tribe or the spouse of an enrolled member of an indian_tribe b substantially_all of the services performed during such period by such employee for such employer are performed within an indian_reservation and c the principal_place_of_abode of such employee while performing such services is on or near the reservation in which the services are performed emphasis added the parties dispute the meaning of the phrase within an indian_reservation contained in sec_45a b i within an indian_reservation petitioner argues that sec_45a does not require a qualified_employee to work on an indian_reservation but within an indian_reservation petitioner contends that the galena airport is within the exterior boundaries of a reservation and is therefore within an indian_reservation as defined by sec_45a because the galena airport is totally surrounded by land that qualifies as an indian_reservation respondent argues that congress intended the phrase within an indian_reservation in sec_45a to refer to the interior of the indian_reservation itself not to non-indian land adjacent to an indian_reservation respondent contends that congress provided the iec to encourage private businesses to locate on indian reservations in order to employ native americans who live sec_7491 is effective for court proceedings arising in connection with examinations commencing after date petitioner does not contend that sec_7491 is applicable to its case further we do not find that the resolution of this case depends on which party has the burden_of_proof - there therefore respondent argues that the galena airport must be physically located on an indian_reservation per se in order to qualify for the iec we begin our analysis with the well-established rule that statutory construction begins with the language of the relevant statute 447_us_102 statutes are to be read so as to give effect to their plain and ordinary meaning unless to do so would produce absurd or futile results 310_us_534 see 84_tc_756 we may use legislative_history to clarify an ambiguous statute 481_us_454 103_tc_481 affd 70_f3d_142 d c cir from the face of the statute it is not clear what is meant by within we therefore examine the legislative_history to clarify the language the house conference_report accompanying the enactment of the section providing for the iec referred to the iec and to a related provision as tax incentives for businesses on indian reservations h conf rept pincite emphasis added further the conference_report described the senate amendment as follows under the senate amendment businesses located _ on indian reservations generally are allowed a credit --- - against income_tax_liability for certain investments ‘the indian_reservation credit’ and a credit against income_tax_liability for certain wages and health insurance costs ‘the indian employment credit’ id fn ref omitted emphasis added further the conference agreement set forth in the conference_report stated as under the senate amendment a tribal member or spouse is a qualified_employee only if he or she works ona reservation and lives on or near that reservation and is paid wages that do not exceed dollar_figure annually id pincite fn ref omitted emphasis added thus we conclude that the phrase within an indian_reservation in sec_45a b means located on an indian_reservation il defining indian_reservation petitioner further argues that the land on which the galena airport is located falls within the definition of an indian_reservation and therefore qualifies for the iec pursuant to sec_45a because the definition of indian_reservation is broader in this section than its conventional definition petitioner contends that sec_45a by incorporating the definitions from the indian financing act of ifa publaw_93_262 88_stat_77 current version pincite u s c secs and the indian child welfare act of icwa publaw_95_608 92_stat_3069 current version pincite u s c secs includes ancsa lands - respondent argues that the galena airport is not located within an indian_reservation as defined by the ifa the icwa or by u s c sec additionally respondent argues that congress specifically carved out land on which airports were located from the federal public lands that were made available for native selection under ancsa and therefore deliberately excluded these lands from native ownership sec_45a defines indian_reservation as a reservation as defined in sec_3 of the ifa u s c sec d or sec_4 of the icwa u s c sec secs a5a c further congress passed ancsa to provide a grant of land and money to native alaskans in exchange for the extinguishment of their land claims within alaska see 214_f3d_1309 fed cir citing ancsa pursuant to ancsa regional and village alaska native corporations were organized under state law including doyon and gana-a’ yoo to assist native alaskans in managing the million acres of land and the dollar_figure million transferred to them u s c sec a doyon ltd v united_states supra pincite essentially ancsa ended federal supervision over indian affairs and revoked the indian_reservation system in alaska ’ u s c only one indian_reservation the annette island reserve remains in alaska after the enactment of ancsa u s c sec continued -- - sec a see 522_us_520 the ancsa corporations received title to the land in fee simple without any federal restrictions applied to subsequent land transfers see alaska v native vill supra pincite certain land was required to be conveyed to the federal government under ancsa see u s c sec specifically title to the land on which an airport is located including additional land that was necessary to provide government-related services and to ensure safe airplane approaches was required to be conveyed to the federal or state government or appropriate municipal corporation u s c sec c of importance the land on which the galena airport is located had been conveyed to the state of alaska and the federal government a definition under the ifa the ifa defines reservation as indian reservations public domain indian allotments former_indian_reservations_in_oklahoma and land held by incorporated native groups regional corporations and village corporations under the provisions of the alaska native claims settlement act u s c sec d the land on which petitioner’s galena airport is located does not qualify as a reservation under the ifa the land is not an indian_reservation because the enactment of ancsa continued a revoked the indian_reservation system in alaska additionally the land is not held by any incorporated native groups regional corporations or village corporations as provided by ancsa the land was specifically excluded from ownership by any of the ancsa corporations because the land was used for airport purposes u s c sec c b definition under the icwa the icwa defines reservation as indian country as defined in section of title and any lands not covered under such section title to which is either held by the united_states in trust for the benefit of any indian_tribe or individual or held by any indian_tribe or individual subject toa restriction by the united_states against alienation u s c sec we note that the land on which the galena airport is located is not held by the united_states in trust for the benefit of any indian_tribe or individual and is not held by any indian_tribe or individual subject_to a restriction by the united_states against alienation indian country is a all land within the limits of any indian_reservation under the jurisdiction of the united_states government notwithstanding the issuance of any patent and including rights-of-way running through the reservation b all dependent indian communities within the borders of the united_states whether within the original or subsequently acquired territory thereof and whether within or without the limits of a state and c all indian allotments the indian titles to which have not been extinguished including rights-- of-way running through the same u s c sec the land on which the galena airport is located does not fit the definition as provided in a or c because the land is not within the limits of an indian_reservation and is not an indian allotment to which the indian titles have not been extinguished the land is also not a dependent indian community as provided for in b of the above section the u s supreme court held that a dependent indian community exists when indian lands have been set_aside by the federal government for_the_use_of the indians as indian land and the lands must be under federal superintendence alaska v native vill supra pincite the land has not been set_aside by the federal government for the use as indian land because the land was conveyed to the federal government for airport purposes additionally the land is not under the federal superintendence that existed previously ie the federal government does not act as a guardian over it id pincite we conclude that the land on which the galena airport is located is not an indian_reservation within the meaning of sec_45a additionally we conclude that the galena airport is not located within an indian_reservation within the meaning of sec_45a because the galena airport is not located on an indian_reservation thus we hold that petitioner is not entitled to the iec with respect to wages paid to employees who perform substantially_all their services in petitioner’s employ at the airport in reaching all of our holdings herein we have considered all arguments made by the parties and to the extent not mentioned above we find them to be irrelevant or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index nos plr-113046-00 attention ein dear this is in reference to a form_1128 application to adopt change or retain a tax_year submitted on behalf of the above- named taxpayer requesting permission to change its accounting_period for federal_income_tax purposes from a taxable_year ending to a taxable_year ending effective the taxpayer has requested that the form_1128 be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations the taxpayer's form_1128 requesting a change in accounting_period to a tax_year ending was due on or before the information furnished indicates that the application_for the change in accounting_period was filed late because of an error or misunderstanding however the form was filed within days of the due_date sec_1_442-1 of the income_tax regulations provides that in order to secure the commissioner's consent to a change in accounting_period the taxpayer must file an application on form_1128 with the commissioner on or before the 15th day of the second calendar month following the close of the short_period sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to 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 the granting of relief will not prejudice the interests of the government based on the facts and information submitted and the representations made it is held that the taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case and the taxpayer’s late filed form_1128 requesting permission to change to a tax_year ending effective for the short_period of is considered timely filed pursuant to appendix a of revproc_2000_1 2000_1_irb_6 an additional user_fee is required in order to process the form_1128 the user_fee will be requested in a separate correspondence we will begin processing the taxpayer’s application after the user_fee is received the ruling contained in this letter is based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as part of an examination process this ruling addresses the granting of sec_301_9100-3 relief only no opinion is expressed regarding the tax treatment of the instant transaction under the provisions of any other sections of the code or regulations that may be applicable thereto or regarding the tax treatment of any conditions existing at the time of or effects resulting from the instant transaction specifically no opinion is expressed as to whether the taxpayer is permitted under the code and applicable regulations to change to the tax_year requested in the subject form_1128 in accordance with the provisions of a power_of_attorney currently on file we are sending a copy of this ruling letter to the taxpayer's authorized representative this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent income_tax and accounting s heather maloy sincerely yours associate chief_counsel enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp b03 - plr-111437-03 date date legend parent target sellers country c date a date b company official plr-111437-03 this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election parent is requesting an extension to file a sec_338 election under sec_338 with respect to parent’s acquisition of the stock of target sometimes hereinafter referred to as the election on date a additional information was received in a letter dated date the material information is summarized below parent is the common parent of a consolidated_group target was a country c_corporation the sellers were the former shareholders of target on date a parent acquired all of the shares of target stock held by sellers in exchange for cash and a relatively small amount of parent common_stock pursuant to the purchase agreement entered into on date a it is represented that parent’s acquisition of the stock of target qualified as a qualified_stock_purchase as defined in sec_338 d target was not a controlled_foreign_corporation a passive_foreign_investment_company or a foreign_personal_holding_company at any time during the portion of its taxable_year that ends on the acquisition_date as defined in sec_338 parent intended to file the election the election was due on date b but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been 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 has not expired for parent’s consolidated group’s or target’s taxable years in which the acquisition occurred the taxable years in which the election should have been filed or any taxable years that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase 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_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 plr-111437-03 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 in this case the time for filing the election is fixed by the regulations ie sec_1_338-2 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for purchaser to file the election provided parent 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 an affidavit and representations submitted by parent 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_9100-3 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 with respect to the acquisition of the stock of target as described above within days of the date on this letter parent must file the election on form_8023 executed on or after the date on this letter in accordance with sec_1_338-2 and the instructions to the form a copy of this letter must be attached to form_8023 within days of the date on this letter all relevant parties must file or amend as applicable all returns and amended returns if any necessary to report the transaction as a sec_338 transaction for the taxable_year in which the transaction was consummated and for any other affected_taxable_year a copy of this letter and a copy of form_8023 must be attached to the returns the above extension of time is conditioned on the taxpayers’ parent’s consolidated group’s and target’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’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office 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 plr-111437-03 we express no opinion as to whether the acquisition of the target stock qualifies as a qualified_stock_purchase under sec_338 or any other tax consequences arising from the election in addition we express no opinion as to the tax consequences of filing the election 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 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 however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to 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 requesting 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