department of the treasury mwasuineton oc contact person identification_number telephone number t- nov no third party contact sin empioyer identification_number legend t- x-- y- dear sir or madam this is in reference to your ruling_request concerning a proposed restructuring and its effect on your tax exempt status under sec_501 of the internal_revenue_code and your unrelated_business_income_tax liability under sec_514 through as described below t is an organization described in sec_501 of the code and is not a private_foundation as described in sec_509 t currently provides services through two divisions the family social service counseling services division and the home health services division x is an organization described in sec_501 and is an organization described in sec_509 and sec_170 y is an organization described in sec_501 and is an organization described in sec_509 t created x and y pursuant to a plan_of_reorganization t plans on reorganizing its structure in order to separate the family social service counseling services and home health agency services lessen exposure of endowment funds pledge receivables and real_property to third party liability provide more efficient centralized planning and program development administration and fund raising that are subject_to coordination through x as the patent entity and improve the quality of programming attract high quality personnel and increase the ability of the organizations to attract the attention of national funding sources that may have an interest in one or more of the family social service counseling services or home health agency services pursuant to the proposed plan of restructuring t will continue to operate the family social service counseling services division and will transfer and convey to y the assets related to the operation of the home health agency services subject_to existing mortgages liens and encumbrances provided that y has obtained all licenses and permits for the operation of the aa home health agency services y will assume the lease and continue to occupy space that is currently leased by t from an unrelated third party t will transfer to x any outstanding contribution pledge receivables parcels of real_property and all assets and personnel related to the operation of administration program development and fund raising activities subject_to the existing mortgages liens and encumbrances x will be the sole member of y and t creating a parent-subsidiary relationship between the entities under the terms of the restructuring any existing and future endowment funds and contribution pledge receivabies could be held be either x y or t although x will coordinate fundraising activities of all of the taxpayers y and t may also do separate fundraising x will provide services related to the development and enhancement of programs which will then be implemented by y and t x will occupy a portion of its existing_building and will lease a portion of its building to t after the restructuring in the future x may construct additional buildings and lease all or a portion of the buildings to y reimburse x for the cost of the building all leases will be at rental rates designed to all records files lists of contributors and other items related to fund raising of t x and y will be transferred from t to x it is expected that y and t will raise funds from contributions that each entity receives in some cases an organization may make distributions of funds and or assets or provide services to either x or t distribute portions of the contributions it receives to t and y based upon directions given by the donors or the needs of the particular entity as determined by x x may also provide assets and services to y and t including program enhancements fundraising coordination and assistance with staff recruiting in addition it is expected that x will also engage in fundraising and may you are requesting the foliowing rulings the restructuring of t and transfer of some of its home health division assets liabilities and activities to y and the transfer of its endowment assets and administrative activities to x wilt not adversely affect the determination of tax-exempt status of x y or t nor will restructuring of y resuit in the classification of x y or t as a private_foundation under sec_509 of the code ‘the restructuring and transfer of assets pursuant thereto will not give rise to unrelated_business_taxable_income pursuant to sec_511 through of the code to x y or t the sharing of assets and services and transfer of funds among x y and t after the reorganization will not give rise to unrelated_business_taxable_income under sec_511 through for either x y or t o law sec_501 of the code provides in part for the exemption from federal_income_tax of organizations that are organized and operated exclusively for religious charitable scientific or educational_purposes provided no part of their net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations provides that the term charitable is used in code sec_501 in its generally accepted legal sense the promotion of heaith has long been recognized as a charitable purpose see restatement second of trusts sec_368 sec_372 iv scott on trusts sec_368 sec_372 3rd ed and revrul_69_545 1969_2_cb_117 sec_509 of the code provides that the term private_foundation means a domestic or foreign organization described in sec_501 other than an organization described in sec_170 other than in clauses vii and viii sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations exempt from federal_income_tax under sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as gross_income derived by an organization from any unrelated_trade_or_business regularly carried on by it less the deductions directly attributable to such business activity sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially retated aside from the need of the organization for income or funds or the use it makes of the profits derived to the exercise or performance by an organization of the purpose or function constituting the basis for its exemption sec_1_513-1 of the regulations defines unrelated_business_taxable_income to mean gross_income from any unrelated_trade_or_business regularly carried on sec_1 b states that the phrase trade_or_business includes activities carried on for the production_of_income and which possess the characteristics of a trade_or_business within the meaning of sec_162 of the code finally sec_1 513-i c explains that regularly carried on has reference to the frequency and continuity of the conduct of an activity and the manner in which the activity is pursued sec_1_513-1 of the regulations provides that a trade_or_business is related to exempt purposes only where the conduct of the business activity has a causal relationship to the achievement of any exempt_purpose and is substantially related for purposes of sec_513 only if the causal relationship is a substantial one thus for the conduct_of_a_trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes om sec_514 of the code provides for the taxation under sec_512 of the code of income from debt-financed_property sec_514 of the code however provides that the definition of debt-financed_property does not include any property substantially_all the use of which is substantially related to the exercise or performance by such organization of its charitable purposes constituting the basis for its exemption under sec_501 revrul_69_545 1969_2_cb_117 sets forth standards under which a nonprofit_hospital may qualify for recognition of exemption under sec_501 of the code this revenue_ruling gave consideration to two separate hospitals only one of which was determined to qualify for exempt status under sec_501 by weighing all the relevant facts and circumstances the revenue_ruling analyzed whether both the contro and use of the hospitals were for the benefit of the public or for the benefit of private interests the hospital that qualified for exemption was found to be organized and operated to further the charitable purpose of promoting health by satisfying a community benefit standard that included among other factors a board_of directors that broadly represented the interests of the community the hospital that did not qualify for recognition of exemption was found to be operating for the private benefit of those who controlled it rather than for the benefit of the public revrul_72_209 1972_1_cb_148 provides that a nonprofit organization formed to provide low cost home health care for people of a community may qualify for exemption under sec_501 of the code as a charitable_organization the revenue_ruling concludes that by providing home nursing and therapeutic care in the manner described the organization serves many of the same health care needs of the community that hospitals traditionally serve and therefore is promoting health within the meaning of the general law of charity revrul_78_41 1978_1_cb_148 concludes that a_trust created by a hospital to accumulate and hold funds to pay malpractice claims against the hospital qualified for exemption under sec_501 of the code as an integral part of the hospital the hospital provided the funds for the trust and the banker-trustee was required to make payments to claimants at the direction of the hospital the organization conducted an activity that the hospital could perform itself since t will continue to operate the family social service counseling division its current tax-exempt status under sec_501 of the code and classification as not a private_foundation will not be affected by the reorganization the restructuring of t and transfer of assets to x and y will not adversely affect their exempt status x and y will perferm the same functions that t formerly performed or could have performed consistent with its exempt purposes any transfer of assets and or funds will be one time transfers and therefore will not possess the characteristics of a trade_or_business regularly carried on following the proposed reorganization the sharing of services and facilities whether or not a fee is charged and transfers of cash and assets among the exempt_organizations will be substantially related to the exercise or performance of the exempt purposes of the involved corporations and will therefore not constitute unrelated_trade_or_business activities subject_to tax therefore each corporation will be merely supplying a related charitable_organization with a service or facility 2001uvu044 necessary for and in the furtherance of the performance of exempt functions under sec_501 based on all the facts and circumstances described above we rule as follows the restructuring of t and transfer of some its home health division assets liabilities and activities to y and the transfer of its endowment assets and administrative activities to xx will not adversely affect the tax -exempt status of x y or t under sec_501 nor affect the status of x y or t as not a private_foundation under sec_509 the restructuring and transfer of assets pursuant thereto will not give rise to unrelated_business_taxable_income pursuant to sec_511 through of the code for either x y or t the sharing of assets and services and transfer of funds among x y and t restructuring will not give rise to unrelated_business_taxable_income under sec_5114 through for either x y or t after the we have not been asked and we express no opinion on whether payments of rent by y and t to x which would otherwise be excluded from the computation of unrelated_business_taxable_income pursuant to sec_512 of the code would be subject_to tax by reason of sec_512 except as specifically ruled upon above no opinion is expressed concerning the federal_income_tax consequences of the transactions described above under any other provision of the code this ruling is directed only to the organization that requested it sec_61 k of the code provides that it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely marvin friedlander signed marvin friedlander manager eo technical group ay


internal_revenue_service number release date index number department of the treasury washington dc in re person to contact telephone number refer reply to cc psi 9-plr-106527-03 date date legend trust taxpayer daughter company accountant tax advisor date date date year year dollar_figurea dollar_figureb dear sir this is in response to your letter dated date and subsequent correspondence requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to make allocations of taxpayer's generation-skipping_transfer gst tax exemption to certain transfers to an irrevocable_trust a summary of the facts and representations submitted is as follows on date taxpayer formed the trust for the benefit of daughter and her issue plr-106527-03 paragraph a of the trust provides that during daughter’s life trustee is to pay daughter as much of the trust’s net_income as is necessary to provide for daughter’s education or maintenance in health and reasonable comfort pursuant to paragraph a during daughter’s life daughter’s issue are to receive as much of the trust’s net_income as is necessary to provide for their maintenance health and education with no requirement of equalization among beneficiaries income not distributed is to be added to principal paragraph provides that trustee is to distribute to daughter and her issue as much trust principal as is necessary to provide for their maintenance in health and reasonable comfort support in the accustomed manner of living and education including college and professional education paragraph b provides daughter with a testamentary limited power to appoint the trust’s remaining net_income and principal in her will among daughter’s spouse and issue paragraph c provides that any unappointed trust income and principal is to be held in further trust for the benefit of daughter’s issue trustee is to distribute to daughter’s issue as much of the trust’s net_income as is necessary to provide for their education support and maintenance according to need and with no requirement of equalization among beneficiaries income not distributed is to be added to principal paragraph c provides that the trust will terminate years after the death of the last to die of daughter and taxpayer’s more remote issue alive on date and be distributed to daughter’s then living issue per stirpes if daughter is not survived by issue the trust’s remaining assets will be distributed to taxpayer’s then living issue on date taxpayer transferred company stock with a reported value of dollar_figurea to the trust on date taxpayer transferred dollar_figureb to the trust the transfers on date sec_1 and occurred in year taxpayer retained accountant to prepare his year form_709 united_states gift and generation-skipping_transfer_tax return accountant however inadvertently failed to prepare and file taxpayer’s year form_709 as a result taxpayer’s gst_exemption was not allocated to the year transfers to the trust in year taxpayer’s tax advisor discovered accountant’s inadvertent failure_to_file taxpayer’s year form_709 on date taxpayer filed a year form_709 reporting the year transfers to the trust taxpayer has represented that he has sufficient remaining gst_exemption available to apply to the year transfers to the trust taxpayer has requested an extension of time under sec_2642 and sec_301_9100-3 to make an allocation of taxpayer's gst_exemption to the date and date transfers to the trust and that such allocations will be based on the value of the property transferred to the trust on date and date respectively so that trust will have a plr-106527-03 zero inclusion_ratio for gst tax purposes law and analysis sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 as in effect for year provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 as applicable during the year at issue sec_2642 provided that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c - a the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period and b such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 sec_2642 provides that in determining whether to grant relief under this plr-106527-03 paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant sec_2642 further provides that for purposes of determining whether to grant relief the time for making the allocation shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2624 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner 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 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore taxpayer is granted an extension of time of sixty days from the date of this letter to allocate taxpayer’s available gst_exemption to the transfers taxpayer made to the trust on date and date the allocations will be effective as of date and date respectively and the gift_tax value of the transfers to the trust will be used in determining the amount of gst_exemption to be allocated to the trust the trust will have an inclusion_ratio of zero plr-106527-03 provided the amount of gst_exemption allocated to the trust is equal to the amount transferred to the trust for federal gift_tax purposes the allocations should be made on a supplemental form_709 for year filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the supplemental form_709 a copy is enclosed for this purpose the rulings contained in this letter are based upon information and representations submitted by 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 rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed or implied regarding the value of property transferred to the trust for federal transfer_tax purposes in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes one copy of this letter


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 b02 plr-135805-05 date date ---------------- ------------------ ---------------------------------------- ---------------------------------------------------- ty ------------------- legend parent ---------------------------------------------------------------------- electing subsidiary --------------------------------------------------------------------------- year date date company official ---------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------- tax professional ------------------------------------------------------------------------------------------------ dear ------------ subsidiary dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election the extension is being requested in order to allow parent and electing subsidiary to file an election to this letter responds to a letter submitted on behalf of parent and electing ---------------------------- --------------------- ------------------ pursuant to sec_1_382-8 the value of parent stock was reduced by the value plr-135805-05 restore value under sec_1_382-8 of the income_tax regulations hereinafter referred to as the election additional information was received in letters dated june and date the material information submitted in the request and subsequent correspondence is summarized below at the end of year parent was the parent of a controlled_group_of_corporations the parent group and owned directly or indirectly percent or more of the stock of electing subsidiary electing subsidiary is a foreign_entity treated as a corporation for federal tax purposes and is not engaged in the conduct_of_a_trade_or_business within the united_states parent underwent an ownership_change as defined under sec_382 of the code on date therefore the use of the parent’s net operating losses for carryovers are subject_to limitation under sec_382 for year of the stock it owned directly in electing subsidiary sec_382 provides that the amount of the taxable_income of any new_loss_corporation for any post-change_year which may be offset by pre-change losses shall not exceed the sec_382 limitation for such year under sec_382 the sec_382 limitation is determined by multiplying the value of the old_loss_corporation by the applicable long term tax-exempt rate a special rule designed to prevent double counting by controlled groups is set forth in sec_1_382-8 sec_1_382-8 requires the value of the stock of each component_member of the controlled_group be reduced by the value of the stock directly owned by that component_member in any other component_member component members of a controlled_group can elect to restore some or all of the value to another component_member under sec_1_382-8 the election to restore value is made following the procedures set forth in sec_1_382-8 parent and electing subsidiary are component members of a controlled_group under sec_1_382-8 the election to restore the value of electing subsidiary was due on date however for various reasons parent and electing subsidiary failed to make the election in a timely manner 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 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 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 under sec_301_9100-1 the commissioner has discretion to grant a reasonable sec_301_9100-1 through provide the standards the in this case the time for filing the election is fixed by the regulations ie based on the facts and information submitted including the representations plr-135805-05 sec_1_382-8 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent and electing subsidiary to file the election provided parent and electing subsidiary show they 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 government the information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file the election the information establishes that parent and electing subsidiary reasonably relied on a qualified_tax professional who failed to make or advise parent and electing subsidiary to make the election and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 made we conclude that parent and electing subsidiary have shown they 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 for parent and electing subsidiary to file the statement described in sec_1_382-8 is granted under sec_301_9100-3 until days from the date on this letter a copy of this letter must be attached to the statement electing subsidiary’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 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' liability is lower sec_301_9100-3 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular we express no opinion with respect to whether an ownership_change occurred whether parent and electing subsidiary are component members of a controlled_group the amount of value if any that may be restored or as to values or amounts of nols in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the election late that are not specifically set forth in the above ruling statements and representations made by parent parent's authorized representative the above extension of time is conditioned on the taxpayers' parent's and except as expressly provided herein no opinion is expressed or implied for purposes of granting relief under sec_301_9100-3 we relied on certain plr-135805-05 company official and tax professional under penalties of perjury however the director should verify all essential facts moreover notwithstanding that the extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable still apply provides that it may not be used or cited as precedent sent to your authorized representatives pursuant to a power_of_attorney on file in this office copies of this letter are being this letter is directed only to the taxpayer s who requested it sec_6110 sincerely ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


third party communication none date of communication not applicable office_of_chief_counsel internal_revenue_service memorandum number release date cc psi b03 ------------- posts-105835-09 uilc date april to associate area_counsel kansas city small_business self-employed from senior technician reviewer branch passthroughs special industries subject --------------------------- this chief_counsel_advice responds to your request for assistance in accordance with sec_6110 of the internal_revenue_code this advice may not be used or cited as precedent legend existing s_corporation ---------------------------------- roth corporation ------------------------------------- shareholders of existing corporation father son son amount1 amount2 amount3 -------------------------------------------------- -------------------------------------------- ------------------------------------------ --------------- ------------- ------------- posts-105835-09 amount4 month1 month2 month3 month4 year1 year2 year3 ------------- ------ --------------- -------------- -------------- ------- ------- ------- issue sec_1 whether the transaction engaged in by father son1 son2 existing s_corporation and roth corporation is the same as or substantially_similar to the transaction identified in notice_2004_8 2004_1_cb_333 as a listed_transaction whether father son1 son2 existing s_corporation and roth corporation participated in the transaction in year1 and year2 under sec_1_6011-4 of the income_tax regulations and whether the penalty for failure to disclose participation in a listed_transaction under sec_6707a applies to father son1 son2 existing s_corporation and roth corporation conclusion sec_1 the transaction engaged in by father son1 son2 existing s_corporation and roth corporation is the same as or substantially_similar to the transaction identified in notice_2004_8 as a listed_transaction father son1 son2 existing s_corporation and roth corporation participated in the transaction in year1 but not in year2 and the penalty under sec_6707a for failure to disclose participation in a listed_transaction is effective for returns and statements the due_date for which is after date and which were not filed before that date the form_8886 disclosure statement was due when the year1 returns were filed and the taxpayers’ returns were all filed prior to date therefore sec_6707a posts-105835-09 does not apply to father son1 son2 existing s_corporation and roth corporation facts father son1 and son2 are the shareholders of existing s_corporation an s_corporation roth corporation is an s_corporation that was incorporated in month1 of year1 all parties are calendar_year taxpayers in month2 of year1 father son1 and son2 each created a roth_ira and contributed cash in the amount of the dollar_figure annual contribution limit for year1 father son1 and son2 then directed their respective roth iras to purchase all of the outstanding shares of roth corporation thus roth corporation was initially capitalized in the amount of dollar_figure and each roth_ira owned one-third of roth corporation existing s_corporation entered into an administrative services agreement with roth corporation in month3 of year1 under this agreement existing s_corporation was required to pay to roth corporation a minimum annual management fee in exchange for services purportedly to be provided by roth corporation to existing s_corporation prior to the release of notice_2004_8 existing s_corporation paid roth corporation a total of approximately amount1 in month4 of year1 pursuant to the administrative services agreement after the release of notice_2004_8 roth corporation paid a portion of that amount amount2 back to existing s_corporation in year2 claiming that roth corporation was overpaid in year1 no payments were made by existing s_corporation to roth corporation under the administrative services agreement in year2 during month3 of year1 through the end of year2 amount3 was distributed from roth corporation to the roth iras roth corporation was dissolved and liquidated in month4 of year2 each of the three shareholder roth iras received a liquidation distribution of amount4 existing s_corporation claimed a deduction for the management fees paid to roth corporation on its form_1120s for year1 which ultimately passed through to father son1 and son2 roth corporation reported the receipt of the management the roth corporation capitalization transaction terminated roth corporation’s s election because an ira is not an eligible shareholder of an s_corporation this transaction may also constitute a prohibited_transaction under sec_4975 potentially causing a loss of the exemption of each ira under sec_408 and a distribution of each ira to its participant for such year however neither of these potential consequences alters the analysis with respect to whether the transaction constitutes a listed_transaction for purposes of sec_1_6011-4 pursuant to sec_1366 the shareholders of existing s_corporation were required to take into account on posts-105835-09 fees in its income for year1 all the parties filed their year1 returns prior to date none of the parties filed form_8886 to disclose the transaction in year3 existing s_corporation roth corporation father son1 and son2 timely elected to participate in the global_settlement initiative under announcement with respect to the notice_2004_8 listed transactions law the regulations under sec_6011 that are applicable to the present case are sec_1_6011-4 as finalized in td cfr td is effective for transactions entered into on or after date sec_1_6011-4 provides that every taxpayer that has participated in a reportable_transaction and who is required to file a tax_return must attach to its return for the taxable_year a disclosure statement in the form prescribed sec_1_6011-4 provides that a reportable_transaction is a transaction described in sec_1_6011-4 through b the term transaction includes all of the factual elements relevant to the expected tax treatment of any investment_entity plan or arrangement and includes any series of steps carried out as part of a plan sec_1_6011-4 provides that a listed_transaction is a transaction that is the same as or substantially_similar to one of the types of transactions that the internal_revenue_service irs has determined to be a tax_avoidance transaction and identified by notice regulation or other form of published guidance as a listed_transaction sec_1_6011-4 provides that a taxpayer has participated in a listed_transaction if the taxpayer's tax_return reflects tax consequences or a tax strategy described in the published guidance that lists the transaction under sec_1_6011-4 a taxpayer also has participated in a listed_transaction if the taxpayer knows or has reason to know that the taxpayer's tax benefits are derived directly or indirectly from tax consequences or a tax strategy described in published guidance that lists a transaction under sec_1_6011-4 published guidance may identify other types or classes of persons that will be treated as participants in a listed_transaction sec_1_6011-4 provides that the term substantially_similar includes any transaction that is expected to obtain the same or similar types of tax consequences and that is either factually similar or based on the same or similar tax strategy receipt their individual income_tax returns their pro_rata share of existing s corporation’s items of income including tax exempt_income loss deduction or credit the separate treatment of which could affect the liability for tax of any shareholder and nonseparately_computed_income_or_loss td was subsequently modified by td 2004_1_cb_429 for transactions entered into on or after date and has since been modified posts-105835-09 of an opinion regarding the tax consequences of the transaction is not relevant to the determination of whether the transaction is the same as or substantially_similar to another transaction further the term substantially_similar must be broadly construed in favor of disclosure sec_1_6011-4 provides that a taxpayer required to file a disclosure statement under sec_1_6011-4 must file a completed form_8886 in accordance with the instructions to the form sec_1_6011-4 provides in part that a disclosure statement for a reportable_transaction must be attached to the taxpayer's tax_return for each taxable_year for which a taxpayer participates in a reportable_transaction in addition a copy of the disclosure statement must be sent to otsa at the same time that any disclosure statement is first filed by the taxpayer pertaining to a particular reportable_transaction in the case of a taxpayer that is a partnership or s_corporation the disclosure statement for a reportable_transaction must be attached to the partnership's or s corporation's tax_return for each taxable_year in which the partnership or s_corporation participates in the transaction under the rules of sec_1_6011-4 sec_1_6011-4 provides that if a transaction becomes a listed_transaction after the filing of the taxpayer's final tax_return reflecting either tax consequences or a tax strategy described in the published guidance listing the transaction or a tax_benefit derived from tax consequences or a tax strategy described in the published guidance listing the transaction and before the end of the statute_of_limitations period for that return then a disclosure statement must be filed as an attachment to the taxpayer's tax_return next filed after the date the transaction is listed sec_6707a provides that any person who fails to include on any return or statement any information with_respect_to_a_reportable_transaction which is required under sec_6011 to be included with such return or statement shall pay a penalty in the amount determined under sec_6707a sec_6707a provides that the amount of the penalty under sec_6707a with respect to a listed_transaction shall be a dollar_figure in the case of a natural_person and b dollar_figure in any other case sec_6707a is effective for returns and statements the due_date for which is after date and which were not filed before such date in notice_2004_8 the service identified transactions that are the same as or substantially_similar to transactions described in the notice as listed transactions for purposes of sec_1_6011-4 and sec_301_6111-2 and sec_301_6112-1 of the procedure and administration regulations effective date the date the notice was released to the public transactions identified as listed transactions in notice_2004_8 include arrangements in which an individual related_persons or a business controlled by such individual or related_persons engage in one or more transactions with a corporation including contributions of property to such corporation substantially_all the shares of which are owned by one or more roth iras maintained posts-105835-09 for the benefit of the individual related_persons or both the transactions are listed transactions with respect to the individuals for whom the roth iras are maintained the business if not a sole_proprietorship that is a party to the transaction and the corporation substantially_all the shares of which are owned by the roth iras the transactions described in the notice have been designed to avoid the statutory limits on contributions to a roth_ira contained in sec_408a analysis in determining if the transaction entered into in this case is the same as or substantially_similar to the listed_transaction described in notice_2004_8 we consider whether the transaction is expected to obtain the same or similar types of tax consequences and is either factually similar or based on the same or similar tax strategy as the notice_2004_8 transaction we construe the term substantially_similar broadly in favor of disclosure we have determined that the tax consequences expected to be obtained in the transaction entered into in this case are the same or of a similar type as the tax consequences obtained in the listed_transaction identified in notice_2004_8 and that the transaction is either factually similar or based on the same or similar tax strategy in the notice_2004_8 transaction an individual related_persons or a business controlled by such individual or related_persons engage in one or more transactions with a corporation including contributions of property to such corporation substantially_all the shares of which are owned by one or more roth iras maintained for the benefit of the individual related_persons or both the transactions described in notice_2004_8 have been designed to avoid the statutory limits on contributions to a roth_ira contained in sec_408a in this case father son1 and son2 were able to transfer value over the annual roth_ira contribution limit from existing s_corporation a business controlled by father son1 and son2 to the roth iras which were maintained for the benefit of father son1 and son2 through the use of roth corporation the value transferred was in the form of payments of the annual management fee from existing s_corporation to roth corporation during year1 these payments increased the value of the shares of roth corporation stock held by the roth iras the increase in value of the roth corporation stock represents an unfair value shift from father son1 and son2 into their respective roth iras therefore the transaction in this case is the same as or substantially_similar to the transaction identified as a listed_transaction in notice_2004_8 under sec_1_6011-4 a taxpayer participates in a listed_transaction if the taxpayer’s tax_return reflects tax consequences or a tax strategy described in the published guidance that lists the transaction father son1 son2 existing s_corporation and roth corporation participated in the listed_transaction in year1 because their respective returns reflected the tax consequences or tax strategy described in notice_2004_8 existing s_corporation reflected on its year1 return a deduction for the payment of the annual management fee father son1 and son2 also reflected on their returns a deduction for their share of the payment of the annual posts-105835-09 management fee roth corporation reflected on its year1 return income from the annual management fee father son1 son2 existing s_corporation and roth corporation did not participate in the listed_transaction in year2 because their returns did not reflect the tax consequences or tax strategy described in notice_2004_8 no payments were made to roth corporation from existing s_corporation nor were any other transfers of value made to roth corporation from existing s_corporation father son1 or son2 in year2 because father son1 son2 existing s_corporation and roth corporation participated in a notice_2004_8 listed_transaction in year1 each was required to disclose their participation by attaching form_8886 to their respective year1 return and sending a copy of the form_8886 to otsa father son1 son2 existing s_corporation and roth corporation failed to attach form_8886 to their respective year1 returns and failed to send a copy to otsa therefore they each failed to comply with the requirements under sec_1_6011-4 in year1 with respect to the transaction sec_6707a is effective for returns and statements the due_date for which is after date and which were not filed before that date consequently the penalty under sec_6707a is not applicable to father son1 son2 existing s_corporation and roth corporation for their failures to disclose properly under sec_6011 with respect to their year1 returns because the form_8886 disclosure statement was due when the year1 return was filed which was prior to date this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call ----------------------- at --------------------- if you have any further questions s by _____________________________ tara p volungis senior technician reviewer branch passthroughs special industries


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc intl br3-plr-103746-00 date date ty legend taxpayers company year a year b firm x y dear this is in reply to the date letter submitted by your representative which requested a ruling that taxpayers be allowed to make a retroactive election under sec_1_1295-3 with respect to company a foreign_corporation for taxpayers’ taxable_year additional information was submitted on date date date and date the rulings contained in this letter are based upon information and representations submitted by taxpayers 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 rulings it is subject_to verification on examination taxpayers are calendar_year cash_basis taxpayers taxpayers purchased x shares of company in year a and continued to purchase additional shares in subsequent years throughout their taxable_year taxpayers held y shares of company company has been a pfic within the meaning of sec_1297 since taxpayers’ taxable_year the first taxable_year for which the pfic rules were effective taxpayers were not plr-113271-00 tax professionals and had no knowledge of the existence of the pfic regime firm a qualified_tax professional within the meaning of sec_1_1295-3 has served as accountant to taxpayers firm has prepared taxpayers federal_income_tax returns for all years during which taxpayers have owned stock in company taxpayers have relied upon firm to advise them as to all aspects of their federal income taxes including the consequences of making and failing to make all available elections on their federal_income_tax returns firm failed to identify company as a pfic and failed to advise taxpayers of the consequences of making or failing to make the sec_1295 election in year b while performing consulting work related to one of the holdings of company firm determined that company was a pfic firm further determined that a qef election had not been made with respect to taxpayers’ ownership_interest in company taxpayers then requested the commissioner’s consent to retroactively elect qef treatment with respect to the stock they owned in company a pfic will be treated as a qualified_electing_fund qef with respect to a taxpayer if the taxpayer makes a valid qef election under sec_1295 a taxpayer that elects qef treatment includes in gross_income his pro_rata share of the ordinary_earnings and net_capital_gain of the qef for the taxable_year a qef election applies to the taxable_year for which it is made and all subsequent taxable years unless revoked by the taxpayer with the consent of the secretary sec_1295 a qef election may be made for a taxable_year on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations a qef election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic sec_1295 sec_1_1295-3 provides rules for making a retroactive qef election under these regulations a shareholder of a pfic that meets certain conditions may make a retroactive election without obtaining the consent of the commissioner sec_1_1295-3 or e taxpayers have not met these conditions a shareholder may also make a retroactive qef election with the commissioner’s consent if it meets the requirements of sec_1_1295-3 the commissioner will grant relief under sec_1_1295-3 only if four requirements are satisfied sec_1_1295-3 i - iv the first requirement is that the shareholder reasonably relied on a qualified_tax professional who failed to identify the foreign_corporation as a pfic or failed to advise the shareholder of the consequences of making or failing to make a sec_1295 election sec_1_1295-3 provides that a shareholder will not be considered to have reasonably relied upon a qualified_tax professional if the shareholder knew or reasonably should have known that the foreign_corporation was a pfic and knew of the availability of a plr-113271-00 sec_1295 election in addition a shareholder cannot claim reliance upon a tax professional that the taxpayer knew or reasonably should have known was not competent to render tax_advice with respect to stock ownership of a foreign_corporation or did not have access to all relevant facts and circumstances taxpayers relied upon firm for all aspects of their federal_income_tax return preparation including the consequences of making or failing to make all available elections taxpayers were not tax professionals and were entirely unaware of the existence of the pfic regime until it was brought to their attention in year b firm was competent to render tax_advice with respect to stock ownership of a foreign_corporation but did not identify company as a pfic or inform taxpayers of the availability of a sec_1295 election taxpayers reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 and the second requirement of sec_1_1295-3 is that granting consent will not prejudice the interests of the united_states government under sec_1 f i the interests of the u s government are prejudiced if granting relief would result in the shareholder having a lower tax_liability taking into account applicable_interest charges in the aggregate for all years affected by the retroactive election other than by a de_minimis amount than the shareholder would have had if the shareholder had made the sec_1295 election by the election due_date the time_value_of_money is taken into account for purposes of this computation notwithstanding the general_rule of sec_1_1295-3 if granting relief would prejudice the interests of the united_states government the commissioner may in the commissioner’s sole discretion grant consent to make the election provided the shareholder enters into a closing_agreement with the commissioner that requires the shareholder to pay an amount sufficient to eliminate any prejudice to the united_states government as a consequence of the shareholder’s inability to file amended returns for closed taxable years sec_1_1295-3 taxpayers have entered into a closing_agreement with the commissioner and paid an amount sufficient to eliminate any prejudice that would have resulted from taxpayers’ inability to file amended returns for closed taxable years therefore the interests of the u s government will not be prejudiced by allowing taxpayers to make a retroactive sec_1295 election the third requirement for making a special consent election under sec_1 f is that the request must be made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder sec_1_1295-3 taxpayers have requested consent under these special consent provisions before the issue has been raised on audit plr-113271-00 the final requirement for making a special consent election is that the procedural requirements set forth in sec_1_1295-3 must be met affidavits meeting these requirements and describing firm’s failure to inform taxpayers of their need to make a qef election have been submitted and taxpayers have otherwise met the procedural requirements of sec_1_1295-3 based on the information submitted and representations made consent is granted to allow taxpayers to make a retroactive election under sec_1_1295-3 with respect to company for their taxable_year provided taxpayers comply with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election a copy of this letter must be attached to any income_tax return to which it is relevant this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely valerie mark lippe senior technical reviewer cc intl br2


id office uilc cca_2011011415530422 ----------- number release date from --------------------- sent friday date pm to ---------------- cc ------------------------------------------------------------------------------- subject tao as an informal claim_for_refund i agree with ----------- advice to you but have now studied the case and wanted to give you some additional analysis and authorities whether a document filed by the taxpayer_advocate_service tas can constitute a taxpayer’s claim_for_refund no sec_6511 mandates that no credit or refund shall be made unless a timely claim for credit or refund is filed by the taxpayer while a claim can be filed by a taxpayer’s representative or an agent of the taxpayer a power_of_attorney must accompany the claim see sec_301_6402-2 even though a tas employee is often thought of as the voice of the taxpayer when dealing with the irs a tas employee does not have a power_of_attorney from the taxpayer and does not represent the taxpayer therefore a taxpayer’s claim_for_refund filed by a tas employee is not a claim filed by the taxpayer within the meaning of sec_6511 even if a document filed by tas could somehow constitute a taxpayer’s claim_for_refund would a taxpayer_assistance_order tao qualify as an informal claim_for_refund no first as you know sec_6511 mandates that a claim for credit or refund must be filed within years from the date the return was filed or years from the date the tax was paid whichever is later the penalties at issue here were paid date under the two-year_rule of sec_6511 a claim_for_refund must be filed by date the 4th is a sunday and the 5th is labor day the informal claim_for_refund theory is a theory of last resort developed by the courts it is used when a taxpayer has failed to file a formal claim and the rsed has expired and the taxpayer is not always successful arguing that a particular document constitutes a timely informal claim there is still plenty of time for the taxpayer to file a formal claim_for_refund thus it seems risky to rely solely on an informal claim_for_refund to protect the taxpayer that being said however we disagree with the notion that the tao issued by -------------qualifies as an informal claim as a general_rule a claim_for_refund of an overpayment of penalties shall be made on form_843 sec_301_6402-2 it has long been recognized however that a formal claim_for_refund is not needed all that is required is a timely informal claim 314_us_186 the touchstone of the informal claim theory is not only whether the i r s was aware of the facts underlying the claim but also whether it understood that there was a claim_for_refund based upon those facts 29_fedclaims_136 citation omitted the basic underlying principle is the necessity that the commissioner be put on notice by some means that a refund is requested 876_fsupp_465 w d n y moreover a valid claim_for_refund must set forth in detail each ground upon which a refund is claimed and facts sufficient to apprise the irs of the exact basis thereof sec_301_6402-2 at the time the tao was issued in this case the penalties had not been paid thus the tao does not request a refund but instead requests abatement of the penalties thus the irs did not know that the taxpayer was seeking a refund when it received the tao in addition a claim must be verified by a written declaration that it is made under the penalties of perjury sec_301_6402-2 the tao does not contain a penalties of perjury statement and therefore it cannot be said that the taxpayer intended for the tao to be a true and accurate claim_for_refund lastly in order for an informal claim_for_refund to succeed the claim must be amended by a formal claim the defects of an informal claim_for_refund can be cured by amendment and if the irs never takes any_action on the informal claim the two claims become merged into a single and indivisible claim the new indissolubly welded into the structure of the old 288_us_62 thus even if one were to view the tao as an informal claim the taxpayer would still need to file a formal claim on form_843 to cure the defects let me know if you have any questions ------------------------ ------------------------------- --------------------------------------------------------------------------------------------- ----------------------


t c memo united_states tax_court richard r reed petitioner v commissioner of internal revenue respondent docket no filed date held with respect to p's taxable_year the court will enter a decision in accordance with r's computation richard r reed pro_se paul k voelker for respondent memorandum opinion laro judge respondent moves the court for entry of decision with respect to petitioner’s and taxable years petitioner objects thereto with respect to his year we must decide whether the subject decision should reflect dollar_figure in income for from the discharge_of_indebtedness we hold it should background1 this case was calendared for trial on date following a conference with the court on that date respondent’s counsel paul k voelker announced that the parties had reached a basis of settlement which he would read into the record the court instructed petitioner to listen very carefully because when mr voelker is done reading then i’m going to turn to you and say are you in agreement mr voelker read the parties’ settlement into the record on an issue by issue basis one of the issues concerned income_from_discharge_of_indebtedness mr voelker stated that the parties had agreed that there would be no change to the amount of discharge_of_indebtedness income that appeared in the notice_of_deficiency for the court asked petitioner if he agreed with mr voelker’s reading of the settlement petitioner replied yes sir i’m in full agreement the court ordered the parties to file decision documents with the court petitioner resided in las vegas nevada when he petitioned the court respondent has prepared decision documents but petitioner refuses to sign them because he alleges he did not realize dollar_figure of discharge_of_indebtedness income during respondent determined that petitioner realized this income in and she included this determination in the subject notice_of_deficiency discussion petitioner alleges that he is not liable for tax on the discharge_of_indebtedness income determined by respondent because the indebted property was involuntarily taken from him by foreclosure we need not and do not consider petitioner’s allegation concerning his surrender of the indebted property whether the property was involuntarily taken from him by foreclosure which petitioner states would not result in taxable_income is of no importance to the decision that we must enter herein what is important is that petitioner and respondent agreed to settle their case on the terms and conditions memorialized in the record the parties’ agreement is a contract governed and enforced by general principles of contract law like contracts stipulations of settlement bind the parties thereto to the terms thereof stamos v commissioner 87_tc_2 the decision documents reflect the fact that respondent conceded approximately percent and approximately percent of the deficiencies that she determined for petitioner’s and taxable years respectively see also 899_f2d_753 9th cir we will enforce a stipulation of settlement whether filed or orally stipulated into the record unless justice requires that we do otherwise 85_tc_359 69_tc_694 26_tc_171 in the instant case justice does not require that we do otherwise the record speaks for itself and shows that the parties agreed to resolve this case in the manner set forth therein the stipulation of settlement memorialized in the record voluntarily entered in settlement of this lawsuit must be given binding effect the parties struck a bargain in the stipulation and petitioner must live with the benefits and burdens of it to reflect the foregoing an appropriate order will be issued granting respondent's motion for entry of decision and decision will be entered in accordance with the respondent’s computation


id office uilc cca_2010082315203237 ---------- number release date from ------------------- sent monday date pm to ----------------------- cc --------------------------------------------------------------------------------------- subject re form 872-p signature tefra a poa for tmp can sign the form 872-p but we much prefer the tmp himself to sign legally significant documents otherwise the regulations provide that the authority may be granted through a document signed by all of the general partners


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 1-plr-114413-99 date date legend x state d1 this responds to your letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 x’s shareholder intended that x be a subchapter_s_corporation effective d1 however an s_corporation_election under sec_1362 was not timely filed law and analysis sec_1362 provides that a small_business_corporation can elect to be treated as an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election was made 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 made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed for making such election for such taxable plr-114413-99 year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary can treat the election as timely made for such taxable_year x’s s_corporation_election was not filed timely for the election to be effective as of d1 nevertheless x has established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and assuming that x otherwise qualifies as a subchapter_s_corporation as of d1 we conclude that x will be recognized as an s_corporation effective as of d1 x should file a completed form_2553 with a copy of this ruling attached reflecting its election of subchapter_s_corporation status as of d1 with the applicable service_center within days of the date of this letter 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 specifically no opinion is expressed concerning whether x otherwise satisfies the s_corporation eligibility requirements this ruling is directed only to the taxpayer who requested 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 sincerely signed david r haglund david r haglund senior technician reviewer branch office of assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------- -------------------------------------- ------------------------------------------- -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-112126-08 date september legend -------------------------------- x ------------------ a ------------------------------------------- ---------------------------------------------- b ------------------------- c ------------------------------------------ ------------------------------ country --------------- country --------- d1 d2 --------------------- --------------------- dear ----- ------- this letter responds to a letter dated date and subsequent correspondence written on behalf of x requesting a ruling under sec_301_9100-3 of the procedure and administration regulations facts x was formed under the laws of country x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes x plr-112126-08 was a wholly-owned subsidiary of a a country corporation b a country corporation acquired a through a subsidiary entity c on d1 upon b’s acquisition of a it was intended that x would be treated as a disregarded_entity effective d2 however due to inadvertence a form_8832 entity classification election to treat x as a disregarded_entity effective d2 was not timely filed law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an entity separate from its owner sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 entity classification election with the service_center designated on form_8832 sec_301_7701-3 provides that an election under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not more than 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_9100-2 provides the standards the commissioner will use to determine whether to grant an automatic_extension of time for making certain elections plr-112126-08 sec_301_9100-3 provides the guidelines for granting extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301 a provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides 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 conclusion based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301 and sec_301_9100-3 as a result x is granted an extension of sixty days from the date of this letter to file a properly executed form_8832 with the appropriate service_center to elect to be classified as a disregarded_entity effective d2 a copy of this letter should be attached to the form_8832 except as specifically set forth above we express no opinion concerning the federal tax consequences of the above described facts under any other provision of the internal_revenue_code in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely s william p o’shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c no united_states tax_court sam h patton petitioner v commissioner of internal revenue respondent docket no filed date for p elected under sec_179 i r c to expense a depreciable asset r examined p’s federal_income_tax return and reclassified as depreciable three assets that p had originally classified as materials_and_supplies following r’s reclassification p sought r’s consent to expense the three reclassified assets under sec_179 i r c p was unable to revoke modify or change his election without r’s consent r refused to give p consent to revoke modify his original election held r’s refusal to consent considering the facts in this case was not an abuse_of_discretion hugh t echols sr for petitioner gordon p sanz for respondent - opinion gerber judge respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure a penalty pursuant to sec_6662 of dollar_figure and a late-filing addition_to_tax pursuant to sec_6651 of dollar_figure after concessions ’ the issue remaining for our consideration is whether respondent abused his discretion in refusing to grant consent to petitioner to revoke modify or change his election to expense depreciable business_assets under sec_179 background sam h patton petitioner resided in houston texas on date the date his petition was filed petitioner was self-employed as a welder during the calendar_year petitioner timely filed his federal_income_tax return return and reported a business loss in the amount of dollar_figure and ' this case was submitted fully stipulated under rule of this court’s rules_of_practice and procedure unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable periods under consideration and all rule references are to the tax_court rules_of_practice and procedure petitioner concedes that he is liable for the accuracy- related penalty pursuant to sec_6662 for the taxable_year respondent concedes that petitioner is not liable for an addition_to_tax pursuant to sec_6651 for the taxable_year several other agreements and concessions made by the parties in the stipulation of facts are accepted and should be reflected in the final disposition of this case - - a total loss of dollar_figure as part of the return petitioner elected to expense a plasma torch under sec_179 in the amount of dollar_figure at the time petitioner filed his return he was unable to deduct the dollar_figure sec_179 expense because of the reported business loss in connection with the examination of petitioner’s return respondent reconstructed petitioner’s income by means of a bank deposit analysis the analysis resulted in respondent’s determination that petitioner failed to report dollar_figure of gross_receipts from the welding business on schedule c petitioner reduced income by classifying as materials_and_supplies the following items miller amp reach extended reach feeder and webb turning roller respondent determined that these were capital assets that should have been depreciated as tangible business property as follows elected date placed cost_recovery item cost into service period miller amp reach dollar_figure date years extended reach feeder big_number date years webb turning roller date years as a result of respondent’s determinations petitioner’s welding business would have a profit in excess of dollar_figure instead of a loss petitioner sought respondent’s consent to revoke amend or modify his sec_179 election so as to expense the three assets respondent determined were depreciable respondent denied petitioner’s request to modify his original sec_179 q4e- election to include the three assets that were recharacterized as depreciable discussion petitioner made a sec_179 election in conjunction with his original return to expense the cost of a depreciable business asset the expense could not be utilized in the year because the asset was used in a business activity that reported a loss for the year see sec_179 a after examination respondent reclassified three assets as depreciable business_assets and made other adjustments which collectively resulted in taxable_income for petitioner’s business for the tax_year petitioner had classified the three assets as materials or supplies and reduced income by their cost in response to respondent’s determination petitioner sought respondent’s consent to modify his original sec_179 election by adding the three reclassified depreciable business_assets with respondent’s consent petitioner would be able to offset the profit determined by respondent respondent declined petitioner’s request for consent to revoke or modify the original election petitioner contends that it was respondent’s reclassification of the assets that triggered the availability or possibility of treating them as sec_179 expenses and that he should be entitled to add those assets to his election - - sec_179 generally allows a taxpayer to elect to treat the cost of sec_179 property as a current_expense in the year the property is placed_in_service within certain dollar limitations see sec_179 the election must specify the items of sec_179 property to which the election applies and the portion of the cost of each item which is to be taken into account under sec_179 see sec_179 a sec_1 a and income_tax regs moreover a sec_179 election must be made on the taxpayer’s first income_tax return whether or not the return is timely or on an amended_return filed within the time prescribed by law including extensions for filing the original return for such year see genck v commissioner tcmemo_1998_105 sec_179 b sec_1 a income_tax regs an election made under sec_179 and any specifications contained in such election may not be revoked modified or changed without the secretary’s consent see sec_179 king v commissioner tcmemo_1990_548 petitioner argues that respondent’s refusal to consent to petitioner’s request to revoke or modify his election so as to include the recharacterized assets is contrary to the spirit of the parties agree that the assets would have qualified as sec_179 property if petitioner had made an election with respect to them on his original return the parties also agree that petitioner had sufficient income from the welding business to have deducted dollar_figure the maximum amount allowable under sec_179 for the tax_year -- - sec_179 petitioner also argues that his failure to amend his return and make the election with respect to the three assets was due to circumstances beyond his control ie petitioner was not aware that the three assets would qualify under sec_179 until respondent had reclassified them as depreciable business_assets petitioner contends that respondent’s denial is in these circumstances inegquitable respondent argues that petitioner is bound by his original sec_179 expense election and limited to dollar_figure as shown on petitioner’s original federal_income_tax return we agree with respondent petitioner perceives that his dilemma was caused by respondent’s actions and by timing petitioner points out that it was respondent’s determination after the period within which petitioner could make a timely election that necessitated petitioner’s request for consent to revoke petitioner in arguing that it is inequitable for respondent to deny the request for revocation addition of the three assets in essence guestions whether respondent’s refusal was an abuse_of_discretion this is the first instance where we have considered whether respondent’s refusal to grant a consent to revoke an election under sec_179 was an abuse_of_discretion sec_179 provides that any election made under this section and any specification contained in any such election may not be revoked except with the consent of the - secretary the abuse_of_discretion question in the sec_179 setting is similar to the questions that arise under sec_446 which also requires a taxpayer to obtain the secretary’s consent before changing a method_of_accounting under both sections a formal request is to be made for consent to revoke change an election method_of_accounting see sec_1 b income_tax regs respondent is required to follow the statute and abide by regulations reasonably based on the statute and failure to do so will amount to an abuse_of_discretion cf 622_f2d_774 5th cir affg 69_tc_773 92_tc_641 in reviewing the commissioner’s discretionary administrative acts we are not empowered to substitute our judgment for that of the commissioner the exercise of discretionary power will not be disturbed unless the commissioner has abused his discretion ie his determination is unreasonable arbitrary or capricious buzzetta constr corp v commissioner supra pincite the question of abuse_of_discretion is factual and the burden of showing abuse is greater than a mere preponderance of evidence see 82_tc_989 73_tc_182 --- - petitioner contends that respondent was unreasonable in not giving consent because as petitioner further contends respondent was the catalyst for petitioner’s need to modify revoke his sec_179 election petitioner’s characterization however ignores significant factual predicates first petitioner in reporting for his tax years classified the three assets as materials_and_supplies so as to reduce income by the assets’ cost in the year of acquisition for the year petitioner reported a loss in the business activity in which the assets were used accordingly petitioner could not under sec_179 expense rather than depreciate those assets see sec_179 that appears to be the reason why petitioner attempted to classify and report depreciable assets as materials or supplies and to reduce income by the entire cost of the asset petitioner does not argue that respondent’s classification of the three assets as depreciable_property was incorrect or in error instead petitioner wants to capitalize on his initial misclassification by reducing taxable_income caused by the unreported receipts discovered by respondent in this setting we do not see respondent as precipitating petitioner’s request for consent to revoke instead it was petitioner’s mischaracterization that precipitated the need for change --- - finally neither the statute nor the regulations permit petitioner to revoke modify his original election without the secretary’s consent in that regard petitioner does not argue and has not shown that the secretary’s regulations are unreasonable or that they do not comport with congressional intent sec_1_179-5 income_tax regs provides that the commissioner’s consent to revoke an election will be granted only in extraordinary circumstances legally and factually petitioner accepts that his attempt to change the election is untimely we are cognizant of the fact that petitioner’s circumstances are of his own making his need to revoke modify his sec_179 election only arose after respondent uncovered petitioner’s failure to report all of his income and his misclassification of the very assets for which sec_179 treatment is sought accordingly we hold that respondent did not abuse his discretion in refusing to consent to petitioner’s request to revoke modify the election under sec_179 to reflect the foregoing and due to concessions by the parties decision will be entered under rule