t c memo united_states tax_court jose calvao petitioner v commissioner of internal revenue respondent docket no filed date timothy j burke for petitioner luanne s di mauro for respondent memorandum findings_of_fact and opinion haines judge respondent determined a deficiency in petitioner’ sec_2002 federal_income_tax of dollar_figure and an accuracy- related penalty under sec_6662 of dollar_figure the issues for unless otherwise indicated all section references are to the internal_revenue_code as amended all amounts are rounded to the nearest dollar decision are whether petitioner was in the trade_or_business of gambling during and whether petitioner is liable for an accuracy-related_penalty under sec_6662 findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time he filed his petition petitioner resided in tiverton rhode island prior to petitioner was an operations manager for a textile firm called prim dritz corporation in petitioner started caltex corporation caltex an s_corporation caltex is a textile firm which sells embroidered t-shirts caps and other similar products sometime before caltex hired petitioner’s brother with the goal that once petitioner’s brother learned about the textile business petitioner could reduce his involvement in caltex in petitioner’s brother took over the day-to-day operations of caltex during petitioner was the president and 100-percent owner of caltex and worked at caltex to hours per week providing consulting services in petitioner received a salary of dollar_figure and a distribution of income of dollar_figure from caltex during petitioner played the slot machines at several casinos throughout the united_states petitioner spent most of his time at foxwoods resort and casino in connecticut which was approximately miles from his home the casinos issued petitioner forms w-2g certain gambling winnings for reflecting gross winnings of dollar_figure prior to filing hi sec_2002 federal_income_tax return petitioner prepared a summary of his gambling activity the gambling summary the gambling summary reflected that petitioner gambled on separate occasions won a total of dollar_figure and lost a total of dollar_figure petitioner timely filed hi sec_2002 federal_income_tax return petitioner reported the following sources of income wage income from caltex of dollar_figure taxable interest of dollar_figure ordinary dividends of dollar_figure taxable state_income_tax refund of dollar_figure and income from rental real_estate s_corporations and trusts of dollar_figure on an attached schedule c profit or loss from business petitioner reported that hi sec_2 petitioner occasionally played carribean stud poker but the slot machine was his preferred game petitioner’s return was prepared by norman r beauregard mr beauregard who identified himself on the return as a certified_public_accountant there is nothing else in the record regarding mr beauregard’s experience or qualifications the income from rental real_estate s_corporations and trusts included a total rental real_estate loss of dollar_figure a passthrough of income from caltex of dollar_figure and trust income of dollar_figure principal business or profession was professional gambling petitioner reported gross_receipts of dollar_figure cost_of_goods_sold of dollar_figure and deducted dollar_figure in travel_expenses for a net schedule c loss of dollar_figure after deducting the schedule c loss and a net_operating_loss_carryover of dollar_figure petitioner reported total income of dollar_figure petitioner claimed itemized_deductions of dollar_figure and a personal_exemption of dollar_figure resulting in taxable_income of dollar_figure and total_tax of dollar_figure on date respondent issued petitioner a notice_of_deficiency respondent determined petitioner was not engaged in the trade_or_business of gambling during and therefore could not deduct his gambling_losses on schedule c instead respondent determined petitioner could deduct the gambling_losses as an itemized_deduction but only to the extent of his gambling winnings based on the above respondent determined the amount of tax required to be shown on petitioner’ sec_2002 return was dollar_figure resulting in a deficiency of dollar_figure respondent also determined petitioner was liable for an accuracy-related_penalty under sec_6662 of dollar_figure in response to the notice_of_deficiency petitioner filed his petition with this court on date respondent also disallowed the claimed personal_exemption deduction because petitioner’s adjusted_gross_income exceeded the allowable_amount for such a deduction petitioner does not dispute this determination opinion i petitioner’s gambling activity respondent determined petitioner was not in the trade_or_business of gambling during and thus could not claim his gambling_losses as a schedule c deduction petitioner argues he was in the trade_or_business of gambling because he pursued the activity full time in good_faith with regularity and for the production_of_income sec_162 allows deductions for all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business if a taxpayer were engaged in the trade_or_business of gambling_losses would be deductible from gross_income in arriving at the adjusted_gross_income see sec_62 however if the taxpayer were not in the trade_or_business of gambling his losses would be deductible as an itemized_deduction in arriving at taxable_income see sec_63 regardless of whether the gambling activity constituted a trade_or_business sec_165 provides losses from wagering transactions shall be allowed only to the extent of the the resolution of this issue does not impact the amount of the allowable gambling loss deduction see sec_165 however the resolution of this issue does impact the amount of the deficiency if the gambling loss deduction were shifted from schedule c to schedule a itemized_deductions it would increase petitioner’s adjusted_gross_income thus limiting under sec_68 the extent to which itemized_deductions other than the gambling loss are allowable gains from such transactions see also sec_1_165-10 income_tax regs although petitioner deducted gambling_losses exceeding his gambling winnings by dollar_figure petitioner does not dispute that sec_165 limits his gambling loss deduction to the amount of his gambling winnings to be engaged in a trade_or_business within the meaning of sec_162 an individual taxpayer must be involved in the activity with continuity regularity and with the primary purpose of deriving income and profit 480_us_23 whether the taxpayer is carrying_on_a_trade_or_business requires an examination of all the facts in each case id pincite 312_us_212 in groetzinger the supreme court addressed the issue of whether a taxpayer’s gambling activity was a trade_or_business within the meaning of sec_162 the taxpayer devoted to hours each week for weeks to parimutuel wagering primarily on greyhound races commissioner v groetzinger supra pincite the taxpayer gambled at racetracks days a week and spent a substantial amount of time studying racing forms programs and other materials id while the taxpayer received dollar_figure in income from other sources during the year the taxpayer had no other profession or type of employment during the weeks he devoted to gambling id pincite the supreme court stated to be engaged in a trade_or_business the taxpayer must be involved in the activity with continuity and regularity and the taxpayer’s primary purpose for engaging in the activity must be for income or profit a sporadic activity a hobby or an amusement diversion does not qualify we conclude that if one’s gambling activity is pursued full time in good_faith and with regularity to the production_of_income for a livelihood and is not a mere hobby it is a trade_or_business within the meaning of the statutes with which we are here concerned id pincite the supreme court affirmed the judgment of the court_of_appeals for the seventh circuit finding the taxpayer was engaged in the trade_or_business of gambling id pincite petitioner argues the facts of groetzinger are similar to the facts of this case and like the supreme court in groetzinger we should find petitioner was engaged in the trade_or_business of gambling after carefully considering the facts in this case we disagree petitioner argues like the taxpayer in groetzinger he spent a substantial amount of time preparing for his trips to the casino and developed a strategy for his gambling in the petitioner went to the casino with a plan the petitioner would first talk to the casino hosts to find out which areas of the casino were heavily played and what slot machines were were not hitting based upon the information the petitioner then determined what slot machines he was going to play and how much money he would need in the petitioner set a limit for his losses each day that he went to the casino the petitioner also set a limit on his games winnings such that he left the casino once he made a twenty percent return on his money petitioner also argues that he bought a slot machine spent a significant amount of time studying how the chips and cycles of slot machines worked subscribed to a gambling magazine and read probably about books on playing the slot machines petitioner’s efforts and strategy are consistent with the desire to win money playing the slot machines however we find petitioner’s desire to win money and his strategy for doing so is also consistent with gambling purely for its entertainment or recreational aspects the time petitioner spent and the strategy he developed by themselves do not establish petitioner was engaged in the trade_or_business of gambling petitioner testified he maintained daily records of his gambling activity and argues on brief his record keeping is indicative of a trade_or_business petitioner did not provide respondent with these records nor did he introduce the records into evidence given the lack of evidence we do not find that petitioner maintained daily records of his gambling activity petitioner argues that he spent approximately big_number hours gambling at various casinos where he focused primarily on slot machines such as the ‘double diamond’ and that the amount of time devoted to his gambling activity is indicative of a trade_or_business petitioner relies on a schedule of gambling wins and losses to establish the hours spent gambling the schedule of gambling wins and losses reflects petitioner’s attempt to reconstruct the dates he gambled the amount of money won or lost and the amount of time spent gambling each day however the schedule was not provided to respondent until date and there is no evidence in the record indicating when the schedule was prepared this evidence was not contemporaneously maintained and it is inaccurate and unreliable petitioner did not provide his purported daily records nor did he provide other evidence corroborating the amount of time he devoted to gambling during given the lack of reliable evidence we cannot determine how much time petitioner devoted to gambling during unlike the taxpayer in groetzinger petitioner spent approximately to hours per week working for caltex additionally petitioner’s livelihood did not depend on playing the slot machines his primary income came from his salary of dollar_figure and the passthrough of income of dollar_figure from caltex of which he was president and 100-percent owner during by for example the schedule of gambling wins and losses indicates petitioner spent days gambling during date during which he won dollar_figure and lost dollar_figure however the gambling summary prepared by petitioner for use in filing hi sec_2002 return indicates petitioner gambled on only days during date during which time he won dollar_figure but lost dollar_figure additionally the forms w-2g issued to petitioner for payouts made during date indicate petitioner won only dollar_figure similar discrepancies appear in other months themselves these facts do not preclude petitioner from being engaged in the trade_or_business of gambling however such factors were considered by the supreme court in groetzinger and are relevant to our determination see commissioner v groetzinger u s pincite we find that these facts weigh against petitioner’s being engaged in the trade_or_business of gambling see jones v commissioner tcmemo_1988_393 taking into consideration all of the above we find petitioner was not engaged in the trade_or_business of gambling in therefore petitioner is not entitled to report his gambling activity on schedule c instead petitioner must claim his gambling_losses as an itemized_deduction on schedule a as determined by respondent we sustain respondent’s determination that the amount of tax required to be shown on petitioner’ sec_2002 federal_income_tax return was dollar_figure resulting in a deficiency of dollar_figure ii accuracy-related_penalty under sec_6662 respondent determined petitioner is liable for an accuracy- related penalty under sec_6662 for of dollar_figure petitioner argues he is not liable for an accuracy-related_penalty because he reasonably relied upon the advice of his accountant sec_6662 imposes a penalty in the amount of percent of the portion of the underpayment to which sec_6662 applies as relevant to this case the penalty applies to any portion of the underpayment that is attributable to any substantial_understatement_of_income_tax sec_6662 there is a substantial_understatement_of_income_tax if the amount of the understatement exceeds the greater of percent of the tax required to be shown on the return or dollar_figure sec_6662 the commissioner bears the burden of production with respect to penalties sec_7491 116_tc_438 once the burden of production is met the taxpayer must come forward with evidence sufficient to show that the penalty does not apply higbee v commissioner supra pincite the tax required to be shown on petitioner’s tax_return was dollar_figure ten percent of that amount is less than dollar_figure thus petitioner’s understatement is substantial if it exceeds dollar_figure petitioner reported an income_tax_liability of dollar_figure resulting in an understatement of dollar_figure respondent has satisfied his burden of production by showing that petitioner’s understatement_of_tax was substantial the accuracy-related_penalty is not imposed however with respect to any portion of the understatement if the taxpayer can establish he acted with reasonable_cause and in good_faith sec_6664 reliance upon the advice of a professional may demonstrate a taxpayer acted with reasonable_cause and in good_faith 115_tc_43 affd 299_f2d_221 3d cir 89_tc_849 affd 904_f2d_1011 5th cir affd 501_us_868 see sec_1_6664-4 income_tax regs however a taxpayer’s reliance upon the advice of a professional does not automatically constitute reasonable_cause neonatology associates v commissioner supra pincite see sec_1_6664-4 income_tax regs for a taxpayer to reasonably rely on the advice of a professional the taxpayer must show the adviser was a competent professional who had sufficient expertise to justify reliance the taxpayer provided necessary and accurate information to the adviser and the taxpayer actually relied in good_faith on the adviser’s judgment neonatology associates v commissioner supra pincite- petitioner testified he relied on his accountant mr beauregard to prepare his return and mr beauregard had prepared his returns since without incident however petitioner did not call mr beauregard as a witness nor did he introduce evidence which would establish that mr beauregard possessed the requisite expertise because petitioner has not petitioner did not begin his gambling activity until and his underpayment_of_tax arose from claimed deductions continued established that mr beauregard was a competent professional who had sufficient expertise to justify reliance petitioner has not shown that he acted with reasonable_cause and in good_faith see sec_6664 neonatology associates v commissioner supra pincite therefore we find petitioner is liable for an accuracy- related penalty under sec_6662 of dollar_figure iii conclusion petitioner was not engaged in the trade_or_business of gambling in for all of the foregoing reasons we hold petitioner is liable for a deficiency in hi sec_2002 federal_income_tax of dollar_figure and an accuracy-related_penalty under sec_6662 of dollar_figure in reaching our holdings we have considered all arguments made and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent continued for that activity mr beauregard’s preparation of petitioner’s returns for does not establish that mr beauregard had sufficient expertise regarding the tax treatment of petitioner’s gambling activity in fact despite the clear requirement of sec_165 that gambling_losses may be claimed only to the extent of gambling winnings petitioner claimed gambling_losses that exceeded his gambling winnings by dollar_figure in addition the gambling_losses were claimed as costs of goods sold at the least this calls into question mr beauregard’s expertise


t c memo united_states tax_court william h maloof petitioner v commissioner of internal revenue respondent docket nos filed date donald j o’connor for petitioner anita a gill for respondent memorandum findings_of_fact and opinion kroupa judge respondent determined deficiencies in petitioner’s federal_income_tax by disallowing operating losses sustained by an s_corporation in which petitioner was the sole shareholder after concessions the sole issue before the court is whether petitioner is entitled to increase his adjusted_basis in the s_corporation by dollar_figure million the amount of a loan a third party made to the s_corporation resolving this issue depends on whether petitioner made an economic outlay regarding this loan to allow petitioner to increase his basis in the s_corporation we hold that he did not findings_of_fact the parties have stipulated some facts the stipulation of facts and the accompanying exhibits are incorporated by this reference and are so found petitioner is the sole shareholder of several s_corporations involved in the propane gas industry one s_corporation level propane petroleum gases co an ohio corporation level propane generated the losses petitioner claimed as passthrough deductions in this case level propane provided propane gas to rural areas in ohio initially then expanded into neighboring states at its peak level propane provided propane gas and services to customers in states and had about employees who generated approximately dollar_figure million in annual revenues level propane required increasingly large infusions of capital to sustain its growth level propane’s capital needs were funded initially with transfers from various s_corporations in which petitioner owned all the shares eventually level propane obtained financing from commercial lenders the specific 1neptune propane inc merged into level propane during throughout this opinion references to level propane will include neptune to the extent relevant loan involved here is a dollar_figure million loan2 from provident bank the bank pursuant to a loan agreement dated date the dollar_figure million loan consisted of three principal components each collateralized differently first there was a dollar_figure equipment note that was secured_by equipment level propane would purchase with the loan proceeds second there was a dollar_figure million revolving term_loan that was secured_by petroleum tanks and supply contracts level propane owned third there was a dollar_figure demand_loan that was secured_by the inventory and accounts_receivable of level propane as additional collateral for the dollar_figure million loan to level propane petitioner pledged all the shares he owned of level propane and a dollar_figure million life_insurance_policy on his life level propane made monthly interest payments on the dollar_figure million loan through an account that level propane was required to maintain with the bank petitioner made no payments on the loan level propane defaulted on the loan and was forced into involuntary bankruptcy at no time did the bank demand payment from petitioner individually or begin collection action against petitioner regarding the dollar_figure million loan to level propane 2during his testimony petitioner briefly referred to approximately dollar_figure million in loans petitioner failed to introduce any evidence however to document any loans other than the dollar_figure million loan from provident bank level propane generated substantial losse sec_3 during the years at issue petitioner increased his basis in the stock of level propane by the amount of the dollar_figure million loan to claim as passthrough deductions the net operating losses of level propane respondent determined that petitioner’s basis in the stock of level propane did not increase by the amount of the dollar_figure million loan to level propane because petitioner had never paid nor had he ever been called upon to pay any amount under the dollar_figure million loan respondent consequently found that petitioner had insufficient basis against which to deduct any losses respondent mailed to petitioner notices of deficiency on date and date determining the following deficiencies year deficiency 1dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number 1all dollar amounts are rounded to the nearest dollar petitioner timely filed a petition contesting respondent’s determination arguing that his basis was increased by the amount 3level propane and neptune propane reported losses of dollar_figure in most of petitioner’s increased basis consequently would have been depleted in the deficiencies respondent determined for and therefore would be sustained even if petitioner was allowed the dollar_figure million basis increase of the dollar_figure million loan we must therefore determine whether petitioner may increase his basis in the s_corporation by the amount of the dollar_figure million loan so petitioner may deduct passthrough operating losses of the s_corporation opinion petitioner and respondent differ on the effect of the dollar_figure million loan the bank made to level propane petitioner argues that he is entitled to increase his basis in the stock of level propane by the amount of the loan for three reasons first petitioner argues that he is entitled to an increase in basis in level propane because he personally guaranteed the loan second petitioner argues that he is entitled to increase his basis in level propane because he pledged stock to secure the loan regarding this second argument petitioner implies that eleventh circuit precedent compels a different result from our own caselaw third petitioner argues that he is entitled to increase his basis in level propane because he incurred a cost when he lost control of level propane respondent counters that neither petitioner’s guaranty the pledged stock nor the bank’s control_over level propane constituted an economic outlay respondent also argues that eleventh circuit caselaw does not compel a different result we address the parties’ contentions in turn first we state the general rules governing when a shareholder of an s_corporation is entitled to deduct losses the s_corporation sustained petitioner bears the burden_of_proof when an s_corporation incurs losses the shareholders of the s_corporation unlike shareholders of a c_corporation can directly deduct their share of the entity level losses in accordance with the flowthrough rules of subchapter_s sec_1366 a provides for the pro_rata flowthrough of subchapter_s_corporation income losses and deductions to the shareholders sec_1366 however limits the aggregate amount of flowthrough losses and deductions a shareholder may claim the losses cannot exceed the sum of the shareholder’s adjusted_basis in his or her stock and the shareholder’s adjusted_basis of any indebtedness of the s_corporation to the shareholder sec_1366 and b this restriction 4the commissioner’s determinations are presumed correct and the taxpayer bears the burden of proving otherwise rule a 290_us_111 moreover deductions are a matter of legislative grace and the taxpayer bears the burden of proving he or she is entitled to any deduction claimed 503_us_79 292_us_435 welch v helvering supra this includes the burden of substantiation 65_tc_87 affd per curiam 540_f2d_821 5th cir the burden_of_proof may shift to the commissioner in certain situations if the taxpayer complies with substantiation requirements and cooperates with reasonable requests of the commissioner sec_7491 because petitioner failed to show he satisfied these requirements the burden_of_proof remains with petitioner 5all 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 applies because the disallowed amount exceeds the shareholder’s economic investment in the s_corporation and because of the limited_liability accorded to s_corporation shareholders the amount does not have to be repaid the disallowed losses and deductions may be carried forward indefinitely however and claimed when and to the extent that the shareholder increases his or her basis in the s_corporation see sec_1366 economic outlay a taxpayer must make an economic outlay for a loan to create basis a taxpayer makes an economic outlay when he or she incurs a cost on a third-party loan or is left poorer in a material sense after the transaction 352_us_82 estate of 268_f3d_553 8th cir affg tcmemo_2000_355 174_f3d_928 n 8th cir 875_f2d_420 4th cir affg 90_tc_206 706_f2d_755 6th cir affg tcmemo_1981_608 110_tc_62 affd without published opinion f 3d 6shareholders may increase basis in an s_corporation by capital contributions stock purchases or extensions of additional credit or where the s_corporation generates taxable_income 7basis of property is the cost of the property sec_1012 cost is defined as the amount_paid for property in cash or other_property sec_1_1012-1 income_tax regs 11th cir 63_tc_468 affd 535_f2d_309 5th cir 59_tc_172 54_tc_1293 affd 392_f2d_458 8th cir 50_tc_762 5_tc_250 against this background we now address whether petitioner may increase his basis in the s_corporation by the amount of the loan we address specifically petitioner’s contention that his personal loan guaranty the pledge of stock and the bank’s control of level propane either singly or collectively constitute an economic outlay personal guaranty shareholder guaranties of loans to an s_corporation do not constitute an economic outlay estate of leavitt v commissioner supra brown v commissioner supra spencer v commissioner supra 84_tc_716 perry v commissioner supra raynor v commissioner supra hafiz v commissioner tcmemo_1998_104 but see 778_f2d_769 n 11th cir guaranteeing a bank loan does not constitute an economic outlay because the shareholder is only secondarily liable see putnam v commissioner supra pincite a shareholder must perform under the guaranty to increase basis in the s_corporation 392_f2d_458 8th cir corporate debts guaranteed by the shareholder were not debt whose basis is taken into account for loss passthrough purposes but see selfe v united_states supra sole shareholder may get a basis increase in stock if the loan was in fact made to him or her and borrowed funds were re-lent to corporation cf 90_tc_206 no basis increase for shareholder-guaranteed loan to corporation majority refused to apply debt-equity principles to s corporation’s guaranteed loan rejecting selfe the shareholder in an s_corporation therefore generally may not increase his or her basis in the s_corporation by simply guaranteeing the debt of an s_corporation because petitioner was not called upon to perform under the loan or make any payment we hold that his personal guaranty did not increase his basis in level propane pledged collateral we next address whether petitioner’s pledge of stock of an s_corporation to secure the loan the bank made to the s_corporation constitutes an economic outlay we address first our caselaw 8by contrast a limited_partner who guarantees a nonrecourse partnership debt may be allowed to increase basis and second petitioner’s argument that the precedent in the eleventh circuit compels a different result courts have indicated that pledging personal assets is not an economic outlay sufficient to increase basis see 902_f2d_439 ndollar_figure 5th cir see also calcutt v commissioner supra pincite luiz v commissioner tcmemo_2004_21 but see selfe v united_states supra pincite n moreover petitioner has offered no authority other than an ambiguous invocation of eleventh circuit precedent that pledging stock might constitute an economic outlaydollar_figure perhaps petitioner is relying on selfe though he failed to cite the case at trial or in brief this court has previously disagreed with the analysis in selfe 90_tc_206 nonetheless we find the facts in selfe 9presumably finding eleventh circuit precedent more favorable to his position petitioner claims he resided at the time he filed the petition with his mother in florida which is in the eleventh circuit rather than with his wife in ohio which is in the sixth circuit see sec_7482 without deciding whether petitioner resided in the eleventh circuit we focus on whether caselaw in the eleventh circuit would characterize petitioner’s pledge of stock as an economic outlay that would increase his basis in the s_corporation 10a footnote states that a guarantor who has pledged stock to secure a loan has experienced an economic outlay to the extent that the pledged stock is not available as collateral for other investments because the guarantor has lost the time value or use of his or her collateral 778_f2d_769 n 11th cir although petitioner failed to bring this footnote to our attention we read it in the context of the facts in selfe which we distinguish distinguishable from the facts before us and hence that case is not controlling we first note that the court in selfe reaffirmed the principle that an economic outlay is required before a shareholder in an s_corporation may increase his or her basis selfe v united_states supra pincite selfe holds however that a shareholder does not in all circumstances have to absolve a corporation’s debt to increase basis id citing 706_f2d_755 6th cir selfe does not compel a different conclusion notwithstanding its holding because our facts are distinguishable in selfe the taxpayer borrowed funds in her individual capacity then pledged her personal assets as collateral for a loan id pincite the taxpayer later formed an s_corporation and advanced the borrowed funds to the s_corporation id the taxpayer’s loan was at that point converted into a loan to the corporation the corporation assumed the liability to repay the loan and the taxpayer guaranteed repayment if the corporation did not repay the taxpayer’s personal assets continued to be collateral for the corporate liability id pincite petitioner has offered no evidence that he personally borrowed funds from the bank and then advanced those funds to level propane or that the bank looked primarily to him for repayment in contrast a bank employee in selfe testified that the bank looked to the taxpayer as primary obligor id pincite petitioner has offered no analogous testimony and we can infer the testimony would have been adverse to petitioner see 162_f2d_513 10th cir affg 6_tc_1158 the facts in our case indicate the bank looked primarily to the s_corporation for repayment not petitionerdollar_figure in spencer v commissioner t c pincite where appeal lay to the court_of_appeals for the eleventh circuit selfe was distinguished because this court was not persuaded the bank looked primarily to the taxpayer for repayment even though the taxpayer had pledged personal assets as collateral similarly the collateral on which the bank depended in this case belonged to the corporate debtor not petitioner until the bank calls upon petitioner individually to make some payment on the loan petitioner has experienced no economic outlay and may not increase his basis in the s_corporation because petitioner has offered no evidence that the bank looked primarily to him for repayment we conclude that selfe is distinguishable and therefore does not control this case see metzger trust v commissioner 76_tc_42 factual distinctions render decision of court of appeal sec_11petitioner would garner a basis increase if for example his pledged shares in the s_corporation were foreclosed by the bank and their value were applied toward the balance of the loan if that were to occur petitioner would have incurred a cost and consequently made an economic outlay not squarely on point and golsen_rule inapplicable affd 693_f2d_459 5th cir 54_tc_742 the golsen_rule requires the court to follow a court_of_appeals decision that is squarely on point if appeal from its decision lies to that court_of_appeals affd 445_f2d_985 10th cir loss of control petitioner makes a third argument for increasing his basis by the amount of the dollar_figure million loan petitioner argues that he lost control of level propane and was therefore entitled to a basis increase by the amount of the cost he associated with losing control of the s_corporation petitioner has not substantiated however any alleged loss of control nor has petitioner provided us with a means to value the loss of control even had petitioner substantiated some transitory loss of control no basis-increasing event occurred petitioner remained at all times the owner of his shares we conclude that petitioner has failed to show any economic outlay for his alleged loss of control form of the transaction finally we address petitioner’s argument that we recharacterize the form of the loan transaction as a loan to himself that he then advanced to level propane taxpayers are ordinarily bound by the form of their transaction and may not argue that the substance of their transaction triggers different tax consequences see 429_us_569 417_us_134 a taxpayer must accept the tax consequences of his or her choice and may not enjoy the benefit of some other route he or she might have chosen to follow but did not selfe v united_states f 2d pincite brown v commissioner supra 118_tc_32 affd 108_fedappx_683 2d cir petitioner was free to organize his affairs as he saw fit once having done so however he must accept the tax consequences of his choice and may not enjoy the benefit of some other transaction see commissioner v natl alfalfa dehydrating milling co supra pincite we therefore decline to adopt petitioner’s view of the transaction the bank lent the funds to the s_corporation not to petitioner and the loan proceeds were used to fund operations of the s_corporation conclusion we conclude that petitioner may not increase his basis in the stock of level propane by the amount of the dollar_figure million loan the bank made to level propane petitioner therefore had insufficient basis in the stock of level propane to deduct passthrough losses from level propane accordingly we sustain respondent’s disallowance of those deductions during the years at issue decisions will be entered for respondent


t c memo united_states tax_court james edward terrell petitioner v commissioner of internal revenue respondent docket no 18399-16l filed date james edward terrell pro_se stephen c welker jeffrey e gold and bartholomew cirenza for respondent memorandum opinion lauber judge in this collection_due_process cdp case petitioner seeks review pursuant to sec_6330 d of the determination by the internal 1all statutory references are to the internal_revenue_code in effect at all continued revenue service irs or respondent to uphold the issuance of a notice_of_intent_to_levy the irs initiated the collection action with respect to petitioner’s federal_income_tax liabilities for and respondent has moved for summary_judgment under rule contending that there are no disputed issues of material fact and that his determination to sustain the proposed collection action was proper as a matter of law we agree and accordingly will grant the motion background the following facts are based on the parties’ pleadings and respondent’s motion papers including the attached declarations and exhibits see rule b petitioner resided in washington d c when he filed his petition during and petitioner worked as a minister and received income consisting of wages self-employment_income and social_security_benefits on date he filed delinquent federal_income_tax returns for both years dur- ing the processing of these returns the irs determined that petitioner had made mathematical errors when calculating his tax after correcting these mathematical errors see sec_6213 the irs made assessments of dollar_figure and dollar_figure for and respectively for each year the irs also assessed interest and an continued relevant times and all rule references are to the tax_court rules_of_practice and procedure we round all monetary amounts to the nearest dollar addition_to_tax for late filing see sec_6651 as of date petitioner had balances due of dollar_figure and dollar_figure for and respectively he did not pay these liabilities upon notice_and_demand for payment on date in an attempt to collect these unpaid liabilities the irs sent petitioner a letter notice_of_intent_to_levy levy notice for and on date petitioner submitted a form request for col- lection due process or equivalent_hearing in which he requested relief for his tax years on date he mailed to the irs a letter in which he requested a hearing for the subject of the levy notice on date a settlement officer so1 from the irs appeals_office contacted petitioner and explained that a hearing could not be held for because those years were not addressed in the levy notice petitioner asked why the processing of his return had resulted in a balance due instead of the refund he had requested so1 explained that the irs had adjusted his tax_liability upwards after correcting the mathematical errors mentioned above so1 proposed to schedule a cdp hearing but petitioner asked that the hearing be deferred to allow him time to submit an amended_return for 2these balances reflect a reduction for withholding credits totaling dollar_figure and dollar_figure for and respectively the balance also reflects a reduction from an overpayment credit totaling dollar_figure from tax_year instead of filing a form 1040x amended u s individual income_tax re- turn for petitioner submitted to the irs another form_1040 u s individual_income_tax_return the irs rejected the form_1040 as duplicative and instructed him to submit a form 1040x he contacted the irs to say that he lacked the in- formation needed to file a form 1040x he does not contend and the record does not reflect that he subsequently filed a form 1040x for or on date the irs sent petitioner a notice_of_federal_tax_lien nftl filing for and on date well past the 30-day peri- od specified in sec_6330 petitioner submitted a second form requesting a hearing with respect to the nftl filing and the prior levy notice in his hearing request he expressed no interest in a collection alternative but challenged his underlying tax_liabilities stating the irs has determined that i owe money based on incorrect information after receiving the second form the irs assigned another settlement officer so2 to petitioner’s case concluding that petitioner’s date hearing request was untimely so2 scheduled an equivalent_hearing see sec_301_6320-1 proced admin regs so2 reviewed the administrative file and confirmed that the irs had properly assessed petitioner’s tax_liabilities for and had timely issued notices of collection action to his last known address and had satisfied all other requirements of applicable law and administrative procedure upon review of petitioner’s account transcripts so2 discovered that he was not in compliance with his tax filing obligation for on date so2 mailed to petitioner at his current address of record a letter scheduling a telephone hearing for date so2 indicated that she could not consider collection alternatives unless petitioner submitted spe- cified irs forms supporting financial information and a copy of a signed tax re- turn for if petitioner wished to challenge his underlying tax_liability for or he was instructed to submit within days an amended_return for the relevant year petitioner submitted none of the requested information before the hearing and did not call in for the hearing at the scheduled time on date so2 subsequently called him at the number he had provided but he did not answer so2 attempted to leave a voice message but petitioner’s voice mailbox was full later that day so2 sent to petitioner at his current address of record a last chance letter this letter explained that the hearing would not be rescheduled but that so2 would keep the case open for two weeks to permit petitioner to submit the previously requested forms and returns or any other information he wanted to submit for consideration so2 set a deadline of date for submission of these documents on date more than three weeks after that deadline had passed petitioner sent so2 a letter attaching an incomplete form 433-a collection information statement for wage earners and self-employed individuals with no supporting financial data petitioner acknowledged that he had received so2’s last chance letter and stated that he was working to send the other requested materials as soon as possible fifty-eight days later having received nothing further from petitioner so2 closed the case on date the irs issued petitioner a decision letter in which it sustained the levy notice on date petitioner mailed to this court a petition for review under sec_6330 on date respondent filed a motion for summary_judgment to which petitioner timely responded 3the irs will ordinarily issue a decision letter after completing an equiva- lent hearing see 116_tc_263 sec_301_6330-1 proced admin regs the decision letter did not address the nftl filing discussion a jurisdiction the tax_court is a court of limited jurisdiction and we must first ascertain whether the case before us is one that congress has authorized us to consider sec_7442 in a cdp case such as this our jurisdiction depends on the issuance of a notice_of_determination following a timely request for a cdp hearing and the filing of a timely petition for review sec_6330 123_tc_1 aff’d 412_f3d_819 7th cir respondent initially moved to dismiss this case for lack of jurisdiction on the ground that the irs had issued petitioner a decision letter rather than a notice_of_determination we normally lack jurisdiction to review a decision letter issued after an equivalent_hearing orum t c pincite 116_tc_263 but respondent subsequently withdrew his motion to dismiss noting correctly that petitioner’s date hearing request was timely with respect to ie was filed within days of the levy notice even though his date hearing request was untimely with respect to the nftl see sec_6330 respondent thus agreed and we conclude that so2 incorrectly afforded petitioner an equivalent_hearing rather than a cdp hearing with respect to the levy notice see sec_301_6330-1 q a-c1 through c4 proced admin regs a decision letter constitutes a determination sufficient to invoke this court’s jurisdiction when a taxpayer timely requests a cdp hearing but is errone- ously afforded an equivalent_hearing see 131_tc_47 t he name or the label of a document does not control whether the document embodies a determination under sec_6330 119_tc_252 we thus have jurisdiction to review the irs’ determination if the taxpayer petitions this court within days of the date of the determination sec_6330 here petitioner mailed his petition to this court on date the 30th day after the date appearing on the decision letter date the petition was thus timely under the timely mailed timely filed rule see sec_6330 sec_7502 we accordingly have jurisdiction to consider this case b summary_judgment standard and standard of review the purpose of summary_judgment is to expedite litigation and avoid costly time-consuming and unnecessary trials fla peach corp v commissioner 90_tc_678 the court may grant summary_judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law rule b 98_tc_518 aff’d 17_f3d_965 7th cir in deciding whether to grant summary_judgment we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party sundstrand corp t c pincite however the nonmoving party may not rest upon mere allegations or denials of his pleadings but instead must set forth specific facts showing that there is a genuine dispute for trial rule d see sundstrand corp t c pincite we conclude that the questions before us may appropriately be adjudicated summarily where the validity of the taxpayer’s underlying tax_liability is properly at issue we review the irs determination de novo 114_tc_176 otherwise we review the outcome of a cdp hearing for abuse_of_discretion only see id pincite abuse_of_discretion exists when a deter- mination is arbitrary capricious or without sound basis in fact or law 125_tc_301 aff’d 469_f3d_27 1st cir petitioner seeks to challenge his underlying tax_liabilities for and but he failed to submit any evidence to so2 on this subject despite several requests that he do so nor did he submit during or after the cdp hearing amended returns showing what he believed his correct_tax liabilities for and to be so2 advised him on date of the need to submit amend- ed returns but he submitted no returns during the ensuing four months we conclude that petitioner did not raise a proper challenge to his and tax_liabilities at the cdp hearing see sec_301_6330-1 q a-f3 proced ad- min regs providing that an underlying liability challenge is not properly raised if the taxpayer fails to present to appeals any evidence with respect to that issue after being given a reasonable opportunity to present such evidence petitioner is thus precluded from challenging his liabilities in this court see 129_tc_107 gentile v commissioner tcmemo_2013_175 106_tcm_75 aff’d 592_fedappx_824 11th cir we therefore review so2’s action for abuse_of_discretion only c analysis in determining whether the appeals officer abused her discretion we consi- der whether she properly verified that the requirements of any applicable law or administrative procedure had been met considered any relevant issues peti- tioner raised and determined whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of 4so1 had previously suspended the cdp hearing at petitioner’s request to enable him to file an amended_return for but instead of filing a form 1040x he submitted another form_1040 which the irs rejected as duplicative see supra p an irs employee instructed him to file a form 1040x but he apparently did not do so in any event he submitted no copies of any amended returns to so2 petitioner that any collection action be no more intrusive than necessary see sec_6330 our review of the record confirms that so2 properly discharged all of these duties petitioner advances three principal contentions first he challenges his and tax_liabilities on the merits contending that he should qualify for tax amnesty as noted supra pp petitioner did not properly challenge his underlying tax_liabilities at the cdp hearing he is thus precluded from advancing this argument here second petitioner contends that he did not receive the levy notice or so2’s letter scheduling the hearing alleging that his neighborhood has a real problem with the u s postal service and that m ail is not regularly delivered respon- dent produced copies of the levy notice and so2’s letters each is addressed to pe- titioner’s current and last_known_address it is apparent that petitioner received the levy notice as well as the irs letter regarding the nftl filing because he submitted in response to those communications a form and a letter dated date requesting a hearing concerning the levy notice it is apparent that he received so2’s last chance letter because he replied to that letter on 5although petitioner does not explain the basis for this contention he may be referring to the exemption from self-employment_tax on income derived from the performance of duties as an ordained minister see sec_1402 date attaching an incomplete form 433-a and pledging to send the other requested materials as soon as possible so2 then deferred closing the case for days which allowed petitioner more than enough time to submit the relevant documentation see shanley v commissioner tcmemo_2009_17 97_tcm_1062 finding 14-day deadline reasonable cf szekely v commissioner tcmemo_2013_227 106_tcm_375 finally petitioner asserts that he submitted to so2 proof that he had filed his delinquent return thus allowing her to consider collection alternatives but petitioner never put a specific collection proposal on the table and he submit- ted only a partially completed form 433-a with no supporting financial data we have consistently held that it is not an abuse_of_discretion for an appeals officer to reject collection alternatives and sustain collection action where as here the tax- payer has failed after being given repeated opportunities to supply the necessary information see solny v commissioner tcmemo_2018_71 at copper v 6petitioner asserts that he did not call in for the cdp hearing because he did not receive so2’s letter scheduling it but when petitioner failed to call in so2 phoned him at the number he had provided and attempted to leave a voice message so2 then took the precaution of sending petitioner a last chance letter which he admits having received so2 went the extra mile in attempting to main- tain communication with petitioner and he must bear responsibility for failing to send her the promised documents commissioner tcmemo_2017_231 at huntress v commissioner tcmemo_2009_161 98_tcm_8 prater v commissioner tcmemo_2007_241 94_tcm_209 roman v commissioner tcmemo_2004_20 87_tcm_835 finding no abuse_of_discretion in this or in any other respect we will grant summary_judgment for respondent and sustain the proposed collection action to reflect the foregoing an appropriate order and decision will be entered 7in his response to the summary_judgment motion petitioner contends for the first time that the irs erred in failing to issue him a notice_of_deficiency for and but the assessments for these years were based on the tax that petition- er reported on his delinquent returns as adjusted to correct mathematical errors the irs can assess the tax shown on a return and make additional assessments arising from correction of mathematical or clerical errors without sending the taxpayer a notice_of_deficiency see sec_6201 sec_6213


internal_revenue_service number release date index number ------------------------------ ------------------------------------- -------------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------- id no ----------------- telephone number --------------------- refer reply to cc psi b01 plr-129745-11 date date legend legend trust -------------------------------------------------------------------- ------------------------------ d1 ------------------- grantor ---------------------------------------------------------------------- ------------------ primary beneficiary ----------------------- ---------------------------------------------------------------------- d2 --------------- dear ---- ----- this responds to the letter dated date and related correspondence submitted on behalf of trust requesting rulings under sec_678 sec_1361 and sec_2041 of the internal_revenue_code facts the information submitted states that trust was created for the benefit of primary beneficiary who is also the trustee of trust primary beneficiary is a citizen_of_the_united_states trust is a domestic_trust plr-129745-11 under the trust instrument of trust grantor may contribute at any time and from time to time to the principal of the trust corpus primary beneficiary has the power following any such contribution to trust by grantor during grantor’s life to withdraw the entire value of the contribution primary beneficiary’s power_of_withdrawal is cumulative on d2 of each year the total amount primary beneficiary may withdraw with respect to all preceding calendar years is reduced by the amount of dollar_figure or percent of the value of the trust principal on d2 of that year whichever is the greater amount and to that extent primary beneficiary’s power_of_withdrawal shall lapse the trust instrument also provides that the trustee of trust may exercise or join in the exercise of power to pay over use apply or expend income or principal of trust to or for his own benefit as a beneficiary subject_to an ascertainable_standard the trustee of trust however shall not exercise or join in the exercise of power to pay over use apply or expend income or principal of trust to any beneficiary who the trustee is legally obligated to support the trust instrument further provides that primary beneficiary has the power in a non-fiduciary capacity to acquire the trust corpus by substituting other_property of an equivalent value as determined by an independent_appraiser selected by trustee of trust primary beneficiary may exercise this power without the consent of any fiduciary and no fiduciary duty may be asserted as a defense against the exercise of this power by primary beneficiary under the trust instrument grantor is not a beneficiary under trust and has no interest under trust further neither grantor nor grantor’s spouse acts as a trustee of trust additionally neither grantor nor any other nonadverse_party as defined in sec_672 shall have the power to purchase exchange or otherwise deal with or dispose_of all or any part of the principal or income of trust for less than an adequate_consideration in money or money’s worth or to enable grantor or grantor’s spouse to borrow all or any part of the corpus or income of trust directly or indirectly without adequate interest or security grantor intends to transfer to trust as a gift shares of stock of a corporation which has elected to be taxed as a subchapter_s_corporation trust requests rulings with respect to the following issues whether primary beneficiary will be treated as the owner of trust under sec_671 and sec_678 whether trust will be treated as an eligible s_corporation shareholder with respect to the s_corporation stock grantor transfers to trust and to what extent the assets of trust will be included in the estate of primary beneficiary for federal estate_tax purposes upon the death of primary beneficiary plr-129745-11 law and analysis issue sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_673 through specify the circumstances under which the grantor or another person will be regarded as the owner of a portion of a_trust under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances attendant on its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_675 provides that the grantor shall be treated as the owner of any portion of a_trust in respect of which a power_of_administration is exercisable in a nonfiduciary capacity by any person without the approval or consent of any person in a fiduciary capacity the term power_of_administration includes a power to reacquire the trust corpus by substituting other_property of an equivalent value sec_678 provides in general that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income there from in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of sec_671 to inclusive subject a grantor of a_trust to treatment as the owner thereof sec_678 provides that sec_678 shall not apply with respect to a power over income as originally granted or thereafter modified if the grantor of the trust or a transferor to whom sec_679 applies is otherwise treated as the owner under the provisions of subpart e other than sec_678 based solely upon the facts submitted and the representations made we conclude that primary beneficiary will be treated as the owner of trust under sec_678 of that portion of trust over which his withdraw power has not lapsed to the extent that primary beneficiary fails to exercise a withdraw power and the power lapses primary beneficiary will be treated as having released the power while retaining a power_of_administration exercisable in a non-fiduciary capacity to acquire trust corpus by substituting other_property of an equivalent value plr-129745-11 the circumstances surrounding the administration of trust determine whether this power_of_administration is exercisable in a fiduciary or nonfiduciary capacity this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the internal_revenue_service office where the returns are filed therefore with respect to the portion of trust over which primary beneficiary had a power of withdraw that has been released we cannot determine at this time whether primary beneficiary will be treated as the owner of trust for purposes of sec_678 provided that primary beneficiary has a withdraw power over all contributions to trust and circumstances indicate that the power_of_administration is exercisable in a nonfiduciary capacity primary beneficiary will be treated as the owner of trust in its entirety issue sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that for purposes of subchapter_s the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under title_26 subtitle a chapter subchapter_j part i subpart e of the united_states_code as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder of an s_corporation provided that primary beneficiary is treated as the owner of trust in its entirety we conclude that trust is a permitted shareholder of an s_corporation under sec_1361 plr-129745-11 issue sec_2036 provides in part that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2038 provides in part that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the 3-year period ending on the date of the decedent's death sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 to inclusive sec_2041 defines a general_power_of_appointment as one that is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides that the lapse of a power_of_appointment created after date during the life of the individual possessing the power is considered a release of the power to the extent that the property that could have been appointed by the exercise of the lapsed power exceeds the greater of dollar_figure or percent of the aggregate value at the time of such lapse of the assets out of which the exercise of the lapsed power could have been satisfied sec_20_2041-1 of the estate_tax regulations provides in part that the term power_of_appointment includes all powers that are in substance and effect plr-129745-11 powers of appointment regardless of the nomenclature used in creating the power and regardless of local property law connotations for example if a_trust instrument provides that the beneficiary may appropriate or consume the principal of the trust the power to consume or appropriate is a power_of_appointment similarly a power given to a decedent to affect the beneficial_enjoyment of trust property or its income by altering amending or revoking the trust instrument or terminating the trust is a power_of_appointment further a power in a donee to remove or discharge a trustee and appoint himself may be a power_of_appointment sec_20_2041-3 provides in part that the failure to exercise a power_of_appointment created after date within a specified time so that the power lapses constitutes a release of the power however sec_2041 provides that such a lapse of a power_of_appointment during any calendar_year during the decedent's life is treated as a release for purposes of inclusion of property in the gross_estate under sec_2041 only to the extent that the property which could have been appointed by exercise of the lapsed power exceeds the greater of i dollar_figure or ii percent of the aggregate value at the time of the lapse of the assets out of which or the proceeds of which the exercise of the lapsed power could have been satisfied for example assume that a transferred dollar_figure worth of securities in trust providing for payment of income to b for life with remainder to b's issue assume further that b was given a noncumulative right to withdraw dollar_figure a year from the principal of the trust fund which neither increased nor decreased in value prior to b's death in such case the failure of b to exercise his right of withdrawal will not result in estate_tax with respect to the power to withdraw dollar_figure which lapses each year before the year of b's death at b's death there will be included in his gross_estate the dollar_figure which he was entitled to withdraw for the year in which his death occurs less any amount which he may have taken during that year however if in the above example b had possessed the right to withdraw dollar_figure of the principal annually the failure to exercise such power in any year will be considered a release of the power to the extent of the excess of the amount subject_to withdrawal over percent of the trust fund in this example dollar_figure assuming that the trust fund is worth dollar_figure at the time of the lapse since each lapse is treated as though b had exercised dominion over the trust property by making a transfer of principal reserving the income therefrom for his life the value of the trust property but only to the extent of the excess of the amount subject_to withdrawal over percent of the trust fund is includable in b's gross_estate unless before b's death he has disposed of his right to the income under circumstances to which sec_2035 through would not be applicable based solely upon the facts submitted and the representations made we conclude that primary beneficiary’s power to withdraw any contribution to trust constitutes a general_power_of_appointment within the meaning of sec_2041 accordingly at the time of primary beneficiary’s death the gross_estate will include the value of the trust corpus to which primary beneficiary may withdraw in that year less plr-129745-11 any amount which may have been withdrawn during that year sec_20_2041-3 estate of dietz v commissioner tcmemo_1996_471 except as specifically ruled above we express or imply no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code we express or imply no opinion as to whether future activities involving primary beneficiary trust and the substitution power are the same as or substantially_similar to the transaction_of_interest identified in notice_2007_73 2007_36_irb_545 however primary beneficiary and trust are alerted to the potential obligation under sec_1_6011-4 to disclose any future transactions that are the same or potentially similar to the transactions identified in notice_2007_73 and to the potential penalties for the failure to disclose such transactions the service also expresses no opinion on the gift_tax consequences if the primary beneficiary exercises his lifetime power_of_appointment this ruling is directed only to the taxpayer who requested it sec_6110 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_ruling will be sent to your authorized representative sincerely faith p colson senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------------------------------- ----------------------- -------------------------------------------------- ------------------------------ ------------------------------- legend 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 fip b03 plr-132686-13 date date fund ------------------------ ----------------------------------------------------------------------- trust state investment manager date year year year year year dear ---------------- -------------------------------- ---------------------------------------------- --------------------------------------------- -------------------- ------- ------- ------- ------- ------- this ruling responds to a letter dated date submitted on behalf of fund fund requests consent to revoke a previous election made by fund under sec_4982 of the internal_revenue_code the code for year and subsequent years plr-132686-13 facts fund is a diversified series of trust organized under the laws of state fund is registered with the securities_and_exchange_commission as a diversified open-ended investment_company under the investment_company act of u s c 80a-1 et seq as amended fund has made an election under sec_851 to be treated as a regulated_investment_company ric for federal_income_tax purposes under subtitle a chapter subchapter_m of the code fund’s overall_method_of_accounting is an accrual_method and its taxable_year is the calendar_year on date fund was reorganized into a series of trust pursuant to a reorganization within the meaning of sec_368 in year fund elected under sec_4982 to use the taxable_year ending on december in lieu of the one-year period ending on october for the purposes of calculating the required_distribution under sec_4982 and e in order to avoid payment of an excise_tax under sec_4982 the election under sec_4982 was made in an attempt to reduce the complexity of tax_accounting associated with calculating required distributions of ordinary_income capital_gain_net_income foreign_currency gains and losses and gains and losses pursuant to sec_1296 under the excise_tax and subchapter_m provisions of the code however fund’s experience has been that its sec_4982 election created additional administrative burdens primarily due to time constraints in declaring required excise_tax distributions furthermore after the reorganization described above fund’s investment manager was replaced with investment manager investment manager advises multiple rics and except for fund none of the rics have made an election under sec_4982 creating inconsistencies between the funds and in turn additional administrative burdens lastly the promulgation of regulations coordinating the excise_tax and subchapter_m provisions has greatly reduced the administrative burden of having a tax_year different from the period used for determining fund’s required_distribution under sec_4982 accordingly fund seeks consent to revoke its election to use the taxable_year for purposes of calculating fund’s required_distribution for purposes of sec_4982 and sec_4982 fund makes the following representations fund’s desire to revoke its election is due to administrative and non-tax related financial burdens caused by the election fund is not seeking to revoke its election in order to preserve or secure a tax_benefit plr-132686-13 fund will neither benefit through hindsight nor prejudice the interests of the government if permitted to revoke its election and fund will not make a subsequent election under sec_4982 for at least five calendar years following the year of the grant of revocation law and analysis sec_4982 imposes an excise_tax on every ric for each calendar_year equal to percent of the excess if any of the required_distribution over the distributed_amount for the calendar_year sec_4982 defines the term required_distribution to mean with respect to any calendar_year the sum of a percent of the ric’s ordinary_income for such calendar_year as defined in sec_4982 plus b percent of its capital_gain_net_income for the one-year period ending on october of such calendar_year sec_4982 provides that if the taxable_year of a ric ends with the month of november or december the ric may elect to have its taxable_year taken into account in lieu of the one-year period ending on october of the calendar_year for purposes of satisfying the required_distribution defined in sec_4982 sec_4982 provides that once made such election may be revoked only with the consent of the secretary sec_4982 provides that any specified_gain or specified_loss which would be properly taken into account for the portion of the calendar_year after october shall be treated as arising on january of the following calendar_year sec_4982 defines specified_gain and specified_loss as ordinary gain_or_loss from the sale exchange or other_disposition of property including the termination of a position with respect to such property the terms include any foreign_currency_gain_or_loss attributable to a sec_988 transaction and any amount includible in gross_income under sec_1296 in the case of gain or allowable as a deduction under sec_1296 in the case of loss sec_4982 provides that if a ric makes an election under sec_4982 the last day of the ric’s taxable_year will be substituted for october sec_4982 provides that for the purposes of determining a ric’s ordinary_income each specified mark-to-market provision shall be applied as if such ric’s taxable_year ended on october sec_4982 also provides that in the case of a ric making an election under sec_4982 the preceding sentence shall be applied by substituting the last day of the ric’s taxable_year for october sec_4982 defines specified_mark_to_market_provision as sec_1256 and sec_1296 and any other provision of the code or regulations thereunder which treats property as disposed of on the last day of the taxable_year plr-132686-13 sec_4982 and sec_4982 provide that a ric with a calendar_year that does not have a sec_4982 election in effect will compute capital_gain_net_income for a one-year period ending on october for a ric that is revoking its election under sec_4982 there is a possible inference that for the first year following the revocation such ric’s calculation of its capital_gain_net_income will include the november-december period twice once as part of the preceding calendar_year and then again as part of the one-year period calculation for the year_of_change to clarify that such a double inclusion is not required fund has requested that the calculation of its required_distribution with respect to capital_gain_net_income be determined on the basis of capital_gain_net_income realized and recognized during the ten-month period from january through october of year fund also requested that the same shortened tax_year be applied for the calculation of items of gain_or_loss described in sec_4982 and however due to the differing statutory language of sec_4982 and from that of sec_4982 and e such an additional ruling is unnecessary unlike sec_4982 sec_4982 and do not refer to a one-year period calculation sec_4982 provides that amounts that otherwise would be taken into account for the portion of a calendar_year after october are treated as arising on january of the following year effectively deferring inclusion of these amounts until the subsequent year because fund had a sec_4982 election in place for year sec_4982 and c would be applied to treat specified gains or losses which would be properly taken into account for the portion of the calendar_year after december year as arising on january of year in other words for the years that the sec_4982 election was in place there was no deferral of specified gains or losses and the fund’s revocation of the sec_4982 election will have no effect on the calculation of the year sec_4982 specified gains and losses in addition sec_4982 states that each specified mark-to-market provision shall be applied as if the company’s taxable_year ended on october it also provides that in the case of a ric making an election under sec_4982 the preceding sentence shall be applied by substituting the last day of the ric's taxable_year for october because fund had a sec_4982 election in place for year sec_4982 would be applied to treat the specified mark-to-market provisions as applying on december of year and the revocation of the sec_4982 election for year will not cause the year gains to be attributed to year conclusion based upon the information submitted and the representations made we conclude that fund’s desire to revoke its election under sec_4982 is because of administrative burdens and not because of any federal tax-related financial plr-132686-13 burden caused by the election fund does not seek to revoke its election for the purpose of preserving or securing a federal tax_benefit additionally fund will neither benefit through hindsight nor prejudice the interests of the government as a result of being permitted to revoke its election accordingly based on the representations made and pursuant to sec_4982 the secretary consents to the revocation of the election made by fund under sec_4982 effective for calendar_year and subsequent years in addition in calculating the required_distribution for calendar_year for purposes of sec_4982 and e the capital_gain_net_income will be determined on the basis of the capital_gains_and_losses realized and recognized during the 10-month period from january year through october year as a condition to the secretary’s consent to the revocation pursuant to sec_4982 fund may not make a subsequent election under sec_4982 for a period of five calendar years following the year to which the grant of revocation applies ie year through year inclusive except as specifically ruled upon above no opinion is expressed or implied as to any other federal excise or income_tax consequences this ruling is directed only to the taxpayer requesting it sec_6110 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 representatives it is important that a copy of this letter be attached to the federal income and excise_tax returns filed by fund for the year to which this ruling applies sincerely __________________________________ k scott brown branch chief branch office of associate chief_counsel financial institutions and products cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc intl plr-161867-02 date date in re legend taxpayer entity a entity b tye x interest y interest individual a dear this replies to a letter dated date requesting that taxpayer be granted an extension of time under sec_301_9100-3 to file the following annual certifications as required under sec_1_1503-2 for the tax years indicated an in re plr-161867-02 annual certification for tye with respect to the dual consolidated losses for tye attributable to taxpayer’s x interest in entity a an annual certification for tye with respect to the dual consolidated losses for tye and tye attributable to taxpayer’s x interest in entity a and an annual certification for tye with respect to the dual consolidated losses for tye attributable to taxpayer’s y interest in entity b the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated 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 a part of the audit process during the tax years at issue individual a served as the senior manager of tax for taxpayer and then as the director of tax individual a was responsible for the u s tax information reporting related to taxpayer’s foreign operations and interests in entity a and entity b the affidavit of individual a and the facts submitted describe the circumstances surrounding the discovery of and the reasons for taxpayer ‘s failure_to_file the annual certifications taxpayer is requesting relief before the irs has discovered taxpayer’s failure to timely file the annual certifications sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation the annual certification is a regulatory election as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the rules set forth in sec_301_9100-3 in re plr-161867-02 based on the facts and information submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time until days from the date of this ruling letter to file the following annual certifications as required under sec_1_1503-2 for the tax years indicated an annual certification for tye with respect to the dual consolidated losses for tye attributable to taxpayer’s x interest in entity a an annual certification for tye with respect to the dual consolidated losses for tye and tye attributable to taxpayer’s x interest in entity a and an annual certification for tye with respect to the dual consolidated losses for tye attributable to taxpayer’s y interest in entity b the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the annual certifications sec_301_9100-1 a copy of this ruling letter should be associated with the annual certifications this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to taxpayer and the other authorized representative sincerely associate chief_counsel international by s allen goldstein allen goldstein reviewer enclosure copy for sec_6110 purposes


t c memo united_states tax_court robert michael burchfield and pamela o burchfield petitioners v commissioner of internal revenue respondent docket no filed date robert michael burchfield and pamela o burchfield pro_se jeanne gramling for respondent memorandum findings_of_fact and opinion morrison judge the commissioner of internal revenue issued a notice_of_deficiency to the burchfields determining a deficiency in income_tax for and various additions to tax the burchfields contend that they are exempt from federal_income_tax because they work for private-sector employers wachovia bank and carolinas healthcare system we find that the burchfields are liable for the deficiency in income_tax the addition_to_tax for failure_to_file a timely income_tax return and the addition_to_tax for failure to make estimated_tax payments in addition we impose a dollar_figure penalty on them for making frivolous arguments and instituting this litigation as a delaying tactic findings_of_fact michael burchfield was an employee of wachovia bank he earned dollar_figure in wages during wachovia bank withheld dollar_figure from his wages for federal_income_tax his wife pamela burchfield was an employee of carolinas healthcare system she earned dollar_figure in wages during she also earned dollar_figure in dividend income from first clearing and received a dollar_figure individual_retirement_account ira distribution from american skandia life assurance co information returns the payors filed with the irs reflected that the burchfields received these amounts with the exception that there is no information_return in the record regarding the dollar_figure dividend from first clearing on date the irs received from the burchfields a copy of a form_1040 u s individual_income_tax_return for the tax_year dated date on the form_1040 the burchfields reported zero wage income and minor amounts of other types of income dollar_figure in interest_income and dollar_figure in refunds and claimed itemized_deductions of dollar_figure on date the commissioner issued a notice_of_deficiency to the burchfields determining a deficiency of dollar_figure a late-filing addition_to_tax of dollar_figure an addition_to_tax for failure_to_pay_tax shown on a return and an estimated-tax addition_to_tax of dollar_figure a form_4549 income_tax examination changes attached to the notice_of_deficiency explained that the dollar_figure tax_liability was calculated from a taxable_income of dollar_figure the dollar_figure was equal to dollar_figure of dividends dollar_figure from an ira distribution dollar_figure of secondary wages dollar_figure of wages - a dollar_figure standard_deduction - dollar_figure of exemptions the form stated that the burchfields should be credited dollar_figure in prepayments the burchfields filed a petition in the tax_court challenging the deficiency_notice in the petition the burchfields claim that they completed a return for the year on date their petition contains a series of bogus legal arguments the burchfields were residents of north carolina when they filed the petition in the answer respondent conceded that the burchfields were not liable for the penalty for failure_to_pay_tax shown on a return respondent contended that the late-filing addition_to_tax of sec_6651 should be applied at a rate of 1unless otherwise indicated all section references are to continued percent per month instead of the percent rate used in the notice_of_deficiency see sec_6651 as calculated in the answer the addition_to_tax was dollar_figure ie percent of the difference between the deficiency of dollar_figure and prepaid credits of dollar_figure at the trial the burchfields regaled the court with their frivolous legal arguments the commissioner filed a motion for penalty under sec_6673 the burchfields filed a response that they had prepared before trial opinion i deficiency the first issue for decision is whether the burchfields are liable for a deficiency of dollar_figure the taxpayer generally bears the burden of proving that the commissioner’s determination set forth in a notice_of_deficiency is incorrect see rule a 290_us_111 however if the taxpayer introduces credible_evidence and meets other requirements with respect to a factual issue affecting the taxpayer’s liability for tax the commissioner has the burden_of_proof with respect to the issue sec_7491 the continued the internal_revenue_code_of_1986 as amended and in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure burchfields have not presented credible_evidence that any of the adjustments that produced the deficiency of dollar_figure were incorrect thus the burchfields bear the burden_of_proof the burchfields have failed to carry the burden they have produced no evidence that they did not earn the income the irs says they earned instead they advance a phalanx of bogus legal arguments they argue that we have jurisdiction to determine only the rate_of_tax that the refusal of the irs to answer questions from the burchfields constituted an admission that the burchfields were not liable for tax that the burchfields are citizens of the several states that the constitution prohibits the federal government from collecting tax except through the states that the word income is limited to income from federally licensed occupations to dividends and to other things but does not include the earnings_of employees of the private sector that the irs cannot issue a deficiency_notice 2the court_of_appeals for the ninth circuit in 596_f2d_358 9th cir revg 67_tc_672 held that for the commissioner to prevail in a case involving unreported income there must be some evidentiary foundation linking the taxpayer to the alleged income-providing activity the weimerskirch opinion has been cited by the fourth circuit 999_f2d_760 affg tcmemo_1992_153 the commissioner did not provide any evidence that pamela burchfield was linked to the dollar_figure dividend that it alleges she received from first clearing this failure does not matter the burchfields did not in their petition challenge the irs’s determination that pamela burchfield earned dollar_figure in dividend income they have therefore waived that issue see rule b without making an assessment and that their form_1040 must be presumed correct because it is not apparent from its face that it is frivolous none of these arguments have merit see eg 754_f2d_747 7th cir the argument that under sec_3401 the category of ‘employee’ does not include privately employed wage earners is a preposterous reading of the statute the burchfields are liable for the deficiency determined by the commissioner ii sec_6651 addition_to_tax the second issue for decision is whether the burchfields are liable for a late-filing addition_to_tax of dollar_figure the commissioner bears the burden of production with respect to this addition_to_tax and the estimated-tax addition_to_tax discussed later see sec_7491 if the commissioner produces evidence demonstrating that the taxpayer is liable for an addition_to_tax the taxpayer must provide the court with sufficient evidence to convince the court that the commissioner’s determination is incorrect 116_tc_438 with regard to certain defenses that the taxpayer can assert in response such as that the taxpayer had reasonable_cause for not 3the commissioner has the burden_of_proof in respect of any new_matter pleaded in the answer rule a the increase in the sec_6651 addition_to_tax from dollar_figure in the deficiency_notice to dollar_figure in the answer does not involve a disputed issue of fact it is a computation arising from the concession of the sec_6651 addition_to_tax filing the return it is the taxpayer’s responsibility to raise the defense and the burden_of_proof concerning it is on the taxpayer id pincite we find that the commissioner has produced evidence showing that the burchfields are liable for a late-filing addition_to_tax of dollar_figure sec_6651 imposes an addition_to_tax for failure_to_file a return by the filing deadline as extended unless such failure is due to reasonable_cause and not due to willful neglect the amount of this addition_to_tax i sec_5 percent of the net amount_required_to_be_shown_as_tax on the return for each month the failure_to_file continues not to exceed percent in the aggregate sec_6651 b the tax_return was due_date and the irs transcript of accounts does not show the deadline was extended mr burchfield claimed that he sent the form_1040 to the irs on date this was too late by then the burchfields were liable for the full 25-percent amount the commissioner has produced sufficient evidence that the burchfields are liable for the addition_to_tax the burchfields have not demonstrated that they are not liable for the addition_to_tax we find that they are liable for the sec_6651 addition_to_tax for the tax_year iii sec_6654 addition_to_tax the third issue is whether the burchfields are liable for an estimated-tax addition_to_tax of dollar_figure for the tax_year the record demonstrates that the burchfields failed to make the four installments of the required_annual_payment required by sec_6654 the required_annual_payment for a tax_year i sec_90 percent of the tax_liability for the year if the taxpayer has not filed a return for the year and for the preceding year sec_6654 the burchfields’ form_1040 for was not a valid_return it is mainly a list of zero entries not a genuine attempt to report the burchfields’ tax_liability furthermore it was accompanied by forms substitute for form_w-2 wage and tax statement or form 1099-r distributions from pensions annuities retirement or profit- sharing plans iras insurance contracts etc that contradicted the accuracy of the forms w-2 wage and tax statement issued to the burchfields by their employers and did not give any specific explanation for the discrepancy such a form_1040 is not a valid_return see 120_tc_163 ulloa v commissioner tcmemo_2010_68 the form_1040 for was similar as mr burchfield testified it too was not a valid_return the burchfields are liable for the addition_to_tax for failure to pay estimated_tax iv sec_6673 penalty the fourth issue for decision is whether the burchfields are liable for a penalty under sec_6673 sec_6673 authorizes this court to require a taxpayer to pay to the united_states a penalty not to exceed dollar_figure if the taxpayer took frivolous or groundless positions in tax_court proceedings or instituted the proceedings primarily for delay the burchfields took numerous legal positions that were frivolous and groundless we believe they instituted and maintained these proceedings primarily for delay in view of the abuse of this court’s resources in these proceedings we hold the burchfields liable for a dollar_figure penalty to reflect the foregoing an appropriate order and decision will be entered


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 tege eoeg teb presp-142951-06 date date dear ------------------ this letter is in response to your application_for an allocation of authority to issue --------- ----------------in clean renewable energy bonds crebs under sec_54 of the internal_revenue_code the code sec_54 of the code imposes a limitation of dollar_figure on the amount of crebs which may be issued to finance qualified projects the limitation sec_54 provides that the limitation is to be allocated by the secretary of treasury in such manner as the secretary deems appropriate except that no more than dollar_figure of the limitation may be allocated to finance qualified projects of qualified borrowers which are governmental bodies section of notice_2005_98 2005_52_irb_1211 provides that the limitation will be allocated among qualified projects for which a share of such limitation has been requested beginning with the project s requesting the smallest share in dollar amount and continuing with the project s requesting the next-smallest share until the total limitation has been exhausted however in the event that dollar_figure has been allocated to qualified projects of qualified borrowers that are governmental bodies the remaining shares of the limitation will be allocated under the methodology described in the previous sentence only to qualified projects of qualified borrowers that are not governmental bodies for purposes of allocating the limitation among projects all qualified projects located at the same site and owned by the same qualified_borrower are treated as a single project and each project is treated as requesting a single allocation an allocation of shares of the limitation cannot be made with respect to the projects owned by the borrowers listed in appendix a because such borrowers are governmental presp-142951-06 bodies and dollar_figure has already been allocated to applications requesting a smaller share of the limitation to finance qualified projects owned by qualified borrowers that are governmental bodies we appreciate your submission of the application_for our consideration and encourage you to continue to pursue your plans for constructing a clean renewable energy project sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-142951-06 appendix a borrower name project type project location --------------------- solar_energy_facility -------------------------------- ----------- -------------------------------- -------------------------- total amount requested --------------- --------------- dollar_figure----------------- --------------------- solar_energy_facility


internal_revenue_service number info release date dear date uil this letter is in response to your date inquiry to floyd williams director he read an article legislative affairs on behalf of your constituent stating convenience stores are depreciated over years instead of the much longer depreciation period for other commercial buildings treatment became available for convenience stores asked when this to use the 15-year depreciation period the convenience stores must qualify as retail motor fuels outlets property will qualify as a retail motor fuels outlet whether or not food or other convenience items are sold at the outlet if percent or more of its gross revenues are from petroleum sales or percent or more of the floor space in the property is devoted to petroleum marketing sales a motor fuels outlet of square feet or less qualifies as a retail motor fuels outlet without applying either percent test any convenience store that is not considered a retail motor fuels outlet must be depreciated over years the period that applies to other commercial buildings the 15-year depreciation period for property that is a retail motor fuels outlet was provided by section of the small_business job protection act of the act p_l_104-188 this depreciation period is the same as the depreciation period for service station buildings used to market petroleum and petroleum products the act only applies to property placed_in_service on or after date however the act also provides that a taxpayer may elect to apply the 15-year depreciation period by following revproc_97_10 1997_1_cb_628 the election is irrevocable and is treated as a change in the taxpayer’s method_of_accounting that requires the consent of the irs generally the taxpayer had to file this election with his or her timely filed tax_return for the tax_year i hope this letter answers your questions for your reference i have enclosed a copy of your letter if i can be of further assistance please contact me or at sincerely charles b ramsey chief branch office of associate chief_counsel passthroughs and special industries enclosure