t c memo united_states tax_court daniel d and dorothy hultquist petitioners v commissioner of internal revenue respondent docket no filed date maris baltins for petitioners catherine l campbell and lisa m oshiro for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined a dollar_figure deficiency in petitioners’ federal_income_tax and a dollar_figure addition_to_tax under sec_6651 all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure the issues for decision are whether petitioners are entitled to reduce their gross_receipts reported on schedule c profit or loss from business by cost_of_goods_sold of dollar_figure or alternatively deduct the amount as a bad_debt under sec_166 and liable for a dollar_figure addition_to_tax under sec_6651 for failure to timely file their federal_income_tax return findings_of_fact some of the facts have been stipulated and are so found the stipulations of facts and the attached exhibits are incorporated herein by this reference petitioners resided in washington state when their petition was filed daniel hultquist petitioner is a college graduate who worked for a christian mission organization in remote parts of the world for years upon returning to the united_states in petitioners reported cost_of_goods_sold of dollar_figure on their schedule c respondent determined that petitioners were entitled to cost_of_goods_sold of only dollar_figure although respondent disallowed dollar_figure of petitioners’ reported cost_of_goods_sold petitioners introduced evidence only as to why they are entitled to cost_of_goods_sold of dollar_figure because petitioners did not introduce evidence as to the remaining disallowed amount dollar_figure we treat petitioners as conceding this amount we decline to address the merits of petitioners’ alternative argument that they are entitled to a deduction for research or experimental expenditures under sec_174 because it was raised for the first time on brief see rule b 52_tc_440 affd 438_f2d_774 3d cir solaas v commissioner tcmemo_1998_25 n or around petitioner established hultquist construction a home construction business that he continues to operate in early petitioner met franklin duncan mr duncan who rented a house petitioner owned mr duncan showed petitioner a prototype of a tool that he had designed to make it easier to remove fishhooks and flies ie artificial flies used as bait in fly-fishing from fish mr duncan was extremely confident about the commercial prospects for this device which he would eventually patent as the duncan dehook’r dehook’r he told petitioner that he hoped to make a million bucks within one to two years but that he lacked the necessary capital to bring the product to market he then asked petitioner to help him get the business started later in the year petitioner and mr duncan informally agreed to go into business together mr duncan agreed to focus on the design and production of the dehook’r in exchange for petitioner’s commitment to finance the project on an as needed basis according to petitioner this meant that instead of giving mr duncan a lump sum of capital he agreed to pay any expenses_incurred petitioner operates hultquist construction as a sole_proprietorship and reports its income and expenses on a schedule c mr duncan later showed petitioner a knot tying tool for hooks flies jigs and lures that he patented as the duncan continued during the initial phase of the business petitioner and mr duncan never discussed how they would share the profits instead they focused on finalizing the product’s design and determining whether there was significant demand for the dehook’r by the end of mr duncan and petitioner had finalized the design of the dehook’r and hired a local manufacturer to produce of them they promoted the dehook’r at various trade shows and received overwhelmingly positive feedback the following year they decided to move forward with large-scale production of the dehook’r on date in anticipation of moving forward with the production and marketing of the dehook’r and the tailknott’r petitioner formed maiden ventures l l c maiden ventures a single-member limited_liability_company through which the dehook’r and the tailknott’r would be sold petitioner continued to pay expenses as they were incurred and he gave mr duncan money upon request to use for the benefit of the company continued tailknott’r tailknott’r petitioner financed the development and production of the tailknott’r as well as the dehook’r maiden ventures is a disregarded_entity for federal_income_tax purposes see sec_301_7701-3 proced admin regs consequently petitioners reported all of maiden ventures’ income and expenses on schedules c and included maiden ventures’ profits or losses on their federal_income_tax returns petitioner’s testimony was not clear in this regard he did not explain why he gave mr duncan funds directly eg continued petitioner hired an attorney to draft a licensing agreement that would grant him the exclusive rights to sell market and manufacture the dehook’r however petitioner produced only an unsigned version of the agreement and it is unclear whether it was ever executed petitioner soon became troubled by inefficiencies in the production process that in his opinion prevented mr duncan and him from earning a profit since petitioner was the only one infusing capital into the business he felt that mr duncan lacked sufficient motivation to address the manufacturing issues in an effort to motivate mr duncan and t ie him in financially petitioner claims that he and mr duncan agreed to treat all subsequent payments to mr duncan as loans from date through date petitioner issued checks to mr duncan totaling dollar_figure petitioner wrote the following descriptions on the checks personal loan checks loan checks loan from mv continued whether these were out-of-pocket_expense reimbursements nor is it clear from the documents he introduced at trial he characterized these payments as something that mr duncan requested and it was something that i gave him how he used the funds i’m assuming was for obviously the benefit of the company it wasn’t just going towards his personal expenses whatever i gave him was for the business petitioner made out some of the checks to mr duncan’s wife as a matter of convenience when mr duncan was unable to cash or deposit the checks check and loan to duncan check seven checks contained no description it is unclear from the record what mr duncan did with these funds but petitioner assumed that they were used in some way to further the business petitioner did not prepare any loan documents promissory notes or other agreements evidencing the loans there were no repayment schedules maturity dates or interest rates petitioner hoped mr duncan would repay the dollar_figure from his share of future profits petitioner never earned enough money to turn a profit he eventually stopped funding the project in late or early and mr duncan decided to take his patents elsewhere mr duncan continues to market and sell the dehook’r and the tailknott’r for a different company petitioner never attempted to recover any of the dollar_figure he gave to mr duncan he explained that getting funds from mr duncan would be like getting water in the desert because i knew of his financial situation petitioners filed their federal_income_tax return late on date they included with their return a schedule c that reported maiden ventures’ gross_receipts as dollar_figure and cost_of_goods_sold as dollar_figure in calculating maiden ventures’ petitioners were granted an extension of time to file their federal_income_tax return and had until date to timely file cost_of_goods_sold petitioners reported opening and closing inventories of zero and purchases made during the year of dollar_figure petitioners on the advice of their accountant included the dollar_figure that petitioner gave to mr duncan in and as purchases made during the tax yeardollar_figure respondent disallowed all but dollar_figure of the cost_of_goods_sold on the grounds that petitioners failed to establish that they made purchases during the year in excess of that amount opinion respondent’s determinations in the statutory_notice_of_deficiency are presumed to be correct and petitioners bear the burden of proving that respondent erred in his determinationsdollar_figure see rule a 290_us_111 i cost_of_goods_sold a manufacturing or merchandising business calculates its gross_income by subtracting cost_of_goods_sold from gross petitioner used quickbooks to keep track of the business’ finances for the period ending date his trial balance showed inventory of dollar_figure and cost_of_goods_sold of dollar_figure petitioner included the dollar_figure he gave to mr duncan in and in inventory petitioner showed the trial balance to his accountant wesley l delaney mr delaney who advised petitioner to include the inventory total in cost_of_goods_sold mr delaney advised petitioner to do this because maiden ventures is a cash_basis taxpayer and a cash_basis taxpayer is not going to have inventory petitioners have neither claimed nor shown that they satisfied the requirements of sec_7491 to shift the burden_of_proof to respondent receipts sec_1_61-3 income_tax regs cost_of_goods_sold includes the cost of items acquired for resale and the costs of producing items for resale sec_1_162-1 income_tax regs though cost_of_goods_sold is technically an adjustment_to_gross_income and not a deduction substantiation of the amounts claimed as cost_of_goods_sold is required see rodriguez v commissioner tcmemo_2009_22 where taxpayers do not have adequate_records but the record indicates that they clearly incurred an offset to gross_income we may estimate the offset on the basis of the evidence 39_f2d_540 2d cir jackson v commissioner tcmemo_2008_ petitioners argue that they are entitled to include the amounts given to mr duncan in and in their cost_of_goods_sold for because the payments were made in anticipation of developing and marketing the dehook’r and the tailknott’r and the related costs were incurred in respondent counters that petitioners are not entitled to include any of the dollar_figure in their cost_of_goods_sold because petitioners are cash_basis taxpayers and therefore deduct expenses in the year in which they are paid respondent further argues that petitioners have not shown that mr duncan used any of the payments to pay expenses that allow for a corresponding deduction petitioners have introduced no evidence as to how mr duncan used the dollar_figure in fact petitioner testified that he is not sure how mr duncan used the dollar_figure although he assumes mr duncan used it to further maiden ventures’ business petitioner did not obtain an accounting from mr duncan of how he used the dollar_figure and petitioners failed to introduce receipts or invoices showing that any of the dollar_figure went towards the manufacturing of the dehook’r or the tailknott’rdollar_figure petitioners also failed to call mr duncan to testify as to how he spent the dollar_figure the burden is on petitioners to show that the amount claimed as cost_of_goods_sold is accurate petitioner’s assumption that mr duncan used the money to further maiden ventures’ business is insufficient to substantiate the dollar_figure as cost_of_goods_sold additionally we are unable to estimate an amount of cost_of_goods_sold under the cohan_rule for the cohan_rule to apply a basis must exist on which we can make an approximation 85_tc_731 petitioners have introduced no evidence that provides us with such a basis eg the cost of manufacturing the dehook’rs and the tailknott’rs and the number manufactured in we also note that petitioner wrote loan on most of the checks he issued to mr duncan including personal loan on of the checks and believe this to be contradictory to the proposition that petitioner may treat the money as a cost_of_goods_sold accordingly we shall sustain respondent’s downward adjustment to the cost_of_goods_sold ii sec_166 business_bad_debt deduction alternatively petitioners argue that the payments to mr duncan were loans and that they are entitled to a bad_debt deduction under sec_166 sec_166 provides as a general_rule that a deduction shall be allowed for any debt which becomes worthless within the taxable_year only a bona_fide debt can be deducted however sec_1_166-1 income_tax regs a bona_fide debt arises when a debtor-creditor relationship is formed as a result of an unconditional valid and enforceable obligation to pay a fixed or determinable sum of money boatner v commissioner tcmemo_1997_379 affd without published opinion 164_f3d_629 9th cir sec_1_166-1 income_tax regs the objective indicia of a bona_fide debt include a note or other evidence_of_indebtedness and an interest charge see 18_tc_780 affd 205_f2d_353 2d cir also considered are the existence of security or collateral the demand for repayment records that may reflect the transaction as a loan and the borrower’s solvency at the time of the loan see schenk v commissioner tcmemo_1996_113 petitioners have not established the existence of a bona_fide debt petitioner and mr duncan never agreed to a repayment schedule setting forth how often payments were to be made nor did they specify a maturity_date for the loans petitioner never made any demands for repayment despite the fact that he was aware that mr duncan continued to sell the patented fishing accessories with another company we also believe that any repayment was conditional on the future success of the business petitioner stated that we were hoping that mr duncan could be paying me back each year off of the income that we were generating we interpret petitioner’s statement to mean that he expected to be repaid only if the business became profitable which undermines the unconditional obligation requirement specified in the regulations see sec_1_166-1 income_tax regs moreover at the time he advanced the funds to mr duncan petitioner was aware that mr duncan was unemployed and had no source_of_income aside from any potential profits earned from their business venture accordingly we find that petitioners have not established that they are entitled to a bad_debt deduction under sec_166 and respondent’s determination is sustained iii sec_6651 addition_to_tax sec_6651 imposes an addition_to_tax for failure_to_file a return on the date prescribed determined with regard to any extension of time for filing unless the taxpayer can establish that such failure is due to reasonable_cause and not willful neglect respondent bears the burden of production with regard to the addition_to_tax under sec_6651 see sec_7491 petitioners’ tax_return was due on date they filed their return on date petitioners have presented no evidence indicating that their failure to timely file was due to reasonable_cause or that respondent’s determination is otherwise incorrect accordingly petitioners are liable for the addition_to_tax under sec_6651 in reaching our holdings herein we have considered all arguments made by the parties and to the extent not mentioned above we find them to be irrelevant or without merit to reflect the foregoing decision will be entered for respondent


id office uilc cca_2012013112540859 -------------- number release date from --------------------------- sent tuesday date pm to --------------------- cc --------------------------------------------------- subject fw applicable to failure_to_file form_1042 -------- an addition_to_tax is imposed under sec_6651 for failure_to_file a return required under the authority of subchapter_a of chapter other than part iii within the prescribed period sec_6651 form_1042 is a return required under the authority sec_6011 which is in part ii of subchapter_a of chapter sec_6011 sec_1_6011-1 sec_1_1461-1 see ellwest stereo theatres of memphis inc v commissioner tcmemo_1995_610 at 588_f3d_889 5th cir therefore failure_to_file form_1042 will result in a penalty under sec_6651 thanks -----------


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person telephone number identification_number employer_identification_number number release date se t eo ra t eo1 date date uil legend b c d e f dear ------------------ we have considered your ruling_request involving a proposed transfer of all of the assets of b to c d e and f b is exempt under sec_501 of the internal_revenue_code and is classified as a private_foundation under sec_509 c d e and f are also exempt under sec_501 of the code and classified as private_foundations under sec_509 a difference of opinion developed among the directors of b as to the making of grants identity of grantees and the amount of grants and the investment of the assets of b in order to accomplish the philanthropic and investment goals of b the members and directors of b have adopted a liquidation plan to divide the assets of b into four separate shares hereinafter referred to as share share share and share share will consist of an agreed upon dollar amount plus one-third of the balance of the assets of b share will consist of one-third of the balance of the assets of b share and share will consist of one-sixth of the balance of the assets of b share will be distributed to c share will be distributed to d share will be distributed to e and share will be distributed to f b has never notified the service in the past that it intends to terminate its private_foundation_status nor has b ever received notification that its status as a private_foundation has been terminated furthermore b states it has not committed willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter neither b c d e or f is an operating_foundation within the meaning of sec_4942 of the code sec_501 of the code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_507 of the code and the regulations to sec_507 sets forth rules applicable to terminating foundations the internal_revenue_service in revrul_2002_28 2002_20_irb_941 has issued guidance on the filing obligations and tax issues that arise when a private_foundation transfers all of its assets to one or more other private_foundations under sec_507 of the code the revenue_ruling presents three situations in which a private_foundation transfers all of its assets to one or more private_foundations in situation one the foundation under a plan of dissolution distributes all of its remaining assets in equal shares to three other private_foundations in situation two the trustees of a private_foundation trust create a not-for-profit corporation to carry on the trust’s charitable activities which the trustees have determined can be more effectively accomplished by operating in corporate form all of the trust’s assets and liabilities are transferred to the not-for-profit corporation in situation three two private_foundations transfer all of their assets and liabilities to a newly formed private_foundation in the revenue_ruling the service holds that a private_foundation that transfers all of its assets to one or more private_foundations in a transfer described in sec_507 is not required to notify the manager exempt_organizations determinations tax exempt government entities that it plans to terminate its private_foundation_status under sec_507 the ruling further states that if the private_foundation does not provide notice and does not terminate it is not subject_to termination_tax under sec_507 if the private_foundation has no assets on the day it provides notice the sec_507 tax will be zero the revenue_ruling gives detailed information as to the applicability of the excise_taxes imposed by sections of the code the ruling further provides that a private_foundation that has disposed of all its assets and terminates it private_foundation_status must file a form_990-pf for the tax_year of the disposition and must comply with any expenditure_responsibility reporting obligations on the return but does not need to file returns in the following tax years if it has no assets and does not engage in any activities if the private_foundation receives additional assets or resumes activities in later years it must resume filing form_990-pf for those years our evaluation of the facts and circumstances in the ruling_request indicates that the transfer of b’s assets to c d e and f would be similar to the facts and circumstances described in situation one of the revenue_ruling under the facts described the foundations would not be subject_to tax under sec_507 and sections of the code accordingly based on the information furnished we rule as follows the distribution of share share share and share to c d e and f respectively i will qualify as transfers under sec_507 of the code and accordingly ii will not effect a termination of b’s status as a private_foundation and iii will not subject b to tax under sec_507 of the code c d e and f will be treated under sec_1_507-3 of the regulations as if they were b in the proportion that the fair_market_value of each of share share share and share respectively bears to the aggregate fair_market_value of b’s net assets immediately before the transfers the distribution of share share share and share to c d e and f respectively will not constitute either willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter of the code the distribution of share share share and share to c d e and f respectively will not give rise to net_investment_income and therefore will not give rise to the imposition of tax under sec_4940 of the code the distribution of share share share and share to c d e and f respectively will not constitute an act of self-dealing which will give rise to the imposition of tax under sec_4941 of the code the distribution of share share share and s hare to c d e and f respectively do not constitute qualifying distributions by b under sec_4942 of the code and ii c d e and f each assume their proportionate share of b’s undistributed_income under sec_4942 and reduce their own distributable_amount for purposes of sec_4942 by their proportionate share of b’s excess qualifying distributions under sec_4942 the distribution of share share share and share to c d e and f respectively do not constitute investments jeopardizing b’s exempt_purpose and are not subject_to tax under sec_4944 of the code the distribution of share share share and share to c d e and f respectively will not constitute a taxable_expenditure within the meaning of sec_4945 of the code and b will not be required to exercise expenditure_responsibility with respect to such distribution of assets the distribution of share share share and share to c d e and f respectively will not affect their or b’s tax exempt status under sec_501 of the code if b elects to terminate its private_foundation_status after it has transferred all of its assets to c d e and f no tax will be due by b under sec_507 provided b complies with the notification requirement under sec_507 of the code this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely debra j kawecki manager exempt_organizations technical group


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 fip b02 plr-128566-15 date date legend parent ------------------------------------------------- --------------------------------------- subsidiary ------------------------------------------------- ------------------------------------- --------------------------------------------------------------- --------------------------------------- ------------ ------------------ ---------------- --------------------------- -------------------------- ---------------- ---------------- manager advisor state date date date date date date dear ----------------- plr-128566-15 this ruling responds to a letter dated date and subsequent correspondence submitted on behalf of parent and subsidiary parent and subsidiary request an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to jointly make an election under sec_856 of the internal_revenue_code code to treat subsidiary as a taxable_reit_subsidiary trs of parent effective date facts parent was formed on date as a limited_liability_company under the laws of state parent filed a form_8832 entity classification election on which parent elected to be classified as a corporation for federal_income_tax purposes effective date on date parent filed its initial federal_income_tax return for the taxable_year ended date on a form 1120-reit u s income_tax return for real_estate_investment_trusts on which parent elected to be treated as a real_estate_investment_trust reit under sec_856 subsidiary was formed on date as a corporation under the laws of state subsidiary is a wholly owned subsidiary of parent parent and subsidiary intended to file a form_8875 taxable_reit_subsidiary election to treat subsidiary as a trs effective date parent and subsidiary intended to make the trs election in order to satisfy certain requirements under sec_856 with respect to an acquired hotel property parent and subsidiary were formed by and are managed by manager a company that invests in real_estate including hotels manager engages outside tax professionals for tax_advice regarding the entities it manages manager engaged advisor for advice on reit compliance associated with parent and subsidiary parent believed that advisor was preparing the relevant federal_income_tax returns and forms required for qualifying parent as a reit which included preparing a form_8875 to jointly elect with subsidiary to treat subsidiary as a trs of parent however advisor inadvertently failed to prepare or file a form_8875 an oversight that was not discovered until date advisor prepares quarterly and annual reit testing for review by manager as part of this testing advisor maintains an internal checklist showing whether a form_8832 was filed for a reit and whether a form_8875 was filed for a trs the checklist for parent and subsidiary showed that their form_8875 had been filed in date manager requested advisor’s assistance in responding to a due diligence request from a potential buyer of parent in gathering the relevant documents advisor did not find a copy of the form_8875 for parent and subsidiary advisor immediately contacted executives of manager who were responsible for managing plr-128566-15 parent and subsidiary advisor also contacted the internal_revenue_service service and requested a copy of subsidiary’s entity module transcript advisor reviewed the transcript and determined that a trs election for parent and subsidiary was not filed with the service pursuant to advisor’s advice parent and subsidiary request an extension of time to file a form_8875 parent and subsidiary make the following additional representations in connection with their request for an extension of time the request for relief was filed before the failure to make the regulatory election was discovered by the service granting the relief requested will not result in parent and subsidiary having a lower tax_liability in the aggregate for all years to which the election applies than they would have had if the election had been timely made taking into account the time_value_of_money parent and subsidiary do not seek to alter a return position for which an accuracy- related penalty has been or could have been imposed under sec_6662 of the code at the time they requested relief and the new position requires or permits a regulatory election for which relief is requested being fully informed of the required regulatory election and related tax consequences parent and subsidiary did not choose to not file the election parent and subsidiary are not using hindsight in making the decision to seek the relief requested no specific facts have changed since the due_date for making the election that make the election advantageous to the taxpayers the period of limitations on assessment under sec_6501 has not expired for parent and subsidiary for the taxable_year in which the election should have been filed nor for any taxable_year s that would have been affected by the election had it been timely filed in addition affidavits on behalf of parent and subsidiary have been provided as required by sec_301_9100-3 of the procedure and administration regulations law and analysis sec_856 of the code provides that a reit and a corporation other than a reit may jointly elect to treat such corporation as a trs to be eligible for treatment as a trs sec_856 provides that the reit must directly or indirectly own stock in the corporation and the reit and the corporation must jointly elect such treatment the election is irrevocable once made unless both the reit and the subsidiary consent plr-128566-15 to its revocation in addition sec_856 specifically provides that the election and any revocation thereof may be made without the consent of the secretary in announcement 2001_1_cb_716 the service announced the availability of new form_8875 taxable_reit_subsidiary election according to the announcement this form is to be used for taxable years beginning after for eligible entities to elect treatment as a trs the instructions to form_8875 provide that the subsidiary and the reit can make the election at any time during the taxable_year however the effective date of the election depends on when the form_8875 is filed the instructions further provide that the effective date cannot be more than months and days prior to the date of filing the election or more than months after the date of filing the election if no date is specified on the form the election is effective on the date the form is filed with the service sec_301_9100-1 of the procedure and administration regulations provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by regulations or by a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 through c sets forth rules that the service generally will use to determine whether under the particular facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 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 sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer i requests relief under this section before the failure to make the regulatory election is discovered by the service ii failed to make the election because of intervening events beyond the taxpayer’s control iii failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election a taxpayer will be deemed to have not acted reasonably and in good_faith if the taxpayer i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under section plr-128566-15 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief sec_301_9100-3 provides that a reasonable extension of time to make a regulatory election will be granted only when the interests of the government will not be prejudiced by the granting of relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301 c ii provides that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under this section conclusion based upon the facts and representations submitted we conclude that parent and subsidiary have shown good cause for granting a reasonable extension of time to elect under sec_856 to treat subsidiary as a trs of parent the extension of time to make the election i sec_90 days from the date of this letter this ruling is limited to the timeliness of the filing of form_8875 this ruling’s application is limited to the facts representations code sections and regulations cited herein no opinion is expressed with regard to whether parent otherwise qualifies as a reit or whether subsidiary otherwise qualifies as a trs under subchapter_m of the code no opinion is expressed with regard to whether the tax_liability of parent and subsidiary is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director’s office will determine such tax_liability for the years involved if the director’s office determines that such tax_liability is lower that office will determine the federal_income_tax effect except as specifically provided otherwise no opinion is expressed on the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited as precedent plr-128566-15 in accordance with the terms of a power_of_attorney on file in this office copies of this letter are being sent to your authorized representatives sincerely k scott brown k scott brown branch chief branch office of the associate chief_counsel financial institutions and products enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury pitt pled yep o po washington dg ay rook rrr kk rrr rk ror rk ke kerr krkekke kek krkekkekekee rrr rrr er kek kkk eere es fo rrr rr rr rrr rr person to contact kkk kkk rk ke ek id pere kkk kek telephone number refer reply to op e ep t attn or koe i ae date kkk kk kkk kek keke keke ek may ggg legend state a corporation m municipality a municipality b municipality cc plan x rk kkk kkk keke kkkeke ork kr ike kk kek kk kek keke kek kee kkk kkk kkk keke ke a kkkkk keke k kok kkk ok kkk keke keke kee ek kok kk kk ae orr rrr kk rk rr err rrr kkk err rrr kkk rrr er rr rk rrr ke re ee dear mek rk rr rr rrr rrr this is in response to a ruling_request dated june as supplemented by correspondence dated date and march authorized representative requesting a ruling under sec_414 of the internal_revenue_code submitted on your behalf by your code the following facts and representations have been submitted on your behalf corporation m is a non-profit corporation created corporation m was established in and pursuant to state a's nonprofit_corporations act and is tax-exempt_organization under sec_501 corporation m's primary purpose is protection and emergency response services to municipalities a band c operates exclusively to combat and prevent fires and to perform other public safety assistance such as rescue work emergency medical attention and hazardous materials response investigation assistance when requested primarily to municipalities a municipal corporation and political_subdivision of state a corporation m also provides police these services are provided each of which is to provide fire of the code b and c a a section dollar_figure of state a's statutes allows the governing bodies of two or more political subdivisions to enter into agreements to jointly and cooperatively exercise any common power authorizes political subdivisions entering into these of section dollar_figure subdivision hr kr kr kkk kr ke kk kr kk kek keke keke eker kek kek keke pursuant to this b and c entered into a joint agreements to provide for disbursements from public funds to carry out the purposes of the agreement statute municipalities a to facilitate cooperation in powers agreement jpa providing fire protection services to their residents jpa creates an administrative committee composed of the three chief administrative officers of municipalities a and c the annual budget of corporation m and administratively monitors the execution of the approved annual budget jpa provides a formula for determining how municipalities a b and c each respectively pays its share of the annual cost this formula is roughly based of fire protection services on the following the administrative committee reviews and approves the the b one half on the number of fire calls to each of municipalities a previous three years as total number of fire calls to municipalities b and c collectively for the same period a and it relates to the b and c for the one half on each of municipalities a c's total assessed valuation for the preceding fiscal_year as it relates to the total assessed valuation of municipalities a cc b and b and under this formula municipality a's share is roughly seventy percent of the total annual cost municipality b's twenty percent and municipality c's ten percent municipalities a b and c own and control title to municipalities a all fire response vehicles and other fire protection equipment corporation m uses to services buildings used by corporation m percentage ownership_interest of each of municipality a is dependent on their contributions both past and and cc present to the capital cost of all property and equipment used by corporation m b and c also own all land and the jpa provides that the provide its fire protection b corporation m is governed by a seven seat board_of five seats are reserved for community directors representative of municipalities a are reserved for duly elected active members firefighters community representatives who make up a of corporation m are defined by corporation m's clear majority of the board by-laws as employment in the community they represent by-laws require that the community representative seats be allocated among municipalities a an individual who resides or has gainful b and c and two seats as follows-- b and c_corporation m's v2 kk kr rr rrr kerr kee keke keke kek kek ke kee one director municipality a three directors municipality b director and municipality c representative directors are nominated by slate by a nominating committee consisting of five members--the three city administrators of municipalities a active members of the fire department--and then elected by a the two active majority vote of the board_of directors member directors are elected by the active membership of corporation m b and c and two community one municipalities a b and c have each individually appointed five members of corporation m's board to serve as its fire code board_of appeals member of corporation m's staff three appeal boards as capacity the board determines the suitability of alternate materials and types of construction and interprets provisions of municipalities a the fire chief is appointed to each of the b and c's fire code an ex-officio member in this a paid substantially_all revenues received by corporation m over ninety percent of corporation m's revenues b and c pursuant to under the are from fees for providing fire protection services to political subdivisions of state a and the federal government are fees received from municipalities a a fire protection services contract contract terms of this contract the administrative committee referred to above each year corporation m submits a budget request to the budget review committee which sets the annual budget of corporation m and decides how much corporation m spends annually serves as the budget review committee is the budget review committee it municipalities a b and c have the option of keeping the surplus using it their share of contribution for the following year if expenditures are in excess additional capital projects of anticipated and budgeted amounts then they are required to approve additional expenditures to buy down their or investing it in in the jpa the contract requires municipalities a to make payment to corporation m pursuant to the formula they agreed to operating budgets and only municipalities a make changes to the formula negotiating the formula by which municipalities a make payment for services required to change the formula corporation m had no role in b and c the formula applies to both capital and corporation m's approval is not b and c can b and c under the terms of the contract corporation m cannot contract to provide fire protection services with other political subdivisions and entities without the express prior approval of municipalities a b and c fil bkk i ok kr ik kr er kek kerr kk ke kr rk kr kee fire suppression corporation m maintains a paid staff of five consisting in addition to the fire chief of personnel and administrative staff utilizes volunteer firefighters all paid full-time and part- control the level of staffing time staff positions must be approved by the administrative committee before they are filled personnel director is part of the candidate selection process municipalities a hiring both the fire chief and other paid personnel corporation m's board which is controlled by b and c makes the final_decision on corporation m also municipalities a municipality a's b and c while the paid staff people are not employees of b and c the compensation and benefit municipalities a levels they receive are essentially identical to the benefit levels received by individuals employed by municipalities a b and c policies of corporation m are modeled on the policies of municipalities a corporation m's personnel policies and setting compensation and benefit levels are made by the board most of the personnel in similar positions the decisions adopting b and c the fire chief is required to attend the weekly staff meetings at municipalities a and b municipality c does not have weekly staff meetings from the municipality a also supervises the work of two municipality a city employees and one city employee of municipality c who perform those municipalities' fire inspection and marshalling duties the fire chief takes direction b and c managers the fire chief chapter corporation m's volunteer firefighters receive pension of state a statutes the funding mechanism for this a tax on the premiums_paid by state a's citizens contributions from state a sets out a state_aid program funding the pensions of state a's volunteer firefighters program is for fire lightning sprinkler leakage and extended coverage insurance volunteer firefighters receive a yearly pension contribution from state a's commissioner of revenue is based one-half on municipalities a and one-half on their total market_value under this program corporation m's b and c's populations this contribution pursuant to chapter of state a's statutes corporation m receives the same protection from tort liability as does any other municipality of state a corporation m this statute is defined as a municipality for purposes of based on the foregoing facts and representations your authorized representative has requested a ruling that eo ha rk kr rk or rr kk rk kr kk ke kkk kee contributions to plan x by corporation m on behalf of employees are considered contributions by an agency_or_instrumentality of state a for purposes of sec_414 the code its of sec_414 of the code provides that governmental_plan means a plan established and maintained for its employees by the government of the united_states by the government of any state or political_subdivision thereof or by any agency_or_instrumentality of any of the foregoing revrul_89_49 1989_1_cb_117 provides that a plan will not be considered a government_plan merely because the sponsoring_organization has a relationship with a one of governmental_unit or some quasi-governmental power the most important factors to be considered in determining whether an organization is an agency_or_instrumentality of the united_states or any state or political_subdivision the degree of control that the state or federal thereof is government has over the organization's everyday operations other factorg include legislation creating the organization funds for the organization organization's trustees or operating board are selected and whether the applicable governmental_unit considers the employees of the organization to be employees of the applicable governmental_unit factors are considered in determining whether an organization is government the mere satisfaction of one or all of the factors is not necessarily determinative whether there is specific an agency_or_instrumentality of the manner in which the although all of the source of the above a in this case state a exercises a considerable degree for municipalities a b and c political subdivisions of the jpa administrative committee comprised of b and c's chief administrative officers of control_over corporation m through the power and control that municipalities a state a wield over corporation m pursuant to the jpa instance municipality a reviews and approves corporation m's budget and monitors its execution real_property vehicles and equipment contract corporation m cannot expand to provide fire protection services to other political subdivisions or entities without the express prior approval of municipalities a considerable control_over corporation m's staffing both as to the level of staffing as well as policies and compensation and benefit levels chief municipality a an employee of corporation m b and c own corporation m's to hiring personnel takes direction from further under the municipalities a b and c managers b and c have the fire b and c with respect to factors and of revrul_89_49 kok kr ke rr ek re kr kk keke keke kek kkk rr kkk e the jpa b and c indeed the same state a statute authorizes specific enabling state a legislation makes possible the type of agreement entered into by municipalities a ie the funding vehicle under which the public function and purposes of the jpa are carried out disbursement of public funds from municipalities a which as political subdivisions of state a b and c m for fire protection services account for ninety percent of corporation m's funding and the federal government for ten percent b and c pay corporation that is through the municipalities a as to the third factor in the revenue_ruling the the five community representative manner in which the organization's trustees or operating board are selected the seven directors who govern corporation m are chosen through a representative procedure as outlined above directors reside in or work in municipality a are nominated for their positions by municipalities a c city administrators and two members of corporation m thereafter these five are elected by a majority vote of the full board elected by the corporation m active membership addition five of the members of the fire code board_of appeals are appointed by municipalities a the remaining two active member directors are b or c and b and c in b and with respect to the fourth factor corporation m does however we note that the entity corporation is’ created by and based upon state a legislation which not specifically consider the paid staff employees of corporation m and the fire chief to be corporation m employees m has been applied to this situation in order to provide fire protection for three political subdivisions of state a the most cost effective manner in order to exercise common powers and to deliver a traditional governmental service in is merely a cooperative way a vehicle by which three political subdivisions can share costs one of the three political subdivisions would put the other two political subdivisions in a secondary position or require duplication to make corporation m's paid staff employees of just in other words corporation m in thus based upon the degree of control that state a exercises over corporation m legislation making possible the existence of corporation m corporation m's funding and the manner in which corporation m's directors are selected we conclude with respect to your ruling_request that contributions to plan x by corporation m on behalf of employees are considered contributions by an agency_or_instrumentality of state a for purposes of sec_414 d the code to the federal tax consequences of other provisions of the code the transaction described above under any no opinion is expressed as its of for ok ok kr koo ok kk kok kok nk kk kk a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office sincerely yours signed joygr b floyd joyce e floyd chief employee_plans technical branch enclosures deleted copy of this letter notice of intention to disclose ots


internal_revenue_service department of the treasury washington dc person to contact margaret a fung i d no telephone number refer reply to cc intl br2 plr-126245-00 date date number release date index number legend individual a_trust a_trust b fc dear this private_letter_ruling is in response to your request dated date for a ruling that individual a is eligible to make the deemed_dividend election under sec_1298 to terminate fc’s status as a passive_foreign_investment_company pfic with respect to individual a’s holding_period of fc’s stock beginning after date in which fc was both a pfic and controlled_foreign_corporation cfc individual a proposes to file an amended income_tax return for the taxable_year that includes date to make the election the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of this request_for_ruling such material is subject_to verification upon examination fc is a foreign_corporation organized under the laws of switzerland individual a a u s citizen own sec_42 percent of the outstanding common_stock of fc through trust a a u s grantor_trust individual a’s brother a u s citizen also own sec_42 percent of the outstanding common_stock of fc through his own u s grantor_trust trust b a u s trust of which individual a and her brother are the sole beneficiaries owns the remaining percent of the common_stock of fc and percent of fc’s outstanding preferred_stock former employees or parties related to former employees that are unrelated to individual a or her family own the remaining percent of fc’s preferred_stock since fc has primarily held passive_assets consisting of securities gold coins and cash fc uses a fiscal_year ending november 30th and for taxable years beginning after date fc was a pfic within the meaning of sec_1297 fc is also a cfc under sec_957 because more than of the total combined voting power of all classes of fc stock is owned by united_states_shareholders sec_951 defines a united_states_shareholder as any united_states_person that owns more than of the total combined voting power of all classes of stock entitled to vote in a cfc individual a is a united_states_shareholder of fc because she owns more than percent of the voting power of fc sec_1297 provides that if a foreign_corporation is both a pfic and a cfc the foreign_corporation will not be treated as a pfic with respect to a shareholder during the qualified_portion of the shareholder’s holding_period with respect to the stock in the foreign_corporation sec_1297 defines qualified_portion as that portion of the shareholder’s holding_period which is after date and during which the shareholder is a united_states_shareholder as defined in sec_951 of the foreign_corporation and such corporation is a cfc therefore under sec_1297 fc will not be treated as a pfic with respect to individual a for that portion of her holding_period beginning after date and during which fc is a cfc sec_1298 provides that stock in a foreign_corporation held by a taxpayer is treated as stock in a pfic if at any time during the holding_period of the taxpayer with respect to such stock the corporation or any predecessor was a pfic that was not a qualified_electing_fund qef once_a_pfic_always_a_pfic rule since fc was treated as a pfic with respect to a portion of individual a’s holding_period of such stock ie date through date sec_1298 applies to treat fc stock as stock in a pfic notwithstanding sec_1297 however sec_1298 provides that the once_a_pfic_always_a_pfic rule will not apply if the taxpayer elects to recognize gain as of the last day of the last taxable_year for which the company was a pfic under rules similar to the rules of sec_1291 thus the stock of fc continues to be treated as pfic stock with respect to individual a after date unless individual a makes the election under sec_1298 to recognize gain under rules similar to the rules of sec_1291 see sec_1297 pub_l_no sec redesignated the provisions contained under sec_1296 of the code as sec_1297 and redesignated the provisions under sec_1297 as sec_1298 effective as of date for purposes of this document the former sec_1296 will be referred to herein as sec_1297 and the former sec_1297 will be referred to as sec_1298 the language of sec_1298 is ambiguous because it refers only to the election to recognize gain but cites sec_1291 which contains both the election to recognize gain ie deemed sale and the election to include in income the post-1986_earnings_and_profits of the foreign_corporation as a dividend ie deemed_dividend the legislative_history of sec_1297 however provides that i f a shareholder of a pfic is subject_to the rules applicable to nonqualified funds before becoming eligible for the special rules provided under the proposal for shareholders that are subject_to subpart_f the stock held by such shareholder continues to be treated as pfic stock unless the shareholder makes an election to pay tax and an interest charge with respect to the unrealized_appreciation in the stock or the accumulated earnings_of the corporation emphasis added s rep no 105th cong 1st sess see also h_rep_no 105th cong 1st sess in addition the joint_committee explanation of the provisions of sec_1297 expressly provides pursuant to sec_1291 the shareholder may elect either to recognize gain as if such stock were sold or in the case of a cfc to include in income the post-1986_earnings_and_profits of the corporation attributable to the stock staff of the joint_committee on taxation 105th cong 1st sess general explanation of tax legislation enacted in thus the legislative_history makes clear that a shareholder of a foreign_corporation that is both a pfic and cfc may make either the deemed sale or deemed_dividend election to purge the pfic taint for the nonqualified portion of its holding_period of the stock of the foreign_corporation sec_1291 and sec_1_1291-9 provide rules for making the deemed_dividend election for shareholders electing to treat the pfic as a pedigreed_qef ie a qef that has been purged of the pfic taint under these provisions the shareholder of a foreign_corporation elects to include in income as a deemed_dividend its pro_rata share of the post-1986_earnings_and_profits of the corporation attributable to the stock held by the shareholder on the qualification date provided that on that date the corporation was both a pfic and a cfc the deemed_dividend is taxed under sec_1291 as an excess_distribution received on the qualification date the excess_distribution must be ratably allocated to those days in the shareholder’s holding_period of the stock during which the foreign_corporation was a pfic for purposes of the deemed_dividend inclusion the post-1986_earnings_and_profits are the undistributed_earnings and profits within the meaning of sec_902 of the foreign_corporation as of the day before the qualification date that were accumulated but not distributed in taxable years of the pfic beginning after during which it was a pfic this determination is made without regard to whether the earnings relate to a period during which the corporation was a cfc sec_1_1291-9 the shareholder’s pro_rata share of the post-1986_earnings_and_profits does not include any amounts that were previously included in its income pursuant to another provision of the law sec_1_1291-9 for purposes of an election under sec_1298 the qualification date is the termination_date as defined in sec_1_1297-3t a which is the last day of the last taxable_year of the foreign_corporation during which it qualified as a pfic an election under sec_1298 is made in the time and manner prescribed in sec_1_1297-3t b based on the facts presented under sec_1297 individual a is eligible to apply the deemed_dividend election rules of sec_1291 to an election under sec_1298 with respect to the stock of fc that is owned through trust a as a result of this election the fc stock held by individual a through trust a will not be treated as pfic stock for individual a’s holding_period beginning after date pursuant to this election individual a shall include in income as a dividend her pro_rata share of the post-1986_earnings_and_profits of fc that is attributable to the fc stock held by individual a through trust a on the last day of the last taxable_year during which fc qualified as a pfic date for this purpose fc’s post-1986_earnings_and_profits will reflect reductions for previously_taxed_earnings_and_profits under sec_1_1291-9 the procedures described under temp_reg sec_1_1297-3t b apply to individual a’s deemed_dividend election thus requiring the filing within three years of the due_date as extended an amended income_tax return for individual a’s taxable_year that includes date the ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter is to be attached to any return to which it is relevant with respect to a completed transaction in accordance with the power_of_attorney on file with this office a copy of this ruling is forwarded to your representative sincerely by valerie a mark assistant to the branch chief cc intl br2 office of associate chief_counsel international


internal_revenue_service number release date index numbers --------------------------------- ------------------------------- -------------------------------------------- ------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------ telephone number -------------------- refer reply to cc psi b03 plr-145709-13 date date legend taxpayer ------------------------------------------------------------------------------------------------- ----------------------------------- state -------------- x ------------------------------------------------------------------------------------------------- ---------------------------------------------------------------- date ------------------------ dear ------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of taxpayer by its authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to treat taxpayer as an association_taxable_as_a_corporation for federal tax purposes facts taxpayer is a state limited_liability_company that became wholly owned by x on date taxpayer represents that taxpayer is a domestic entity eligible to elect to be treated as an association_taxable_as_a_corporation effective date however due to inadvertence taxpayer failed to timely file form_8832 entity classification election law and analysis plr-145709-13 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that unless a domestic eligible_entity elects otherwise the entity is disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 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 conclusion based solely on the information submitted and the representations made we conclude that taxpayer has satisfied the requirements of sec_301_9100-1 and sec_301 plr-145709-13 as a result taxpayer is granted an extension of time of days from the date of this letter to file a properly executed form_8832 with the appropriate service_center electing to be treated as an association_taxable_as_a_corporation effective date a copy of this letter should be attached to the form_8832 this ruling is contingent on taxpayer and the owner of taxpayer filing within days from the date of this letter all required returns including amended returns consistent with the requested relief granted in this letter a copy of this letter should be attached to any such returns except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to taxpayer’s authorized representatives the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by ___________________________________ stacy l short senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date uniform issue list se t eo ra t legend corporation dear this is in response to your ruling_request dated date requesting an extension for an additional five years under sec_4943 of the internal_revenue_code code for disposing of certain excess_business_holdings facts you are a private_foundation organized as a_trust on date you have been recognized as an organization exempt under sec_501 of the code and are classified as a private_foundation within the meaning of sec_509 your trust document states that your beneficiaries are charitable scientific and educational entities you were initially funded with big_number shares of corporation stock the big_number shares represent a percent interest in corporation prior to the donation of corporation shares your donor owned percent of the stock of corporation as a result of the contribution your ownership_interest constitutes excess_business_holdings under sec_4943 your initial five-year period for disposing of excess_business_holdings ends on date you have been trying to dispose_of your corporation holdings since during the initial five- year period for disposing of excess_business_holdings under sec_4943 of the code you engaged the services of a prominent real_estate agent to help sell your corporation holdings the agent received offers for the purchase of the holdings however subsequent negotiations never culminated in a written offer continued contact with several local realtors has confirmed that there are no willing buyers for the property at this time also the foundation has contacted and or negotiated with several individuals regarding the disposition of the corporation shares with no success the foundation’s trustees attribute this to the current state of the economy as well as to the unique nature of the property your represent that your real_estate agent states that given the current economic climate the corporation holdings could only be sold if the price were substantially below market_value and your agent believes that a turnaround in this area will occur over the next two to three years despite current economic conditions ongoing development appears to be moving forward which you anticipate will boost the local economy over the next five years corporation has significant value and the sale of an asset of this size will have significant consequences to you because of the size value nature and complexity of this business holding you have despite your representations that you have used best efforts been unable to complete the sale of the corporation holdings within the prescribed five-year period your trustees have established a plan of sale that includes developing a comprehensive brochure developing local and direct contacts with investment management companies and private equities firms maintaining contact with top-selling realtors contacting mobile home park acquisition companies increasing advertising in various mediums targeted to commercial real_estate investors and listing the property on websites connected with this industry your trustees expect that they can sell the property at a price not substantially below fair_market_value no later than date you submitted the plan to your state attorney_general and are waiting for a response if and when a response is received from the state attorney_general a copy will be submitted to the secretary in accordance with sec_4943 of the code prior to the end of the initial five-year period for disposing of excess_business_holdings under sec_4943 of the code you submitted a request to the internal_revenue_service for an extension of five years to complete the required disposition ruling requested you requested a ruling extending the five-year period of time for disposing of excess_business_holdings for an additional five years under sec_4943 of the code law sec_4943 of the code imposes excise_taxes on the excess_business_holdings of any private_foundation in a business_enterprise sec_4943 of the code provides that the term excess_business_holdings means with respect to the holdings of any private_foundation in any business_enterprise the amount of stock or other interest in the enterprise which the foundation would have to dispose_of to a person other than a disqualified_person in order for the remaining holdings of the foundation in such enterprise to be permitted holdings sec_4943 of the code provides in part that the permitted holdings of any private_foundation in an incorporated business_enterprise are percent of the voting_stock reduced by the percentage of the voting_stock owned by all disqualified persons sec_4943 of the code provides that if there is a change in the holdings in a business_enterprise other than by purchase by the private_foundation or by a disqualified_person which causes the private_foundation to have excess_business_holdings in such enterprise the interest of the foundation in such enterprise immediately after such change shall while held by the foundation be treated as held by a disqualified_person rather than by the foundation during the 5-year period beginning on the date of such change in holdings sec_4943 of the code provides that the internal_revenue_service may extend for an additional five years the initial five-year period for disposing of excess_business_holdings in the case of an unusually large gift or bequest of diverse business holdings or holdings with complex corporate structures if a the foundation establishes that i holdings during the initial five-year period and ii disposition within the initial five-year period has not been possible except at a price substantially below fair_market_value by reason of such size and complexity or diversity of holdings it made diligent efforts to dispose_of such b before the close of the initial five-year period i the private_foundation submits to the internal_revenue_service a plan for disposing of all of the excess_business_holdings involved in the extension and ii the private_foundation submits the plan to the attorney_general or other appropriate state official having administrative or supervisory authority or responsibility with respect to the foundation's disposition of the excess_business_holdings involved and submits to the internal_revenue_service any response the private_foundation received during the five-year period and c the internal_revenue_service determines that such plan can reasonably be expected to be carried out before the close of the extension period analysis you are subject_to sec_4943 of the code which imposes a tax on the excess_business_holdings of private_foundations generally under sec_4943 a private_foundation is permitted to hold twenty percent of the voting_stock in a business_enterprise with any excess constituting excess_business_holdings however if a private_foundation acquires holdings in a business_enterprise other than by purchase eg by gift which causes the foundation to have excess_business_holdings then the interest of the foundation in such business_enterprise shall be treated as held by a disqualified_person rather than the foundation for a five-period beginning on the date such holdings were acquired by the foundation under sec_4943 under sec_4943 of the code the internal_revenue_service may extend the initial five- year period for disposing of excess_business_holdings for an additional five years if you establish that i you made diligent efforts to dispose_of such holdings during the initial five-year period and disposition within the initial five-year period has not been possible except at a price substantially below fair_market_value by reason of such size and complexity or diversity of holdings ii before the close of the initial five-year period you submit to the internal_revenue_service and attorney_general or other appropriate state official having administrative or supervisory authority or responsibility with respect to the foundation's disposition of the excess_business_holdings involved a plan for disposing of all of the excess_business_holdings involved during the extension and iii the internal_revenue_service determines that such plan can reasonably be expected to be carried out before the close of the extension period you received a donation of of the shares of corporation from your donor a disqualified_person under sec_4946 of the code you have stated that because you own more than percent of corporation's holdings the holdings of corporation that you own constitute excess_business_holdings under sec_4943 therefore you are required under sec_4943 to dispose_of these holdings during the initial five-year period ending on december during the initial five-year period as required by sec_4943 of the code you made diligent efforts to dispose_of the corporation holdings you hired a prominent and experienced local real_estate broker who listed and actively marketed the property and continues to do so however due to the unique nature of the holdings owned by the corporation and the current economic climate you are unable to dispose_of the corporation holdings you represented that disposition of the corporation holdings within the initial five-year period is not possible except at a price substantially below fair_market_value as required by sec_4943 before the end of the initial five-year period you submitted a request to the internal_revenue_service under sec_4943 for an additional five-year period within which to dispose_of your corporation holdings and you described your plan for disposing of corporation holdings you also submitted the plan to the attorney_general of your state who is expected to approve the plan thus based on the information submitted we have determined that your plan to dispose_of all of your corporation holdings within an additional five- year period can reasonably be expected to be carried out therefore we conclude that you meet the requirements under sec_4943 of the code for an extension of five years to dispose_of your corporation holdings ruling under sec_4943 of the code the period during which you may dispose_of your corporation holdings is extended an additional five years until date we are not ruling on whether your interest in the corporation constitutes excess_business_holdings this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice deletions you should follow the instructions in notice if you disagree with our proposed this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely ronald shoemaker manager exempt_organizations technical group enclosure notice


t c summary opinion united_states tax_court george w moss and gwendolyn arline-moss petitioners v commissioner of internal revenue respondent docket no 11414-02s filed date george w moss and gwendolyn arline-moss pro sese timothy s murphy for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency in petitioners' federal_income_tax of dollar_figure for petitioners concede as correct respondent's adjustments for a charitable_contributions of dollar_figure on schedule a itemized_deductions b repairs expense of dollar_figure on schedule e supplemental income and loss and c labor expenses of dollar_figure on schedule e respondent concedes that petitioners are entitled to deduct travel_expenses of dollar_figure on schedule c profit or loss from business and miscellaneous expenses of dollar_figure on schedule e the issue remaining for decision is whether petitioners are entitled to deduct on schedule c dollar_figure of telephone expenses some of the facts have been stipulated and are so found the stipulation of facts and exhibits received in evidence are incorporated herein by reference at the time the petition was filed petitioners resided in flint michigan background during the year gwendolyn arline-moss petitioner was employed by the state of michigan as a supervisor in the office of financial management she also worked part-time as a real_estate agent for robert edwards and associates edwards there were agents at the company and only desks from which to work due to the difficulty in obtaining work space at the 1the amount of the adjustment was misstated as dollar_figure during the oral agreement on the record edwards office petitioner set up an office in the basement of her home she had installed in her basement office an ameritech telephone line that was separate from the personal home telephone the ameritech line serviced her business phone number a fax number and an internet line petitioner was also billed by ameritech for cell phone service petitioner paid ameritech dollar_figure for telephone services in discussion because petitioners failed to meet the requirements of sec_7491 the burden_of_proof does not shift to respondent in this case sec_162 allows a deduction for all ordinary and necessary expenses_incurred in carrying_on_a_trade_or_business generally a taxpayer must establish that deductions taken pursuant to sec_162 are ordinary and necessary business_expenses and must maintain records sufficient to substantiate the amounts of the deductions claimed sec_6001 43_tc_824 sec_1_6001-1 income_tax regs where a taxpayer has established that he has incurred a trade_or_business expense failure to prove the exact amount of the otherwise deductible item may not always be fatal generally unless precluded by sec_274 the court may estimate the amount of such an expense and allow the deduction to that extent see 255_f2d_128 10th cir affg 27_tc_413 39_f2d_540 2d cir in order for the court to estimate the amount of an expense however there must be some basis upon which an estimate may be made 85_tc_731 without such a basis an allowance would amount to unguided largesse 245_f2d_559 5th cir with respect to certain business_expenses specified in sec_274 however more stringent substantiation requirements apply sec_274 disallows deductions for traveling expenses gifts and meals and entertainment as well as for listed_property unless the taxpayer substantiates by adequate_records or by sufficient evidence corroborating the taxpayer's own statement the amount of the expenses the time and place of the expense the business_purpose of the expense and the business relationship to the taxpayer of the persons involved in the expense the term listed_property is defined in sec_280 and includes cellular phones and other similar telecommunications equipment such as pagers see sec_280f the substantiation requirements of sec_274 are designed to encourage taxpayers to maintain records together with documentary_evidence substantiating each element of the expense sought to be deducted sec_1_274-5t temporary income_tax regs fed reg date petitioners submitted copies of ameritech phone bills for that contain summary information on petitioner's telephone charges but give no detail on the nonbasic and larger charges included in the total bill for example each bill shows a monthly service charge and separate charges for local and long distance service and for taxes for some months the bills show separate charges for internet service and for paging still other monthly bills show in some cases hundreds of dollars of charges for which there is no explanation the face of the bill states for detailed charges - see page there is however no page available for any of the bills with respect to what the court assumes from petitioners' testimony may be cell phone charges there is nothing in the record meeting the requirements of sec_1_274-5t temporary income_tax regs fed reg date if the charges were other than cell phone charges petitioners have failed to offer any explanation or any substantiation for them petitioners for the real_estate business phone paid dollar_figure for monthly service charges and separate charges for local and long distance service taxes internet service and paging the court finds that petitioners have failed to properly substantiate telephone charges in connection with a trade_or_business in excess of that amount reviewed and adopted as the report of the small_tax_case division decision will be entered under rule


t c memo united_states tax_court jose a salazar petitioner v commissioner of internal revenue respondent docket no filed date alfonso soto for petitioner roberta l shumway and kerry h bryan for respondent memorandum opinion armen special_trial_judge petitioner filed with the court a petition for administrative costs pursuant to sec_7430 f and rule sec_270 through in the petition petitioner seeks to recover administrative costs in respect of unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure the taxable years and this case is presently before the court on respondent’s motion for judgment on the pleadings filed pursuant to rule because we have considered matters outside of the pleadings we shall treat respondent’s motion as one for summary_judgment pursuant to rule see rule b as discussed in detail below we hold that there is no dispute as to any material fact and we shall enter decision for respondent however under the circumstances presented we shall enter decision on the narrow ground that petitioner filed his claim for administrative costs with respondent before respondent mailed to petitioner a final_decision regarding petitioner’s tax_liabilities for and see sec_7430 background in respondent issued a notice_of_deficiency to petitioner determining deficiencies in and additions to his income taxes for and thereafter in date respondent issued a notice_of_deficiency to petitioner determining deficiencies in and additions to his federal income taxes for and petitioner filed with the court a petition for redetermination in respect of the notice_of_deficiency for and which petition was assigned docket no see sec_6213 in contrast petitioner did not file with the - - court any petition for redetermination in respect of the notice_of_deficiency for and in date the court entered a stipulated decision in docket no pursuant to the parties’ agreement the decision reflects petitioner’s liability for deficiencies in income taxes and additions to tax for and over the next several years petitioner attempted to resolve his tax_liabilities for and during this period petitioner also requested that respondent abate penalties and interest for and by letter dated date respondent advised petitioner that because of the court’s decision in docket no respondent would not abate penalties or interest for or however respondent advised petitioner that respondent would abate assessments of penalties and interest for resulting in a credit balance for that year of dollar_figure and assessments of tax penalties and interest for resulting in a credit balance for that year of dollar_figure on date respondent issued to petitioner a notice of final_determination under sec_6404 disallowing his claim_for_abatement of interest for and petitioner then filed with the court a timely petition for review assigned - docket no challenging respondent’s determination ’ on date petitioner filed with respondent an application_for administrative costs for and under sec_7430 on date respondent wrote to petitioner informing him that his application_for administrative costs for and was premature in light of his then-pending petition for review of his interest abatement claim in docket no respondent did not otherwise respond to petitioner’s request for reimbursement of administrative costs for and on date petitioner filed with the court a petition for administrative costs which was assigned docket no seeking a recovery for and on date the court entered an order of dismissal for lack of jurisdiction in docket no on the ground that the petition was not filed with respect to a decision of the internal_revenue_service granting or denying an application_for reasonable_administrative_costs pursuant to sec_7430 nor had the on date the court entered a stipulated decision in docket no in which the parties agreed that petitioner was entitled to partial abatements of interest for and resulting in overpayments of interest of dollar_figure and dollar_figure for and respectively sec_7430 provides that a taxpayer may file a petition for review with the court challenging a decision of the internal_revenue_service granting or denying in whole or in part an award for reasonable_administrative_costs generally continued - - 6-month period set forth in sec_301_7430-2 proced admin regs expired as of date--the date that the petition was filed in the meantime on date petitioner filed with the court a second petition for administrative costs which petition initiated the instant case again seeking a recovery in respect of the taxable years and paragraph b of the petition states on date respondent admitted to the erroneous assessments and refunded excess taxes and abated penalties and interest thereon showing that petitioner substantially prevailed as to the amount in controversy and the most significant issues in response to the petition respondent filed a motion for judgment on the pleadings respondent asserts that insofar as petitioner contends that respondent’s letter dated march continued such a petition must be filed with the court no later than days after the date that the internal_revenue_service mails its notice of decision regarding a request for administrative costs sec_301_7430-2 proced admin regs provides in pertinent part if the internal_revenue_service does not respond on the merits to a request by the taxpayer for an award of reasonable_administrative_costs filed under paragraph c of this section within months after such request is filed the internal revenue service’s failure to respond may be considered by the taxpayer as a decision of the internal_revenue_service denying an award for reasonable_administrative_costs - - constituted a final_decision of the internal_revenue_service for the years and within the meaning of sec_7430 b respondent is entitled to judgment on the ground that petitioner failed to file his application_for reasonable_administrative_costs within days of date as required by sec_7430 petitioner filed an objection to respondent’s motion in which he argued that his application_for reasonable_administrative_costs was timely filed with respondent within days of respondent’s final_determination dated date that was issued pursuant to sec_6404 this matter was called for hearing at the court’s motions session in washington d c counsel for both parties appeared at the hearing and offered oral argument during the hearing counsel for respondent informed the court that respondent was seeking judgment on the pleadings on the narrow ground that insofar as the petition appeared to allege that respondent’s date letter was a final_decision within the meaning of sec_7430 petitioner is not entitled to an award of reasonable_administrative_costs because he failed to file his application therefor with respondent within the 90-day period prescribed in sec_7430 however counsel for respondent also informed the court that respondent considered it debatable whether his letter dated date could be characterized as a final - decision within the meaning of sec_7430 inasmuch as respondent maintained that petitioner’s case involved a collection matter ineligible for an award of reasonable_administrative_costs see sec_301_7430-3 and b proced admin regs during the hearing counsel for petitioner stated that he was uncertain whether respondent had issued a final_decision within the meaning of sec_7430 to petitioner for and and that the reference to respondent’s date letter was included in the petition because such letter was the only communication that petitioner received from respondent that arguably constituted a final_decision discussion jurisdiction the court’s jurisdiction under sec_7430 normally is dependent upon the filing of a petition within days after the commissioner issues a decision granting or denying in whole or in part a taxpayer’s application_for an award of reasonable_administrative_costs sec_7430 however where the commissioner fails to issue a decision within months of the filing of such an application a taxpayer may file a petition we note that respondent’s motion to dismiss for lack of jurisdiction filed in docket no includes an allegation that respondent’s letter dated date does not constitute a final_decision within the meaning of sec_7430 --- - with the court within the 90-day period following the expiration of such 6-month period sec_301_7430-2 proced admin regs petitioner filed his application_for an award of reasonable_administrative_costs with respondent on date the month period referred to in sec_301_7430-2 proced admin regs expired with respect to petitioner’s application on date in light of respondent’s failure to issue a decision regarding petitioner’s application petitioner filed with the court a timely petition on date under the circumstances there is no dispute between the parties regarding the court’s jurisdiction with regard to this matter petitioner’s claim for administrative costs sec_7430 provides bo limitations -- period for applying to irs for administrative costs --an award may be made under subsection b by the internal_revenue_service for reasonable_administrative_costs only if the prevailing_party files an application with the internal_revenue_service for such costs before the 91st day after the date on which the final_decision of the internal_revenue_service as to the determination of the tax interest or penalty is mailed to such party sec_301_7430-2 proced admin regs provides in pertinent part period for requesting costs from the internal_revenue_service to recover reasonable_administrative_costs pursuant to sec_7430 and this section the --- - taxpayer must file a request for costs no later than days after the date the final_decision of the internal_revenue_service with respect to all tax additions to tax and penalties at issue in the administrative_proceeding is mailed or otherwise furnished to the taxpayer the final_decision of the internal_revenue_service for purposes of this section is the document which resolves the tax_liability of the taxpayer with regard to all tax additions to tax and penalties at issue in the administrative_proceeding such as a form_870 or closing_agreement or a notice of assessment for that liability such as the notice_and_demand under sec_6303 whichever is earlier mailed or otherwise furnished to the taxpayer emphasis added in sum the commissioner is not obliged to grant an award of reasonable_administrative_costs unless the taxpayer files a request for such costs no later than days after the date that the commissioner mails a final_decision regarding the tax additions to tax and penalties to the taxpayer our review of the record in this case leads us to conclude that respondent did not issue a final_decision to petitioner for and within the meaning of sec_7430 b respondent’s letter dated date arguably possesses some of the characteristics of a final_decision in that it contains a clear explanation of respondent’s computation of petitioner’s tax_liabilities for and on the other hand we are not convinced that respondent intended that letter to be considered a final_decision in addition the letter is not the equivalent of a form_870 or formal closing_agreement and it cannot be considered final in the technical sense of the term -- - we likewise reject the suggestion made in petitioner’s objection to respondent’s motion that the notice of final_determination issued to petitioner on date constitutes a final_decision within the meaning of sec_7430 b in short respondent’s final_determination pursuant to sec_6404 is responsive only to petitioner’s claim_for_abatement of interest for and the notice of final_determination simply does not pertain to petitioner’s request for an award of reasonable_litigation_costs for and the parties agree that respondent has not issued any other document to petitioner that might constitute a final_decision within the meaning of sec_7430 consistent with the preceding discussion we shall grant respondent’s motion for summary_judgment in that we shall enter a decision that petitioner is not entitled to an award of reasonable_administrative_costs for and on the narrow ground that petitioner filed his claim for administrative costs with respondent before respondent mailed to petitioner a final_decision regarding petitioner’s tax_liabilities for and see sec_7430 by granting respondent’s motion on such narrow ground we leave open the possibility that respondent may yet issue a final_decision for and that would then permit petitioner to file an application_for administrative costs in order to reflect the foregoing an appropriate order and decision will be entered