t c memo united_states tax_court harvey doyne perry jr petitioner v commissioner of internal revenue respondent docket no 12936-o1l filed date harvey doyne perry jr pro_se wendy s harris and scott a hovey for respondent memorandum opinion armen special_trial_judge this matter is before the court on respondent’s motion for summary_judgment and to impose a penalty under sec_6673 filed pursuant to rule respondent contends that there is no dispute as to any material 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 - - fact with respect to this levy action and that respondent’s determination to proceed with collection of petitioner’s outstanding tax_liability for should be sustained as a matter of law summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials fla peach corp v commissioner 90_tc_678 summary_judgment may be granted with respect to all or any part of the legal issues in controversy if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule a and b 98_tc_518 affd 17_f3d_965 7th cir 90_tc_753 85_tc_527 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences will be read in a manner most favorable to the party opposing summary_judgment 85_tc_812 79_tc_340 as explained in detail below there is no genuine issue as to any material fact and a decision may be rendered as a matter of law accordingly we shall grant respondent’s motion for summary_judgment background a petitioner’s form_1040 for on or about date harvey doyne perry jr petitioner and his wife deanna h perry submitted to respondent a joint form_1040 u s individual_income_tax_return for the taxable_year on the form_1040 petitioner listed his occupation as r n petitioner entered zeros on applicable lines of the income portion of the form_1040 specifically including line for wages line for total income line sec_32 and sec_33 for adjusted_gross_income and line for taxable_income petitioner made no entry on line for tax but he did enter a zero on line for total_tax petitioner then claimed a refund in the amount of dollar_figure which was equal to the amount of federal_income_tax that had been withheld from his wages petitioner attached to his form_1040 four forms w-2 wage and tax statement disclosing the payment of wages to him during the taxable_year in issue the first form_w-2 was from aaa home health care of las vegas nevada it disclosed the payment of wages to petitioner in the amount of dollar_figure and the withholding of federal_income_tax in the amount of dollar_figure the second deanna h perry did not file with the court a petition for lien or levy action see infra ff accordingly she is not a party to the present proceeding - form_w-2 was also from aaa home health care of las vegas nevada it disclosed the payment of additional wages to petitioner in the amount of dollar_figure and the withholding of no federal_income_tax the third form_w-2 was from desert springs hospital of las vegas nevada it disclosed the payment of wages to petitioner in the amount of dollar_figure and the withholding of federal_income_tax in the amount of dollar_figure the fourth form_w-2 was from united home care l c of las vegas nevada it disclosed the payment of wages to petitioner in the amount of dollar_figure and the withholding of no federal_income_tax together the four forms w-2 disclosed the payment of wages to petitioner in the amount of dollar_figure and the withholding of federal_income_tax in the amount of dollar_figure petitioner also attached to his form_1040 a two-page typewritten statement that stated in part as follows i harvey doyne perry jr am submitting this as part of my income_tax return even though i know that no section of the internal_revenue_code establishes an income_tax_liability provides that income taxes have to be paid on the basis of a return in addition to the above i am filing even though the privacy_act notice as contained in a booklet clearly informs me that i am not required to file it does so in at least two places a in one place it states that i need only file a return for any_tax i may be liable for since no --- - code section makes me liable for income taxes this provision notifies me that i do not have to file an income_tax return it should also be noted that i had zero income according to the supreme court’s definition of income please note that my return also constitutes a claim_for_refund pursuant to code sec_6402 i am also putting the irs on notice that my tax_return and claim or sic refund does not constitute a frivolous_return pursuant to code sec_6702 in addition don’t notify me t hat the irs is changing my return since there is no statute that allows the irs to do that you might prepare a return pursuant to code sec_6020 where no return is filed but where as in this case a return has been filed no statute authorizes irs personnel to change that return x the word income is not defined in the internal_revenue_code but as stated above it can only be a derivative of corporate activity b respondent’s deficiency_notice and petitioner’s response on date respondent acting through the director of the service_center in ogden utah issued a joint notice_of_deficiency to petitioner and his wife for the taxable_year in the notice respondent determined a deficiency in federal_income_tax in the amount of dollar_figure and an accuracy-related_penalty under sec_6662 and b for negligence or -- - disregard of rules or regulations in the amount of dollar_figure the deficiency in income_tax was based on respondent’s determination that petitioner failed to report income in the aggregate amount of dollar_figure determined as follows income amount wages dollar_figure interest capital_gain big_number dividends big_number social_security big_number by registered letter dated date petitioner wrote to respondent’s service_center in ogden utah acknowledging receipt of the notice_of_deficiency dated date but challenging respondent’s authority to send me the notice in the first place petitioner sent copies of his letter by registered mail to the secretary_of_the_treasury and the commissioner of internal revenue petitioner knew that he had the right to contest respondent’s deficiency determination by filing a petition for redetermination with this court however petitioner chose not insofar as their ultimate tax_liability was concerned respondent gave petitioner and his wife credit for the amounts withheld from petitioner’s wages however we note that the determination of a statutory deficiency does not take such withheld amounts into account see sec_6211 in this regard petitioner’s letter dated date stated as follows continued to do so accordingly on date respondent assessed the determined deficiency and accuracy-related_penalty as well as statutory interest on that same day respondent sent petitioner and his wife a notice of balance due informing them that they had a liability for and requesting that they pay it petitioner and his wife failed to pay the amount owing respondent sent petitioner and his wife a second notice of balance due for again they failed to pay the amount owing c respondent’s final notice and petitioner’s response on date respondent mailed to petitioner and his wife a final notice---notice of intent to levy and notice of your right to a hearing in respect of their outstanding tax_liability for on date petitioner filed with respondent form request for a collection_due_process_hearing the request which was accompanied by a cover letter dated date included inter alia a challenge to the existence of the continued according to your deficiency_notice listed above there is an alleged deficiency with respect to my income_tax of dollar_figure and if i wanted to contest this deficiency before making payment i must sic file a petition with the united_states tax_court the request was not executed by petitioner’s wife nor did it purport to be filed on her behalf --- - underlying tax_liability for as well as allegations that petitioner was never provided with a valid notice_of_deficiency or notice_and_demand for payment and that the appeals officer had failed to identify the statute that makes me ‘liable to pay’ the taxes at issue petitioner also requested verification from the secretary that all applicable laws and administrative procedures were followed with regard to the assessment and collection of the tax_liability in question d the appeals_office hearing on date petitioner attended an administrative hearing in las vegas nevada conducted by appeals officer douglas desoto the appeals officer prior to the hearing the appeals officer obtained and reviewed form_4340 certificate of assessments payments and other specified matters pertaining to petitioner’s account for the taxable_year at the hearing the appeals officer provided petitioner with a copy of that document as well as copies of several court cases including 115_tc_576 during the hearing petitioner requested that the appeals officer identify the statutory provisions establishing petitioner’s liability for federal_income_tax and provide verification that all applicable laws and administrative procedures had been followed in the assessment and collection process petitioner was informed that form_4340 was sufficient --- - to satisfy the verification requirement of sec_6330 the appeals officer terminated the hearing after petitioner declined to discuss collection alternatives and instead persisted in attempting to challenge the underlying tax_liability br respondent’s notice_of_determination on date respondent’s appeals_office issued to petitioner a notice_of_determination concerning collection action s under sec_6320 and or with regard to his tax_liability for in the notice the appeals_office concluded that respondent’s determination to proceed with collection by way of levy should be sustained ff petitioner’s petition on date petitioner filed with the court a petition for lien or levy action seeking review of respondent’s notice_of_determination ’ the petition includes the following the following colloquy between petitioner and the appeals officer exemplifies the administrative hearing petitioner i’m going to go and tell you that i cannot find anyplace in here the internal_revenue_code a law that requires me to pay income_tax appeals officer okay so it’s your position that there’s nothing in there that says you have to pay income taxes petitioner absolutely at the time that the petition was filed petitioner continued - allegations the appeals officer failed to obtain verification from the secretary that the requirements of any applicable law or administrative procedure were met as required under sec_6330 the appeals officer failed to identify the statutes making petitioner liable for federal_income_tax and petitioner was denied the opportunity to challenge a the appropriateness of the collection action and b the existence or amount of his underlying tax_liability petitioner attached to his petition several documents including a copy of the form_4340 that had been furnished to him at the administrative hearing on date g respondent’s motion for summary_judgment as stated respondent filed a motion for summary_judgment and to impose a penalty under sec_6673 respondent contends that petitioner is barred under sec_6330 c b from challenging the existence or amount of his underlying tax_liability in this collection review proceeding because petitioner received a notice_of_deficiency for the tax in question respondent also contends that the appeals officer’s review of form_4340 for petitioner’s account for the taxable_year satisfied the verification requirement of sec_6330 finally respondent contends that petitioner’s behavior warrants continued resided in henderson nevada the imposition of a penalty under sec_6673 petitioner filed an objection to respondent’s motion thereafter pursuant to notice respondent’s motion was called for hearing at the court's motions session in washington d c although petitioner did not attend the hearing he filed a written_statement pursuant to rule c discussion sec_6331 provides that if any person liable to pay any_tax neglects or refuses to pay such tax within days after notice_and_demand for payment the secretary is authorized to collect such tax by levy on the person’s property sec_6331 provides that at least days before enforcing collection by levy on the person's property the secretary is obliged to provide the person with a final notice_of_intent_to_levy including notice of the administrative appeals available to the person sec_6330 generally provides that the commissioner cannot proceed with collection by levy until the person has been given notice and the opportunity for an administrative review of the matter in the form of an appeals_office hearing and if dissatisfied with judicial review of the administrative determination see 115_tc_35 114_tc_176 sec_6330 prescribes the matters that a person may raise at an appeals_office hearing in sum sec_6330 c provides that a person may raise collection issues such as spousal defenses the appropriateness of the commissioner's intended collection action and possible alternative means of collection sec_6330 b provides that the existence and amount of the underlying tax_liability can be contested at an appeals_office hearing only if the person did not receive a notice_of_deficiency for the tax in question or did not otherwise have an earlier opportunity to dispute the tax_liability see 114_tc_604 goza v commissioner supra sec_6330 provides for judicial review of the administrative determination in the tax_court or a federal district_court as may be appropriate a summary_judgment petitioner challenges the assessment made against him on the ground that the notice_of_deficiency dated date is invalid however the record shows that petitioner received the notice_of_deficiency and disregarded the opportunity to file a petition for redetermination with this court see sec_6213 it follows that sec_6330 b bars petitioner from challenging the existence or amount of his underlying tax_liability in this collection review proceeding even if petitioner were permitted to challenge the validity of the notice_of_deficiency petitioner’s argument that the notice is invalid because respondent’s service_center director is not properly authorized to issue notices of deficiency is frivolous and groundless see 118_tc_162 goza v commissioner supra further as the court_of_appeals for the fifth circuit has remarked we perceive no need to refute these arguments with somber reasoning and copious citation of precedent to do so might suggest that these arguments have some colorable merit 737_f2d_1417 5th cir suffice it to say that petitioner is a taxpayer subject_to the federal_income_tax see secs l a a and that compensation_for labor or services rendered constitutes income subject_to the federal_income_tax sec_61 640_f2d_1014 9th cir see also sec_61 sec_86 we likewise reject petitioner’s argument that the appeals officer failed to obtain verification from the secretary that the requirements of all applicable laws and administrative procedures were met as required by sec_6330 the record shows that the appeals officer obtained and reviewed form_4340 for petitioner’s taxable_year federal tax assessments are formally recorded on a record of -- assessment sec_6203 the summary record through supporting records shall provide identification of the taxpayer the character of the liability assessed the taxable_period if applicable and the amount of the assessment sec_301_6203-1 proced admin regs sec_6330 does not require the commissioner to rely on a particular document to satisfy the verification requirement imposed therein 118_tc_365 ndollar_figure weishan v commissioner tcmemo_2002_88 lindsey v commissioner tcmemo_2002_87 tolotti v commissioner tcmemo_2002_86 duffield v commissioner tcmemo_2002_53 kuglin v commissioner tcmemo_2002_51 in this regard we observe that the form_4340 on which the appeals officer relied contained all the information prescribed in sec_301_6203-1 proced admin regs see weishan v commissioner supra lindsey v commissioner supra tolotti v commissioner supra duffield v commissioner supra kuglin v commissioner supra petitioner has not alleged any irregularity in the assessment procedure that would raise a question about the to the extent that petitioner may still be arguing that the appeals officer failed to provide him with a copy of the verification we note that sec_6330 does not require that the appeals officer provide the taxpayer with a copy of the verification at the administrative hearing 118_tc_162 in any event the appeals officer provided petitioner with a copy of form_4340 for the taxable_year indeed petitioner attached a copy of this form as an exhibit to his petition - - validity of the assessment or the information contained in the form_4340 see davis v commissioner t c pincite mann v commissioner tcmemo_2002_48 accordingly we hold that the appeals officer satisfied the verification requirement of sec_6330 cf 117_tc_117 petitioner also contends that he never received a notice_and_demand for payment of his tax_liability for the requirement that the secretary issue a notice_and_demand for payment is set forth in sec_6303 which provides in pertinent part sec a general_rule ---where it is not otherwise provided by this title the secretary shall as soon as practicable and within days after the making of an assessment of a tax pursuant to sec_6203 give notice to each person liable for the unpaid tax stating the amount and demanding payment thereof xk k in particular the form_4340 on which the appeals officer relied during the administrative process shows that respondent sent petitioner a notice of balance due on the same date that respondent made assessments against petitioner for the tax and accuracy-related_penalty determined in the notice_of_deficiency a notice of balance due constitutes a notice_and_demand for payment within the meaning of sec_6303 see eg 953_f2d_531 9th cir weishan v commissioner supra see also 7_f3d_137 cir petitioner has failed to raise a spousal defense make a valid challenge to the appropriateness of respondent’s intended collection action or offer alternative means of collection ’ these issues are now deemed conceded rule b in the absence of a valid issue for review we conclude that respondent is entitled to judgment as a matter of law sustaining the notice_of_determination dated date b imposition of a penalty under sec_6673 we turn now to that part of respondent’s motion that moves for the imposition of a penalty on petitioner under sec_6673 as relevant herein sec_6673 authorizes the tax_court to require a taxpayer to pay to the united_states a penalty not in excess of dollar_figure whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for in his objection to respondent’s motion petitioner states in part as follows respondent claims that petitioner had no interest in discussing alternatives to respondent’s proposed collection of the tax that is a fabrication petitioner made a collection alternative that was if the appeals officer would have simply identified a section in the internal_revenue_code that required the payment of the income_tax or establishes a liability for the income_tax petitioner offered to pay in full the amounts allegedly owed the section references sought by petitioner are identified supra p of this opinion delay or that the taxpayer's position in such proceeding is frivolous or groundless the court has indicated its willingness to impose such penalty in lien and levy cases pierson v commissioner t c pincite and has in fact imposed a penalty in several such cases roberts v commissioner supra crow v commissioner tcmemo_2002_149 imposing a penalty in the amount of dollar_figure smeton v commissioner tcmemo_2002_ imposing a penalty in the amount of dollar_figure newman v commissioner tcmemo_2002_135 imposing a penalty in the amount of dollar_figure yacksyzn v commissioner tcmemo_2002_99 imposing a penalty in the amount of dollar_figure watson v commissioner tcmemo_2001_213 imposing a penalty in the amount of dollar_figure davis v commissioner tcmemo_2001_87 imposing a penalty in the amount of dollar_figure we are convinced that petitioner instituted the present proceeding primarily for delay in this regard it is clear that petitioner regards this proceeding as nothing but a vehicle to protest the tax laws of this country and to espouse his own misguided views which we regard as frivolous and groundless in short having to deal with this matter wasted the court's time as well as respondent's and taxpayers with genuine controversies may have been delayed also relevant is the fact that petitioner is well aware of the provisions of sec_6673 as applicable to collection review -- - proceedings such as the present one in this regard petitioner was provided at the administrative hearing on date with a copy of this court’s opinion in pierson v commissioner supra in which the court indicated its willingness to impose the sec_6673 penalty in lien and levy cases under the circumstances we shall grant that part of respondent’s motion that moves for the imposition of a penalty in that we shall impose a penalty on petitioner pursuant to sec_6673 in the amount of dollar_figure in order to give effect to the foregoing an appropriate order granting respondent's motion and decision for respondent will be entered


department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date cc tege eoeg et2 conex-118685-11 o f f i c e o f t h e c h i e f c o u n s e l number release date uil the honorable mark e udall united_states senator 8th street suite 140a greeley co attention -------------------- dear senator udall this letter responds to your inquiry dated date on behalf of your constituent -- ---------------------- -------------said she qualifies for a refund of federal_insurance_contributions_act fica_taxes on wages she earned for services performed as a medical resident for periods ending before date she asks about the length of time it may take for the irs to process her refund services students perform are excepted from fica_taxes sec_3121 of the internal_revenue_code the code the student fica exception applies only to services performed for an organization that has the status of a school_college_or_university scu and only if the student who performs the services is enrolled and regularly attends classes at that scu our long-held position is that the student fica exception does not apply to services that individuals performed as medical residents however in the wake of extensive litigation we made an administrative determination on date to accept the position that medical residents are excepted from fica_taxes based on the student exception for tax periods ending before date when new regulations clarifying this issue went into effect as a result of this administrative determination institutions that employed medical residents and the individual medical residents are eligible to receive refunds if covered under a timely filed fica refund claim institutions can be covered under fica refund claims they filed individual medical residents can be covered under fica refund claims institutions filed on their behalf or under fica refund claims filed they filed themselves -------------indicates that her residency employer filed timely refund claims on her behalf we intend to pay these claims as soon as possible however these claims are subject conex-118685-11 to the same procedural requirements that apply to all fica refund claims employers file including certifications on the employee share of the fica tax and verification by the irs of the timeliness and the amount of the claim we have taken steps to make this refund process as efficient as possible these steps include processing all medical resident fica refund claims in one location and coordinating information with the social_security administration in addition we will process all refund claims of an employer at one time even though an individual resident may be entitled to a refund for a few years the employer may be entitled to a refund for a ten-year period the law provides that we will pay interest on the refunds sec_6611of the code i understand ---------------concern with the timeline for processing her refund given the large number of claims we must process as well as the number of steps involved we are processing the refunds as quickly as possible i hope this information is helpful if you have questions please contact me at ------------- ---------------------or -----------------at --------------------- sincerely paul carlino branch chief employment_tax branch exempt_organizations employment_tax government entities tax exempt government entities


internal_revenue_service number release date index number -------------------- ------------------------------- --------------------------------- ---------------------------------------- ------------------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b2 plr-146882-10 date date legend x ------------------------------------------ ------------------------------- country ---------------------- date ------------------------- dear ----------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a partnership under sec_301_7701-3 the facts submitted and representations made are summarized as follows x was formed on date under the laws of country x is a foreign_entity eligible to elect to be treated as a partnership effective date however x inadvertently failed to timely file a form_8832 entity classification election sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 plr-146882-10 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form 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 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 the term 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_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center to elect to be treated as a partnership for federal tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose this ruling is contingent on the owners of x filing within days of this letter all required returns and amended income_tax returns consistent with the requested relief these returns may include but are not limited to the following forms i forms information_return of u s persons with respect to certain foreign_corporations ii forms return of u s persons with respect to certain foreign_partnerships and iii forms information_return of u s persons with respect to disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-146882-10 pursuant to a power_of_attorney on file with this office copies of this letter are being sent to x’s authorized representative sincerely associate chief_counsel passthroughs and special industries by __________________ melissa liquerman branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ------------------------------------- ---------------------------------- ------------------------------------------- ---------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no -------------- telephone number ---------------------- refer reply to cc psi b04 plr-103331-19 date july legend decedent spouse sibling accountant trust_beneficiary beneficiary beneficiary beneficiary beneficiary date date date dear ---------------- --------------------------------------------------- ------------------------ -------------------------------- ---------------------------- ---------------------------------------------------------------------- ------------------------------ ---------------------------- ------------------------ ---------------------- ------------------------ ------------------- --------------------------- ------------------ this letter responds to a letter from your authorized representative dated date requesting a ruling that a qualified_terminable_interest_property qtip_election does not apply with respect to a certain trust and for an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to sever a_trust into an exempt trust and a non-exempt trust and make a reverse_qtip_election under sec_2652 of the internal_revenue_code for the exempt trust the facts and representations submitted are summarized as follows plr-103331-19 decedent created trust a revocable_trust on date trust was amended on date decedent died on date survived by spouse sibling and other relatives at decedent’s death trust became irrevocable and the assets of trust were distributed to trusts created pursuant to article iii of trust under article iii of trust the trustee is empowered to divide the property of trust into two trusts trust a and trust b article iii section a establishes trust a_trust a is to be funded with all assets of trust not allocated to trust b under the terms of trust a spouse will receive all of the income on a monthly or quarterly basis the trustee of trust a has the sole discretion to distribute so much of the principal of trust a to or for the benefit of spouse as may be necessary for spouse’s health maintenance and support upon the death of spouse all of the assets of trust a shall be distributed to trust b to be added to and administered as a part thereof article iii section b establishes trust b pursuant to a formula_clause trust b is to be funded with the maximum amount of money and property which may be allocated to trust b without creating a federal estate_tax in decedent’s estate after considering the applicable credit against federal gift and estate_tax and any state death_tax credits under the terms of trust b the trustee is required to distribute all of the income to spouse on a monthly or quarterly basis in addition to the income the trustee has discretion to distribute so much of the principal of trust b to or for the benefit of spouse in such amounts as may be necessary for spouse’s health maintenance and support if decedent is survived by sibling decedent’s sister the trustee is required to distribute a specified amount to sibling on an annual basis in monthly or quarterly installments so long as sibling shall live upon the death of sibling if sibling survives spouse the assets of trust b will be distributed in equal shares to beneficiary beneficiary beneficiary beneficiary and beneficiary pursuant to article vi section w the trustee has the power to divide any trust into separate shares or separate trusts or to create separate trusts provided they are administered under the same terms as the initial trust or trust’s share the trustee has the further power to divide any property in any trust held under trust with an inclusion_ratio of neither one nor zero into two separate trusts representing two fractional shares of the property being divided one to have an inclusion_ratio of one and the other to have an inclusion_ratio of zero spouse while serving as executor of decedent’s estate hired accountant to prepare decedent's form_706 united_states estate and generation-skipping_transfer_tax return accountant prepared and timely filed the form_706 on form_706 accountant incorrectly made a qtip_election with respect to the entire value of trust instead of just trust a furthermore accountant did not attach schedule r and thus was not able to make a reverse_qtip_election over trust a or divide trust a into gst exempt and gst non-exempt trusts plr-103331-19 you have requested the following rulings that the qtip_election is void with respect to trust b for an extension of time under sec_301_9100-3 to sever trust a into gst exempt and gst non-exempt trusts pursuant to sec_26_2654-1 of the generation-skipping_transfer_tax regulations for an extension of time under sec_301_9100-3 to make a reverse_qtip_election under sec_2652 with respect to the gst exempt portion of trust a law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate shall except as limited by sec_2056 be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property which passes or has passed_from_the_decedent to the surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 provides that in the case of qualified_terminable_interest_property for purposes of sec_2056 such property shall be treated as passing to the surviving_spouse and for purposes of sec_2056 no part of such property shall be treated as passing to any person other than the surviving_spouse sec_2056 defines the term qualified_terminable_interest_property as property i which passes from the decedent ii in which the surviving_spouse has a qualifying_income_interest_for_life as defined in sec_2056 and iii to which an election under sec_2056 applies sec_2056 provides that the surviving_spouse has a qualifying_income_interest_for_life if i the surviving_spouse is entitled to all the income from the property payable annually or at more frequent intervals or has a usufruct interest for life in the property and ii no person has a power to appoint any part of the property to any person other than the surviving_spouse sec_2056 provides that an election under sec_2056 with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 such an election once made shall be irrevocable plr-103331-19 sec_20_2056_b_-7 of the estate_tax regulations provides that the qtip_election may relate to all or any part of property that meets the requirements of sec_2056 provided that any partial election must be made with respect to a fractional or percentage share of the property the fraction or percentage may be defined by a formula sec_20_2056_b_-7 provides that in general a_trust may be divided into separate trusts to reflect a partial election that has been made or is to be made if authorized under the governing instrument or otherwise permissible under local law any such division must be accomplished no later than the end of the period of estate administration if at the time of the filing of the estate_tax_return the trust has not yet been divided the intent to divide the trust must be unequivocally signified on the estate_tax_return sec_20_2056_b_-7 provides that in general the election referred to in sec_2056 and v is made on the return of tax imposed by sec_2001 or sec_2101 for purposes of this paragraph the term return of tax imposed by sec_2001 means the last estate_tax_return filed by the executor on or before the due_date of the return including extensions or if a timely return is not filed the first estate_tax_return filed by the executor after the due_date sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 provides that the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any gst transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 as in effect on date provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which the individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 provides that in general any portion of an individual’s gst_exemption which has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as follows a first to property which is the subject of a direct_skip occurring at such individual’s death and b second to trusts with respect to plr-103331-19 which such individual is the transferor and from which a taxable_distribution or a taxable_termination might occur at or after such individual’s death sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that a decedent’s unused gst_exemption is automatically allocated on the due_date for filing the form_706 or form 706na to the extent not otherwise allocated by the decedent’s executor on or before that date unused gst_exemption is allocated pro_rata subject_to the rules of sec_26_2642-2 on the basis of the value of the property as finally determined for purposes of chapter chapter value first to direct skips treated as occurring at the transferor’s death the balance if any of unused gst_exemption is allocated pro_rata subject_to the rules of sec_26_2642-2 on the basis of the chapter value of the nonexempt_portion of the trust property to trusts with respect to which a taxable_termination may occur or from which a taxable_distribution may be made no automatic allocation of gst_exemption is made to a_trust that will have a new transferor with respect to the entire trust prior to the occurrence of any gst with respect to the trust the automatic allocation is irrevocable sec_2642 provides that generally the inclusion_ratio with respect to any property transferred in a gst is the excess of one over the applicable_fraction determined for the trust sec_2642 provides that in general the applicable_fraction is a fraction the numerator of which is the amount of the gst_exemption allocated to the trust and the denominator of which is the value of the property transferred to the trust reduced by the sum of any federal estate_tax or state death_tax actually recovered from the trust attributable to such property and any charitable deduction allowed under sec_2055 or sec_2522 with respect to such property sec_2652 provides that for purposes of chapter the term transferor means a in the case of any property subject_to the tax imposed by chapter the decedent and b in the case of any property subject_to the tax imposed by chapter the donor an individual shall be treated as transferring any property with respect to which such individual is the transferor sec_2652 provides in pertinent part that in the case of any trust with respect to which a deduction is allowed to the decedent under sec_2056 the estate of the decedent may elect to treat all of the property in such trust for gst tax purposes as if the election to be treated as qualified_terminable_interest_property had not been made reverse_qtip_election sec_26_2652-2 provides in part that a reverse_qtip_election is not effective unless it is made with respect to all of the property in the trust to which the qtip_election applies sec_26_2652-2 provides that an election under sec_2652 is made on the return on which the qtip_election is made sec_26_2654-1 provides in part that the severance of a_trust that is included in the transferor’s gross_estate or created under the transferor’s will into two plr-103331-19 or more trusts is recognized for purposes of chapter if the trust is severed pursuant to a direction in the governing instrument providing that the trust is to be divided upon the death of the transferor and the terms of the new trusts provide in the aggregate for the same succession of interests and beneficiaries as are provided in the original trust instrument and the severance occurs prior to the date prescribed for filing the federal estate_tax_return including extensions actually granted for the estate of the transferor and the new trusts are severed on a fractional basis sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election in this case the language of trust as it pertains to trust b provides that the trustee is to distribute a specified amount of trust b corpus to sibling monthly or quarterly as a result trust b does not provide a qualifying_income_interest_for_life to spouse for purposes of sec_2056 the qtip_election made on form_706 was therefore erroneously made accordingly based on the facts submitted and the representations made we conclude that the qtip_election made with respect to trust b is void furthermore since the qtip_election did not apply to trust b decedent’s available gst_exemption is automatically allocated to trust b based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore the executor of decedent’s estate is granted an extension of time of days from the date of this letter to sever trust a into gst exempt and gst non-exempt trusts and to make a reverse_qtip_election with respect to the gst exempt trust upon making this election decedent’s available gst_exemption after taking into account the allocation to trust b will be automatically allocated to the gst exempt portion of trust a these elections plr-103331-19 should be made on a supplemental form_706 filed with the kansas city service_center at the following address department of the treasury internal_revenue_service center kansas city mo a copy of this letter should be attached to the supplemental form_706 a copy is enclosed for this purpose in accordance with the power_of_attorney on file with this office we have sent a copy of this letter to your authorized representatives except as expressly provided herein we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs and special industries by leslie h finlow leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


index numbers 263a 263a control number tam-111938-98 feb internal_revenue_service national_office technical_advice_memorandum district_director taxpayer's name taxpayer's address taxpayer's ein tax_year involved date of conference legend taxpayer state a m issues whether the plants acquired by taxpayer are seeds and young plants acquired for further cultivation or development for purposes of sec_1_162-12 of the income_tax regulations whether sec_263a of the iniernal revenue code applies to any of taxpayer's plants ’ taxpayer has also requested relief under sec_7805 to limit the retroactive application of any adverse conclusion in this technical_advice_memorandum this request will be addressed in a separate technical_advice_memorandum district_director conclusions the following plants acquired by taxpayer are seeds and young plants acquired for further cultivation or development bare root trees balled and burlapped trees bare root shrubs balled and burlapped shrubs b state shrubs bare root rose bushes perennial seedlings perennial cuttings annual seedlings annual cuttings houseplant seedlings and houseplant cuttings thus taxpayer may deduct the acquisition costs of these plants under sec_1_162-12 trees perennials annuals and houseplants that are ready for immediate resale when purchased are not seeds and young plants acquired for further cultivation and development taxpayer is required to capitalize the acquisition costs ofthese plants - because taxpayer has validly elected under sec_263a not to apply sec_263a to plants produced in its business sec_263a does not apply to the following plants bare root trees balled and burlapped trees bare root shrubs balled and burlapped shrubs b state shrubs bare root rose bushes perennial seedlings perennial cuttings annual seedlings annual cuttings houseplant seedlings and houseplant cuttings the sec_263a election does not apply to the trees perennials annuals and houseplants that are ready for immediate resale when purchased as these items are not produced in taxpayer's business but are merely acquired for resale accordingly sec_263a applies to these items facts taxpayer is a state a corporation that is owned more than by members of the m family as defined in sec_447 taxpayer uses a february fiscal_year end and an overall accrual_method of accounting taxpayer operates a nursery and primarily sells growing plants fertilizer pesticides pots and gardening implements to builders landscapers and retail customers in state a taxpayer has annual sales of under dollar_figure and maintains divisional income statements for each of its six retail locations and a complete set of books for the consolidated enterprise for the year at issue taxpayer operated a large greenhouse facility which was used to cultivate raise and care for taxpayer's growing crops taxpayer maintains an extensive nursery staff that has received specific training certifying the employees as nursery professionals taxpayer's employees cultivate raise and care for all of for example taxpayer must provide appropriate amounts taxpayer's growing plants of water ensure that the plants receive proper sunlight protect the plants from disease and pests provide proper nutrients protect the plants from adverse temperatures and generally ensure the growth and sustenance of each plant taxpayer plants most of its district_director growing crops into the containers in which the plants are sold to its customers taxpayer also purchases some plants that are in their ultimate containers and are ready for immediate resale because of the effect of the weather and other natural elements taxpayer is at significant risk with respect to its plants the plants sold by taxpayer to its customers are generally subject_to a guarantee policy that provides a full refund to customers or replacement if the plant dies market demand and price levels for its plants further taxpayer has financial risk with respect to taxpayer purchases most of its plants in various stages of development from the initial grower of the plant although taxpayer grows some plants from cuttings ef its own plants or from seeds taxpayer then cultivates these plants using various methods and sells the plants to its customers as healthy marketable plants the various stages in which a plant may be originated or purchased by taxpayer are described below plants are grown from seeds originally planted by taxpayer plants are purchased as seedling plugs in a seedling tray that can hold up to plants taxpayer plants the seedling plugs into containers and grows them in a greenhouse that is specifically designed for this purpose plants are purchased as cuttings from suppliers or harvested as cuttings from taxpayer's own plants taxpayer plants the cuttings in containers and grows them in a greenhouse that is specifically designed for this purpose plants are purchased bare root and are planted by taxpayer bare root plants are purchased by taxpayer with no soil surrounding the roots and with all feeder roots and branches trimmed off taxpayer purchases these plants from november to february each year when the plants are in a dormant state the plants are sent to taxpayer in bundles or boxes on refrigerated trucks to protect them from heat or cold upon receiving the plants taxpayer examines them for health and damage the-plants are then properly pruned and soaked in vitamin b-1 and fungicide to stimulate root growth and prevent disease after soaking taxpayer plants the bare root material in one of several growing locations to develop a root system and foliage and to grow to a marketable state plants are purchased balled and burlapped and are planted by taxpayer balled and burlapped plants are purchased with a small amount of soil surrounding the roots which are wrapped in burlap when district_director taxpayer purchases the balled and burlapped plants to of the root system has been cut off taxpayer plants balled and burlapped material into containers to develop a root system and foliage and to grow to a marketable state plants are purchased in the container in an unmarketable b state and cultivated to a marketable a state before sale to customers taxpayer typically purchases these plants in the fall and cultivates them throughout the winter for sale beginning in april during this cultivation period the plants are hardened-off acclimated to the local climate and grown to a state that meets taxpayer's quality standards plants are purchased in the container ready for immediate resale‘to customers the majority of these plants are bought and sold by taxpayer after it sells out of its existing stock of plants these purchases and sales generally do not occur until april may and june the plants that taxpayer has on-hand at the end of its fiscal_year are classified as trees shrubs rose bushes perennials annuals or houseplants the growing process for each type of plant is described below trees taxpayer purchases trees in either a bare root state a balled and burlapped state or in various size containers that are reddy for immediate resale categorie sec_4 and above the bare root and balled and burlapped trees are between approximately one to three years old when purchased and take approximately four to six months to properly root and mature shrubs taxpayer purchases shrubs and bushes other than rose bushes in either a bare root state a balled and burlapped state or a b state categorie sec_4 and above these plants are generally one and a half to two years old when purchased and take approximately six months to mature before being sold to customers the revenue_agent states that some shrubs are purchased in the container and are ready for immediate resale to customers category above rose bushes taxpayer purchases all of its rose bushes in bare root form category above the bushes are approximately four to six inches long when purchased taxpayer plants them into containers until they are rooted established and brought to flower this cultivation process takes approximately three months 1yvyiz1l046 district_director perennials taxpayer purchases perennials as seedling plugs or cuttings that are not larger than one inch in length categorie sec_2 and above taxpayer plants the perennials into larger containers and grows the plants in a greenhouse for four to eight weeks before sale to its customers the revenue_agent states that some perennials are purchased in the container and are ready for immediate resale to customers category above annuals taxpayer purchases annuals as seedling plugs or cuttings that are not larger than one inch in length categorie sec_2 and above taxpayer plants the annuals into larger containers and grows them in a greenhouse for six to eight weeks before sale to its customers the revenue_agent states that some annuals are purchased in the container and are ready for immediate resale to customers category above houseplants taxpayer purchases certain houseplants geraniums chrysanthemums miniature roses and azaleas as seedling plugs and cuttings that are planted by taxpayer into larger containers categorie sec_2 and above the growing process for houseplants is similar to that for perennials and annuals all other houseplants are purchased in the container and are ready for immediate resale to customers category above for federal_income_tax purposes taxpayer currently deducts the cost of all its plants including the purchase_price of the plant direct_labor_costs and any overhead costs associated with the plant taxpayer utilizes the straight_line method_of_depreciation in applying alternative_depreciation_system rules to depreciate its fixed assets as required for farmers who deduct the costs of their growing crops taxpayer does not use the crop_method of accounting and pursuant to sec_263a has properly elected not to apply the capitalization provisions of sec_263a to plants produced in a farming_business taxpayer does however inventory unsold items other than its growing plant inventory such as fertilizer pesticides pots and gardening implements and applies the provisions of sec_263a to these unsold items the revenue_agent questions whether taxpayer should be allowed to currently deduct the acquisition costs of all its plants law and analysis sec_162 allows a deduction for all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business sec_2 the revenue_agent has not raised an issue with regard to the cost of seeds that are originally planted by taxpayer category above 4a district_director a provides as follows a farmer who operates a farm for profit is entitled to deduct from gross_income as necessary expenses all amounts actually expended in the carrying on of the f a farmer does not compute income upon the crop business of farming method the cost of seeds and young plants which are purchased for further development and cultivation prior to sale in later years may be deducted as an expense for the year of purchase provided the farmer follows a consistent practice of deducting such costs as an expense from year to year sec_263a provides that in the case of any property to which this section applies the direct costs of the property and the property's proper share of those indirect_costs allocable to the property shall be capitalized a brief historical backgrourid of the tax treatment of inventories and farmers may be helpful in understanding how sec_263a operates in this case beginning in taxpayers who purchased or produced property and sold such property were required to use inventories and an accrual_method of accounting see regulation sec_45 section article and sec_212 article the predecessors to sec_1_471-1 and sec_1_446-1 the internal_revenue_service administratively excepted farmers from these rules farmers were permitted to use the cash_method_of_accounting in addition whether on the cash or an accrual_method farmers were not required and in fact were not permitted to inventory growing crops see eg i t i-1 c b and o d c b however section dollar_figure a -7 the predecessor to sec_1_61-4 did provide that even on the cash_method the deduction of the acquisition_cost of a purchased item as opposed to a grown or raised item was deferred until the year the item was sold commissioner 22_tc_407 the court held that this regulation required a nursery grower to defer the deduction of the acquisition_cost of plants until the year in which the plants were sold even though the nursery grower was permitted to use the cash_method and was not otherwise required to use inventories shortly after stokes was decided the regulations were amended to provide an exception to the purchased item rule under this exception the cost of seeds and young plants purchased for further development and cultivation may be deducted in the year paid see sec_1_162-12 see also sec_1_61-4 in stokes v in the late 1960's congress became concerned with the mismatching of income and expenses inherent in the farming tax rules which required the capitalization of the preproductive_period_expenses of citrus trees in this provision was extended to include almond trees enacted provisions requiring certain farmers to use an accrual_method of accounting and to capitalize preproductive_period_expenses see sec_447 congress excepted in congress in congress enacted sec_278 district_director nursery farmers from the requirements of sec_447 limiting the deductions of certain farming expenses by farm syndicates in addition congress enacted sec_464 also in the service published revrul_76_242 1976_1_cb_132 holding that accrual_method farmers that did not use the crop_method were required to inventory growing crops under this ruling nursery growers and florists would be required to inventory growing trees and growing plants in response to revrul_76_242 congress enacted section of the revenue act of section provides that an accrual_method farmer nursery grower or florist that was not required by sec_447 to capitalize preproductive_period costs could not be required to inventory growing crops the legislative_history of section indicates that congress believed that except as otherwise provided in sec_447 and until céngress had the opportunity to study the matter further farmers including nursery growers should be permitted to use the cash_method_of_accounting and deduct the cost of seeds and young plants purchased in one year which are intended to be sold as farm products in a later year and even if an accrual_method is used to be excepted from the inventory requirements with respect to any growing unharvested crops see h_r rep no 95th cong 2d sess vol c b and s rep no 95th cong 2d sess vol c b in congress repealed sec_278 and the preproductive_period expense capitalization_rules under sec_447 and made farmers as well as other producers and resellers subject_to uniform_capitalization_rules set forth in sec_263a sec_263a provides that in the case of any property to which this section applies the direct costs of the property and the property's proper share of those indirect_costs allocable to the property shall be capitalized sec_263a provides that this section shall apply to real or tangible_personal_property produced_by_the_taxpayer and real or personal_property described in sec_4221 which is acquired by the taxpayer for resale sec_1_263a-2 provides that for purposes of sec_263a produce includes inter alia raise or grow thus any plants that are produced_by_the_taxpayer as well as any plants or other items acquired for resale are within the general rules of sec_263a there are two relevant exceptions to the general rules of sec_263a first sec_263a provides an exception for resellers whose average annual gross_receipts for the 3-taxable year period ending with the taxable_year preceding the current taxable_year do not exceed dollar_figure small_reseller_exception of course the acquisition costs of merchandise purchased for resale must continue to be inventoried even under the small_reseller_exception see sec_1_61-3 and sec_1_471-1 second sec_263a provides an exception for property produced in a farming_business farming district_director exception sec_1_263a-4t a i defines a farming_business to mean a trade_or_business involving the cultivation of land or the raising or harvesting of any agricultural or horticultural commodity examples of farming include the trade_or_business of operating a nursery or sod farm the trade_or_business of merely buying and reselling plants grown or raised by another is not a farming_business because a taxpayer calls itself a farmer does not qualify it for the tax treatment accorded farmers under the code in order to determine whether a taxpayer has properly characterized itself as a in fact cultivating land or farmer it is necessary to ascertain whether the taxpayer is raising and harvesting agricultural or horticultural commodities under the farming exception a taxpayer is generally not required to capitalize costs under sec_263a with respect to property produced in a farming_business if the taxpayer is neither precluded by sec_448 from using the cash_method nor required by sec_447 to use an accrual_method and the property produced is an animal the property produced is a plant with a preproductive_period of two years or less or the property produced is a plant and the taxpayer makes an election under sec_263a the election under sec_263a allows a farmer to deduct the preproductive_period costs of plants with a preproductive_period greater than two years that are produced in a farming_business this election must be made for the taxpayer's first taxable_year in the farming_business once made this election may be revoked only with the consent of the commissioner in date rules under sec_263a for farmers were issued as both temporary and proposed_regulations nurserymen were concerned that the temporary regulations changed the tax treatment of purchased plants and shared their concerns with the service in response to these concerns the service issued announcement 4997_50_irb_61 which assures nurserymen that if they are using the farming exception they are allowed to deduct the cost of seeds and young plants purchased for further development and cultivation even if the plants are partly grown by another person or are grown by the nursery in temporary containers thus under the foregoing rules the deductibility of purchased items is governed in the first instance by sec_1_162-12 under sec_1_162-12 if a farmer does not compute income upon the crop_method the cost of seeds and young plants which are purchased for further development and cultivation prior to sale in later years may be deducted as an expense for the year of purchase provided the farmer follows a consistent practice of deducting such costs as an expense from year to year section did not change this rule on the contrary in enacting section congress intended that this rule would remain in effect until congress provided to the contrary ly9viyzlv4g district_director in congress enacted sec_263a which does provide to the contrary as noted above except as provided in the farming exception sec_263a requires the capitalization of the costs of seeds and young plants as well as the preproductive expenditures of plants thus sec_263a supersedes section moreover by virtue of the priority ordering rules of sec_261 sec_263a may require the capitalization of costs that would otherwise be deductible under sections such as sec_1_162-12 thus the application of these rules to the instant case initially requires a determination under sec_1_162-12 regarding whether the items purchased by taxpayer are seeds and young plants acquired for further development and cultivation the revenue agent's concern is whether the items purchased by taxpayer are young plants and whether they are acquired for further development and cultivation with regard to what is a young plant there is no authority that defines that term for’ purposes of sec_1_162-12 however we interpret the use of young plants in sec_1_162-12 as reinforcing the primary requirement that the plants be acquired for further development and cultivation which is the essence of a farming activity versus a retail activity thus in determining the proper treatment of taxpayer's acquisition costs we will focus primarily on the requirement that the plants be acquired for further development and cultivation this determination must be made with regard to each category of taxpayers plants and with regard to each type of growing process as follows bare root trees bare root trees are between approximately one to three years old when purchased with no soil surrounding the roots and with all feeder roots and branches trimmed off taxpayer purchases these trees from november to february each year when the trees are in a dormant state the trees are sent to taxpayer in bundles or boxes on refrigerated trucks to protect them from heat or cold upon receiving the trees taxpayer examines them for health and damage the trees are then properly pruned and soaked in vitamin b-1 and fungicide to stimulate root growth and prevent disease after soaking taxpayer plants the bare root trees in one of several growing locations to develop a root system and foliage bare root trees take approximately four to six months to properly root and to grow toa marketable state these facts indicate that taxpayer acquired its bare root trees for further development and cultivation balled and burlapped trees balled and burlapped trees are between approximately one to three years old when purchased with a small amount of soil surrounding the roots wrapped in burlap when taxpayer purchases the balled and burlapped trees to of the root system has been cut off taxpayer plants balled and burlapped trees into containers to develop a root system and foliage balled and burlapped trees take approximately four to six months to properly root and to grow to a marketable state these facts indicate that district_director taxpayer acquired its balled and burlapped trees for further development and cultivation trees purchased in containers ready for immediate resale taxpayer purchases trees in the container ready for immediate resale to customers these trees primarily are bought and sold by taxpayer to meet customer demands and to supplement its existing stock of trees thus these trees were ready for immediate resale when acquired and were not further developed or cultivated bare root shrubs bare root shrubs are generally one and a half to two years old when purchased with no soil surrounding the roots and with all feeder roots and branches trimmed off taxpayer purchases these shrubs from november to february each year when the shrubs are in a dormant state the shrubs are sent to taxpayer in bundles or boxes on refrigerated trucks to protect them from heat or cold upon receiving the shrubs taxpayer examines them for health and damage the shrubs are then properly pruned and soaked in vitamin and fungicide to stimulate root growth and prevent disease after soaking taxpayer plants the bare root shrubs in one of several growing locations to develop a root system and foliage bare root shrubs take approximately six months to mature and to grow to a marketable state these facts indicate that taxpayer acquired its bare root shrubs for further development and cultivation balled and burlapped shrubs balled and burlapped shrubs are generally one and a half to two years old when purchased with a small amount of soil surrounding the roots wrapped in burlap when taxpayer purchases the balled and burlapped shrubs to of the root system has been cut off taxpayer plants balled and burlapped shrubs into containers to develop a root system and foliage balled and burlapped shrubs take approximately six months to mature and grow to a marketable state these facts indicate that taxpayer acquired its balled and burlapped shrubs for further development and cultivation b state shrubs shrubs purchased in a' b state are generally one and a half to two years old whe purchased and are unmarketable because they do not meet taxpayer's quality standards taxpayer typically purchases these shrubs in the fall and cultivates them throughout the winter for sale beginning in april during this six month cultivation period the shrubs are hardened-off acclimated to the local climate and grown to a marketable a state a state that meets taxpayer's quality standards these facts indicate that taxpayer acquired its b state shrubs for further development and cultivation shrubs purchased in containers ready for immediate resale district_director taxpayer purchases shrubs in the container ready for immediate resale to customers these shrubs primarily are bought and sold by taxpayer to meet customer demands and to supplement its existing stock of shrubs thus these shrubs were ready for immediate resale when acquired and were not further developed or cultivated bare root rose bushes rose bushes are all purchased in bare root form with no soil surrounding the roots and with all feeder roots and branches trimmed off taxpayer purchases rose bushes from november to february each year when the plants are in a dormant state the rose bushes are sent to taxpayer in bundles or boxes on refrigerated trucks to protect them from heat or cold upon receiving the rose bushes taxpayer examines them for health and damage the rose bushes are then properly pruned and soaked in vitamin b-1 and fungicide to stimulate root growth and prevent disease after soaking taxpayer plants the bare root rose bushes in one of several growing locations until they are rooted established and brought to flower bare root rose bushes take approximately three months to grow to a marketable state these facts indicate that taxpayer acquired its bare root rose bushes for further development and cultivation perennial seedlings perennial seedling plugs are not larger than one inch in length when purchased in a seedling tray that can hold up to plants taxpayer plants the seedling plugs into containers and grows them for four to eight weeks in a greenhouse that is specifically designed for this purpose these facts indicate that taxpayer acquired its perennial seedling plugs for further development and cultivation perennial cuttings perennial cuttings are not larger than one inch in length when purchased from suppliers or harvested from taxpayer's own plants taxpayer plants the cuttings into containers and grows them for four to eight weeks in a greenhouse that is specifically designed for this purpose these facts indicate that taxpayer acquired its perennial cuttings for further development and cultivation perennials purchased in the container ready for immediate resale taxpayer purchases perennials in the container ready for immediate resale to customers these plants primarily are bought and sold by taxpayer to meet customer demands and to supplement its existing stock of perennials thus these plants were ready for immediate resale when acquired and were not further developed or cultivated annual seedlings annual seediing plugs are not larger than one inch in length when purchased in a seedling tray that can hold up to plants taxpayer plants the seedling plugs into containers and grows them for six to eight weeks in a greenhouse that is specifically district_director designed for this purpose these facts indicate that taxpayer acquired its annual seediing plugs for further development and cultivation annual cuttings annual cuttings are not larger than one inch in length when purchased from suppliers or harvested from taxpayer's own plants taxpayer plants the cuttings in containers and grows them for six to eight weeks in a greenhouse that is specifically designed for this purpose these facts indicate that taxpayer acquired its annual cuttings for further development and cultivation annuals purchased in the container ready for immediate resale taxpayer purchases annuals in the container ready for immediate resale to customers these plants primarily are bought and sold by taxpayer to meet customer dem’nds and to supplement its existing stock of annuals thus these plants were ready for immediate resale when acquired and were not further developed or cultivated houseplant seedlings houseplant seedling plugs are not larger than one inch in length when purchased in a seedling tray that can hold up to plants taxpayer plants the seedling plugs into containers and grows them for four to eight weeks in a greenhouse that is specifically designed for this purpose these facts indicate that taxpayer acquired its houseplant seedling plugs for further development and cultivation houseplant cuttings houseplant cuttings are not larger than one inch in length when purchased as cuttings from suppliers or harvested from taxpayer's own plants taxpayer plants the cuttings into containers and grows them for four to eight weeks in a greenhouse that is specifically designed for this purpose these facts indicate that taxpayer acquired its houseplant cuttings for further development and cultivation houseplants purchased in containers ready for immediate resale taxpayer purchases houseplants in the container ready for immediate resale to customers these plants primarily are bought and sold by taxpayer to meet customer demands and to supplement its existing stock of houseplants thus these houseplants were ready for immediate resale and were not further developed or cultivated to summarize we think the following of taxpayer's items are seeds and young plants acquired for further development and cultivation bare root trees balled and burlapped trees bare root shrubs balled and burlapped shrubs b state shrubs bare root rose bushes perennial seedlings perennial cuttings annual seedlings annual cuttings houseplant seedlings and houseplant cuttings the following items are not seeds and young plants acquired for further development and cultivation trees district_director shrubs perennials annuals and houseplants that are purchased in the container teady for immediate resale we can now analyze the application of sec_263a to taxpayer's various plants first we will discuss the application of sec_263a to the items that are seeds and young plants acquired for further development and cultivation because the plants cultivated and developed by taxpayer are regarded as property produced by taxpayer the general rules under sec_263a would require the capitalization of the acquisition and preproductive_period_expenses however since taxpayer is neither precluded by sec_448 from using the cash_method nor required by sec_447 to use an accrual_method taxpayer qualifies to use the farming exception of sec_263a although taxpayer generally does not develop any plant for more than six months some of the plants grown by taxpayer may have a preproductive_period in excess of two years to avoid capitalizing the cost of these plants taxpayer made a sec_263a election under which taxpayer uses the alternative_depreciation_system described in sec_168 and treats the plants as sec_1245 property by virtue of this election taxpayer is not required by sec_263a to capitalize the acquisition costs or preproductive_period_expenses of the seeds and young plants acquired for further cultivation and development we now analyze the items that are not seeds and young plants acquired for further cultivation and development these items are not produced in a farming_business and therefore may not be accounted for under the farming rules of sec_263a rather as under pre- sec_263a law the acquisition costs of these items must be capitalized in addition since taxpayer's gross_receipts exceed dollar_figure million it is not eligible to use the small_reseller_exception accordingly under the general rules of sec_263a taxpayer must capitalize the direct and indirect_costs allocable to acquiring and holding these items for sale in summary taxpayer engages in both farming and resale activities taxpayer has adopted a hybrid method_of_accounting under which it uses the farming rules for its farming activities and the non-farming rules for its non-farming activities however we do not believe that taxpayer may account for all plants under the farming rules the plants that are not produced by taxpayer but are merely bought and resold must like the fertilizer pesticides pots and gardening implements be accounted for under the non-farming reseller rules under sec_263a a copy of this technical_advice_memorandum is to be given to taxpayer sec_6110 provides that it may not be used or cited as precedent


internal_revenue_service number release date index number -------------------------------- ------------------------------- ------------------------------- -------------------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------------------- telephone number --------------------- refer reply to cc psi b02 plr-138552-07 date january x state d1 ----------------------------------- ------------------------ ------------------ ---------------------- dear ------------ this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code facts the information submitted states that x was incorporated in state on d1 it was intended that x elect s_corporation treatment effective d1 however a form_2553 election by a small_business_corporation was not timely filed for x law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation plr-138552-07 sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply conclusion based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d1 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective d1 within days following the date of this letter then such election will be treated as timely made for x's taxable_year beginning d1 a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-138552-07 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely j thomas hines chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------------------- ----------------------------------- -------------------------------------- -------------------------------- ---------------------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b01 plr-103673-15 date date x --------------------------------------------------- ---------------------------------------- a --------------------------------------------------- ------------------------------------- b country date date period ------------------------ ----------------- ------------------------ ---------------------- --------------------------------------------------------------- dear --------------------- this responds to a letter dated date submitted on behalf of x 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 be treated as an association_taxable_as_a_corporation for federal tax purposes effective date facts according to the information submitted x was formed under the laws of country on date x intended to elect to change its classification to be treated as an association_taxable_as_a_corporation for federal tax purposes effective date however x inadvertently failed to timely file form_8832 entity classification election plr-103673-15 on date a owned b a controlled_foreign_corporation within the meaning of sec_957 of the code b was the owner of x as of date a is the owner of x x represents that it acted in good_faith and reasonably further x represents that it is not using hindsight in requesting the relief sought lastly x represents that the interests of the government will not be prejudiced for all taxable years affected by the election by granting the relief sought law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes 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 guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single member having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election or change in entity classification must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed sec_301_7701-3 states in part if an eligible_entity makes an election to change its classification the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election an election by a newly formed eligible_entity that is effective on the date of formation is not considered a change for purposes of this paragraph c iv sec_301_7701-3 provides that such an election must be signed by either a each member of the electing entity who is an owner at the time the election is filed or b any officer manager or member of the electing entity who is authorized under local law or the entity’s organization documents to make the election and who represents to having such authorization under penalties of perjury plr-103673-15 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 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 the term 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_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government conclusion based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 entity classification election with the appropriate service_center to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose this ruling is contingent on a b and x filing within days from the date of this letter all required returns for period consistent with the requested relief being effective date a copy of this letter should be attached to any such returns except as specifically set forth above no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-103673-15 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representative sincerely associate chief_counsel passthroughs special industries laura c fields by laura c fields senior technician review branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------------------ --------------------------------------------- ---------------------------------------------------- ---------------------- -------------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-121883-09 date date --------------------------------------------- x -------------------------------------------------- country --------------------- -------------------------- date dear ------------------ this responds to a letter dated date submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an entity classification election the information submitted states that x was formed under the laws of country x represents that x is a foreign_entity eligible to be treated as a disregarded_entity but that it failed to timely file form_8832 entity classification election 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 a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 plr-121883-09 sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 with the designated service_center and that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form 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 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 the term 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_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose 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 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 plr-121883-09 in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely curt g wilson associate chief_counsel office_of_chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc