internal_revenue_service number release date index number department of the treasury washington dc person to contact ------------------------------ id no ------------ --------- telephone number ---------------------- refer reply to cc psi b04 - plr-120843-16 date date --------------------------- --------------------------------- ------------------------------------- --------------------------- legend date grantor distribution committee -------------------- ------------------------------------------------------- ----------------------------------------------------------------------------- ---------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- --------------------------------------------------- son son daughter daughter daughter granddaughter granddaughter trust ------------------------------------------------------- ------------------------------------------------------- ---------------------------------------------------------- ------------------------------------------------- --------------------------------------------------- ----------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------------------------ -------------------------------------------------------------------------------------- foundation state trustee permissible beneficiaries ------------------------------------------------------------------------------ -------------------------------------------------------- -------------- -------------------------------------------------------- ------------------------------------- dear ------------------ plr-120843-16 this letter responds to your authorized representative’s letter of date requesting rulings under sec_671 sec_2501 sec_2514 and sec_2041of the internal_revenue_code the facts submitted and representations made are as follows on date grantor created an irrevocable_trust trust for the benefit of himself his descendants and foundation permissible beneficiaries a corporate trustee trustee is the sole trustee trust is represented to be a domestic_trust sited in state and pursuant to the trust agreement is governed by the laws of state during grantor’s lifetime trustee must distribute such amounts of net_income and or principal of trust to grantor and the permissible beneficiaries as directed by the distribution committee and or grantor as follows trustee pursuant to the direction of a majority of the distribution committee with the written consent of grantor shall distribute to or for the benefit of the permissible beneficiaries all or any portion of the net_income and principal of trust grantor’s consent power trustee pursuant to the direction of all of the distribution committee members shall distribute to any permissible beneficiaries all or any portion of the net_income or principal of trust unanimous member power and at any time trustee shall distribute to any of the permissible beneficiaries other than grantor and foundation all or any portion of the principal of trust as the grantor directs for the health education maintenance or support of the permissible beneficiaries grantor’s sole power such distribution power shall be exercisable by the grantor in a nonfiduciary capacity the distribution committee may appoint income or principal equally or unequally and to or for the benefit of any one or more of the permissible beneficiaries of trust to the exclusion of others any net_income not distributed by trustee will be accumulated and added to principal upon the death of grantor trustee shall distribute the remaining property of trust as grantor appoints in grantor’s last will in any manner and in favor of any person other than grantor’s estate the grantor’s creditors or the creditors of grantor’s estate grantor’s testamentary power any remaining property held in trust that has not been effectively appointed by will shall be distributed to trusts for the benefit of grantor’s descendants the distribution committee is initially composed of son son daughter daughter and daughter trust provides that at all times at least two adult plr-120843-16 individuals who are permissible beneficiaries other than grantor must be members of the distribution committee if at any time there are fewer than three adult members serving on the distribution committee then the vacancy will be filled in the following order first by granddaughter and then by granddaughter grantor shall not serve as a member of the distribution committee the members of the distribution committee shall serve or act in a non-fiduciary capacity the distribution committee ceases to exist upon the earlier of the death of grantor or the date the distribution committee has less than two members other than grantor if the distribution committee ceases to exist during grantor’s life distributions to the beneficiaries may only be made to the grantor’s descendants pursuant to the grantor’s sole power the permissible beneficiaries grantor and trustee are all united_states persons within the meaning of sec_7701 trust provides that grantor also has the authority and responsibility exercisable solely in a fiduciary capacity to direct the trustee of the trust with respect to all decisions of the trust relating to the investment management and voting powers granted to the trustee with respect to trust property you have requested the following rulings as long as the distribution committee is serving no portion of the items of income deductions and credits against tax of trust shall be included in computing the taxable_income deductions and credits of grantors or any member of the distribution committee under sec_671 the contribution of property to trust by grantor will not be a completed_gift subject_to federal gift_tax any distribution_of_property by the distribution committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee any distribution_of_property by the distribution committee from trust to any beneficiary of trust other than to grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee the members of the distribution committee do not possess a general_power_of_appointment within the meaning of sec_2041 and accordingly trust will not be includible in any distribution committee member’s gross_estate under sec_2041 ruling sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a plr-120843-16 trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides for purposes of subpart e the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or the income therefrom if as of the inception of that portion of the trust the value of such interest exceeds five percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to the powers described in sec_674 regardless of whom held sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to a power to distribute corpus to or for a beneficiary provided that the power is limited by a reasonably_definite_standard under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances attendant on its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust plr-120843-16 sec_675 provides that the grantor shall be treated as the owner of any portion of a_trust in respect of which a power_of_administration is exercisable in a nonfiduciary capacity by any person without the approval or consent of any person in a fiduciary capacity for purposes of sec_675 the term power_of_administration includes a a power to vote or direct the voting of stock or other_securities of a corporation in which the holdings of the grantor and the trust are significant from the viewpoint of voting control and b a power to control the investment of the trust funds either by directing investments or reinvestments or by vetoing proposed investments or reinvestments to the extent that the trust funds consist of stocks or securities of corporations in which the holdings of the grantor and the trust are significant from the viewpoint of voting control under sec_675 the power_of_administration includes the power to control the investment of the trust funds either by directing investments or reinvestment sec_1_675-1 of the income_tax regulations provides that if a power is not exercisable by a person as trustee the determination of whether the power is exercisable in a fiduciary or a nonfiduciary capacity depends on all the terms of the trust and the circumstances surrounding its creation and administration sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor's spouse held or accumulated for future distribution to the grantor or the grantor's spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor's spouse sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of inclusive subject a grantor of a_trust to treatment as the owner thereof sec_679 provides that a united_states_person who directly or indirectly transfers property to a foreign_trust shall be treated as the owner for his taxable_year of the portion of such trust attributable to such property if for such year there is a united_states_beneficiary of any portion of such trust plr-120843-16 accordingly based solely on the facts submitted and the representations made we conclude that an examination of trust reveals none of the circumstances that would cause grantor to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 or sec_677 as long as the distribution committee remains in existence also as long as trust is a domestic_trust grantor will not be treated as the owner of any portion of trust under sec_679 we cannot determine at this time whether grantor will be treated as the owner of trust under sec_675 the circumstances surrounding the administration of trust determine whether grantor holds the power_of_administration in a fiduciary capacity this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office of the district_director having examination jurisdiction over the returns further because none of the members of the distribution committee has a power exercisable by himself to vest trust income or corpus in himself none shall be treated as the owner of trust under sec_678 ruling sec_2 and sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in the donor no power to change its disposition whether for his own benefit or for the benefit of another but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 provides an example where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor's descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained a testamentary_power_of_appointment but instead provided that the remainder should go to x or his heirs the plr-120843-16 entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by the donor in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom a trustee as such is not a person having an adverse_interest in the disposition of the trust property or its income sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax sec_25_2511-2 does not define substantial adverse_interest sec_25_2514-3 provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer's plr-120843-16 gift was complete in when he relinquished his right to change the beneficiaries of the trust a’s retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case grantor retained the grantor’s consent power over the net_income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom the distribution committee members are not takers in default for purposes of sec_25_2514-3 they are merely co-holders of the power under sec_25_2514-3 a co-holder of a power is only considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in this case the distribution committee ceases to exist upon the death of grantor accordingly the distribution committee members do not have interests adverse to grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore grantor is considered as possessing the power to distribute net_income and principal to any beneficiary himself because he retained the grantor’s consent power grantor also retained the grantor’s sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard in this case the grantor’s sole power gives grantor the power to change the interests of the beneficiaries even though grantor's power is limited by an ascertainable_standard ie health education maintenance and support grantor's power is not a fiduciary power accordingly the retention of the grantor’s consent power and the grantor’s sole power causes the transfer of property to trust to be incomplete for federal gift_tax purposes further grantor retained the grantor’s testamentary power to appoint the property in trust to any persons other than to the grantor’s estates grantor’s creditors or the creditors of grantor’s estates under sec_25_2511-2 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder for federal tax purposes finally the distribution committee members possess the unanimous member power over net_income and principal this power is not a condition_precedent to grantor’s powers grantor’s powers over the net_income and principal are presently plr-120843-16 exercisable and not subject_to a condition_precedent grantor retains dominion and control_over the net_income and principal of trust until the distribution committee members exercise their unanimous member power accordingly the unanimous member power does not cause the transfer of property to be complete with respect to the income_interest for federal gift_tax purposes see 37_tc_897 51_tc_352 accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by grantor is not a completed_gift subject_to federal gift_tax any distribution from trust to grantor is merely a return of grantor’s property therefore we conclude that any distribution_of_property from trust by the distribution committee to grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee further upon the death of grantor the fair_market_value of the property in trust is includible in his gross_estate for federal estate_tax purposes ruling sec_4 and sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor's estate the possessor's creditors or the creditors of the possessor's estate sec_25_2514-1 provides that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor's estate or the creditors of the estate or expressly not exercisable in favor or the possessor or his creditors or the possessor’s estate or the creditors of his estate sec_2514 provides that in the case of a power_of_appointment created after date if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of plr-120843-16 sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor's power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor's power sec_25_2514-3 provides in part that a coholder of a power has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y's death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 to inclusive under sec_2041 the term general_power_of_appointment is defined in relevant part to mean a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides however that in the case of a power_of_appointment created after date if the power is not exercisable by the decedent except in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2041 provides however that in the case of a power_of_appointment created after date if the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the decedent -- such power shall not be deemed a general_power_of_appointment for purposes of sec_2041 a person who after the death of the decedent may be possessed of a power_of_appointment with respect to the property subject_to the decedent's power which he may exercise in his own favor shall be deemed as having plr-120843-16 an interest in the property and such interest shall be deemed adverse to such exercise of the decedent's power sec_20_2041-3 of the estate_tax regulations provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the decedent's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y's death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y the power held by the distribution committee members under the grantor’s consent power is a power that is exercisable only in conjunction with the creator grantor accordingly under sec_2514 and sec_2041 the distribution committee members do not possess general powers of appointment by virtue of possessing this power further the power held by the distribution committee members under the unanimous member power is not a general_power_of_appointment for purposes of sec_2514 and sec_2041 as in the examples in sec_25_2514-3 and c the distribution committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than to grantor pursuant to the exercise of these powers the grantor's consent power and the unanimous member power are not gifts by the distribution committee members instead such distributions are gifts by grantor based on the facts and representations made we conclude that any distribution_of_property from trust by the distribution committee to any beneficiary of trust other than grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee further we conclude that any distribution_of_property from trust to a beneficiary other than to grantor will be completed gifts by grantor finally we conclude that the powers held by the distribution committee are not general powers of appointment for purposes of sec_2041 and accordingly no member of the distribution committee upon his or her death will include in his or her estate any property held in trust because such member is deemed to have a general_power_of_appointment within the meaning of sec_2041 over property held in trust except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express no opinion on the trust provisions plr-120843-16 permitting trustee to distribute income or principal to trustees of other trusts decanting this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely lorraine e gardner lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 2-plr-100986-00 date date x a state dollar_figuren dollar_figureo dear this letter responds to a date ruling_request submitted on behalf of x by x’s authorized representative requesting a ruling that x’s rental income will not constitute passive_investment_income within the meaning of sec_1362 of the internal_revenue_code the information submitted states that x incorporated on date x is currently a c_corporation and proposes to elect to be taxed as an s_corporation x is engaged in the business of owning managing and leasing thirty-two residential multi-unit apartment buildings and houses properties in state thirteen are apartment buildings containing rentable units and are residential rental houses which are being rented or are available for rent x employs six employees in its corporate office and employees in its property management division x’s vice president runs the property management division x also employs a property manager who coordinates and turns over daily maintenance performs market analysis handles resident manager issues and trains employees each apartment has a resident manager who is employed by x the resident managers assist the property manager on diverse matters including but not limited to maintenance rent collection and tenant selection x employs maintenance workers who service appliances repair or replace electrical fixtures repair plumbing and provide gardening services x’s gross rental income for was dollar_figuren and its related expenses excluding depreciation was dollar_figureo properties are not rented under net_lease arrangements x pays all the expenses relating to properties except for utilities water sewer garbage electricity and heating in the case of houses and except for electricity in the case of apartments a as x’s president represents that x provides services and incurs substantial costs in the operation of its rental business sec_1362 of the code provides that except as otherwise provided the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 of the income_tax regulations defines rents as amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 of the regulations provides that rents does not include rents derived in the active trade_or_business of renting property rents are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation based solely on the information submitted and the representations made we conclude that x’s receipts from renting properties are not passive_investment_income under sec_1362 except as specifically set forth above we express no opinion as to the federal tax consequences of the transaction described above under any other provision of the code further we express no opinion concerning the validity of x’s election under sec_1362 to be an s_corporation or x’s qualification to be a small_business_corporation eligible to make an s election this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely yours j thomas hines acting chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 1-plr-102725-00 date march legend x date this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on date the shareholders of x desired that x elect s_corporation treatment for x effective on date but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective date law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that 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 under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed plr-102725-00 sec_1362 provides that if 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 such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center 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 s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative signed dianna k miosi sincerely dianna k miosi chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court robert b keenan petitioner v commissioner of internal revenue respondent docket nos filed date robert b keenan pro_se mark a weiner for respondent memorandum opinion jacobs judge respondent determined the following deficiencies in and additions to petitioner's federal income taxes these cases were consolidated for purposes of trial briefing and opinion docket no additions to tax_year deficiency sec_6651 sec_6654 dollar_figure dollar_figure dollar_figure docket no additions to tax_year deficiency sec_6651 sec_6654 dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number docket no additions to tax_year deficiency sec_6651 sec_6654 dollar_figure dollar_figure dollar_figure big_number dollar_figure dollar_figure big_number dollar_figure dollar_figure following concessions by the parties the issues for decision are whether assessment of deficiencies and additions to tax for petitioner's tax_year is barred by the expiration of the statutory period of limitations whether petitioner had taxable_income in in the amount of dollar_figure as a result of a purported distribution from his individual_retirement_account ira at u s on the basis of information from third parties indicating that they had made payments of income to petitioner respondent determined that petitioner failed to report such income petitioner conceded virtually all of the unreported income adjustments relating to said payments respondent conceded petitioner's entitlement to certain losses arising from forced internal_revenue_service irs tax sales in trust co of n y ustcny whether petitioner had taxable_income in in the amount of dollar_figure as a result of a purported distribution from his ira at ustcny whether petitioner is entitled to any losses or deductions in as a result of a forced internal_revenue_service irs tax sale of his personal_residence whether petitioner is entitled to dollar_figure of ordinary losses in as a result of forced irs tax sales of three of his new mexico properties whether petitioner is entitled to any other deductible losses during the years in issue and whether petitioner is liable for the additions to tax pursuant to sec_6651 and sec_6654 for all the years in issue all section references are to the internal_revenue_code in effect for the years in issue all rule references are to the tax_court rules_of_practice and procedure some of the facts have been stipulated and the stipulations of facts are incorporated in our findings by this reference in his posttrial brief petitioner raised for the first time that respondent's deficiency determination for is arbitrary and capricious and that he is entitled to a casualty_loss for as a result of damage to his airplane arising from a midair collision both of these matters were untimely raised nevertheless we conclude that respondent's deficiency determination is not arbitrary or capricious and that there is nothing in the record to support petitioner's entitlement to a casualty_loss for background petitioner resided in camarillo california at the time he filed his petitions petitioner was born on date he attended college in and but did not receive a degree subsequently he worked as a ship fitter in the shipbuilding industry and then enlisted in the army air corps in he became a pilot for united airlines in he retired from the airline between and petitioner flew airplanes for a worldwide delivery firm petitioner failed to file federal tax returns for and for convenience we have combined our remaining findings_of_fact and opinion with respect to each issue issue statutory period of limitations--1989 petitioner asserts that he timely filed a tax_return and therefore maintains that the period for assessing a deficiency and additions to tax against him for expired before the date on which respondent mailed the statutory_notice_of_deficiency date with respect to that year respondent maintains petitioner did not file a return in general an income_tax must be assessed within years after the return was filed sec_6501 if no return is filed the tax may be assessed or a proceeding in court for the collection of the tax may be begun without assessment at any time sec_6501 the only evidence to support petitioner's assertion that he timely filed a return is his own testimony and in this respect petitioner's testimony was sketchy petitioner offered no proof concerning the date of mailing nor did he testify as to the circumstances attending the purported mailing petitioner did not maintain a signed copy of the return allegedly filed to refute petitioner's assertion respondent introduced an irs certificate of lack of record dated date to indicate that petitioner did not file a return for the record reflects that petitioner wrote letters to the irs district_director of the fresno service_center and the irs director of foreign operations in washington d c on date indicating that he is not a taxpayer and is not required to file tax returns additionally on date petitioner wrote letters to these offices stating your office sent out a letter requesting a tax_return i returned a letter to your office denying that i was required to file a return because i could not locate any specific part of the revenue code that made me liable for filing any sort of a return on the basis of the implications which can be drawn from petitioner's letters to the irs as well as the entire record before us we are unable to conclude that petitioner filed a return for accordingly we hold that the period of limitations is not a bar to the assessment of a deficiency or additions to tax with regard to petitioner's tax_year issue distribution we next consider whether respondent erroneously determined that petitioner had taxable_income in in the amount of dollar_figure as a result of a purported distribution from his ira at ustcny by stipulation petitioner concedes that he failed to report as income a dollar_figure distribution from his ustcny ira in notwithstanding the stipulation petitioner testified that sufficient funds were not available in the ustcny ira account to make such a distribution and in his brief petitioner contends that such distribution did not occur respondent maintains that sufficient funds were available in the account to make a dollar_figure withdrawal and that such a distribution in fact occurred in rule e states that the court will not allow a signatory to a stipulation to qualify change or contradict the stipulation in whole or part except where justice otherwise requires a stipulation is treated as a conclusive admission by the parties and we do not permit a party to change or contradict a stipulation except in extraordinary circumstances 66_tc_312 with regard to the instant case we are satisfied that petitioner read and understood his concession in the stipulation at the time the stipulation was filed petitioner failed to satisfactorily explain why he should be allowed to contradict the stipulation thus petitioner is bound by his own admission issue distribution the next issue is whether respondent erroneously determined that petitioner had taxable_income in in the amount of dollar_figure as a result of a distribution from his ira at ustcny although petitioner conceded that dollar_figure was withdrawn from his ustcny ira in he testified that he timely rolled these funds into another qualified retirement account respondent asserts that petitioner failed to roll over the dollar_figure into a qualified ira_distributions from qualified_retirement_plans are generally includable in the distributee's income in the year of distribution as provided in sec_72 sec_402 sec_408 an exception exists if the distribution proceeds are rolled over into an eligible_retirement_plan or an ira within days of the petitioner is not a stranger to this court or the u s district_court for the central district of california see keenan v commissioner tcmemo_1989_300 keenan v united_states aftr 2d d c cal keenan v irs aftr 2d ustc par big_number d c cal moreover the record is sufficient for the court to sustain respondent's determination that petitioner had dollar_figure of taxable_income as a result of a distribution from his ustcny ira distribution sec_402 sec_408 we note that an ira includes only trusts created or organized in the united_states sec_408 on date petitioner directed that dollar_figure be transferred from his ira account no to a new account cash reserve ira account no account no on date petitioner caused a distribution of dollar_figure from account no by stipulation petitioner conceded that the distribution of dollar_figure was taxable_income to him during that year on date petitioner's ira's had values of dollar_figure in account no and dollar_figure in account no totaling dollar_figure petitioner concedes that he caused distributions of dollar_figure from account nos and in at some point petitioner established three foreign conduit trusts to diversify his investments yankee trust fir trust in gibraltar and france trust with sovereign management services n v in luxembourg petitioner asserts that he transferred funds into a barclays bank account in the isle of man which renders his distribution tax free we do not agree with petitioner that the distribution from his ira at ustcny was a tax-free transaction petitioner failed to present any evidence that the dollar_figure was transferred to the record does not explain the discrepancy between the dollar_figure and dollar_figure amounts an eligible_retirement_plan or any other qualified_retirement_plan apparently what he did was place the dollar_figure into a series of foreign trusts these actions despite petitioner's assertions to the contrary do not qualify for any tax-free_rollover treatment pursuant to sec_402 or sec_408 accordingly we hold that the dollar_figure is includable in petitioner's gross_income as a taxable_distribution issue losses or deductions from forced irs tax sale of personal_residence the next issue is whether petitioner is entitled to any losses or deductions in as a result of an irs forced tax sale of his personal_residence petitioner claims that he was entitled to such a deduction or loss because he incurred interest_expenses of dollar_figure and other costs of dollar_figure paid to herman heilscher who is not described in the record for the redemption of this property respondent argues that petitioner has failed to submit evidence entitling him to any such deduction we agree with respondent deductions are a matter of legislative grace 292_us_435 because petitioner has failed to produce any evidence on this issue such as substantiation of payment information or any details with regard to the amount timing or purpose of the alleged payments we sustain respondent's disallowance of any loss or deduction with regard to the sale of petitioner's personal_residence in issue characterization of new mexico losses the fifth issue is whether petitioner is entitled to a dollar_figure ordinary_loss in stemming from an irs forced tax sale of three new mexico properties he owned petitioner argues that he is entitled to such a loss arising from the difference between the market_value of the properties and the amount_realized at auction on the other hand respondent argues that petitioner is entitled to a dollar_figure capital_loss petitioner owned four properties at the mid-valley air park in las lunas new mexico a residential airport in the irs seized these properties in order to satisfy petitioner's federal_income_tax obligation for years prior to those in issue after selling the four properties respondent credited petitioner's tax accounts in amounts less than petitioner's bases in these properties respondent conceded that petitioner is entitled to a dollar_figure ordinary_loss in with respect to one of the properties namely a rental property the character of the loss with respect to the other properties an airplane hangar and two undeveloped 1-acre lots is at issue sec_1001 defines gain_or_loss from the sale_or_other_disposition of property as the difference between the amount_realized and the taxpayer's adjusted_basis in the transferred property the amount_realized is the sum of any money received plus the fair_market_value of the property other than money received sec_1001 the amount_realized from a sale or disposition of property includes the amount of liabilities from which the transferor is discharged as a result of the sale or disposition including a sale in foreclosure 918_f2d_1251 6th cir affg tcmemo_1986_ sec_1221 provides that real_property used in a trade_or_business is not a capital_asset and therefore a loss from the disposition of such property would be an ordinary_loss accordingly we must determine whether the two 1-acre lots and the airplane hangar were used in petitioner's trade_or_business the supreme court has stated that to be engaged in a trade_or_business the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer's primary purpose for engaging in the activity must be for income or profit 480_us_23 petitioner contends that he acquired the 1-acre lots and the airplane hangar for his trade_or_business which involved renting space for parking and storing aircraft we are not convinced that petitioner used the airplane hangar or the two lots in any trade_or_business petitioner failed to prove that he commenced a leasing or other commercial endeavor with respect to the airplane hangar to the contrary petitioner admitted that he occasionally used the hangar to store his personal aircraft moreover petitioner neither developed the two 1-acre lots nor made any attempts to lease or rent them petitioner was not a real_estate developer and had no history of buying and selling real properties rather he spent the majority of his working life as a pilot for united airlines we need not and do not accept petitioner's self-serving testimony in the absence of corroborating evidence see 99_tc_202 thus we hold that petitioner did not use the two 1-acre lots and the airplane hangar in a trade_or_business accordingly we sustain respondent on this issue issue other deductible losses the sixth issue is whether petitioner is entitled to any other deductible losses namely with respect to funds he invested in foreign trusts for petitioner believes he is so entitled respondent disagrees at trial petitioner claimed that he incurred a dollar_figure loss in from his foreign trusts the only evidence petitioner presented in this regard was an date letter to him from bernard putz who is not described in the record stating that the account had sustained a loss of usdollar_figure and was automatically liquidated as stated earlier deductions are a matter of legislative grace new colonial ice co v helvering supra we hold that petitioner is not entitled to deductible losses with respect to his foreign trusts the letter petitioner presented at best indicates that there was an unidentified account in which a dollar_figure loss was sustained but there is no indication that the account belonged to petitioner in fact petitioner failed to produce any statements indicating that he had the funds in any account in the evidence petitioner presented is insufficient to prove that he sustained the claimed losses accordingly we hold for respondent on this issue issue additions to tax the last issue is whether petitioner is liable for the sec_6651 and sec_6654 additions to tax determined by respondent respondent contends that petitioner is liable for these additions for the years in issue petitioner on the other hand disagrees sec_6651 imposes an addition_to_tax for failure to timely file a return petitioner can avoid the sec_6651 additions to tax by proving that his failure_to_file was due to reasonable_cause and not due to willful neglect sec_6651 rule a 469_us_241 38_f3d_440 9th cir reasonable_cause requires a taxpayer to demonstrate that he exercised ordinary business care and prudence and was nevertheless unable to file a return within the prescribed time united_states v boyle supra pincite sec_301_6651-1 proced admin regs willful neglect means a conscious intentional failure_to_file or reckless indifference united_states v boyle supra pincite petitioner was required to file federal_income_tax returns for sec_6012 he failed to do so and offered no satisfactory explanation nor has he presented any evidence to prove that his failure_to_file was due to reasonable_cause and not willful neglect in fact petitioner wrote several letters to the irs asserting that he was not a taxpayer and accordingly refused to file income_tax returns thus we sustain respondent's determination of the sec_6651 additions to tax for the years in issue respondent also determined an addition_to_tax pursuant to sec_6654 for the years in issue on the basis of petitioner's failure to pay estimated_tax where payments of tax either through withholding or by making estimated quarterly tax_payments during the course of the year do not equal the percentage of total liability required under the statute imposition of the sec_6654 addition_to_tax is mandatory unless the taxpayer shows that one of several statutory exceptions applies sec_6654 niedringhaus v commissioner supra pincite recklitis v at trial petitioner testified that he wrote the letters on the basis of bad advice he 91_tc_874 75_tc_1 petitioner bears the burden of proving qualification for the exceptions see 78_tc_304 because petitioner did not make any estimated_tax payments for the years in issue introduced no evidence thereon and has not shown that any of the exceptions apply we sustain respondent's determination pursuant to sec_6654 for the years in issue we have considered all of petitioner's arguments and to the extent not discussed above find them to be without merit to reflect concessions of the parties decisions will be entered under rule


department of the treasury internal_revenue_service washington d c dkc app terial tax_exempt_and_government_entities_division uic xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxkxkx legend taxpayer a taxpayer b ira u ira v ira w ira x company m sum n sum o dear week kkk kek kik kek kee kek week kk u o w t u u o m w d o h u o t this is in response to your letter dated as supplemented by correspondence dated and submitted on your behalf by your authorized representative in which you request relief under sec_301_9100-3 of the procedure and administration regulations the regulations the following facts and representations support your ruling_request taxpayer a maintained ira u an individual_retirement_account described in code sec_408 with company m during calendar_year taxpayer a converted ira u to a roth_ira ira v also with company m at the time of the conversion the fair_market_value of ira u was sum n taxpayer b taxpayer a’s spouse maintained ira w an individual_retirement_account described in code sec_408 with company m during calendar_year taxpayer b converted ira w to a roth_ira ira x also with company m time of the conversion the fair_market_value of ira w was sum o at the taxpayer a and his spouse taxpayer b timely filed a joint federal_income_tax return with respect to the calendar_year taxpayers a and b’s adjusted_gross_income for exceeded the limit prescribed in sec_408a of the internal xxxxxxxxxx page -2- revenue code at the time they filed their federal_income_tax return taxpayers a and b were not aware of the income limitations found at code sec_408a at the time of filing the tax_return it was not apparent that taxpayer a and taxpayer b would exceed their modified_adjusted_gross_income because the follow-up information relating to the identifying cost_basis for certain stock transactions did not become available until close to the filing deadline for filing their federal_income_tax return in date taxpayer a and taxpayer b realized that they were ineligible to convert traditional_ira u to roth_ira v and traditional_ira w to roth_ira x the discrepancy was brought to their authorized representative's attention this request for relief was filed prior to the service’s discovering that taxpayer a and taxpayer b were not eligible to convert iras u and w to roth iras v and x additionally taxpayers a and b were unaware of the time limits found in announcements and for recharacterizing an amount that had been converted from a traditional_ira to a roth_ira based on the above you through your authorized representative request the following letter_ruling that pursuant to sec_301_9100-3 of the regulations taxpayers a and b are granted a period not to exceed sixty days from the date of this ruling letter to recharacterize their roth iras ira v and ira x respectively to traditional iras with respect to your request for relief under sec_301_9100-3 of the regulations sec_408a of code and sec_1_408a-5 of the federal_income_tax regulations ‘i t regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira in a recharacterization the ira contribution is treated as having been made to the transferee ira and not the transferor ira under sec_408a and sec_1_408a-5 this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer's federal_income_tax returns for the year of contributions sec_1_408a-5 q a-6 of the t regulations describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer's intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer code sec_408a provides in relevant part that an individual with adjusted_gross_income as modified within the meaning of subparagraph c c in excess of xxxxxxxxkx page - - dollar_figure for a taxable_year is not permitted to make a qualified_rollover_contribution to a roth_ira from an individual_retirement_plan other than a roth_ira during that taxable_year sec_1_408a-4 q a-2 of the i t regulations provides in summary that an individual with modified_adjusted_gross_income in excess of dollar_figure for a taxable_year is not permitted to convert an amount to a roth_ira during that taxable_year sec_1_408a-4 q a-2 further provides in summary that an individual and his spouse must file a joint federal tax_return to convert a traditional_ira to a roth_ira and that the modified_adjusted_gross_income subject_to the dollar_figure limit for a taxable_year is the modified_adjusted_gross_income derived from the joint_return using the couple’s combined income sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the regulations in general provide guidance concerning requests for relief submitted to the service on or after date sec_301_9100-1 of the regulations provides that the commissioner of the internal_revenue_service in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 of the regulations lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 of the regulations generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if its request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v 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 xkxkxkkkkkk page -4 - 2008u9030 sec_301_9100-3 of the regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statue of limitations before the taxpayer's receipt of a ruling granting relief under this section announcement 1999_24_irb_50 date provided that a taxpayer who timely filed his her federal_income_tax return would have until date to recharacterize an amount that had been converted from a traditional_ira to a roth_ira announcement 1999_44_irb_555 date provided that a taxpayer who timely filed his her federal_income_tax return would have until date to recharacterize an amount that had been converted from a traditional_ira to a roth_ira in this case taxpayer a and taxpayer b were not eligible to convert traditional_ira u and ira w into roth_ira v and roth_ira x since taxpayer a's and taxpayer b's combined modified_adjusted_gross_income for exceeded dollar_figure taxpayer a and taxpayer b timely filed their joint federal_income_tax return as a result they were eligible for relief under either announcement or announcement however they missed the deadlines found in said announcements taxpayer a and taxpayer b were unaware that they were ineligible for the roth_ira conversions until the year therefore it is necessary to determine whether the taxpayers are eligible for relief under the provisions of sec_301_9100-3 of the regulations although taxpayer a and taxpayer b were ineligible for the roth_ira_conversion taxpayer a and taxpayer b did not discover the disqualification until date upon realizing the mistake taxpayer a and taxpayer b brought the discrepancy to their authorized representative's attention taxpayer a and taxpayer b made their request for relief to the service before the service discovered taxpayer a's and taxpayer b’s ineligibility to convert ira u to roth_ira v and ira w to roth_ira x with respect to your request for relief we believe that based on the information submitted and the representations contained herein the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been met and that you have acted reasonably and in good_faith with respect to making the election to recharacterize roth_ira v and roth_ira x back to traditional iras specifically the service has concluded that you have met the requirements of clauses i and iii of sec_301_9100-3 of the regulations therefore taxpayer a and taxpayer b are granted an extension of sixty days from the date of the issuance of this letter_ruling to recharacterize roth_ira v and roth_ira x back to traditional iras this letter assumes that the above iras qualify under sec_408 of the code at all relevant times xxxxxxxxxx page - - no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this ruling letter is being sent to your authorized representative if you have any questions concerning this ruling please contact at sincerely yours igned jotce b floyd joyce e floyd manager employee_plans technical group tax exempt and governmental entities division enclosures deleted copy of ruling letter notice of intention to disclose


t c memo united_states tax_court diane gussie petitioner v commissioner of internal revenue respondent docket no filed date diane gussie pro_se taylor cortright for respondent memorandum opinion gale judge respondent determined deficiencies in petitioner’s federal_income_tax and additions to tax as follows additions to tax_year deficiency sec_6651 a sec_6651 a dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number - subseguent to the filing of a timely petition respondent’s motion to strike with respect to the sec_6651 a additions to tax was granted after concessions the issues remaining for decision’ are whether petitioner received nonemployee compensation of dollar_figure during we hold that she did whether petitioner is entitled to certain deductions she claims for her and tax years we hold that she is not whether we have jurisdiction to order a refund_or_credit to petitioner of a dollar_figure overpayment she made with respect to her federal_income_tax liability we hold that we do not unless otherwise noted all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure petitioner claimed in her petition that she may be entitled to a bad_debt or other deduction arising from a note she received in exchange for a portion of her interest in bankers mortgage group inc petitioner did not present any evidence or make any further argument regarding this claim accordingly we treat this claim as abandoned and do not address it herein see 100_tc_367 ryback v commissioner 91_tc_524 ndollar_figure - whether petitioner is liable for additions to tax under sec_6651 for all years at issue except we hold that she is some of the facts have been stipulated and are so found at the time of filing the petition petitioner resided in middleburg virginia during the years at issue petitioner was the sole shareholder of bankers mortgage group inc bankers mortgage a corporation engaged in the business of arranging mortgages and selling real_estate prior to receiving the statutory_notice_of_deficiency petitioner had not filed federal_income_tax returns for her or tax years respondent prepared substitute tax returns for each of these years based on information returns received from third parties and issued a statutory_notice_of_deficiency on date covering each of the foregoing years issue l nonemployee compensation on the basis of forms he received respondent determined that petitioner received nonemployee compensation of dollar_figure during petitioner admits she received payments totaling dollar_figure from bankers mortgage during she claims respondent concedes that petitioner is not liable for a sec_6651 addition_to_tax for because petitioner’s prepayment_credits exceeded her tax_liability for that year q4e- however that such payments represented loan repayments and that the form_1099 issued by bankers mortgage reporting nonemployee compensation paid to her in that amount was erroneous petitioner made no argument and offered no evidence to refute the remaining dollar_figure of respondent’s determination generally the commissioner’s notice_of_deficiency is presumed to be correct and the taxpayer bears the burden of proving it is erroneous rule a 290_us_111 due to this presumption of correctness we generally do not look behind the notice_of_deficiency to examine the evidence upon which the determination was made 83_tc_269 the court_of_appeals for the fourth circuit where an appeal in this case would lie has held that a taxpayer may overcome the commissioner’s presumption of correctness by persuading the court with a preponderance_of_the_evidence that the commissioner’s determination is arbitrary and excessive 967_f2d_986 4th cir affg tcmemo_1990_618 if a taxpayer proves that the commissioner’s deficiency determination is arbitrary then the commissioner bears the burden of proving the existence and amount of the deficiency id pincite thus in order to overcome the presumption of correctness accorded respondent’s determination petitioner must show by a preponderance_of_the_evidence that the - - payments she admits receiving from bankers mortgage represented loan repayments that were erroneously reported as nonemployee compensation petitioner introduced a document workpaper she claims was used by an accountant for bankers mortgage to prepare its forms w-2 wage and tax statement and 1099-misc miscellaneous income the workpaper reflects that petitioner made loans to bankers mortgage totaling dollar_figure during and it also reflects that during petitioner earned a salary of dollar_figure and commissions totaling dollar_figure from bankers mortgage petitioner claims that due to financial difficulties bankers mortgage did not pay her the commissions she earned during petitioner acknowledged that the workpaper is ambiguous on its face and could be interpreted to indicate either amounts petitioner actually received from bankers mortgage or merely amounts owed to her she did not however attempt to remove such ambiguity by presenting testimony of the accountant responsible for preparing the workpaper in addition to being ambiguous the workpaper is riddled with inconsistencies and in many instances tends to refute rather than support petitioner’s contentions the workpaper suggests that petitioner made loans to bankers mortgage totaling dollar_figure during and but does not indicate that any loan repayments occurred in whereas petitioner contends -- - herein that she received loan repayments of dollar_figure during that year the workpaper also suggests that petitioner’s salary in was dollar_figure but petitioner has agreed in connection with this case that it was dollar_figure without making any effort to explain the discrepancy furthermore the workpaper’s recitation that petitioner earned dollar_figure in commissions and dollar_figure in salary is consistent with the proposition that she received at least dollar_figure in compensation from bankers mortgage during given the foregoing problems the workpaper at most supports an inference that petitioner made some loans to bankers mortgage it does not however support a finding that respondent erred in determining that petitioner received nonemployee compensation of dollar_figure from bankers mortgage during petitioner did not present any other evidence from the books_and_records of bankers mortgage to prove the existence of loans or to clarify how bankers mortgage treated the payments in issue for its own tax and financial reporting purposes her testimony further indicated that the alleged loans were not evidenced by promissory notes were not secured_by collateral and did not earn interest during pretrial proceedings this court repeatedly informed petitioner of her responsibility to substantiate her claim that the form_1099 information bankers mortgage furnished to respondent was erroneous at trial petitioner claimed to possess the books_and_records of bankers mortgage but admitted she never presented such documents to respondent and did not bring them to the trial proceedings - the only other evidence petitioner proffered at trial was a summary of the activity in her personal checking account that she prepared in anticipation of trial and the testimony of a certified_public_accountant suk l lee who prepared the form_1040 that petitioner presented to respondent for purposes of these proceedings even if petitioner’s checking account summary and mr lee’s testimony are not rendered inadmissible under the hearsay and best evidence rules see fed r evid and neither would be probative on the question of whether the payments petitioner received from bankers mortgage in were repayments of loans on the basis of the record before us we find that petitioner has failed to carry her burden of proving that respondent’s determination that she received dollar_figure of nonemployee compensation in was erroneous and we sustain it although sec_6201 as amended by the taxpayer bill of right sec_2 publaw_104_168 sec a 110_stat_1463 imposes certain additional evidentiary burdens on the commissioner where a taxpayer asserts a reasonable dispute with respect to an item_of_income reported on an information_return by a third party and the taxpayer has fully cooperated with the commissioner that section is inapplicable in this case sec_6201 was effective as of date although the petition in this case was filed on date the trial was conducted on date assuming arguendo that sec_6201 is effective for purposes of this case and that petitioner has asserted a reasonable dispute concerning the item_of_income reported on the form_1099 issued by bankers mortgage sec_6201 would nonetheless be inapplicable because continued issue petitioner’s claimed deductions for and the remaining dispute for concerns petitioner’s claim to a commission expense deduction in the amount of dollar_figure the only dispute in involves petitioner’s claim to various deductions the precise nature of which is not clear from the record ’ deductions are a matter of legislative grace and a taxpayer must substantiate amounts claimed as deductions by maintaining records adequate to establish such entitlement sec_6001 503_us_79 sec continued petitioner has not fully cooperated with respondent as required by the statute sec_6201 provides that full cooperation includes providing access to and inspection of all documents within the control of the taxpayer if reasonably requested petitioner admits possessing the books_and_records of bankers mortgage yet never provided such records to respondent despite respondent’s repeated requests that petitioner substantiate her claims regarding the form_1099 from bankers mortgage thus with respect to this item_of_income petitioner has not fully cooperated and sec_6201 is inapplicable see mcquatters v commissioner tcmemo_1998_88 petitioner claimed this deduction as a schedule c profit or loss from business_expense on the form_1040 she submitted to respondent in connection with these proceedings respondent allowed the other schedule c expenses that petitioner claimed on the form_1040 but contends that petitioner has not adequately substantiated that the dollar_figure represented a deductible expense rather than a capitalizable cost related to the acquisition of real_estate ’ petitioner claimed various expenses on a form_1040 that she submitted to respondent shortly before trial respondent agreed to allow certain deductions listed on schedule a and schedule c of the form_1040 that respondent concedes were adequately substantiated but contends that all remaining deductions claimed by petitioner have not been substantiated - a income_tax regs petitioner did not present any evidence to substantiate her claim to the deductions in question for either of the years at issue accordingly we hold that petitioner is not entitled to them issue petitioner’s overpayment the parties have agreed that petitioner’s withholdings exceeded her tax_liability for by dollar_figure although petitioner did not request a refund_or_credit of this overpayment in the petition we find that this issue was tried by consent under rule b as respondent listed the overpayment dispute as an issue for trial in his pretrial memorandum respondent concedes that petitioner’s federal_income_tax withholdings exceeded her tax_liability by dollar_figure but argues that this court lacks jurisdiction to award a refund_or_credit of this overpayment because the period of limitations has expired generally this court has jurisdiction to award a refund_or_credit for overpayments of tax paid within one of two applicable look-back periods the years before respondent issued the notice_of_deficiency or the years before the taxpayer filed his or her return sec_6511 b b 516_us_235 smathers v commissioner tcmemo_2000_113 in this case the 2-year look- back period applies because petitioner did not file a tax_return before respondent issued the notice_of_deficiency commissioner v lundy supra pincite thus we have jurisdiction to award a - refund_or_credit only if petitioner paid the tax at issue within the years preceding the date issuance of the notice_of_deficiency under sec_6513 the withholding taxes making up petitioner’s overpayment for were deemed paid on date as the tax at issue was paid more than years prior to the issuance of the notice_of_deficiency this court lacks jurisdiction to award a credit or refund of the overpayment issue additions to tax under sec_6651 a respondent determined that petitioner is liable for the sec_6651 addition_to_tax for each of the years at issue but subsequently conceded the addition for sec_6651 provides for an addition_to_tax for failure_to_file a federal_income_tax return by its due_date determined with regard to any extension of time for filing unless it is shown that such failure is due to reasonable_cause and not due to willful neglect the addition_to_tax equal sec_5 percent of the amount_required_to_be_shown_as_tax on the return for each month or fraction thereof during which the failure_to_file continues up to a maximum of percent sec_6651 for taxable years ending after date the 2-year look-back period is increased to years where a notice_of_deficiency is issued during the third year after the due_date for filing the tax_return and no return was filed before the date of the notice see sec_6512 as amended by the taxpayer_relief_act_of_1997 publaw_105_34 111_stat_1037 petitioner did not file federal_income_tax returns for any of the years at issue before issuance of the notice_of_deficiency in this case on date the notice_of_deficiency was issued more than a year after date the latest due_date for petitioner to file any of her federal_income_tax returns for the years at issue in this case ’ petitioner did not offer any evidence of reasonable_cause for her failure_to_file ’ based on the foregoing we find that petitioner is liable for the sec_6651 additions to tax as determined by respondent for each of the years at issue except to reflect the foregoing decision will be entered under rule absent an extension petitioner’s form_1040 was due on date in the petition petitioner avers that she sought extensions to file her federal_income_tax returns for and respondent admits that petitioner filed extensions for filing with respect to her and tax years but denies that she filed extensions for her and tax years petitioner did not present any evidence to support the claim that she filed or received extensions for any of the years in question nor did she present any evidence to support a finding that any of her returns for the years at issue in this case were due later than date as the notice_of_deficiency in this case was issued on date sec_7491 is inapplicable


internal_revenue_service number release date index number -------------------------------------- ----------------------------- ------------------------------------------------------------ ------------- ------------------------------------------- --------------------------- ------------------------ --------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-123060-07 date november --------------------------------------- ----------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------- ------------------------------------------------------------------ ----------------------------------- ------------------------------------------------- --------- ------------ legend x -------------------------------------------------- entity country act a act b body c body d body e body f y -------------------------------- dear ---------------- ----------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------ this responds to the letter dated date and related correspondence plr-123060-07 submitted on behalf of x requesting a ruling that x is treated as a_trust for federal_income_tax purposes under sec_301_7701-4 of the procedure and administration regulations of the internal_revenue_code code facts the information submitted states that x was organized an entity under the laws x is governed primarily by act a and act b and regulated by several government of country x was created to provide superannuation benefits to members of x in country bodies including body c body d body e and body f the trustee for x is y the organizing document of x provides that sole purpose of x is to provide superannuation benefits to members of x and their beneficiaries contributions and income from investments under the provisions of the organizing document y is obligated to manage the funds of x responsibly in order to protect and conserve the superannuation fund y must also provide annually a statement setting forth information of x required_by_law x is subject_to annual audit by an approved auditor appointed by y the members of x cannot unilaterally assign or transfer their benefits under x to another person x derives its funds from a combination of employee contributions employer law and analysis sec_301_7701-1 provides that the classification of organizations that are recognized as separate entities is determined under sec_301_7701-2 sec_301_7701-3 and sec_301_7701-4 unless a provision of the code provides for special treatment of that organization sec_301_7701-4 provides that in general an arrangement will be treated as a_trust if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in joint enterprise for the conduct of business for profit if an entity has both associates and a business_purpose it cannot be classified as a_trust for federal_income_tax purposes conclusion based solely on the facts submitted and representations made we conclude that x is classified as a_trust for federal_income_tax purposes under sec_301_7701-4 plr-123060-07 except as expressly provided herein no opinion is expressed or implied concerning the federal_income_tax consequences of the facts above under any other provision of the code specifically we make no determination concerning whether x or its beneficiaries are entitled to any benefits under the code or the income_tax treaty entered into by country and the united_states concerning income derived from the united_states this ruling is directed only to x who requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copies of this letter are being mailed to your authorized representatives sincerely dianna k miosi branch chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes cc


t c summary opinion united_states tax_court jesse williams jr and gwendolyn f williams petitioners v commissioner of internal revenue respondent docket no 2423-07s filed date jesse williams jr and gwendolyn f williams pro sese susan m fenner for respondent gerber judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other unless otherwise indicated all subsequent section references are to the internal_revenue_code in effect for the taxable_year in issue case with respect to petitioners’ tax_year respondent determined a dollar_figure deficiency solely attributable to the percent additional tax of sec_72 on an early withdrawal from a qualified_retirement_plan we consider whether respondent’s determination was in error background petitioners resided in texas at the time their petition was filed they timely filed a joint return of income petitioner jesse williams retired from his job pincite years of age and during when he wa sec_55 he withdrew dollar_figure from his qualified_retirement_plan petitioners included the dollar_figure in income and paid tax on that amount on their return petitioners also reported a dollar_figure deduction for medical_expenses mr williams being aware of the 10-percent tax on early2 withdrawal reviewed the statutory exceptions to the additional 10-percent tax his review resulted in his belief that two exceptions applied he thought that the medical expense and distribution after age exceptions applied to his situation he computed the amount of withholding_tax he had paid and figured that a dollar_figure withdrawal from his qualified_retirement_plan would result in no tax in excess of the withholding_tax or a in the context of this case early means before the date petitioner turned 59½ small refund accordingly he relied on his interpretation of the age exception rather than the medical exception if he had relied on the medical exception and withdrawn dollar_figure from his retirement_plan there would not have been a 10-percent additional tax determined against petitioners and they would have received a larger refund based on the amount of available withholding_tax respondent determined that the age exception was not applicable but that the medical exception did apply because the dollar_figure withdrawal exceeded the medical_expenses the percent additional tax applied and resulted in a dollar_figure deficiency determination discussion sec_72 provides for an additional tax of percent on withdrawals from qualified_retirement_plans sec_72 provides for several exemptions from the additional tax the following two exceptions are relevant a in general --distributions which are-- from service after attainment of age v made to an employee after separation b medical_expenses --distributions made to the employee to the extent such distributions do not exceed the amount allowable as a deduction under sec_213 to the employee for amounts paid during the taxable_year for medical_care respondent agrees that petitioners are entitled to the medical expense exception of sec_72 but contends that mr williams’s withdrawal does not fall within the age exception of sec_72 respondent interprets the phrase made to an employee after separation_from_service after attainment of age as meaning that the employee must have separated from employment after becoming conversely petitioners interpret the phrase as meaning that so long as a participant has attained age and is separated the participant meets the exception from the additional 10-percent tax for early withdrawal respondent directs our attention to the following legislative_history underlying the age exception in all cases the exception applies only if the participant has attained age on or before separation_from_service thus for example the exception does not apply to a participant who separates from service at age and pursuant to the early retirement provisions of the plan begins receiving benefits at or after age h conf rept vol ii at ii-456 to ii-457 1986_3_cb_1 on the basis of that explanation any possible ambiguity in sec_72 would be resolved petitioners contend that their interpretation of the subject statute was a reasonable one and in these circumstances it is unfair to subject them to additional tax especially because they had other options to avoid it unfortunately there is no reasonable_cause exception applicable to the imposition of the sec_72 10-percent additional tax in addition the statute does not provide the secretary with discretion to waive the additional tax the court in reading petitioners’ documents and hearing their explanations and testimony recognizes that petitioners are thoughtful and intelligent in spite of their intelligence in their attempt to be good citizens and to pay their rightful share of tax they were tripped up by the complexity and the sometimes ambiguous nature of the tax law we are truly sympathetic to petitioners’ situation and commend them for their forthright attempt to be good citizens unfortunately we are without authority to change the result in this case to reflect the foregoing decision will be entered for respondent even respondent in his brief expressed sympathy for petitioners’ plight but explained that there was no statutory remedy for this type of situation