Current developments: this article reviews and analyzes recent rulings and decisions involving partnerships. The discussion covers developments in partnership formation, foreign-source income, debt and income allocations, partnership continuation and basis adjustments.

EXECUTIVE SUMMARY

* Treasury issued a notice and proposed, final and temporary regulations on the application of Sec. 199 to flowthrough entities.

* Many rulings were issued on TEFRA audits, taxation of partnership income, Sec. 704(b), partnership conversions, basis adjustments and in other areas.

* The IRS is studying the current Sec. 751(b) regulations and considering alternative approaches to achieve Sec. 751's purpose in a simpler way.

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Treasury and the IRS have worked to provide guidance on numerous changes made to subchapter K in the past few years. During the period of this update (Nov. 1, 2005-Oct. 31, 2006), proposed and final partnership regulations were issued on the Sec. 199 deduction, foreign-source income and the substantiality of allocations. The courts and the Service also issued various rulings addressing partnership operations and allocations.

Partnership Issues

Classification

When deciding if a partnership exists, it must be determined whether the partners intended to join together for the purpose of carrying on a trade or business and to share the profits and losses of that venture. However, a written partnership agreement is not required. Because a partnership can exist without a written partnership agreement, the question "Is the venture a partnership or not?" must be answered repeatedly.

In two letter rulings, (1) two unrelated entities were tenants-in-common as to certain real estate. The owners had entered into a management agreement with an affiliate of one of them. The tenants-in-common agreement provided that each party would receive 50% of all income and was obligated to pay 50% of all expenses. Each owner could sell its share of the property pursuant to a buy-sell agreement. The owners requested a ruling that the property's ownership did not create a partnership, so that they could determine whether the property qualified as replacement property under Sec. 1031(a). The IRS concluded that the taxpayers' co-ownership arrangement satisfied all the conditions in Rev. Proc. 2002-22, (2) including those regarding voting, hiring of a manager and managing operations. Thus, the co-ownership of the property did not constitute a partnership.

TEFRA Issues

The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) was enacted to improve the auditing and adjustment of income items attributable to partnerships. It requires determining the treatment of all partnership items at the entity level. A question that continues to arise is whether an item is a partnership item. This year, several cases addressed TEFRA issues.

In PK Ventures, Inc., (3) the parties agreed that the characterization of transfers from a partner to a TEFRA partnership as debt or equity was a partnership item that could be adjusted only on the issuance of a Federal partnership administrative adjustment (FPAA). If the Service does not issue a valid FPAA for a specific year, neither it nor the court can adjust partnership items for those years. In this case, transfers were made by a partner to the partnership for 1986-1990, but an FPAA was issued only for 1991. The IRS determined that the earlier transfers were capital contributions, not debt; thus, it disallowed the interest deduction taken by the partnership for 1991. The court agreed.

Another issue was whether the taxpayers had sufficient basis in their partnership interests to deduct losses from the partnership from 1990-1995. Because an FPAA was issued only for 1991, the court determined that any transfers made in that year should be reclassified as equity in the calculation of the taxpayers' basis; however, the transfers before and after 1991 could not be changed and, for basis purposes, had to be treated consistently with the reporting on the partnership's tax returns.

Two cases (4) addressed whether an FPAA was timely filed, and analyzed the interaction between the statute of limitations (SOL) that applies to partnership proceedings under Sec. 6229 and the general three-year SOL on assessments under Sec. 6501. In both cases, the FPAA was issued after the general SOL expired. The taxpayers argued that Sec. 6229 establishes a limitations period separate and apart from that described in Sec. 6501. Thus, if an FPAA is issued after the general statute has run, changes cannot be made to a partner's tax return. The IRS argued that the two provisions act in tandem and that Sec. 6229 can extend the Sec. 6501 period for assessment, but can never shorten it.

In both cases, the Court of Federal Claims agreed with the Service and found that the FPAA was issued timely; the IRS could adjust the partnership return as needed and then proceed against the partners for the tax consequences of that adjustment. In each case, the court relied on the language in the statute and committee reports to arrive at this conclusion.

In another situation, (5) the Service considered whether a payment made by an affiliated group member to a partnership in which it was not a partner was a partnership item. In the ruling, a subsidiary was a partner in a partnership. The subsidiary's parent made a payment to the partnership in the ordinary course of business, not in its capacity as an agent for the consolidated group or on the subsidiary's behalf. The partnership treated the payment as income and the parent took a deduction. The IRS disallowed the deduction and recharacterized it as a loan to the partnership. Because the group filed a consolidated return, the parent was severally liable for the tax liability attributable to partnership items allocated to the subsidiary as a partner. Under Sec. 6231 (a) (2) (B), the parent would be treated as a partner for TEFRA partnership procedures purposes. However, the TEFRA procedures only apply to the specific items that the partnership is required to determine under Code subtitle A. Thus, if the TEFRA procedures do not apply to the adjustment of an item, the item is not a partnership item.

It was determined that the parent's payment was not a partnership item and that its status as a partner for Sec. 6231(a) (2) (B) purposes did not make it a partner for subchapter K purposes. Accordingly, the parent's deduction for its payment to the partnership was not subject to the TEFRA procedures.

Foreign Partnerships

A growing area is the use of partnerships, instead of corporations, in international operations. As the number of foreign partnerships that operate in the U.S. increases, so will the number of rulings. This past year, Treasury issued three sets of regulations on different aspects of foreign partnerships.

First, final and temporary regulations (6) were used on how subpart F relates to partnerships. They provide that a controlled foreign corporation's (CFC'S) distributive share of partnership income is excluded from foreign personal holding company income under Sec. 954(i).These regulations affect CFCs that are qualified insurance companies, qualified insurance companies with an interest in a partnership and U.S. shareholders of such CFCs.

Treasury also issued final regulations on tax withholding under Secs. 1441 and 1442. (7) These rules apply to withholding on certain U.S.-source income paid to foreign persons and related requirements on collection and deposit of withheld amounts. The final regulations adopt the proposed regulations issued in 2005, with two modifications. The first deals with the requirement for certain foreign grantor trusts to provide a taxpayer identification number (TIN). If a withholding certificate is executed after 2000 and provided to a qualified intermediary or other withholding agent by a foreign grantor trust with five or fewer grantors, the trust does not need to provide a TIN for the certificate to be valid. The second change relates to the reporting of treaty-based return positions. Under the final regulations, reporting under Sec. 6114 is not required in certain circumstances when the payment is properly reported on Form 1042-S, Foreign Person's U.S. Source of Income Subject to Withholding.

The third set of regulations helps determine the party deemed to pay a foreign tax for purposes of Secs. 901 and 903. (8) These proposed rules clarify the treatment of hybrid entities (i.e., a partnership for U.S. tax purposes, but taxable under foreign law as an entity). For tax imposed on an entity disregarded as separate from its owner for U.S. tax purposes, foreign law is deemed to impose legal liability for the tax on the owner. The proposed regulations clarify that tax imposed on a disregarded entity is considered paid by its owner and should be allocated under Secs. 702, 704 and 901(b)(5).

Partnership Formation

Sec. 721(a) provides that no gain or loss is recognized on the exchange of property for a partnership interest. Services are not property for this purpose. If Sec. 721 does not apply to the transaction, a partner will have to report income.

In one ruling, (9) two owners of a limited liability company (LLC) contributed cash to a second LLC. The first and second LLCs then contributed cash to third and fourth LLCs. The first LLC acquired the stock of four corporations. Later, three of the corporations merged into the third LLC; the fourth corporation merged into the fourth LLC. The mergers were treated as if the corporations transferred all their assets to the LLC in exchange for an LLC interest and the LLC'S assumption of the corporation's liabilities, followed by a distribution of the interest in the third and fourth LLCs to the first LLC in complete liquidation of the latter's interest in the corporations, under Sec. 331.

The IRS determined that the contribution of the assets and liabilities to the third and fourth LLCs did not trigger gain or loss under Sec. 721. Each of the corporations would have to recognize gain on their distribution of their interests in the third or fourth LLC under Sec. 336.

Likewise, the distribution of the interests in those LLCs to the first LLC was a transfer that would cause a technical termination under Sec. 708. However, neither the corporations nor the third or fourth LLCs have to recognize gain on the termination under Kegs. Sec. 1.708-1(b) (1)(iv), because the sale or exchange of the same partnership interest more than once in a 12-month period is counted only once.

Liabilities

Under Sec. 752(a), an increase in a partner's share of a partnership's liabilities is deemed a contribution of money that increases the partner's outside basis. Sec. 752(b) provides that a decrease in a partner's share of liabilities is treated as a cash distribution. The Service issued final regulations under Sec. 752 for taking into account certain obligations of a business entity disregarded as separate from its owner. (10) These rules provide that a disregarded entity's obligations under Kegs. Sec. 1.752-2(b)(1) are taken into account only to the extent of the disregarded entity's net value. The net value is determined by subtracting all obligations that do not constitute a Regs. Sec. 1.752-2(b)(1) payment obligation from the fair market value (FMV) of the entity's assets. The regulations also clarify that the net value of a disregarded entity must be determined initially as of the earlier of the first date occurring on or after the date on which the requirement to determine the net value arises, or the end of the partnership's tax year in which the requirement to determine the net value arises.

Partnership Operations and Income Allocations

Sec. 701 states that a partnership is not subject to tax. Rather, the partnership calculates its income or loss and allocates it to the partners. Sec. 702 specifies the items a partner must take into account separately; Sec. 703 provides that any election affecting the computation of taxable income from a partnership must be made by the partnership. Under Sec. 704(a), the allocation of partnership items is made based on the partnership agreement; however, there are several exceptions to this general rule.

Who Is a Partner?

Once a partnership calculates its income or loss under Secs. 702 and 703, it is allocated to the partners, but first, the issue of who is actually a partner must be determined. In TIFD III-E, Inc., (11) the taxpayer was a partner in a partnership, along with two foreign banks that did not pay taxes in the U.S. The partnership's operating agreement allocated 98% of the income to the banks. Under this agreement, the income allocated to the banks far exceeded the cash they would actually receive. Their actual allocation was based on a clause in the partnership agreement that called for the partnership to reimburse their initial investment at an annual rate of 9.03587%. The IRS determined that these allocations were made to shelter most of the partnership's income from taxation and to redirect such income tax free to the U.S. partner. It also found that the foreign banks were not bona fide equity partners.

The district court disagreed; the Service appealed. The Second Circuit reversed, finding that the banks had no meaningful stake in the partnership's success or failure; thus, the IRS correctly determined that the foreign banks were not bona fide equity partners. Thus, the taxpayer would be allocated all of the partnership's income; the payments to the banks would be treated as a return on a loan.

When Is Income Reported?

Sec. 702 requires partners to report their shares of the partnership's taxable income or loss. Regs. Sec. 1.702-1(a) provides that each partner is required to take into account its share of income or loss, whether or not distributed. This issue recently came into question in two cases. First, in Timothy J. Burke, (12) the taxpayer argued that he should not have to report all of the income allocated to him from a partnership, because part of his income was being held in escrow due to a dispute between him and his partner. He contended that his distributive share of income was indefinite and that the partnership receipts in escrow were frozen and unavailable to him.

The Service and the Tax Court disagreed. The latter determined that there was nothing conditional or contingent about his receipt of the partnership's income. Thus, the taxpayer was taxable on his share of the partnership's profits, even though he did not receive it. The dispute between the partners did not change the outcome of such findings.

In a similar case, (13) the taxpayer first argued that he was a creditor, not a partner. However, he had entered into a limited partnership (LP) agreement; the court ruled that he could not alter the form of the transaction after the fact. The taxpayer then argued that he should not have to report his share of the income, because the general partner allegedly committed various wrongful acts. Using the decision in Burke, the court ruled that, even if the taxpayer's allegations were true, he would still be required to report his share of income when earned.

Sec. 704(b) allows a partnership to make special allocations, as long as they have substantial economic effect. The current regulations explain how a partnership meets the rules for economic effect and substantiality. In 2005, the Service issued proposed regulations for testing the substantiality of an allocation when the partners are look through entities or consolidated group members. (14) They provide additional guidance on the effect of other provisions (such as Sec. 482) on a partner's tax treatment of its share of partnership income or loss under Sec. 704(b), and revise the existing rules for determining the partners' partnership interests.

Treasury also issued final regulations on the allocation of creditable foreign tax expenditures (CFTE) by partnerships. (15) The temporary and proposed regulations provided a separate safe harbor in which the allocation of CFTEs were deemed to be in accordance with the partners' interest. The final regulations retain this provision and provide that the allocation of CFTEs must be in proportion to the distributive share of income to which they relate to meet the safe harbor. In addition, the final regulations' safe harbor uses a three-step process to determine the distributive share of income to which a CFTE relates. First, the partnership determines its CFTE categories. Second, it determines the U.S. net income in each category. Third, it allocates and apportions the CFTEs to the categories based on the net income recognized for foreign tax purposes in each category.

Sec. 704(c) Rulings

Last year, in Rev. Rul. 2004-43, (16) the IRS addressed whether Sec. 704(c)(1)(B) would apply to Sec. 704(c) gain or loss created in an assets-over partnership merger. The result was that Sec. 704(c)(1)(B) applied to newly created Sec. 704(c) gain or loss on property contributed by the transferor partner. However, it did not apply to any reverse Sec. 704(c) gain or loss created from a revaluation of property in the continuing partnership. Likewise, for Sec. 737(b) purposes, net precontribution gain will include the newly created Sec. 704(c) gain or loss from the property contributed by the transferor partnership, but not the reverse Sec. 704(c) gain or loss created by the revaluation of assets in the continuing partnership. After numerous comments, the Service revoked (17) Rev. Rul. 2004-43, and issued proposed regulations (18) that will apply the principles of Rev. Rul. 2004-43 to property distributions following assets-over partnership mergers.

This past year, in a ruling, (19) an individual and an S corporation formed two LPs that each held stock of a family corporation. The first LP wanted to liquidate, by distributing all its assets to its partners and merging into the second LP. The IRS determined that the merger fell within the "identical ownership" exception in Notice 2005-15, so that Sec. 704(c)(1)(B) did not apply; further, the net-precontribution-gain provision under Sec. 737 did not include the newly created Sec. 704(c) gain created by the merger. In addition, because the liquidation occurred more than seven years after the LP's original formation, neither Sec. 704(c)(1)(B) nor 737 applied to the liquidating property distribution. Finally, because the distribution of the assets was proportional, Sec. 751 (b) did not apply. This ruling was the best possible outcome the taxpayers could expect.

In another ruling, (20) a trust wanted to transfer its marketable securities to an LLC, then terminate. After the trust's termination, the LLC membership interests would be distributed to the remainder beneficiaries and the LLC would be converted to a partnership. The Service ruled that the distribution of the LLC assets would be a nontaxable pro-rata distribution based on Rev. Rul. 99-5 (21) and, under Sec. 721(a), no gain or loss would be recognized on the conversion of the LLC to a partnership. In addition, if the LLC elected the partial-netting approach for making reverse Sec. 704(c) allocations, this would be reasonable under Regs. Sec. 1.704-3(e)(3) and (a)(1). Likewise, because the beneficiaries were eligible partners of the LLC, the distribution to them would not create gain under Sec. 731(a). Again, this is a very favorable outcome for taxpayers.

Tax Year

In 2002, Treasury issued final regulations (22) on adoptions, changes and retentions of annual accounting periods. Rev. Proc. 2002-38 (23) was issued along with the regulations to provide procedures for partnerships to obtain automatic approval to adopt, change or retain their annual accounting period. A partnership that complies with the procedure will be deemed to have established a business purposes under Sec. 706(b) and obtained IRS approval to adopt, change or retain its annual accounting period.

The Service issued Rev. Proc. 2006-46, (24) which provides exclusive procedures for a partnership to obtain automatic approval to adopt, change or retain its annual accounting period under Sec. 442. This procedure clarifies, modifies, amplifies and supersedes Rev. Proc. 2002-38. A partner ship that complies with the procedure will be deemed to have established a business purpose and obtained approval to adopt, change or retain its annual accounting period.

See. 199

The American Jobs Creation Act of 2004 created Sec. 199, which allows a deduction for qualified domestic production activities. The deduction is limited to the lesser of the allowable percentage times qualified production activities income or taxable income, but cannot be more than 50% of Form W-2 wages. The Service issued a notice and proposed, final and temporary regulations, (25) to help taxpayers apply Sec. 199. The proposed and final regulations provide that, in the case of a partnership, Sec. 199 applies at the partner level; each partner takes into account its share of each item described in Sec. 199. Each partner is treated as having Form W-2 wages equal to its share of the partnership's W-2 wages. In addition, the proposed and final regulations make clear that, because the calculation of the Sec. 199 deduction occurs at the partner level, any allowable deduction will have no effect on a partner's basis in its partnership interest.

The Tax Increase Prevention and Reconciliation Act of 2005 made amendments to Sec. 199 related to Form W-2 wages. That law states that the 50%-of-wage limit applies only to wages generated in the qualified production activity. This means that wages for employees not involved in such activity would not count for limit purposes. In response, the IRS issued temporary regulations and Rev. Proc. 2006-47, (26) to help taxpayers understand the methods used for calculating Form W-2 wages for Sec. 199 purposes. Under the original rules, qualified Form W-2 wages were determined under a two-pronged test. The temporary regulations remove the second prong from the test.

Nonqualified Deferred Compensation (Sec. 409A)

In Notice 2005-1, (27) the IRS set forth its initial guidance on the application of Sec. 409A. It subsequently issued proposed regulations (28) that generally incorporate the guidance in the notice. Sec. 409A may apply to arrangements between a partner and a partnership that provide for the deferral of compensation. However, the proposed regulations do not address this issue. Until regulations are published, the relevant guidance for partnerships and LLCs is Q&A-7 in Notice 2005-1, which provides that taxpayers may treat the issuance of a partnership interest (including a profits interest, or an option to purchase a partnership interest) under the same principles governing equity issues. Additionally, the Service has indicated that, until further guidance is issued, Sec. 409A will apply to guaranteed payments described in Sec. 707(c), as well as the right to receive such payments in the future, only when the guaranteed payment is for services and the partner providing the services does not include it in current income.

Losses

Three items determine whether a partner can deduct its share of partnership losses currently: (1) partnership interest basis under Sec. 704(d); (2) Sec. 465 amount at-risk; and (3) Sec. 469 passive activity income.

In Ramsburg, Jr., (29) the taxpayer's interest in a partnership had been treated as a passive activity; thus, he could not deduct allocated losses. During the year in question, the partnership sold its assets to the partner, then liquidated. However, no cash passed between the taxpayer and the partnership. The taxpayer maintained that he should be able to deduct all of the suspended passive losses, because he had disposed of his entire partnership interest. Under Sec. 469, a taxpayer cannot deduct suspended losses unless the entire partnership interest is disposed of in a fully taxable transaction to an unrelated party.

The court found that the taxpayer failed to meet any of the Sec. 469 criteria. Instead, he actually maintained and increased his interest in the passive activity, by purchasing the partnership's assets. In addition, the taxpayer could not establish that the liquidating distribution required gain recognition under Sec. 731(a). Finally, the liquidating distribution was between related parties; thus, the suspended losses under Sec. 469 could not be deducted until the taxpayer had passive activity income.

Distributions

Under Sec. 731(a), partners will recognize gain to the extent they receive cash in excess of their basis in their partnership interests. Sec. 751 was enacted to prevent the conversion of ordinary income into capital gain and the shifting of ordinary income among partners. The current regulations under Sec. 751(b) were published in 1956 and have not been amended to reflect changes made to subchapter K. These regulations have been widely criticized as being complex and burdensome and not meeting the Code's objectives. Treasury and the IRS are studying the current Sec. 751(b) regulations and considering alternative approaches to achieve the statute's purpose in a simpler way. Notice 2006-14 (30) was issued to request taxpayer comments on this matter.

See. 754 Elections

When a partnership distributes property or a partner transfers its interest, the partnership can elect under Sec. 754 to adjust the basis of partnership property. A Sec. 754 election allows a step-up or step-down in basis under either Sec. 734(b) or 743(b) to reflect the FMV at the time of the exchange. This election has the advantage of not taxing the new partner on gains or losses already reflected in the purchase price of the partnership interest. The election must be filed by the due date of the return for the year the election is effective and normally is filed with the return. If a partnership inadvertently fails to file the election, it can ask for relief under Regs. Sec. 301.9100-1 and-3.

In several rulings, (31) the Service granted an extension to make a Sec. 754 election. In each case, the partnership was eligible to make such an election, but inadvertently omitted it when filing its return. The IRS reasoned that the partnership in each case acted reasonably and in good faith, and granted an extension to file the dection under Regs. Sec. 301.91001 and -3. Each partnership had 60 days after the ruling to file the election. The extension was granted even when the partnership relied on a tax professional to file its return. (32)

In another situation, (33) an interest in a general partnership was transferred to the surviving corporation of a merger. The general partnership terminated as a result of the transfer. It failed to file an election under Sec. 754 for the new partnership. The Service granted a 60-day extension to file the election on the new partnership's behalf.

In a number of cases, (34) a partner died and the partnership failed to file a timely Sec. 754 election for an optional basis adjustment. As with the other rulings, the IRS concluded that the failure was inadvertent and granted the partnership a 60-day extension to file the election.

In most rulings in this area, the Service has allowed a late election under Sec. 754. Not so in one ruling, (35) in which a father transferred an interest in real estate to his children, but retained the right to the property's income. The family then transferred the property to an LLC, but the father retained his right to the income from the property. The father died; his estate distributed his LLC interest to his children. The LLC failed to file a Sec. 754 election when the next tax return was filed. Under audit, it was determined that the property transferred to the LLC was fully includible in the father's estate under Sec. 2036. The IRS denied the LLC's request for an extension to file the Sec. 754 election. Instead, it determined that, under Sec. 1014, the LLC could adjust its bases in the property it held that was included in the father's estate, to reflect the value of the property included in his gross estate.

Editor's note: Dr. Burton is a member of the AICPA Tax Division's S Corporation Technical Resource Panel.

(1) IRS Letter Rulings 200625010 and 200625009 (both dated 6/23/06).

(2) Rev. Proc. 2002-22, 2002-1 CB 733.

(3) PK Ventures, Inc., TC Memo 2006-36.

(4) Schumacher Trading Partners II, Ct. Fed. Cls., 7/31/06; and Grapevine Imports, Ltd., Ct. Fed. Cls., 6/14/06.

(5) Rev. Rul. 2006-11, IRB 2006-12, 635.

(6) TD 9240 (2/13/06).

(7) TD 9253 (3/14/06).

(8) REG 124152-06 (9/5/06).

(9) IRS Letter Ruling 200606009 (2/10/06).

(10) TD 9289 (10/11/06).

(11) TIFD III-E, Inc., 2d Cir., 8/3/06, rev'g and remd'g 342 FSupp2d 94 (DC CT 2004).

(12) Timothy J. Burke, TC Memo 2005-297.

(13) Terry Nathan Norman, TC Summ. Op. 2006-102.

(14) REG-144620-04 (11/18/05).

(15) TD 9292 (10/18/06); for a discussion, see Rollinson, Tax Clinic, "Final Kegs. on Partnership Allocations of CFTEs," 38 The Tax Adviser 12 (January 2007).

(16) Rev. Rul. 2004-43, IRB 2004-18, 842

(17) Rev. Rul. 2005-10, IRB 2005-7, 492.

(18) See Notice 2005-15, IRB 2005-7, 527.

(19) IRS Letter Ruling 200631014 (8/4/06).

(20) IRS Letter Ruling 200633019 (8/18/06).

(21) Rev. Rul. 99-5, 1999-1 CB 434.

(22) TD 8996 (5/17/02).

(23) Rev. Proc. 2002-38, 2002-1 CB 1037, clarifying and superseding Rev. Proc. 87-32, 1987-2 CB 396.

(24) Rev. Proc. 2006-46, IRB 2006-45, 859.

(25) Notice 2005-14, IRB 2005-7, 498; REG-105847-05 (11/4/05); and TDs 9263 (6/1/06) and 9293 (10/18/06); for a discussion, see Giacoletti, Tax Clinic, "Highlights of the Sec. 199 Final Regs.," 37 The Tax Adviser 454 (August 2006).

(26) Rev. Proc. 2006-47, IRB 2006-45, 86.

(27) Notice 2005-1, IRB 2005-2, 274.

(28) REG-15808-04 (9/25/05).

(29) Jacob Ramsburg, Jr., TC Memo 2005-252.

(30) Notice 2006-14, IRB 2006-8, 498.

(31) IRS Letter Rulings 200631010 (8/4/06) and 200615015 (4/14/06).

(32) IRS Letter Rulings 200616001 and 200616023 (both dated 4/21/06).

(33) IRS Letter Ruling 200614008 (4/7/06).

(34) IRS Letter Rulings 200637008 (9/15/06); 200616023 (4/21/06); 2001614020, 200614021 and 200614022 (all dated 4/7/06); 200615019 (4/14/06); and 200606004 (2/10/06).

(35) IRS Letter Ruling 200626003 (6/30/06).

Hughlene A. Burton, PhD., CPA 

Associate Professor

University of North Carolina--Charlotte

Charlotte, NC