141 T.C. No. 19

UNITED STATES TAX COURT

ANDREW WAYNE ROBERTS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 23405-10. Filed December 30, 2013.

During 2008 P’s former wife (W) submitted withdrawal

requests bearing what purported to be P’s signatures to two

companies administering IRAs P owned. The requests were prepared

and submitted without P’s knowledge, and P’s signatures on the

requests were forged. The companies processed distributions from

P’s IRAs in accordance with the requests and issued checks made

payable to P. W received and endorsed the checks by forging P’s

signatures, deposited the checks into a joint account that only she

used, and used the proceeds from the checks for her personal benefit. 

P did not know about the withdrawals until sometime in 2009 when

he received Forms 1099-R with respect to the purported distributions,

and he did not learn of W’s involvement in cashing the distribution

checks and using the proceeds until the divorce proceeding in 2009. 

W electronically filed an income tax return for P for 2008 that she

prepared using a filing status of single. She did not report the IRA

withdrawals as income on P’s return. R determined that P is the

distributee who must include the withdrawals in income pursuant to
- 2 -

I.R.C. sec. 408(d) and that P is liable for the I.R.C. sec. 72(t)

additional tax on early distributions from qualified retirement plans. 

R also determined that P is liable for an accuracy-related penalty

under I.R.C. sec. 6662(a) due to a substantial understatement of

income tax.

Held: P is not a “payee” or “distributee” within the meaning of

I.R.C. sec. 408(d)(1).

Held, further, P is not liable for the I.R.C. sec. 72(t) additional

tax on early distributions from qualified retirement plans.

Held, further, P’s proper filing status for 2008 is married filing

separately.

Held, further, P is liable for the accuracy-related penalty under

I.R.C. sec. 6662(a) to the extent the adjustments P conceded result in

a substantial understatement of income tax.

John A. Clynch and Scott A. Schumacher, for petitioner.

Connor J. Moran and Dean H. Wakayama, for respondent.

MARVEL, Judge: Respondent determined a deficiency in petitioner’s 2008

Federal income tax of $13,783 and an accuracy-related penalty of $3,357 under

section 6662(a). In an amendment to answer respondent asserted an increased 1

Unless otherwise indicated, all section references are to the Internal 1

Revenue Code (Code) in effect for the year in issue, and all Rule references are to

the Tax Court Rules of Practice and Procedure. All monetary amounts are

(continued...)
- 3 -

deficiency of $14,177 and an increased accuracy-related penalty of $3,435. After

concessions, the issues for decision are: (1) whether petitioner must include in 2

taxable income for 2008 withdrawals from his individual retirement accounts

(IRAs) of $37,020 that his former wife took without his knowledge or permission

and that he did not receive directly or indirectly during 2008; (2) if so, whether he

is liable for the 10% additional tax on early distributions under section 72(t); (3)

whether petitioner’s proper filing status for 2008 is married filing separately; and

(4) whether petitioner is liable for the section 6662(a) penalty.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of

facts is incorporated herein by this reference. Petitioner resided in the State of

Washington when he petitioned this Court.

I. Background

In 1990 petitioner married Cristie Smith (Ms. Smith). During 2008

petitioner was an employee of the U.S. Air Force, and Ms. Smith was an employee

(...continued) 1

rounded to the nearest dollar.

Petitioner concedes that he received wage income of $39,232 and interest

2

income of $74 for 2008.
- 4 -

of Bethel Transportation. Petitioner and Ms. Smith separated for a period in 2008,

permanently separated in January 2009, and were divorced in March 2010.

II. Financial Accounts

Petitioner and Ms. Smith maintained joint checking accounts at Washington

Mutual and Harborstone Federal Credit Union (Harborstone). Although the 3

accounts were titled in joint name, petitioner exclusively used the Harborstone

account during and after 2008 and Ms. Smith exclusively used the Washington

Mutual account. Petitioner did not have a checkbook for, write checks on, or

make withdrawals from the Washington Mutual account, and he did not receive or

review the bank statements for the Washington Mutual account during 2008. 

Petitioner did not know about, authorize, or benefit from any deposits into, or

withdrawals from, the Washington Mutual account during 2008 and after.

III. IRA Withdrawals

A. IRA Accounts

Petitioner owned IRA accounts at AIG SunAmerica Life Insurance Co.

(SunAmerica), and ING.

The Washington Mutual account was later transferred to Chase Bank. We 3

refer to the Washington Mutual/Chase Bank account as the Washington Mutual

account.
- 5 -

B. SunAmerica IRA

In September 2008 SunAmerica received a request purportedly from

petitioner to withdraw $9,000 from his SunAmerica IRA. Petitioner did not make

the request, and he did not authorize anyone else to make it on his behalf. 

SunAmerica received the withdrawal request from a fax machine at Bethel

Transportation. Petitioner did not ask Ms. Smith or anyone else at Bethel

Transportation to fax the withdrawal request to SunAmerica.

The withdrawal request is signed “Andy Roberts”. The signature is not

petitioner’s signature and was forged.

SunAmerica issued a check made payable to petitioner from his

SunAmerica IRA pursuant to the faxed withdrawal request. The SunAmerica

check was endorsed “Andy Roberts” and was deposited into the Washington

Mutual account. Petitioner, however, did not endorse the SunAmerica check, and

he did not authorize anyone to sign the check on his behalf. The endorsement on

the SunAmerica check is not petitioner’s signature and was forged.
- 6 -

C. ING IRA

Petitioner did not make any request for any distribution from his ING IRA

account during 2008. Nevertheless, in November 2008 ING issued a $9,000

4

check made payable to petitioner from his ING IRA. In December 2008 ING

issued another check, for $18,980, made payable to petitioner from his ING IRA. 

Each ING check was endorsed “Andy Roberts” and was deposited into the

Washington Mutual account. Petitioner, however, did not endorse either of the

ING checks, and he did not authorize anyone to sign the checks on his behalf. 

Petitioner’s signatures on the checks were forged.

IV. Use of Misappropriated IRA Funds

Petitioner did not receive the ING and SunAmerica IRA distribution checks

during 2008, and he was unaware that the checks had been issued. Petitioner also

was unaware that the IRA distribution checks had been deposited into the

Washington Mutual account.5

Withdrawal requests related to the ING distributions are not part of the

4

record. We find credible petitioner’s testimony that he was unaware of the ING

distributions until sometime in 2009 and infer from the record that he did not

request any distribution from his ING IRA account during 2008.

Respondent contends that petitioner directly benefited from the IRA 5

withdrawals in 2008. We disagree. Petitioner and Ms. Smith shared expenses

during their marriage. Petitioner deposited his paycheck into the Harborstone

(continued...)
- 7 -

We infer from the record and find that Ms. Smith or someone on her behalf

forged petitioner’s signature on each of the distribution requests and the

endorsements on the checks, and she deposited the checks into the Washington

Mutual account that only she used. In the months following the IRA withdrawals

Ms. Smith made large expenditures from the Washington Mutual account to,

among other things, establish a separate household from petitioner. From mid6 7

November 2008 through mid-January 2009 Ms. Smith wrote checks and made

(...continued) 5

account and made the mortgage loan and car payments. Petitioner also paid bills

such as the cable, electric, and insurance bills. Ms. Smith deposited her paycheck

into the Washington Mutual account and used that account to pay the phone bill,

buy groceries, and purchase clothing for the children.

Nothing in the record suggests that the IRA withdrawals were used to pay

any expenses that were petitioner’s responsibility. Instead, the record shows that

Ms. Smith used the IRA withdrawals to make large purchases at retail stores, such

as Old Cannery Furniture; Bed, Bath & Beyond; Ikea; and Target; to take a trip to

Disneyland; and to set up a household separate from petitioner’s. These

expenditures were for the sole benefit of Ms. Smith and were made without

petitioner’s knowledge. We do not find credible any testimony by Ms. Smith to

the contrary.

Ms. Smith frequently overdrew her Washington Mutual account during

6

2008. The Washington Mutual account bank records show overdraft charges of

$3,522 for 2008.

In one instance, Ms. Smith made a withdrawal of $17,345 from the

7

Washington Mutual account for the purpose of setting up her separate household.
- 8 -

withdrawals from the Washington Mutual account totaling $41,257; her payroll

deposits from Bethel Transportation for this period totaled only $3,950.

8

Petitioner first learned of the unauthorized withdrawals from his IRA

accounts when SunAmerica and ING issued to him Forms 1099-R, Distributions

From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance

Contracts, etc., in 2009. When he received the first Form 1099-R, petitioner

thought that he had been the victim of a theft, but he had no reason to believe at

the time that Ms. Smith was involved. By the time of his divorce proceeding in

2009, however, petitioner had learned that Ms. Smith had deposited the checks

into the Washington Mutual account and had used the proceeds for her benefit.

9

During the divorce proceeding petitioner advised the trial court that Ms. Smith had

taken and used the funds from his IRA accounts without his knowledge or

permission. In 2010 the division of assets in the trial court’s decree of dissolution

Beginning with the Washington Mutual statement for the period of 8

December 12, 2008, through January 14, 2009, Washington Mutual lists Ms.

Smith’s separate address in Puyallup, Washington, as the account holders’

address. Washington Mutual bank statements for periods before December 12,

2008, list petitioner and Ms. Smith’s address in Spanaway, Washington, as the

account holders’ address.

Ms. Smith filed for divorce from petitioner on February 18, 2009. The 9

Pierce County, Washington, Superior Court entered a decree of dissolution of

petitioner and Ms. Smith’s marriage on March 26, 2010.
- 9 -

took into account that Ms. Smith had withdrawn funds from petitioner’s IRA

accounts.

10

V. Petitioner’s Tax Reporting and Notice of Deficiency

For each year of their marriage until 2008, Ms. Smith prepared and filed a

joint income tax return for petitioner and herself. Sometime before April 2009,

petitioner, although separated from Ms. Smith, discussed with her the preparation

and filing of a joint income tax return for 2008, and he understood from that

conversation that he and Ms. Smith would still file a joint return. He gave his tax

information to her so that she could prepare the 2008 joint return. However,

without telling him, Ms. Smith prepared and filed separate returns for herself and

petitioner. Ms. Smith prepared her return for 2008 using married filing separate

filing status, but she prepared petitioner’s return using single filing status. On

petitioner’s return Ms. Smith underreported petitioner’s wage income by $3,000,

claimed an overstated credit for withheld tax (the credit was overstated by $3,000),

and omitted $74 of interest income. As prepared, petitioner’s return claimed that

Although the parties jointly stipulate that the “decree of dissolution was 10

made taking into account the fact that funds, including funds from the SunAmerica

IRA and the ING IRA had allegedly already been withdrawn by petitioner’s wife”,

we do not know what the stipulation means, and we cannot conclude from the

stipulation as drafted that petitioner received any economic benefit in the form of

an adjustment to the property that Ms. Smith was awarded in the divorce

proceeding.
- 10 -

he was entitled to a refund of a $3,357 overpayment, which was electronically

deposited into Ms. Smith’s Washington Mutual account.11

Ms. Smith filed petitioner’s return electronically on April 13, 2009. She did

not show the return to petitioner or give him a copy of the return, despite his

asking for one. Thus, petitioner did not sign or see his 2008 tax return before its

filing. Ms. Smith did not report the withdrawals from the SunAmerica and ING

IRAs as income on either the return she prepared for petitioner or her return.12

On August 2, 2010, respondent issued to petitioner a notice of deficiency. 

In the notice of deficiency respondent determined that petitioner had failed to

report income of $37,020 attributable to the IRA withdrawals and adjusted the

resulting tax deficiency by the amount of the overstated withholding credit. 

Respondent increased the deficiency in an amendment to answer to account for the

incorrect filing status used on petitioner’s 2008 return.

The actual refund deposit to the Washington Mutual account from the

11

Department of the Treasury was $3,092. We are unable to resolve the discrepancy

between the claimed refund amount and the actual refund amount from the

information in the record.

Respondent issued a tax refund of $3,092 and deposited the refund

12

electronically into the Washington Mutual account on April 24, 2009. On the

same day as the refund deposit Ms. Smith withdrew $3,000 from the Washington

Mutual account. Petitioner was unaware at the time that respondent had issued a

refund with respect to his 2008 return, and he did not receive it or benefit from it.
- 11 -

OPINION

I. Burden of Proof

Ordinarily, the Commissioner’s determinations in a notice of deficiency are

presumed correct, and the taxpayer bears the burden of proving that the

determinations are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111,

115 (1933). The burden of proof shifts to the Commissioner, however, if the

taxpayer produces credible evidence with respect to an issue, the taxpayer

complied with the substantiation requirements, and the taxpayer cooperated with

the Secretary regarding all reasonable requests for information. Sec. 7491(a); see 13

also Higbee v. Commissioner, 116 T.C. 438, 440-441 (2001). Further, if the

Commissioner raises a new issue or seeks an increase in the deficiency, the

Commissioner bears the burden of proof as to the new issue or increased

deficiency. See Rule 142(a)(1).

The U.S. Court of Appeals for the Ninth Circuit, to which an appeal in this

case would lie absent a stipulation to the contrary, see sec. 7482(b)(1)(A), (2), has

The term “Secretary” means “the Secretary of the Treasury or his 13

delegate”, sec. 7701(a)(11)(B), and the term “or his delegate” means “any officer,

employee, or agency of the Treasury Department duly authorized by the Secretary

of the Treasury directly, or indirectly by one or more redelegations of authority, to

perform the function mentioned or described in the context”, sec.

7701(a)(12)(A)(i).
- 12 -

held that for the presumption of correctness to attach to the notice of deficiency in

unreported income cases, the Commissioner must establish some evidentiary

foundation connecting the taxpayer with the income-producing activity, see

Weimerskirch v. Commissioner, 596 F.2d 358, 361-362 (9th Cir. 1979), rev’g 67

T.C. 672 (1977), or demonstrating that the taxpayer actually received unreported

income, see Edwards v. Commissioner, 680 F.2d 1268, 1270-1271 (9th Cir. 1982). 

If the Commissioner introduces some evidence that the taxpayer received

unreported income, the burden shifts to the taxpayer, who must establish by a

preponderance of the evidence that the unreported income adjustment was

arbitrary or erroneous. See Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th Cir.

1999), aff’g T.C. Memo. 1997-97.

The record contains copies of the Commissioner’s computer records that

reflect receipt of Forms 1099-R showing taxable distributions of $37,020 to

petitioner, and the parties do not dispute that the distribution checks were issued

and made payable to petitioner. Because respondent has introduced evidence that

petitioner received unreported IRA distributions during 2008, the presumption of

correctness attaches to respondent’s determination in the notice of deficiency. 
- 13 -

Petitioner bears the burden of proof with respect to that determination. See Rule 14

142(a); Hardy v. Commissioner, 181 F.3d at 1004. Respondent, however, bears

the burden of proof with respect to the increased deficiency attributable to the

allegedly erroneous filing status. See Rule 142(a)(1).

II. Analysis

Section 408(d)(1) provides that any amount paid or distributed out of an

IRA is included in the gross income of the payee or distributee as provided under

section 72. Generally, the payee or distributee of an IRA is the participant or

beneficiary who is eligible to receive funds from the IRA. Bunney v.

Commissioner, 114 T.C. 259, 262 (2000) (citing Darby v. Commissioner, 97 T.C.

51, 58 (1991)). However, this is not always the case. The taxable distributee

under section 408(d)(1) may be someone other than the recipient or purported

recipient eligible to receive funds from the IRA. Indeed, we have previously

rejected the contention that the recipient of an IRA distribution is automatically

the taxable distributee. See Bunney v. Commissioner, 114 T.C. at 262.

Neither the Code nor applicable regulations define the terms “payee” or

“distributee” or provide specific guidance on when an amount is considered to

Petitioner does not assert nor has he proven that he is entitled to a shift in 14

the burden of proof under sec. 7491(a).
- 14 -

have been paid or distributed to a payee or distributee under section 408(d)(1). 

This is not surprising because under most circumstances the payee or distributee is

easily identifiable and the fact of the distribution can normally be ascertained

without difficulty. In this case, however, we find that the distribution requests

were forged, and the endorsements on the checks that were issued pursuant to the

forged requests were also forged. Petitioner, the purported payee on the checks,

did not know of or authorize the requests, and he did not receive or cash the

checks. These facts present an issue of first impression under section 408(d)(1)--

whether IRA withdrawals made pursuant to forged withdrawal requests that are

not received by the purported distributee or used by the purported distributee for

his or her economic benefit are distributions includible in the gross income of the

purported distributee under section 408(d). Common sense dictates that the

answer must be no, and our findings of fact and analysis support that answer.

A. Distributions From Petitioner’s IRAs

Petitioner credibly testified that he did not sign the SunAmerica withdrawal

request, endorse the SunAmerica IRA distribution check, endorse the ING IRA

distribution checks, or authorize any person to do so on his behalf. Indeed,

petitioner credibly testified that he did not learn of either the SunAmerica or ING

IRA distributions until he received the Forms 1099-R sometime in 2009. 
- 15 -

Petitioner further testified that he signs his name “Andrew W. Roberts” and dates

his signature with the day first, then the month abbreviated, and finally the year. 

He formed the habit of signing and dating his name in this manner during his time

in the military.

The IRA distribution checks were all endorsed “Andy Roberts”, and the

SunAmerica withdrawal request was not dated in petitioner’s customary format. 

The SunAmerica withdrawal request was faxed from Ms. Smith’s place of

employment, and all of the IRA checks were deposited into the bank account used

by Ms. Smith. We find that Ms. Smith or someone on her behalf, and not

petitioner, signed the withdrawal requests and the checks, and that the signatures

were made without petitioner’s authorization. In effect, Ms. Smith perpetrated a

fraud on, and stole from, the companies administering petitioner’s IRAs.

Petitioner credibly testified that he did not receive the IRA checks, and the

record shows that the checks were deposited into an account that was joint in name

only; the account was exclusively used by Ms. Smith. Petitioner did not have a

checkbook for the Washington Mutual account, did not make any withdrawals

from the Washington Mutual account, and was generally unaware of the use of the

Washington Mutual account. Ms. Smith, however, routinely used the Washington

Mutual account for her personal expenditures, which were often excessive and
- 16 -

which generated numerous overdraft charges. We do not find credible Ms.

Smith’s testimony that she was unaware of the source of the deposits made to the

15

Washington Mutual account when, in many instances, the deposits dwarfed the

account’s balance at the time. Ms. Smith’s testimony is particularly unbelievable 16

in the light of the evidence that she made large cash withdrawals and purchases in

close proximity to the deposits of the IRA checks. In short, Ms. Smith, and not

petitioner, received, spent, and benefited from the IRA distributions.

Respondent filed a motion in limine to exclude certain documents,

15

testimony, and cross-examination related to a dismissed criminal charge against

Ms. Smith. We denied respondent’s motion and at trial permitted crossexamination related to the dismissed criminal charge. However, we base our

findings regarding Ms. Smith’s credibility solely on our observations of her as a

witness and our review of certain exhibits and not on any testimony regarding the

dismissed criminal charge.

The SunAmerica IRA distribution check of $9,000 was deposited to the

16

Washington Mutual account during the statement period of August 14 through

September 12, 2008. The Washington Mutual account had a balance of !$3 on

August 14, 2008. The first ING IRA distribution check of $9,000 was deposited

to the Washington Mutual account during the statement period of November 15

through December 11, 2008. The Washington Mutual account had a balance of

!$1,000 on November 15, 2008. Finally, the second ING IRA distribution check

of $18,980 was deposited to the Washington Mutual account during the statement

period of December 12, 2008, through January 14, 2009. The Washington Mutual

account had a balance of $2,087 on December 12, 2008.
- 17 -

B. Parties’ Arguments

Respondent takes a strict view of petitioner’s obligation to report as income

withdrawals from his IRA accounts. He argues that petitioner must report the

withdrawals as taxable distributions because petitioner was the owner of the IRAs

and was the person entitled to receive distributions from the IRAs. Respondent

further argues that the IRA account withdrawals were deposited into the

Washington Mutual account, which was jointly owned by petitioner and Ms.

Smith, and were used in part to pay “family living expenses during the time

petitioner and his wife resided together”, medical expenses, and a family Verizon

Wireless account. Respondent emphasizes that petitioner “never attempted to

return the funds to the IRAs after he discovered the payments nor did he otherwise

contest the distributions.” Citing Priv. Ltr. Rul. 201119040 (May 13, 2011) as an

example, respondent also states that, if IRA funds were stolen and the owner of the

IRA received a refund of the stolen funds, the owner could deposit the refund into

the IRA as a tax-free rollover. However, because petitioner took no steps to

replenish his IRAs for the allegedly stolen amounts, respondent contends that

petitioner must recognize income equal to the distribution amounts in 2008.

Petitioner contends that because the IRA withdrawals were made pursuant

to forged withdrawal requests, the distribution checks were stolen, the signatures
- 18 -

on the distribution checks were forged, and he did not receive an economic benefit

from the distributions, we should hold that he is not a payee or distributee within

the meaning of section 408(d)(1). Petitioner also contends that under Washington

State law, no distribution occurred from either the SunAmerica IRA or the ING

IRA because he did not authorize the IRA withdrawal requests or the

endorsements on the IRA distribution checks. Therefore, petitioner contends that

as a matter of State law no amount was paid or distributed within the meaning of

section 408(d)(1).17

We first address whether petitioner is a distributee within the meaning of

section 408(d)(1) when he did not authorize the withdrawal requests, did not

receive or endorse the IRA distribution checks, and did not receive an economic

benefit from the distributions. We then address whether petitioner is a distributee

within the meaning of section 408(d)(1) because he allegedly benefited from the

IRA distributions or because he failed to file a claim against ING or SunAmerica

for an unauthorized payment.

Because we hold that petitioner was not a payee or distributee within the

17

meaning of sec. 408(d)(1), we need not address this contention.
- 19 -

C. Whether Petitioner Is a Payee or Distributee Within the Meaning of

Section 408(d)(1)

As an initial matter, respondent contends that petitioner must include in

income the amounts withdrawn from his IRAs irrespective of State law and even

though he did not consent to the distributions and was not aware that the

distributions occurred. Respondent relies on our opinions in Bunney v.

Commissioner, 114 T.C. at 262, and Vorwald v. Commissioner, T.C. Memo. 1997-

15, to support his contentions.

In Bunney, we held that the distributee or payee of a distribution from an

IRA is generally “‘the participant or beneficiary who, under the plan, is entitled to

receive the distribution.’” Bunney v. Commissioner, 114 T.C. at 262 (quoting

Darby v. Commissioner, 97 T.C. at 58). However, we also rejected the

Commissioner’s argument in Bunney that the recipient of an IRA distribution is

automatically the taxable distributee, noting that “in the context of a distribution

from a pension plan the term ‘distributee’ is not necessarily synonymous with

‘recipient.’” Id. (citing Estate of Machat v. Commissioner, T.C. Memo. 1998-

154). We reject respondent’s contention that petitioner, as the purported recipient

of the IRA distributions, is automatically the taxable distributee under Bunney.
- 20 -

In Vorwald, we held that a distribution of funds from an IRA pursuant to a

court-ordered garnishment resulted in a taxable distribution to the taxpayer. The

garnishment was ordered to satisfy the taxpayer’s child support obligation. The

taxpayer in Vorwald did not consent to the distribution from his IRA and did not

realize the distribution had occurred until he was notified of the distribution by the

Commissioner. Nevertheless, we held that the distribution was income to the

taxpayer because it discharged his legal child support obligation and was thus the

equivalent of receipt by him.

The distributions from petitioner’s IRAs were not court ordered and did not

satisfy a legal obligation that petitioner owed to Ms. Smith or any other party. 

Instead, the distributions were unauthorized and completed without petitioner’s

knowledge. In addition, petitioner did not receive any benefit, directly or

indirectly, from the distributions in 2008 as Ms. Smith used the funds from the

unauthorized withdrawals to set up her postseparation household, take a vacation

and a family trip, and pay expenses for which she was liable. Vorwald is

distinguishable because the funds at issue in that case were legally obtained and

were applied to a liability for which the taxpayer was personally liable. Because

petitioner did not request, receive, or benefit from the IRA distributions, we
- 21 -

conclude that he was not a payee or distributee within the meaning of section

408(d)(1).

D. Whether Petitioner Is a Distributee or Payee on the Basis of

Ratification or His Failure To Assert a Claim for an Unauthorized

Payment

Respondent further contends that petitioner had one year to discover and

report the unauthorized signatures and that petitioner’s failure to so report

precludes any remedies under Washington law, thus making the distributions

taxable to petitioner. In other words, according to respondent, State law would not

require ING and SunAmerica to restore any amounts paid out of petitioner’s IRA

accounts since he did not report the unauthorized signatures within one year. 

Therefore, respondent contends that petitioner received a distribution within the

meaning of section 408(d)(1).

Under Washington’s version of the Uniform Commercial Code (U.C.C.),

notwithstanding care or lack of care, for an account of an individual the individual

must discover and report an unauthorized signature within one year. See Wash.

Rev. Code Ann. sec. 62A.4-406(f) (West 2003). If the individual does not do so,

he may not recover for the unauthorized signature. Id. But, even if Wash. Rev.

Code Ann. sec. 62A.4-406(f) precludes a remedy to petitioner against ING and
- 22 -

SunAmerica, that does not mean that as of the end of 2008 petitioner had received

a taxable distribution from his IRA accounts.

18

Under respondent’s analysis, petitioner acquiesced to the distributions by

not making a claim under Washington law and by accepting the proposed

settlement in his divorce, which the parties stipulated was “taken into account” in

the decree of dissolution. Under Washington law, it appears petitioner could have

made a claim to restore his IRA accounts within one year of the unauthorized

withdrawals, but even if so, that right did not expire until sometime in 2009. 

Similarly, the decree of dissolution allocating property between petitioner and Ms.

Smith was not entered until 2010. At best, under respondent’s theory, petitioner

did not ratify the IRA distributions until 2009 at the earliest. Accordingly, any

failure by petitioner to exercise his rights under Washington law and any

purported benefit he received in the divorce does not affect our conclusion that he

was not a payee or distributee within the meaning of section 408(d)(1) in 2008, the

year for which respondent determined the deficiency at issue.

On the basis of the foregoing, we hold that petitioner is not a distributee or

payee within the meaning of section 408(d)(1) because the IRA distribution

We express no opinion as to whether petitioner’s failure to exercise 18

available remedies under Washington law resulted in a constructive distribution

from the IRA accounts in a later tax year.
- 23 -

requests were unauthorized, the endorsements on the checks that were issued

pursuant to the requests were forged, he did not receive the economic benefit of 19

the IRA distributions, and the IRA distributions were not made to discharge any

legal obligation of his. Accordingly, we conclude that petitioner did not fail to

report any income attributable to distributions from his SunAmerica and ING

IRAs in 2008.

III. Section 72(t) Additional Tax

Section 72(t)(1) provides for a 10% additional tax on early distributions

from qualified retirement plans, unless the distribution falls within a statutory

exception. Because we hold that the withdrawals from petitioner’s IRA accounts

at SunAmerica and ING were not distributions taxable to him under section

408(d)(1) in 2008, he is not liable for the section 72(t) additional tax.

Whether there is an economic benefit accruing to the taxpayer is the 19

crucial factor in determining whether there is gross income. See, e.g., Afshar v.

Commissioner, T.C. Memo. 1981-241 (citing James v. United States, 366 U.S. 213

(1961), Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), and Rutkin v.

United States, 343 U.S. 130 (1952)), aff’d without published opinion, 692 F.2d

751 (4th Cir. 1982).
- 24 -

IV. Filing Status

Although petitioner does not discuss his filing status on brief and therefore

could be deemed to have waived or abandoned that issue, see Muhich v.

Commissioner, 238 F.3d 860, 864 n.10 (7th Cir. 2001), aff’g T.C. Memo 1999-

192, we briefly explain why we sustain respondent’s determination of petitioner’s

filing status. The determination of whether an individual is married for purposes

of determining filing status is made as of the close of the taxable year. Sec.

7703(a)(1). Under certain circumstances, a married taxpayer may be treated as

unmarried if he or she lives apart from his or her spouse during the last six months

of the taxable year. See sec. 7703(b).

The parties agree that petitioner and Ms. Smith were still married on

December 31, 2008, and that they were not separated for the last six months of the

year. Accordingly, the single filing status that Ms. Smith used in preparing

petitioner’s separately filed 2008 return was erroneous. We find that petitioner’s

correct filing status for 2008 under these circumstances was married filing

separately.

V. Accuracy-Related Penalty

Respondent contends that petitioner is liable for the section 6662(a) penalty

because petitioner’s underpayment was attributable to a substantial understatement
- 25 -

of income tax. Section 6662(a) and (b)(1) and (2) authorizes the imposition of a 20

20% penalty on the portion of an underpayment that is attributable, among other

things, to a substantial understatement of income tax or to negligence or disregard

of rules or regulations. A substantial understatement of income tax exists if the

amount of the understatement exceeds the greater of 10% of the tax required to be

shown on the return or $5,000. Sec. 6662(d)(1)(A). The term “understatement”

means the excess of the amount required to be shown on the return for the taxable

year over the amount of tax imposed that is shown on the return, reduced by any

rebate. Sec. 6662(d)(2)(A). The amount of the understatement is reduced by that

portion of the understatement that is attributable to (1) the tax treatment of any

item if there is or was substantial authority for such treatment, or (2) any item if

the relevant facts affecting the item’s tax treatment are adequately disclosed in the

For the first time on reply brief, respondent contends that petitioner 20

alternatively is liable for a sec. 6662(a) penalty due to negligence. Generally, we

will not consider an issue that is raised for the first time on brief. Estate of

Aronson v. Commissioner, T.C. Memo. 2003-189 n.5 (citing Foil v.

Commissioner, 92 T.C. 376, 418 (1989), aff’d, 920 F.2d 1196 (5th Cir. 1990)). 

More importantly, by not raising the issue of negligence on opening brief,

respondent has failed to provide petitioner with the opportunity to address this

issue. Respondent’s attempt to first raise the issue of negligence as a basis for

imposition of the sec. 6662 penalty on reply is untimely and prejudicial to

petitioner. See Kansky v. Commissioner, T.C. Memo. 2007-40. We therefore do

not consider it.
- 26 -

return or in a statement attached to the return and there is a reasonable basis for

the taxpayer’s treatment of the item. Sec. 6662(d)(2)(B).

The Commissioner bears the initial burden of production with respect to the

taxpayer’s liability for the section 6662 penalty. Sec. 7491(c). At trial the

Commissioner must introduce sufficient evidence “indicating that it is appropriate

to impose the relevant penalty.” Higbee v. Commissioner, 116 T.C. at 446. Once

the Commissioner meets his burden of production, the taxpayer must come

forward with persuasive evidence that the Commissioner’s determination is

incorrect or that the taxpayer had reasonable cause or substantial authority for the

position. Id. at 446-447.

A taxpayer may avoid liability for the section 6662 penalty if the taxpayer

demonstrates that the taxpayer had reasonable cause for the underpayment and that

the taxpayer acted in good faith with respect to the underpayment. Sec.

6664(c)(1). Reasonable cause and good faith are determined on a case-by-case

basis, taking into account all pertinent facts and circumstances. Sec. 1.6664-

4(b)(1), Income Tax Regs. The most important factor is the extent of the

taxpayer’s efforts to assess his or her proper tax liability. Id.

We have found that petitioner is not liable for income tax in 2008 related to

the payments from his SunAmerica IRA and his ING IRA. However, petitioner
- 27 -

conceded that he failed to report certain interest income and that he underreported

wage income for 2008. Additionally, we have found that petitioner’s proper filing

status for 2008 is married filing separately. Although petitioner did not see his tax

return before Ms. Smith filed it on his behalf and he did not sign it, he did not

disavow the return, nor did he file a different return for 2008. Petitioner did not

introduce any evidence to prove that he took affirmative steps to ensure the

correctness of his tax liability; and he cannot rely on Ms. Smith, who is not a

professional tax return preparer. See sec. 1.6664-4(c), Income Tax Regs. 

Petitioner has not produced evidence that he acted with reasonable cause and in

good faith with respect to these underpayments. Accordingly, to the extent that

the Rule 155 computations show that the understatement of tax exceeds the greater

of 10% of the tax required to be shown on the return or $5,000, see sec.

6662(d)(1)(A), petitioner is liable for the section 6662(a) penalty for an

underpayment of tax attributable to a substantial understatement of income tax.
- 28 -

We have considered the parties’ remaining arguments, and to the extent not

discussed above, conclude those arguments are irrelevant, moot, or without merit.

To reflect the foregoing,

Decision will be entered

under Rule 155.