14 1 T.C. No . 19

UNITED STAT ES TAX COURT

ANDREW

WAYNE ROBERTS, Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 23 40 5- 10
. Fil edDecem be r 30 , 20 13
.
Dur in g 2 00 8 P ’s form er wi fe (W) subm it te d wi th dr awal reque st s b eari ng whatpu rp orte d t o b e P’s si gn atur es to two co m pa ni es adm in is te rin g IRAs P o wne d. Th e reque st s wer e p rep ared an d s ub m it te d wi th ou t P’s kno wled ge , andP’s si gn atur es on th e reque st s wer e fo rg ed . The co m pa ni es pro ces se d d is tri bu ti on s fr om P’s IRAs inacco rd an ce wi th th e reque st s an d i ss ue d c he ck s m ad e pa y ab le to P. W

rece iv edan d e nd or se d t he ch eck s b y for gi ng P’s si gn atur es , dep os it edth e ch eck s i nt o ajoi ntacco un t tha t o nl y sh e us ed , andus edth e p ro ceed s fr om th e ch eck s fo r he r pe rs on al be ne fit
. P d idno t kno w abo utth e wit hd rawal s u nt il so m et im e in 20 09 when he rece iv edFo rm s 1 09 9- R wit h re sp ectto th e p ur po rte d d is tri bu ti on s, an d h e d idno t l earnof W’ s i nv ol ve m en t i n c as hi ng th e d is tri bu ti on ch eck s an d u si ng th e p ro ceed s u nt il th e d iv or ce p ro ceed in g i n 2 00 9. W ele ctro ni cal ly file d a n i nc om e ta x re tu rnforP fo r 20 08 th atsh e pr ep aredus in g afil in g s ta tu s o f si ng le . She di d n otrep ort the IRA withd rawal s as in co m e o n P ’s return. R d et erm in edth atP is th e di st rib ut ee wh o m

us t i nc lu de th e wit hdrawal s i n i nc om e p ur su an t t o- 2 -

I.R.C. s ec. 4 08 (d ) an d t ha t P i s l iabl e fo r th e I.R.C. s ec. 7 2( t) ad di ti on al tax on earl y

di st rib ut io ns fro m

qu al ifi edret ire m en t p la ns . R al so de te rm in edth atP is li ab le foranaccu racy-rela te d p en al ty un de r I.R.C. s ec. 6 66 2( a) due to a subs ta nt ia l u nd ers ta te m en t o f in co m e ta x. Held : P i s n ota “pa y ee” o r “ di strib ut ee” wi th in th e m ean in g o f I.R.C. s ec. 4 08 (d )(1 ). Held , furth er, P i s n otli ab le forth e I.R.C. s ec. 7 2( t) a dd it io na l ta x o n e arl y

di st rib ut io ns fro m

qu al ifi edret ire m en t p la ns . Held , furth er, P’s p ro pe r fi li ng st atus for20 08 is m arri edfil in g se pa rat el y . Held , furth er, P i s l iabl e fo r th e acc ur acy-rela te d p en al ty und er I.R.C. s ec. 6 66 2( a) t o t he ex te ntth e ad jus tm en ts P co nc ed edres ul t i n a subs ta nt ia l u nd ers ta te m en t o f in co m e ta x.

Jo hn A. Clynchan d S co ttA. Schu m ach er, fo r pe ti ti on er. Co nn orJ. Mo ranan d Dea n H. Wakayam a, fo r res po nd en t.
MARVEL, Ju dg e: Res po nd en t d et erm in eda de fic ie nc y inpe ti ti on er’s 2 00 8 Fed eral in co m e ta x o f $1 3,7 83 an d a n a ccu racy-rela te d p en al ty of $3 ,35 7 u nd er se ct io n 6 66 2( a). In an a m en dm en t t o a ns wer res po nd en t as se rte d an i nc reas ed 1 Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o t he Int ern al 1 Rev enue Co de (Co de ) in effe ctforth e y ear i n i ss ue , andall Ru le refe ren ces are t o th e Tax Co urt Ru le s o f Prac ti ce an d P ro cedur e. All m on et ary am ou nt s ar e (co nt in ue d...)- 3 -

de fic ie nc y

of $ 14 ,17 7 a ndanin crea se d a ccu racy-rela te d p en al ty of $3 ,43 5. Aft er co nc es si on s, th e is su es forde ci si on are: (1) whet he r pe ti ti on er m us t i nc lu de in 2 ta xabl e in co m e fo r 20 08 withd rawal s fr om hi s i nd iv idua l re ti rem en t ac co un ts (IRAs ) of $3 7,0 20 th athi s fo rm er wi fe t oo k wi th ou t h is kn owl ed ge or p erm is si on an d t ha t h e d idno t re cei ve di rect ly or in di rect ly dur in g 2 00 8; (2) if s o, wh ethe r he is li ab le forth e 1 0% a dd it io na l t ax on earl y di st rib ut io ns un de r se ct io n 7 2( t); (3) whe th er p et it io ne r’s pr op er fi li ng st atus for20 08 is m arri edfil in g s ep arat el y ; an d (4 ) whe th er p et it io ne r is li ab le forth e se ct io n 6 66 2( a) p en al ty. FINDINGS OF FACT So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Th e st ip ul at io n o f fact s i s i nc or

po rat edhe rei n b y

th is refer en ce. Pet it io ne r res id edinth e St at e o f W as hi ng to n wh enhe pe ti ti on edth is Co urt. I. Bac kg ro un d In19 90 pe ti ti on er m arri edCri st ie Sm it h (M s. Sm ith) . Duri ng 20 08 pe ti ti on er was anem

pl oyee of th e U.S. Air Fo rce, an d M s. Sm it h was anem pl oyee
(...co nt inue d) 1 ro un de d t o t he ne ares t d ol la r. Pet it io ne r co nc ed es th athe rece iv edwage in co m e o f $3 9,2 32 an d i nt eres t 2 in co m e o f $7 4 fo r 20 08
.- 4 -

of Bethe l Tran sp orta ti on . Peti ti on er an d M s. Sm it h s ep arat edfor a pe rio d i n 2 00 8, pe rm an en tl y

sep arat edinJan ua ry

20 09 , andwere d iv or cedinMarc h 2 01 0. II. Fi na nc ia l Acc ou nt s Pet it io ne r an d M s. Sm it h m ai nt ai ne d jo in t ch eck in g a cco un ts at Wash in gt on Mu tu al an d Harbo rs to ne Fed eral Cred itUni on (Harb or st on e). Altho ug h t he 3
acco un ts were t it le d i n jo in t n am e, pe ti ti on er ex cl us iv el y us edth e Harb or st on e acco un t dur in g a ndaft er 2 00 8 a ndMs . Sm it h e xc lu si ve ly use d t he W as hi ng to n Mu tu al acco un t. Pet it io ne r di d n otha ve a ch eckbo okfor , writ e ch eck s o n, o r
m ak e wit hd rawal s fr om

th e Wash in gt on Mu tu al acco un t, an d h e d idno t re cei ve or rev ie w th e b an k s ta te m en ts forth e Wash in gt onMu tu al acco un t dur in g 2 00 8. Pet it io ne r di d n otkn ow ab ou t, au th or iz e, or be ne fitfro m

an y de po si ts in to , or withd rawal s fr om , th e Wash in gt on Mu tu al acco un t dur in g 2 00 8 a ndaft er. III. IRA With dr awal s A. IRA Acco un ts Pet it io ne r own edIRA acc ou nt s atAIG Sun Am eri ca Li fe In su ran ce Co
. (Su nAm eri ca), an d ING.

The W as hi ng to n M utua l ac co un t was lat er tran sf erre d t o C ha se Ban k. We 3 refe r to th e Wash in gt on Mu tu al /C ha se Ban k a cco un t as th e Wash in gt on Mu tu al acco un t.- 5 -

B. Su nAm eri ca IRA InSep te m

be r 20 08 SunAm eri ca re cei ve d areque stpu rp orte dl y fro m pe ti ti on er t o wi th dr aw $9 ,00 0 fr om hi s Su nAm eri ca IRA. Peti ti on er d idno t m ak e th e reque st , andhe di d n otau th or iz e an y on e el se to m ak e iton hi s b eh al f. SunAm eri ca re cei ve d the withd rawal reque stfro m a fax m ach in e atBethe l Tran sp orta ti on . Peti ti on er d idno t as k M s. Sm it h o r any on e el se at B ethe l Tran sp orta ti on to fax th e withd rawal reque stto SunAm eri ca. The withd rawal reque stis si gn ed“ Andy Ro be rts ”. The s ig na tu re i s n ot pe ti ti on er’s s ig na ture an d was for ge d. SunAm eri ca i ss ue d ach eckm ad e p ay ab le to pe ti ti on er fro m hi s SunAm eri ca IRA pu rs uantto th e fax edwithd rawal reque st . The Su nAm eri ca ch eckwas e nd or se d “ Andy Ro be rts ” an d was de po si te d i nt o t he W as hi ng to n Mu tu al acco un t. Pet it io ne r, ho wev er, d idno t en do rs e th e Su nAm eri ca ch eck , and he di d n otau th or iz e an y on e to si gn th e ch eckon hi s b eh al f. The en do rs em en t o n th e Su nAm eri ca ch eckis no t p et it io ne r’s si gn atur e an d was for ge d.- 6 -

C. ING IRA Pet it io ne r di d n otm ak e an y reque stforan y

di st rib ut io n fr om

hi s ING IRA
acco un t dur in g 2 00 8. Neve rth el es s, i n No ve m be r 20 08 ING is su eda $9 ,00 0 4 ch eckm ad e p ay ab le to pe ti ti on er fro m hi s ING IRA. In Dece m be r 20 08 ING is su edan ot he r ch eck , for$1 8,9 80 , m ad e p ay ab le to pe ti ti on er fro m hi s ING IRA. Each ING che ckwas e nd or se d “ Andy Ro be rts ” an d was de po si te d i nt o the W as hi ng to n M utua l ac co un t. Pet it io ne r, ho wev er, d idno t en do rs e ei th er o f th e ING ch eck s, an d h e d idno t au th or iz e an y on e to si gn th e ch eck s o n h is be ha lf. Pet it io ne r’s si gn atur es on th e ch eck s wer e fo rg ed
. IV. Use of M is ap pr op ria te d IRA Fun ds Pet it io ne r di d n otrece iv e th e ING an d S un Am eri ca IRA di st rib ut io n c he ck s du rin g 2 00 8, an d h e was un aware th atth e ch eck s h adbe enis su ed . Peti ti on er al so was un aware th atth e IRA d is tri bu ti on ch eck s h adbe ende po si te d i nt o t he W as hi ng to n M utua l ac co un t. 5
W it hd rawal reque st s re la te d t o t he ING di strib ut io ns are n otpa rt o f th e 4 reco rd . W e fi ndcred ib le pe ti ti on er’s t es ti m on y th athe was u na ware o f th e ING di st rib ut io ns un ti l s om et im e in 20 09 an d i nf er fro m th e rec or d t ha t h e d idno t reque stan y

di st rib ut io n fr om

hi s ING IRA acco un t dur in g 2 00 8. Res po nd en t co nt en ds th atpe ti ti on er d ire ct ly ben efi te d fr om th e IRA 5 withd rawal s i n 2 00 8. We di sa gr ee. Pet it io ne r an d M s. Sm it h s haredex pe ns es du rin g t he ir m arri ag e. Pet it io ne r de po si te d h is pa y ch eckin to th e Harb or st on e (co nt in ue d...)- 7 -

W e in fer fr om

th e rec or d a ndfin d t ha t M s. Sm it h o r so m eo ne on he r be ha lf fo rg edpe ti ti on er’s s ig na tu re o n e ach of t he di st rib ut io n re qu es ts an d t he
en do rs em en ts on th e ch eck s, an d s he de po si te d t he ch eck s i nt o t he W as hi ng to n Mu tu al acco un t tha t o nl y sh e u se d. In th e m on th s fo ll owi ng th e IRA wi th dr awal s Ms . Sm it h m ad e la rg e ex pe nd itur es fro m th e Wash in gt on Mu tu al acco un t t o, am on g o th er thi ng s, est ab li sh a se pa rat e h ou se ho ldfro m pe ti ti on er. Fro m

m id
6 7 Nov em be r 20 08 th ro ug h m id -J anua ry 20 09 Ms . Sm it h wro te ch eck s an d m ad e

(...co nt inue d) 5 acco un t an d m ad e th e m ortg ag e lo anan d c ar p aym en ts . Peti ti on er al so pa idbi ll s su chas the cab le , ele ctric , andin su ran ce b il ls . Ms. Sm it h d ep os it edhe r pa y ch eck in to th e Wash in gt on Mu tu al acco un t an d u se d t ha t ac co un t t o p ay th e p ho ne bi ll , bu y gro ceri es , andpu rch as e cl ot hi ng forth e ch il dr en . Not hi ng inth e rec or d s ug ge st s tha t the IRA wit hd rawal s wer e u se d t o p ay an y ex pe ns es th atwere p et it io ne r’s res po ns ib il it y . Ins te ad , th e rec or d s ho ws tha t Ms . Sm it h u se d t he IRA wit hd rawal s t o m ak e larg e p ur ch as es at r et ai l s to res , su ch as OldCan ne ry

Furn itur e; Bed , Bath & Beyond ; Ik ea; an d Tar ge t; to tak e a trip to Dis ne y la nd ; an d t o s etup a ho us eh ol d s ep arat e fro m pe ti ti on er’s. The se ex pe nd itur es were fo r th e so le be ne fitof M s. Sm it h a ndwere m ad e wit ho ut pe ti ti on er’s kno wled ge . W e d o n otfin d c red ib le an y tes ti m on y

by Ms. Sm it h t o th e co nt rary. Ms . Sm it h fr eque nt ly ove rdrew h er Wash in gt onMu tu al acco un t dur in g 6 20 08 . The Wash in gt on Mu tu al acco un t b an k re co rd s s ho w ov erdraftch arg es of $3 ,52 2 fo r 20 08
. Inon e in st an ce, Ms . Sm it h m ad e a wit hd rawal of $ 17 ,34 5 fr om th e 7 W as hi ng to n M utua l ac co un t fo r th e p ur po se of s et ti ng up he r se pa rat e h ou se ho ld
.- 8 -

withd rawal s fr om

th e Wash in gt on Mu tu al acco un t t ot al in g $ 41 ,25 7; he r pa yro ll de po si ts fro m

Bethe l Tran sp orta ti on forth is pe rio d t ot al edon ly $3,9 50
. 8 Pet it io ne r fi rs t l earn edof t he un au th or iz edwithd rawal s fr om hi s IRA
acco un ts when SunAm eri ca an d ING i ss ue d t o h im Fo rm s 1 09 9- R, Dis tri bu ti on s Fro m Pen si on s, An nu it ie s, Re ti rem en t o r Pro fit -Sh ari ng Pla ns , IRAs, In su ran ce Co nt ract s, et c., in20 09 . W he n h e rec ei ve d t he fir stFo rm 10 99 -R, p et it io ne r th ou gh t tha t h e h adbe enth e v ic ti m of ath eft , bu t h e h adno reas on to be li ev e at th e ti m e th atMs . Smit h was in vo lv ed . By th e ti m e o f hi s d iv or ce p ro ceed in g i n 20 09 , ho wev er, p et it io ne r ha d l earn edth atMs . Smit h h adde po si te d t he ch eck s in to th e Wash in gt on Mu tu al acco un t an d h adus edth e p ro ceed s fo r he r be ne fit
. 9 Dur in g t he di vo rce p ro ceed in g p et it io ne r advi se d t he tri al co urt tha t M s. Sm it h h ad ta ke n a ndus edth e fu nd s fr om hi s IRA acco un ts witho uthi s kno wled ge or pe rm is si on . In 2 01 0 t he di vi si on of a ss et s i n the tri al co urt’s d ecre e o f di ss ol ut io n
Beg in ni ng with t he W as hi ng to n M utua l s ta te m en t fo r th e p eri odof 8 Decem be r 12 , 20 08 , th ro ug h J anua ry 14 , 20 09 , W as hi ng to n M utua l l is ts Ms
. Sm ith’s s ep arat e ad dr es s i n P uyall up , W as hi ng to n, as th e acc ou ntho ld ers ’ ad dr es s. Wash in gt on Mu tu al ba nkst at em en ts forpe rio ds be fo re Dece m be r 12 , 20 08 , li stpe ti ti on er an d M s. Sm it h’s ad dr es s i n S pa na way , W as hi ng to n, as th e acco un t h ol de rs ’ ad dr es s. Ms . Sm it h fi le d fo r di vo rce f ro m pe ti ti on er o n F eb ru ary 18 , 20 09 . The 9 Pi erce Co un ty, W as hi ng to n, Supe rio r Co urt en te reda de cree of d is so lu ti on of pe ti ti on er an d M s. Sm it h’s m arri ag e o n M arch 26 , 20 10
.- 9 -

to okin to acco un t tha t M s. Sm it h h adwithdrawnfun ds fro m pe ti ti on er’s IRA
acco un ts . 1 0 V. Pet it io ne r’s Tax R ep orti ng an d No ti ce o f Defi ci en cy Fo r eac h year of

th ei r m arri ag e unt il 20 08 , Ms . Sm it h p rep aredan d fi le d a joi ntin co m e ta x re turnforpe ti ti on er an d h ers el f. Sometim e b efo re Ap ril 20 09 , pe ti ti on er, al th ou gh sep arat edfro m Ms . Smit h, d is cu ss edwith h er the pre pa rat io n an d fi li ng of ajoi ntin co m e ta x re tu rnfor20 08 , andhe un de rs to odfro m th at
co nv ers at io n t ha t h e an d M s. Sm it h wo ul d s ti ll fil e a joi ntreturn. He g av e h is tax in fo rm at io n t o h er s o t ha t s he co ul d p rep are t he 20 08 joi ntreturn. Ho wev er, witho uttel li ng hi m , Ms . Smit h p rep aredan d fi le d s ep arat e returns forhe rs el f an d pe ti ti on er. Ms . Sm ith p rep aredhe r return fo r 20 08 us in g m arri edfil in g s ep arat e fil in g s ta tu s, b utsh e p rep aredpe ti ti on er’s return u si ng si ng le fil in g s ta tu s. On pe ti ti on er’s return M s. Sm it h u nd erre po rte d p et it io ne r’s wag e in co m e b y $3 ,00 0, cl ai m edanov ers ta te d c red itforwithh el d t ax (th e cre di t was ov ers tate d b y $3 ,00 0) , an d o m it te d $ 74 of i nt eres t i nc om e. As p rep ared , pet it io ne r’s return c la im edth at Altho ug h t he pa rti es joi nt ly sti pu la te th atth e “ de cree of d is so lu ti on was 1 0 m ad e ta ki ng in to acco un t the factth atfun ds , in cl ud in g fu nd s fr om th e SunAm eri ca IRA an d t he ING IRA ha d a ll eg ed ly alrea dy been withd rawnby pet it io ne r’s wife ”, we do no t kno w whatth e st ip ul at io n m ean s, an d we c an no t co nc lu de fro m th e st ip ul at io n a s draft edth atpe ti ti on er re cei ve d a ny econ om ic be ne fitinth e fo rm of anad jus tm en t t o t he pro pe rty tha t M s. Sm it h was award edinth e d iv or ce pr oc eed in g.- 10 -

he was e nt it le d t o arefu ndof a$3 ,35 7 o ve rp aym en t, wh ic h was ele ctro ni cal ly de po si te d i nt o M s. Sm it h’s Wash in gt on Mu tu al acco un t. 1 1 Ms . Sm it h fi le d p et it io ne r’s return e le ctro ni cal ly on Ap ril 13 , 20 09 . She di d
no t s ho w th e return t o p et it io ne r orgi ve hi m a co py of th e return, d es pi te hi s as ki ng foron e. Thu s, p et it io ne r di d n otsi gn or s ee h is 20 08 tax return b efo re i ts fil in g. Ms . Sm it h d idno t re po rt the withd rawal s fr om th e Su nAm eri ca an d ING IRAs as i nc om e o n e it he r th e return s he pre pa redforpe ti ti on er o r he r return. 1 2 On Au gu st2, 2 01 0, re sp on de ntis su edto pe ti ti on er a n ot ic e o f de fic ie nc y . Inth e n ot ic e o f de fic ie nc y res po nd en t d et erm in edth atpe ti ti on er h adfai le d t o rep ort i nc om e o f $3 7,0 20 att rib ut ab le to th e IRA wi th dr awal s an d a dju st edth e res ul ti ng tax de fic ie nc y

by the am ou ntof t he ov ers ta te d wi th ho ld in g c red it
. Res po nd en t i nc reas edth e d efi ci en cy inanam en dm en t t o a ns wer t o a cco un t fo r th e in co rrec t fi li ng st atus us edon pe ti ti on er’s 2 00 8 re tu rn .
The actua l re fundde po si t t o t he W as hi ng to n M utua l ac co un t fr om th e 1 1 Dep artm en t o f th e Treas ury was $ 3,0 92 . W e are un ab le to res ol ve th e d is crep an cy be twee n the cla im edrefu ndam ou ntan d t he actua l re fundam ou ntfro m th e in fo rm at io n i n t he reco rd
. Res po nd en t i ss ue d atax refu ndof $ 3,0 92 an d d ep os it edth e ref un d 1 2 el ectro ni cal ly int o t he W as hi ng to n M utua l ac co un t o n Ap ril 24 , 20 09 . On th e sa m e d ay as t he refu ndde po si t M s. Sm it h wi th dr ew $3 ,00 0 fr om th e Wash in gt on Mu tu al acco un t. Pet it io ne r was un aware at t he ti m e th atres po nd en t h adis su eda refu ndwith re sp ectto hi s 2 00 8 re turn , andhe di d n otrece iv e itor b en efi t fr om it
.- 11 - OPINION I. Bu rd enof P ro of Ord in ari ly, th e Co m

m is si on er’s d et erm in at io ns ina no ti ce o f de fic ie nc y are pr es um edco rrec t, an d t he tax pa y er b ears th e b ur de n o f pr ov in g tha t the de te rm in at io ns are erro ne ou s. Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. 11 1, 11 5 (1 93 3) . The b ur de n o f pr oo f sh ift s t o t he Co m m is si on er, h owe ve r, if t he ta xp ay er p ro du ces cred ib le ev id en ce wi th res pe ctto anis su e, th e ta xp ay er co m pl ie d wi th th e subs ta nt ia ti onrequi rem en ts , andth e ta xp ay er co op erat edwith th e Sec ret ary reg ard in g a ll reas on ab le reque st s fo r in fo rm at io n. Se c. 74 91 (a); see

1 3 al so Hig be e v . Comm is si on er, 1 16 T.C. 43 8, 4 40 -4 41 (20 01 ). Furth er, i f th e Co m m is si on er ra is es a ne w is su e o r se ek s anin crea se inth e d efi ci en cy , th e Co m m is si on er b ears th e b ur de n o f pr oo f as to th e n ew is su e o r in crea se d de fic ie nc y . See Ru le 14 2( a)(1 ). The U.S. Cou rt o f App eal s fo r th e Nin th Cir cu it , to whi chanap pe al inth is
cas e wou ldli e ab se nta st ip ul at io n t o t he co nt rary, see s ec. 7 48 2( b) (1 )(A), (2 ), ha s
The term “ Secr et ary” m ean s “ th e Sec ret ary of th e Treas ury

or h is 1 3 de le ga te ”, se c. 77 01 (a)( 11 )(B) , andth e te rm “ orhi s d el eg at e” m ean s “ an y off ic er, em pl oyee, or a ge nc y

of the Treas ury

Depa rtment dul y

au th or iz edby the Secr et ary of th e Treas ury

di rect ly, orin di rect ly by on e o r m or e red el eg at io ns of aut ho rit y , to pe rfo rm th e fu nc ti on m en ti on edor d es cri be d i n t he co nt ex t” , sec . 77 01 (a)( 12 )(A)(i ).- 12 -

he ldth atforth e p res um

pt io n o f co rrec tn es s t o a tt achto th e n ot ic e o f de fic ie nc y in
un rep orte d i nc om e cas es , th e Co m m is si on er m

us t es tabl is h s om e ev id en ti ary fo un da ti on co nn ect in g t he tax pa y er wi th th e in co m e-p ro du ci ng act iv it y , see W ei m ers ki rch v. Co m

mis si on er, 5 96 F.2d35 8, 3 61 -3 62 (9t h C ir. 1 97 9) , rev ’g 67 T.C. 67 2 (1 97 7) , or d em on strat in g t ha t the tax pa y er ac tu al ly recei ve d u nr ep orte d in co m e, se e Edwa rd s v . Comm is si on er, 6 80 F.2d12 68 , 12 70 -1 27 1 (9 th Cir . 19 82 ). If the Co m

m is si on er i nt ro du ces so m e ev id en ce tha t the tax pa y er re cei ve d
un rep orte d i nc om e, th e b ur de n s hi fts to th e ta xp ay er, wh o m us t es tabl is h b y

a pr ep on de ran ce o f th e ev id en ce tha t the un rep orte d i nc om e ad jus tm en t was arb it rary or erro ne ou s. See Hardy v. Co m m is si on er, 1 81 F.3d10 02 , 10 04 (9t h C ir. 19 99 ), aff’g T.C. Me m o. 1 99 7- 97
. The reco rdco nt ai ns co pi es of t he Co m m is si on er’s co m

pu te r rec or ds th at refl ectrece ip t o f Fo rm s 1 09 9- R s ho win g t ax ab le di st rib ut io ns of $ 37 ,02 0 t o pe ti ti on er, an d t he pa rti es do no t d is pu te th atth e d is tri bu ti on ch eck s wer e is su ed
an d m ad e p ay ab le to pe ti ti on er. Bec au se res po nd en t h as in tro du cedev id en ce tha t pe ti ti on er re cei ve d u nr ep orte d IRA di st rib ut io ns du rin g 2 00 8, the pre su m pt io n o f
co rrec tn es s at ta ch es to res po nd en t’s d et erm in at io n i n t he no ti ce o f de fic ie nc y .- 13 -

Pet it io ne r be ars th e b ur de n o f pr oo f with re sp ectto th atde te rm in at io n. See Ru le 1 4 14 2( a); Hardy

v. Co m mis si on er, 1 81 F.3dat 1 00 4. Re sp on de nt , ho wev er, b ears th e b ur de n o f pr oo f with re sp ectto th e in crea se d d efi ci en cy att rib ut ab le to th e al le ge dl y erro ne ou s fi li ng st atus . See Ru le 14 2( a)(1 ). II. Ana lysis Sect io n 4 08 (d )(1 ) pr ov id es th atan y am ou ntpa idor d is tri bu te d o utof a n IRA i s i nc lu de d i n t he gro ss in co m e o f th e p ay ee o r di strib ut ee as pro vi de d u nd er se ct io n 7 2. Gen eral ly, th e p ay ee o r di st rib ut ee o f anIRA is th e p art ic ip an t o r be ne fic ia ry

who is eli gi bl e to rece iv e fu nd s fr om th e IRA. Bunn ey

v. Co m m is si on er, 1 14 T.C. 25 9, 2 62 (20 00 ) (ci ti ng Darb y v. Co m m is si on er, 9 7 T.C. 51 , 58 (19 91 )). Howe ve r, th is is no t al way s the cas e. The t ax ab le di st rib ut ee un de r se ct io n 4 08 (d )(1 ) m ay be so m eo ne ot he r th anth e rec ip ie ntor p ur po rte d reci pi en t el ig ib le to rece iv e fu nd s fr om th e IRA. In de ed , we hav e p rev io us ly reject edth e co nt en ti on th atth e rec ip ie ntof an IRA di st rib ut io n i s au to m at ic al ly th e ta xabl e d is tri bu te e. See B un ne y v. Co m m is si on er, 1 14 T.C. at 2 62
. Neit he r th e Co de no r ap pl ic ab le reg ul at io ns de fin e th e te rm s “pay ee” o r

“ di strib ut ee” o r pr ov id e sp eci fic gu id an ce o n wh enanam ou ntis co ns id eredto
Pet it io ne r do es no t as se rt n orha s h e p ro ve n t ha t h e is en ti tl edto a sh iftin 1 4 th e b ur de n o f pr oo f un de r se c. 74 91 (a).- 14 -

ha ve be enpa idor d is tri bu te d t o apay ee o r di st rib ut ee u nd er s ect io n 4 08 (d )(1 ). Thi s i s n otsu rp ris in g b ecau se un de r m os t ci rcu m st an ces th e p ay ee o r di strib ut ee i s eas il y id en ti fiabl e an d t he factof t he di st rib ut io n c anno rm al ly be as cert ai ne d witho utdi ffi cu lt y . In thi s ca se , ho wev er, we fi ndth atth e d is tri bu ti onreque st s were fo rg ed , andth e en do rs em en ts on th e ch eck s tha t wer e is su edpu rs ua ntto th e fo rg edreque st s wer e al so for ge d. Pe ti ti on er, the purp orte d p ay ee o n the ch eck s, di d n otkn ow o f orau th or iz e th e reque st s, an d h e d idno t re cei ve or c as h t he ch eck s. Th es e fac ts pre se ntanis su e o f fi rs t i m pr es si on un de r se ct io n 4 08 (d )(1 )-- whe th er IRA withd rawal s m ad e p ur su an t t o fo rg edwithd rawal reque st s tha t ar e no t re cei ve d b y

th e p ur po rte d d is tri bu te e o r us edby the pu rp orte d d is tri bu te e fo r hi s o r he r eco no m ic be ne fitare d is tri bu ti on s i nc lu di bl e in th e g ro ss in co m e o f th e pu rp orte d d is tri bu te e und er s ect io n 4 08 (d ). Co m m on sen se di ct at es th atth e an swe r m us t b e n o, an d o urfin di ng s o f factan d ana lysis supp ort tha t an swe r. A. Dis tri bu ti on s Fr om Pet it io ne r’s IRAs Pet it io ne r cre di bl y

tes ti fie d t ha t h e d idno t s ig n the SunAm eri ca wi th dr awal reque st , end or se th e Su nAm eri ca IRA di st rib ut io n c he ck , end or se th e ING IRA di st rib ut io n c he ck s, o r au th or iz e an y pe rs on to do so on hi s b eh al f. Ind eed , pe ti ti on er cr ed ib ly test ifi edth athe di d n otlearnof e it he r th e Su nAm eri ca o r ING IRA d is tri bu ti on s u nt il he rece iv edth e Fo rm s 1 09 9- R s om et im e in 20 09
.- 15 -

Pet it io ne r fu rth er t es ti fie d t ha t h e si gn s h is na m e “ Andrew W. Ro be rts ” an d d at es hi s s ig na tu re wi th th e d ay fir st , th enth e m on th ab br ev ia te d, an d fi na ll y th e y ear. He fo rm edth e h ab itof s ig ni ng an d d at in g h is na m e in th is m an ne r du rin g h is ti m e in th e m il it ary. The IRA d is tri bu ti on ch eck s wer e al l en do rs ed“ Andy Ro be rts ”, an d t he SunAm eri ca wi th dr awal reque stwas n otda te d i n p et it io ne r’s cu st om ary fo rm at . The SunAm eri ca wi th dr awal reque stwas fa xe d fr om Ms . Sm it h’s p la ce o f
em pl oym en t, an d a ll of the IRA ch eck s wer e d ep os it edin to th e b an k a cco un t u se d by Ms. Sm it h. We fin d t ha t M s. Sm it h o r so m eo ne on he r be ha lf, andno t pe ti ti on er, s ig ne d t he withd rawal reque st s an d t he ch eck s, an d t ha t the si gn atur es were m ad e wit ho utpe ti ti on er’s au th or iz at io n. Ineffe ct , Ms . Sm it h p erp etrat eda frau d o n, an d s to le fro m , th e co m pa ni es adm in is te rin g p et it io ne r’s IRAs
. Pet it io ne r cre di bl y

tes ti fie d t ha t h e d idno t re cei ve th e IRA ch eck s, an d t he
reco rdsh ows th atth e ch eck s wer e d ep os it edin to anacco un t tha t was joi ntinna m e on ly; th e acc ou ntwas e xc lu si ve ly use d b y Ms . Smit h. Pe ti ti on er d idno t h av e a ch eckbo okforth e Wash in gt on Mu tu al acco un t, d idno t m ak e an y withd rawal s fro m th e Wash in gt on Mu tu al acco un t, an d was ge ne ral ly una ware o f th e u se of t he W as hi ng to n M utua l ac co un t. Ms . Sm it h, h owe ve r, ro ut in el y us edth e Wash in gt on Mu tu al acco un t fo r he r pe rs on al ex pe nd itur es , whi chwere o fte n e xc es si ve an d- 16 -

whi chge ne rat ednu m ero us ov erdraftch arg es . W e d o n otfin d c red ib le Ms
. Sm ith’s t es ti m on y th atsh e was un aware of the so ur ce o f th e d ep os it s m ad e to th e 1 5 W as hi ng to n M utua l ac co un t wh en , inm an y in st an ces , th e d ep os it s dwarfe d t he
acco un t’s b al an ce atth e ti m e. Ms . Sm ith’s t es ti m on y is pa rti cu larly unbe li ev ab le 1 6 in th e li gh t o f th e ev id en ce tha t s he m ad e la rg e cas h wi th dr awal s an d p ur ch as es in cl os e p ro xi m it y

to th e d ep os it s o f th e IRA ch eck s. Insh ort, Ms . Sm it h, an d n ot pe ti ti on er, rec ei ve d, s pe nt , andbe ne fit edfro m th e IRA d is tri bu ti on s.

Res po nd en t fi le d am ot io n i n l im in e to ex cl ud e certa in do cu m en ts , 1 5 te st im on y , andcro ss -ex am in at io n re la te d t o adi sm is se d c riminal ch arg e ag ai ns t Ms . Sm it h. We den ie d re sp on de nt ’s m ot io n a ndat t ria l p erm it te d c ro ss ex am in at io n re la te d t o t he di sm is se d c riminal ch arg e. Howev er, we b as e o ur fin di ng s re ga rd in g M s. Sm it h’s cr ed ib il it y so le ly on o urob se rv at io ns of h er as a witne ss an d o ur

rev ie w of c ert ai n e xh ib it s an d n oton any tes ti m on y

reg ard in g t he di sm is se d c riminal ch arg e. The SunAm eri ca IRA di st rib ut io n c he ckof $ 9,0 00 was d ep os it edto th e 1 6 W as hi ng to n M utua l ac co un t dur in g t he st at em en t p eri odof Au gu st14 th ro ug h Sep te m be r 12 , 20 08 . The Wash in gt on Mu tu al acco un t h ada ba la nc e o f

! $3 on Aug us t 1 4, 2 00 8. Th e fi rs t ING IRA di st rib ut io n c he ckof $ 9,0 00 was d ep os it ed to th e Wash in gt onMu tu al acco un t dur in g the st at em en t p eri odof No ve m be r 15 th ro ug h Dec em

be r 11 , 20 08 . The Wash in gt onMu tu al acco un t h ada ba la nc e o f

! $1 ,00 0 o n No ve m

be r 15 , 20 08 . Fin al ly, th e se co ndING IRA di st rib ut io n c he ck of $1 8,9 80 was d ep os it edto th e Wash in gt on Mu tu al acco un t dur in g t he st at em en t pe rio d o f Decem

be r 12 , 20 08 , th ro ug h J anua ry 14 , 20 09 . The Wash in gt on Mu tu al acco un t h ada ba la nc e o f $2 ,08 7 o n Dec em be r 12 , 20 08
.- 17 -

B. Part ie s’ Argu m en ts Res po nd en t t ak es a st ric t v ie w of p et it io ne r’s ob li ga ti on to rep ort as in co m e withd rawal s fr om

hi s IRA acco un ts . He arg ue s tha t p et it io ne r m us t re po rt t he withd rawal s as tax ab le di st rib ut io ns be cau se pe ti ti on er was th e o wne r of th e IRAs
an d was th e p ers on en ti tl edto rece iv e d is tri bu ti on s fr om th e IRAs . Res po nd en t furth er ar gu es th atth e IRA ac co un t wi th dr awal s wer e d ep os it edin to th e W as hi ng to n M utua l ac co un t, wh ic h was joi nt ly owne d b y pe ti ti on er an d M s. Sm ith, an d wer e u se d i n p artto pa y “ fam il y li vi ng ex pe ns es du rin g t he ti m e pe ti ti on er an d h is wife res id edto ge th er”, m ed ic al ex pe ns es , anda fam il y Veri zo n W ire le ss acco un t. Res po nd en t em ph as iz es th atpe ti ti on er “ ne ve r atte m pt edto return the fun ds to th e IRAs aft er h e d is co ve redth e p aym en ts no r di d h e o th erwi se co nt es t the di st rib ut io ns .” Cit in g P riv . Ltr. Ru l. 2 01 11 90 40 (May 13 , 20 11 ) as an ex am pl e, res po nd en t al so st at es th at , if IRA fun ds were s to le n a ndth e o wne r of th e IRA rec ei ve d arefu ndof t he st ol enfun ds , th e o wne r co ul d d ep os itth e ref un d i nt o th e IRA as a ta x- free rol lo ve r. Howev er, b ecau se pe ti ti on er t oo k n o s te ps to rep le ni sh hi s IRAs fo r th e al le ge dl y st ol enam ou nt s, re sp on de ntco nt en ds th at pe ti ti on er m

us t re co gn iz e in co m e equa l t o t he di strib ut io n a m ou nt s i n 2 00 8. Pet it io ne r co nt en ds th atbe cau se th e IRA wi th dr awal s wer e m ad e p ur su an t to for ge d wi th dr awal reque st s, the di st rib ut io n c he ck s wer e st ol en , th e si gn atur es- 18 -

on th e d is tri bu ti on ch eck s wer e fo rg ed , andhe di d n otrece iv e aneco no m ic be ne fit fro m th e d is tri bu ti on s, we s ho ul d h ol d t ha t h e is no t a p ay ee o r di st rib ut ee wi th in th e m ean in g o f se ct io n 4 08 (d )(1 ). Pet it io ne r al so co nt en ds th atun de r W as hi ng to n St at e la w, no di st rib ut io n o ccurredfro m eit he r th e Su nAm eri ca IRA or the ING IRA b ecau se he di d n otauth or iz e th e IRA wi th dr awal reque st s o r th e en do rs em en ts on th e IRA d is tri bu ti on ch eck s. Th eref or e, pe ti ti on er co nt en ds th at
as a m atte r of

Sta te law n o a m ou ntwas p ai d o r di strib ut edwithi n t he m ean in g o f
se ct io n 4 08 (d )(1 ). 1 7 W e fi rs t ad dr es s wh ethe r pe ti ti on er i s a d is tri bu te e wit hi n t he m ean in g o f
se ct io n 4 08 (d )(1 ) whe n h e d idno t au th or iz e th e wit hdrawal reque st s, d idno t
rece iv e o r en do rs e th e IRA d is tri bu ti on ch eck s, an d d idno t re cei ve aneco no m ic be ne fitfro m

th e d is tri bu ti on s. We th enad dr es s wh ethe r pe ti ti on er i s a d is tri bu te e withi n t he m ean in g o f se ct io n 4 08 (d )(1 ) be cau se he all eg ed ly ben efi te d fr om th e IRA d is tri bu ti on s o r be cau se he fai le d t o fi le a cl ai m ag ai ns t ING o r Su nAm eri ca fo r anun au th or iz edpa ym en t.

Bec au se we ho ldth atpe ti ti on er was no t a p ay ee o r di st rib ut ee wi th in th e 1 7 m ean in g o f se c. 40 8( d) (1 ), we ne edno t ad dr es s thi s co nt en ti on .- 19 -

C. Whe th er Pe ti ti on er Is a Payee or Di st rib ut ee With in th e Me an in g o f Sect io n 4 08 (d )(1 ) As an in it ia l m at te r, res po nd en t co nt en ds th atpe ti ti on er m us t i nc lu de in in co m e th e am ou nt s wi th dr awnfro m hi s IRAs i rres pe ct iv e o f St at e la w andev en th ou gh he di d n otco ns en t t o t he di st rib ut io ns an d was no t aware tha t the di st rib ut io ns oc cu rred . Res po nd en t re li es on our op in io ns inBunn ey v. Co m m is si on er, 1 14 T.C. at 2 62 , andVorwa ldv. Co m m is si on er, T.C. Mem o. 1 99 7- 15 , to supp ort h is co nt en ti on s. InBunn ey , we hel d t ha t the di st rib ut ee o r pa y ee o f a d is tri bu ti on fro m an IRA i s g en eral ly “ ‘the pa rti ci pantor b en efi ci ary who , un de r th e p la n, i s en ti tl edto
rece iv e th e d is tri bu ti on .’ ” Bu nn ey v. Co m m is si on er, 1 14 T.C. at 2 62 (qu ot in g Darb y v. Co m m is si on er, 9 7 T.C. at58 ). Howev er, we al so reject edth e Co m m is si on er’s arg um en t i n B un ne y th atth e rec ip ie ntof a n IRA di strib ut io n i s au to m at ic al ly the tax ab le di st rib ut ee, n ot in g t ha t “ in th e co nt ex t o f a d is tri bu ti on fro m a pe ns io n p la n t he term

‘ di st rib ut ee’ is no t n eces sa ril y synon ym ou s wi th ‘recip ie nt .’ ” Id . (ci ti ng Est at e o f Mac ha t v . Comm is si on er, T.C. Mem o. 1 99 8- 15 4) . W e rejectres po nd en t’s co nt en ti on th atpe ti ti on er, as th e p ur po rte d re ci pi en t of th e IRA d is tri bu ti on s, i s au to m at ic al ly the tax ab le di st rib ut ee und er Bu nn ey .- 20 -

InVorwa ld , we hel d t ha t a d is tri bu ti on of f un ds fro m

anIRA p ur su an t t o a co urt-o rd eredgarn is hm en t re su lt edina ta xabl e d is tri bu ti onto th e ta xp ay er. The ga rn is hm en t was ord eredto sat is fy th e ta xp ay er’s ch il d s up po rt o bl ig at io n. Th e ta xp ay er i n Vo rwal d d idno t co ns en t t o t he di st rib ut io n fr om hi s IRA anddi d n ot real iz e th e d is tri bu ti on ha d o ccu rredun ti l h e was no ti fie d o f th e d is tri bu ti on by the Co m m is si on er. Nev erthe le ss , we hel d t ha t the di st rib ut io n was in co m e to th e ta xp ay er b ecau se itdi sc ha rg edhi s l eg al ch il d s up po rt o bl ig at io n a ndwas thu s the equi va le ntof r ecei ptby him
. The di strib ut io ns fro m

pe ti ti on er’s IRAs were n otco urt o rd eredan d d idno t
sa ti sf y a le ga l o bl ig at io n t ha t p et it io ne r owe d t o M s. Sm it h o r an y ot he r party. In st ead , th e d is tri bu ti on s wer e unaut ho riz edan d c om pl et edwitho utpe ti ti on er’s kn owl ed ge . In ad di ti on , pet it io ne r di d n otrece iv e an y be ne fit , di rect ly or in di rect ly, fro m

th e d is tri bu ti on s i n 2 00 8 a s M s. Sm it h u se d t he fun ds fro m th e un au th or iz edwithd rawal s t o s etup he r po st se pa rat io n h ou se ho ld , tak e a v acat io n an d afam il y

tri p, an d p ay

expe ns es for

whi chsh e was li ab le . Vorwal d i s di st in gu is habl e b ecau se th e fu nd s atis su e in th atcas e were l eg al ly obt ai ne d a nd were ap pl ie d t o ali ab il it y forwhi chth e ta xp ay er was pe rs on al ly liab le . Becau se pe ti ti on er d idno t re qu es t, re cei ve , or b en efi t fr om th e IRA d is tri bu ti on s, we- 21 -

co nc lu de th athe was n ota pa y ee o r di st rib ut ee wi th in th e m ean in g o f se ct io n 40 8( d) (1 ). D. Whe th er Pe ti ti on er Is a Dis tri bu te e o r Payee onth e Bas is of Rat ifi cat io n o r His Fai lu re To Ass erta Cl ai m foranUnau th or iz ed Paym en t Res po nd en t fu rth er co nt en ds th atpe ti ti on er h adon e y ear t o d is co ve r an d rep ort the un au th or iz edsi gn atur es an d t ha t p et it io ne r’s fai lu re t o s o re po rt pr ecl ud es an y

rem ed ie s und er Wash in gt on law, thu s m ak in g the di st rib ut io ns ta xabl e to pe ti ti on er. Inot he r wor ds , acco rd in g t o re sp on de nt , State law wo ul d n ot requi re ING an d S un Am eri ca t o re st or e an y am ou nt s p ai d o utof p et it io ne r’s IRA
acco un ts si nc e h e d idno t re po rt the un au th or iz edsi gn atur es withi n o ne y ear. The refo re, res po nd en t co nt en ds th atpe ti ti on er re cei ve d adi st rib ut io n wi th in th e
m ean in g o f se ct io n 4 08 (d )(1 ). Und er Wash in gt on ’s ver si on of t he Uni fo rm Co m m erci al Co de (U.C.C.),
no twi th st an di ng care or l ackof c are, fo r anacco un t o f anin di vi du al th e in di vi du al
m us t d is co ve r an d re po rt a n u naut ho riz edsi gn atur e wit hi n o ne y ear. Se e Wash
. Rev . Cod e Ann . sec . 62 A.4-4 06 (f) (West20 03 ). If th e in di vi du al do es no t d o s o, he m ay no t re co ve r fo r th e unaut ho riz edsi gn atur e. Id . But , eve n i f W as h. Re v. Co de Ann . sec . 62 A.4-4 06 (f) p recl ud es a rem edy to pe ti ti on er ag ai ns t ING an d- 22 -

SunAm eri ca, tha t d oe s n otm eanth atas o f th e en d o f 20 08 pe ti ti on er h adrece iv ed a ta xabl e d is tri bu ti onfro m hi s IRA acco un ts . 1 8 Und er re sp on de nt ’s ana lysis , pet it io ne r acqui es cedto th e d is tri bu ti on s b y no t m ak in g acla im

un de r W as hi ng to n l aw an d b y acce pt in g t he pro po se d
se tt le m en t i n h is di vo rce, wh ic h t he pa rti es st ip ul at edwas “ take n i nt o a cco un t” in th e d ecre e o f di ss ol ut io n. Un de r W as hi ng to n l aw, itap pe ars pe ti ti on er co ul d h av e
m ad e a cl ai m

to res to re h is IRA acc ou nt s wi th inon e y ear o f th e unaut ho riz ed withd rawal s, b utev enif s o, tha t ri gh t d idno t ex pi re u nt il so m et im e in 20 09
. Si m il arl y , th e d ecre e o f di ss ol ut io n a ll oc at in g p ro pe rty betweenpe ti ti on er an d M s. Sm ith was no t en te redun ti l 2 01 0. Atbe st , un de r res po nd en t’s the ory , pet it io ne r di d n otrat ify the IRA d is tri bu ti on s u nt il 20 09 at t he earl ie st . Accor di ng ly, an y fai lu re b y pe ti ti on er t o e xe rci se hi s ri gh ts un de r W as hi ng to n l aw an d a ny pu rp orte d b en efi t h e rec ei ve d i n t he di vo rce d oe s n otaffe ctou r co nc lu si on th athe
was no t a p ay ee o r di st rib ut ee wi th in th e m ean in g o f se ct io n 4 08 (d )(1 ) in20 08 , th e y ear f orwhi chres po nd en t d et erm in edth e d efi ci en cy at i ss ue . On the ba si s o f th e fo reg oi ng , we ho ldth atpe ti ti on er i s n ota di strib ut ee o r pa y ee wi th in th e m ean in g o f se ct io n 4 08 (d )(1 ) be cau se th e IRA d is tri bu ti on W e ex pr es s n o o pi ni onas t o wh ethe r pe ti ti on er’s fai lu re t o e xe rci se 1 8 av ai labl e rem ed ie s u nd er Wash in gt on law re su lt edina co ns tru ct iv e d is tri bu ti on fro m th e IRA ac co un ts ina la te r ta x year.- 23 -

reque st s wer e unaut ho riz ed , th e en do rs em en ts on th e ch eck s tha t wer e is su ed pu rs ua ntto th e reque st s wer e fo rg ed , he d idno t re cei ve th e eco no m ic be ne fit of 1 9 th e IRA d is tri bu ti on s, an d t he IRA d is tri bu ti on s wer e n otm ad e to di sc harg e an y le ga l o bl ig at io n o f hi s. Acco rd in gl y , we con cl ud e th atpe ti ti on er d idno t fa il to rep ort an y

in co m e at tri bu tabl e to di st rib ut io ns fro m hi s Su nAm eri ca an d ING IRAs in20 08
. III. Sect io n 7 2( t) Ad di ti on al Tax Sect io n 7 2( t)( 1) pro vi de s fo r a 1 0% a dd it io na l t ax on earl y di st rib ut io ns fro m qu al ifi edret ire m en t p la ns , un le ss th e d is tri bu ti on fal ls withi n ast atut ory ex cep ti on . Becau se we ho ldth atth e withd rawal s fr om pe ti ti on er’s IRA ac co un ts atSunAm eri ca an d ING wer e n otdi st rib ut io ns tax ab le to hi m un de r se ct io n 40 8( d) (1 ) in 20 08 , he i s n otli ab le forth e se ct io n 7 2( t) a dd it io na l t ax .

Whe th er the re i s an eco no m ic be ne fitaccrui ng to th e ta xp ay er i s the 1 9 cru ci al fact orinde te rm in in g wh ethe r th ere i s g ro ss in co m e. See, e.g ., Afsh ar v . Co m m is si on er, T.C. Mem o. 1 98 1- 24 1 (c it in g J am es v. Un it edSta te s, 3 66 U.S. 21 3 (1 96 1) , Comm is si on er v . Glen sh aw Glas s C o., 3 48 U.S. 42 6 (1 95 5) , andRu tk in v. Uni te d S tate s, 3 43 U.S. 13 0 (1 95 2) ), aff’d wi th ou t p ub li sh edop in io n, 6 92 F.2d 75 1 (4 thCir . 19 82 ).- 24 -

IV. Fi li ng Sta tu s Altho ug h p et it io ne r do es no t d is cu ss hi s fi li ng st atus on bri ef an d t he refo re co ul d b e d eem edto have waiv edor aband on edth atis su e, se e Mu hi chv. Co m m is si on er, 2 38 F.3d86 0, 8 64 n.1 0 (7 th Cir . 20 01 ), aff’g T.C. Me m o 1 99 9- 19 2, we b rie fly exp la in why we su st ai n re sp on de nt ’s det erm in at io n o f pe ti ti on er’s fil in g s ta tu s. Th e d et erm in at io n o f whe th er an in di vi du al is m arri edforpu rp os es of de te rm in in g fi li ng st atus is m ad e as of the clo se of the tax ab le y ear. Se c. 77 03 (a)( 1) . Und er ce rta incir cu m st an ces , a m arri edtax pa y er m ay be tre at edas un m arri edif h e o r sh e li ve s ap artfro m hi s o r he r sp ou se du rin g t he las t s ix m on th s of th e ta xabl e y ear. Se e se c. 77 03 (b ). The pa rti es ag ree t ha t p et it io ne r an d M s. Sm it h wer e st il l m arri edon Decem be r 31 , 20 08 , andth atth ey were n otsep arat edforth e la stsi x m on th s o f th e y ear. Acco rd in gl y , th e si ng le fil in g s ta tu s tha t M s. Sm ith u se d i n p rep ari ng pe ti ti on er’s s ep arat el y

fil ed20 08 return was erro ne ou s. We fin d t ha t p et it io ne r’s
co rrec t fi li ng st atus for20 08 un de r th es e ci rcu m st an ces was m arri edfil in g se pa rat el y . V. Accu racy-Rel at edPen al ty Res po nd en t co nt en ds th atpe ti ti on er i s l iabl e fo r th e se ct io n 6 66 2( a) p en al ty be cau se pe ti ti on er’s u nd erp aym en t was att rib ut ab le to a subs ta nt ia l u nd ers ta te m en t- 25 -

of in co m e ta x. Sect io n 6 66 2( a) an d (b )(1 ) an d (2 ) au th or iz es th e im po si ti on of a 2 0 20 % pe na lt y

on th e p orti on of a n u nd erp aym en t tha t i s at tri bu tabl e, am on g o th er th in gs , to a subs ta nt ia l u nd ers ta te m en t o f in co m e ta x o r to ne gl ig en ce o r di sr eg ard of rul es or r eg ul at io ns . A sub st an ti al un de rs ta te m en t o f in co m e ta x e xi st s i f th e am ou ntof t he un de rs ta te m en t ex ceed s the gre at er o f 10 % of t he tax requi redto be sh own on th e return o r $5 ,00 0. Se c. 66 62 (d )(1 )(A). The term “un de rs ta te m en t”
m ean s the ex ces s o f th e am ou ntrequi redto be sh ownonth e return fo r th e ta xabl e y ear o ve r th e am ou ntof t ax im po se d t ha t i s s ho wn o n t he return, re du cedby any reb at e. Sec. 6 66 2( d) (2 )(A). The am ou ntof t he un de rs ta te m en t i s re du cedby tha t po rti onof t he un de rs ta te m en t tha t i s at tri bu tabl e to (1) th e ta x t reat m en t o f an y it em if the re i s o r was subs tant ia l au th or it y forsu chtre atm en t, o r (2 ) an y it em if th e rel ev an t fa ct s af

fect in g t he it em ’s tax tre atm en t ar e ad equa te ly dis cl os edinth e

Fo r th e fi rs t t im e o n re pl y bri ef, res po nd en t co nt en ds th atpe ti ti on er 2 0 al te rn at iv el y

is li ab le fora se c. 66 62 (a) p en al ty due to ne gl ig en ce. Gen eral ly, we wil l n otco ns id er an is su e th atis rai se d fo r th e fi rs t t im e o n b rie f. Est at e o f Aro ns on v. Co m

m is si on er, T.C. Mem o. 2 00 3- 18 9 n .5 (c it in g F oi l v
. Co m m is si on er, 9 2 T.C. 3 76 , 41 8 (1 98 9) , aff’d, 9 20 F.2d11 96 (5t h C ir. 1 99 0) ). Mo re i m po rta nt ly, by no t ra is in g t he is su e o f ne gl ig en ce o n o pe ni ng bri ef, res po nd en t h as fai le d t o p ro vi de pe ti ti on er wi th th e o pp ortuni ty to ad dr es s thi s is su e. Res po nd en t’s at te m ptto fir strai se th e is su e o f ne gl ig en ce as a ba si s fo r im po si ti on of the sec . 66 62 pe na lt y on rep ly is u nt im el y

an d p reju di ci al to pe ti ti on er. See Kans ky v. Co m m is si on er, T.C. Mem o. 2 00 7- 40 . W e th eref or e d o no t co ns id er i t.- 26 -

return o r in a st at em en t at ta ch edto th e return andth ere i s a r eas on ab le ba si s fo r th e ta xp ay er’s treat m en t o f th e it em . Sec. 6 66 2( d) (2 )(B)
. The Co m m is si on er b ears th e in it ia l b ur de n o f pr oduc ti on with re sp ectto th e ta xp ay er’s l iabi li ty for the sec ti on 66 62 pe na lt y . Sec. 7 49 1( c). At tria l the Co m m is si on er m

us t i nt ro du ce s uf

fic ie ntev id en ce “ in di cat in g t ha t i t i s ap pr op ria te to im po se th e rel ev an t p en al ty.” H ig be e v . Comm is si on er, 1 16 T.C. at 4 46 . Once th e Co m m is si on er m eet s h is bu rd enof p ro du ct io n, the tax pa y er m us t co m e fo rwardwith p ers ua si ve ev id en ce tha t the Co m m is si on er’s d et erm in at io n i s in co rrec t o r th atth e ta xp ay er h adreas on ab le cau se or s ub st an ti al au th or it y forth e po si ti on . Id. at44 6- 44 7. A tax pa y er m ay

av oi d l iabi li ty for the sec ti on66 62 pe na lt y if the tax pa y er de m on st rat es th atth e ta xp ay er h adreas on ab le cau se forth e und erp aym en t an d t ha t th e ta xp ay er ac te d i n g oo d fa it h wi th res pe ctto th e und erp aym en t. Sec
. 66 64 (c)( 1) . Reas on ab le cau se an d g oo d fa it h a re d et erm in edon a cas e-b y -cas e ba si s, t ak in g i nt o a cco un t al l p ert in en t fa ct s an d c irc um st an ces . Sec. 1 .66 64
- 4( b) (1 ), In co m e Tax Reg s. Th e m os t i m po rta ntfact oris th e ex te ntof t he ta xp ay er’s eff

orts to ass es s h is or h er p ro pe r ta x l iabi li ty. Id. W e h av e fo un d tha t p et it io ne r is no t l iabl e fo r in co m e ta x i n 2 00 8 re la te d t o th e p aym en ts fro m

hi s Su nAm eri ca IRA andhi s ING IRA. Howev er, p et it io ne r- 27 -

co nc ed edth athe fai le d t o re po rt c ert ai n i nt eres t i nc om e an d t ha t h e und erre po rte d wag e in co m e fo r 20 08 . Add it io na ll y , we hav e fo un d t ha t p et it io ne r’s pr op er fi li ng st atus for20 08 is m arri edfil in g s ep arat el y . Alth ou gh pe ti ti on er d idno t s ee h is tax return b efo re Ms . Sm it h fi le d i t o n h is be ha lf andhe di d n otsi gn it , he d idno t di sa vo w th e return, n ordi d h e fi le a di ffer en t re tu rnfor20 08 . Peti ti on er d idno t in tro du ce an y

ev id en ce t o p ro ve th athe to okaffi rm at iv e st ep s t o e ns ur e th e co rrec tn es s o f hi s t ax li ab il it y ; an d h e can no t re ly on M s. Sm it h, wh o i s n ota pr of es si on al tax return p rep arer . See s ec. 1 .66 64 -4 (c), In co m e Tax Reg s. Pet it io ne r ha s n otpro du cedev id en ce tha t h e act edwith re as on ab le cau se an d i n go odfai th with re sp ectto th es e und erp aym en ts . Accor di ng ly, to th e ex te ntth at th e Ru le 15 5 c om

pu ta ti on s s ho w th atth e und ers ta te m en t o f ta x e xc eed s the gre at er of 10 % of the tax requi redto be sh own on th e return o r $5 ,00 0, s ee s ec. 66 62 (d )(1 )(A), p et it io ne r is li ab le forth e se ct io n 6 66 2( a) p en al ty for an
un de rp aym en t o f ta x a tt rib ut ab le to a subs ta nt ia l und ers ta te m en t o f in co m e ta x.- 28 -

W e h av e co ns id eredth e p art ie s’ rem ai ni ng arg um en ts , andto th e ex te ntno t di sc us se d abo ve , con cl ud e th os e arg um en ts are i rrel ev an t, m oo t, o r witho utm eri t. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te red
un de r Ru le 15 5.