T.C. M em o . 2 0 1 7 -3

UNITED STATES TAX COURT
CANDACE ELAINE, Pet i t i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 5 0 2 3-1 4. Fi l edJ an uary3 , 2 0 1 7
. Can d ace El ai n e, p ro s e. W i l l i s B. Do u g l as s an dM i n dy S. M ei g s, fo r res p o nd en t .

M EM ORANDUM FINDINGS OF FACT AND OPINION ASHFORD, J u d g e: Res p o n d en td et erm in eda d efi ci en cy o f $ 11 ,9 0 0 i n p et i t i o n er’ s Fed eral i n co m e t ax an dan accu racy -rel at edp en al ty p urs u an t t o s ect i o n 6 6 6 2 (a) o f $ 2 , 38 0 fo r t h e 2 0 11 t ax ab l e y ear. 1 Th e i s s u es fo r d eci s i o nare:

1 Un l es s o th erwi s e i nd i cat ed , al l s ect i o nreferen ces are t o th e In t ern al Rev enu e Co de i n effect fo r t h e y ear i ni s s u e, an d al l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re.- 2
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[* 2 ] (1 ) wh et h er p et i t i o n er i s l i ab l e fo r t he 1 0 % ad d i t i o nal t ax i m p o s edb y s ect i o n 7 2 (t ) o n earl y

d i s tri b ut i o n s fro m

a qu al i fi edret i rem en t p l an an d(2 ) wh et h er p et i t i o n er i s l i ab l e fo r th e accu racy -rel at ed p en al ty . FINDINGS OF FACT So m e o f t h e fact s h av e b een s ti p u lat ed an dare s o fo u n d. Th e s t ip u l at i o n o f fact s an dth e at t ach ed ex h i b i ts are i n co rp o rat ed h erei nb y th i s referen ce. Pet i t i o n er
res i dedi n Cal i fo rn ia atth e t i m e t h e p et i t i o nwas fi l edwi th th e Co u rt . In J u n e 2 0 09 p et i ti o n er was l ai d o ff fro m h er jo b o f 2 3 y ears as a cal l cen ter
m an ag er wi th a m

u tu al fu n dco m

p an y . At th att i m e an ddu ri n g th e y ear i ni s s u e p et i t i o n er was a s in g l e m o th er, rai s in g two d au g h t ers o nh er o wn wi th o u ts up p o rt fro m an y o n e el s e. Onacco u n to f t h e t h en eco n o m i c d o wn tu rnp et i t i o n er was
u n ab le t o fi n dan o th er jo b , an ds h e rem ai n edu nem p l o y edu n t il ap p ro x im at el y 2 0 1 4 . Co n s equen t l y , i n o rd er t o p ro v i d e fo r h er o wns ub s i s t en ce an dth ato f h er d au gh t ers , p et i t i o n er m ad e a s eri es o f wi th drawal s fro m h er i n d i v idual ret irem en t
acco u n t (IRA), wh i ch was ad m i n i s t eredb y Cap it al Ban k& Tru s t Co . (Cap i t al Ban k). Du ri n g 2 0 1 1 p et i t i o n er recei v ed fo u r d i s tri b u t io n s t o t al in g $ 11 9 , 0 0 0 fro m th atacco u n t . As o f the cl os e o f t h at y ear p et i t i o n er was u nd er 5 9 1⁄2 y ears o f ag e. Fo r each d i st ri b u t i o n Cap i t al Ban ki ss u edp et i t i o n er a Fo rm 1 0 99 -R, Di s tri b u t i o n s Fro m

Pen si o ns , An n u i t ies , Ret i rem en t o r Pro fi t -Sh ari n g Pl an s , IRAs ,- 3
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[* 3 ] In s u ran ce Co n tract s , et c. Acco rd i n g t o res p o n d en t ’ s wag e an d i n co m e tran s cri p tfo r p et i t i o n er’ s 2 01 1 t ax ab l e y ear, each Fo rm 1 0 9 9 -R refl ect edth atth e
en t i re d i s tri b u t i o n was t ax ab l e an dth atth e d is tri b ut i o nwas an earl y d i s tri b u t i o n wi th “ n o kn o wnex cep ti o n ”. 2 Each Fo rm 1 0 99 -R al s o refl ect edFed eral i n co m e t ax wi th h el d
. 3 Pet i t i o ner p rep aredan dfi l edt i m el y h er Fo rm 1 0 4 0 , U.S. In d i v i du al In co m e Tax Retu rn , fo r 2 01 1 (2 0 11 retu rn ). Onth e 2 0 1 1 retu rn p et i ti o n er rep o rt edt ax ab le IRA d i s tri b u t i on s o f $ 1 1 9 ,6 7 5 , 4 i n teres to f $ 1 3 6 (i n cl u di n g $ 5 o f t ax -ex em p t i n t eres t ), a n et b u s i n es s l o s s fro m a s o l e p ro p ri et o rs h i p o f $ 3 9 ,3 7 9, an d

2 Th e Fo rm s 1 0 9 9 -R th atwere i n cl u d edwi th p et i t i o ner’ s 2 0 1 1 retu rn as a s t ip u l at edex h i b i td o n otrefl ectth i s . On e o f t hes e fo rm s refl ect s th e d i s tri b u t i o n co d e o f “ 7 ”, i .e., a “ n o rm al d i s tri b u t i o n ”, wh i l e th e o th er t h ree fo rm s refl ectth e d i s tri b u t i o n co d e o f “ 2 ”, an “ earl y d i s tri b u t io n , ex cep t i on ap p l i es ”. Th ere i s n o ex p lan at i o n fo r t h i s i nco n s i s ten cy i nthe reco rd . Th e i n co n s is ten cy , h o wev er, i s “ m u ch ad o ab o u tn o th i n g ” an d d o es n o tal ter t h e o ut co m e o f t h i s cas e b ecau s e, as d i s cu s s edi n th e t ex t , p et i t i o n er h as th e b u rd en o f p ro v i n g t h atres p o n d en t ’ s d et erm i n at i o n th atth e s ec. 7 2(t ) ad d i t i o n al t ax ap p l i es t o th e Cap i t al Ban k d i s tri b u t i o n s i s i n co rrect .

3 Th e d i s tri b u t io ns p et i t i on er recei v edfro m Cap it al Ban kwere i n t h e fo l l o w i n g am o u nt s : $ 40 ,0 00 , $ 8 ,0 0 0, $ 1 6 ,0 0 0 , an d$ 5 5,0 0 0 . Th e Fo rm s 1 0 9 9 -R refl ect edFed eral i n co m e t ax wi th h el do f $ 2 ,0 0 0 , $ 8 0 0 , $ 6 00 , an d $ 5 ,5 0 0 , res p ect i vel y , fro m

th es e d i s tri b u t i o n s , fo r a t o tal am o u n twi th h el do f $ 8 ,9 0 0
. 4 Th e ad di t i o n al rep o rt edam o u n to f $ 6 7 5 refl ect s a d i s tri b u t i o n o f d eat h b en efi t s p et i t i o n er recei v eddu ri n g 2 0 1 1 fro m No rt h ern Tru s tCo . wh i ch i s n o t s ub jectt o t h e s ec. 7 2 (t ) ad d i t io n al t ax . Acco rd i n g l y , th i s d i s tri bu t i o ni s n o tat i s su e.- 4
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[* 4 ] u n em

pl o ym en tco m

p en s at i o n o f $ 9 , 0 0 0. Aft er i t em i zed d edu ct i o n s t o t al i n g $ 4 5 ,1 4 8 an dex em

p t i o n s t o t al i n g $ 1 1 ,1 0 0 (fo r h ers el f an dh er d au g h ters ), p et i t i o n er rep o rt edt ax ab l e i n co m e o f $ 33 ,1 8 4 an dt o t al t ax o f $ 4 , 1 1 9 . Pet i t i o n er d i dn o t rep o rtan y

am o u ntfo r t h e ad d it i o nal t ax o n earl y d i s tri b u ti o ns fro m

IRAs p u rs u an t t o s ect io n 7 2(t ), n o r d i d s he at tach Fo rm 5 3 29 , Ad d i t i o n al Tax es o n Qu al i fi edPl an s (In cl u d i n g IRAs ) an dOth er Tax -Fav o redAcco u n t s , t o th e 2 0 1 1 retu rn . Fi n al l y , p et i t i o n er rep o rt edFed eral i n co m e t ax wi th h el do f $ 8 ,9 6 8 5 an d cl ai m edan o v erp aym en to f $ 4 ,8 4 9 , wh ich was refu n d edt o h er i n M ay 2 0 12
. OnJ u ne 3 , 2 0 13 , res p o n d en t ’ s Au t o m at edUn d errep o rt er (AUR) fu nct i o n
s en tp et i t i o n er a No t ice CP2 0 0 0 p ro p o si n g ch an g es t o th e 2 0 11 retu rn o nthe b as i s th atcert ai n i n co m e an d p aym en ti n fo rm at i on rep o rt edb y thi rdp art i es t o
res p o n d en t d i ffered fro m th e am o u n ts s h o wno n the ret u rn . Th e d i screp an cy was at tri b u t ab l e t o p et i t i o n er’ s n o trep o rt i n g an y am o u n tfo r t h e ad d i t i o n al t ax o nIRAs
u n d er s ect i o n 7 2 (t ). As a res ul t , res p o n d en tp ro p o s ed th ats h e o wed an ad d i t i o nal $ 1 1 ,9 0 0 i n i n co m e t ax p l u s s tatu t o ry i n t eres t an dth ats h e s h o u l d b e l i ab l e fo r a
s ub s t an t i al u n ders t at em en to f i nco m e t ax p en al ty o f $ 2 ,3 8 0 . Inres p o n se, p et i t i o n er s en t res p on d en t a l et t er d at ed J un e 2 6 , 2 0 1 3, ex p lai n i n g th atb ecau s e h er

5 Th i s am o u n trefl ect s th e Fed eral i n co m e t ax o f $ 8 ,9 0 0 wi th h el dfro m th e Cap it al Ban kd i s tri bu t i o n s as wel l as th e Fed eral i n co m e t ax o f $ 6 8 wi th h el dfro m th e No rt h ern Tru s tCo . d i s tri b u t i o n .- 5
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[* 5 ] IRA was h er o n l y m ean s o f i n co m e t o p ay b i l l s an d s up p o rth ers el f an dh er d au gh t ers , s h e u n d ers t o o dth atth e d is tri bu t i o n s fro m h er IRA “ w o u l d fal l u n d er th e ‘ ex cep t i o n ’ ru l es [s i c] due t o * * * [h er] fi nan ci al h ard s hi p .” Sh e al s o
co n ten d ed th at s he “ t o o k th e fed eral an ds t at e p en al t i es req u i red an dth e am o u n t s were i n d icat edo n * * * [h er] t ax return as i nco m e t h erefo re d is qu al i fy i n g * * * [h er] fro m

o ther b en efi t s t h at* * * [s h e] n o rm al l y wo u l dh av e b een al l o wed .” In l at er co rres p on d en ce s he s en tt o res p o n d en ti n2 0 1 3 , p et i t io n er co n t i n ued t o p l ead fi nan ci al h ard s h i p . OnDecem

b er 9 , 2 0 13 , res p o n d en tm ai l ed p et i t i o n er a n o ti ce o f d efi ci en cy , d et erm i n i n g th atth e s ect i o n 7 2 (t ) ad d i t i o n al t ax was ap p l i cab le t o th e en t i re
am ou n to f t h e d is tri b u t i on s fro m h er IRA an dth ats h e was l i ab l e fo r th e
s ub s t an t i al u n ders t at em en to f i nco m e t ax p en al ty u n d er s ect i o n6 6 62 (a) an d (b )(2 ). Pet i t io n er t i m el y

p et it i o n edth i s Co u rtd i s p u t i n g tho s e d et erm i n at i o n s , co n t en d i n g th ats h e b el i ev edth e am o u nt s wi th h el dfro m h er IRA d i s tri bu t i o n s i n cl u deda

“ 1 0 % [F] ed eral an da 1 0 % s t at e p en al ty ” an das k in g th ats h e n o tb e h el d l i ab l e fo r th e t ax an dthe p en al ty

o n th e g ro u n dth at du ri n g 2 0 1 1 s h e was ex peri en ci n g fi nan ci al h ard s h i p .- 6
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[* 6 ] OPINION I. Ad d it i on al Tax U nd er Sect io n7 2 (t ) In g en eral , th e d et erm i n at i o n s o f t he Co m m i s s i on er i na n o t i ce o f d efi ci en cy are p res u m edco rrect an d , ex cep tfo r t h e b u rd eno f p ro duct i o ni n an y co u rt p ro ceed in g wi th res p ectt o a t ax p ay er’ s l i ab i l i ty fo r an y “pen al ty , ad d i t i o nt o t ax , o r ad d it i o n al am o un t ”, s ee s ec. 7 4 9 1 (c), t h e t ax p ay er b ears th e b u rd en o f p ro v i n g th atth e Co m

m i ss io n er’ s d et erm i n at i o n s are erro n eo u s, s ee Ru l e 1 4 2 (a); W el ch v . Hel v eri n g , 2 9 0 U.S. 1 1 1 , 1 15 (1 9 33 ). Th is b u rd eno f p ro du ct io nrem ai n s o nth e t ax p ay er ev en wi th res pect t o th e ad d i t i o nal t ax u n d er s ect i o n7 2 (t ) b ecau s e th e
s ect i on 7 2 (t ) ad di t i o n al t ax i s a “ t ax ” an dn ota “p en al ty , ad d it i on t o t ax , o r ad d it i o n al am o u n t” wi th i n th e m ean i n g o f s ect i o n7 4 9 1 (c). 6 See El v . Co m m i s s i o n er, 1 4 4 T.C. 1 4 0 , 1 4 8 (2 0 1 5) (ci t i n g Ro s s v . Co m m i s s io n er, T.C. M em o. 1 9 9 5 -5 9 9 , 1 9 95 Tax Ct . M em o LEXIS 5 9 7, at* 16 -* 2 0 ). Sect io n 7 2 (t ) i m

p os es an ad di t i o n al 1 0 % t ax o nearl y d is tri bu t i o ns fro m a qu al i fi edret i rem en t p l an (as d efi n edi n s ect i o n4 9 7 4 (c)(4 )). See s ec. 7 2(t )(1 ). Th e ad d it i o n al 1 0 % t ax , h o w ev er, d o es n o t ap p l y t o cert ai n en u m erat edd is tri b u t i o n s .

6 Pet i t i on er al s o d o es n o tco n t en d th atth e b u rd eno f p ro o f s h o u l d s hi ftt o res p o n d en t u n der s ec. 7 4 9 1 (a), n o r h as s h e es t ab l i sh edth at th e req u i rem en t s fo r s h i ft i n g th e b u rd en o f p ro of h av e b een m et . Acco rd i n g ly , th e b u rd en o f p ro o f wi th res p ectt o t h e s ec. 7 2 (t ) ad d i t io n al t ax rem ai n s o n p et i t io n er.- 7
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[* 7 ] See s ec. 7 2(t )(2 ). Rel ev an tex cep ti o n s i n cl u d e d i s tri b u t i o n s fro m an i n d i v i du al ret i rem en tp l an t o an u n em p lo y edi n d i v i dual fo r h eal th i ns u ran ce p rem i u m s an dd is tri b u t i on s fro m an i nd i v idu al ret irem en tp l an t o an i n d i vi du al fo r cert ai n qu al i fi edh i gh er edu cat i o nex p en s es . Sec. 7 2 (t )(2 )(D) an d (E). Th e p art i es d o n o t d is p u t e t h atp et i t i o n er recei v edd i s tri b u t i o n s t o tal i n g $ 1 1 9 ,0 0 0 i n 2 0 1 1 fro m

h er IRA, wh ich i s a qu al i fi edret irem en tp l anu n der s ect i o n 4 9 7 4 (c)(4 ). Pet i t i o n er t es ti fi edth atth e d i s tri b ut i o n s were es s en t ial l y h er o n l y
m ean s o f i n co m e t o p ay

b i l l s an dt o s up p o rth ers el f an dh er d au gh t ers . Up o nth e Co u rt ’ s qu es t i o n i ng at tri al as t o wh ats p eci fi c t y p es o f ex p en s es s h e p ai d u s i n g
an y o f t h e d i s tri b u t edm o n ey s , p et i t i o n er i n d i cat ed th ats h e d i du s e a p o rt i on o f t h e d i s tri b u t i o n s t o p ay

m on th l y m ed i cal i n s u ran ce p rem i u m s an dh er s tu d en tl o an i n d eb t ed n es s . Ho wev er, h er t es t i m o n y i nth i s reg ardwas g en eral , an ds h e was
u n ab le t o p ro du ce an y

d ocu m en t at i o ns ub s t an t i at i n g h er t es ti m o ny . Iti s ev i d en t th atp et i t i o n er m ad e wi th drawal s fro m h er IRA b ecau s e o f fi n an ci al h ard s h i p ; b u t
as we h av e h el d o n nu m ero u s o th er o ccas i o n s , th ere i s n o ex cep t i o n u n d er s ect io n 7 2 (t ) fo r fi nan ci al h ard s h i p . See, e.g ., Arn o l dv . Co m m i s s i o n er, 1 1 1 T.C. 2 5 0 , 2 5 5 (1 9 9 8) (ci t i n g Du ffy

v . Co m m is s i o n er, T.C. M em o . 1 9 9 6 -5 5 6 , an d Pu l l i am v . Co m m i s s i o n er, T.C. M em o . 1 9 9 6 -3 5 4 ); M i l n er v . Co m m i ss i o ner, T.C. M em o . 2 0 0 4 -1 1 1 ; Gal lag h er v . Co m m i s s i o ner, T.C. M em o . 2 0 01 -3 4 ; Ro bert s o nv .- 8
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[* 8 ] Co m m i s s i o n er, T.C. M em o . 2 0 00 -1 0 0, aff’ d , 1 5 F. Ap p ’ x 4 6 7 (9 th Ci r. 2 0 0 1 ). Wh i l e we ack n o wl ed g e an d are s ym p at h et ic t o p et i ti o n er’ s fi nan ci al s trai t s , we h av e n o au th ori ty

t o d i s reg ardth e ex p res s an d u nam b i g uo u s wo rd i n g o f t h e
s t atu te. See Pu l l i am v . Co m m i s s io n er, s l i p o p. at7 -8 (ci t i n g Es t at e o f Co ws er v . Co m m i s s i o n er, 7 3 6 F.2 d1 1 6 8 , 1 1 7 1 -1 1 7 4 (7 th Ci r. 1 9 84 ), aff’ g , 8 0 T.C. 7 8 3 , 7 8 7
- 7 8 8 (1 98 3 )). Onth e reco rdb efo re u s , we fi n d th atn o n e o f t h e en u m erat ed
s t atu to ry ex cep t i o n s ap p l i es t o p et i t io n er, an d t h u s t h e d i s tri b u t i on s fro m p et i t i o n er’ s IRA i n 2 0 11 are s ub jectt o th e s ect i o n7 2 (t ) ad d i t io n al t ax . W e al s o reject as wi th ou tm eri tp et i ti o n er’ s ap p aren tco n t en t i o n, as
m an i fes t edfro m

cert ai n ev i d en ce--t wo Ap ri l 2 0 1 5 l et t ers s he s en tt o res p o n d en t
an d two 2 0 1 2 no t i ces s h e recei v edfro m res p o n den t --t hatwe s h o ul dco n cl u d e t h ere i s n o d efi ci en cy

i n th i s cas e b ecau s e In t ern al Rev en u e M anu al (IRM ) p t . 4 .1 0 .2 .8
. 5 (J an . 1 7 , 2 0 1 2 ) p ro h i bi t s rep et i t i v e ex am i nat i o n s o f t h e s am e i ss ue. Th e ev i d en ce
s h o ws th atres p o n d en t ’ s AUR fu n ct i o n s en t p et i ti o n er a No ti ce CP2 0 0 0 d at ed Ap ri l 2 , 2 0 1 2, i n fo rm i ng h er o f a p ro po s edi n co m e t ax i ncreas e (i n cl u d i n g i n t eres t
an d p en al t i es ) fo r t h e 2 0 1 0 t ax ab l e y ear o nacco u n t o f t h e s am e s ect i o n7 2 (t ) i s s u e i m p l i cat edh ere. Th i s ev i d en ce al s o s h o w s th atres p o n d en t’ s AUR fu n ct i o ns en t p et i t i o n er a No t i ce CP2 0 05 d at edNo v em b er 1 9, 2 0 1 2 , i n fo rm i n g h er t h at th e i n qu i ry fo r t h e 2 0 1 0 t ax ab l e y ear was cl o s edwi th o u tch an g e. Th e IRM p ro v i s i on- 9
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[* 9 ] up o n wh i ch p et i ti o n er rel i es s et s fo rt h cert ai n act i o ns t o b e t ak enb y an
ex am i n i n g ag en t, i n cl u d i ng u l t i m at el y d et erm in i n g wh et h er t o cl o s e t h e
ex am i n at i o n fo r t h e cu rren tt ax ab l e y ear, wh ere t h e t ax p ay er, i n res p on s e t o th e ag en t’ s i ni t i al co n t actwi th th e t ax p ay er, i n fo rm s th e ag en t th at an ex am i n at i o n o f th e s am e i s s u e o r i s s u es i n ei th er o f t h e t wo p reced i n g t ax ab l e y ears res u l t edi n n o ch an ge o r a s m al l t ax ch an g e. Pet i t i o ner’ s co n t en t i o n i s wi th o u tm eri tfo r s ev eral reas o n s. Fi rs t , i th as l o n g b een s et t l edth atth ere i s n o s t atu t o ry o r reg u l at o ry

p ro h i bi t i o n ag ai ns t
au d it i n g a t ax p ay er’ s retu rn s fo r t w o co n s ecu t i v e y ears o r ag ai n s ti s s u i n g a n o t ice
o f d efi ci en cy fo r t wo co ns ecu t i v e y ears as t ax es are co m p u tedo nan an n u al b as i s , wi th each y ear b ei n g th e o ri g in o f a n ew l i ab i l i ty an da s ep arat e cau s e o f act i o n . See Co m m i s s i on er v . Su n n en , 3 3 3 U.S. 5 91 , 5 9 8 (1 9 48 ). Seco n d , as we h av e p rev i o u s l y h el d, the p ro v i si o n i n th e IRM o nrep et i t i v e ex am i n at i o n s (o r an y IRM p ro v is i o n fo r t h atm at t er) i s d i s cret i o n ary rat h er t h an m an d at ory , creat i ng n o l eg al ly en fo rceab l e ri g h t s fo r t ax p ay ers . See, e.g ., Green e v . Co m m i s s i o n er, T.C. M em o. 1 9 9 2 -2 0 2 , 1 9 92 Tax Ct . M em o LEXIS 2 3 9; Tu ck er v . Co m m is s i o n er, T.C. M em o. 1 9 8 3 -2 1 0 , 1 9 83 Tax Ct . M em o LEXIS 5 7 8; Ch ap m an v . Co m m i s s i o n er, T.C. M em o . 1 98 2 -6 8 , 1 9 8 2 Tax Ct . M em o LEXIS 6 7 5; s ee al so M ark s v . Co m m i s s i o n er, 9 4 7 F.2 d9 8 3 , 9 8 6 n .1 (D.C. Ci r. 1 9 9 1) (ci t i n g Po m ero y v . Un i t ed- 1 0 -

[* 1 0 ] St at es , 8 6 4 F.2 d1 1 9 1 , 1 1 9 4 -1 1 9 5 (5 th Ci r. 1 9 8 9 )), aff’ g T.C. M em o . 1 9 8 9
- 5 7 5 . Th i rd , th ere i s n o ev i d en ce i nth e reco rd t o i n d i cat e i nan y ev en t that p et i t i o n er res p o n d edt o an i n i t i al co n tactl et t er fro m res p o n d en treg ard i n g h er 2 0 1 1 t ax ab l e y ear b y

req u es t i n g th at res po n d en tcl o s e th e 2 01 1 cas e o nth e g ro u n dth at
res p o n d en t h adcl o sed th e 2 0 1 0 cas e wi th o u tch an ge. In o th er wo rd s , there i s n o
ev i d en ce t h atp et i t i on er rai s edth e rep et i t iv e ex am i n at i o n s i s s u e b efo re res p o n d en t i s su edth e n o ti ce o f d efi ci en cy fo r 2 0 11 . In d eed , th e reco rds u g g es t s th at p et i t i o n er d i dn o trai s e t h e rep et i t i v e ex am i n at i o n s i s s u e u n ti l Ap ri l 2 01 5 , aft er s h e fi led her Tax Co u rt p et i ti o n an d ap p ro x i m at el y two m o nt h s b efo re t ri al . Thu s , th ere was n o ap p l i cab l e p ro cedu re fo r res p o nd en t t o fo l l ow. W e s u s t ai n res p o nd en t ’ s d et erm i n at i o n t o i m p o s e t h e s ect io n7 2(t ) ad d it i o n al t ax o n th e t ot al am o un to f t h e d i s tri b u t i o n s fro m p et i t i o n er’ s IRA i n 2 0 1 1
. II. Accu racy -Rel at edPen al ty Un d er Sect io n6 66 2 (a) W e n o wad dres s wh et h er p et i t i o n er i s l i ab l e u n d er s ect i on 6 6 6 2(a) an d (b )(2 ) fo r anaccu racy -rel at edp en al ty o n an u n derp aym en tdu e t o a s ub s t an t i al
u n d ers t at em en to f i n co m e t ax . Sect io n 6 6 6 2 (a) i m

p o s es a 2 0 % accu racy -rel at ed p en al ty b as edo nan y p o rt i on o f an u n d erp aym en to f t ax req u i red t o b e s h o wno na return i f, as p ro v i d ed- 1 1 -

[* 1 1 ] b y s ect i o n 6 6 6 2(b ), th e un d erp aym en ti s at tri bu t ab le t o , am o ng o th er t h i n g s , an y s ub s tan t ial u nd ers t at em en to f i n co m e t ax . Th e t erm “ s ub s t an t i al
u n d ers t at em en t ” m ean s an u n d ers t at em en to f i n co m e t ax th atex ceed s th e g reat er
o f 1 0 % o f t h e t ax req u iredt o b e s h o wno n th e ret u rn o r $ 5,0 0 0 . Sec. 6 6 6 2 (d )(2 )(A). Th e Co m m i s s i o n er b ears th e b u rd en o f p ro du ct i o nreg ard i n g a t ax p ay er’ s l i ab i l i ty fo r t h e accu racy -rel at edp en al ty an d t h u s i s req u i redt o co m e fo rwardwi th s u ffi ci en tev i d en ce i nd i cat in g th ati m po s it i o no f t h e p en al ty

i s ap p ro p ri at e. See s ec. 7 4 9 1 (c); Hi g b ee v . Co m m i s s i o n er, 1 1 6 T.C. 4 3 8 , 4 46 (2 0 0 1). On ce t h e Co m

m is s io n er m eet s h i s b urd en o f p ro du ct i o n, the t ax p ay er b ears th e b urd en o f p ro vi ng , th ro u g h p ers u as i v e ev i d en ce, t h atth e Co m m i s s i o n er’ s p en al ty d et erm i n at i o ni s i n co rrect . See Ru l e 1 4 2(a); W el ch v . Hel v eri n g , 2 9 0 U.S. 1 1 1 , 1 15 (1 9 33 ); Hi gb ee v . Co m m i s s i o ner, 1 1 6 T.C. at4 4 7. Res po n d en th as d i s ch arg edh i s b u rd eno f p ro du ct i o nb y p ro v i d i n g s uffi ci en t
ev i d en ce s h o wi n g thatp et i t i o n er’ s u n d ers t at em en t o f i nco m e t ax fo r 2 0 1 1 ex ceed s th e g reat er o f 1 0 % o f t h e t ax th atwas req u i red t o b e s h o wno n t h e 2 0 1 1 retu rn o r $ 5 ,0 0 0
. Ap p li cat i o n o f t h e accu racy -rel at edp en al ty m ay b e av o i d edwi th res p ectt o
an y p o rt i on o f an u n derp aym en ti f i ti s s h o wn thatth ere was reas o n ab l e cau s e fo r
s u ch po rt i o n an dth e t ax p ay er act ed i ng o o dfai th wi th res pect t o s u ch p o rt i o n .- 1 2 -

[* 1 2 ] Sec. 6 6 6 4 (c)(1 ); Hi g bee v . Co m m i s si o n er, 1 1 6 T.C. at 4 4 6 -4 4 7 . Th e d et erm i n at i o n o f wh et h er t h e t ax p ay er h adreas o n ab l e cau s e an dact ed i ng o o d fai th dep en d s up o n th e p ert i n en tfact s an dci rcu m s t an ces o f a p art icu l ar cas e. Sec. 1 .6 66 4 -4 (b )(1 ), In co m e Tax Reg s . W e co n s i der, am o n g o th er fact o rs , th e
ex p eri en ce, educat i o n , an d s o p h i s t i cat i o n o f t h e t ax p ay er; h owev er, t he p ri n ci p al
co n si d erat io n i s th e ex t en to f t h e t ax p ay er’ s effo rt s t o as s es s t h e p ro p er t ax l i ab i l i ty . Id .; s ee al s o Hi g b ee v . Co m m i s s i o n er, 1 1 6 T.C. at4 48 . Tak i n g i nt o
co n si d erat io n th e t ax p ay er’ s ex p eri en ce, educat i o n , an ds o p h i s t i cat i o n , an h o n es t
m i s u n d ers t an d i n g o f fact o r l aw m ay i n d i cat e reas o n ab l e cau s e an dg oo dfai th
. Hi g bee v . Co m

m i ss i o n er, 1 1 6 T.C. at4 4 9 (ci t i ng Rem y v . Co m m i s s i o ner, T.C. M em o. 1 9 9 7 -7 2 ). Th e m an y s ect i o n 7 2 (t ) cas es , ju s ts o m e o f wh i ch h av e b een ci t eds up ra p p . 7 -8 , s tro n g l y

i n d i cat e a co m

m o n m i s u n d ers tan d i ng am o ng t ax p ay ers th atfi n an ci al h ard s h i p i s an ex cep ti o n t o t h e s ect i o n7 2 (t ) ad d it i on al t ax . Bo ls t ered b y th e fact th at , fo r wh at ev er reas o n , res p on d en t cl o s edh er 2 0 1 0 cas e wi th o u tch an g e, p et i t i o n er p ro ceed ed u n d er t h atm i su n d ers t an d in g n o to n l y wi th res p ectt o 2 0 1 1 b u tap paren t l y

wi th res p ectt o 2 0 12 as wel l . Onth e b as i s o f t h e reco rd b efo re u s, we fi n dth atp et it i on er h adreas o n ab l e cau s e an dact edi ng o o d fai th
.- 1 3 -

[* 1 3 ] Co n s equ en tl y , p et i ti o ner i s n o tl i ab l e fo r t h e s ub s t an t i al u n ders t at em en to f i n co m e t ax p en al ty

u n d er s ect i on 6 6 6 2 (a) an d(b )(2 ). W e h av e co n s id eredal l o f t h e arg um en t s m ad e b y th e p art i es an d , t o th e
ex t en tth ey

are n o tad dres s edh erei n , we fi n dth em t o b e m o o t , i rrel ev an t, o r wi th o u tm eri t . To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t eredfo r
res p o nd en t as t o the d efi ci en cy an dfo r p et i t i o ner as t o th e accu racy -rel at edp en al ty
u n der s ect io n6 6 6 2 (a).