T.C. Summary Opinion 2012-80

UNITED STATES TAX COURT

ARTHUR D. SASSANI, JR., Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 24248-10S. Filed August 9, 2012.

Arthur D. Sassani, Jr., pro se.

Robert A. Baxer, for respondent.

SUMMARY OPINION

PANUTHOS, Chief Special Trial Judge: This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect when the petition

was filed. Pursuant to section 7463(b), the decision to be entered is not reviewable

by any other court, and this opinion shall not be treated as precedent for any other
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case. All section references are to the Internal Revenue Code in effect for the year

in issue, and all Rule references are to the Tax Court Rules of Practice and

Procedure, unless otherwise indicated.

Respondent determined a deficiency of $1,475 with respect to petitioner’s

Federal income tax for 2008. The sole issue for decision is whether any portion of

the interest petitioner received from various banks represents interest income from a

qualified retirement account and is thus excludable from gross income. 

Background

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

facts and the attached exhibits are incorporated herein by this reference. At the time

the petition was filed, petitioner resided in Pennsylvania. 

Before the year in issue, petitioner worked for Niagara Mohawk Power Corp.

(Niagara). During his employment with Niagara petitioner participated in a section

401(k) plan administered by Fidelity Investments, Inc. In 2002 petitioner withdrew

$150,000 from his section 401(k) plan account with Fidelity and reinvested the

balance in an individual retirement account (IRA) with Jackson National Life

Insurance Co. of New York (Jackson). In 2004 petitioner maintained checking and

savings accounts with Columbia County Farmers National Bank (Farmers).
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Between 2003 and 2006 petitioner made a series of withdrawals from his

Jackson IRA and deposited the funds into certificates of deposit (CDs) with various

banks. In 2006 petitioner withdrew the remaining balance of his Jackson IRA and

deposited the balance into a retirement account with PNC Bank (PNC). At some

later date, petitioner made an additional deposit of funds into a CD held by PNC. 

In 2008 petitioner maintained one IRA at Citizens Bank and two IRAs with

Bank of America. On April 11, 2008, petitioner withdrew $30,953.13 from his IRA

at Citizens Bank and deposited the funds into a CD with Farmers. On the same date

petitioner made two withdrawals totaling $25,004.42 from his Bank of America

IRAs. These funds were also deposited into a CD at Farmers. Petitioner executed

an agreement reflecting the purchase of the CD for $25,004.42. In June 2008

petitioner withdrew $32,698.45 from his Citizens Bank IRA and deposited the funds

with M&T Bank (M&T). The record reflects that in June 2008 petitioner had at

least one existing IRA with M&T.

Petitioner timely filed a 2008 Form 1040, U.S. Individual Income Tax Return. 

Petitioner reported $1,877.25 of interest income earned from CDs and other bank

accounts. Petitioner’s return was selected for examination. The Internal Revenue

Service (IRS) informed petitioner that Forms 1099-INT, Interest Income, provided
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by the banks reported more interest income than petitioner had reported on his 2008

tax return.

Petitioner contacted Farmers to inquire about his accounts and the amounts

Farmers reported on the Forms 1099-INT. Petitioner was unsuccessful in his

attempts to convince Farmers that he had previously directed it to deposit the funds

in his existing IRA rather than to use them to purchase CDs. Petitioner claims PNC

erred by placing these funds into a CD. Petitioner did not provide any explanation

with regard to the M&T accounts. 

On August 30, 2010, respondent issued a notice of deficiency determining

that petitioner failed to report on his 2008 return interest income of $3,808 received

in the following amounts:1

Bank name Interest amount

PNC Bank

PNC Bank

PNC Bank

M&T Bank

M&T Bank

M&T Bank

First Columbia Bank & Trust1

First Columbia Bank & Trust

First Columbia Bank & Trust

First Columbia Bank & Trust

$246

 293

 246

 281

 236

 236

 410

 272

 269

 322

1No adjustments in the notice of deficiency relate to premature withdrawals. 
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First Columbia Bank & Trust

First Columbia Bank & Trust

First Columbia Bank & Trust

First Columbia Bank & Trust

First Columbia Bank & Trust

 Total

 302

 235

 258

 146

 56

3,808

1Formerly Farmers.

The banks issued petitioner Forms 1099-INT showing interest income from CDs in

his name. Petitioner does not dispute that he received interest income from the CDs

described on Forms 1099-INT. He asserts that he intended to deposit the funds into

qualified retirement accounts but the banks erroneously deposited the funds into

nonqualified accounts.

Discussion

I. Burden of Proof

In general, the Commissioner’s determination set forth in a notice of

deficiency is presumed correct, and the taxpayer bears the burden of showing that

the determination is in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). The burden of proof with respect to a factual issue may be placed on the

Commissioner under section 7491(a) if the taxpayer introduces credible evidence

regarding that issue and establishes that the taxpayer complied with the

requirements to substantiate items, maintain records, and fully cooperate with the

Commissioner’s reasonable requests. Sec. 7491(a)(2)(A) and (B). 
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Section 7491 does not require the burden of proof to be placed on

respondent. Petitioner has neither asserted that the burden of proof should be

placed on respondent nor established that he complied with the requirements of

section 7491(a). Accordingly, petitioner bears the burden of proof. See sec. 7491

(a)(2)(A) and (B).

II. Omitted Interest Income

Gross income includes all income from whatever source derived, including

interest income. Sec. 61(a)(4). Exclusions from income are to be narrowly

construed. Commissioner v. Schleier, 515 U.S. 323, 328 (1995). Interest earned

from an IRA account is generally exempt from taxation unless the account ceases to

be an IRA. See sec. 408(e)(1). Petitioner asserts that funds were transferred from

qualified plans to purchase CDs in other qualified plans.

While petitioner’s funds were maintained in qualified retirement plans in

years before 2008, he moved funds into various bank accounts during the years

2003 through 2008. To the extent funds were properly rolled over into other

qualified retirement accounts, the income earned on the funds (interest) in the

account is exempt from taxation until distributed. See sec. 408(e)(1); see also

Horvath v. Commissioner, 78 T.C. 86, 91 (1982); Orzechowski v. Commissioner,

69 T.C. 750, 755 (1978), aff’d, 592 F.2d 677 (2d Cir. 1979).
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When funds are distributed from a qualified retirement account to a

nonqualified retirement account, the interest earned from the nonqualified account is

includable in income under the general proposition that every item of a person’s

gross income is “subject to Federal income tax unless there is a statute or some rule

of law that exempts the person or the item from gross income.” Warbus v. 

Commissioner, 110 T.C. 279, 282 (1998) (citing HCSC-Laundry v. United States,

450 U.S. 1, 5 (1981)). Since there is no exclusion for interest income earned on

CDs and other nonqualified retirement accounts, the interest is includable in income. 

In a few instances we have treated an imperfect rollover contribution or IRA

distribution as having fully complied with the statute where the taxpayer acted 

with full knowledge of the law’s requirements, took all the steps within his

reasonable control to comply with those requirements, and achieved substantial

compliance. See Jankelovits v. Commissioner, T.C. Memo. 2008-285 (citing 

Wood v. Commissioner, 93 T.C. 114 (1989)). Wood, Childs, and Thompson are

three cases in which a taxpayer was considered to have complied with the

requirements where an imperfect rollover was due to error by the taxpayer’s

financial institution. See Wood v. Commissioner, 93 T.C. 114 (1989); Childs v.

Commissioner, T.C. Memo. 1996-267 (untimely distribution treated as timely 
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where taxpayer took all reasonable steps to comply with statute and failure to meet

statutory deadline was attributable to error of taxpayer’s financial institution);

Thompson v. Commissioner, T.C. Memo. 1996-266 (to same effect).

In Wood, a taxpayer sought to roll over the proceeds from a profit-sharing

plan into an IRA. The taxpayer properly executed the transaction within the 60-day

period, but the trustee mistakenly recorded a part of the proceeds as having been

transferred to a nonqualified account. We therein found in Wood that the taxpayer

did everything that could reasonably be expected of him to comply with the

statutory rollover contribution requirements, including meeting with his IRA trustee,

instructing the trustee to open an IRA, executing the documents to open the IRA,

and transferring the distribution to the trustee for deposit in the IRA. Moreover, the

trustee assured the taxpayer that the rollover transaction would be carried out. We

therefore held in Wood that the trustee’s bookkeeping error did not preclude

rollover treatment because the taxpayer had substantially complied with the

statutory requirements. Cf. Schoof v. Commissioner, 110 T.C. 1, 10-11 (1998)

(distinguishing Wood in holding that the taxpayers did not substantially comply with

the rollover contribution requirements of section 408(d) so as to exclude the

distributions from income).
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With respect to PNC petitioner admits to purchasing a CD in a nonqualified

account. Petitioner contends that a PNC banker mistakenly used his funds to

purchase a CD in a nonqualified account rather than an IRA. Petitioner did not

provide any documentation regarding his instructions to PNC.

With respect to Farmers, petitioner apparently intended to deposit funds from

his qualified retirement accounts with Citizens Bank and Bank of America into other

qualified retirement accounts. Petitioner, however, acknowledged that he also did

not give specific instructions to Farmers to deposit any of the funds into an IRA. 

The record includes a signed copy of a Farmer’s CD agreement reflecting an initial

purchase of $25,004.42. After the purchase petitioner was apparently confused by

annual account statements from Farmers. However, he did not contact the bank to

inquire about his accounts until he was later contacted by the IRS.

The facts in this case are more akin to those of Schoof, Crow, and

Jankelovits, and are distinguishable from those in Wood, Childs, and Thompson. 

The record does not reflect that in 2008 petitioner instructed any bank to open an

IRA. Petitioner did not meet with the trustee of his IRA, and he was not advised by

any bank employee that the funds were to be placed in an IRA. Petitioner did not

take all of the steps within his reasonable control to comply with the rollover
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requirements. While it may have been petitioner’s intention to deposit his funds into

an IRA, it is well established that a taxpayer’s unexpressed intention to take

advantage of tax laws does not determine the tax consequences of his or her

transactions; what was actually done is determinative of the tax treatment. See

Carlton v. United States, 385 F.2d 238, 243 (5th Cir. 1967) (citing Commissioner v.

Duberstein, 363 U.S. 278, 286 (1960)).

The record reflects that the bank accounts petitioner owned accrued interest. 

Petitioner does not dispute receiving the interest income from the accounts. 

Petitioner has not demonstrated that the $3,808 of interest he received from the

accounts in 2008 was excludable from gross income. Respondent’s determination is

sustained.

To reflect the foregoing,

Decision will be entered for

respondent.