T.C. M em o . 2 0 1 9 -1 2 4

UNITED STATES TAX COURT

W ILLIAM ELIAS ROSENBERG, Pet it i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 2 3 6 28 -1 7
. Fi l edSep t em b er 1 9 , 2 0 1 9
.

W i l l i am El i as Ro s en berg , p ro s e. Cai t li n A. Ho m ewo o d, fo r res p o nd en t .

M EM ORANDUM FINDINGS OF FACT AND OPINION PUGH, Ju d g e: In a n o t i ce o f d efi ci en cy d at edAu g u s t7 , 2 01 7 , res p o n d en t d et erm i n eda d efi ci en cy

i n p et it i o n er’ s Fed eral i n co m e t ax o f $ 4 ,0 8 1 fo r 2 0 1 5
. 1

1 Un l es s o th erwi s e i n d i cat ed , s ect i on referen ces are t o the In t ern al Rev en u e Co d e o f 1 9 8 6 , as am en d ed , i n effect fo r t h e y ear at i s s u e. Ru l e referen ces are t o th e Tax Co u rt Ru l es o f Pract ice an dPro cedu re. Al l m on et ary am ou n t s are ro u n dedt o th e n eares td o ll ar.- 2
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[* 2 ] Th e i s s u es fo r d eci si o n are wh et h er p et i t i o n er’ s wi th drawal fro m h i s i n d i v i du al ret i rem en tacco u n t (IRA) i s (1 ) i n cl u d edi n g ro s s i n co m e an d(2 ) s ub ject t o the 1 0 % ad d i t i on al t ax o n earl y d i s tri b u t i o n s fro m qual i fi edret i rem en tp l an s i m p o s edb y s ect i o n 7 2 (t ). 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 ed fact s are i n co rp o rat edi n o u r fi nd i n g s b y th i s referen ce. Pet i t i o n er res i d edi n Cal i fo rn i a wh en h e t i m el y fi ledh i s p et i t io n . OnOct o b er 2 9 , 2 01 4 , a J u d g m en t an dPro p ert y Ord er At t ach m en tt o J u d g m en t(Pro p erty

Ord er) was en t eredth atd i ss o l v edp et i t i o ner’ s m arri ag e t o h i s fo rm er s p o u s e. It p ro v i d edth ath is fo rm er s po u s e m u s t p ay h i m th e s um

o f $ 1 0 ,0 0 0 t o b e “ [p ] ai dfro m th e p ro ceed s o f * * * [h i s fo rm er s p ou s e’ s ] ret i rem en t
acco u n t as rei m

b u rs em en tt o p et i t i o n er fo r h i s p aym en t t o * * * [h er] o f l iqu i d at ed ret i rem en tp ro ceed s du ri n g m arri ag e.” In 2 0 1 5 p et i t i o n er’ s fo rm er s p o u s e t ran s ferred ret i rem en tfu n d s t o h i m . In s t eado f wi th drawi n g th e fu nd s fro m h er ret i rem en tacco u n t atM erri l l Ly n ch an d
m ak i n g a cas h p aym en tt o h i m , s h e arran g edfo r t h o s e fu n ds t o b e tran s ferred fro m h er ret i rem en tacco u n tt o an IRA t h atp et i t i o n er o p en edat M erri l l Ly n ch
. W i th i n
s ev en d ay s o f t h i s tran s fer h e wi th drew t h e fu n d s an dcl o s edthe acco u n t . In2 0 1 6- 3
-

[* 3 ] M erri l l Ly

nch i s s ueda Fo rm

1 0 99 -R, Di s tri bu t io n Fro m Pen si o n s, An n u i t i es , Ret i rem en to r Pro fi t -Sh ari n g Pl an s , IRAs , In s u ran ce Co n tract s , et c., t o p et it i o n er refl ect i n g a wi th drawal o f $ 9 ,8 7 5 ($ 1 0 ,0 0 0 redu cedb y a $ 1 2 5 wi thd rawal fee). Pet i t io n er al s o wi th drew $ 2 4 5 fro m an IRA h e h el datFi d el i ty In v es tm en t s (Fi d el i ty ) an drecei v eda Fo rm 1 0 9 9 -R i n 2 0 1 6 fro m

Fi d el i ty refl ect i n g th i s wi th drawal . He h adn o ty ettu rn ed5 9 -1 / 2 atth e t im e o f th e wi th drawal s . Onh i s 2 0 1 5 Fo rm

1 0 4 0 , U.S. In d i vi du al In co m e Tax Retu rn , p et i t i o n er rep o rt edth e Fi d el i ty wi th drawal as i n co m e b u t n o tth e M erri l l Ly n ch wi th drawal
. He d i d n o t rep o rto r p ay

th e 1 0 % ad d i t i o nal t ax fo r earl y d i s tri b u ti on s fo r ei th er wi th drawal . Res p o n d en t ’ s n o ti ce o f d efi ci en cy ad d edth e M erri l l Ly

n ch wi th drawal t o p et i t i o n er’ s g ro s s i n co m e, d et erm i nedth e s ect i o n 7 2 (t ) 1 0 % ad d it i o n al t ax fo r b o th wi th drawal s , an d m ad e co rres p o n di n g co m p u t at io n al ad ju s t m en t s . OPINION I. Bu rd en o f Pro o f Ord i n ari l y , th e b u rd en o f p ro o f i n cas es b efo re t h e Co u rt i s o n th e t ax p ay er. Ru l e 1 4 2 (a); W el ch v . Hel veri n g , 2 9 0 U.S. 1 1 1 , 1 1 5 (1 93 3 ). In cert ai n ci rcu m s t an ces th e b u rd en o f p ro o f o n fact ual i s s u es m ay s h i ftt o th e Co m m i s s i o n er. See s ec. 7 4 9 1 (a); Ru l e 1 4 2 (a)(2 ). Th e reco rdes t ab l i s h es , an d- 4
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[* 4 ] p et i t i o n er co n ced es , th ath e recei v edwi th drawal s fro m ret i rem en tacco u n t s h e h el datFi d el i ty

an dM erri l l Ly

n ch , an d h e d oes n o t d is p u t e t h e am ou n t s rep o rt ed
o n th e Fo rm s 1 0 99 -R. He al s o d o es n o t d is p u t e res p o n den t ’ s d et erm i n at i o n as t o th e Fi d el i ty

wi th drawal . Rat h er, h e d i s p u t es th e ch aract eri zat i o n o f t h e M erri l l Ly n ch wi th drawal as i nco m e. Becau s e p et i t i on er rai ses o n l y a l eg al i s s u e, we d eci d e wh et h er h e i s l i ab l e fo r t h e d efi ci en cy wi th o utreg ardt o t h e b u rd en o f p ro o f. II. An al y s is Gro s s i n co m e g en eral l y

i n cl ud es d i st ri bu t i o n s fro m an IRA u n d er t he p ro v is i o n s o f s ect i o n 7 2 . Sec. 4 0 8 (d ); s ee Sears v . Co m m i s s io ner, T.C. M em o . 2 0 1 0 -1 4 6 . Sect i o n 7 2 (t )(1 ) i m p o s es a 1 0 % ad d i t i o n al t ax o n earl y d i s tri bu t i o n s fro m a qual i fi edret irem en tp lan , i n cl u d i n g an IRA, s ub j ectt o cert ai n ex cep t i o n s i n
s ect i on 7 2 (t )(2 ). See s ec. 4 9 7 4 (c). Th e s t atu t o ry s ch em e ex p res s l y

ad dres s es tran s fers as p art o f p ro p ert y s et t l em en t s i n ci d en tt o d i vo rce o r s ep arat io n , p ro v id i n g an ex cep t i o n fo r a d is tri b u t io n m ad e t o an al t ern at i v e p ay ee p u rs u an tt o a qu al i fi edd o m es t i c rel at i o n s o rd er. Sec. 7 2 (t )(2 )(C). Pet i t i o n er’ s wi th drawal d o es no tfi tth atex cep ti o n . See, e.g ., Hart l ey v . Co m m i s si o n er, T.C. M em o . 2 0 1 2
- 3 1 1
.- 5
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[* 5 ] Pet i t i o ner d o es n o targ u e th at th e M erri l l Ly n ch wi th drawal i s n o t i n co m e o r th atan y s t atu t ory ex cep t i o n i n s ect i on 7 2 (t )(2 ) ap p l i es ; h e arg u es rat h er th atth e Co u rts h o u l d(1 ) d i s reg arden t i rel y th e M erri l l Ly

n ch acco u n t an d t h e i n t erm ed i at e
s t ep s o f t h e tran s fers fro m h i s fo rm er s p o u s e’ s ret i rem en tacco u n t t o h i s IRA an d h i s i m m ed i at e wi th drawal fro m th atacco u ntan d(2 ) t reat th e t ran s act i o n i ns t eadi n
s ub s t an ce as a p aym en to f cas h fro m h i s fo rm er s p o u se t o h i m as p res cri b edb y

th e Pro p erty Ord er. He reas o n s t h ath is fo rm er s p ou s e i n t erp o s edth e i n term ed i at e
s t ep s o v er h i s o b

ject io n , an dh e d i dn o tth i n kth e t em p o raryacco u n two u l dco n v ert h i s p ro p ert y

s et t l em en ti n to a ret i rem en td i s tri b u t i o n i n cl u d ab l e i n h i s g ro s s i n co m e o r s ub

j ect t o th e 1 0% ad d i t i o n al t ax u n d er s ect i o n 7 2 (t )(1 ). 2 Pet i ti o n er cred i b l y t es t ifi edreg ard i n g th e i n t en to f t h e Pro p ert y Ord er, b u t h i s u n d ers t an d i ng th ath i s fo rm er s po u s e wo u ldwi t h draw t h e fu n d s fro m h er ret i rem en tacco u n tan d tran s fer t h em

d i rect l y t o h i m can n o to v erco m e t h e factth atthe fu n d s were tran s ferred fro m

h er ret i rem en tacco u ntt o h i s an dh e t h en wi th drew t hem . W e wi l l n o tu s e co m

m o n l aw d oct ri n es t o fas h i o n an equ it ab l e ex cep t i o n t o th e
s t atu to ry s ch em e i n s ect i o n 7 2
. See Su m m ers v . Co m

m i s s i o n er, T.C. M em o .

2 Pet i t i o n er d i dn ot arg u e, n o r d o es th e ev i d en ce s up p orto u r co n cl ud i n g , th ath i s fo rm er s po u s e wi th drew t h e fu n d s fro m h er ret i rem en tacco u n ti n a t ax ab l e tran s act io n an d t h en co n tri bu t edth es e aft er-t ax fu n d s i n t o h is IRA; we th erefo re wi l l n o tco ns id er t h e t ax treat m en to f t h i s h y p ot h et i cal al t ern at iv e.- 6
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[* 6 ] 2 0 1 7 -1 25 , at* 8 (up h o ld i n g a 1 0 % ad di t i o n al t ax o n a d i s tri b u t i o n i n
co n nect io n wi th a p ro p ert y s et t l em en tan do b s erv i n g that“ we are n o tat l i b ert y t o ad d equ i t ab l e ex cep t i o n s t o th e s t atu t o ry s ch em e t h atCo n g res s en act ed ”). W e th erefo re s u s t ai n res p o nd en t ’ s d et erm i n at i o n th atth e M erri ll Ly n ch wi th drawal i s i n cl u d ab l e i n p et i t i on er’ s g ro s s i n co m e an d s ub jectt o th e 1 0 % ad di t i o n al t ax . An y co nt en t i o n s we h av e n o tad dres s edwe d eem i rrel ev an t , m o o t, o r
m eri t l es s . 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 .