T.C. Memo. 2001-95

UNITED STATES TAX COURT

JAIME PENA and VERNA ANN PENA, Petitioners v. 

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 17613-99. Filed April 17, 2001.

Jaime Pena, pro se.

Usha Ravi, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

CARLUZZO, Special Trial Judge: Respondent determined a

deficiency of $7,054 in petitioners' 1996 Federal income tax.

The issue for decision is whether certain distributions from

an individual retirement account are includable in petitioners’

1996 income. 
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1 Section references are to the Internal Revenue Code, as

amended, in effect during the relevant period.

FINDINGS OF FACT

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

Petitioners are husband and wife. They filed a timely joint

Federal income tax return for 1996. At the time the petition was

filed, petitioners resided in Danville, California. References

to petitioner are to Jaime Pena.

Petitioner is an attorney licensed to practice in

California. Prior to the year in issue, he was employed as an

attorney by Jaime Pena Professional Corp. (the corporation). 

Effective as of September 1, 1982, for petitioner’s benefit and

with petitioner as trustee, the corporation established a defined

benefit single-employer plan entitled the Jaime Pena A P.C.

Defined Benefit Plan (the plan). The plan was a qualified

pension plan within the meaning of section 401(a).1

Over the years, the corporation made contributions to the

plan on petitioner’s behalf and claimed deductions for those

contributions on its corporate Federal income tax returns. None

of the contributions were includable, or were included in

petitioners’ income for any period. Petitioner never made any

contributions to the plan. 

The plan maintained a brokerage account with Kidder, Peabody

& Company (the Kidder account), but investment decisions were
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made by petitioner as trustee of the plan. In June 1987, on

petitioner’s behalf and at his direction, the plan invested

$25,972.82 in corporate securities. During 1990, the plan was

terminated and the proceeds of the Kidder account were

transferred (rolled) into an individual retirement account at

Daking Securities Corporation (the IRA). The IRA was established

for the benefit of petitioner, who as its custodian, directed how

IRA funds were to be invested. Petitioners did not include any

of the proceeds rolled over from the Kidder account to the IRA in

their 1990 income. 

During 1996, petitioner, who was 49 years old as of the

close of that year, received distributions totaling $21,700 from

the IRA (the IRA distributions). Petitioners did not include any

of the IRA distributions in the income they reported on their

1996 Federal income tax return, which includes a Schedule D,

Capital Gains and Losses. Nothing on the return suggests that

any of the transactions listed on the Schedule D relate to

investments of the plan or the IRA.

In the notice of deficiency, respondent determined that the

IRA distributions received by petitioner in 1996 are includable

in petitioners’ income for that year. Other determinations made

in the notice of deficiency are not in dispute.
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OPINION

In their petition, petitioners allege that the deficiency in

this case is based upon respondent’s “determination that

petitioners could not take ordinary losses, in the year of

distribution of all of the proceeds, on stock previously held in

an exempt employees trust.” Petitioners are mistaken on this

point. As noted above, the deficiency in this case is based, in

large part, upon respondent’s determination that the IRA

distributions received by petitioner in 1996 are includable in

petitioners’ income for that year. 

Elsewhere in the petition, petitioners allege that during

1996 “the stock was sold at prices below what had been paid for

it by the trust” and that the proceeds of the sale “were

distributed to petitioners and nothing was left in the trust”. 

According to the petition, the “aggregate of the proceeds was

less than what had been contributed by the employer into the

trust”. In their brief, petitioners argue that “investment

losses were incurred by the plan” and therefore they “duly

listed, on Schedule D, their investment losses exceeding gains

incurred by the plan in 1996".

The allegations contained in the petition and the argument

presented in petitioners’ brief relate only to whether

petitioners are entitled to a deduction for investment losses

sustained by the plan; none of their allegations or arguments
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2 Distributions from an IRA are includable in the

taxpayer’s/distributee’s income in accordance with sec. 72.

See sec. 408(d). The IRA distributions were not received as an

annuity by petitioner. Consequently, the distributions are

includable in petitioners’ income, except to the extent that any

distribution, or any portion of any distribution, is allocable to

petitioners’ “investment in the contract.” Sec. 72(e)(2). 

Petitioners do not claim that petitioner made nondeductible

contributions to the IRA. Consequently, we proceed as though his

tax basis in the IRA were zero. Nor do petitioners claim, and

nothing in the record suggests, that petitioners should otherwise

be given credit for any investment in the IRA, within the meaning

of sec. 72(e)(3)(A)(ii) and 72(e)(6). Consequently, the entire

amount of the distribution is allocated to, and must be included

in, petitioner's income. See sec. 72(e)(3)(A).

address respondent’s determination that the IRA distributions are

includable in their 1996 income. Consequently, we consider

petitioners to have conceded the correctness of that

determination. Moreover, based upon the evidence presented, we

are satisfied that petitioners’ deemed concession is consistent

with controlling law.2 The IRA distributions are includable in

petitioners’ 1996 income, and respondent’s determination in this

regard is sustained. 

Because respondent has not challenged any of the deductions

taken on petitioners’ 1996 return, we need not discuss the merits

of petitioners’ claim that respondent erred by disallowing the

deduction for the plan’s “investment losses” taken on that

return. 
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To reflect the foregoing,

Decision will be

entered for respondent.