T.C. Memo. 2009-148

UNITED STATES TAX COURT

JOHN THOMAS WARREN, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 21864-06. Filed June 24, 2009.

R determined deficiencies in P’s 2002, 2003, and

2004 Federal income tax. R also determined additions

to tax pursuant to sec. 6651(a)(1), I.R.C., for P’s

2002 and 2003 tax years and accuracy-related penalties

pursuant to sec. 6662(a), I.R.C., for P’s 2002, 2003,

and 2004 tax years. After R’s concessions, the parties

dispute whether P’s Federal income tax liabilities were

finally determined in a ch. 13 bankruptcy proceeding.

Held: P’s Federal income tax liabilities were not

finally determined in a ch. 13 bankruptcy proceeding. 

P is liable for Federal income tax deficiencies,

additions to tax, and penalties.
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1All section references are to the Internal Revenue Code of

1986, as amended and in effect for the tax years at issue. The

Rule reference is to the Tax Court Rules of Practice and

Procedure.

2In the notice of deficiency respondent determined that

petitioner had $18,775 in unreported capital gains in 2002 and

$50,162 in unreported capital gains in 2003. At trial

respondent’s counsel informed the Court that respondent had

received evidence of petitioner’s basis in stock options that he

sold in 2002 and 2003 and that the unreported capital gains

should be $983 in 2002 and $4,891 in 2003. On brief respondent

concedes reduced deficiencies for 2002 and 2003 as a result of

the substantiated basis. 

John Thomas Warren, pro se.

Laura A. Price, Lauren Epstein, and Robert W. Dillard, for

respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

WHERRY, Judge: This case is before the Court on a petition

for redetermination of Federal income tax deficiencies that

respondent determined for petitioner’s 2002, 2003, and 2004 tax

years.1 Respondent also determined additions to tax pursuant to

section 6651(a)(1) for petitioner’s 2002 and 2003 tax years and

accuracy-related penalties pursuant to section 6662(a) for

petitioner’s 2002, 2003, and 2004 tax years. After respondent’s

concessions,2 the issues remaining for decision are whether

petitioner’s Federal income tax liabilities were finally

determined in a chapter 13 bankruptcy proceeding and whether

petitioner is liable for the additions to tax and penalties. 
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3While those proceedings were ongoing, petitioner filed his

2002, 2003, and 2004 Federal income tax returns using Forms 1040,

U.S. Individual Income Tax Return. He filed his 2002 return on

July 8, 2005. He filed his 2003 return on Apr. 18, 2005. He

filed his 2004 return on Apr. 15, 2005.

4On Dec. 6, 2005, the bankruptcy trustee had filed a motion

to dismiss on the ground that petitioner had been delinquent in

making payments to the trustee pursuant to the ch. 13 repayment

plan that petitioner had filed with his voluntary ch. 13

bankruptcy petition. The bankruptcy court had reserved ruling on

that motion in an order dated Dec. 8, 2005.

FINDINGS OF FACT

Some of the facts have been stipulated, and the stipulated

facts and accompanying exhibits are hereby incorporated by

reference into our findings. On January 5, 2005, petitioner

filed a voluntary petition under chapter 13 of the Bankruptcy

Code with the Tampa Division of the U.S. Bankruptcy Court for the

Middle District of Florida (bankruptcy court). During the course

of those proceedings respondent filed a proof of claim and

multiple amended proofs of claim regarding Federal income tax

liabilities for tax years including those at issue.3 Petitioner

objected to respondent’s claim but withdrew his objection on

February 13, 2006. 

The bankruptcy court dismissed petitioner’s bankruptcy case

in an order dated April 6, 2006.4 The bankruptcy court did not

discharge any tax liabilities during the course of petitioner’s

bankruptcy case.
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5Respondent has conceded reduced deficiencies attributable

to capital gains. See supra note 2. 

6The notice of deficiency improperly characterized the

distributions as coming from an individual retirement account. 

The distributions apparently comprised some small dividend

distributions, a $3,979.90 participant loan distribution during

February 2004, and an $8,924.49 distribution in February 2004. 

In unreported income cases, the Court of Appeals for the

Eleventh Circuit, to which an appeal of the decision in this case

would lie absent a stipulation to the contrary, has held that the

presumption of correctness applies once the Commissioner

introduces some substantive evidence reflecting that the taxpayer

received unreported income. See Blohm v. Commissioner, 994 F.2d

1542, 1549 (11th Cir. 1993), affg. T.C. Memo. 1991-636. If the

Commissioner introduces such evidence, the burden shifts to the

taxpayer to show by a preponderance of the evidence that the

deficiency was arbitrary or erroneous. Id. Respondent has

introduced sufficient evidence reflecting that petitioner

received sec. 401(k) plan distributions in 2004. Petitioner does

not argue that distributions were not made out of his sec. 401(k)

(continued...)

Respondent issued petitioner a notice of deficiency on July

26, 2006. The notice of deficiency reflects Federal income tax

deficiencies of $7,126 for 2002, $15,221 for 2003, and $21,277

for 2004. Those deficiencies stem from adjustments for the

following: (1) Unreported interest income of $60 in 2002 and $17

in 2003; (2) unreported capital gains of $18,775 in 2002 and

$50,162 in 2003;5 (3) disallowed itemized deductions of $566 in

2002, $608 in 2003, and $415 in 2004; (4) disallowed exemptions

of $960 in 2002, $3,599 in 2003, and $3,472 in 2004; (5) a

disallowed $55,064 deduction for moving expenses in 2004;

(6) unreported dividend income of $606 in 2004; (7) $13,069 in

section 401(k) plan distributions in 2004;6 and (8) $1,307 of 10-
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6(...continued)

plan account that year, only that he should not be taxed on them

because they went to his former wife. We address that argument

later in this opinion. See infra note 8.

percent additional tax under section 72(t) for an early

distribution from a qualified retirement plan in 2004. It also

reflects additions to tax pursuant to section 6651(a)(1) of

$1,781.50 and $3,178.50 for petitioner’s 2002 and 2003 tax years,

respectively, and section 6662 accuracy-related penalties of

$1,425.20, $3,044.20, and $4,255.40 for petitioner’s 2002, 2003,

and 2004 tax years, respectively. 

On October 27, 2006, petitioner filed a timely petition with

this Court. At the time he filed his petition, petitioner

resided in Florida. A trial was held on January 15, 2009, in

Tampa, Florida.

OPINION

I. Parties’ Contentions

In his petition, petitioner asserts: “As part o [sic]

Chapter 13 filing Jan 05 this case came before the Department of

treasury. It’s my understanding that the cout [sic] was

satisfied with my filing and that i [sic] did not owe any

additional taxes.” Petitioner did not file a pretrial memorandum

as was required by the Court’s standing pretrial order. And,

although he was afforded the opportunity, petitioner did not file

a brief.
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7“The preclusive effect of a judgment is defined by claim

preclusion and issue preclusion, which are collectively referred

to as ‘res judicata.’” Taylor v. Sturgell, 553 U.S. __, __, 128

S. Ct. 2161, 2171 (2008).

Respondent contends that the bankruptcy court’s dismissal

“returned petitioner and respondent to the position they were in

prior to the filing of the bankruptcy petition” and that

respondent may determine additional tax liabilities for the tax

years at issue. Respondent asserts that petitioner has not

assigned error to any of respondent’s determinations and that

petitioner is liable for the deficiencies, additions to tax, and

penalties. 

II. Res Judicata: Federal Income Tax Deficiencies

A bankruptcy court has jurisdiction to determine “the amount

or legality of any tax, any fine or penalty relating to a tax, or

any addition to tax, whether or not previously assessed, whether

or not paid, and whether or not contested before and adjudicated

by a judicial or administrative tribunal of competent

jurisdiction.” 11 U.S.C. sec. 505(a)(1) (2006). If a bankruptcy

court renders a final judgment as to a debtor’s tax liability,

res judicata may apply to prevent the matter from being

relitigated.7 See Fla. Peach Corp. v. Commissioner, 90 T.C. 678,

681-684 (1988). If a bankruptcy court does not render a final

judgment as to the tax liability, res judicata is inapplicable,

the Commissioner is not precluded from determining a deficiency,
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8At trial there was some discussion regarding the unreported

sec. 401(k) plan distributions in 2004. Petitioner appeared to

contend that his former spouse should be required to pay tax on

the sec. 401(k) plan distributions because the money was paid to

her pursuant to a qualified domestic relations order (QDRO). 

That contention is unavailing, as petitioner cannot escape the

Federal income tax consequences of the withdrawal because the

funds were transferred to his wife. See Vorwald v. Commissioner,

T.C. Memo. 1997-15 (“Because the transfer of funds from the IRA

to petitioner’s former spouse at least partially discharged a

legal obligation he owed to her, the transfer to her is the

equivalent of receipt by him.”). We note, however, that any

payment to his former spouse might, if it meets certain

requirements, constitute deductible alimony. See sec. 215(a)

(“In the case of an individual, there shall be allowed as a

deduction an amount equal to the alimony or separate maintenance

(continued...)

and (assuming we otherwise possess jurisdiction), we can decide

the matter. See Hambrick v. Commissioner, 118 T.C. 348, 353

(2002) (“In the present case, there is no indication that the

bankruptcy court inquired into the merits of petitioners’ tax

liability in the process of confirmation. Petitioners did not

object to respondent’s proof of claim, and there was no need for

an 11 U.S.C. sec. 505 hearing to determine the merits of the

underlying tax claim. Without a final judgment on the merits,

res judicata cannot apply.”). 

The bankruptcy court dismissed petitioner’s case without

rendering a final determination as to his 2002, 2003, and 2004

Federal income tax liabilities. Res judicata is therefore

inapplicable. Aside from his res judicata argument, petitioner

has not assigned error to respondent’s deficiency

determinations.8 With the exception of respondent’s concession
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8(...continued)

payments paid during such individual’s taxable year.”) We also

note that distributions from qualified retirement plans are not

subject to the additional 10-percent tax under sec. 72(t)(1) if

they are made pursuant to a QDRO within the meaning of sec.

414(p)(1). See sec. 72(t)(2)(C). Unfortunately, we have nothing

but petitioner’s reference to a QDRO and his naked assertion that

the distribution from his sec. 401(k) plan was “associated with

my divorce.” 

as to petitioner’s basis in stock options sold in 2002 and 2003,

we have no ground for finding error in respondent’s deficiency

determinations.

III. Section 6651(a)(1) Additions to Tax

Under section 7491(c), the Commissioner bears the burden of

production with respect to a taxpayer’s liability for penalties

or additions to tax. This means that the Commissioner “must come

forward with sufficient evidence indicating that it is

appropriate to impose the relevant penalty.” Higbee v.

Commissioner, 116 T.C. 438, 446 (2001). In instances where an

exception to the penalty or addition to tax is afforded, for

example, upon a showing of reasonable cause or substantial

authority, the taxpayer bears the burden of “[coming] forward

with evidence sufficient to persuade a court that the

Commissioner’s determination is incorrect.” Id. at 447. 

Section 6651(a)(1) imposes an addition to tax of 5 percent

per month or a fraction thereof up to a maximum of 25 percent for 

failure to file a timely return unless it is shown that such
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failure is due to reasonable cause and not to willful neglect.

Respondent has satisfied his burden of production with respect to

the section 6651(a)(1) additions to tax for petitioner’s 2002 and

2003 tax years. Petitioner filed his 2002 Federal income tax

return on July 8, 2005, and he filed his 2003 Federal income tax

return on April 18, 2005. He has not even attempted to

demonstrate reasonable cause for his failure to file those

returns on time. Accordingly, we sustain the additions to tax

under section 6651(a)(1).

IV. Section 6662 Penalties

Subsection (a) of section 6662 imposes an accuracy-related

penalty equal to 20 percent of any underpayment attributable to a

list of causes contained in subsection (b). Among the causes

justifying the imposition of the penalty are (1) negligence or

disregard of rules or regulations and (2) any substantial

understatement of income tax. Sec. 6662(b)(1) and (2). Section

6662(c) defines negligence as “any failure to make a reasonable

attempt to comply with the provisions of this title”. 

“[D]isregard” is defined to include “any careless, reckless, or

intentional disregard.” Id. Under caselaw, “‘Negligence is a

lack of due care or the failure to do what a reasonable and

ordinarily prudent person would do under the circumstances.’” 

Freytag v. Commissioner, 89 T.C. 849, 887 (1987) (quoting

Marcello v. Commissioner, 380 F.2d 499, 506 (5th Cir. 1967),
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affg. on this issue 43 T.C. 168 (1964) and T.C. Memo. 1964-299),

affd. 904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S. 868 (1991). 

There is an exception to the section 6662(a) penalty when a

taxpayer can demonstrate (1) reasonable cause for the

underpayment and (2) that the taxpayer acted in good faith with

respect to the underpayment. Sec. 6664(c)(1). Regulations

promulgated under section 6664(c) further provide that the

determination of reasonable cause and good faith “is made on a

case-by-case basis, taking into account all pertinent facts and

circumstances.” Sec. 1.6664-4(b)(1), Income Tax Regs. 

On brief respondent asserts that petitioner did not

adequately explain why he failed to report stock sales in 2002

and 2003 and distributions from his section 401(k) plan in 2004. 

Respondent further asserts that the record contains no

evidence to substantiate his claimed $55,064 deduction for moving

expenses in 2004. Petitioner has not attempted to explain his

underpayments, let alone demonstrate reasonable cause and good

faith with respect to them. Accordingly, we sustain the section

6662(a) penalties.
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The Court has considered all of petitioner’s contentions,

arguments, requests, and statements. To the extent not discussed

herein, we conclude that they are meritless, moot, or irrelevant.

To reflect the foregoing,

Decision will be entered

under Rule 155.