1Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the year at issue. All Rule

references are to the Tax Court Rules of Practice and Procedure.

T.C. Memo. 1996-396

UNITED STATES TAX COURT

ALEX MALESA, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12543-93. Filed August 26, 1996.

Alex Malesa, pro se.

J. Anthony Hoefer, for respondent.

MEMORANDUM OPINION

DAWSON, Judge: This case was assigned to Special Trial

Judge John F. Dean pursuant to section 7443A(b)(4) and Rules 180,

 181, and 183.1 The Court agrees with and adopts the opinion of

the Special Trial Judge which is set forth below.
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OPINION OF THE SPECIAL TRIAL JUDGE

DEAN, Special Trial Judge: For the 1990 taxable year,

respondent determined a deficiency in petitioner's Federal income

tax in the amount of $8,777 (which included additional tax under

section 72(t) in the amount of $239) and additions to tax under

section 6651 in the amount of $1,724.75 and under section 6654 in

the amount of $440.14.

The parties have resolved all issues resulting from

adjustments in the notice of deficiency except for the following: 

(1) Whether three payments received by petitioner in 1990 are

taxable to petitioner in the amounts determined by respondent;

(2) whether petitioner is liable for additional tax on early

retirement distributions under section 72(t); and (3) whether

petitioner is liable for additions to tax under sections 6651 and

6654.

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. Petitioner resided in

Omaha, Nebraska, at the time he filed his petition.

Background

Petitioner did not timely file a 1990 Federal income tax

return. Respondent issued a notice of deficiency to petitioner

on March 15, 1993. Respondent had received information returns

from several payors indicating that payments had been made to

petitioner during 1990. Respondent used these information
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returns to determine a deficiency and additions to tax, using a

married filing separately status for petitioner.

Petitioner filed a joint 1990 Federal income tax return with

his wife on April 15, 1993. On that return, petitioner included

all of the payments that respondent had determined were taxable

in the notice of deficiency, except for the following:

Reported

 Payor on Form: Amount 

National Home Life Assurance 1099-R $1,092

Jackson National Life Ins. Co. 1099-R 14,470

Jackson National Life Ins. Co. 1099-INT 53

The total distribution by National Home Life Assurance

(National) was $4,426, but respondent contends that only $1,092

was taxable, based on information reported to respondent by

National. The $14,470 payment that petitioner received from

Jackson National Life Insurance Company (Jackson) was his onethird share of the accumulation value ($43,410) of an annuity

that had been purchased by petitioner's mother, who died in 1990

at age 62. Upon his mother's death petitioner became entitled to

this payment as a beneficiary under the annuity contract. 

Jackson reported the $14,470 as the gross distribution to

petitioner and did not report what portion of the distribution

was taxable. Petitioner's mother acquired the Jackson annuity in

a section 1035 exchange for an annuity that she had acquired

through United of Omaha. This exchange took place on May 5,

1986. Respondent contends that the $53 payment from Jackson is
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taxable to petitioner as interest income.

Discussion

Respondent's determinations are presumed correct, and

petitioner bears the burden of proving otherwise. Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933).

Annuity Payment

Section 61(a) defines gross income as "all income from

whatever source derived". Annuities are specifically included in

gross income. Sec. 61(a)(9). The burden is on petitioner to

demonstrate that the payment in question falls into a specific

statutory exclusion. Commissioner v. Glenshaw Glass Co., 348

U.S. 426, 429-431 (1955).

In general, section 72 deals with the income tax treatment

of annuities. Section 1.72-1(a), Income Tax Regs., provides that

section 72 prescribes rules regarding the inclusion in gross

income of amounts received under a life insurance, endowment, or

annuity contract except where such amounts are specifically

excluded from gross income under other provisions of chapter 1 of

the Code. These rules provide that, in general, the amounts

subject to the provisions of section 72 are includable in the

gross income of the recipient except to the extent that they are

considered to represent a reduction or return of premiums or

other consideration paid. Sec. 1.72-1(a), Income Tax Regs.

Any amount received, whether in a single sum or otherwise,

in full discharge of the obligation under the annuity contract,
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which payment is "in the nature of a refund of the consideration

paid for the contract," is taxable only to the extent it exceeds

the investment in the contract (determined under section

72(e)(6)). Sec. 72(e)(5)(A), (E). An amount is considered to be

"in the nature of a refund" where it is payable to a beneficiary

after the death of the annuitant under a contract for a life

annuity, with a minimum number of payments certain, or a minimum

amount which must be paid in any case. Sec. 1.72-11(c)(1),

Income Tax Regs.

The annuity payment that petitioner received upon his

mother's death is thus "in the nature of a refund of the

consideration paid for the contract", and is taxable to the

extent it exceeds the investment in the contract. The investment

in the contract is the aggregate amount of premiums or other

consideration paid for the contract less any amounts previously

received under the contract which were excludable from gross

income. Sec. 72(e)(6). Petitioner has offered no evidence

regarding the investment in the contract. He has therefore

failed to carry his burden to show that any portion of the

payment he received should be excluded from his gross income. 

Commissioner v. Glenshaw Glass Co., supra at 429-431. 

Accordingly, we sustain respondent's determination that the full

$14,470 payment is includable in petitioner's gross income.

Interest Income and Retirement Distribution

Petitioner admits receiving a $53 payment from Jackson and a
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$4,426 payment from National (of which respondent contends $1,092

was taxable). Petitioner offered no evidence demonstrating that

any portion of these payments should be excluded from his gross

income and has therefore failed to carry his burden of proof. 

Id. Respondent is sustained on these items.

Section 72(t) Additional Tax

Respondent determined that petitioner is liable for

additional tax in the amount of $239 under section 72(t) on a

premature distribution of $2,393 from a qualified retirement

plan. Section 72(t)(1) imposes an additional tax on any amount

received from a qualified retirement plan equal to 10 percent of

the portion of such amount which is includable in gross income. 

Section 72(t)(2) exempts certain distributions from the

additional tax.

Petitioner does not deny receiving a $2,393 distribution

from a qualified retirement plan, nor does he claim to come

within one of the exceptions. Respondent is sustained on this

issue.

Section 6651(a)(1) Failure To File Timely

Section 6651(a)(1) provides for an addition to tax of 5

percent of the tax required to be shown on the return for each

month or fraction thereof for which there is a failure to file,

not to exceed 25 percent. The addition to tax for failure to

file a return timely will be imposed if a return is not timely

filed unless the taxpayer shows that the delay was due to
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reasonable cause and not willful neglect. Sec. 6651(a)(1).

Petitioner's 1990 Federal income tax return was due on April

15, 1991. Sec. 6072(a). Petitioner filed his 1990 Federal

income tax return on April 15, 1993. Petitioner has not offered

any evidence to show that the delay was due to reasonable cause. 

We therefore sustain respondent's determination that petitioner

is liable for the 25-percent addition to tax under section

6651(a)(1) for 1990.

Section 6654 Failure To Pay Estimated Tax

Where payments of tax, either through withholding or by

making estimated quarterly tax payments during the course of the

year, do not equal the amount required under the statute,

imposition of the addition to tax under section 6654 is

automatic, unless the taxpayer shows that one of the statutory

exceptions applies. Niedringhaus v. Commissioner, 99 T.C. 202,

222 (1992); Grosshandler v. Commissioner, 75 T.C. 1, 20-21

(1980). Petitioner bears the burden to show qualification for

such an exception. Habersham-Bey v. Commissioner, 78 T.C. 304,

319-320 (1982). Petitioner has not sustained his burden;

therefore, we hold that he is liable for the addition to tax

under section 6654 for the 1990 taxable year.

To reflect the foregoing,

Decision will be entered

under Rule 155.