T.C. M em o . 2 0 1 7 -7 7

UNITED STATES TAX COURT
ESTATE OF HUNG-LIANG LYNN LIN, DECEASED, JEFFREY S. LIN,

ADM INISTRATOR, Pet i t i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 2 1 1 -1 5
. Fi l edM ay 8 , 2 0 1 7
.

Hu n g-Li an g Ly

n n Li n , 1 p ro s e. Pat ri ckF. Gal l ag h er, fo r res p o n d en t.

M EM ORANDUM FINDINGS OF FACT AND OPINION ASHFORD, J u d g e: Res p o n d en td et erm in eda d efi ci en cy o f $ 11 ,7 1 1 i n p et i t i o n er’ s Fed eral i n co m e t ax an dan accu racy -rel at edp en al ty p urs u an t t o s ect i o n

1 Hu n g -Li an g Ly

n n Li n d i edaft er t ri al o f t h i s cas e, an dth e cap t io n was ch an gedb y

o rd er d at edFeb ru ary

1 7 , 2 0 1 7 , p u rs u an tt o Ru l e 6 3 (a). Hereaft er, fo r eas e, referen ces t o p et i t io ner s hal l d en o t e Hu n g -Li an g Ly n n Li n .- 2
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[* 2 ] 6 6 6 2 (a) o f $ 2 , 34 2 fo r t h e 2 0 1 2 t ax ab l e y ear. 2 Th e i s s u es fo r d eci s i o n are: (1 ) wh et h er p et i ti o n er was req u i redt o rep o rtas i n co m e $ 5 6 ,8 89 .9 5 recei v edfro m a ret i rem en tacco u n tduri n g 2 0 1 2 an d (2 ) wh et h er p et i t i o n er i s l i ab l e fo r t h e
accu racy -rel at edp en al ty . FINDINGS OF FACT Pet i t i o ner res i dedi n Rh od e Is l an datth e t i m e t h e p et i t i o n was fi l edwi t h th e Co u rt . Pet i t i o ner b eg anwo rk i n g fu l l t i m e i n 1 9 7 8 . He s tu d iedg eo p hy s i cs an d recei v eda Ph .D. fro m

th e Co l o rad o Sch o o l o f M i n es . Duri ng th e 1 98 0 s h e was
wo rk i n g fo r Ray t heo n i n Ok l ah o m a. In 1 9 8 7 h e m o v edb ackt o Co l o rad o , wh ere h e m etan ag en tfo r Pai n e W eb b er an do pen edtwo i n v es t m en tacco u nt s. Ov er t h e y ears h e co n t ri bu t ed $ 2 4 ,0 0 0 t o h i s i n v es t m en t acco u n t s , wh ich i t ap pears were at al l t i m es treat edas d edu ct i bl e co n t ri b u t i o n s t o an i n di v i du al ret i rem en tacco u n t (IRA). OnJ u ly

9 , 2 0 0 7, t he b al an ces i n p et it i on er’ s acco u n t s were t ran s ferred t o Op p en h ei m erFu n d s , wh ere an acco u n twas o p en edas a ro l l o v er IRA. Hi s acco u n t
rem ai n edwi t h Op p en hei m erFu n d s u n t i l 2 0 1 2
.

2 Un l es s o t h erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev enu e Co de i n effect fo r t h e y ear at i s s u e, an d al l Ru le referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re.- 3
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[* 3 ] OnFeb ru ary 1 0 , 2 0 1 2, a rep res en t at i v e fo r Op p en h ei m erFu n d s s ecu red p et i t i o n er’ s s i g n edau t ho ri zat i o n an dcau s edh i s Op p en h ei m erFu nd s acco u n tt o b e tran s ferred t o Pro Equi ti es , wh ere an acco u n t was o p en edas a ro ll o v er IRA. Th ereaft er, p et it i o n er b ecam e an g ry wi t h th e rep res en t at i v e b ecau se h e b el i ev ed th e rep res en tat i v e was “ d oi n g [] th i n g s ” h e d i d n o t kn o w ab o u tan dwas ch arg i n g a
co m m i s s io n . Pet it i on er req u es t edth ath i s Pro Equ i t i es acco u n t b e cl o s ed ; o n M arch 2 9 , 2 0 1 2 , h e ex ecu t edan IRA d i s t ri b ut i o n req u es tfo rm t o wi t hd raw t h e $ 5 6 ,8 8 9 .9 5 b al an ce i n t h e acco u n t . Th e fo rm al s o refl ect s h i s el ect i o n n o tt o h av e
an y Fed eral o r St at e i n co m e t ax wi t h h el dfro m th e d is t ri bu t i o n an d fo r d el i v ery o f th e fu n d s v i a wi re t ran s fer t o h i s b an kacco u n tatBan ko f Am eri ca. Th ere i s n o d i s p u t e t h atp et i t io n er recei v edth es e fu n d s. Atth e cl o s e o f 2 0 1 2 p et i t i o n er was o v er 5 9 1⁄2 b u tu n d er 7 01⁄2 y ears o f ag e. Pro Equ it i es s en tt o t h e In t ern al Rev en u e Serv i ce an d t o p et i ti o n er a 2 0 1 2 Fo rm 1 0 9 9 -R, Di st ri b u t i o ns Fro m Pen s i o n s , An nu 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 t ract s, et c., rep o rt i n g t h e $ 5 6 , 8 8 9 .9 5 d i s tri b u t i o n t o p et i t i o n er as a n o rm al , t ax ab l e d i s tri b u t i o n . Th e fo rm al s o refl ect ed th atn o Fed eral o r St at e i n co m e t ax was wi t h h el d . Pet i t i on er p rep aredh is o wn Fed eral i nco m e t ax return fo r 2 0 1 2, b uth e d i dn otrep o rtth e d i s t ri b u t io n .- 4
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[* 4 ] Rel y i n g o n th e Pro Equ i t i es Fo rm 1 09 9 -R, res p o n d en ts en ta n o ti ce o f d efi ci en cy

t o p et i t i o ner o n Decem

b er 2 2 , 2 0 14 , d et erm i n i n g th atth e en ti re am o u n t
o f t h e rep o rt edd i s t ri bu t i o n was t ax ab l e an dth ath e was l iab l e fo r t h e s ub s t an t i al
u n d ers t at em en to f i n co m e t ax pen al t y u n d er s ect i o n 6 6 6 2(a) an d(b )(2 ). On J an u ary 5 , 2 0 1 5 , p et i t i o n er t i m el y p et i t i o n edth is Co u rt fo r red et erm i n at io n o f t h e d efi ci en cy

an dth e p en al t y . OPINION I. Tax ab i l it y

o f Ret i rem en tDi st ri b u t i o n Sect io n 4 0 8 (d )(1 ) p ro v i d es t h atam o un t s p ai do r d i s t ri b u t edo u to f an i n d i v i du al ret i rem en tp l an s h al l b e i n cl u d edi n g ro ss i n co m e b y th e p ay ee o r d i s tri b u t ee, wi t h ex cep t i o n s n o tap pl i cab l e h ere. Th e t ax ab i l i t y o f d is t ri bu t i o n s
co o rd i n at es wi t h th e ex em p t io n fro m

t ax o f earn i n g s i n th e acco u n tdu ri n g i t s
ex i s t en ce. See s ec. 4 08 (e)(1 ). Becau s e p et i t io n er was o v er 5 9 1⁄2 an d u nd er 7 0 1⁄2 at th e cl o s e o f 2 0 1 2 , we are n o t h ere co n cern edwi th an earl y d i s tri b ut i o n s ub

jectt o
s ect i on 7 2 (t ) o r a req u i redm in i m u m d i s t ri b u t i o n u n d er s ect i o n s 4 0 8(a)(6 ) an d 4 0 1 (a)(9 ). Pet i t i o ner co n ced edattri al th atth e $ 24 ,0 0 0 h e co n t ri b u tedt o h i s IRA an d i n cl u d edi n th e 2 0 1 2 d is t ri b u t i on i s t ax ab l e. Im p l i ci t l y h e ack n owl ed g edth ath i s
co n tri b u t i o n s t o t h e acco u n twere d edu ct eddu ri n g th e y ears th atth ey were m ad e,- 5
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[* 5 ] p u rs u an tt o s ect io n 2 19 (a). Ho w ev er, h e qu es t i o n edth e t ax ab i li t y o f t h e b al an ce an di n d i cat edh e was wi l l i n g t o rep ay thatam ou n tt o a n ew IRA h e co u l d
o p en (o r t o an IRA h e h adrecen t l y o p en edwi t h Ban ko f Am eri ca). 3 Hi s arg u m en t i s p rem i s edo n a rep res en t at i v e’ s tran s fer o f fu nd s as a ro l l o ver i nt o an IRA wi th o u th i s kno wl ed g e o r co ns en t . Ho wev er, th e IRA reco rd s o f p et i t i o n er th atare i n ev i d en ce are co n s i s t en ti n treat i ng h i s fu n d s as i n v es t ed t hro u g h an IRA an d i n d i cat e t h atth e o ri g in al co n t ri b u t i o n s an dth e earn i n g s o n t h em were ro l l edo v er fro m o n e i n s t i tu t i o n t o an o t h er. Inp art i cu l ar, p et i t i o n er s i g n edp ap ers ack n owl ed gi ng th e IRA ro l l ov er fro m Op p en h ei m erFu n d s t o Pro Equ i ti es i n 2 0 1 2
. Al th ou g h n on e o f p et i t i on er’ s Fed eral i n co m e t ax retu rn s fo r earl i er y ears are i n ev i d en ce, h is o ri g in al co n t ri b u t i o n s were ap p aren t l y d edu ct ed , an dearn i n g s
o n h i s co n tri b u t i o n s t o an IRA n o rm al l y wo u l dn oth av e b een t ax edu nt i l wi th drawn . Thu s th e s t atu t o ry p ro v i s i o ns req u i re t h atth e fu l l am o u nto f t h e d i s tri b u t i o n b e t ax ed du ri n g th e y ear t h at h e recei v ed i t .

3 Pet i t i on er al s o t es t i fi ed t h ataft er recei p to f t h e fu n ds , h e s en t s o m e o f t h e fu n d s t o h i s s o n t o p ay

th e b al an ce o n a s tu den tl o anan dth ats o m e o f i trem ai n ed i n a ch eck i ng acco u n t . Sub s equ en tu s e o f t he d i s t ri b u ti o n i s i rrel ev an ti n th i s cas e.- 6
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[* 6 ] II. Accu racy -Rel at edPen al t y Un d er Sect io n 6 66 2 (a) W e n o wad dres s wh et h er p et i t i o n er i s l i ab l e u n d er s ect i on 6 6 6 2(a) an d (b )(2 ) fo r anaccu racy -rel at edp en al ty o n an u n derp aym en tdu e t o a s ub s t an t i al
u n d ers t at em en to f i n co m e t ax . Sect io n 6 6 6 2 (a) i m

p o s es a 2 0 % accu racy -rel at ed p en al t y o n an y p o rt i o n o f
an u n d erp aym en t o f t ax req u i redt o b e s h o wno n a retu rn i f, as p ro v i d edb y s ect i on 6 6 6 2 (b )(2 ), the u n d erp aym en ti s at t ri b u t ab l e t o an y s ub s tan t ial u n d ers t at em en to f i n co m e t ax . Th e t erm

“ sub st an t i al u n d ers tat em en t ” m ean s an u n d ers t at em en to f i n co m e t ax th atex ceed s th e g reat er o f 1 0% o f t h e t ax req u i red t o b e s h o wno n th e retu rn o r $ 5,0 0 0 . Sec. 6 6 6 2(d )(1 )(A). Th e Co m m i s si on er b ears th e b u rd en o f p ro duct i o n reg ard in g a t ax p ay er’ s l i ab i l i t y fo r t h e accu racy -rel at edp en al t y an d th u s i s req ui redt o co m e fo rwardwi t h s u ffi ci en tev i d en ce i n d i cat i n g th at i m p o s i t i o n o f t h e p en al t y i s ap p ro p ri at e. See s ec. 7 49 1 (c); Hi g b ee v . Co m m i s s i o n er, 1 1 6 T.C. 4 3 8 , 4 4 6 (2 0 0 1). On ce th e Co m m i s s io ner m eet s h i s b u rd eno f p ro du ct i o n , th e t ax p ay er b ears t h e b u rd en o f p ro v i n g , th ro u gh p ers u as i v e ev i d en ce, th atth e Co m m i s s i o n er’ s p en al t y

d et erm i n at i o n i s i n co rrect . See Ru l e 1 4 2 (a); W el ch v . Hel v eri n g , 2 9 0 U.S. 1 1 1 , 1 1 5 (1 9 3 3 ); Hi g b ee v . Co m m i s s i o n er, 1 1 6 T.C. at4 4 7. Res p o n d en t h as d i s ch arg edh i s b u rd en o f p ro duct i o n b y

p ro v id i n g s u ffi ci en t ev i d en ce s h o wi n g thatp et i t i o ner’ s- 7
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[* 7 ] u n d ers t at em en to f i n co m e t ax fo r 2 0 12 ex ceed s th e g reat er o f 1 0 % o f t h e t ax th atwas req u i red t o b e s h o wno n th e 2 0 1 2 retu rn o r $ 5 ,0 0 0
. Ap p li cat i o n o f t h e accu racy -rel at edp en al t y m ay b e av o i d edwi t h res p ectt o
an y p o rt i on o f an u n derp aym en ti f i ti s s h o wn t hatth ere was reas o n ab l e cau s e fo r
s u ch po rt i o n an dth e t ax p ay er act ed i n g o o dfai t h wi t h res pect t o s u ch p o rt i o n . Sec. 6 6 64 (c)(1 ); Hi g b ee v . Co m m is s i o n er, 1 1 6 T.C. at4 4 6 -4 4 7 . Th e d et erm i n at i o n o f wh et h er t h e t ax p ay er h adreas o n ab l e cau s e an dact ed i n g o o d fai th dep en d s up o n t h e p ert i n en tfact s an dci rcu m s t an ces o f a p art icu l ar cas e. Sec. 1 .6 66 4 -4 (b )(1 ), In co m e Tax Reg s . W e co n s i der, am o n g o t h er fact o rs , th e
ex p eri en ce, educat i o n , an d s o p h i s t i cat i o n o f t h e t ax p ay er; h owev er, t he p ri n ci p al
co n si d erat io n i s th e ex t en to f t h e t ax p ay er’ s effo rt s t o as s es s t h e p ro p er t ax l i ab i l i ty . Id .; s ee al s o Hi g b ee v . Co m m i s s i o n er, 1 1 6 T.C. at4 48 . Tak i n g i nt o
co n si d erat io n th e t ax p ay er’ s ex p eri en ce, educat i o n , an ds o p h i s t i cat i o n , an h o n es t
m i s u n d ers t an d i n g o f fact o r l aw m ay i n d i cat e reas o n ab l e cau s e an dg oo dfai t h
. Hi g bee v . Co m

m i ss i o n er, 1 1 6 T.C. at4 4 9 (ci t i ng Rem y v . Co m m i s s i o ner, T.C. M em o. 1 9 9 7 -7 2 ). In ad di t i o n , rel i an ce o n p ro fes s io n al ad v i ce m ay i n d i cat e
reas on ab l e cau s e an dg o o d fai t h i f, i n th e l i g h t o f al l th e fact s an dci rcu m s t an ces , s u ch rel i an ce was reas on ab l e an dth e t ax pay er act edi n g o o dfai t h . Id . at4 4 8 -4 4 9
.- 8
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[* 8 ] Pet i t i o ner at tri al ap p eareds i n cere b u tco n fu s edab o utthe t ax ab il i t y o f t h e d i s tri b u t i o n h e ad m i t t edrecei v in g i n 2 0 1 2 al t h o ug h h e d i d n o td en y recei p to f t h e Fo rm 1 0 9 9 -R s h o wi n g th atth e d i s t ri b u t i o n was rep ort edas t ax ab l e b y Pro E qu i t i es . He d i d n o t co n s u l t a t ax p ro fes s i o n al an ds i m p ly o m i tt edth e d i s t ri b u t i o n fro m h i s
s el f-p rep aredretu rn . W e can n o tfi n d i n t h e reco rdei th er ev i d en ce o f a co gn i zab l e effo rtt o as ses s h i s p ro p er t ax l i ab i l i t y o r reas o n ab l e cau s e fo r t h e erro r. Becau s e th e u n derp aym en t was b y d efi n i t i on s ub s t an t ial , we wi l l s u s t ai n th e p en al t y . W e h av e co n s id eredal l o f t h e arg um en t s m ad e b y t h e p art i es an d , t o th e
ex t en tth ey

are n o tad dres s edh erei n , we fi n dth em t o b e m o o t , i rrel ev an t, o r wi th o u tm eri t . 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 .