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

UNITED STATES TAX COURT

TAM ECCA SERIL, a.k .a. TAM ECCA TILLARD, Pet i ti o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 4 4 9 1-1 9. Fi l edJ u l y 8 , 2 0 2 0.

Tam ecca Seri l , a.k .a. Tam ecca Ti l l ard , p ro s e. M ari s s a J . Sav i tan dTh o m as A. Deam u s , fo r res p o n d en t
.

M EM ORANDUM FINDINGS OF FACT AND OPINION LAUBER, J u d g e: Th e In t ern al Rev en u e Serv i ce (IRS o r res p o n d en t ) d et erm i n ed fo r p et i ti o n er’ s 2 0 1 6 t ax ab l e y ear a d efi ci en cy o f $ 9 ,1 9 1 an d an accu racy rel at ed p en al t y

o f $ 1 ,8 3 8 . Th e i s s u es rem ai n i n g fo r d eci s i o n are wh et h er p et i t i o n er i s : (1 ) t ax ab l e o n d i s t ri bu t i o n s fro m h er ret i rem en tacco u n t , (2 ) l i ab l e u n d er- 2
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[* 2 ] s ect i o n 7 2 (t ) 1 fo r t h e 1 0 % ad d i ti o n al t ax o n earl y d i s t ri b u t io n s fro m that
acco u n t , an d(3 ) l i ab l e fo r an accu racy -rel at edp en al t y . 2 W e h o ldthatp et i t i o n er i s t ax ab l e o n th e d i s t ri b u t i o n s an dth ata p o rt i o n o f h er d i s t ri b u t i o n s i s s ub j ectt o th e ad d it i o n al t ax . Bu twe h o l dth ats h e i s n o tl i ab l e fo r an y p en al t y . FINDINGS OF FACT Attri al th e p art i es s t i p u l at eda n u m b er o f ex h i b i t s wh i ch are i n co rp orat edb y t h i s referen ce. Pet i t i o n er res i d edi n New Yo rk wh en s h e fi l edh er p et i t i o n. Pet i t i o ner i s th e m o t h er o f t wo b o y s , th e el d er o f wh o m was s ch edu l edt o g radu at e fro m

h i g h s ch o o l i n 2 0 1 6 an dm at ri cu l at e at M o reh o u s e Co l l eg e (M o reh o u s e) th atfal l . Duri n g t h i s p eri o dp et it i on er an dh er fam i l y ex p eri en ceds t res s . Pet i t io n er h ad fi ledfo r a d i v o rce, wh i ch i nv o l v edcl ai m s o f d o m es t i c v i o l en ce an d ch i l dn eg l ect . Her el d er s o n h aden co u n t eredp ro bl em s at s ch o o l t hatth reat en ed h i s ab i l i t y

t o g raduat e o n t i m e.

1 Al l s t atut o ry

referen ces are t o th e In t ern al Rev en u e Co de (Co d e) i n effect fo r t h e y ear i n i s s ue, an dal l Ru l e referen ces are t o t h e Tax Co u rtRu l es o f Pract i ce an d Pro cedu re. Al l d o l l ar am o u n t s are ro u n d edt o th e n eares t d o l l ar.

2 Th e IRS d et erm i nedi n t h e n o t i ce o f d efi ci en cy th atp et i t i o n er was t ax ab l e o n a $ 7 4 7 p aym en t s he recei v edfro m th e New Yo rkSt at e Co l leg e Ch o i ce Tu i t i on Pro g ram Tru s tFu n d . Res p o n den th as co n ced ed t h ati s su e, as wel l as p et i t i o n er’ s l i ab i l i t y fo r an y

ad d i t i on al t ax o r accu racy -rel at edp en al ty wi t h res p ectt o t h at$ 7 4 7 p aym en t
.- 3
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[* 3 ] Onth e b as is o f a l et t er fro m M o reh o u s e, p et i t i o n er an t ici p at edth atth e co s t
o f h er s o n ’ s tu i t i o n an d l i v i ng ex p en s es (ab s en trecei p to f a s ch o l ars h i p ) wo u l db e ab o ut$ 5 4 ,0 0 0 an nu al l y . Du ri ng 2 0 1 6 s he m ad e t wo wi t h drawal s t o t al in g $ 5 4 ,5 0 0 fro m h er i n d i v i du al ret i rem en t acco un t(IRA): a d i s t ri b u t io n o f $ 1 6 ,5 00 o n J an u ary 8 an da d i s tri b u t i o n of $ 3 8 ,0 0 0 o n J u l y 2 5. Sh e was n o tag e 5 9-1 / 2 o r o l d er wh en s h e recei v edth es e d i st ri b u t i o n s . Fro m th e l at t er d i s t ri b u ti o n th e b ro k erag e fi rm wi t hh el dFed eral i n co m e t ax o f $ 3 ,8 0 0. Pet i t i o ner d i dn o tro ll o v er an y p o rt i on o f t hes e d i s t ri b u t i o n s wi t h in 6 0 d ay s . See s ec. 4 0 8 (d )(3 ). Du ri n g 2 0 1 6 p et i t i o n er al s o m ad e wi t h drawal s t o tal i n g $ 1 5 ,0 99 fro m h er New Yo rk 5 29 Co l l eg e Sav i n g s Pro g ram Acco u n t(5 2 9 acco u n t ). Two d i st ri b u t i on s t ot al i ng $ 5 ,8 1 6 were p ai d t o h er. A th i rdd i s t ri b u t i o n , o f $ 9,2 8 3 , was m ad e d i rect l y t o M o reh ou s e. Pet i t i o ner p rep aredan dfi l eda t i m el y retu rn fo r 2 01 6 . Sh e rep o rt edth e
en t i re $ 5 4 ,5 0 0 o f IRA d i s t ri b u t i o n s b u trep o rt edo n ly $ 3 9 ,5 0 0 as b ei n g t ax ab l e. Sh e i n cl u d edwi t h h er ret u rnFo rm 5 3 2 9 , Ad d i ti o n al Tax es o n Qu al i fi edPl an s . Sh e rep o rt ed$ 2 4,6 6 4 o f h er d i s t ri b u t i o ns as b ei n g s ub jectt o t h e 1 0 % ad d it i o n al t ax an drep o rt edad d i t i o nal t ax o f $ 2 ,4 6 6
. Th e IRS’ au t o m at edu n d errep o rt er (AUR) u n i tfl ag g edp et i t io n er’ s retu rn b ecau s e o f a m i s m at ch b et ween h er rep o rt edi n co m e an d t he am o u n t s s h o wno n- 4
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[* 4 ] th e Fo rm s 1 0 9 9 -R, Di s t ri b u t i o n s Fro m Pen si on s , An n u i t ies , 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., th at t h e b ro k erag e fi rm h ad
s up p li edt o th e IRS. On Sep t em b er 1 7 , 2 01 8 , th e AUR u n its en tp et i t i o n er a No t ice CP2 0 00 i n d icat i n g th at s h e (1 ) h ad fai l edt o rep o rt$ 1 5 , 0 0 0 o f t ax ab l e d i s t ri b u t i o n s , (2 ) h adu n d errep o rt edth e 1 0 % ad d i t i o n al t ax du e, an d(3 ) was
s ub jectt o an accu racy -rel at edp en al ty . Th e l et t er i n s t ru ct ed h er t o fi l e a res p o n s e b y Oct o ber 1 7 , 2 0 1 8 , i f s h e d i dn o tag ree wi t h t h es e p ro p o s ed ad ju s t m en t s . Pet i t i o ner d i dn o tfi l e a t i m el y res po n se t o t h e No t i ce CP2 0 0 0 an d , o n Decem b er 1 0 , 2 0 18 , th e IRS i s s u edh er a n o ti ce o f d efi ci en cy d et erm in i n g th e ad

ju s t m en t s p rev i o u s ly

p ro p o sed . InJ an uary 2 0 1 9 p et i t i o n er s en t t h e IRS a b el at ed
res p o n s e t o th e No t i ce CP2 0 0 0 , i n di cat i n g th ats h e h adwi t h drawn th e $ 5 4,5 0 0 t o
co v er h er s o n ’ s edu cat io n ex pen s es . Sh e s t at edth ats h e i n t en d edt o red ep o s i t $ 1 5 ,0 0 0 o f t h ats u m

(t h e p o rt i o n s h e h adn o trep o rt ed ), ex p l ai n i n g t h ath er $ 1 5 ,0 9 9 wi t h drawal fro m

th e 5 29 acco u n two u l d co v er t h atp arto f t he co s to f h i s edu cat i on . Sh e requ es t eda wai v er o f t h e 6 0 -d ay ro l l o v er p eri o dt o en ab le h er t o red ep os i tth e $ 1 5 ,0 0 0 free o f t ax , u rg i n g as ju s t ifi cat i o n t h ats h e h adm ov edfo l

l o wi n g h er d i v o rce an dwas i n vo l v edi n rel at edl i t i g at i o n . Sh e co n ten d ed t h atth e $ 3 8 ,0 0 0 d i s t ri b u t i o n s he h adrecei v edo n J u l y 2 5 s h o ul d b e ex em

p tfro m th e- 5
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[* 5 ] s ect i o n 7 2 (t ) ad di t i o n al t ax b ecau s e s h e h adu s edth atm o n ey t o p ay fo r h er
s o n ’ s ex p en s es atM o reh o u se. OnM arch 4 , 2 01 9 , p et i t io n er fi l eda t i m el y p et i ti o n rei t erat i n g t h e co n t en t i o n s ad v an cedi n h er res p o n s e t o th e No ti ce CP2 0 0 0 . Sh e al s o co nt en d edth atth e $ 3 ,8 0 0 wi t hh el d b y

th e b ro kerag e fi rm

fro m h er J u l y 2 5 d i s t ri b u ti o n s h o u ldb e refu nd edb ecau s e s he h ads p en tth e $ 3 8,0 0 0 o n qu al i fi ededu cat i o n ex p en s es . OnJ an u ary

7 , 2 0 1 9 , p et i t i o n er wro t e t h e b ro k erag e fi rm th ath o ld s h er IRA, rep res en t i n g th ats h e i n t en d ed t o ap p l y fo r a wai v er o f t he 6 0 -d ay ro l l o v er req u i rem en to n th e g ro un dthata p o s t al erro r o ccu rred . Th e fi rm res p o n d edth at s h e
wo u l dn eedt o p ro v i d e s ubs t an t i at i o n o f a p o s t al erro r. Sh e d i dn o tp ro v i d e t h at
s ub s t an t i at i o n t o th e fi rm o r t o th e Co u rtattri al
. Tri al was h el d o n J an u ary 1 4 , 2 0 2 0 , i n New Yo rkCi t y . Attri al p et i ti o n er
s ub m i t t edev id en ce t h ath er s o n h adqu al i fi edt o recei v e Fed eral edu cat i o n l o an s
an d Pel l g ran t s up t o ap pro xi m at el y $ 2 4 ,0 00 p er s em es t er. Pet i t i o n er t es t i fi edth at
s h e d ecl i n edt o t ak e an y l o an s , res o l vi n g t o p ay th e tu i t i o n h ers el f. Sh e p ro du ced b an k s tat em en t s es t ab l i sh i n g p aym en t s o f $ 9 ,8 0 9 t o M oreh o u s e du ri n g 2 0 1 6 ; th is
s u m was i n ad d i ti o n t o th e $ 9 ,2 8 3 d i s tri b u tedd i rect l y t o M o reh o u se fro m

h er 5 2 9
acco u n t
.- 6
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[* 6 ] Atth e cl o s e o f t ri al the Co u rti n s t ru ct edth e p art ies t o fi l e s eri at im b ri efs
. Res po n d en tfi ledh is o p en i ng b ri ef o n M arch 2 7 , 2 0 2 0 . Pet i t i o n er fi l edo n Ap ri l 2 7 , 2 0 2 0 , as h er an s weri n g b ri ef, a d o cu m en t i n d i cat i n g th at s he h ad m ad e a $ 1 5 ,0 0 0 d ep o s i t i n t o h er IRA acco u n tth atd ay . OPINION A. Tax ab i l it y

o f Ret i rem en tAcco u ntDi st ri b u t i o n s Th e Co m m is s i o n er’ s d et erm i n at i o n o f t ax l i ab i l i t y i s g en eral l y

p res u m ed
co rrect
. See Ru l e 1 4 2 (a). Fo r t h e p res u m p t i o n t o at tach i n a cas e o f u n rep o rt edi n co m e, “ t h e ev i d en ce o f reco rd m u s tatl eas t l i n kth e t ax p ay er wi t h s o m e t ax g en erat i ng act s .” Ll oren t e v . Co m m i s s i o n er, 6 49 F.2 d 1 5 2 , 1 5 6 (2 d Ci r. 1 9 8 1 ), aff’ g i n p art , rev ’ g in p art7 4 T.C. 2 6 0 (1 98 0 ). “ On ce t h e Co m m i s s io n er m ak es th e req u i redth res h o l ds h o w i n g , th e b u rd en s h ift s t o t h e t ax p ay er t o p ro v e b y a p rep o n d eran ce o f t h e ev i den ce t hatth e Co m m i s s i o n er’ s d et erm i n at i o n s are arb i t rary
o r erro n eo u s .” W al qui s t v . Co m m i s s i o n er, 1 5 2 T.C. 6 1 , 6 7 -6 8 (2 0 1 9 ) (ci t i n g Hel v eri n g v . Tay l o r, 2 93 U.S. 5 0 7 , 5 1 5 (1 93 5 )); To k ars k i v . Co m m i s si o n er, 8 7 T.C. 7 4 (1 9 8 6 ). Pet i t i o ner rep o rt edo n h er 2 0 1 6 retu rn th ats h e h adrecei v edd i s t ri b u t i o n s o f $ 5 4 ,5 0 0 fro m

h er IRA. Res p o nd en th as thu s m eth i s th res ho l ds h o wi n g . Th e b u rd en acco rd i n g l y s hi ft s t o p et it i o n er t o s h o w th atth e d is t ri b u t i o n s were n ots ub ject- 7
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[* 7 ] t o t ax . Pet it i on er d o es n o tco n t en dth at t he b u rd en o f p ro o f s h ift s t o
res p o n d en t u n der s ect i o n 7 4 9 1 (a) as t o an y i s s u e o f fact
. Sect io n 6 1 (a) p ro v i des t h at“ g ro s s i n co m e m ean s al l i n co m e fro m wh at ev er
s o u rce d eri v ed .” Sect i o n 4 08 (d )(1 ) p ro v i d es th at , “ [e] x cep tas o t h erwi s e p ro v i ded i n thi s s ub s ect i o n , an y

am ou n tp ai do r d i st ri b u t edo uto f an i n d i vi du al ret i rem en t p l an s h al l b e i ncl u d edi n g ro s s i n co m e b y th e p ay ee o r d i s t ri b ut ee.” Sect i o n 4 0 8 (d ) p ro v id es s ev eral ex cep ti o n s t o th i s ru le--e.g ., fo r ro l l o v er co n t ri b u t i o n s , t ran s fers i n ci d en t t o d i v o rce, an dd i s t ri b u t i o n s fo r ch ari t ab le p u rp o ses . See s ec. 4 0 8 (d )(3 ), (6 ), (8 ). 3 Fo r a d i s t ri b u t i o n t o b e ex cl ud edfro m g ro s s i n co m e u n d er t h e ro l l o v er ex cep t i on , th e fu nd s m

u s tg en eral l y

b e d ep o s i t edi n to an el i g i b l e ret i rem en t acco u n t
n o l at er t h an 6 0 d ay s aft er t h e t ax pay er recei v es the d i s t ri b u ti o n . Sec. 4 0 8 (d )(3 )(A). Th e Secret ary m ay wai v e t h e 6 0 -d ay

req u i rem en t“ wh ere t h e fai l u re t o wai v e s u ch req u irem en t wo u l db e ag ai n s tequ it y o r g o o d co n s ci en ce, i n cl u d i n g
cas u al t y , d i s as ter, o r o th er ev en t s b ey on dth e reas o n ab l e co n t ro l o f t h e * * * [t ax p ay er] .” Sec. 4 0 8(d )(3 )(I). In d et erm in i n g wh et h er wai v er i s ap p ro p ri at e, t h e IRS co n s i d ers al l rel ev an tfact o rs i n cl u d i n g :

3 Pet i t i on er d o es n otco nt en dth atan y o f h er co n tri b ut i o n s t o h er IRA acco u n t w ere n o t d edu ct i b l e o n co n t ri b u ti o n an dn o tt ax ab l e o n d i st ri b u t i o n . See s ec. 4 0 8A(c) an d (d ).- 8
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[* 8 ] (1 ) erro rs co m

m it t edb y a fi n an ci al i n s ti tu t io n * * * ; (2 ) i n ab i l i t y t o co m p let e a ro l l o v er du e t o d eat h , d i sab i l i t y , h os p it al i zat i o n, i ncarcerat i o n , res t ri ct i o n s i m

p o s edb y a fo rei g n co u nt ry

o r p o s t al erro r; (3 ) t h e u s e o f th e am o u n td i s tri b u t ed(fo r ex am p le, i n the cas e o f p aym en tb y

ch eck , wh et h er t h e ch eckwas cas h ed ); an d(4 ) t h e t i m e el ap seds i n ce t h e d i s tri b ut i o n o ccu rred . [Rev . Pro c. 2 0 0 3 -1 6, s ec. 3 .0 1 , 2 0 0 3 -1 C.B. 3 5 9 , m o d i fi edb y Rev
. Pro c. 2 0 1 6 -4 7, 2 0 17 I.R.B. 3 4 6 .] Th i s Co u rth as ap p l i edth e s am e fact o rs i n d et erm i n i n g wh et h er i t wo u l db e ag ai n s tequ i t y

o r g o o dco n s ci en ce t o d en y a wai v er. See Tri m

m er v . Co m

m i s s i on er, 1 4 8 T.C. 3 3 4 , 3 6 3 (2 01 7 ) (ad dres si n g an al o g o u s h ard s h i p wai ver u nd er
s ect i on 4 0 2 (c)(3 )(B)). Ap p ly i n g th es e fact o rs , we d o n o tb el i ev e t h e IRS erred i n d ecl i n i n g t o wai v e t h e 6 0 -d ay ro l l o v er req u i rem en t . Pet it i o n er h as n o tal l eg edan y erro r b y a fi nan ci al i n s t i tut i o n thatp rev en t edh er fro m effect i n g a t i m el y ro l l o v er. Sh e d i d
n o ts ub s t an t i at e h er co n t en ti o n th ata p o st al erro r cau s edth e d el ay , an d s he h as al l eg edn o d i sab il i t y

o r t h e l i k e as a co n tri b ut i n g cau s e. Wh i le s h e co n t en ds th ati t
was al way s h er i n t en t i o n t o ro l l o v er t h e $ 1 5 ,0 0 0 , s h e p ro du cedn o ev i den ce t h at
s h e s etthe m on ey

as i d e (e.g ., i n a s ep arat e acco u n t ) fo r t h atp u rp os e. Cf. i b i d
. (fi n di n g th att ax p ay ers h adn otu s edo r p ro fi t edfro m th e d i s t ri bu t ed fu nd s wh i l e h o l d i n g th em

fo r ro l l o v er). Pet i t i o n er p ro du ced n o ev i d en ce t o es t ab l i s h wh ats h e d i dwi th th e fu n d s o r h o w s h e u s edth em .- 9
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[* 9 ] Fi n al l y , we fi n di t i m p o rt an t t h atn earl y

fo ur y ears el ap s edb et ween p et i t i o n er’ s recei p to f t h e fi n al d i s t ri b u t i o n an dh er red ep o s ito f t h e $ 1 5 , 0 0 0 t o h er IRA. Pet i t io n er d o es n o tap p ear t o h av e m ad e an y effo rtt o ro ll o ver t h e fu nd s b efo re t h e
n o t i ce o f d efi ci en cy

was i s s u edt o h er. See Rev . Pro c. 2 01 6 -4 7 , s ec. 3 .0 2 (3 ), 2 0 1 6 -3 7 I.R.B. 3 4 6 , 3 47 (req u i ri n g s el f-cert i fi cat i o n thatth e ro l l o v er co n t ri b u t i o n
was m ad e “ as so o n as p ract icab l e” aft er t h e o b st acl e p rev en t i n g the ro l l o v er was
rem o v ed ). Un der t h es e fact s , d ecl in i n g t o wai v e t h e 6 0-d ay req u i rem en ti s n o t ag ai n s tequ i t y

o r g o o dco n s ci en ce, an dp et i ti o n er i s t h erefo re t ax ab l e o n th e fu l l $ 5 4 ,5 0 0 th atwas d i s t ri b u t ed t o h er. B. Sect io n 7 2 (t ) Ad d i t io n al Tax Wh ere (as h ere) a t ax p ay er recei v es d i s t ri b u ti on s fro m a qu al i fi edret i rem en t p l an , s ect i o n 7 2(t )(1 ) g en eral ly p ro v i d es thatth e t ax s h al l b e i n creas ed“ b y an
am ou n tequ al t o 1 0 p ercen t o f t h e p o rt i on o f s u ch am o u n twh i ch i s i n cl ud i b l e i n g ro s s i n co m e.” Th ere are s ev eral ex cep t io n s t o t h i s ru l e, e.g ., wh ere t h e t ax p ay er recei v i ng th e d i st ri b u t io n h as at t ai n edth e ag e o f 5 9 -1 / 2 o r i s d i s ab l ed . See s ec. 7 2 (t )(2 )(A)(i ), (i i i). Pet i t io ner q u al i fi es fo r n ei t h er o f t h es e ex cep ti o n s . An o th er ex cep t i o n ap p l i es “ t o the ex t en t s u ch d i s t ri b u t i o n s d o n o tex ceed t h e qu al i fi edh i g h er edu cat i o n ex p en s es * * * o f t h e t ax p ay er fo r t h e t ax ab l e y ear.” Sec. 7 2 (t )(2 )(E). “ Qu al ifi edh i g h er educat io n ex pen s es ” i n cl ud e ex p en s es fo r- 1 0 -

[* 1 0 ] tu i t i o n , fees , b oo k s , s up pl i es , an d (t o s om e d eg ree) ro o m an db oard , an d i n cl u d e ex p en ses th ata t ax p ay er i n cu rs o n b eh al f o f a ch il d
. See s ecs . 7 2 (t )(7 ), 5 2 9 (e)(3 ). In o rd er t o qu al ify , edu cat i o n al ex pen s es m u s tb e i n cu rredi n t h e t ax ab l e y ear i n wh i ch th e d i s tri b u t i o n i s recei v ed . See Du ro ni o v . Co m m i s s i o n er, T.C. M em o . 2 00 7 -9 0 ; Lo d d er-Beck ertv . Co m m i s s i o n er, T.C. M em o . 2 00 5 -1 6 2
. Pet i t io n er rel i es o n t h i s ex cep t i o n an dh as th e b u rd en o f p ro du ct io n wi t h res p ectt o t h ati s s u e. See El v . Co m m i s s i o n er, 1 4 4 T.C. 1 40 , 1 48 (2 0 1 5 ). Pet i t i o ner as s ert edi n h er res p o n s e t o th e No t ice CP2 0 0 0 th atth e t o t al y earl y
co s to f h er s on ’ s at t en d an ce at M o reh o u s e was $ 5 4 ,0 0 0 . Bu ts h e p res en t edn o ev i

d en ce th ats h e act u al ly

i ncu rredex p en s es o f t hatm ag n i tu d e. M o reh o u se ap p ears t o h av e p ro v i d edth atfi g u re as an es t i m at e o f t h e co s to f at ten d an ce b efo re an y g ran to r s ch o l ars h i p was ap p l i ed . An dth at fi g ure refl ect ed t h e es ti m at ed co s to f fu l l -y ear at t en d an ce, wh ereas th e rel ev an tfi g u re h ere i s th e am o u n tp et i t i o n er act u al l y p ai d du ri n g cal en d ar 2 0 1 6
. Onh er ret u rn p et i t i o n er rep ort edth at$ 2 4 ,6 6 0 o f h er d i st ri bu t i o n s was
s ub jectt o t h e 1 0% ad d i t i o n al t ax u n d er s ect io n 7 2(t ). By n eg at i ve i m

pl i cat i o n th i s
s u g g es t s th atth e ex p en s es s h e b el iev edt o b e ex em p t fro m th e 1 0 % ad d i t io n al t ax t o t al ed$ 2 9 ,8 40 ($ 5 4 , 5 0 0

! $ 2 4 ,6 6 0 ). Bu ts h e was n o tab l e t o s ub s t an t iat e edu cat i on al co s t s o r p aym en ts th atl arg e du ri n g 2 0 1 6
.- 1 1 -

[* 1 1 ] Pet i t i o ner s ub s t an t i at edth ats h e p ai d M o reh o u s e $ 1 9 , 0 92 du ri n g 2 0 1 6 , co n s i st i n g o f $ 9 ,2 83 d is t ri b u t edt o M o reh o u se fro m h er 5 2 9 acco u n tan d$ 9 ,8 0 9 i n p aym en t s s ep arat el y

d ocu m en tedb y

h er b an ks t at em en ts . W e fi n d t h at$ 5 , 8 1 6 o f t h e l at ter s um

rep res en tedthe b al an ce o f h er wi t hd rawal s fro m th e s ect i o n 5 2 9
acco u n t (v i z., th e p o rt i o n d i s tri b u t edt o h er rat h er t han t o M o reh o u s e). Th i s l eav es $ 3 ,9 9 3 (v i z., $ 9 ,8 0 9

! $ 5 ,8 1 6 ) as th e am o u n tthatp et i t i o ner p ai d M o reh o us e u s i n g p ro ceed s o f h er IRA wi t hd rawal s . In s u m , we fi n d t h at $3 ,9 9 3 o f th e $ 5 4 ,5 0 0 th atp et i t i o ner wi th drew fro m h er IRA acco u n twas u s edduri ng 2 0 1 6 fo r “ qu al ifi edh ig h er edu cat i o n ex p en s es ” wi t h i n th e m ean i n g o f s ect i on 7 2 (t )(2 )(E). W e fi ndth at s he h as fai ledt o m eeth er b u rd ent o s h o w th atan y ex cep t i o n ap p l i es t o th e b al an ce o f h er IRA wi t h drawal s . Sh e i s th u s l i ab l e fo r ad di t i o n al t ax o f $ 5 ,0 51 (1 0 % × $ 5 0 , 5 0 7) u n d er s ect i o n 7 2 (t ). C. Accu racy -Rel at edPen al t y Th e Co d e i m

p os es a 2 0 % p en al t y

up o n th e p o rt io n o f an y

u nd erp aym en to f t ax th ati s at t ri b u t ab l e t o (am o n g o t h er t h i ng s ) “ [a] n y s ubs t an ti al u nd ers t at em en to f i n co m e t ax .” Sec. 6 6 6 2 (a), (b )(2 ). Anu n d ers t at em en to f i n co m e t ax i s “ s ub s t an t i al ” i f i t ex ceed s th e g reat er o f $ 5,0 0 0 o r 1 0 % o f t he t ax req u i redt o b e s h o wno n t h e ret urn . Sec. 6 6 6 2 (d )(1 )(A). Sect i o n 7 4 91 (c) g en eral l y p ro v i d es th at “ t he- 1 2 -

[* 1 2 ] Secret ary

s h al l h av e t he b u rd en o f p ro duct i o n i n an y co u rtp ro ceed in g wi t h
res p ectt o t h e l i ab il i t y

o f an y i n d i v idu al fo r an y p en al t y .” 4 Sect io n 6 6 6 4 (c)(1 ) p ro v i d es th atn o accu racy -rel at edp en al t y s h al l b e i m p o s edwi t h res p ectt o an y p o rt i o n o f an u nd erp aym en t “ i f i ti s s h own th atth ere was
a reas on ab l e cau s e fo r s u ch p o rt i o n an dth atth e t ax pay er act edi n g o o dfai t h wi t h
res p ectt o * * * [i t] .” Th e t ax p ay er b ears th e b urd en o f s h o wi n g reas o n ab l e cau s e
an d g o o dfai t h . See 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 01 ). Th e d eci s i o n wh et h er a t ax p ay er h as m etth i s b u rd en i s m ad e o n a cas e-b y -cas e b as i s , t ak

i n g i n t o acco un tal l p ert i n en tfact s an dci rcu m s t an ces . See s ec. 1 .6 6 6 4-4 (b )(1 ), In co m e Tax Reg s . Ci rcu m s t an ces th atm ay s i gn al reas o n ab l e cau s e an d g oo dfai t h

“ i n cl u d e anh o n es tm i s u n ders t an d i n g o f fact o r l aw t h ati s reas o n ab l e i n l i g h to f al l

4 Th e Co m

m i ss i o n er’ s b u rd en o f p ro du ct i o n i n cl u d es s h o wi ng co m pl i an ce wi t h s ect i o n 6 7 5 1 (b )(1 ), wh i ch req u i res th atth e i n it ial d et erm i n at i o n o f an y p en al

t y as ses s m en t be “ p ers o nal l y ap p ro v ed(i n wri t i n g ) b y t h e i m m ed i at e s up erv i s o r o f t h e i n d i v i du al m ak i n g s uch d et erm i n at i o n .” Th i s req u i rem en td o es n o tap pl y t o an y p en al t y “ au to m at i cal l y

cal cu l at edth ro u g h el ect ro n i c m ean s .” Sec. 6 7 5 1 (b )(2 )(B). Th i s Co urt h as h el d t h ats ubs t an ti al u nd ers t at em en tp en al t ies d et erm i n edb y

an IRS co m

p u ter p ro g ram

wi t h o uth u m an rev i ew are “ au to m at i cal l y cal cu l at edth ro u g h el ect ro n i c m ean s ” an dare t h u s ex em p tfro m th e wri t t en s up erv i s o ry ap p ro v al req u i rem en t . See W al qui s tv . Co m m i s s i o ner, 1 5 2 T.C. 6 1 , 7 3 (2 0 1 9). Al t h o ug h the p en al t y i n W al qu i s twas cal cu l at edb y th e IRS’ Co rres p o n d en ce Ex am i n at io n Au t om at edSupp o rt p ro g ram , res p o n d en tco n t en d s t hatth e s am e res u l ts h ou l dfo l lo wwh ere (as h ere) t h e p en al t y i s cal cu lat edb y

the AUR p ro g ram . Si n ce we h o l do n th e m eri t s th atp et i t i o n er i s n o tl i ab l e fo r an y p en al t y , we n eedn o td eci d e wh et h er res p o n d en th as m eth i s b u rd en o f p ro du ct i o n .- 1 3 -

[* 1 3 ] o f t h e fact s an dci rcu m st an ces , i n cl u d i n g t h e ex p eri en ce, kno wl ed g e, an d edu cat i o n o f t h e t ax p ay er.” Ib i d
. Pet i t i o ner p rep aredh er 2 0 1 6 retu rn du ri n g a v ery tum u l tuo u s t i m e i n h er l i fe. W e fo u n dcred ib le h er t es t i m o n y th ats h e at t em

p t edt o rep o rth er t ax l i ab i l i t y
co rrect ly . Sh e rep o rt edth e fu l l am o u nto f t h e IRA d i s t ri b u t i o n s s h e recei v ed ($ 5 4 , 50 0 ), b uttreat ed$ 15 ,0 0 0 as n o n t ax ab l e b ecau s e s he i nt en d edt o ro l l o v er t h at
am ou n t . Sh e rep o rt ed$ 2 4,6 6 0 o f h er d i s t ri b u ti o n s as s ub jectt o th e 1 0 % ad d i t i o n al t ax , co rrect l y b el i ev i n g th ats h e was en t i t l edt o s o m e ex em p t io n fo r qu al i fi ed edu cat i o n ex p en s es . Al t h ou g h s h e d idn o tcal cu l at e t h e ex em p t i on am o un tco rrect ly , we fi n dth ats h e ex erci s edg o o dfai t h i n h er rep o rt in g . Co ns i d eri n g al l th es e fact s, we fi n dth atp et i t i o n er h as d em o n s t rat edreas o n ab l e cau se fo r h er u n d erp ay m en t
. To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t eredu n d er Ru l e 1 5 5.