# PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.T.C. Sum m ary Opi ni on 20 14 -1 8

UNITED STAT ES TAX COURT

THOMAS W ESLEY AL EXANDER AN D SYLVIA ALE XANDER, Peti ti on ers v.

COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 17 64 -1 2S
. Fi le d F eb ru ary 26 , 20 14
.
W al te r B. Sm it h, fo r pe ti ti on ers . Je remy D. Cam ero n a ndPet er T. McC ary, forres po nd en t.

SUMM ARY OPINION DEAN, Speci al Trial Ju dg e: Thi s ca se was h eardpu rs uantto th e p ro vi si on s of sec ti on 74 63 of t he Int ern al Rev enue Co de ineffe ctwhenth e p et it io n was fil ed
. Pu rs ua ntto sec ti on 74 63 (b ), th e d eci si on to be en te redis no t re vi ewab le by any ot he r co urt, an d t hi s o pi ni on sh al l n otbe tre at edas p rece de ntforan y ot he r cas e. Unl es s o th erwi se in di cat ed , subs eque ntsec ti on refe ren ces are t o t he Int ern al- 2 -

Rev enue Co de in effe ctforth e y ear a t i ss ue , andRu le refe ren ces are t o t he Tax Co urt Ru le s o f Prac ti ce an d P ro cedur e. Res po nd en t i ss ue d ast atut ory no ti ce o f de fic ie nc y

to pe ti ti on ers for20 09 in whi chhe de te rm in eda de fic ie nc y inin co m e ta x o f $1 4,1 65 an d an a ccu racyrel at edpe na lty

un de r se ct io n 6 66 2( a) o f $2 ,83 3. The is su es forde ci si on are wh ethe r pe ti ti on ers : (1 ) fai le d t o re po rt a s in co m e a t ax ab le ret ire m en t d is tri bu ti on fro m a si m pl ifi edem

pl oyee pe ns io n (SEP) i nd iv idua l re ti rem en t ac co un t (I RA); (2) are l iabl e fo r th e 1 0% a dd it io na l ta x u nd er s ect io n 7 2( t); an d (3 ) are li ab le forth e acc ur acy-rela te d p en al ty und er se ct io n 6 66 2( a). 1 A few of th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Th e st ip ul at io n o f fact s an d t he ex hi bi ts rece iv edinev id en ce ar e in co rp or at edhe rei n b y refe ren ce. Pet it io ne rs res id edin Flo rid a whe n t he pe ti ti on was fi le d. Bac kg ro un d Pet it io ne rs ti m el y

fil edth ei r Fed eral in co m e ta x re tu rnfor20 09 . Tho m as Alex an de r (p et it io ne r) i s a l ic en se d e le ctric al co ntract or . In 2 00 9 p et it io ne r was worki ng with Tru e Cra ft C on st ru ct io n (True Craf t), age ne ral co nt ract or , ontwo The li m it at io n, i f an y , of p et it io ne rs ’ it em iz edde du ct io ns un de r se c. 68 an d 1 th e am ou nt , if an y , of p et it io ne rs ’ m ak in g wo rkpa y cred itun de r se c. 36 (a) a re co m pu ta ti on al an d wi ll be res ol ve d b y th e d eci si on of t he Co urt o n o th er i ss ue s.- 3 -

la rg e co m m erci al de ve lo pm en ts . Duri ng 20 09 True Craf t s uf fere d s om e b us in es s di ffi cu lt ie s t ha t caus editto fai l t o p ay pe ti ti on er t im el y

ab ou t $ 13 0,0 00 th athe
was du e fo r work o n t he two pro jects
. One of t he True Craf

t p rin ci pa ls pro po se d t o p et it io ne r th athe wou ldgi ve pe ti ti on er a p ro m is so ry

no te forth e $ 13 0,0 00 , andhe wou ldass ig n t o p et it io ne r a pi ece o f rea l es ta te (pr op erty ) th athe own edas s ecu rit y forth e d eb t. Bu t the re was a cat ch : Th e p ro pe rty was b ur de ne d wi th a pa st -due m ortg ag e an d was subjec t t o imm in en t fo recl os ur e. Pet it io ne r wou ldha ve to pa y SunTru stBan k (S un Trus t) $3 6,0 00 to st op th e fo recl os ur e an d t hu s t he lo ss of t he pro pe rty tha t was to be hi s se cu rit y . Pet it io ne r ha d a n S EP-IRA wi th Ch arl es Sch wab & Co ., Inc . (Sch wab ), th at was hand le d b y

a Sch wab em

pl oyee by the na m e o f Pet er Ho ag inDenv er, Co lo rad o. Pe ti ti on er co ns id eredHoag to be hi s fi na nc ia l advi se r, atlea stas f ar as hi s SEP- IRA was co nc ern ed . Hoag su gg es te d t ha t p et it io ne r ge t a l oa n fr om Ch arl es Sch wab of $ 36 ,00 0 t o p ay SunTru stinord er t o h al t fo recl os ur e o n t he pr op erty . Becau se th e lo anco ul d n otbe pro ces se d u nt il aft er the for ecl os ur e d at e, Hoa g s ug ge st edth atpe ti ti on er fi rs t wi th dr aw th e fu nd s fr om th e SEP-IRA. At th e ti m e, pe ti ti on er’s SEP-I RA was wort h $ 48 ,00 0 t o $ 50 ,00 0. Ho ag advi se d pe ti ti on er tha t i f he rep la cedth e m on ey fro m th e SEP-IRA with t he lo anpro ceed s- 4 -

be fo re a ce rta in ti m e, 60 da y s, the re wo ul d b e “ no pe na lty with a nybo dy”. Hoag to ldpe ti ti on er tha t the lo anwou ldbe ap pr ov edwithi n 3 0 t o 4 5 d ay s. Pet it io ne r, who ha d n oty etturn ed59 -1 /2 , hadHoag wire $3 6,0 00 (d is tri bu ti on ) fro m

hi s SEP- IRA acc ou ntin to hi s cr ed itun io n c he ck in g a cco un t o n Ju ly 31, 2 00 9. No Fed eral tax was wi th he ldfro m th e d is tri bu ti on . Peti ti on er wro te a ch eckto SunTru stfro m hi s cr ed itun io n a cco un t t o s to p t he for ecl os ur e an d re cei ve d apro m is so ry no te fro m

True Craf

t fo r $1 30 ,00 0. The re was so m e d el ay

in th e lo anpro ces s, wh ic h was hand le d b y an ot he r of fic e o f Sch wab in Jac ks on vi ll e, Fl or id a. Pet it io ne r rec ei ve d t he lo anpro ceed s on W edne sd ay , Sep te m

be r 30 , 20 09 . He th enm ai le d ape rs on al ch eckfor $3 6,0 00 to th e SEP-IRA acco un t, p ro babl y on Octo be r 1, 2 00 9, tha t was de po si te d i nt o t he SEP-IRA acco un t o n M on da y , Octo be r 5, 2 00 9, 6 6 d ay s af te r th e fu nd s wer e withd rawn . InJan uary

20 10 pe ti ti on er re cei ve d fr om Sch wab a Fo rm

10 99 -R, Dis tri bu ti on s Fr om

Pen si on s, An nu it ie s, Re ti rem en t o r Pro fit -Sh ari ng Plans , IRAs, In su ran ce Co nt ract s, et c., rep orti ng a gr os s d is tri bu ti on of $ 36 ,00 0. Th e fo rm be ars a co de in di cat in g t ha t the di st rib ut io n i s an earl y di st rib ut io n, b utitdo es no t in di cat e a t ax ab le am ou nt .- 5 - Dis cu ss io n Gen eral ly, th e Co m

m is si on er’s d et erm in at io ns ina no ti ce o f de fic ie nc y are pr es um edco rrec t, an d t he tax pa y er h as th e b ur de n o f pr ov in g t ha t tho se de te rm in at io ns are erro ne ou s. See Ru le 14 2( a); W el ch v. Hel ve rin g, 2 90 U.S. 11 1, 11 5 (1 93 3) . In s om e cas es th e b ur de n o f pr oo f wit h re sp ectto rel ev an t fa ctua l is su es m ay

sh iftto th e Co m

m is si on er u nd er s ect io n 7 49 1( a). The Co urt fi nd s t ha t pe ti ti on ers ha ve no t ar gu edor s ho wn t ha t the y have m etth e requi rem en ts of
se ct io n 7 49 1( a)(1 ). Ther efo re, the bu rd enof p ro of do es no t s hi ft t o re sp on de nt . Res po nd en t i ss ue d ano ti ce o f de fic ie nc y to pe ti ti on ers de te rm in in g t ha t th ey ha d fa il edto rep ort the rece ip t o f th e d is tri bu ti onfor20 09 . Res po nd en t atth e ti m e o f tr ia l t oo k t he po si ti onth at , with c ert ai n e xc ep ti on s n othe re p ert in en t,
am ou nt s p ai d o r di strib ut edfro m anin di vi du al ret ire m en t p lan m us t b e in cl ud edin gr os s i nc om e b y

th e p ay ee o r di st rib ut ee. Inad di ti on , res po nd en t ar gu edth atif t he be ne fic ia ry

of a n IRA us es an y

po rti on of t he acco un t as sec ur it y fora lo an , th at po rti onis tre at edas adi st rib ut io n t o t he in di vi du al
. Pet it io ne rs an al y ze thi s ca se interm s o f whe th er p et it io ne r effe ct eda

“ ro ll ov er” o f th e wit hd rawnfun ds or, s eco nd ari ly, a lo anfro m hi s qua li fie d
em pl oyer pl anth atqu al ifi es as ano nt ax ab le di st rib ut io n.- 6 -

Whe th er Th ere Was a R ol lo ve r A tru stcrea te d o r or ga ni zedinth e Uni te d S ta te s fo r th e ex cl us iv e b en efi t o f
anin di vi du al or h is be ne fic ia rie s i s an “ in di vi du al ret ire m en t ac co un t” if i t m eet s th e requi rem en ts of s ect io n 4 08 (a). AnSEP is anin di vi du al ret ire m en t ac co un t o r 2 in di vi du al ret ire m en t an nu it y th atm eet s t he requi rem en ts of s ect io n 4 08 (k ). Sec. 40 8( k) (1 ). W it h c ert ai n e nu m erat edex cep ti on s, an y am ou ntpa idor d is tri bu te d b y anin di vi du al ret ire m en t p la n m us t b e in cl ud edinth e g ro ss in co m e o f th e p ay ee o r di st rib ut ee as pro vi de d b y sec ti on 72 . Sec. 4 08 (d )(1 ). Ro ll ov er co nt rib ut io ns are an ex cep ti on to th e in cl us io n o f SEP d is tri bu ti on s in th e in co m e o f pa y ees or d is tri bu te es . An am ou ntis a ro ll ov er co nt rib ut io n i f it
m eet s t he requi rem en ts of s ect io n 4 08 (d )(3 ). As i s p ert in en t h ere, i f anam ou ntis di st rib ut edfro m

anin di vi du al ret ire m en t ac co un t o r an nu it y to th e in di vi du al for who m th e acc ou ntis m ai nt ai ne d, an d t he en ti re am ou ntis pa idin to anin di vi du al ret ire m en t ac co un t, an nu it y , or e li gi bl e ret ire m en t p la n fo r th e b en efi t o f th e in di vi du al no t l at er than t he 60 th da y aft er the da y

on whi ch he rece iv es th e di st rib ut io n, i t i s a r ol lo ve r ex cep te d fr om in cl us io n i n i nc om e. Sec. 4 08 (d )(3 )(A).

Inad di ti on to in di vi du al ret ire m en t ac co un ts , sec . 40 8( b) an d (c ) al lo ws fo r 2 in di vi du al ret ire m en t an nu it ie s an d a cco un ts est ab li sh edby em pl oyers an d c ert ai n as so ci at io ns of e m

pl oyees.- 7 -

Pet it io ne rs arg ue th atde sp it e th e fac t tha t the ir p ers on al ch eckwas de po si te d i nt o t he SEP-IRA acco un t o n Oct ob er 5 , 20 09 , 66 da y s af te r th e fu nd s were wi th dr awn , th ere was ne ve rth el es s a r ol lo ve r be cau se Sch wab cau se d ade la y in th e lo an . Peti ti on ers m ay be att em pt in g t o a na lo gi ze the ir s itua ti on with t ha t o f th e ta xp ay ers in W oo d v . Comm is si on er, 9 3 T.C. 1 14 (19 89 ). InW oo d t he tax pa y er re ti redan d re cei ve d alu m p- su m di st rib ut io n o f cas h
an d s to ck s fr om

hi s emplo y er’s p ro fit -s ha rin g p la n. He es tabl is he d a n IRA with Merril l Lync h andin st ru ct edth e acc ou ntex ecu ti ve to tra ns fer the en ti re di st rib ut io n i nt o t he IRA to effe cta no nt ax ab le trans fer o f th e fu nd s. The acco un t ex ecu ti ve ass ur edth e ta xp ay er tha t the tra ns fer wo ul d b e m ad e withi n t he ap pl ic ab le 60 -d ay pe rio d. Th e cas h a ndst oc k wer e tr an sf erre d i nt o t he IRA wit hi n t he 60 -d ay

rol lo ve r pe rio d, b utbe cau se of abo ok ke ep in g e rro r th e st oc k t ran sf

er was erro ne ou sl y

in di cat edas n otha vi ng oc cu rredun ti l af te r th e ro ll ov er p eri odha d e laps ed
. The Co urt fo un d t ha t wh enbo ok ke ep in g “ en tri es are atvarianc e with t he fact s, the de ci si on m

us t re ston th e fac ts .” Id . at 1 21 (ci ti ng Deanv. Co m m is si on er, 5 7 T.C. 3 2, 4 4 (1 97 1) , Kapl anv. Co m m is si on er, 2 1 T.C. 1 34 , 14 0 (1 95 3) , Lant een Med . Labs ., Inc . v. Co m m is si on er, 1 0 T.C. 2 79 , 28 8 (1 94 8) , and Elk in s v . Comm is si on er, 1 2 B .T.A. 105 8 (1 92 8) ).- 8 -

Pet it io ne rs ’ cas e is no t l ik e Wood . The $ 36 ,00 0 was no t i n fa ctde po si te d withi n t he st atut or il y

pre sc rib ed60 -d ay

pe rio d; an y

“ erro r” tha t m ay

ha ve be en co m m it te d b y Sch wab was n ota bo ok ke ep in g e rro r. Altho ug h p et it io ne rs arg ue th atth ei r in te ntwas t o e ffec t a r ol lo ve r, itis well
es tabl is he d t ha t a t ax pa y er’s i nt en ti on to tak e ad va nt ag e o f fav or ab le tax laws do es no t d et erm in e th e ta x c on se qu en ces of h is or h er tran sa ct io ns . Bezd jian v. Co m m is si on er, 8 45 F.2d21 7 (9 th Cir . 19 88 ), aff’g T.C. Me m o. 1 98 7- 14 0; Carl to n v. Un it edSta te s, 3 85 F.2d23 8, 2 43 (5t h C ir. 1 96 7) (ci ti ng Co m m is si on er v . Dub ers te in , 36 3 U.S. 2 78 , 28 6 (1 96 0) ). Wha t ac tu al ly w as do ne de te rm in es th e ta x t reat m en t o f a tran sa ct io n. Weis s v . Ste arn , 26 5 U.S. 2 42 , 25 4 (1 92 4)
. The Co urt n ot es , ho wev er, tha t s ect io n 4 08 (d )(3 )(I) p erm it s t he Co m m is si on er, inhi s d is cret io n, t o wai ve th e 6 0- da y requi rem en t u nd er ce rta in 3 ci rcu m st an ces wher e ta xp ay ers fol lo w th e in st ru ct io ns of R ev . Pro c. 20 03 -1 6, 20 03 -1 C.B. 3 59 . Peti ti on er i s fr ee t o p ur su e rel ie f wit h t he Int ern al Rev enue Serv ic e.

The term “ Secr et ary” in t he st atut e m ean s i n t hi s co nt ex t the Co m m is si on er 3 of Int ern al Rev enue . See s ecs . 77 01 (a)( 11 ), 78 03 (a)( 2) (A) (the Co m m is si on er h as th e p owe r to supe rv is e th e ex ecu ti on an d app li cat io n o f th e in te rn al rev enue laws ).- 9 -

Whe th er Th ere Was a Lo an Pet it io ne rs ’ se co ndli ne of d efen se is anarg um en t tha t the di strib ut io n was a lo anfro m th e SEP-IRA acco un t tha t u nd er s ect io n 7 2( p) is no t i nc lu di bl e in in co m e. The a tt em

pt edch arac te riz at io n o f th e d is tri bu ti on as alo anfal ls in to th e real m of “ [b ]e carefu l wh aty ouwis h fo r.” Sect io n 7 2( p) (1 )(A) p ro vi de s t ha t l oa ns fro m a pl anto a pa rti ci pantor be ne fic ia ry

are treat edas d is tri bu ti on s fr om th e p la n. Lo an s m eet in g t he requi rem en ts of s ect io n 7 2( p) (2 ), ho wev er, wil l n otbe tre at edas d is tri bu ti on s. Pet it io ne rs off

eredno ev id en ce attri al of t he factua l p red ic at es ne ces sa ry to av ai l th em se lv es of t he sec ti on 72 (p )(2 ) ex cep ti on . Furthe r, se ct io n 7 2( p) ap pl ie s o nl y to pl an s d es cri be d i n s ect io ns 40 1( a) an d 4 03 (a) a nd(b) , a qu al ifi edem pl oyer pl an , or ago ve rn m en t p la n. Se c. 72 (p )(4 )(A). W it h re sp ectto IRAs , sec ti on 40 8( e) p ro vi de s t ha t i f th e in di vi du al for who m th e IRA was crea te d, o r hi s b en efi ci ary, en ga ge s i n atrans act io n p ro hi bi te d by sect io n 4 97 5 a s t o t he acco un t, the acco un t wi ll no t b e tr eat edas a n IRA as o f th e fi rs t d ay

of t he tax y ear, an d t he acco un t wi ll be tre at edas h av in g d is tri bu te d al l o f it s as se ts . Sec. 4 08 (e)( 2) . Barri ng th e ex tra or di na ry rel ie f pr ov id edby- 10 -

se ct io n 4 97 5( c)(2 ), th e le nd in g o f m on ey be twee n apl anan d adi squa li fie d p ers on is a pr oh ib it edtra ns act io n. Se c. 49 75 (c)( 1) (B). 4 On t he ba si s o f th e rec or d, p et it io ne r di d n otus e h is IRA as sec ur ity fora lo anas a rg ue d b y

res po nd en t, n ordi d h e b orro w th e d is tri bu ti on fro m hi s IRA as arg ue d b y pe ti ti on er. Hadpe ti ti on er b orro wedfro m hi s IRA, th e ta x c on se qu en ces m ig htha ve be enev enha rs he r th anth ey are. Res po nd en t’s d et erm in at io n t ha t p et it io ne r m us t i nc lu de th e d is tri bu ti on in in co m e is su st ai ne d. Add it io na l 1 0% Tax for

Early W it hd rawal Sect io n 7 2( t)( 1) im

po se s an ad di ti on al tax on anearl y di st rib ut io n fr om

a qu al ifi edret ire m en t p la n e qu al to 10 % of t he po rti on of the am ou ntth atis in cl ud ab le in gro ss in co m e. The 1 0% a dd it io na l t ax do es no t ap pl y to di st rib ut io ns : (1 ) to anem pl oyee ag e 5 9- 1/ 2 o r ol de r; ( 2) to a be ne fic ia ry (orth e em pl oyee’s est at e) o n o r aft er the em pl oyee’s de ath; (3) onacco un t o f th e em pl oyee’s di sabi li ty; (4) as p artof aser ie s o f subs ta nt ia ll y equa l p eri od ic pa ym en ts m ad e fo r li fe; (5) to anem pl oyee aft er s ep arat io n fr om servi ce af

te r at ta in m en t o f ag e 5 5; (6) as d iv id en ds pa idwith re sp ectto co rp or at e st oc k Cert ai n l oa ns de sc rib edinsec . 49 75 (d )(1 ) are ex em ptfro m sec . 49 75 (c). 4 Sec. 4 97 5( f)(6 )(A) an d (B )(i )(II) ex cep ts fro m th e ex em pt io n i nd iv idua l re ti rem en t acco un ts an d a nn ui ti es . See s ec. 7 70 1( a)(3 7)
.- 11 -

de sc rib edin sec ti on 40 4( k) ; (7 ) to anem pl oyee fo r m ed ic al care ; o r (8 ) to an al te rn at e p ay ee p ur su an t t o aqu al ifi eddo m es ti c rel at io ns ord er. Sec . 72 (t) (2 ); s ee al so sec . 72 (t) (2 )(A)(v ii ), (B)- (G) (s et ti ng forth othe r ex cep ti on s n otap pl ic ab le he re). Whe n p et it io ne r rec ei ve d the di st rib ut io n, h e h adno t re ach edth e ag e o f 59
- 1/ 2, an d h e h as no t al le ge d o r sh own th athe co m es withi n a ny of th e o th er ex cep ti on s u nd er s ect io n 7 2( t). Th eref or e, res po nd en t’s d et erm in at io n t ha t pe ti ti on ers are l iabl e fo r th e 1 0% a dd it io na l t ax onth e d is tri bu ti on is su st ai ne d. Accu racy-Rel at edPen al ty Und er Se ct io n 6 66 2( a) Sect io n 7 49 1( c) i m

po se s o n t he Co m

m is si on er the bu rd enof p ro du ct io n i n an y co urt p ro ceed in g wi th res pe ctto th e li ab il it y of any ind iv idua l fo r pe na lt ie s an d a dd it io ns to tax . Hig be e v . Comm is si on er, 1 16 T.C. 43 8, 4 46 (20 01 ); Trowb rid ge v. Co m

m is si on er, T.C. Mem o. 2 00 3- 16 4, af f’d, 37 8 F .3d43 2 (5 th Cir
. 20 04 ). In o rd er t o m eetth e b ur de n o f pr oduc ti onun de r se ct io n 7 49 1( c), the Co m m is si on er n eedon ly m ak e a p rima facie cas e th atim po si ti onof t he pe na lt y

or ad di ti on to tax is ap pr op ria te . Hig be e v . Comm is si on er, 1 16 T.C. at 4 46
. Sect io n 6 66 2( a) an d (b )(1 ) im po se s a 2 0% p en al ty on t he po rti on of a n un de rp aym en t at tri bu tabl e to ne gl ig en ce o r di sr eg ardof rul es or r eg ul at io ns . Neg li ge nc e in cl ud es any

fai lu re t o m ak e a rea so nabl e atte m ptto co m pl y with t he- 12 -

pr ov is io ns of t he Int ern al Rev enue Co de . Sec. 6 66 2( c); sec . 1.6 66 2- 3( b) (1 ), In co m e Tax Reg s. Bu t the sec ti on 66 62 (a) p en al ty doe s n otap pl y to an y po rti on of anun de rp aym en t o f ta x i f itis sh own th atth ere was reas on ab le cau se forth e ta xp ay er’s p os it io n a ndth atth e ta xp ay er ac te d i n g oo d fa it h wi th res pe ctto th at po rti on . Sec. 6 66 4( c)(1 ). The d et erm in at io n o f whe th er a t ax pa y er ac te d wi th
reas on ab le cau se an d i n g oo d fa it h i s m ad e o n acas e-b y -cas e b as is , tak in g i nt o acco un t al l the pe rti ne ntfact s an d c irc um st an ces . Sec. 1 .66 64 -4 (b )(1 ), In co m e Tax Reg s. Th e m os t i m

po rtantfact oris th e ex te ntof t he tax pa y er’s eff ort t o as se ss th e ta xp ay er’s p ro pe r ta x l iabi li ty. Id. The di strib ut io n i s t ax ab le , andpe ti ti on ers fai le d t o re po rt i t o n t he ir jo in t in di vi du al tax return. Th e Co urt co nc lu de s t ha t re sp on de ntha s p ro du ced
su ffi ci en t ev id en ce t o s ho w th atth e acc ur acy-rela te d p en al ty und er s ect io n 66 62 (a) i s ap pr op ria te for 20 09
. Pet it io ne r rel ie d o n t he advi ce o f Hoa g t o e ng ag e inth e tr an sa ct io n t ha t cau se d t he de fic ie nc y . The Co urt ac cep ts pe ti ti on er’s t es ti m on y th athe was t ol d th atth e fund s wo ul d b e rep la cedti m el y by loa n p ro ceed s. Th e Co urt al so acce pt s pe ti ti on er’s t es ti m on y

th atalt ho ug h h e was aware t ha t h e m ig htsu fferso m e so rt o f pe na lty if the IRA fu nd s wer e n otrep la cedwithi n 6 0 d ay s, i t was no t m ad e cl ear t o- 13 -

hi m fro m wher e th e p en al ty w ou ldco m e. Ther e is ev id en ce i n the reco rd
su gg es ti ng th atth ere was so m e d el ay on th e p artof S ch wab inpro ces si ng th e lo an . Pet it io ne rs pro vi de d t he ir a cco un ta ntwith t he Fo rm 10 99 -R the y

rece iv ed fro m Sch wab . The ac co un tantadvi se d p et it io ne rs when pre pa rin g t he ir r eturn t ha t un le ss th ey

go t the Fo rm

10 99 -R “ co rrec te d” th ey wou ldha ve anin crea se in in co m e b ecau se of t he di st rib ut io n a s wel l as a 10 % ad di ti on al tax forearl y withd rawal . Peti ti on ers co nt act edHoag to reque sta “ co rrec te d” Fo rm 10 99 -R,
an d Ho ag in fo rm edth em th at“ itis all go od ” b ecau se th ey ha d p utth e m on ey

ba ck in to th e SEP-IRA. Peti ti on ers pu t Ho ag an d t he acco un ta nt“ in co nt actto ge th er”,
an d t he acco un ta ntpre pa redth e return wi th ou t i nc lu di ng th e d is tri bu ti on . Tak in g i nt o a cco un t al l the pe rti ne ntfact s an d c irc um st an ces , th e Co urt i s co nv in cedth atpe ti ti on ers di d e ve ryth in g i n t he ir c on tro l t o d et erm in e th ei r pr op er ta x l iabi li ty. The Co urt fi nd s t ha t p et it io ne rs were n otne gl ig en t i n fi li ng th ei r 20 09 return. Acco rd in gl y , th e Co urt re jects res po nd en t’s d et erm in at io n o f th e acc ur acyrel at edpe na lty

un de r se ct io n 6 66 2( a).- 14 -

Oth er ar gu m en ts m ad e b y th e p art ie s an d n otdi sc us se d h erei n wer e co ns id eredan d re

jecte d a s i rrel ev an t, wi th ou t m eri t, o r m oo t. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te redfor
res po nd en t wi thres pe ctto th e de fic ie nc y

intax an d fo r pe ti ti on ers with resp ectto th e acc ur acy-rela te d p en al ty und er sect io n 6 66 2( a).