T.C. Summary Opinion 2011-99

UNITED STATES TAX COURT

JAMES D. AND BOBBIE ROGERS, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 25365-09S. Filed August 1, 2011.

James D. and Bobbie Rogers, pro se.

John T. Arthur, for respondent.

PANUTHOS, Chief Special Trial Judge: This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect when the petition was filed.1 Pursuant to

section 7463(b), the decision to be entered is not reviewable by

1Unless otherwise indicated, subsequent section references

are to the Internal Revenue Code in effect for the year in issue,

and all Rule references are to the Tax Court Rules of Practice

and Procedure. All dollar amounts are rounded to the nearest

dollar.
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any other court, and this opinion shall not be treated as

precedent for any other case.

Respondent determined a $1,500 deficiency in petitioners’

2007 Federal income tax. The issue for decision is whether

a $10,000 withdrawal by petitioner husband from his annuity in

2007 is includable as gross income. 

Background

Some of the facts have been stipulated, and the stipulations

and accompanying exhibits are incorporated by this reference. 

Petitioners resided in Georgia when the petition was filed. 

Mr. Rogers (petitioner) was an employee of Lockheed Martin

Corp. during the period 1986 through 2003. During this period

petitioner participated in an employer-sponsored savings plan

into which he directed 8 percent of his after-tax salary. The

savings plan was composed of petitioner’s after-tax

contributions, employer contributions, and accumulated interest.2

Petitioner retired in 2003, and on July 17, 2003, the funds

in petitioner’s Lockheed savings plan were transferred to a

Pershing Government Account money market fund (Pershing).3 On

July 25, 2003, petitioner withdrew $16,000 from Pershing, leaving

a balance of $71,995. 

2The exact nature of this plan is not reflected in the

record. 

3The record reflects an initial investment of $87,995 in the

Pershing account. 
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On August 18, 2003, petitioner rolled over the remaining

funds in Pershing to an annuity with Allianz Life Insurance Co.

of North America (Allianz annuity). The Allianz annuity was

established with an initial deposit of $71,892,4 with payments to

begin June 1, 2036. The application for the Allianz annuity,

under the heading “Qualified Plans”, reflects that the box “IRA

transfer/rollover” was checked. 

Petitioner made the following deposit and withdrawals from

his Allianz annuity: 

 Date Deposit Withdrawal

Aug. 18, 2003 $71,892 ---

Mar. 18, 2004 --- $7,000

Nov. 15, 2005 --- 5,000

Apr. 27, 2006 --- 4,000

July 20, 2006 --- 2,500

Apr. 3, 2007 --- 10,000

Mar. 24, 2008 --- 59,231

Petitioner surrendered his Allianz annuity on March 24, 2008,

when he received $59,231. 

Petitioner’s 2004, 2005, and 2006 Forms 1099-R,

Distributions From Pensions, Annuities, Retirement or ProfitSharing Plans, IRAs, Insurance Contracts, etc., reflect that

4The record reflects that petitioner transferred 

$72,002 from Pershing to the Allianz annuity, less $110 in fees,

totaling $71,892. The record does not provide an explanation of

the discrepancy between the balance in the Pershing account of

$71,995 and the transfer amount of $72,002. 
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Federal and State income taxes were withheld at the time of the

respective withdrawals.

5 Petitioner’s 2007 Form 1099-R reflects

that petitioner elected not to have Federal or State income taxes

withheld from the $10,000 withdrawal.6 Petitioners timely filed

a joint Form 1040, U.S. Individual Income Tax Return, for 2007. 

Petitioners did not report the $10,000 withdrawal on their

jointly filed 2007 Federal income tax return. Respondent

determined that the $10,000 withdrawal in 2007 is includable in

gross income and issued petitioners a statutory notice of

deficiency determining a deficiency of $1,500 on July 27, 2009.

Discussion

I. Burden of Proof

Generally, the Commissioner’s deficiency determination is

presumed correct, and the taxpayer bears the burden of proving

that the determination is incorrect. See Rule 142(a); Welch v.

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

Section 7491(a) provides generally that the burden of proof

regarding factual matters may shift to the Commissioner if the

taxpayer satisfies certain substantiation and recordkeeping

5Allianz sent petitioner a Form 1099-R for each year he made

a withdrawal. 

6Sec. 3405(b) provides generally that the payor of any

nonperiodic distribution shall withhold an amount equal to 10

percent of the distribution unless the individual elects not to

have any amount withheld. The record reflects that no Federal or

State income taxes were withheld at the time of the final

disbursement of the Allianz annuity in 2008.
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requirements. Petitioners have not alleged, and we do not find,

that the burden of proof should shift to respondent. See sec.

7491(a)(2)(A) and (B). Therefore, petitioners bear the burden of

proof. See Rule 142(a). 

II. Gross Income

The Internal Revenue Code defines “gross income” as “all

income from whatever source derived”, including annuities. See

secs. 61(a)(9), 72(a). Additionally, any amount paid or

distributed from an individual retirement account (IRA) shall be

included in gross income by the payee. Sec. 408(d)(1); sec.

1.408-4(a)(1), Income Tax Regs. Subject to certain specific

restrictions, a taxpayer is generally allowed to deduct his

qualified retirement contributions to an IRA, up to a specified

dollar amount, for the year in which the contributions are made. 

See sec. 219; sec. 1.219-1(a), Income Tax Regs. Under certain

circumstances, a taxpayer may also make nondeductible

contributions to his IRA. See sec. 408(o). 

A taxpayer generally has a zero basis in an IRA. Sec.

1.408-4(a)(2), Income Tax Regs. The taxpayer may have basis in

an IRA to the extent allocable to the investment in the contract.

See sec. 72(e); Hoang v. Commissioner, T.C. Memo. 2006-47. A

taxpayer’s investment in the contract is composed of

nondeductible contributions to the IRA, less any withdrawals or

distributions of the previously taxed contributions. Sec.
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72(e)(6); Campbell v. Commissioner, 108 T.C. 54, 61-62 (1997). A

taxpayer is not considered to have received gross income upon a

distribution of funds that represents a return of his investment

in the contract. Sec. 72(b).

Nondeductible contributions made to an IRA must be reported

annually on Form 8606, Nondeductible IRAs. See sec. 408(o)(4). 

The Form 8606 instructions state that a taxpayer must keep copies

of records, including completed Forms 8606 for previous years, in

order for the taxpayer to verify the nontaxable portion of the

IRA withdrawal or distribution. Furthermore, amounts received

before the annuity starting date are includable in gross income

to the extent allocable to income on the contract and are not

includable in income to the extent allocable to the investment in

the contract.7 Sec. 72(e)(2)(B); Campbell v. Commissioner, supra

at 61. 

Petitioner contends that the $10,000 withdrawal is not

includable in gross income because the funds initially deposited

into his Allianz annuity are allocable to the previously taxed

contributions he made into his Lockheed savings plan and thus

constitute a return of his investment in the annuity. Petitioner

further argues that the previously taxed funds in his Lockheed

7Sec. 72(c)(4) defines “annuity starting date” as the first

day of the first period for which an amount is received as an

annuity under the contract. Petitioner withdrew $10,000 from his

annuity in 2007, before his annuity starting date in 2036.
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savings plan were not properly allocated as such when transferred

to his Allianz annuity. 

To establish whether the $10,000 withdrawal is includable in

petitioners’ 2007 gross income, we must determine the amount of

petitioner’s investment in the Allianz annuity. According to the

contract with Allianz, petitioner’s deposit, totaling $71,892,

was derived from untaxed earnings. The Allianz contract does not

make any reference to previously taxed funds.

Petitioner asserted at trial that he had documentation to

support the position that he had contributed approximately

$80,000 of previously taxed funds into his Lockheed savings plan

by the time he retired in 2003. He further argues that the

previously taxed funds were ultimately transferred to the Allianz

annuity. Petitioner seeks to support his position with

incomplete documents, in addition to vague testimony.8

Respondent acknowledges that the documents petitioner

provided support the assertion that petitioner made some aftertax contributions to his employer-sponsored savings plan. These

after-tax contributions generally would represent petitioner’s

8The Court left the record open to permit petitioner an

opportunity to substantiate his claim. Despite being provided an

opportunity to submit additional documents, petitioner did not

submit any additional documents for the Court’s consideration. 

The Court accordingly closed the record and deemed the case

submitted. 
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investment if petitioner could identify or trace the

contributions to any remaining funds in the plan.9

We conclude from the documents petitioner submitted that he

contributed a minimum of $5,92610 in after-tax dollars to his

Lockheed savings plan.11 Petitioner made multiple withdrawals

from his account, including a $16,000 withdrawal from Pershing in

2003. Petitioner failed to establish that the $16,000 withdrawal

did not deplete any investment that petitioner may have had in

the Lockheed savings account. Petitioner offered no

documentation to support an investment in his Lockheed savings

plan in excess of $5,926.

Petitioner did not provide copies of completed Forms 8606,

on which taxpayers are required to designate nondeductible

contributions to an IRA. See sec. 408(o)(4). It is the

9There is no documentation to indicate whether petitioner

withdrew his after-tax contributions from his Lockheed savings

plan before he retired in 2003. 

10This amount was calculated by adding: (1) The post-1986

after-tax contributions of $3,247.55 specified on the Salaried

Savings Plan quarterly statement for the period 1/1/01 through

3/31/01, (2) the year-to-date Salaried Savings Plan after-tax

savings of $1,321.97 specified on petitioner’s Lockheed earnings

statement for the period 3/16/02 through 3/22/02, and (3) the

after-tax employee contributions of $1,356.42 specified on the

Salaried Savings Plan quarterly statement for the period 1/1/03

through 3/31/03. The total, $5,925.94, has been rounded up to

the nearest dollar. 

11Although we conclude that petitioner made after-tax

contributions of $5,926 to his Lockheed savings plan, there is no

documentation to show whether petitioner withdrew those after-tax

contributions before he retired. 
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taxpayer’s responsibility to maintain records sufficient to

enable the Commissioner to determine his correct tax liability. 

Sec. 6001; sec. 1.6001-1(a), Income Tax Regs. Although we found

petitioner’s testimony to be generally credible, petitioner’s

testimony by itself was insufficient to substantiate an

investment in his Lockheed savings plan, and therefore, in his

Allianz annuity. 

On the basis of the foregoing, respondent’s determination is

sustained.

To reflect the foregoing,

Decision will be entered

for respondent.