TAX COURT OPINION

Case: Kenneth E. Levinson
Docket Number: 2003-17S
Judge: Carluzzo
Opinion Type: bench
Filed: 12/11/2017
Pages: 8

UNITED STATES TAX COURT WASHINGTON, DC 20217 KENNETH E. LEVINSON, Petitioner, v. ) ) ) CZ ) Docket No. 2003-17S COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Chief Special Trial Judge Lewis R. Carluzzo at Los Angeles, California, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered for respondent with respect to the deficiency and for petitioner with respect to the § 6662(a) penalty. (Signed) Lewis R. Carluzzo Special Trial Judge Dated: Washington, D.C. December 11, 2017 SERVED Dec 12 2017 3 1 2 3 4 5 6 7 8 Bench Opinion by Special Trial Judge Lewis R. Carluzzo November 30, 2017 Kenneth E. Levinson v. Commissioner- of Internal Revenue Docket No. 2003-17S THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the Court's oral findings of fact and opinion (bench opinion). Unless otherwise noted, section .9 references made in this bench opinion are to the Internal 10 Revenue Code of 1986, as amended, in effect for the 11 relevant period, and Rule references are to the Tax Court 12 Rules of Practice and Procedure. This bench opinion is 13 made pursuant to the authority granted by section 7459(b) 14 15 and Rule 152. This proceeding for the redetermination of a 16 deficiency is a small tax case subject to the provisions 17 of ~section 7463 and Rules 170 through 175. Except as 18 provided in Rule 152(c), this bench opinion shall not be 19 cited as authority, and pursuant.to section 7463(b) the 20 decision entered in this case shall not be treated as 21 precedent for any other case. 22. Daniel J. Daugherty appeared on behalf of 23 respondent. There was no appearance by or on behalf of 24 petitioner. All of the facts in this case, some of which 25 are recited below, have been stipulated. At the time the (973)406-2250|operationseescribersnetjwww scribers.net (cid:16)042 1 2 3 4 5 6 7 8 9 petition was filed, petitioner lived.in California. In a notice of defici ncy dated November 21, 2016 (notice), respondent determined a $7,513 deficiency in petitioner's 2014 Federal income tax and imposed.a $1,503 section 6662(a) penalty upon the ground that thé underpayment of tax required to¿ have been shown on petitioner's 2014 Federal income tax return (return) is a substántial understatemeht 'of iñcome tax. As relevant here, during 2014 petitioner 10 received the fo.llowing items of·income: (1) a $'39,020 11 distribution from an individual'retirement account (IRA 12 distribution); ~(2) $24,118 in Social Security beñefits 13 (sócial Security annuity); and (3) a $165 taxable 14 dividend. None of these items áre included in the income 15 reported on the return, although receipt of the IRA 16 . distribution and the Social Secúrity annuity are reported 17 18 in the appropriate places on petitioner's return. As best we can determine from what has been submitted, the return 19 was prepared by petitioner. It shows $3 of adjusted gross 20 21 income, no taxable income, and ño Federal income tax 1 liability. The IRA distribution was deposited into a bank 22 account opened by petitioner to manage his investments. 23 The IRA distribution was not rolled over into another 24 individual retirement account of other eligible retirement 25 plan within 60 days from the date of the distribution, see . S73)406-2250foperations@estribersmet[wwvi.esSibers.net 5 sec. 408(d)(3). In the notice, respondent determined that the entire amount of the IRA distribution and the dividend must be included in petitioner's 2014 income, see secs. 61(a)(7),(11) and 408(d), which resulted in the inclusion of $19,160 of the Social Security benefits petitioner received,in 2014, see sec. 86. .IRA Distribution Generally, a distribution from an individual retirement account is includable in an individual's gross income in the year in which the distribution is received. Sec. 408(d); see sec. 1.408-4.(a), Income Tax Regs.; see 1 2 3 4 5 6 7 8 9 10 11 12 13 also Schoof v. Commissioner, 110 T.C. 1, 7 (1998); 14 Gallagher v. Commissioner, T.C. Memo. 2001-34. An 15 otherwise taxable distribution from an individual 16 retirement account can be excludable from the taxpayer's 17 income for the year of the distribution if the funds 18. distributed from the account to the individual for whose 19 benefit the account is maintained are rolled over to 20 another individual retirement account, or eligible 21 retirement plan for the benefit of such individual, 22 provided that certain criteria are met. See sec. 23 408(d)(3) (A). We need not discuss those criteria because 24 petitioner agrees that no such rollover took place. It 25 follows that the IRA distribution is includable in l973)406-2250| operationsøescrbers net jwwwnsenbers;net petitioner's 2014 income and respondent's determination to 6 that effect is sustained. Dividend Income Dividends are included in a taxpayer's income as provided in section 301. The petition does not assign error to respondent'.s adjustment increasing petitioner's income by the amount of dividends shown in the notice. Petitioner does not deny receipt of the dividend income attributed to him in the notice, and his statement makes no mention of the item. It would not be inappropriate to proceed as though petitioner has conceded the adjustment relating to dividend income, but we need not do so. The evidence sufficiently connects petitioner to the income, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 see Weimerskirch v. Commissioner, 596 F.2d 358, 360 (9th 15 Cir. 1979), rev'g 67 T.C. 672 (1977).("before the 16 Commissioner can rely on this presumption of correctness, 17 18 the Commissioner must offer some substantive evidence showing that the taxpayer received income from the charged 19 activity"); consequently, we find respondent's adjustment 20 increasing petitioner's income by the amount of the 21 dividend to be well made. 22 Social Security Annuity 23 Proceeds received by a taxpayer pursuant to a 24 Social Security annuity are includable in the taxpayer's 25 income as provided in section 86. As shown on the return, (973)406-2250|operations©escribersmet|v,ww.escribersnet 7 petitioner received $24,118 as a Social Security annuity during 2014. Under the. circumstances presented, respondent's adjustment attributable to petitioner's receipt of the Social Security annuity is computational reflecting the increase in petitioner's modified adjusted gross income resulting from the inclusion of the IRA distribution and the dividend income. Respondent's adjustment with respect to the Social Security annuity is sustained. A fair reading óf petitioner's statement that was stipulated into the record shows that petitioner: (1) (cid:16)042 1 2 3 4 5 6 7 8 9. 10 11 12 recognizes the mistakes that he made that gave rise to the 13 .above-referenced adjustments, and (2) does not dispute the 14 15 adj·ustments or the computation of the deficiency that results from those adjustments. Instead,. petitioner 16 attributes his mistakes to his good-faith failure to roll 17 18 the IRA distribution into a different individual retirement account or other eligible retirement plan. 19 Whether petitioner acted in good faith, as he cla.ims, has 20 no consequence to the validity of the adjustments just 21 22 23 discussed. Income includable in a taxpayer's inçome must be so treated regardless of whether the taxpayer, in good faith, believed otherwise. Petitioner's good faith, 24. however, must be taken into account in connection with the 25 section 6662(a) penalty here in dispute. (973 406-2250Toperåtlons@ehribersaíet|ww / scribers.net 8 1 2 3 4 5 6 7 8 9 10 11 12 According to respondent, petitioner should be held liable for the penalty because the amount of the underpayment of tax required to be shown on the return (which amount is computed in the same manner as, and equal to the deficiency) exceeds $5,000 and therefore the underpayment is a substantial understatement of income tax. See sec. 6662(b) (2),(d). Respondent, of course, bears the burden of production with respect to the imposition of the penalty, see sec. 7491(c), and that burden includes not only establishing the amount of the underpayment but satisfying a procedural requirement that the imposition of the penalty was approved in writing by 13 the direct supervisor of the Internal Revenue Service 14 15 employee who first "determined" to assess it. See sec. 6751(b)(1). No such writing has been introduced into 16 evidence in this case. Nevertheless, relying upon an 17 18 exception to the general requirement of written approval, respondent argues that the requirement is not applicable 19 because the penalty was "automatically calculated through 20 electronic means". Sec. 6751(b)(2)(B). We're not so sure 21 22 23 that respondent is correctly construing that exception, however, we need not reach the point. Assuming without finding that respondent has met his burden of production 24 pursuant to section 7491(c), we find that petitioner had 25 reasonable cause and acted in good faith with respect to ) (973)406-2250|operationseescrbersnet|wwwssedbers.net 9 the underpayment of tax as claimed in his statement, which is the only evidence in the record on the point. He is therefore not liable for the penalty. See sec. 6664(c). To reflect the foregoing, decision will be entered for respondent with respect to the deficiency and for petitioner with respect to the section 6662(a) penalty. case. This concludes the Court's bench opinion in this (Whereupon, at 10:21 a.m., the above-entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1973)406-2250|operationspeserberwietjwww.escdbers.net