TAX COURT OPINION

Case: David John McNett & Brenda McNett
Docket Number: 20847-12
Judge: Buch
Opinion Type: bench
Filed: 06/14/2013
Pages: 7

sub= Paud, UNITED STATES TAX COURT WASHINGTON, DC 20217 DAVID JOHN McNETT AND BRENDA McNETT Petitioners, v. COMMISSIONER OF 1NTERNAL REVENUE, Respondent ) ) ) ) ) ) Docket No. 20847-12 ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit with this order to both petitioner and respondent a copy of the pages of the transcript of the trial in this case that contain the oral findings of fact and opinion that was rendered at the trial session at Columbus, Ohio. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent. (Signed) Ronald L. Buch Judge Dated: Washington, D.C. June 14, 2013 , Capital Reporting Company 3 Bench Opinion by Judge Ronald L..Buch June 4, 2013 David John McNett and Brenda McNett v. Commissioner Docket No. 20847-12 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. The oral findings of fact and opinion may not be relied upon as precedent in any other case. This opinion is in conformity with Internal Revenue Code section 7459(b) and Rule 152(a) of the Tax Court Rules of Practice and Procedure. All section references that follow refer to the Internal Revenue Code in effect during the years at issue. Any Rule references are to the Tax Court Rules of Practice and Procedure. Background At the time the petition was filed, the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 McNetts resided in Ohio. 21 22 23 24 25 During 2010, Mr. McNett received $17,708 in unemployment compensation, which was reflected on the Form 1099-G, Certain Government Payments, issued by the Ohio Department of Job & Family Services. The Form 1099-G instructed that only 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 unemployment compensation in excess of $2, 400 needed to be reported and as a result, the McNetts reported $15,308 of unemployment compensation on their 2010 Form 1040, U.S. Individual Income Tax Return. In addition to the unemployment compensation, and as is relevant to this case, the 7 McNetts also reported a distribution that Mrs. 8 McNett received from a qualified retirement plan. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 On May 21, 2012, respondent issued a notice of deficiency determining a deficiency of $796 in the McNetts' 2010 income tax. That amount represents the tax increase as a result of the $2, 400 increase in unemployment compensation, plus a 10% section 72 (t) addition to tax for the premature retirement distribution to Mrs. McNett, and computational adjustments resulting from the increase in taxable income. The McNetts timely filed their petition to this Court. Discussion As a general matter, the Commissioner's determination set forth in the notice of deficiency is presumed correct and the taxpayer bears the burden of proving otherwise. Rule 142 (a); Welch v. 25 Helvering, 290 U.S. 111, 115 (1933). There are 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company some instances where the burden may shift, but none 5 are applicable here. See sec. 7491(a). I. Unemployment Compensation The McNetts do not dispute that they received unemployment compensation during 2010. However, they do dispute that $2,400 of their unemployment compensation should be included in their taxable income. The McNetts maintain that they should be able to rely on the instructions they received with the Form 1099-G, which stated that they only had to report the amount of unemployment compensation in excess of $2,400. Gross income includes unemployment compensation. Sec. 85(a). Under the American 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Recovery and Reinvestment Act of 2009 (ARRA), a 17 18 19 20 21 22 23 24 25 special rule was enacted with regard to unemployment compensation. Pub. L. No. 111-5, sec. 1007, 123 Stat. at 317. This rule added section 85(c), which states "Special Rule for 2009. In the case of any taxable year beginning in 2009, gross income shall not include so much of the unemployment compensation received by an individual as does not exceed $2,400." The McNetts' unemployment compensation 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 relates to 2010. It appears that the McNetts are cash-basis taxpayers, as most individuals are, thus any unemployment compensation reported on their 2010 tax return would have been received between January 1, 2010 and December 31, 2010. Per the language of the statute, the special rule would not apply, because this compensation was not received in a taxable year beginning in 2009, but instead in a taxable year beginning in 2010. Section 85(c) has not been extended beyond 2009; therefore, section 85(c) is not applicable to the McNetts' 2010 unemployment compensation. The McNetts state that they relied on the Form 1099-G instructions. However, the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Commissioner is not bound by the guidance that he 17 18 provides to the taxpayer if that guidance is contrary to law. Dixon v. United States, 381 19 U.S. 68, 73 (1965); Automobile Club v. 20 Commissioner, 353 U.S. 180, 183-184 (1957). 21 22 23 24 25 Therefore, the McNetts should have included the full amount of unemployment compensation in their gross income. II. Section 72(t) Addition to Tax Section 72 (t) provides a ten-percent 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 addition-al tax on early distributions from retirement plans. Certain distributions are exempt from this penalty if specific requirements are met. See Sec. 72 (t) (2). The McNetts did not address the section 72(t) additional tax on their petition. As a result, the issue could be considered to have been conceded under Rule 34 (b) (4 ) . Even if this issue is not deemed conceded, the McNetts are still liable for the additional tax. Mr. McNett stated at trial that he used the distribution to pay for medical expenses and thus, the early distribution should be exempted from the additional tax under section 72(t) (2) (B). However, Mr. McNett did not provide any evidence at trial to substantiate this claim. Thus, respondent's determination in regard to the additional tax is sustained. Conclusion Notwithstanding the wording on the Form 1099-G instructions, the McNetts should have included the entire amount of unemployment compensation in their gross income. Further, they are liable for the additional tax under section 72(t) based on the early distribution from the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 qualified retirement plan. We have considered all of the parties' other arguments, and to the extent not addressed herein, we conclude the arguments to be moot, irrelevant or without merit. A decision will be entered for respondent. (Whereupon, at 1:10 p.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 25 866.488.DEPO www.CapitalReportingCompany.com