TAX COURT OPINION

Case: John J. Neville
Docket Number: 15740-08
Judge: Colvin
Opinion Type: bench
Filed: 10/19/2009
Pages: 11

UNITED STATES TAX COUR T WASHINGTON , DC 2021 7 JOHN J . NEVILLE, Petitioner , v . ) Docket No . 15740-08 . COMMISSIONER OF INTERNAL REVENUE, Respondent . O R D E R Pursuant to Rule 152(b), .Tax Court Rules of Practice and Procedure, it i s 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 Judge David Gustafson at St . Paul, . Minnesota, on September 17, 2009, containing his oral findings of fact and opinion rendered at the conclusion of the trial . In accordance with the oral findings of fact and opinion, decision will be entered entered under Rule 155 . (Signed ) David Gustafson Judg e Dated : Washington, D .C . October 19, 2009 SERVED Oct 20 2009 3 1 Bench Opinion by Judge David Gustafson September 17, 2009 2 John J . Neville v . Commissioner Docket No . 15740-08 3 THE COURT : The Court has decided to render ora l 4 Findings of Fact and opinion in this case, and the following 5 represents the Court's oral Findings of Fact and Opinion . 6 The oral Findings of Fact and Opinion shall not be relied on 7 as precedent in any other case . This Bench Opinion is made pursuant to the 9 authority granted by section 7459(b) of the Internal Revenue 10 Code of 1986, as amended, and-Rule 152 of the Tax Cour t 11 Rules of Practice and Procedure . 12 By a statutory notice of deficiency dated June 19, 13 2008, the Internal Revenue Service (IRS) determined a , 14, deficiency in the Federal income tax of petitioner John J . 15 Neville for the year 2004, in the amount of $63,414 .40, plus 16 additions to tax of $10,122 .17 under section 6651(a) fo r 17 failure to timely file, $7,872 .80 under section 6652(a)(2) 18 for failure to timely pay, and $1,230 .51 under section 6654 19 for failure to make quarterly estimated tax payments . 20 Trial of this case was conducted on September 14, 21 2009, in St . Paul, Minnesota,, and Mr . Neville gave hi s 22 testimony . The parties' Stipulation of Facts, with Exhibits 23 1-J through 8-J was admitted into evidence . Mr . Neville's 24 Exhibits 9-P through 12-P were also admitted, ove r 25 respondent's objection . Heritage Reporting Corporation (202). 628-4888 4 1 2 Early withdrawals from qualified plan s FINDINGS OF FAC T 3 In 2004 Mr . Neville was going through a divorce 4 and was laid off from his job, which created financia l 5 strains for him . He was 54 years old, and not yet entitled 6 to ordinary payments from pension plans and individua l 7 retirement accounts in which he owned interests, but he made 8 early withdrawals from those plans and accounts totalin g 9 $138,574 . 10 Mr . Neville alleges (very generally) that when he 11 requested these payouts he instructed the payors b y 12 telephone to withhold early withdrawal penalties, and that 13 when they did not do so they were failing to hee d 14 instructions he had given . However, while it is clear that 15 the payors did not make any withholding for those penalties, 16 we do not find that Mr . Neville proved that he ever gav e 17 such instructions . Since his request for the payouts must 18 have been in writing, it is difficult to imagine how on e 19 could think to request withholding by a telephone call . He 20 did not give any detail about the dates and times of calls, 21 persons called, or how he even obtained telephone numbers 22 for the appropriate persons . Furthermore, the payouts were 23 in amounts substantial enough to get one's attention, an d 24 Mr . Neville must have noticed that the Forms 1099-R that the 25 payors provided to him (Ex . 12-P) showed Federal tax Heritage Reporting Corporatio n (202) 628-4888 5 1 withholding in amounts less than 10 percent of the payout s 2 and showed no additional withholding for penalties . 3 At trial Mr . Neville argued for the first tim e 4 that the payouts were necessary to pay his obligations under 5 orders from the divorce court (and he thereby attempted to 6 invoke the exception in section 72(t)(2)( C. X for a 7 "distribution to an alternate payee pursuant to a qualifie d 8 domestic relations order" (or QDRO) . However, he did not 9 introduce any order into evidence nor show by cancelle d 10 checks, receipts, or other documents that any portion of the 11 payouts went to his ex-wife .- We hold that Mr . Neville was 12 not entitled to make this contention that he had no t 13 previously disclosed, and that in any event he did not 14 substantiate it . 15 In his petition and at trial, Mr . Neville alleged 16 that he withdrew the funds because of financial "hardship ." 17 While it seems likely that his divorce and unemploymen t 18 created financial problems for him, he gave only the most 19 general testimony on the subject, and he presented no 20 financial data whatsoever about his financial circumstances 21 in 2004 or 2005 . We therefore find that, to the extent it 22 is relevant, Mr . Neville did not prove financial hardship . 23 Failure To Fil e 24 On April 15, 2005 -- the due date for the tax 25 return for the year at issue in this case -- Mr . Neville Heritage Reporting Corporatio n (202) 628-4888 6 purchased TurboTax software for income tax preparation fo r 2 the year .2004 . Using the software, he prepared a Form 4868 , 3 Application for Automatic Extension of Time to File U .S . 4 Individual Income Tax Return . (Ex . 8-J) . He submitted that 5 application to the IRS, and the IRS recorded the extension 6 until August 15, 2005 . (Ex . 2 .) The IRS has no . record o f 7 receiving any tax return from Mr . Neville for his 2004 year until after this suit was filed in June 2009 . (Stip . para . 9 3 . ) 10 Mr . Neville alleges that he did submit his 200 4 11 return electronically, and he suggests that a computer error 12 at the IRS may have caused the return not to be entered on 13 the IRS's records . We find that he did not prove thi s 14 allegation . TurboTax permits the user to print and save a .15 paper copy of the return and to save a digital copy as well, 16 but Mr . Neville submitted no copy of the return he alleges 17 he filed . He presented no receipt of the sort that TurboTax 18 generates to confirm the electronic submission of th e 19 return . He alleges in a general way that he turned over all 20 his records to lawyers handling his divorce, and that they 21 are not cooperating with him ; but he did not prove that he 22 made any particular request for these records and that they 23 refused . He alleges that he submitted electronically both 24 Federal and Minnesota returns for 2004, but he presented no 25 proof of his Minnesota filing ; and although he admits that Heritage Reporting Corporatio n (202') 628-4888 7 1 he owed tax to Minnesota for 2004, he presented no cancelled 2 check or other evidence to show payment of any tax t o 3 Minnesota at the time of filing . 4 Aside from his bald assertion that he did file his 5 2004 return , his only evidence in support of his timel y 6 filing for 2004 is his . allegation that he has faithfull y 7 filed his returns and paid his taxes for 43 years, since age 8 15 . This is somewhat at odds with his admission that he did 9 not pay his 2004 Minnesota taxes when due, but more telling 10 are the facts about his Federal return for 2003 : Ove r 11 respondent ' s objection , Mr . Neville testified that he ha d 12 electronically submitted his 2003 return timely (sometime in 13 2004 ), that the IRS had evidently suffered some malfunction 14 that caused it not to be entered, and that he had . eventually 15 proved by a TurboTax - generated receipt ( Ex . 11-P, attachment 16 3) that he had made a timely . submission . However, th e 17 latest entry on that receipt . relating to his Federal 200 3 18 return is dated April 20, 2004, and states, "This return was 19 rejected by the taxing authority on Apr . 16, 2004 ." Th e 20 April 20 , 2004, entry to which Mr . Neville pointed -- which 21 states , " Congratulations ! The taxing authority accepte d 22 this tax return on April 16, 2004 " -- pertains to hi s 23 Minnesota return, not his Federal return . The record before 24 us suggests that he may never have fixed the errors tha t 25 caused his 2003 Federal submission to be rejected . Th e Heritage Reporting Corporation (202) 628-4888 1 IRS's records show that his 200A return was not filed until , 3 8 2 November 1, 2006, when it was more than 2 years late . 3 Neville did not prove a personal history that makes it 4 likely that he filed his 2004 return timely . And even if he 5 did generally comply with the tax laws, his own testimony is 6 that in 2004 he entered a personally tumultuous time ; and 7 his behavior at other times may not indicate how he likel y behaved in 2004 (and in 2005 when his 2004-return was due) . 9 In view of the foregoing, we find that Mr . Nevill e 10 did not prove that he . filed a 2003, return before June 2008 . 11 The IRS's SFR and notice of deficienc y 12 Because it had received no 2004 tax return from 13 Mr . Neville, the IRS prepared a substitute for return (SFR) 14 under section 6020(b) on March 8, 2008 . It then issued the 15 notice of deficiency on March 21, 2008 . In response to .the 16 notice of deficiency, Mr . Neville obtained an accountant's 17 help to submit a return dated June 12, 2008 (Ex . 4-J) and 18 then a corrected return dated November 18, 2008 (Ex . 5-J) . 19 (He does not contend that either of these returns was 20 identical or even similar to the 2004 return . that he alleges 21 he filed in 2005, and he is unable to reconstruct the 22 alleged original return .): Like the IRS's notice o f 23 deficiency, both the returns Mr . Neville submitted in 2008 24 reported the early withdrawals as income, and the second 25 return reported online 59 a liability for the 10 percent Heritage Reporting Corporatio n (202) 628- .4888 9 1 penalty for early withdrawal, . However, his petition filed 2 in June 2008 asserts, ' in addition to items settled by the 3 parties in their stipulation (at paras . 8-13), that he is 4 not liable for the 10 percent penalty on early withdrawals, 5 and that he is not liable for "the additional non-filin g 6 penalties" (which we construe to mean the additions to tax 7 for failure to file, failure to pay tax, and failure to pay 8 estimated tax, all of which appear on the notice o f 9 deficiency) . Mr . Neville resided in Minnesota when he filed 10 the petition in this suit . 11 OPINION 12 Mr . Neville bears the burden of proof in this 13 case, and he failed to meet that burden on the disputed 14 issues . 15 I . Early withdrawal penalt y .16 Section 72(t)(1 ) imposes a 10-percent additional 17 penalty on any distribution from a "qualified retirement 18 plan," unless that distribution satisfies one of th e 19 statutory exceptions in section 72(t)(2) . Mr . Neville did 20 not dispute that he received the distributions at age 54, 21 (i .e ., before age 59-1/2) nor that the payor plans wer e 22 qualified retirement plans ( see sec . 4974(c)(1)), but he 23 urges two reasons that he .should not be liable, neither of 24 which has merit : 25 First, he alleges that a portion of the Heritage Reporting Corporation (202) 628-4888 10 1 distributions was made pursuant to section 7 .2(t)(2)(D) as a 2 "distribution to an alternate payee pursuant to a qualified 3 domestic relations order ." However, as we have found, he is 4 not entitled to make this contention, and he did not prov e 5 that there was a QDRO nor that any of the payments were made 6 to or for his wife . 7 Second, he alleges that the early withdrawals wer e 8 necessitated by financial hardship . However, as we hav e 9 found, he did not prove such hardship . And, more important, 10 financial hardship is not one of the exceptions in section 11 72( t)(2) . See Dollander v . Commissioner , T .C . Memo . 2009- 12 187 . 13 Mr . Neville owes the 10 percent penalty, as 14 determined in the notice of deficiency . 15 II . Additions to tax 16 The Code imposes additions to tax for failure to 17 18 file a return timely ( FTF , see sec . 6651(a)(1)), and fo r failure to pay tax shown on a return ( FTP , sec . 6651(a)(2)), 19 and for failure to pay estimated tax (sec . 6654) . For the 20 reasons stated in respondent's pretrial memorandum, and for 21 the reasons stated below, Mr . Neville is liable for those 22 additions . 23 A . Failure to fil e 24 Mr . Neville asserts that he should not owe the FTF 25 penalty. because (he says) he timely filed his 2004 return in Heritage Reporting Corporatio n (202) 628-4888 1 1 1 2005 . However, we find that he did not file his retur n 2 until June 2008, and we hold that he is therefore liable for 3 the FTF penalty . 4 B . Failure to pay tax and estimated tax 5 The addition to tax under section 6651(a)(2 ) 6 applies only when an amount of tax is shown on a return . 7 Mr . Neville did not file a timely Federal income tax return 8 for 2004 . However, an SFR prepared by the IRS is treated as 9 a return filed by the taxpayer for purposes of determinin g 10 whether the section 6651(a)(2) addition to tax applies, as 11 long as the SFR satisfies the requirements of section 12 6020(b) . Millsap v . Commissioner , 91 T .C . 926 (1988) ; 13 Halbin v . Commissioner , T .C . Memo . 2009-18 . Mr . Neville 14 suggests no defect in the SFR, and we see none' . Moreover, 15 he did file his own return (and a corrected return shortly 16 thereafter), so the predicate for the section 6651(a)(2) 17 addition is present here . 18 Section 6654(a) imposes an addition to tax where 19 an individual fails to pay estimated tax . The penalt y 20 applies where the liability after withholding credits i s 21 more than $1,000, but subject to computational exceptions in 22 section 6654(d) and (e) that Mr . Neville did not invoke and .23 for which he is not eligible . 24 To resist this addition to tax, Mr . Nevill e 25 asserts instead an excuse of ignorance -- i .e ., that he did Heritage Reporting Corporatio n (202) 628-4888 1 2 1 not know that he was required to make estimated ta x 2 payments . However, section 6654 ( a) penalties are mandatory, 3 and must be imposed unless a statutory exception applies . 4 See Recklitis v . Commissioner , 91 T .C . 874, 913 (1988) . 5 Reasonable cause is not'gn excuse for underpayment of 6 estimated tax . Section 1 .6654-1 ( a), Income Tax Regs . 7 Section 6654 .(e)(3)(A) provides that a taxpayer may 8 avoid these penalties if he can show that "by reason o f 9 casualty, disaster, or other unusual circumstances the 10 imposition of such addition to tax would be against equity 11 and good conscience ." But as we have shown, Mr . Neville's 12 general allegations of hardship do not prove any such 13 circumstances . 14 Decision will be entered in favor of Respondent . 15 This concludes the Court's oral Findings of Fact 16 and opinion in this case . 17 (Whereupon, at 9 :13 a .m ., the bench opinion in the 18 above-entitled matter was concluded . ) 19 20 21 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888