TAX COURT OPINION

Case: Adam E. & Rachel G. Richards
Docket Number: 28886-08
Judge: Colvin
Opinion Type: bench
Filed: 12/28/2009
Pages: 7

UNITED STATES TAX COURT WASHINGTON , DC 2021 7 ADAM E . AND RACHEL: G . RICHARDS , Docket No . 28886-08 . COMMISSIONER OF INTERNAL REVENUE , Respondent ; O R D E R 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 Petitioners' and to respondent a copy of . .the - pages of the :transcript of the trial in the above case before Judge David Gustafson at Houston , Texas, on December 8,'2009, containing ; his ,"oral findings~of fact and opinion rendered at the conclusion of the trial . In accordance with' he oral findings of fact and opinion, 'decision will be entered for respondent . (Signed) David Gustafson Judge -Dated : Washington,-D .C . December .28, 2009, 1 Bench Opinion by Judge David Gustafson 2 December 8, 200 9 3 Richards v . Commissioner Docket No . 28886-08 4 THE COURT : The Court has decided to render 5 oral Findings of Fact and Opinion in this case, an d 6 the following represents the Court's : oral Findings of 7 Fact and Opinion . The oral Findings of Fact an d 8 Opinion shall not be relied on'as precedent in any 9 other case . 10 This Bench Opinion is made pursuant to the 11 authority granted by section 7459(b) of the Internal 12 Revenue Code of 1986, as amended, and .Rule 152 of the 13 Tax Court Rules of Practice and Procedure . 14 By notice of deficiency' dated October 6, 15 2008, the IRS determined a $1,714 deficiency in the 16 Federal income tax of Adam E . and Rachel G . Richards 17 for tax year 2006 . For the reasons explaine d 18 hereafter, we sustain the deficiency determination . 19 Mr . Richards testified at the trial .of this 20 case on December 7, 2009, in Houston, Texas . The 21 Court admitted . into evidence the parties' Stipulation 22 of Facts, with attached Exhibit 1-J (the Richards ' 23 2006 Form 1040 tax return) and 2-J (the notice of 24 deficiency), and also admitted Exhibit 3-P, though 25 expressing reservations about its,relevance . Heritage Reporting Corporation (202) 628-4888 1 FINDINGS OF FAC T 2 Ms . Richards has been a participant in the 3 Teachers Retirement System of Texas, which is a 4 "qualified plan" for purposes of section 72 of th e 5 Internal Revenue Code ., and which we refer t 6 hereinafter as "the Plan" . (Stip . 7-8 . ) 7 In 2006 Mr . and Ms . Richards were both in 8 their early 30s . (Stip . 5-6 .) During 2006 Ms . 9 Richards received a distribution of $17,142 .60 from 10 the Plan . (Stip . 7 .) The record does not reflect 11 what information the Plan provided to Ms . Richards 12 regarding the tax implications of the distribution . 13 On October 26, 2006, Ms . . Richards, filed with 14 the U .S . Bankruptcy Court for the Southern District of 15 Texas a petition under Chapter 7 of the Bankruptc y 16 Code . (Stip . 9 .) At the time Ms . Richards filed the 17 bankruptcy petition, Mr ; and .Ms . Richards did not know 18 about the 10 percent additional tax and'did not .file 19 an election (pursuant to section 1398(d)(2)) to en d 20 their tax year before the filing of that petition . 21 The Bankruptcy Court granted Ms . Richards a discharge 22 on January 23, 2007 . (Stip . 10 . ) 23 Mr . and Ms . Richards signed and filed their . 24 . joint tax return for 2006 on March 27, 2007 (Ex . 1-J), 25 two months after the bankruptcy-discharge . Thei r Heritage Reporting Corporation (202) 628-4888 1 return reported the Plan distribution as taxabl e 2 income on line 15b, but the return did not report a 3 liability for the 10 percent additional tax on early 4 withdrawals from qualified plans . 5 On October 6, 2008, the IRS issued to the 6 . Richardses a . .notice of deficiency (Ex . 2-J) , 7 determining a deficiency of $1,714--the amount of th e 10 percent additional tax on the 2006 Pla n 9 distribution to Ms . Richards . On November 28, 2008, 10 the Richardses filed their petition in this Court , 11 challenging that determination . At the time the y 12 filed their petition, Mr . and Ms . Richards resided in 13 Texas . (Stip . 3 . ) 14 The petition lists four reasons the 15 Richardses . contend they should not be held liable .for 16 the 10 percent additional tax--first, that they did 17 not know about this liability at the time of the 18 . distribution, and if .they had known about tha t 19 liability and the option of ending their tax yea r 20 early, they could have included this liability among 21 those that were discharged in bankruptcy ; second, that 22 their subsequent retirement contributions satisfy the 23 intent of the statute ; third, that by paying th e 24 income tax on the distribution at their 2006 marginal 25 rate, they were already penalized in view of the lower Heritage Reporting Corporatio n (202) 628-4888 marginal rate for which Ms . Richards had been liable in those prior years ; and fourth, that " everything is negotiable" . The case was called from the calendar and was tried on December 7, 2009 . At the trial Mr . Richards gave testimony only about the firs t 7 contention in the petition, and offered no evidence in 8 support of the other three contentions . We find those 9 other three contentions to have been abandoned . 10 OPINION 11 I Burden of Proo f 12 In general, the Commissioner's determination 13 set forth in a notice of deficiency is presume d 14 correct, and the taxpayer bears the burden of proving 15 that the determination is in error . Rule 142(a) ; 16 Welch v . Helverinct , 290 U .S . 111, 115 (1933) . Section 17 7491 may shift that burden in some circumstances . 18 Here, however, the pertinent facts are not actually in 19 dispute, and the outcome is the same no matter which 20 party has the burden . 21 II . Additional Tax for Early Distribution 22 Section 72(t)(1) imposes a 10-percent 23 additional tax on an early distribution from a 24 qualified retirement plan . Section 72(t)(2) provides 25 exceptions for "certain distributions", but Mr . and Heritage Reporting Corporatio n (202) 628-4888 7 1 Ms . Richards do not invoke any of those exceptions, 2 and it does not appear that any of them applies . 3 Rather, Mr . and Ms .. Richards .argue that most 4 tax penalties are discharged in bankruptcy, and tha t 5 they think they should be given this normal treatment . 6 However, the impediment to their case--an impediment 7 they apparently acknowledge--is that the bankruptc y 8 discharge applies only to "debts that arose before the 9 date of the order for relief", 11 U .S .C . section 10 727(b) ; and the date of the order of relief is the 11 date that a voluntary bankruptcy case commences, see 12 11 U .S .C . section 301(b) ("The commencement of a 13 voluntary case under a chapter of this titl e 14 constitutes an order for relief under such chapter") . 15 In Ms . Richards's instance, the cut-off date for her 16 discharge was October 26, .2006 ; but her liability for 17 the 10 percent additional tax for 2006 did not arise 18 until the due date for her filing of the return for 19 that year--i .e ., almost six months later on Monday, 20 April 16, 2007 . See In re Ripley , 926 F .2d 440, 449 21 (5th Cir . 1991) . 22 The Richardses .seem to admit that the 23 statutes operate in this-way, but they argue that if 24 they had known about the 10 percent additional tax, 25 they could have elected to have their tax year end Heritage Reporting Corporatio n (202) 628-4888 8 1 early . Section 1398(d)(2) does permit a bankruptc y 2 petitioner to elect to end her tax year the day before 3 she files her bankruptcy petition . We assume, without 4 deciding, that such an election would have brought the 5 10 percent additional tax within Ms . Richardson' s 6 discharge . However, the Richardses did not make such an election . They do not qualify for any relief that would have resulted from electing to end their ta x 10 year before the bankruptcy filing, because they made 11 no-such election . They therefore in effect ask the 12 Court to craft an-equitable"remedy to make up fo r 13 their inability to qualify for the pertinent legal 14 remedy that is provided in the statute . The Court 15 does not have the power to do so . We must apply the 16 law--in this case, section 72(t) . Under, that statute, 17 Mr . and Ms . . Richards are liable for the 10 percen t 18 additional tax, and they point .to no statute that 19 provides a different result . 20 Decision will be entered, in favor of 21 respondent, sustaining the $1,714 deficiency . 22 This concludes the Court's oral Findings of 23 Fact and opinion in this case . 24 (Whereupon, at 12 :51 p .m ., the bench opinion 25 in the above-entitled matter was concluded . ) Heritage Reporting Corporation (202) 628-4888