TAX COURT OPINION

Case: Roger J. & Tracie D. Maler
Docket Number: 1878-10S
Judge: Goeke
Opinion Type: bench
Filed: 07/11/2011
Pages: 6

UNITED STATES TAX COURT WASHINGTON, DC 20217 ROGER J. AND TRACIE D. MALER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) ) ) ) O R D E R Docket No. 1878-10S. 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 Joseph Robert Goeke at Tampa, Florida, on June 9, 2011, containing his oral findings of fact and opinion rendered at the conclusion of the trial. In accordance with the oral fact and opinion, a decision will be entered under Rule 155, Tax Court Rules of Practice and Procedure . findings of (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. July 11, 2011 SERVED JUL f3 2011 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 3 Bench Opinion By Judge Joseph Robert Goeke June 9, 2011 Roger J. & Tracie D. Maler v. Commissioner Docket No.: 1878-10S 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 shall not be relied upon as precedent in any other case. This case was heard pursuant to the provisions of Section 7463 of the Internal Revenue Code in effect at the time the petition was filed. Pursuant to Section 7463 (b) the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case. Section references after this are to the Internal Revenue Code in effect for the years in issue, and the Rule references are to the Tax Court Rules of Practice and Procedure. This is a deficiency case involving the Petitioners' failure to report income received from the Social Security Administration in the year 2007, and Respondent's determination that the addition to tax under Section 6662(a) should be applicable to the Heritage Reporting Corporation (202) 628-4888 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 4 resulting deficiencies. The Petitioners were residents of Florida at the time he filed the p ition in this case. In 2007 the Petitioner received Social Security benefits in the amount of $61,243.50. He also received a Form 1099-SM from the Social Security Administration. Only $19,698 was reported by the Petitioner on his 2007 Federal Income Tax return. This was, however, the amount which was actually the benefits due the Petitioner in the year 2007. Prior to that the Petitioner had spent many years trying to resolve his problems with the Social Security Administration because they had failed to pay him benefits that he felt were due to him in years prior to 2007. The benefits at issue in this case are in fact the amounts which were due the Petitioner in prior years but which were not paid until 2007. Under Section 61(a) of the Internal Revenue Code, gross income includes all income from whatever source derived. The Petitioner is a cash basis taxpayer, therefore, his income must be reported in the year it is received, Section 451(a). Under 86(e) a Petitioner, or any taxpayer, receiving a lump sum payment from the Social Security Heritage Reporting Corporation (202) 628-4888 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 5 Administration, may seek to have that payment taxed based upon a proration of the amounts received from prior years and have the tax rates recomputed. Section 86(e) requires an election. We deem that the Petitioner has made the appropriate election in the present case as a result of his confusion about the filing of his 2007 return. Therefore, a Rule 155 computation will be necessary to determine if Petitioner is entitled to any reduction in the tax rate subject to the provisions of Section 86. We do, however, find that the Petitioner received the amount of gross income as determined by Respondent in the Notice of Deficiency. We next turn to the addition to tax. Respondent bears the burden of production with respect to the imposition of Section 6662(a) pursuant to Section 7491(c). Section 6662(a) imposes an addition to tax equal to 20 percent of the underpayment which is attributable to any substantial understatement or to negligence. We believe that because of our determination about the gross income in this case, Respondent has carried the burden of production. So we next turn to Petitioner's defenses relative to this addition to tax. The accuracy related penalty is not imposed Heritage Reporting Corporation (202) 628-4888 1 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 6 with respect to any portion of the understatement which is attributable to actions by the Petitioner which were in good faith and done with reasonable cause, Section 6664(c) (1). The determination of reasonable cause or good faith depends on the facts and circumstances of the particular case in question, Treas. Reg. Section 1.6664-4(b) (1). In the present case the Petitioner sought assistance from the Social Security Administration and had numerous conversations over many years with individuals at the Social Security Administration. He was also subsequently audited by the Internal Revenue Service and had numerous conversations with employees of the Internal Revenue Service. His situation caused a great deal of confusion not only within the Social Security Administration, but also with the Internal Revenue Service as to the amount of the $61,243.50 he received in 2007, which was actually taxable in 2007. Given the circumstances of Petitioner's lengthy dispute with the Social Security Administration and the confusion he had about the year in which he should have been taxed for these benefits, we find that the Petitioner did have reasonable cause for reporting the amount of the benefits actually attributable to the year 2007, and that the addition Heritage Reporting Corporation (202) 628-4888 | 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 7 to tax under Section 6662(a) is not applicable because of the reasonable cause exception given the unique facts of this case. As stated previously a Rule 155 computation will be necessary to determine the applicability of Section 86. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 9:26 a.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888