TAX COURT OPINION

Case: Melissa Ann Wells & Michael Lyn Wells
Docket Number: 571-20S
Judge: Carluzzo
Opinion Type: bench
Filed: 02/17/2021
Pages: 10

Docket No.: 571-20S Page of United States Tax Court Washington, DC 20217 Melissa Ann Wells & Michael Lyn Wells Petitioners v. Commissioner of Internal Revenue Respondent Docket No. 571-20S 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 the parties a copy of the pages of the transcript of the trial in this case before Chief Special Trial Judge Lewis R. Carluzzo containing his oral ﬁnds of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral ﬁnding of fact and opinion, decision will be entered under Rule 155. (Signed) Lewis R. Carluzzo Chief Special Trial Judge Served 02/17/21 RECEIVED 11/24/20 IN THE UNITED STATES TAX COURT In the Matter of: MELISSA ANN WELLS & MICHAEL LYN WELLS, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Docket No. 571-20S ) ) ) ) ) ) ) ) ) ) ) ) ) Pages: 1 through 8 Place: San Diego, California (Remote Proceeding) Date: October 30, 2020 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 1 IN THE UNITED STATES TAX COURT In the Matter of: MELISSA ANN WELLS & MICHAEL LYN WELLS, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Docket No. 571-20S ) ) ) ) ) ) ) ) ) ) ) ) ) Federal Building 880 Front Street Room 4228, 4th Floor San Diego, California 92101-8828 (Remote Proceeding) October 30, 2020 The above-entitled matter came on for bench opinion, pursuant to notice at 10:28 a.m. HONORABLE LEWIS R. CARLUZZO Chief Special Trial Judge BEFORE: APPEARANCES: For the Petitioner: No Appearance For the Respondent: No Appearance 2 P R O C E E D I N G S (10:28 a.m.) THE CLERK: Calling for bench opinion docket number 571-20S, Melissa Ann Wells and Michael Lyn Wells. (Whereupon, a bench opinion was rendered.) 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 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Bench Opinion by Judge Lewis R. Carluzzo October 30, 2020 3 Melissa Ann Wells & Michael Lyn Wells v. Commissioner Docket No. 571-20S 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 references made in this bench opinion are to the Internal Revenue Code of 1986, as amended, in effect for the relevant period, and Rule references are to the Tax Court Rules of Practice and Procedure. This bench opinion is made pursuant to the authority granted by section 7459(b) and Rule 152. This proceeding for the redetermination of a deficiency is a small tax case subject to the provisions of section 7463 and Rules 170 through 174. Except as provided in Rule 152(c) this bench opinion shall not be cited as authority, and pursuant to section 7463(b) the decision entered in this case shall not be treated as precedent for any other case. Melissa Ann Wells and Michael Lyn Wells appeared unrepresented. Yervant P. Hagopian appeared on behalf of 24 respondent. In a notice of deficiency dated October 7, 2019 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 (notice), respondent determined a $17,337 deficiency in 4 petitioners' 2017 Federal income tax and imposed a $1,078 section 6662(a) accuracy-related penalty. After concessions, the issue for decision is whether petitioners are liable for the penalty. Some of the facts have been stipulated and are so found. At the time the petition was filed, petitioners lived in California. Petitioners are, and were at all times relevant, married to each other. In 2017, Mrs. Wells' father passed away. In or around May of 2017, Mrs. Wells received distributions of $5,029 and $59,729 as the beneficiary of her father's retirement accounts which were administered by Fidelity 15 Investments. 16 17 18 19 20 21 22 23 24 25 In 2017 Fidelity Investments issued two separate Forms 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., to her reflecting the $5,029 distribution from her father's Roth retirement account and the $59,729 distribution from her father's retirement account. The form also shows Federal income tax withheld of $11,947. Petitioners did not receive the Forms 1099-R, because they were mailed to their former address. Shortly after receiving the distributions, 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 petitioners retained the services of a financial advisor 5 to discuss investment strategies with respect to the distributions. In or around February of 2018 petitioners returned to the advisor to prepare their 2017 Federal income tax return. The advisor did not discuss the Federal income tax consequences of the distributions with petitioners during their initial investment meeting or at any other time including any communication related to the preparation of their 2017 return. The income reported on petitioners' 2017 Federal income tax return, which was prepared by the advisor does not include any portion of the distributions. In the notice, respondent: (1) increased petitioners' income by the amounts of the distributions; and (2) imposed the section 6662(a) accuracy-related penalty on the ground that there was a substantial understatement of income tax. As noted the parties now agree to all the determinations and adjustments made in the notice with the exception of the imposition of the penalty. Section 6662(a) imposes a 20% accuracy-related penalty on the portion of "an underpayment of tax required to be shown on a return" if, among other reasons, the underpayment is due to a substantial understatement of income tax. See sec. 6662(b)(2), (d). Respondent bears 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 the burden of production with respect to the imposition of 6 a section 6662(a) accuracy-related penalty. See sec. 6491(c). The section 6662(a) accuracy-related penalty does not apply to any portion of an underpayment to which there was reasonable cause and the taxpayer acted in good faith, sec. 6664(c)(1); sec. 1.6664-4(b)(1), Income Tax Regs., but the burden of proof rests with the taxpayer to show that the penalty does not apply, see Higbee v. Commissioner, 116 T.C. 438, 447 (2001). It would appear that the now agreed upon omitted items of income, that is the distributions petitioner received from her father's retirement account, are includable in petitioners' income by virtue of what is commonly referred to as income in respect to a decedent. See secs. 61(a)(13) and 691(a). We can understand a taxpayer's failure to be familiar with such principles. We also expect that had petitioners received the Forms 1099 they would have brought the items to the attention of their return preparer, as petitioner explained. We accept their explanation that they failed to do so, and failed to include the taxable distributions on their return because their belief that any resulting tax liability would have been satisfied by the amount of Federal tax withheld from the distributions. We find that petitioners had reasonable cause 7 and acted in good faith with respect to the underpayment of tax required to have been shown on their return. See sec. 6664(c). It follows that they are not liable for the section 6662(a) accuracy-related penalty here in dispute. To reflect the foregoing, decision will be entered Under Rule 155. This concludes the Court's bench opinion in this case. (Whereupon, at 10:37 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 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 CERTIFICATE OF TRANSCRIBER AND PROOFREADER 8 CASE NAME: Melissa Ann Wells & Michael Lyn Wells v. Commissioner DOCKET NO.: 571-20S We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 8 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Roger Meyers on October 30, 2020 before the United States Tax Court at its remote session in San Diego, CA, in accordance with the applicable provisions of the current verbatim reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten transcript against the verbal recording. _______________________________________________ Meribeth Ashley, CET-507 11/19/20 Transcriber Date _______________________________________________ Lori Rahtes, CDLT-108 11/19/20 Proofreader Date