TAX COURT OPINION

Case: Leon William Sekunda, Jr. & Christina Lee Sekunda
Docket Number: 28614-10S
Judge: Gale
Opinion Type: bench
Filed: 02/22/2012
Pages: 10

UNITED STATES TAX COURT WASHINGTON, DC 20217 RMM LEON WILLIAM SEKUNDA, JR. & CHRISTINA LEE SEKUNDA, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) Docket No. 28614-10S. ) ) ) ) ORD 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 Joseph H. Gale at Denver, Colorado, on January 25, 2012, containing his oral findings of fact and opinion rendered at the conclusion of the trial. Decision will be entered under Rule 155 in accordance with the oral findings of fact and opinion. (Signed) Joseph H. Gale Judge Dated. Washington, D.C. February 22, 2012 SERVED Feb 23 2012 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 H. Gale January 25, 2012 Sekunda v. Commissioñer Docket No. 28614-10S 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 as a Small Tax Case pursuant to the provisions of section 7463 of the Internal Revenue Code in effect when the petition was filed. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Rule 152 of the Tax Court Rules of Practice and Proceduke. Hereinafter, all section references are to the Internal Revenue Code in effect for the year at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. Leon William Sekunda, Jr. and Christina Lee Sekunda appeared on their own behalf. Randall Leighton Preheim appeared on behalf of respondent. The Commissioner determined a deficiency in the Sekundas' 2008 Federal income tax of $930. The deficiency arose because the Commissioner received two Heritage Reporting Corporation (202) 628-4888 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 information returns from American National Insurance Company reporting that it had paid Mrs. Sekunda retirement income of)$4,334 and interest income of $1,848 in 2008. Conéequently, the Cobmissioner determined that the Sekundas had failed to report taxable income of thát nature and amount on their joint return for 2008. The Commissioner now concedes the $4,334. adjustment to the Sekundasi' retirement income. The issue fór decision is whether Mrs. Sekunda received $1,848 of taxable interest income in 2008 that the Sekund s failed to rëport on their return for that year. Some of thé facts have been; stipulated and are so found. The Sekundas resided in Colorado when they filed the petition. Sometime iñ 2008 Mrs. Sekunda received and .17 cashed a $6,183 check from American National Insurance 18 19 20 21 22 23 24 25 Company. Á letter aòcompanying the check explained that the amount had been paid as a.result of the death of Mrs. Sekunda's gr ndfather, who had died in 2002. The Sekundas did not retain the letter, and its precise contents are therefore not·knpwn. Mrs. Sekunda contacted her mother seeking further details regarding the payment and was told that the money was hér inheritance.from her 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 grandfather. Mrs. Sekunda also learned that her brothers had received like amounts from the insurance compaÊ(cid:0)570.Mrs. Sekunda's mother was unwilling to further discuss the matter. Believing the payment was an inheritance and therefore not taxable, the Sekundas did not report any of it on their 2008 return. The insurance company filed two information returns with the IRS covering its $6,183 payment to Mrs. Sekunda. On a Form 1099-R it reported a $4,334 distribution to Mrs. Sekunda, none of which was reported as taxable. On a Form 1099-INT it reported a payment of $1,848 of interest income to Mrs. Sekunda. The Sekundas testified that they never received copies of either of the Forms 1099. The IRS issued the Sekundas a notice of deficiency which determined that they had unreported income in the amounts listed on the foregoing Forms 1099. As noted, respondent now concedes that $4,334 of the income listed on the information returns was not includable in the Sekundas' gross income for 2008. The deficiency determined by the Commissioner in the notice of deficiency is, in general, presumed correct, and the Sekundas have the burden of proving error in the notice of deficiency. Welch v. Helvering, 290 U.S. 111 (1933); Rule 142. 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 While under section 7491(a) the burden of proof may shift to the Commissioner in some circumstances, our findings in this case do not depend upon the burden of proof but instead are based on the preponderance of the evidence. See Blodgett v. Commissioner, 394 F.3d 1030, 1039 (8th Cir. 2005), aff'g T.C. Memo. 2003-212. Pursuant to section 6201(d), the Commissioner is entitled to rely on information returns filed with the IRS by third parties unless the taxpayer asserts a reasonable dispute with respect to an item of income reported on the information return and fully cooperates with the IRS. In such a case, the Commissioner has the burden of producing reasonable and probative information concerning the deficiency in addition to the information return. As discussed hereafter, we conclude that the Commissioner has produced reasonable and probative information in addition to the information return at issue to support his determination that the Sekundas had $1,848 of unreported interest income in 2008. Indeed, we conclude that the Commissioner has established the foregoing by the preponderance of the evidence. The Commissioner contends that $1,848 of the $6,183 received by Mrs. Sekunda from American National Insurance Company in 2008 was interest, taxable 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 7 Sekundas under section 61(a) (4). A clear preponderance of the evidence supports the Commissioner's contention. First, the payor of the $1,848 -- the insurance company -- reported that amount as interest on a Form 1099-INT. Second, when the IRS sought additional information from the insurance company concerning the basis for characterizing the $1,848 portion of the payment as interest, the insurance company sent a letter, which is in the record, explaining that Mrs. Sekunda's grandfather was the annuitant/owner of a policy with the company, that he had died in 2002, but that the claim under the policy had not been processed until 2008. When the claim was processed, the ins.urance company asserted, "we paid interest (from the date of death through the date of the check) on the policy proceeds due Ms. Sekunda." The accrued interest was $1,848 according to the insurance company, the amount it reported on the Form 1099-INT. Third, the surrounding circumstances corroborate the proposition that interest was due Mrs. Sekunda. Her grandfather died in 2002, but she did not receive any proceeds from a policy he held until more than 5 years later. While the record provides no explanation for the delay in payment, it is nonetheless entirely plausible that 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 8 the delay in the insurance company's payout of the policy proceeds generated an obligation for it to pay interest to the persons entitled to receive those proceeds. The Sekundas contend that the entire $6,183 payment, including the $1,848 in dispute, was an inheritance from Mrs. Sekunda's grandfather. As such, it would not be taxable pursuant to section 102(a). But to qualify the entire payment as a nontaxable inheritance, it would have to be shown that the entire $6,183 payment constituted property owned by Mrs. Sekunda's grandfather at the time of his death in 2002. The only factual support for that proposition is the Sekundas' testimony that Mrs. Sekunda's mother advised them that the entire paymønt was an inheritance. Importantly, according to the Sekundasi testimony, Mrs. Sekunda's mother was unwilling to provide any further details concerning the $6,183 payment, other than a blanket assertion that it was Mrs. Sekunda's share of her inheritance from her grandfather. The Sekundas have not shown that Mrs. Sekunda's mother was knowledgeable concerning the details of her fathe¼'s estate. We note in this regard that the Sekundas also testified that Mrs. Sekunda's mother's sister was more involved than Mrs. 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 Sekunda's mother in the care of Mrs. Sekunda's grandfather in his final years. It is therefore a reasonable inference that it was Mrs. Sekunda's aunt, rather than her mother, who was knowledgeable concerning the details of Mrs. Sekundä's grandfather's estate, including thë nature of the policy he owned and the reasons why the proceeds were:not paid out until more than 5 years after his death. Mrs. Sekunda's mother's unwillingness to divulge any details concerning the payment, despite her daughter's request for additional·information, reinforces our conclusion that Mrs. Sekunda's mother's characterization of the payment is not reliable. Moreover, her characterization is flatly contradicted by the records of the insurance company that made the payment. When Mrs. Sekunda's mother was not forthcoming, the Sekundas made no attempt to contact the insurance company to confirm the nature of the payment. In the circumstances, the Sekundas' contention that the entire $6,183 payment constituted property owned by Mrs. Sekunda's grandfather at his death that was beque¼thed to Mrs. Sekunda does not have reasonable or pþrsuasive factual!support. Moreover, when the Sékundas' evidence is weighed against the evidence|supporting the Commissioner's 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 10 contention that $1,848 of the payment was interest, the Sekundas' contrary contention must fail. In addition, with respect to any burden the Commissioner may have under section 6201(d) to produce reasonable and probative information in addition to the information return that reported the interest income at issue, we conclude that the Commissioner has met that burden. That is, even if we assume that the Sekundas' contention regarding an inheritance constitutes a reasonable dispute concerning an information return within the meaning of section 6201(d), the Commissioner has satisfied his burden of producing probative information in addition to the information.return itself; namely, the letter from the insurance company explaining the payment that has been stipulated by the parties and the surrounding circumstances of a policy's proceeds being payable as a result of a death but not in fact paid until more than 5 years after that death. Finally, even if we accept the Sekundas' contention that theyinever received the Forms 1099 issued by American National Insurance| Company with respect to the $6,183 payment, their failure to receive the Form 1099-INT covering the $1,848 in interest included inlthe payment would not justify 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 11 exclusion of the interest from gross income. See sec. 61(a) (4); Harper v. Commissioner, 54 T.C. 1121, 1139 (1970); Rivera v. Commissioner, T.C. Memo 1994-625; Graham v. Commissionër, T.C. Memo. 1985-411. For the foregoing reasons, we sustain the Commissioner's determination that the Sekundas had taxable interest income of $1,848 for 2008. Consequently, given the concession made by the Commissioner with respect to the remaining portion of the deficiency, deci ion will be ente¼ed under Rule 155. THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. . (Whereupon, at 4 : 15 p . m, the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888