TAX COURT OPINION

Case: Richard J. Juarez
Docket Number: 24815-09
Judge: Colvin
Opinion Type: bench
Filed: 11/23/2010
Pages: 7

UNITED STATES TAX COURT WASHINGTON, DC 20217 RMM RICHARD J. JUAREZ, Petitioner, v. ) Docket No. 24815-09 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 the to petitioner and to respondent a copy of transcript of proceedings of L. Kroupa at San Francisco, California on October 26, 2010, containing her oral the above case before Judge Diane the pages of findings of fact and opinion. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) Diane L. Kroupa Judge Dated: Washington, D.C. November 23, 2010 SERVED Nov 24 2010 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 Diane L. Kroupa October 26, 2010 Richard J. Juarez v. Commissioner Docket No. 24815-09 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. These oral findings of fact and opinion shall not be relied upon as precedent in any other case. This bench opinion is made pursuant to the authority granted by section 7459(b) and Rule 152. All section references are to the Internal Revenue Code in effect for the year 2007, the year at issue, and all rule references are to the Tax Court Rules of Practice & Procedure. Anthony Diosdi appeared on behalf of Petitioner, and Nathan Hall appeared on behalf of Respondent. FINDINGS OF FACT Certain facts are stipulated. The stipulation of facts with accompanying exhibits are incorporated by this reference. The facts are so found. Petitioner resided in California at the time he filed the petition. Petitioner was an office manager and had approximately $200,000 in various qualified and non- qualified retirement accounts with Investors Insurance Corporation and Midland National Life Insurance Company. 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 Petitioner- and his brothers went in April 2007 to see a new financial planner, Mr. Pat Vitucci, that Petitioner's brother heard speak. The purpose of the meeting was to ask Mr. Vitucci about investments. Petitioner and his brothers told Mr. Vitucci that the investment funds came from savings, and no reference was made to an individual retirement account, IRA. Petitioner liquidated his retirement accounts and had the distributions deposited in his personal checking account. He contacted Mr. Vitucci in July 2007 about investing the funds. Mr. Vitucci advised Petitioner to use the funds to open a non-qualified annuity account with Lincoln National Life Insurance Company. Petitioner again failed to inform Mr. Vitucci that the Lincoln National account would be funded by retirement account distributions. The Lincoln National account is not a qualified pre-tax account eligible for tax-free rollover treatment under section 408(d) (3). It was only after the 1099-R was issued reporting the taxable amount that Petitioner notified Mr. Vitucci that the distributions were from a qualified retirement account. Mr. Vitucci told Petitioner that he would change the 1099-R if he was able to establish that the funds came from a qualified plan and he transferred the funds to a qualified plan. To date, Petitioner has not established the funds 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 came from a qualified plan,.nor has he transferred the funds to a qualified account. The funds remain in the Lincoln National account. Respondent issued a deficiency notice to Petitioner for 2007, determining a $75,835.20 deficiency in federal income tax based on the.unreported retirement account distributions. Respondent also determined that Petitioner was liable for a $15,167.04 accuracy-related penalty under section 6662. OPINION We first address whether Petitioner received a taxable distribution from his retirement accounts. Amounts distributed from a retirement account are genetally included in the payee's gross income for the taxable year in which the distribution is received. Sec. 1.408-4(a) (1), Income Tax Regs. Such distributions are not taxable, however, if the payee transfers the funds to another qualified retirement account within 60 days of the distribution. This is known as a rollover distribution. See sec. 408(d) (3). Any portion of the distribution that is not rolled over to a qualified retirement account within the 60-day period is taxable as ordinary income. Id. The taxable portion of the distribution may also he subject to the 10 percent additional tax on early 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 6 distributions under section 72(t). Petitioner concedes that he received the retirement account distributions and did not properly roll them over to a qualified retirement account within 60 days. He argues that the distribution should nevertheless be treated as a tax-free rollover because he took reasonable steps to comply with the statutory requirements for a rollover distribution. We disagree. This Court has treated imperfect rollover distributions as non-taxable where the taxpayer had acted with full knowledge of the law's requirements, had taken all steps within his reasonable control to comply with those requirements, and had achieved substantial compliance. See Wood v. Commissioner, 93 TC 114 (1989); Childs v. Commissioner, TC Memo 1996-267; Thompson v. Commissioner, TC Memo 1996-266. The evidence shows here, however, that Petitioner never informed Mr. Vitucci that the distributed amounts were ffom retirement accounts. Mr. Vitucci testified that Petitioner and his brothers explained that the funds were from savings, not qualified retirement accounts. Petitioner also failed to notify the investment adviser that some of the funds were from qualified accounts and should not have been deposited in a non-qualified account. 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 This defect goes to the core of an invalid rollover. We therefore find a substantive defect related to a fundamental element of the statutory requirement, rather than a procedural defect in the execution of the rollover. See Schoof V. Commissioner, 110 TC 1 (1998) (transfer to a non-qualified account constituted a defect related to a fundamental element of the statutory requirement). Petitioner has not substantially complied with the statutory requirements for a tax-free rollover, and we accordingly find the retirement account distributions are taxable to Petitioner. A 10 percent additional tax is imposed on retirement account distributions if the taxpayer was under 59 and a half years of age at the time he or she received the distributions. Sec. 72(t) (1). Certain other exceptions apply. Petitioner has not established that he qualifies for any of the exceptions to section 72(t). Accordingly, we sustain Respondent's determination. We now turn to the accuracy-related penalty under section 6662. No penalty applies if a taxpayer reasonably relies upon a tax adviser who has been provided all the information. United States v. Boyle, 469 US 241, 250-251 (1985). We find that Petitioner relied unconditionally on 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 h-i-s-tery on his financial adviser. No reasonable cause exists, however, because Petitioner failed to provide all necessary information to Mr. Vitucci, a person who has handled thousands of qualified rollovers, and we accordingly find Petitioner liable for the accuracy-related penalty. To give effect to the.foregoing, decision will be entered for Respondent. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 12:48 p.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628'4888