TAX COURT OPINION

Case: Willie Frank Rodgers
Docket Number: 30385-08S
Judge: Colvin
Opinion Type: bench
Filed: 11/13/2009
Pages: 7

UNITED STATES TAX COURT WASHINGTON, DC 2021 7 WILLIE FRANK RODGERS , Petitione r V . Docket No . 30385-08S . COMMISSIONER OF INTERNAL REVENUE , Respondent O R D E R Pursuant to Rule 152(b),-Tax Court Rules of Practice and Procedure, it i s ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Special Trial Judge John F . Dean at Chicago, Illinois, on October 30, 2009, containing his oral findings of fact and opinion rendered at the conclusion of the trial . In accordance with the oral findings of fact and opinion, decision will be entered for respondent . (Signed) John F. Dean Special Trial Judg e Dated : Washington, D .C . November 13, 2009 SERVED ITV 18 ZOOy 3 1 Bench Opinion by Special Trial Judge John F . Dean 2 Docket Number 30385-08S October 30, 2009 3 Willie Frank .Rodger s 4 The Court has decided to render ora l 5 findings of fact and opinion in this case, and th e 6 following represents the Court's oral findings of fact 7 and opinion . The oral findings of fact and opinio n 8 shall not be relied upon as precedent in any other 9 case . 10 In this oral opinion all section numbers 11 refer to the Internal Revenue Code in effect for the 12 taxable year in issue, and all rule references are to 13 the Tax Court Rules of Practice and Procedure . 14 This proceeding was heard as a small tax 15 case pursuant to the provisions of Section 7463 and 16 Rules 170 through 179 . 17 For 2006 Respondent determined a deficiency 18 in Petitioner's federal income tax in the amount of 19 $9,570 and an accuracy-related penalty under Section 20 6662 (a) of $1, 914 . 21 The issues for decision are whethe r 22 Petitioner : (1) must include in income $38,194 of 23 retirement distributions and (2) is liable for the 24 accuracy-related penalty under Section 6662(a) . 25 Background Heritage Reporting Corporation (202) 628-4888 4 1 The stipulated facts and exhibits ar e 2 incorporated herein by reference . Petitioner resided 3 in Illinois at the time the petition in this case was 4 filed . 5 In May of 2006 the Internal Revenue Service 6 sent Petitioner and his wife a letter informing them 7 of a computational error on their federal income tax 8 return for 2005 resulting in an increase in tax o f 9 $12,182 .60 . In 2006 Petitioner withdrew $12,000 from 10 his account with American Funds and used the money to 11 pay his additional tax liability of $12,182 .60 fo r 12 2005 . 13 Petitioner received a Form 1099R , 14 Distributions from Pensions, Annuities, Retirement, or 15 Profit-Sharing Plans, IRAs, Insurance Contracts, e t 16 cetera, reporting a gross and taxable distribution of 17 $12,000 from American Funds for 2006, from which there 18 was no federal income tax withheld . In 200 6 19 Petitioner made withdrawals from retirement accounts 20 that were not reported on his federal income tax 21 return . 22 Respondent examined Petitioner's return and 23 made an adjustment to increase his income to account 24 for unreported withdrawals from retirement accounts . 25 Discussio n 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 Respondent's determinations are presumed t o be correct, and the Petitioner bears the burden o f proving otherwise . Rule 142(a), Welch v . Helvering , 290 U .S . 111, 115 (1933) . In certain circumstances , however, where there is a dispute as to any factua l issue, Section 7491(a)(a) places the burden of proo f on the Commissioner . Because there is no disagreemen t as to any factual issue in this case, Section 7491 i s inapplicable . Petitioner takes the position that he i s allowed to exclude "from ordinary income all monie s withdrawn from retirement [sic] account in the yea r 2006 to satisfy tax deficiency [sic] for 2005 becaus e said deficiencies [sic] arose from withdrawal of fund s from retirement accounts . " Petitioner argues that the funds used to pa y his tax liability for 2005 were the property of th e United States Government and not his income . Petitioner's theory is incorrect . Under 402(a), with exceptions not pertinen t here, any amount actually distributed to an y distributee by any employees' trust described i n Section 401(a), a "qualified" plan, .is taxable to th e distributee in the year of receipt under Section 72 . Similarly, with exceptions not her e Heritage Reporting Corporation (202) 628-4888 6 1 applicable , any amount paid or distributed out of an 2 individual retirement account must be included i n 3 gross income by the payee or distributee in the manner 4 provided by Section 72 . See Sec . 408(d) . 5 Petitioner , as the distributee or payee of 6 the amounts from a pension fund or IRA , is taxable on 7 those amounts . There is no exception to taxabilit y 8 based on what use to which the payee or distributee 9 puts the money . Here Petitioner, the payee o r 10 distributee , used his distribution to pay his 2005 tax 11 liability , but he remains taxable on his distribution . 12 Further , there is no deduction allowed payment of V P 13 federal income taxes . Sec . 275(a)(1) . 14 Section 7491 ( c) imposes on the Commissioner 15 the burden of production in any court proceeding with 16 respect to the liability of any individual fo r 17 penalties and additions to tax . Higbee v . 18 19 Commissioner , 116 T .C . 438 , 446 (2001 ) ; Trowbridge v . Commissioner , T .C . Memo . 2003 - 164, affd . 378 F .3d 432 20 (5th Cir . 2004 ) . In order to meet the burden o f 21 production under Section 7491 ( c), the Commissioner 22 need only make a prima facie case that imposition of 23 the penalty or addition to tax is appropriate . Higbee 24 v . Commissioner , supra . 25 Respondent determined that Petitioner is Heritage Reporting Corporatio n (202) 628-4888 7 1 liable for an accuracy-related penalty under Sectio n 2 6662(a) . Section 6662(a) imposes a 20-percent penalty 3 on the portion of an underpayment attributable to any 4 one of various factors, including negligence and a 5 substantial understatement of tax . See Sec . 6662(b) . 6 A "substantial understatement" includes an 7 understatement of tax that exceeds the greater of 10 8 percent of the tax required to be shown on the return 9 or $5,000 . See Sec . 6662(d) ; Sec . 1 .6662-4(b), Income 10 Tax Regs . 11 Section 6662(d) (2) (B) allows for the 12 reduction of the understatement of tax for tha t 13 portion of the understatement attributable to an item 14 adequately disclosed on the return for which there was 15 a reasonable basis for the treatment by the taxpayer . 16 Although Petitioner adequately disclosed his position 17 on the return, there was no reasonable basis for the 18 tax treatment that Petitioner gave the item . 19 Section 6664(c)(1) provides that the penalty 20 under Section 6662(a) shall not apply to any portion 21 of the underpayment if it is shown that there was a 22 reasonable cause for the taxpayer's position and that 23 the taxpayer acted in good faith with respect to that 24 portion . 25 The determination of whether a taxpayer Heritage Reporting Corporation (202) 628-4888 8 1 acted with reasonable cause and in good faith is made 2 on a case-by-case basis, taking into account all the 3 pertinent facts and circumstances . Section 1 .664- 4 4(b)(1), Income Tax Regs . The most important factor 5 is the extent of the taxpayer's effort to assess his 6 proper tax liability for the year . 7 - Petitioner did not show that he acted wit h 8 reasonable cause and in good faith with respect to his 9 retirement income items . He did not make a reasonable 10 attempt to determine his proper tax liability fo r 11 2006 . 12 To reflect the foregoing, decision will be 13 entered for Respondent . 14 That concludes the oral opinion in this 15 case . 16 (Whereupon, at 2 :22 p .m ., the bench opinion 17 in the above-entitled matter was concluded . ) 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888