TAX COURT OPINION

Case: Arthur Joseph Plourde, III
Docket Number: 4696-11
Judge: Kroupa
Opinion Type: bench
Filed: 11/01/2012
Pages: 9

UNITED STATES TAX COURT WASHINGTON, D.C. 20217 ARTHUR JOSEPH PLOURDE, III Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) ) ) ) ) ORDER Docket No. 4696-11 Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to petitioner and to respondent a copy of the pages of the transcript of proceedings of this case before Judge Diane L. Kroupa in Los Angeles, California on September 12, 2012, containing her oral findings of fact and opinion rendered at the trial session at which the case was calendared. In accordance with the oral findings of fact and opinion, an appropriate decision will be entered for respondent as to the reduced deficiency but for petitioner as to the accuracy-related penalty under I.R.C. § 6662(a). (Signed) Diane L. Kroupa Judge Date: Washington, DC November 1, 2012 SERVED NOV 1 2012 Capital Reporting Company Arthur Joseph Plourde III 09-12-2012 3 1 Bench Opinion by Judge Diane L. Kroupa 2 Arthur J. Plourde III, Docket No.: 4696-11 3 September 12, 2012 4 5 6 7 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 8 OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY 9 OTHER CASE. 10 This bench opinion is made pursuant to the 11 authority granted in Section 7459(b) and Rule 152. 12 All section references are to the Internal Revenue 13 Code as amended and in effect for 2008, and all Rule 14 references are to the Tax Court Rules of Practice and 15 Procedure. 16 Petitioner represented himself, and 17 Paulmikell Fabian appeared on behalf of respondent. 18 Respondent determined a $10,250 Federal 19 income tax deficiency against petitioner for 2008 and 20 determined petitioner was liable for a $2,050 21 accuracy-related penalty under Section 6662. 22 23 There are only two issues for decision. The first issue involves whether petitioner had 24 unreported income from the distribution of shares 25 previously held in an IRA account he had with (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Arthur Joseph Plourde III 09-12-2012 1 Sterling Trust Company, (Sterling Trust). We hold 4 2 3 4 5 6 7 8 9 that he did. The second issue is whether petitioner is liable for the accuracy-related penalty. We hold he is not. FINDINGS OF FACT Some of the facts have been stipulated, and they are so found. The stipulation of facts and accompanying exhibits are incorporated by this reference. Petitioner resided in Torrance, 10 California at the time he filed the petition. 11 12 13 14 15 Petitioner filed a return for 2008 that reported he received $80,285 of IRA distributions and reported that only $40,100 of the IRA distributions received were taxable. The difference between the total IRA distributions and the amount reported as 16 taxable is $40,185. 17 The difference is also the same amount that 18 petitioner invested in American Film Capital II, LLC 19 (American Film), in 2004 and for which American Film 20 issued a share certificate for 2,679 class A shares 21 in American Film. Shares in American Film were not 22 publicly traded. Up until 2008, Sterling Trust held 23 24 the share certificate in an IRA for petitioner. In 2008, Sterling Trust closed petitioner's IRA because 25 he failed to pay the necessary administrative fees. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Arthur Joseph Plourde III 09-12-2012 Upon closing the IRA, Sterling Trust 5 returned to petitioner all of the stock certificates that were in his IRA, including the American Film share certificate. Sterling Trust did not make any cash distribution to petitioner upon closing the IRA. Sterling Trust issued a Form 1099-R to 1 2 3 4 5 6 7 petitioner reporting a $40,185 distribution from the 8 9 return of the American Film shares, which equaled the amount that petitioner originally invested in 10 American Film. Petitioner had not rolled over the 11 American Film share certificate into another IRA nor 12 had petitioner sold or otherwise disposed of the 13 American Film shares . Petitioner still holds the 14 American Film share certificate. American Film is 15 still operating as a business. 16 Petitioner sought to transfer the American 17 Film share certificate into another IRA. No IRA, 18 however, would accept the share certificate as it was 19 not publicly traded. 20 21 Respondent notified petitioner that he failed to report the distribution of the share 22 certificate in American Film in 2008. Again, this 23 amount was the $40,185 that petitioner invested in 24 American Film in 2004. Based upon information 25 respondent was able to obtain from American Film and (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Arthur Joseph Plourde III 09-12-2012 6 1 Sterling Trust, respondent's current position is that 2 petitioner received and failed to report $28,242 in 3 4 taxable retirement income from the distribution of the American Film share certificate from his Sterling 5 Trust IRA. 6 7 8 9 Petitioner paid a preparer to prepare the return for 2008. OPINION We are asked to decide whether petitioner 10 must have included the distribution of the share 11 certificate in American Film when no cash was 12 distributed when Sterling Trust closed the IRA for 13 petitioner's failure to pay the administrative fees. 14 We also must decide whether petitioner is liable for 15 the accuracy-related penalty under Section 6662 (a). 16 We now turn to the two issues still in dispute. 17 We begin with the fundamental principle of 18 tax litigation that the Commissioner's determinations 19 in the deficiency notice are presumed correct and 20 taxpayers bear the burden to establish those 21 determinations are incorrect. See Rule 142(a); Welch 22 v. Helvering, 290 U.S. 111,115 (1933). First, we 23 decide whether petitioner received a taxable 24 distribution when he received the American Film share 25 certificate in 2008 yet received no cash in the (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Arthur Joseph Plourde III 09-12-2012 1 distribution. 2 The normal presumption of correctness in 3 unreported income cases attaches to the deficiency 4 determination so long as it is not "without rational 5 6 foundation. "United States v. Janis, 428 U. S. 443, 441, (1976). Respondent must present evidence 7 demonstrating petitioner received unreported income. 8 9 10 11 See Weimerskirch v. Commissioner, 596 F.2d 358,362 (9th Cir. 1979), rev'g 67 T.C. 672 (1977). When respondent produces evidence of unreported income, the burden of proof to rebut respondent's presumption 12 of correctness is properly placed on petitioner. 13 14 15 16 See Rapp v. Commissioner, 774 F.2d 932, 935 (9th Cir. 1985). Petitioner has the burden of proof on this issue. See Rule 142(a). Gross income includes all amounts from 17 whatever source derived. Sec. 61. Generally, any 18 amount paid or distributed from an IRA is includable 19 in the recipient's gross income. Secs. 72 and 20 408(d) (1); Sec. 1.408-4 (a), Income Tax Regs. This 21 rule does not apply, however, to any amount 22 distributed from an IRA that is rolled over to 23 another IRA within 60 days of the distribution. 24 Sec. 40 8 (d) (3) ; Schoof v. Commissioner, 110 T . C. 1, 7 25 (1998) ; Sec. 1. 40 8 (b) (1) , Income Tax Regs . (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Arthur Joseph Plourde III 09-12-2012 8 1 2 3 4 Petitioner has not offered any credible evidence that respondent made an error. Petitioner does not have any evidence contradicting the $28,242 reported on the K-1 for 2008 as the value of 5 petitioner 's capital account in American Film. 6 Petitioner does not dispute receiving the share 7 certificate. Petitioner attempted, but was unable, 8 to roll the share certificate into another IRA as he 9 did with the other distributions petitioner received 10 when the Sterling Trust terminated petitioner's IRA. 11 Petitioner argues that none of the distribution is 12 13 taxable because it was not a cash distribution. The form of the distribution is. irrelevant. We 14 accordingly sustain respondent's determination that 15 there is a reduced tax deficiency for 2008 based upon 16 petitioner's failure to report the $28,242 17 distribution he received from his IRA in the form of 18 the American share certificate, rather than the 19 $40,185 amount set forth in the deficiency notice. 20 We next address whether petitioner is liable 21 for the accuracy-related penalty under Section 6662. 22 Taxpayers are liable for the accuracy-related penalty 23 for any portion of an underpayment attributable to 24 negligence or disregard of rules and regulations. 25 Sec. 6662 (a) and (b) (1) . Negligence has been defined (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Arthur Joseph Plourde III 09-12-2012 9 1 2 as a lack of due care or failure to do what a reasonable person would do under the circumstances. 3 Negligence often takes the form of an understatement 4 of income. See Healey v. Commissioner, T.C. Memo. 5 1996-260, and cases cited therein. Respondent has 6 established that petitioner failed to report $28,242 7 of taxable income. Accordingly, respondent has met 8 his burden of production. See Higbee v. 9 Commissioner, 116 T . C. 438 (2001) ; Sec. 7491 (c) . 10 The accuracy-related penalty under 11 Section 6662 does not apply if petitioner can 12 establish, based on all the facts and circumstances, 13 that there was a reasonable cause for the 14 underpayment and that he acted in good faith. See 15 sec. 6664-4 (a) ; sec. 1. 6664-4 (b) (1) , Income Tax Regs . 16 Taxpayers bear the burden of proof as to reasonable 17 18 19 cause and willful neglect. Higbee v. Commissioner, 116 T.C. at 447. Petitioner had his return prepared by a 20 return preparer. We found petitioner credible. Most 21 importantly, he did not question the value of his 22 23 investments, including the value of the American Film shares, because he was unemployed and was trying to 24 find a job. In 2008, petitioner was 64 years old, 25 and the prospects of finding a job at that age were (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Arthur Joseph Plourde III 09-12-2012 1 nominal. He has yet to find a job. We find, 10 2 3 4 5 6 therefore, that petitioner had reasonable cause for the underpayment on his return, and has shown that he acted in good faith with respect to the portion of the underpayment. To reflect the foregoing, we shall enter a 7 decision for respondent for the reduced deficiency 8 amount and for petitioner as to the accuracy-related 9 penalty. THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon, at 1:20 p.m., the bench opinion in the above-entitled matter was concluded.) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (866) 448 - DEPO www.CapitalReportingCompany.com 2012