TAX COURT OPINION

Case: Clay A. Dodson
Docket Number: 30260-09
Judge: Colvin
Opinion Type: bench
Filed: 02/04/2011
Pages: 5

UNITED STATES TAX COURT WASHINGTON, DC 20217 CLAY A. DODSON, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) ) ) ) ) Docket No. 30260-09. 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 herewith to the transcript Petitioner and to respondent a copy of the pages of of the trial in the above case before Judge Joseph Robert Goeke at Philadelphia, Pennsylvania, on January 25, 2011, 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, an appropriate decision will be entered. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. February 4, 2011 SERVED FEB - 7 2011 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 Robert Goeke January 25, 2011 Clay A. Dodson v. Commissioner Docket No. 30260-09 e 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 bench opinion is rendered pursuant to Internal Revenue Code Section 7459(b) and the Tax Court Rules of Practice and Procedure Rule 152(a). The bench opinion will be served on the parties pursuant to Subsection B of the same Rule 152. Hereinafter, section references are to the Internal Revenue Code in effect for the year 2007, and rule references are to the Tax Court Rules of Practice and Procedure. This is a deficiency case involving Petitioner's failure to report income from the distribution from the Thrift Savings Plan and $22 of state income tax refund. The case also involves Respondent's assertion of the addition to tax under Section 6662(a) for a substantial understatement of tax. Generally, the Petitioner has the burden of 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 proof under Rule 142(a) in cases brought before this Court. But the facts of this case have been clearly presented at trial and the burden of proof plays no role in the outcome of the case. At trial Petitioner accepted Respondent's position that he had failed to report $40,650.65 that he received from the Thrift Savings Plan in 2007, and the Petitioner did not contest that he was taxable on $22 of state income tax refund for 2007. Therefore the only remaining issue in the case is the applicability of the addition to tax. Respondent asserts that the 20 percent addition to tax under Section 6662(a) is appropriate because Petitioner has understated his tax liability by more than $5,000. The $5,000 threshold is required for the application of the substantial understatement penalty in this case. In computing the $5,000 understatement Respondent correctly looks to the understatement of income tax which technically in this case was understated ès the return in the amount of $10,001. However, the actual underpayment of tax is substantially less than $5,000 because although the Petitioner omitted the $40,650.65 from the Thrift Saving Plan he also omitted claiming the withholding 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 credits which were reflected in the form he received relative to the distribution from the Thrift Savings Plan. The statement of annuity paid he received from the Thrift Savings Plan reflected a withholding in the amount of $7,227, which would offset the understatement of tax.liability. While we believe Respondent's position is technically correct relative to the addition to tax and that the Petitioner must establish reasonable cause for his failure to report the income in order to avoid the addition to tax, we take into account the Petitioner's lack of sophistication and the fact that the Petitioner did realize that the amount of income in question was offset by the withholdingequest-i-en. Petitioner maintained at trial that he did in fact report the additional amount once he received a proper statement from the Thrift Savings Plan. However, we don't find Petitioner's testimony in this regard to be clear and determinative. We do however find that Petitioner had a reasonable cause for the failure to report the income given his lack of sophistication and given the significant amount of withholdings that were retained from the distribution. And in accord with the fact that the actual understatement of tax was offset by the withholding 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 credit which caused the underpayment of tax to be substantially less than $5,000, we believe the Petitioner has established sufficient reasonable cause to provide a defense to the application of the addition to tax under Section 6662(a) and we find that the addition to tax is not applicable. Therefore a decision will be entered upholding the deficiency determined by Respondent and finding for the Petitioner relative to the addition to tax. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 8:53 a.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888