TAX COURT OPINION

Case: Robert K. Long
Docket Number: 2419-09S
Judge: Colvin
Opinion Type: bench
Filed: 06/10/2010
Pages: 8

UNITED STATES TAX COURT WASHINGTON , DC 2021 7 ROBERT K . LONG, Petitioner v . ) Docket No . 2419-095 . 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 Judge Joseph Robert Goeke at Cincinnati, Ohio,'on May 25 ., 2010, 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, a decision shall be entered under Rule 155„ , n (Signed ) Joseph Robert Goeke Judge Dated : Washington, D .C . June 10, 2010 SERVED JUN 15 201D 1 Bench Opinion by Judge Joseph Robert Goek e 2 Long v . Commissioner Docket Number : 2419-09S 3 THE COURT : The Court has decided to render 4 oral findings of fact and opinion in this case, an d 5 the following represents the Court's oral findings of 6 fact and opinion . The oral findings of fact an d 7 opinion shall not be relied upon as precedent in any 8 other case . 9 This case was heard pursuant to th e 10 provisions of . Section 7463 of the Internal Revenue 11 Code in effect at the time the petition was filed . 12 Pursuant to Section 7463(b), the decision to b e 13 entered is not reviewable by any other Court . Section 14 references hereinafter are to the Internal Revenu e 15 Code in effect during,the year at issue in this case . 16 Rule references hereinafter are to the Tax Cour t 17 Rules of Practice and Procedure . 18 This opinion is rendered pursuant to Section 19 7459(b) and Rule 152 . There are two issues fo r 20 decision in this deficiency case for the 2006 taxable 21 year . The first issue is a question of whether th e 22 amount of $15,901 received by the Petitioner should be 23 taxable to the Petitioner as income and also subject 24 to the additional 10% tax as a retirement fun d 25 distribution under Section 72(t) . The second issue i s Heritage Reporting Corporation (202) 628-4888 4 1 whether the Petitioner should be subject to the 2 addition to tax under Section 6662(a) . 3 The burden of proof regarding the income tax 4 deficiency in this case is on the Petitioner unde r 5 Rule 142(a), and the burden of production regardin g 6 the addition to tax is on the Respondent under Section 7 7491(c) . Nevertheless, the case is not decided on the 8 burden of proof or the burden of production, rather , 9 the preponderance of the evidence is the basis of our 10 factual findings because the record in this case is 11 sufficient and Respondent has met the burden o f 12 production . 13 The facts of the case are straightforward . 14 The Petitioner began the year 2006 as a sales manager 15 at Superior Chevrolet . He had, in the prior years of 16 his work for Superior Chevrolet, paid money into a 17 401(k) plan . Approximately halfway through the year 18 2006, the Petitioner lost his job with Superio r 19 Chevrolet, spent the next three months collectin g 20 unemployment benefits from the State of Ohio, and then 21 obtained another job during the last three months of 22 the year . 23 From the time the Petitioner lost his job 24 until the end of the year, he paid for healt h 25 insurance benefits by paying approximately $800 pe r Heritage Reporting Corporation (202) 628-4888 5 1 month to obtain benefits pursuant to the COBRA 2 provisions of Federal Law . 3 At the time he was unemployed, th e 4 Petitioner attempted to maintain the lifestyle of his 5 family, and this led-him to seek the funds that he had 6 previously put into the 401(k) plan . 7 The Petitioner was in his 40s at this time 8 and did not qualify for a"distribution from th e 9 retirement fund that would not be subject to th e 10 application of Section 72(t) . He was aware of that 11 and when he had the amount of $15,901 .62 withdrawn 12 from his Vanguard fund, he requested that federal 13 income tax be withheld in the amount of $3,180 .33 . 14 Based upon his own testimony, he had a 15 previous withdrawal from a retirement fund to pay for 16 the residence where he and his family resided . 17 Petitioner filed married, filing separately, and 18 claimed dependents for his two daughters on his income 19 tax return . 20 At trial, Petitioner testified about his 21 payments to obtain the COBRA medical insurance after 22 he lost his job . His income tax return for 200 6 23 reflects medical insurance payments of $4,895 . This 24 amount does not coincide with Petitioner's estimate of 25 how much he paid for the COBRA benefits . The COBR A Heritage Reporting Corporation (202) 628-4888 6 1 benefits, he states, he . paid for required a monthl y 2 premium of $840 a month ., and he said he paid this for 3 six months . This premium would total $5,040 . Because 4 the Petitioner has previously stated the medica l 5 insurance he incurred in 2006 was $4,895 on his income 6 tax return, we have no reason to question the amoun t 7 on the income tax return, and we accept that amount in 8 lieu of the estimate Petitioner testified to at trial ; 9 however, we do believe that Petitioner's testimony was 10 credible in that he did pay for medical insuranc e 11 after having lost his job . 12 Section 72(t) provides for a 10% additional 13 tax on early distributions from qualified retirement 14 plans before the attainment of age 59 .5, unless a 15 statutory exception applies . Petitioner maintains 16 that he made the health insurance payments after 17 losing his job and receiving unemployment benefits . 18 Therefore, he would assert that he would qualify for 19 the exception in Section 72 (t) (2) (d) . 20 We find Petitioner's testimony regarding 21 these circumstances to generally be credible . 22 Distributions from a retirement account taken after 23 separation from employment and used to pay health 24 insurance premiums are not subject to the 100. 25 additional tax if three events occur : (1) Th e Heritage Reporting Corporation (202) 628-4888 7 1 Petitioner received unemployment compensation for 12 2 consecutive weeks, and we find that Petitioner did so 3 receive these benefits ; (2) The distribution was made 4 during the same taxable year the premiums were paid, 5 and we find this circumstance is met as well ; and (3) 6 The excludable distributions are limited to the amount 7 paid for health insurance . These provisions ar e 8 contained in Section 72(t) (2) (D) (i) . Based upon hi s 9 credible testimony, Mr . Long meets this exception . 10 As we stated previously, we limit the amount 11 that's excluded to the amount Mr . Long originall y 12 reported on his 2006 Federal Income Tax return , 13 Schedule A, $4,895, and we find that $4,895 should be 14 excluded from the 10% additional tax otherwis e 15 applicable to the distribution Mr . Long received from 16 Vanguard in 2006 . 17 Given the fact that the Vanguar d 18 distribution is clearly taxable and to the extent 19 there is no exclusion also subject .to the 10 % 20 additional tax provided by Section 72(t), the onl y 21 remaining issue is whether Mr . Long is liable for the 22 addition to tax under Section 6662(a) in the amount of 23 $621 for 2006 . 24 At trial, Mr . Long admitted that he knew the 25 Vanguard amount should have been reported and he ha d Heritage Reporting Corporation (202) 628-4888 8 1 no reasonable explanation for why it was omitted from 2 his income tax return for 2006 . While we ar e 3 sympathetic to Mr . Long's problems in supporting his 4 family in 2006 after he lost his employment, we have 5 to apply the law to his situation and, based upon hi s own testimony and his failure to provide a reasonable 7 cause for his failure to report the Vanguard income, we find that the addition to tax under Section 6662(a ) 9 is applicable to whatever deficiency remains after the 10 exclusion of the amount we found that was paid fo r 11 health insurance in 2006 . 12 Because of our findings, a Rule 15 5 13 computation will be necessary . There are severa l 14 adjustments that are mathematical, that flow from the 15 additional income Mr . Long received . These include 16 the health insurance deduction claimed on the return 17 and the child credit claimed on the return, as well as 18 other adjustments . In the Rule 155 computation which 19 will follow to implement this decision, we instruc t 20 Respondent to include specific computations of these 21 mathematical adjustment amounts to verify that they're 22 done in conformity with the revised incom e 23 determinations made in this opinion . 24 As we've stated, it will be necessary to 25 have a Rule 155 computation to implement the Court' s Heritage Reporting Corporation (202) 628-4888 6 9 1 opinion in this case . 2 This concludes the Court's oral findings of 3 fact and opinion . 4 We will recess until approximately 11 :30 . 5 Let's go off the record . 6 (Whereupon, at 11 :10 a .m ., the bench opinion 7 in the above-entitled matter was concluded . ) 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888