TAX COURT OPINION

Case: Peggie A. Coach
Docket Number: 29209-11
Judge: Colvin
Opinion Type: bench
Filed: 11/13/2013
Pages: 5

CZ UNITED STATES TAX COURT WASHINGTON, DC 20217 PEGGIE A. COACH, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 29209-11. ) ) ) ) ) OR 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 petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge John O. Colvin at New York, New York (Westbury), containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) John O. Colvin Judge Dated: Washington, D.C. November 13, 2013 SERVED Nov 13 2013 Capital Reporting Company 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Bench Opinion by Judge John O. Colvin September 26, 2013 Peggie A. Coach v. Commissioner Docket No. 292?1~=Tf-'ÒC THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the Cour,t's oral findings of fact and opinion. The oral findings of fact and opinion shall not be relied on as precedent in any other cas·e. All citations to sections, unles's otherwise noted, are to the Internal Revenue Code for the year at 'issue. Citations to rules are to the Tax Court Rules of Practice and Procedure. This opinion is rendered pursuant to.section 7459(b) and Rule 152. Peggie A. Coach is self-represented. Joan 17 Casali represents Respondent. 18 19 20 21 22 23 24 25 Petitioner resided in New York when the petition was filed. Respondent determined a deficienc~y of $4,791 in Petitioner's Federal Income Tax for 2009. After concessions, the only issue for decision was whether Petitioner was required in the year she retired to report $16,728 of amounts which she had received as loans from her employer' s retirement plan. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 As an employee of the City of New York, 2 Petitioner was a member of the New York City 3 4 5 6 7 8 9 Employees Retirement System(NYCERS), and participated in a defined benefit retirement plan. The plan is a qualified trust under section 401(a) and exempt from taxation under section 501(a). According to the plan and loan application documents, when a member retires, the balance of any outstanding loans to that member if not repaid in a 10 lump sum is in effect repaid as a reduction of that 11 member's accrued pension benefit. This repayment 12 mechanism is referred to as plan loan offset. See 13 14 15 16 17 18 19 20 21 N.Y. Retirement and Social Security Law, sec. 613(b) (McKinney 2005). Additionally, the plan provided that a loan is in default if a member fails to make repayments on a loan for a period of 90 days or more. Petitioner retired in August 2009. At that time, Petitioner had an outstanding NYCERS loan balance of $19,681. Some of her plan contributions had been made pre-tax and some had been made after 22. tax. NYCERS sent a letter to Petitioner dated 23 October 1, 1999, which stated that the taxable 24 25 portion of her outstanding loan balance was $16,728.85. The letter also said that to avoid 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 taxation on that amount, she could rollover the taxable portion to either another section 401 plan or an individual retirement account within 90 days of the letter. Petitioner did not execute a rollover or repay the loan. NYCERS issued a Form 1099-R to Petitioner reporting a taxable distribution for 2009 in the amount of $16,728.85. Petitioner did not include that amount in her taxable income on hèr 2009 Federal Income Tax return. A loan from a qualified plan is generally treated as a taxable distribution in the year a member of the plan receives the proceeds. Section 72 (p) (1). However, loans that meet the requirements of section 72(p) (2) are excepted from this general rule and they are not taxable income to the employee. The plan's October 1, 2009 letter to Petitioner and its issuance of a Form 1099-R to Petitioner in 2009 shows that the loans qualified for the section 72 (p) (2) exception until Petitioner retired from her employment with the City in 2009. Respondent does not contend otherwise. A plan loan offset is a reduction of a plan 25 member's accrued pension account balance to repay a 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 qualified plan loan. When a plan loan offset occurs, it is treated as an actual distribution from a plan. See sec. 1.402(c)-2, Q&A-9 Income Tax Regulations. Plans may require a plan loan offset to occur under a variety of scenarios, including when an employee terminates employment. A plan loan offset generally transforms what was a nontaxable loan under the section 72 (p) exception into a taxable distribution. See sec. 1.72 (p)~1, Q&A-13, Income Tax Regs; Royal v. Commissioner, T.C. Memo 2006-72. At the time of Petitioner's retirement, she had outstanding loans from NYCERS in the amount of $19, 681. She did not rollover or otherwise repay her loans. Thus, the loan extinguishment in 2009 was taxable income to petitioner in that year, and after application of the^ exclusion ratio. $16,728.85 of that amount is taxable income to her in 2009. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Accordingly, decision will be entered for Respondent. ,This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 9:39 a.m., the above- entitled matter was concluded.) 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com