TAX COURT OPINION

Case: Mark J. Williams & Insook Yoon
Docket Number: 25346-09S
Judge: Colvin
Opinion Type: bench
Filed: 11/04/2010
Pages: 14

UNITED STATES TAX COURT WASHINGTON, DC 20217 MARK J. WILLIAMS AND INSOOK YOON, Petitioners, v. Docket No. 25346-095 COMMISSIONER OF INTERNAL REVENUE Respondent 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 petitioners and to respondent a copy of transcript of the trial in the above case before Judge David Gustafson at Philadelphia, Pennsylvania, on October 20, 2010, containing his oral fact and opinion rendered at conclusion of the. pages of findings of the trial. the the In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. It is further order at ORDERED that, the address appearing in the Court's records, in addition to making regular service of this the Clerk SERVED NOV - 5 2010 - 2 - the Court shall serve petitioner Insook Yoon a copy of this of order at the following address: 29500 Mira Loma Drive Apartment C 208 Temecula, CA 92592 (Signed) David Gustafson Judge Dated: Washington, D.C. November 4, 2010 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 David Gustafson Williams v. Commissioner, No. 25346-09S 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 on as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court Rules of Practice and Procedure. By a statutory notice of deficiency dated July 27, 2009, the Internal Revenue Service (IRS) determined a deficiency in the Federal income tax of petitioners Mark J. Williams and Insook Yoon for the year 2007, in the amount of $12,824, plus an accuracy- related penalty of $2,565 under section 6662(a). Respondent has now conceded the section 6662(a) penalty and the petitioners' entitlement to two dependency exemptions. The remaining issues to be decided in this case are whether Mr. Williams owed income tax on $54,000 of distributions from an Individual Retirement Account (IRA), whether he owes the additional tax for an early withdrawal under 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 section 72(t), and whether the IRS is estopped from asserting those liabilities or has contracted with Mr. Williams for a lesser liability than he has already paid. Trial of this case was conducted on October 19, 2010, in Philadelphia, Pennsylvania. Mr. Williams appeared and was the only witness who testified. Ms. Yoon (who is now divorced from Mr. Williams) did not appear, and respondent moved to dismiss the case as to her for lack of prosecution. That motion to dismiss is still pending and will be resolved in due course. If it is granted, the decision entered against Ms. Yoon should be in the reduced amount that will result from the Rule 155 calculation that this opinion calls for. The parties' Stipulation of Facts, with Exhibits 1-J through 13-J was admitted into evidence at trial. Mr. Williams's Exhibits 14-P through 19-P were also admitted without objection. FINDINGS OF FACT In 2005 Mr. Williams was experiencing a serious personal and family crisis. He did not timely file Federal tax returns for 2004, 2005, or 2006. In a 2005 judgment of divorce, a Massachusetts Court ordered that Mr. Williams was entitled to receive, Heritage Reporting Corporation (202) 628-4888 5 from an IRA owned by his former wife Marion, $51,007 as a rollover IRA. (Stip. 3; Ex. 1-J.) He received the IRA rollover that year (Stip. 4) and rolled the funds into an IRA of his own (Stip. 5). Consequently, he did not owe or pay tax in 2005 on receipt of those funds. Mr. Williams believes he was poorly advised in 2005, that he should have taken the funds out of the IRA in that year and paid income tax on the distributions, and that in that circumstance he would not have owed the additional tax for early withdrawal under section 72(t). We need not determine whether his belief is correct. In 2007, Mr. Williams withdrew a total of $54,000 from his IRA. :(Stip: 6; Ex.-2-J.) In that year he turned 50 years old (Stip. 7-8), i.e.,. not yet 59-1/2 (the age for normal IRA distributions). In that year he was-married to Ms. Yoon. (The record does not show when they were married.) By a previous marriage, she had two children who did not have social security numbers (SSNs) or individual taxpayer identification - numbers (ITINs). (Stip. 11.) Mr. Williams and Ms. Yoon timely filed a joint 2007 income tax return in April 2008. _(Stip. 9.) On that return they did not report the $54,000 in IRA distributions (Stip. 10), and they did not claim Ms. Yoon's children 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 Heritage Reporting Corporation (202) 628-4888 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 as dependents (since they did not have ITINs) (Stip. 11). Mr. Williams began trying to get SSNs or ITINs for his step-daughters. (Stip. 12.) Also in April 2008 Mr. Williams began trying to get his tax matters back in order, and he filed returns for 2004 and 2005. (Stip. 13; Ex. 4-J.) Six months later he filed his 2006 return. (Stip. 14; Ex. 5-J.) In May 2008 the IRS sent Mr. Williams and Ms. Yoon a letter (Ex. 6-J) proposing to increase their 2007 tax liability by $7,388 because of the IRA distributions and to impose a $5,400 ten-percent additional tax because the distributions were premature. (Stip. 15.) In July 2009 Mr. Williams and Ms. Yoon submitted an amended 2007 return (Ex. 7-J) that, like the IRS's letter, reported the $54,000 distribution as income·and reported a $5,400 ten- 17- percent additional tax; but the amended return also 18 19 20 21 22 23 24 25 increased their exemptions (to claim Ms. Yoon's children as dependents). (Stip. 16.) The IRS did not assess the additional tax liability that the petitioners had reported on the amended return. (Stip. 17.) Instead, the IRS issued a notice of deficiency on July 27, 2009 (Ex. 9-J), which proposed the income tax and the section 72(t) additional tax but not- the additional dependents. (Stip. 18.) Heritage Reporting Corporation (202) 628-4888 7 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 The precise chronology is unclear, but it seems that it was during this time that Mr. Williams was becoming increasingly frustrated by delay and non- response by the several Government agencies whose action was needed to obtain ITINs for Ms. Yoon's daughters. He needed to get green cards (presumably from the State Department), and he then needed the Social Security Administration and/or the IRS to cooperate in issuing the ITINs. He had great difficulty in getting the several bureaucracies to respond to his requests. (It was not until sometime in 2010 that he finally received Social Security cards for Ms. Yoon's daughters. The IRS has eventually (but, in Mr. Williams' view, belatedly) allowed dependency exemptions for Ms. Yoon's daughters in the relevant years.) In September 2009 Mr. Williams telephoned the IRS - to find out his balance due on his recent tax years. On the telephone IRS personnel informed him that his f-ive-year net total liability for 2004 through 2008 amounted to $2,563. When he soon thereafter went to the IRS, other personnel gave him a printout of a "Payoff Calculator" (Ex. 10-J) that showed the same net total. (Mr. Williams does not know the names or titles of any of these IRS personnel.) This amount Heritage Reporting Corporation (202) 628-4888 8 was less than the 2007 liability that Mr. Williams had selfrreported on the amended return and less than the 2007 liability as determined in the notice of deficiency; but from what Mr. Williams was told by the IRS personnel, he believed that overpayments in the other years had mostly satisfied the 2007 liability. He believed that his payment of $2,563 would satisfy all his tax liability through 2008. Nonetheless Mr. Williams and Ms. Yoon filed their petition in the Tax court before the deadline that appeared on the notice of deficiency. At that time they resided in New Jersey. OPINION - The IRS's determination is presumed dorrect, and generally the taxpayer bears the burden to prove his entitlement to the exemptions and credits he claimed. Rule 142 (a) ; Welch v. Helvering, 290 U.S. 111, 115 (1933). Mr. Williams has not contended that the burden of proof has shifted under section 7491(a), and the record does not suggest any basis for such a contention. : We therefore analyze the issues in this case with the burden of proof on Mr. Williams. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 - I. Additional tax for early withdrawal 24 25 Subject to his contract and estoppel contentions discussed below, Mr. Williams admits that his receipt Heritage Reporting Corporation (202) 628-4888 9 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 of IRS distributions yielded taxable income, but he disputes the related addition. Section 72(t) (1) imposes a 10-percent additional tax on any distribution from a "qualified retirement plan", unless that distribution satisfies one of the statutory exceptions in section 72(t) (2). Mr. Williams does not dispute that he received the distributions before age 59-1/2, nor that the payor plans were qualified retirement plans (see sec. - 4974(c) (1)), but he seems to suggest two reasons he should not be liable, neither of which has merit: Mr. Williams seems to make allegations to the effect that the distributions should be deemed made as a "distribution to an alternate payee pursuant to~a qualified domestic relations order" (QDRO) pursuant to section 72(t) (2) (D). However, the only order he presents--Exhibit 1-J--refers to a QDRO not in connection with the IRA but rather in connection with 401K distributions not at issue here. However, assuming that Exhibit 1-J is itself an otherwise qualifying QDRO, it provides that a distribution is to be made to Mr. Williams in 2005 "as roll over IRA", and such a distribution was made. In 2005 Mr. Williams incurred no tax liability (and no additional tax for premature distribution), because the rollover 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 10 occurred. If Exhibit 1-J is a QDRO, it excuses a 2005 liability that never arose. Or it may be that Mr. Williams contends that he should be excused from the 2007 ten-percent additional tax because it.has some causal connection to the 2005 QDRO. However, that connection is too attenuated. Mr. Williams is- liable in 2007 for a ten-percent addition on distributions not from his wife's IRA pursuant to court order, but from his own IRA pursuant to his own decision to make withdrawals. Even assuming (as he seems to assert) that he could have received the funds in 2005 without the ten-percent additional tax he had handled the transaction differently, the -fact is that he did .nzt_ handle it different-ly. He took the money as a rollover into his own IRA. When he put the money into his own IRA, it became his own money; and later distributions from his IRA cannot be characterized as distributions from his former wife's IRA. Cf. Gee v. Commissioner, 127 T.C. 1 (2006) . The Court cannot rewrite the Internal Revenue Code to excuse Mr. Williams from a 2007 liability because he passed up a potential benefit in 2005. Thus, Mr. Williams owes the income tax and the additional tax on -the $54, 000 of early distributions 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 11 from his IRA in 2007. II. Contract issues Mr. Williams seems to contend that he made a deal with the IRS that his total net liability for 2004 through 2008 was $2,563, and that the IRS is bound to that deal and cannot assert the liabilities in the notice of deficiency. The IRS does make deals with taxpayers--typically-on a form such as Form 870-AD or Form 906. But Mr. Williams alleges an agreement that was not on any- form, that was not even reduced to writing in any manner, and that is documented (if at all) only by a printout of his "Assessed" liabilities (Ex. 10-J) that .the IRS gave him. Having proposed a deficiency on a notice -issued July 27, 2009, the IRS was barred by section 6213(a) from assessing the liability that arose from Mr. Williams's IRA distributions. Those liabilities could not yet be assessed, and any printout of assessed liabilities would, by definition, not show those determined but unassessed liabilities. Mr. Williams did not testify that any IRS employee expressly offered to limit his liability in return for the $2,563 payment. He did not testilfy that anyone in the IRS offered to compromise his liabilities for thataamount. He did not testify that 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 12 he disclosed to the IRS personnel the fact of his having received a notice of deficiency. Just as important, he did not testify as to the identity of any IRS employee supposedly making a deal nor make any showing that that employee had the authority to make a deal. Therefore, even if we have jurisdiction to adjudicate such a contractual right, Mr. Williams is unable to prove a contract implied in fact, a contract in the nature of an "account stated", or any other binding deal. See Johnson v. United States, 54 Fed. Cl. 187 (2002). III. Estoppel Mr . Williams makes the related contention that the Government should be estopped from asserting the 2007 liability because of the statements made to him to the effect that his net liability was only $2,563. However, Mr; Wi]:liams- is not able to state a case of estoppel. We explained in Estate of Emerson v. Commissioner, 67s T.C. 612, 617-18 (1977): The essential elements of estoppel * * * are: (1) There must be a false representation or wrongful misleading silence; (2) the error must be in a statement of fact and not in an opinion or a statement of law; (3) the person claiming the benefits of estoppel must be ignorant of the true 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 13 facts; and (4) he must be adversely affected by the acts or statements of the person against whom an estoppel is claimed. Mr. Williams failed to prove any false statement or error by IRS personnel. It appears that those personnel truly reported his assessed tax liabilities. Mr. Williams, on the other hand--the "person claiming the benefits of estoppel"--knew as well as anyone that the balance now being stated to him was less than either he or the IRS had figured. Mr. Williams does not say that he volunteered to these IRS personnel the information that he had received a notice of deficiency. What seems most likely is that Mr. Williams misunderstood the significance of the "Payoff Calculator" and was understandably disappointed when he later learned that the IRS was still pursuing the liabilities in the notice of deficiency. However genuine that disappointment may have been, it will not support a claim of estoppel. Decision will be entered under Rule 155, in order to take account of respondent's concession of the dependency exemptions. This concludes the Court's oral Findings of Fact and Opinion in this case. Heritage Reporting Corporation (202) 628-4888 1 2 3 4 s 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 2s (Whereupon, at 10 : 53 a . m. , the bench opinion in the above-entitled matter was concluded.) 14 // // / // // / / / / // // // // // // // // // a // // // // Heritage Reporting Corporation (202) 628-4888