TAX COURT OPINION

Case: Donald L. Grant & Danuta U. Lutyk-Grant
Docket Number: 3151-08S
Judge: Colvin
Opinion Type: bench
Filed: 03/19/2009
Pages: 7

UNITED STATES TAX COURT WASHINGTON, D .C . 2021 7 DONALD L . GRANT AND DANUTA U . LUTYK-GRANT , Petitioners, v . ) Docket No . 3151-08S COMMISSIONER OF INTERNAL REVENUE , Respondent . STAT S . T. 0 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 th e pages of the transcript of the trial of the above case before Special Trial Judge Lewis R . Carluzzo at Atlanta, Georgia, on February 24, 2009, containing his oral findings of fact and opinion rendered at the conclusion of trial . In accordance with the oral findings of fact and opinion, an appropriate order will be issued dismissing this case as to Danuta Lutyk-Grant and decision will be entered for respondent with respect to the deficiency and for petitioners with respect to the section 6662(a) accuracy-related penalty . (Signed ) Lewis R. Carluzzo Special Trial Judg e Dated : Washington, D .C . March 19, 2009 SERVED Mar 20 2009 3 1 Bench Opinion by STJ Lewis Carluzzo February 24, 200 9 2 Grant v . Commissioner Docket No . 3151-08 S 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 and 7 opinion shall not be relied upon as precedent in any 8 other case . 9 This proceeding for the redetermination of a 10 deficiency is a Small Tax Case conducted pursuant to 11 the provisions of Section 7463 of the Internal Revenue 12 Code of 1986, as amended, and Rules 170 through 175 of 13 the Tax Court Rules of Practice and Procedure . 14 This bench opinion is made pursuant to the 15 authority granted by Section 7459(b) of the Internal 16 Revenue Code of 1986, as amended, and Rule 152 of the 17 Tax Court Rules of Practice and Procedure . 18 Hereinafter in this bench opinion, unless 19 otherwise specified, section references are to the 20 Internal Revenue Code of 1986, as amended, in effect 21 for 2005 . Rule references are to the Tax Court Rules 22 of Practice and Procedure . 23 Donald L . Grant appeared pro se . Courtney 24 S . Bacon appeared on behalf of Respondent . There was 25 no appearance made by or on behalf of Danuta Lutyk- Heritage Reporting Corporation (202) 628-4888 Q 4 1 Grant when this case was tried in Atlanta, Georgia, on 2 February 23, 2009 . The case will be dismissed fo r 3 lack of prosecution as to her . Nevertheless, th e 4 decision entered as to her will reflect the resolution 5 of the issues presented for trial . 6 In a notice of deficiency dated August 13, 7 2007, Respondent determined a $15,615 deficiency in 8 Petitioner's 2005 federal income tax and imposed a 9 $2,056 Section 6662(a) penalty . The issue fo r 10 decision is whether a certain distribution from a 11 retirement plan received by Danuta Lutyk-Gran t 12 (Petitioner) during 2005 is includable in Petitioner's 13 income for that year . 14 Some of the facts have been stipulated, and 15 are so found . At all times relevant, Petitioners were 16 married to each other ; they filed a timely joint 2005 17 federal income tax return . At the time the petition 18 was filed, they resided in Georgia . 19 Petitioner is the mother of Richard Lutyk 20 (Mr . Lutyk) . Prior to his death in July 2003, Mr . . 21 Lutyk was an employee of the U .S . Department o f 22 Commerce and was enrolled in the Thrift Savings Plan 23 offered to U .S . government employees (the plan) . Mr . 24 Lutyk designated Petitioner as the beneficiary under 25 the plan in the event of his death . Heritage Reporting Corporation (202) 628-4888 5 1 That being so, as a result of his death in 2 2003, Petitioner received a $53,868 .85 distribution 3 from the plan during 2005 (the distribution) . The 4 distribution is reported on a Form 1099-R issued to 5 Petitioner by the plan . Nothing in the recor d 6 suggests that Petitioner took advantage of any of the 7 various rollover options or other elections that might 8 have been available . 9 Petitioners did not report the distribution 10 in the income shown on their 2005 return . According 11 to Petitioners, the distribution is excludable from 12 income as a "bequest or inheritance ." In the notice 13 of deficiency, Respondent increased Petitioners ' 14 income by the amount of the distribution . Respondent 15 now concedes the Section 6662(a) penalty . 16 Under the circumstances surrounding it s 17 receipt, we can understand why Petitioners considered 18 the distribution as a "bequest or inheritance ." I n 19 general, bequests and inheritances are excludable from 20 a taxpayer's income . See Section 103 . But the 21 distribution was not made in accordance with any law 22 of succession . The distribution was made i n 23 accordance with the provisions of the plan a s 24 established under federal law . See 5 U .S .C ., Section 25 1842, et seq . Heritage Reporting Corporation (202) 628-4888 6 1 Consequently, the distribution does not fit 2 within the definition of a "bequest or inheritance" as 3 those terms are used in general or, more importantly, 4 as those terms are specifically used in the Interna l 5 Revenue Code . 6 Traveling from the event of the distribution 7 to the tax consequences to Petitioners as a result of 8 the distribution is less than a simple stroll, an d 9 excluding the distribution from the definition of a 10 "bequest or inheritance" gets us only a short distance 11 down that path . 12 Pursuant to 5 U .S .C . Section 8440, the plan 13 is treated as a trust described in Section 401(a) that 14 is exempt from taxation under Section 501(a) . Tha t 15 being so, the tax consequences of any distributions to 16 any distributee of the plan are governed by Sectio n 17 72 . See Section 402(a) . 18 Section 72 is hardly a model of clarity, but 19 in fairness to the drafters of that provision, i t 20 covers much ground relating to distributions from what 21 are generally thought of as pension and othe r 22 retirement-type arrangements, many of which are 23 extremely complex . 24 There is some information in the record that 25 Petitioners received another distribution in a Heritage Reporting Corporatio n (202) 628-4888 7 1 different year .as a result of certain death benefits 2 they received relating to Mr . Lutyk's employment with 3 the federal government, but each separate benefit o r 4 distribution so received must be separately considered 5 for federal income tax purposes . See Treas . Reg . 6 1 .72-2(a)(3)(iv), Example 4, Income Tax Regs . 7 The record contains little information 8 describing Mr . Lutyk's career as a federal employee 9 and virtually no details of his participation in the 10 plan, so we proceed as though what should hav e 11 happened in this situation is what actually happened . 12 In so doing, we assume that Mr . Lutyk's participation 13 in the plan was consistent with the relevan t 14 provisions of Title 5, and therefore find i t 15 unnecessary to discuss many of the tax complications 16 inherent in transactions subject to Section 72 . 17 Instead we simply state that from what is known, the 18 distribution represents proceeds not previousl y 19 subject to federal income tax and not otherwis e 20 excludable from income . Therefore, because Petitioner 21 is a distributee of such untaxed proceeds, Section 72 22 requires that the entire distribution be included in 23 Petitioner's 2005 income . 24 This is true regardless of whethe r 25 Petitioner is treated directly as a "distributee" of Heritage Reporting Corporatio n (202) 628-4888 8 1 the plan within the meaning of Section 402(a) or 2 because for federal income tax purposes th e 3 distribution in her hands is treated as it would have 4 been if received by Mr . Lutyk . See Section 5 691 (a) (1) (B) , (3) . 6 It follows that Respondent's determination 7 reflecting that the distribution is includable i n 8 Petitioner's 2005 income must be sustained and we so 9 hold . 10 To reflect the foregoing, and Respondent's 11 concession, an appropriate order will be issue d 12 dismissing the case as to Danuta Lutyk-Grant and 13 decision will be entered for Respondent with respect 14 to the deficiency and for Petitioners with respect to 15 the Section 6662(a) penalty . 16 This concludes the Court's oral findings of 17 fact and opinion in this case . 18 (Whereupon, at 4 :00 p .m, the bench opinion 19 in the above-entitled matter was concluded . ) 20 21 22 // 2 3 2 4 25 1 (202) 628-4888 Heritage Reporting Corporation