Court Opinion

ID: 4336992
Source: CourtListenerOpinion
Date Created: 2018-11-14 03:07:08.084657+00
Date Added: 2024-06-11T14:47:23.856397
License: Public Domain

T.C. Summary Opinion 2008-28

                      UNITED STATES TAX COURT

   MICHAEL J. KULZER AND JAN K. BIELMAN-KULZER, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 20730-05S.             Filed March 12, 2008.

     Michael J. Kulzer, pro se.

     Monica Dianne Gingras, for respondent.

     WHALEN, Judge:   This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.   Pursuant to section 7463(b), the

decision to be entered is not reviewable by any other court,

and this opinion shall not be treated as precedent for any

other case.   All section references are to the Internal Revenue

Code in effect for the year in issue, and all Rule references are
                                 -2-

to the Tax Court Rules of Practice and Procedure, unless

otherwise indicated.

     This case involves petitioners' petition for redetermination

of the deficiency of $2,500 determined in their Federal income

tax for tax year 2002.    The sole issue is whether petitioners are

liable for the 10-percent additional tax on early distributions

from qualified retirement plans imposed by section 72(t)(1) with

respect to a distribution of $25,000 from an individual

retirement account (IRA) held by Michael J. Kulzer (petitioner)

in the Orange County Teachers Federal Credit Union (hereinafter

referred to as OCTFCU).

     The parties have stipulated some of the facts in this case,

and the stipulation of facts filed by the parties is hereby

incorporated in this opinion.

     Petitioners are husband and wife.   At the time they filed

their petition, petitioners resided in California.

     For both taxable years 2001 and 2002, petitioners filed a

joint return pursuant to section 6013(a).   Petitioners' return

for 2001 includes a Schedule C, Profit or Loss From Business, for

a business operated by petitioner called "Income Tax

Preparation".   Petitioners' return for 2002 includes a Schedule

C-EZ, Net Profit From Business, for the same income tax

preparation business.
                                -3-

     Petitioners' return for 2002 reports taxable "pensions and

annuities" of $25,000 on line 16b.    This is the distribution at

issue.   By the end of 2002, petitioner, who was born in 1953, had

not attained age 59-1/2, and there is nothing in petitioners'

return to suggest that the distribution is not subject to the

additional tax imposed by section 72(t)(1).   For example, no Form

5329, Additional Taxes on Qualified Plans (Including IRAs) and

Other Tax-Favored Accounts, is attached to the return claiming

that the distribution is eligible for any of the exceptions to

the tax enumerated in section 72(t)(2).   Accordingly, respondent

issued a notice of deficiency to petitioners in which he

determined that the amount reported on line 16b of petitioners'

2002 return, $25,000, was an early distribution from a qualified

retirement plan which is subject to the 10-percent additional tax

imposed by section 72(t)(1).

     During 2001, the year before the year in issue, petitioners

had received a distribution of $12,118 from petitioner's IRA in

the OCTFCU.   During that year they had also received four

distributions totaling $76,180 from one or more retirement

accounts with SBC Communication, Inc. (hereinafter referred to as

SBC), of $10,000, $10,000, $12,000, and $44,180.   The last

distribution of $44,180 was the balance of a loan from

petitioner's section 401(k) account that was not repaid within 60

days of the termination of petitioner's employment with SBC.
                                 -4-

       Attached to petitioners' 2001 return are three Forms 1099-R,

Distributions From Pensions, Annuities, Retirement or Profit-

Sharing Plans, IRAs, Insurance Contracts, etc.       Those Forms 1099-

R, which were prepared by petitioner, show the following

distributions to petitioner:

                 Distribution              Amount

                 OCTFCU                    $12,118
                 SBC 1, 2, 3                32,000
                 SBC 401K                   44,180
                   Total                    88,298

       Petitioners' return for 2001 reports "Total IRA

distributions" of $12,118 on line 15b and "Total pensions and

annuities" of $76,180 on line 16b.     The latter amount comprises

the distributions from petitioner's retirement account or

accounts with SBC (viz $32,000 plus $44,180).

       Attached to petitioners' 2001 return is Internal Revenue

Service Form 5329, Additional Taxes on Qualified Plans (Including

IRAs) and Other Tax-Favored Accounts.    Part I of that form,

dealing with the "Tax on Early Distributions", reports that early

distributions of $88,298 are included in petitioners' gross

income.    Of that amount, Form 5329 reports that $63,298 is

subject to the additional tax under section 72(t)(1) and $25,000

is not subject to the additional tax on account of an

"appropriate exception".    The exception claimed on the form is

for:
                                -5-

     Distributions made as part of a series of substantially
     equal periodic payments (made at least annually) for
     your life (or life expectancy) or the joint lives (or
     joint life expectancies) of you and your designated
     beneficiary (if from an employer plan, payments must
     begin after separation from service).

     During 2003 petitioners received a distribution of $36,439

from OCTFCU.   Petitioner claims that petitioners retained $12,000

of that amount and rolled over the remainder, $24,439, to another

retirement account.   During 2004 petitioners received a

distribution of $70,000 from Pershing, LLC.   Mr. Kulzer claims

that petitioners retained $12,000 of that amount and rolled over

the remainder, $58,000, to another retirement account.     Finally,

during 2005 petitioners received a distribution of $17,000, but

the record does not disclose the payor of that distribution.

     As stated above, the sole issue is whether the distribution

of $25,000 from petitioner's IRA account with OCTFCU, which is

reported on petitioners' return for taxable year 2002, is subject

to the 10-percent additional tax imposed by section 72(t)(1) on

early distributions from qualified retirement plans.   Petitioners

argue that the distribution is one of a series of substantially

equal annual payments made for petitioner's life expectancy and,

as such, is not subject to the additional tax, pursuant to

section 72(t)(2)(A)(iv).   Petitioners concede that if the subject

distribution does not qualify for the exception provided by

section 72(t)(2)(A)(iv), then it is subject to the 10-percent
                               -6-

additional tax on early distributions imposed by section

72(t)(1).

     Initially, the Internal Revenue Service promulgated guidance

concerning the exception for substantially equal periodic

payments in Notice 89-25, Q&A-12, 1989-1 C.B. 662, 666.    That

notice states that payments will be considered to be

substantially equal periodic payments if the annual payment is

determined by one of three methods:   (1) Under a method that

would be acceptable for purposes of calculating the minimum

distribution required under section 401(a)(9); (2) by amortizing

the taxpayer's account balance over the life expectancy of the

account owner or the joint life and last survivor expectancy of

the account owner and beneficiary at an interest rate that does

not exceed a reasonable interest rate on the date payments

commence; or (3) by dividing the taxpayer's account balance by an

annuity factor (the present value of an annuity of $1 per year

beginning at the taxpayer's age attained in the first

distribution year and continuing for the life of the taxpayer)

with such annuity factors derived using a reasonable mortality

table and using an interest rate that does not exceed a

reasonable interest rate on the date payments commence.

     Notice 89-25, supra, also refers to the so-called recapture

rule set forth in section 72(t)(4) which applies if the series of

periodic payments is subsequently modified (other than by death
                                 -7-

or disability) within 5 years of the date of the first payment

or, if later, before the employee attains age 59-1/2.   In that

event, section 72(t)(4) provides that the exception to the 10-

percent additional tax set forth in section 72(t)(2)(A)(iv) does

not apply and the taxpayer's tax for the year of the modification

shall be increased by an amount which is equal to the amount

which would have been imposed, plus interest for the deferred

period.

     In Rev. Rul. 2002-62, 2002-2 C.B. 710, the Internal Revenue

Service promulgated further guidance about what constitutes a

series of substantially equal periodic payments, within the

meaning of section 72(t)(2)(A)(iv).    It states that payments will

be considered to be substantially equal periodic payments if they

are made in accordance with one of the three methods described in

Notice 89-25, Q&A-12:   The required minimum distribution method,

the fixed amortization method, or the fixed annuitization method.

     Rev. Rul. 2002-62, sec. 202(d), 2002-2 C.B. at 711,

describes how to determine the account balance used to determine

periodic payments, as follows:

     (d) Account balance. The account balance that is used
     to determine payments must be determined in a
     reasonable manner based on the facts and circumstances.
     For example, for an IRA with daily valuations that made
     its first distribution on July 15, 2003, it would be
     reasonable to determine the yearly account balance when
     using the required minimum distribution method based on
     the value of the IRA from December 31, 2002, to July
     15, 2003. For subsequent years, under the required
     minimum distribution method, it would be reasonable to
                                  -8-

     use the value either on December 31 of the prior year
     or on a date within a reasonable period before that
     year's distribution.

Rev. Rul. 2002-62, sec. 202(e), 2002-2 C.B. at 711, also

discusses the effect of changes to account balances, as follows:

     (e) Changes to account balance. Under all three
     methods, substantially equal periodic payments are
     calculated with respect to an account balance as of the
     first valuation date selected in paragraph (d) above.
     Thus, a modification to the series of payments will
     occur if, after such date, there is (i) any addition to
     the account balance other than gains or losses, (ii)
     any nontaxable transfer of a portion of the account
     balance to another retirement plan, or (iii) a rollover
     by the taxpayer of the amount received resulting in
     such amount not being taxable. [Emphasis supplied.]

     As mentioned above, if there is a "modification" within a 5-

year period beginning on the date of the first payment or, if

later, before the employee attains age 59-1/2, then the recapture

rule of section 72(t)(4) provides that the exception to the 10-

percent additional tax does not apply, and the taxpayer's tax for

the year of modification shall be increased by an amount which,

but for the exception, would have been imposed, plus interest for

the deferral period.   Sec. 74(t)(4).

     Rev. Rul. 2002-62, supra, also provides authorization for

taxpayers to make a one-time change to the required minimum

distribution method.   Rev. Rul. 2002-62, sec. 2.03(b), 2002-2

C.B. at 711, states as follows:

     One-time change to required minimum distribution
     method. An individual who begins distributions in a
     year using either the fixed amortization method or the
     fixed annuitization method may in any subsequent year
                                -9-

     switch to the required minimum distribution method to
     determine the payment for the year of the switch and
     all subsequent years and the change in method will not
     be treated as a modification within the meaning of §
     72(t)(4). Once a change is made under this paragraph,
     the required minimum distribution method must be
     followed in all subsequent years. Any subsequent
     change will be a modification for purposes of §
     72(t)(4).

     Petitioners claim that Mr. Kulzer used the "fixed

amortization method" described in Notice 89-25, supra, to compute

the substantially equal periodic payments to be withdrawn from

his retirement account(s).   Thus the parties agree that the fixed

amortization method described in Notice 89-25, supra, is a

permissible way in which to calculate a series of substantially

equal periodic payments for purposes of section 72(t)(2)(A)(iv).

     Notice 89-25, Q&A-12, 1989-1 C.B. at 666, describes the

fixed amortization method as follows:

          Payments will also be treated as substantially
     equal periodic payments within the meaning of section
     72(t)(2)(A)(iv) if the amount to be distributed
     annually is determined by amortizing the taxpayer's
     account balance over a number of years equal to the
     life expectancy of the account owner or the joint life
     and last survivor expectancy of the account owner and
     beneficiary (with life expectancies determined in
     accordance with proposed section 1.401(a)(9)-1 of the
     Regulations) at an interest rate that does not exceed a
     reasonable interest rate on the date payments commence.
     For example, a 50 year old individual with a life
     expectancy of 33.1, having an account balance of
     $100,000, and assuming an interest rate of 8 percent,
     could satisfy section 72(t)(2)(A)(iv) by distributing
     $8,679 annually, derived by amortizing $100,000 over
     33.1 years at 8 percent interest.
                                 -10-

        An "addendum" to petitioner's letter to an Appeals officer

of the Internal Revenue Service dated October 16, 2006, describes

his calculation as follows:

        The purpose of this addendum   is to certify, that while
        I do not have a record of my   original calculations that
        I used to determine my Equal   Pay exception, this is my
        best memory of how I arrived   at that amount.

        In April 2001, I reached 48 years of age. My IRA
        balances were $286,000.00 [sic] I found an insurance
        mortality table that estimated my life expectancy at
        75, so I used 27 years for my calculation.

        I used an 8% interest rate (I remember that because my
        dad suggested I use 5%, but of course I knew better)
        [sic]

Attached to petitioner's addendum is a schedule purporting to

show the amortization of $286,000 over 27 years at "8-percent

interest" with annual payments of $25,000.       Petitioner's schedule

is reproduced as follows:

Col. 1       Col. 2     Col. 3    Col. 4       Col. 5    Col. 6

8.00%        286,000                                      36,542
1            286,000    25,000    261,000      21,880    282,880
2            282,880    25,000    257,880      21,630    279,510
3            279,510    25,000    254,510      21,361    275,871
4            275,871    25,000    250,871      21,070    271,941
5            271,941    25,000    246,941      20,755    267,696
6            267,696    25,000    242,696      20,416    263,112
7            263,112    25,000    238,112      20,049    258,161
8            258,161    25,000    233,161      19,653    252,814
9            252,814    25,000    227,814      19,225    247,039
10           247,039    25,000    222,039      18,763    240,802
11           240,802    25,000    215,802      18,264    234,066
12           234,066    25,000    209,066      17,725    226,791
13           226,791    25,000    201,791      17,143    218,935
14           218,935    25,000    193,935      16,515    210,449
15           210,449    25,000    185,449      15,836    201,285
16           201,285    25,000    176,285      15,103    191,388
17           191,388    25,000    166,388      14,311    180,699
                                -11-

18         180,699    25,000    155,699    13,456      169,155
19         169,155    25,000    144,155    12,532      156,688
20         156,688    25,000    131,688    11,535      143,223
21         143,223    25,000    118,223    10,458      128,680
22         128,680    25,000    103,680     9,294      112,975
23         112,975    25,000     87,975     8,038       96,013
24          96,013    25,000     71,013     6,681       77,694
25          77,694    25,000     52,694     5,216       57,909
26          57,909    25,000     32,909     3,633       36,542
27          36,542    25,000     11,542     1,923       13,466

     We note four preliminary points about petitioner's

calculation.   First, the annual account balance is reduced by

$25,000 (see col. 4, above) before the stated interest rate, 8

percent, is applied to the balance (see col. 5, above).     The

amount of interest, thus computed, is then increased by $1,000.

Presumably, this $1,000 increase is intended to be the interest

on the $25,000 payment.   In making the calculation in this way,

we believe that the real rate of interest used in petitioner's

calculation is 7.5013149 percent, not 8 percent.

     Second, according to petitioner's calculation the account

balance is not fully amortized by the end of the 27th year.       As

shown in petitioner's schedule, reproduced above, there remains a

balance of $13,466 at the end of the 27th year.     Therefore,

petitioner's calculation uses slightly more than 27 years to

amortize the account balance.

     Third, petitioner states that the life expectancy of 27

years is based upon "an insurance mortality table" that he

"found".   Significantly, this life expectancy is substantially

less than the life expectancy that would be determined in
                               -12-

accordance with section 1.401(a)(9)-1, Proposed Income Tax Regs.,

52 Fed. Reg. 28075 (July 27, 1987).   According to the single life

expectancy table in section 1.401(a)(9)-9, Q&A-1, Income Tax

Regs., the life expectancy of a 48-year-old person is 36 years.

     Finally, using traditional methods of financial calculation,

we believe that annual payments of $26,154.16 would have to be

made to amortize $286,000 over 27 years at 8 percent interest.

According to our calculation, we also believe that annual

payments of $24,408.58 would be necessary in order to amortize

$286,000 over 36 years at 8 percent interest.

     As stated above, petitioner claims that the subject

distribution of $25,000 from his IRA in the OCTFCU is a part of

the series of substantially equal periodic payments that began in

2001.   He claims to have computed this amount using the fixed

amortization method described by Notice 89-25, supra.

     Under the fixed amortization method described by Notice 89-

25, supra, the amount of the periodic payment, once computed,

does not change.   The amount is "fixed” and is distributed from

the taxpayer's retirement account at each chosen period

thereafter ("not less frequently than annually”).   See Notice 89-

25, supra.
                                 -13-

     The following distributions were made from petitioner's

retirement accounts:

     Year     SBC 1, 2, 3       SBC 401K     OCTFCU      Other

     2001       $32,000         $44,180     $12,118       ---
     2002         ---             ---        25,000       ---
     2003         ---             ---        36,439       ---
     2004         ---             ---          ---      $70,000
     2005         ---             ---          ---       17,000

Of the above distributions, petitioners claim that the following

amounts are part of the series of substantially equal annual

payments that began in 2001:

     Year     SBC 1, 2, 3       SBC 401K     OCTFCU      Other

     2001       $25,000            ---         ---        ---
     2002         ---              ---      $25,000       ---
     2003         ---              ---       12,000       ---
     2004         ---              ---         ---      $12,000
     2005         ---              ---         ---       12,000

     As shown above, the distributions that petitioners claim to

be part of the series of substantially equal periodic payments

were made in different amounts.    The amount of the annual payment

for 2001 and 2002 is $25,000, whereas the amount of each of the

annual payments allegedly made after 2002 is $12,000.

     Furthermore, the distributions that petitioners claim to be

part of the series of substantially equal periodic payments were

made from different accounts.    The account from which the alleged

periodic payment was distributed in 2002, i.e., OCTFCU, is

different from the account from which the payment was distributed
                                 -14-

for 2001; i.e., SBC 1, 2, 3.    We also note that the payment for

2005 was distributed from still a different account.

     Petitioners attempt to explain away these problems.

Petitioner testified that the balance of his SBC account of

$136,138.89 was rolled over to the OCTFCU in late October or

November of 2002 and, thereafter, was maintained separately in

that account.   He testified:   "they [the two accounts] were

together, but they were separate because they have a sub-code

that differentiates accounts."    However, there is no evidence of

that in the record, other than petitioner's vague and self-

serving testimony.

     Petitioner also testified that the change in amounts was due

to the "One-time change to required minimum distribution method"

permitted by Rev. Rul. 2002-62, sec. 2.03(b), quoted above.

However, under the required minimum distribution method, the

annual payment is recomputed each year on the basis of the

account balance and the life expectancy for that year.     It would

be extremely unlikely, if not impossible, for the minimum

distribution for 2003, 2004, and 2005 to equal the same exact

amount; i.e., $12,000.   At trial, petitioner stated that he had

no documentation of his calculation of those amounts.

     The most serious difficulty we have with petitioners'

position is that the record does not establish "the taxpayer's

account balance", as that phrase is used in Notice 89-25, supra,
                               -15-

for purposes of computing a series of substantially equal

periodic payments.   In fact, considering petitioner's vague and

confusing testimony, we are not even certain how many retirement

accounts petitioner held with SBC during 2001 and 2002.    For

example, at trial he testified that during the year 2001 he

withdrew $88,298 from his retirement accounts.   He described his

withdrawals as follows:

      I had several retirement accounts, including IRAs,
      within local, you know, credit union institutions, and
      I think there's probably 4 or 5 different withdrawals
      that between all of my retirement accounts they totaled
      the $88,000-plus. * * * I would say, to be accurate,
      that 44,000 of the 76,000 is my 401(k). The remaining
      32,000 on that line and the 12,000 above were from
      different accounts other than my 401(k).

The above testimony suggests that the distribution of $44,000

came from his section 401(k) account with SBC and "the remaining

32,000" came from a different SBC account or accounts.    This

conclusion is consistent with the fact that there are two Forms

1099-R for SBC attached to petitioners' 2001 return.   One Form

1099-R reports a gross distribution of $32,000 from "SBC 1, 2,

3".   A second Form 1099-R reports a gross distribution of $44,180

from "SBC 401K".

      Furthermore, there is very little evidence in the record

regarding the balance of petitioner's IRA at OCTFCU or the

balance of his retirement account or accounts with SBC.    The

record contains only one statement from SBC dated July 18, 2001,

which shows the "remaining market value" of the three accounts
                                -16-

included in petitioner's "SBC Savings Plan", the Employee

Deferred Tax Account, the Company Contributions Account, and the

Rollover Account.   According to that statement, the grand total

of those accounts amounted to $276,205.59 after a withdrawal of

$10,000 from the rollover account.     On the basis of that single

statement, petitioner contends that the balance of his SBC

account was $286,205.59 as of July 16, 2001, the date of the

$10,000 distribution.   Similarly, the record contains page 1 of

only one statement from petitioner's account with OCTFCU.    The

other pages of the statement were not introduced into evidence.

On the basis of that partial statement, petitioners contend that

the balance in petitioner's OCTFCU IRA was $51,118.05 on December

1, 2001.

     In a memorandum dated November 7, 2006, to respondent's

attorney, petitioner attempts to explain how he had arrived at

"$286,000", the account balance he used in his calculation of

substantially equal periodic payments.    Petitioner's memorandum

states:    "I cannot recreate exactly $286,000.00 but I will get

very close."   Petitioner's memorandum refers to the statement of

his SBC account and the statement of his OCTFCU account which are

described above.    Petitioner's memorandum then states as follows:
                                    -17-
     So, if on July 18, 2001 I had: (Attachment I)       $286,205.89
     And, on December 31, 2001 I had: (Attachment II)      51,118.05

                                                          337,323.94

     Retirement accounts from above:                      337,323.94
     2001 Distributions requiring 10% penalty*           ($63,298.00)

     *which I paid on 2001 return                         274,025.94

     So this reflects that sometime in 2001, after withdrawing
     $63,298.00 I had a balance that on this document was $274,025.94
     but that was a "snapshot" of two different dates in 2001, but it's
     likely that sometime that year it could have been $286,000.00.

     This is very close to the $286,000 I used when I tried to recreate
     the balances when I calculated how much I could withdraw each year
     using the substantially equal payments method. [Emphasis
     supplied.]

As we read it, the thrust of petitioner's memorandum is that

petitioner took into consideration both his OCTFCU and SBC

accounts in calculating the account balance used in his

computation of substantially equal periodic payments for purposes

of section 72(t)(2)(A)(iv).

     At trial, petitioner's testimony was different.           He stated

that he took into consideration only the balance of his SBC

account in computing periodic payments, and that he did not use

his OCTFCU IRA in that computation.        Petitioner's testimony at

trial is as follows:

     BY MS. GINGRAS:

          Q     Looking at this exhibit, page five, you
                determined that the account balance that you
                used for your method of calculation was
                $286,000?

          A     Yes.

          Q     And when determining that account
                balance, you aggregated the balance of
                two different retirement accounts?
                                  -18-

            A    No. I used -- to clarify, I did not --
                 I said that I did not prepare this
                 document at the time that I prepared the
                 tax return. I'm a budget analyst by
                 trade. I go to a lot of meetings. I'm
                 required to analyze things very quickly.
                 So I did not put this to paper at the
                 time I prepared my tax return. So to
                 answer your question, I used what I had
                 in my SBC balance, I remembered it to be
                 286-, but I'd already withdrawn 10,000,
                 so there's a document in here that shows
                 I had a balance of 276-, so it was one
                 account and that's what I used to
                 calculate this amortization schedule.

                 THE COURT:    So –- go ahead, Counsel.

     BY MS. GINGRAS:

            Q    So it does not involve the Orange County
                 Teachers Federal Credit Union account at
                 this time?

            A    Correct.

     We find that the record does not identify what retirement

accounts petitioner took into consideration in allegedly

computing the amount of the periodic payments for purposes of

section 72(t)(2)(A)(iv).      Furthermore, the record does not show

the balances of those accounts at the time the first distribution

was made.    Indeed, petitioner testified that he could not state

the date and amount of any distribution that was a part of the

distribution of $25,000 made during 2001, other than the

distribution of $10,000 made by one of petitioner's SBC accounts

on or about July 18, 2001.
                               -19-

     In general, the Commissioner's determination as set forth in

a notice of deficiency is presumed correct, and the taxpayer

bears the burden of proving that the determination is wrong.      See

Rule 142(a).   In certain circumstances, if the taxpayer

introduces credible evidence with respect to a factual issue

relevant to ascertaining the proper tax liability, section

7491(a) shifts the burden of proof to the Commissioner.    Sec.

7491(a)(1); Rule 142(a)(2).   Furthermore, section 7491(c)

provides that the Commissioner shall have the burden of

production in any court proceeding with respect to the liability

of any individual for any "penalty, addition to tax, or

additional amount" imposed by the Internal Revenue Code.

     Petitioners do not argue that section 7491(a) is applicable,

and they have not established that the burden of proof should

shift to respondent, pursuant to section 7491(a).   Furthermore,

as discussed above, the record shows that petitioner received a

distribution of $25,000 from a qualified retirement plan during

2002, before he had attained age 59-1/2.   Thus, even if the

additional tax under section 72(t) is a "penalty, addition to

tax, or additional amount" within the meaning of section 7491(c),

a point we do not decide, there is ample evidence in the record

to satisfy any burden of production imposed by section 7491(c).
                                -20-

     Accordingly, petitioners bear the burden of proving that

respondent's determination in the notice of deficiency is

erroneous.   See Rule 142(a).   In order for petitioners to

prevail, they must prove that the distribution of $25,000 made in

2002 by petitioner's IRA in the OCTFCU is part of a series of

substantially equal periodic payments, as described by section

72)(t)(2)(A)(iv).   See Arnold v. Commissioner, 111 T.C. 250, 255

(1998).   For the reasons discussed above, we find that

petitioners have not met their burden of establishing that the

subject distribution of $25,000 is part of a series of

substantially equal periodic payments, as described by section

72)(t)(2)(A)(iv).

     On the basis of the foregoing,

                                Decision will be entered for

                          respondent.