Court Opinion

ID: 9370847
Source: CourtListenerOpinion
Date Created: 2023-02-14 20:01:16.684407+00
Date Added: 2024-06-11T17:16:24.116846
License: Public Domain

United States Tax Court

                              T.C. Memo. 2023-16

        TONY PATRINICOLA AND BARBARA PATRINICOLA,
                        Petitioners

                                         v.

              COMMISSIONER OF INTERNAL REVENUE,
                          Respondent

                                    —————

Docket No. 498-19.                                      Filed February 14, 2023.

                                    —————

Tony Patrinicola and Barbara Patrinicola, pro sese.

Logan M. Westerman, Gregory Michael Hahn, Chi-Yun Lee, and Alicia
H. Eyler, for respondent.

         MEMORANDUM FINDINGS OF FACT AND OPINION

        GOEKE, Judge: By a Notice of Deficiency dated November 5,
2018, the Internal Revenue Service (IRS or respondent) determined a
deficiency in federal income tax of $9,957 and an accuracy-related
penalty for a substantial understatement of income tax under section
6662(a) and (b)(2) of $1,991 for Tony and Barbara Patrinicola’s 2016 tax
year. 1

       In the Notice of Deficiency, respondent determined that
petitioners had received unreported taxable pension distributions of
$27,830. However, respondent has conceded $21,080 of that adjustment.
He has also conceded the penalty and the other income adjustments in
the Notice of Deficiency, including adjustments to dividends, interest,

        1 Unless otherwise indicated, all statutory references are to the Internal

Revenue Code (Code), Title 26 U.S.C., as in effect at all relevant times, and all Rule
references are to the Tax Court Rules of Practice and Procedure. Monetary amounts
are rounded to the nearest dollar.

                                Served 02/14/23
                                           2

[*2] rents or royalties, capital gains, and partnership or flowthrough
income. After these concessions, the issue before the Court is whether
petitioners received unreported taxable pension distributions of $6,750. 2

                              FINDINGS OF FACT

      Petitioners, husband and wife, resided in Washington when they
timely filed their Petition.

       For the 2016 tax year, General Electric Pension Trust (General
Electric) issued Form 1099–R, Distributions From Pensions, Annuities,
Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., to
Mr. Patrinicola reporting payment of $22,773 in taxable pension
distributions, and State Street Retiree Services (State Street) issued
three Forms 1099–R that reported payments of $252, $4,627, and $3,412
in taxable pension distributions to Mr. Patrinicola. According to these
Forms 1099–R, Mr. Patrinicola received total pension distributions of
$31,064. Ms. Patrinicola received a Form 1099–R that reported that she
received $2,592 in nontaxable retirement income. On their 2016 tax
return, petitioners reported gross income from pensions of $24,610 and
the taxable amount of such income as $19,687.

                                     OPINION

       Respondent asserts that petitioners did not report part of the
taxable pension distributions received by Mr. Patrinicola from General
Electric and State Street. Specifically, in his posttrial memorandum,
respondent calculates that Mr. Patrinicola received unreported taxable
pension distributions of $6,750, which respondent calculated as the
difference between the $19,687 in pensions and annuities that
petitioners reported as taxable on their 2016 return and pension
distributions of $26,437, consisting of $22,773 from General Electric and
$252 and $3,412 from State Street. Respondent concedes $4,627 of the
amounts reported by State Street.

      Section 61(a) defines gross income as all income from whatever
source derived unless specifically excluded by another provision of the
Code. Pensions distributions are included in gross income. § 61(a)(11).

         2 Also at issue is whether petitioners are liable for the alternative minimum

tax for 2016. The resolution of this issue is a computational adjustment that flows from
respondent’s concessions and our disposition of the pension distribution issue.
                                    3

[*3] At the trial before this Court on September 29, 2022, Mr.
Patrinicola stated that he received the pension distributions from
General Electric and State Street in the amounts reported on the Forms
1099–R. However, petitioners argue that the pension distributions are
not subject to income tax because monthly pension payments are not
taxable under a law that they refer to as the “Congressional Annual
Notice of Monthly Pension Payments,” which they understand to provide
that “[m]onthly pension payments will be subject to Federal income tax
withholding if the taxable portion of the sum equals to or exceeds are
less than $1,990.00 per month. Your pension is not taxable if it is in the
allowable range.”

       Upon our thorough review, there is no Code section or other
statute that excludes monthly pension distributions of less than $1,990
from income or otherwise supports petitioners’ argument that such
payments are not subject to federal income tax. It appears that Mr.
Patrinicola received information about withholding obligations from a
payer of one of his pensions that resulted in a misunderstanding of his
tax obligations. Federal income tax withholding is not the same thing as
the federal income tax that is owed on the pension distributions.
Withholding is the amount that the payer deducts from the pension
payments and sends to the IRS on the taxpayer’s behalf. In general,
pensions are subject to federal income tax withholding, but taxpayers
can choose not to have federal income tax withheld. Taxpayers use Form
W–4P, Withholding Certificate for Periodic Pension or Annuity
Payments, to elect the amount of withholding from periodic pension
payments to ensure the correct amount is withheld to satisfy their
individual tax obligations. Alternatively, taxpayers may use Form W–4P
to choose not to have federal income tax withheld from pension
payments at the risk that they will not have paid sufficient estimated
tax throughout the year to cover their tax liability on the pension and
other income. Pension distributions are included in the taxable income
regardless of the taxpayer’s decision regarding withholding.

       We find petitioners’ argument that the pension distributions are
not taxable is without merit and conclude that they underreported their
taxable pension distributions by $6,750. This amount is significantly
lower than the amount of the adjustment proposed in the Notice of
Deficiency, and the increase in tax from this case is substantially lower
than the amount that respondent proposed in the Notice of Deficiency.
We understand and are sympathetic to Mr. Patrinicola’s frustrations in
dealing with the proposed adjustments to his return that have been
largely conceded as well as the multiple notices that he received from
                                   4

[*4] different IRS offices that seemingly were inconsistent and
confusing. However, pension distributions are taxable income under the
Code.

       We have considered all of the parties’ arguments, and to the
extent not discussed above, conclude that those arguments are
irrelevant, moot, or without merit.

      To reflect the foregoing and concessions,

      Decision will be entered under Rule 155.