T.C. Memo. 1996-365
UNITED STATES TAX COURT
TIMOTHY W. AND SUZANNE M. COFFIELD, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1205-95. Filed August 8, 1996.
Timothy W. and Suzanne M Coffield, pro se.
Mark S. Mesler, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
DAWSON, Judge: This case was assigned to Special Trial
Judge Carleton D. Powell pursuant to the provisions of section
7443A(b)(4) and Rules 180, 181, and 183.1 The Court agrees with
1
Section references are to the Internal Revenue Code in
effect for the year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
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and adopts the opinion of the Special Trial Judge that is set
forth below.
OPINION OF THE SPECIAL TRIAL JUDGE
POWELL, Special Trial Judge: Respondent determined a
deficiency in petitioners' Federal income tax and an accuracy-
related penalty pursuant to section 6662(a) for the taxable year
1991 in the respective amounts of $9,772 and $1,954.
The issues are: (1) Whether a distribution from a qualified
retirement plan is includable in petitioners' gross income; (2)
whether petitioners are liable for an additional tax on the
distribution pursuant to section 72(t); (3) whether petitioners
are liable for an accuracy-related penalty pursuant to section
6662(a) for negligence; and (4) whether this Court has the
jurisdiction to redetermine respondent's interest computation in
this case.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and attached exhibits are incorporated
herein by this reference.
Petitioners resided in Evans, Georgia, at the time they
filed their petition in this case. The term "petitioner" refers
to Timothy W. Coffield.
Petitioner was born in Pittsburgh, Pennsylvania, in 1955.
He lived in Pittsburgh and worked for Westinghouse Electric Co.
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(WEC) until 1991. In July 1991, petitioner ceased employment at
WEC, moved to Georgia, and began working for Westinghouse
Savannah River Co. (WSR).
Petitioners purchased a home in Evans, Georgia, on September
30, 1991, for $219,900. They sold their home in Pittsburgh on
October 15, 1991, for $112,000. To finance a portion of the
purchase price of the new home, petitioner withdrew a total of
$51,002 from his WEC savings program, a qualified retirement
plan, by two requests dated July 12, 1991. The withdrawals
constituted only a portion of the savings plan. As of June 30,
1991, petitioner's Statement of Accounts from the savings plan
shows that he had a total of $24,153.63 in "after-tax
contributions". We assume that between June 30th and the date of
distribution, petitioner made some additional after-tax
contributions. At the time of the withdrawal petitioner had
contributed approximately $25,000 to the savings plan all of
which was withdrawn. A statement for December 31, 1991, shows no
after-tax contributions remaining in petitioner's account. WEC
issued a Form 1099-R for 1991 reporting $25,709 of the gross
distribution as taxable income to petitioner. Petitioners
apparently did not receive the Form 1099-R until after they filed
their Federal income tax return for 1991.
Petitioners did not report any income as a result of the
distribution on their 1991 joint Federal income tax return. In
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the notice of deficiency respondent determined that petitioners
were liable for income tax on the portion of the distribution
reported as taxable income on the Form 1099-R ($25,709).
Respondent further determined that the 10-percent additional tax
imposed by section 72(t) applied to this amount, and that
petitioners were liable for a negligence penalty pursuant to
section 6662(a).
OPINION
Savings Plan Distribution
Under section 402(a) any distribution from any employees'
trust described in section 401(a) that is exempt from tax under
section 501(a) shall be taxable to the distributee in the year of
distribution under section 72.2 Section 72(e) provides that the
amount received is includable in gross income, except to the
extent attributable to an individual's investment in the
contract. For our purposes here, petitioner's investment in the
contract is the amount of his "after-tax contributions".
Section 402(a)(5) excludes from gross income any portion of
a distribution from a qualified trust that is transferred to an
eligible retirement plan. The term "eligible retirement plan" is
defined as (1) an individual retirement account described in
2
The parties agree that the savings plan constitutes a
"qualified plan". We presume this means a "qualified trust"
within the meaning of sec. 401(a), which is exempt from tax under
sec. 501(a), because neither party has argued to the contrary.
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section 408(a); (2) an individual retirement annuity described in
section 408(b) (other than an endowment contract); (3) a
qualified trust; and (4) an annuity plan described in section
403(a). Sec. 402(a)(5)(E)(iv).
Petitioner's investment of the distribution into a personal
residence does not constitute a transfer to an "eligible
retirement plan" within the meaning of section 402(a)(5)(A)(ii).
See Harris V. Commissioner, T.C. Memo. 1994-22; Luke v.
Commissioner, T.C. Memo. 1993-409. It is a well-established
principle that "exemptions from taxation are not to be implied;
they must be unambiguously proved." United States v. Wells Fargo
Bank, 485 U.S. 351, 354 (1988). Section 402(a)(5) does not apply
to exclude the distribution from gross income, and we must apply
the general rule of section 402(a).
As discussed infra, it appears from petitioner's statements
from the savings plan that the Form 1099-R excluded the
proportionate share of petitioner's investment in the contract.
Accordingly, we hold that the taxable portion of the distribution
was $25,709, and that amount was taxable to petitioners during
1991. We, therefore, sustain respondent's determination on this
issue.
Section 72(t) Additional Tax
Section 72(t)(1) imposes an additional tax on an amount
received from a qualified retirement plan equal to 10 percent of
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the portion of such amount that is includable in gross income.
Section 72(t)(2) exempts distributions from the additional tax if
the distributions are made, inter alia, (1) to an employee age
59-1/2 or older; (2) to a beneficiary (or to the estate of the
employee) on or after the death of the employee; (3) on account
of disability; (4) as part of a series of substantially equal
periodic payments made for life; (5) to an employee after
separation from service after attainment of age 55; or (6) as
dividends paid with respect to corporate stock described in
section 404(k).
None of the specifically enumerated exceptions in section
72(t)(2) applies to the distribution, and we have held that a
portion of the distribution must be included in petitioner's
gross income. Accordingly, petitioners are liable for the
additional tax imposed by section 72(t)(1) on the portion of the
distribution includable in gross income as determined by
respondent.
Accuracy-related Negligence Penalty
In the notice of deficiency respondent determined that
petitioners are liable for an accuracy-related penalty for
negligence or disregard of the rules or regulations. Section
6662(a) and (b)(1) impose an accuracy-related penalty equal to 20
percent of the portion of the underpayment of income tax that is
attributable to negligence. Negligence includes the failure to
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make a reasonable attempt to comply with the law and disregard of
the rules and regulations includes any "careless, reckless, or
intentional disregard." Sec. 6662(c). While we have sustained
respondent's determinations with respect to the savings plan
distribution includable in gross income and the additional tax
under section 72(t), we do not believe that the understatement of
tax was due to negligence. It appears that petitioner was not
given a Form 1099R or any other notice that the withdrawal was
taxable prior to filing his return. As we understand, petitioner
thought that the withdrawal of his contribution and the earnings
thereon were exempt. While he was incorrect, we recognize that
there may be room for confusion.
Interest
Petitioner argues that we should abate the interest
determination made by respondent pursuant to section 6404(e)
because of respondent's delay in issuing the notice of
deficiency. The United States Tax Court is a court of limited
jurisdiction. See sec. 7442; Wilt v. Commissioner, 60 T.C. 977,
978 (1973). New section 6404(g), added to the Internal Revenue
Code by section 302 of the Taxpayer Bill of Rights 2, Pub. L.
104-168, authorizes this Court to review the Secretary's failure
to abate interest with respect to requests for abatement after
July 30, 1996. Because this case does not involve a request for
abatement after July 30, 1996, we lack jurisdiction to abate
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interest herein. See Commissioner v. McCoy, 484 U.S. 3, 7
(1987); 508 Clinton Street Corp. v. Commissioner, 89 T.C. 352,
354 (1987).
Decision will be entered for
respondent with respect to the
deficiency, including the
additional tax under sec. 72(t),
and decision will be entered for
petitioners with respect to the
penalty under sec. 6662(a).