T.C. Memo. 1996-396
UNITED STATES TAX COURT
ALEX MALESA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12543-93. Filed August 26, 1996.
Alex Malesa, pro se.
J. Anthony Hoefer, for respondent.
MEMORANDUM OPINION
DAWSON, Judge: This case was assigned to Special Trial
Judge John F. Dean pursuant to section 7443A(b)(4) and Rules 180,
181, and 183.1 The Court agrees with and adopts the opinion of
the Special Trial Judge which is set forth below.
1
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the year at issue. All Rule
references are to the Tax Court Rules of Practice and Procedure.
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OPINION OF THE SPECIAL TRIAL JUDGE
DEAN, Special Trial Judge: For the 1990 taxable year,
respondent determined a deficiency in petitioner's Federal income
tax in the amount of $8,777 (which included additional tax under
section 72(t) in the amount of $239) and additions to tax under
section 6651 in the amount of $1,724.75 and under section 6654 in
the amount of $440.14.
The parties have resolved all issues resulting from
adjustments in the notice of deficiency except for the following:
(1) Whether three payments received by petitioner in 1990 are
taxable to petitioner in the amounts determined by respondent;
(2) whether petitioner is liable for additional tax on early
retirement distributions under section 72(t); and (3) whether
petitioner is liable for additions to tax under sections 6651 and
6654.
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioner resided in
Omaha, Nebraska, at the time he filed his petition.
Background
Petitioner did not timely file a 1990 Federal income tax
return. Respondent issued a notice of deficiency to petitioner
on March 15, 1993. Respondent had received information returns
from several payors indicating that payments had been made to
petitioner during 1990. Respondent used these information
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returns to determine a deficiency and additions to tax, using a
married filing separately status for petitioner.
Petitioner filed a joint 1990 Federal income tax return with
his wife on April 15, 1993. On that return, petitioner included
all of the payments that respondent had determined were taxable
in the notice of deficiency, except for the following:
Reported
Payor on Form: Amount
National Home Life Assurance 1099-R $1,092
Jackson National Life Ins. Co. 1099-R 14,470
Jackson National Life Ins. Co. 1099-INT 53
The total distribution by National Home Life Assurance
(National) was $4,426, but respondent contends that only $1,092
was taxable, based on information reported to respondent by
National. The $14,470 payment that petitioner received from
Jackson National Life Insurance Company (Jackson) was his one-
third share of the accumulation value ($43,410) of an annuity
that had been purchased by petitioner's mother, who died in 1990
at age 62. Upon his mother's death petitioner became entitled to
this payment as a beneficiary under the annuity contract.
Jackson reported the $14,470 as the gross distribution to
petitioner and did not report what portion of the distribution
was taxable. Petitioner's mother acquired the Jackson annuity in
a section 1035 exchange for an annuity that she had acquired
through United of Omaha. This exchange took place on May 5,
1986. Respondent contends that the $53 payment from Jackson is
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taxable to petitioner as interest income.
Discussion
Respondent's determinations are presumed correct, and
petitioner bears the burden of proving otherwise. Rule 142(a);
Welch v. Helvering, 290 U.S. 111, 115 (1933).
Annuity Payment
Section 61(a) defines gross income as "all income from
whatever source derived". Annuities are specifically included in
gross income. Sec. 61(a)(9). The burden is on petitioner to
demonstrate that the payment in question falls into a specific
statutory exclusion. Commissioner v. Glenshaw Glass Co., 348
U.S. 426, 429-431 (1955).
In general, section 72 deals with the income tax treatment
of annuities. Section 1.72-1(a), Income Tax Regs., provides that
section 72 prescribes rules regarding the inclusion in gross
income of amounts received under a life insurance, endowment, or
annuity contract except where such amounts are specifically
excluded from gross income under other provisions of chapter 1 of
the Code. These rules provide that, in general, the amounts
subject to the provisions of section 72 are includable in the
gross income of the recipient except to the extent that they are
considered to represent a reduction or return of premiums or
other consideration paid. Sec. 1.72-1(a), Income Tax Regs.
Any amount received, whether in a single sum or otherwise,
in full discharge of the obligation under the annuity contract,
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which payment is "in the nature of a refund of the consideration
paid for the contract," is taxable only to the extent it exceeds
the investment in the contract (determined under section
72(e)(6)). Sec. 72(e)(5)(A), (E). An amount is considered to be
"in the nature of a refund" where it is payable to a beneficiary
after the death of the annuitant under a contract for a life
annuity, with a minimum number of payments certain, or a minimum
amount which must be paid in any case. Sec. 1.72-11(c)(1),
Income Tax Regs.
The annuity payment that petitioner received upon his
mother's death is thus "in the nature of a refund of the
consideration paid for the contract", and is taxable to the
extent it exceeds the investment in the contract. The investment
in the contract is the aggregate amount of premiums or other
consideration paid for the contract less any amounts previously
received under the contract which were excludable from gross
income. Sec. 72(e)(6). Petitioner has offered no evidence
regarding the investment in the contract. He has therefore
failed to carry his burden to show that any portion of the
payment he received should be excluded from his gross income.
Commissioner v. Glenshaw Glass Co., supra at 429-431.
Accordingly, we sustain respondent's determination that the full
$14,470 payment is includable in petitioner's gross income.
Interest Income and Retirement Distribution
Petitioner admits receiving a $53 payment from Jackson and a
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$4,426 payment from National (of which respondent contends $1,092
was taxable). Petitioner offered no evidence demonstrating that
any portion of these payments should be excluded from his gross
income and has therefore failed to carry his burden of proof.
Id. Respondent is sustained on these items.
Section 72(t) Additional Tax
Respondent determined that petitioner is liable for
additional tax in the amount of $239 under section 72(t) on a
premature distribution of $2,393 from a qualified retirement
plan. Section 72(t)(1) imposes an additional tax on any amount
received from a qualified retirement plan equal to 10 percent of
the portion of such amount which is includable in gross income.
Section 72(t)(2) exempts certain distributions from the
additional tax.
Petitioner does not deny receiving a $2,393 distribution
from a qualified retirement plan, nor does he claim to come
within one of the exceptions. Respondent is sustained on this
issue.
Section 6651(a)(1) Failure To File Timely
Section 6651(a)(1) provides for an addition to tax of 5
percent of the tax required to be shown on the return for each
month or fraction thereof for which there is a failure to file,
not to exceed 25 percent. The addition to tax for failure to
file a return timely will be imposed if a return is not timely
filed unless the taxpayer shows that the delay was due to
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reasonable cause and not willful neglect. Sec. 6651(a)(1).
Petitioner's 1990 Federal income tax return was due on April
15, 1991. Sec. 6072(a). Petitioner filed his 1990 Federal
income tax return on April 15, 1993. Petitioner has not offered
any evidence to show that the delay was due to reasonable cause.
We therefore sustain respondent's determination that petitioner
is liable for the 25-percent addition to tax under section
6651(a)(1) for 1990.
Section 6654 Failure To Pay Estimated Tax
Where payments of tax, either through withholding or by
making estimated quarterly tax payments during the course of the
year, do not equal the amount required under the statute,
imposition of the addition to tax under section 6654 is
automatic, unless the taxpayer shows that one of the statutory
exceptions applies. Niedringhaus v. Commissioner, 99 T.C. 202,
222 (1992); Grosshandler v. Commissioner, 75 T.C. 1, 20-21
(1980). Petitioner bears the burden to show qualification for
such an exception. Habersham-Bey v. Commissioner, 78 T.C. 304,
319-320 (1982). Petitioner has not sustained his burden;
therefore, we hold that he is liable for the addition to tax
under section 6654 for the 1990 taxable year.
To reflect the foregoing,
Decision will be entered
under Rule 155.