T.C. Memo. 2001-95
UNITED STATES TAX COURT
JAIME PENA and VERNA ANN PENA, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 17613-99. Filed April 17, 2001.
Jaime Pena, pro se.
Usha Ravi, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
CARLUZZO, Special Trial Judge: Respondent determined a
deficiency of $7,054 in petitioners' 1996 Federal income tax.
The issue for decision is whether certain distributions from
an individual retirement account are includable in petitioners’
1996 income.
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FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
Petitioners are husband and wife. They filed a timely joint
Federal income tax return for 1996. At the time the petition was
filed, petitioners resided in Danville, California. References
to petitioner are to Jaime Pena.
Petitioner is an attorney licensed to practice in
California. Prior to the year in issue, he was employed as an
attorney by Jaime Pena Professional Corp. (the corporation).
Effective as of September 1, 1982, for petitioner’s benefit and
with petitioner as trustee, the corporation established a defined
benefit single-employer plan entitled the Jaime Pena A P.C.
Defined Benefit Plan (the plan). The plan was a qualified
pension plan within the meaning of section 401(a).1
Over the years, the corporation made contributions to the
plan on petitioner’s behalf and claimed deductions for those
contributions on its corporate Federal income tax returns. None
of the contributions were includable, or were included in
petitioners’ income for any period. Petitioner never made any
contributions to the plan.
The plan maintained a brokerage account with Kidder, Peabody
& Company (the Kidder account), but investment decisions were
1
Section references are to the Internal Revenue Code, as
amended, in effect during the relevant period.
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made by petitioner as trustee of the plan. In June 1987, on
petitioner’s behalf and at his direction, the plan invested
$25,972.82 in corporate securities. During 1990, the plan was
terminated and the proceeds of the Kidder account were
transferred (rolled) into an individual retirement account at
Daking Securities Corporation (the IRA). The IRA was established
for the benefit of petitioner, who as its custodian, directed how
IRA funds were to be invested. Petitioners did not include any
of the proceeds rolled over from the Kidder account to the IRA in
their 1990 income.
During 1996, petitioner, who was 49 years old as of the
close of that year, received distributions totaling $21,700 from
the IRA (the IRA distributions). Petitioners did not include any
of the IRA distributions in the income they reported on their
1996 Federal income tax return, which includes a Schedule D,
Capital Gains and Losses. Nothing on the return suggests that
any of the transactions listed on the Schedule D relate to
investments of the plan or the IRA.
In the notice of deficiency, respondent determined that the
IRA distributions received by petitioner in 1996 are includable
in petitioners’ income for that year. Other determinations made
in the notice of deficiency are not in dispute.
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OPINION
In their petition, petitioners allege that the deficiency in
this case is based upon respondent’s “determination that
petitioners could not take ordinary losses, in the year of
distribution of all of the proceeds, on stock previously held in
an exempt employees trust.” Petitioners are mistaken on this
point. As noted above, the deficiency in this case is based, in
large part, upon respondent’s determination that the IRA
distributions received by petitioner in 1996 are includable in
petitioners’ income for that year.
Elsewhere in the petition, petitioners allege that during
1996 “the stock was sold at prices below what had been paid for
it by the trust” and that the proceeds of the sale “were
distributed to petitioners and nothing was left in the trust”.
According to the petition, the “aggregate of the proceeds was
less than what had been contributed by the employer into the
trust”. In their brief, petitioners argue that “investment
losses were incurred by the plan” and therefore they “duly
listed, on Schedule D, their investment losses exceeding gains
incurred by the plan in 1996".
The allegations contained in the petition and the argument
presented in petitioners’ brief relate only to whether
petitioners are entitled to a deduction for investment losses
sustained by the plan; none of their allegations or arguments
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address respondent’s determination that the IRA distributions are
includable in their 1996 income. Consequently, we consider
petitioners to have conceded the correctness of that
determination. Moreover, based upon the evidence presented, we
are satisfied that petitioners’ deemed concession is consistent
with controlling law.2 The IRA distributions are includable in
petitioners’ 1996 income, and respondent’s determination in this
regard is sustained.
Because respondent has not challenged any of the deductions
taken on petitioners’ 1996 return, we need not discuss the merits
of petitioners’ claim that respondent erred by disallowing the
deduction for the plan’s “investment losses” taken on that
return.
2
Distributions from an IRA are includable in the
taxpayer’s/distributee’s income in accordance with sec. 72.
See sec. 408(d). The IRA distributions were not received as an
annuity by petitioner. Consequently, the distributions are
includable in petitioners’ income, except to the extent that any
distribution, or any portion of any distribution, is allocable to
petitioners’ “investment in the contract.” Sec. 72(e)(2).
Petitioners do not claim that petitioner made nondeductible
contributions to the IRA. Consequently, we proceed as though his
tax basis in the IRA were zero. Nor do petitioners claim, and
nothing in the record suggests, that petitioners should otherwise
be given credit for any investment in the IRA, within the meaning
of sec. 72(e)(3)(A)(ii) and 72(e)(6). Consequently, the entire
amount of the distribution is allocated to, and must be included
in, petitioner's income. See sec. 72(e)(3)(A).
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To reflect the foregoing,
Decision will be
entered for respondent.