T.C. Summary Opinion 2002-143
UNITED STATES TAX COURT
ROBERT B. LEPPIN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 941-01S. Filed November 5, 2002.
Robert B. Leppin, pro se.
Sean R. Gannon, for respondent.
DINAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority. Unless otherwise indicated,
subsequent section references are to the Internal Revenue Code in
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effect for the year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
Respondent determined a deficiency in petitioner’s Federal
income tax of $2,755 for the taxable year 1998. Respondent
concedes the portion of the deficiency in excess of $712.
The issue for decision is to what extent petitioner must
include in income amounts received as railroad retirement
benefits.
Some of the facts have been stipulated and are so found.
The stipulations of fact and the attached exhibits are
incorporated herein by this reference. Petitioner resided in
Blue Island, Illinois, on the date the petition was filed in this
case.
During 1998, petitioner received retirement benefits of
$19,844.96 from the U.S. Railroad Retirement Board (RRB). For
that year, petitioner received from the RRB a Form RRB-1099-R,
Annuities or Pensions By the Railroad Retirement Board. This
form listed the following:
Employee contributions $13,290.20
Contributory amount paid 19,242.96
Supplemental annuity 602.00
Total gross paid 19,844.96
Petitioner reported $19,243 of the benefits on his 1998 Federal
income tax return, but listed this amount as fully nontaxable
Social Security benefits rather than as income from pension and
annuities.
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The basis for respondent’s determination in the statutory
notice of deficiency does not appear in the record. However, it
is respondent’s position in this proceeding that the full amount
that petitioner received from the RRB, $19,844.96, is annuity or
pension income, and that $6,554.96 of this amount is includable
in gross income.
Railroad retirement benefits are divided into two portions
for purposes of Federal income taxation. In general terms, the
portion of the benefits which is equal to the benefit to which a
taxpayer would have been entitled under the Social Security Act
if the taxpayer had been covered by the Social Security Act is
referred to as the “tier 1 railroad retirement benefit”. Sec.
86(d)(4). Tier 1 benefits are includable in gross income to the
same extent as are Social Security benefits. Sec. 86(d)(1)(B).
The benefits other than tier 1 benefits (commonly referred to as
“tier 2 benefits”) generally are includable in gross income to
the same extent as are amounts received from a section 401(a)
qualified plan. Sec. 72(r). As such, these benefits generally
are treated as annuity payments subject to the provisions of
section 72. Sec. 402(a).
As a general rule, tier 2 benefits are includable in gross
income under section 72(a). However, a portion of these benefits
may be excluded from income under section 72(b) or (d). These
provisions exclude from a taxpayer’s gross income that portion of
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a tier 2 annuity payment which represents a ratable recovery of
the taxpayer’s contributions to the railroad retirement plan made
in the form of taxes. Sec. 72(b)(1), (d)(1), (r)(2).
Petitioner’s position in this case is unclear. In his
petition, he argues that the “railroad retirement pension is
subject to form 1040, line 20”; namely that it should be treated
as Social Security benefits. At trial, petitioner made a
somewhat contradictory statement that the benefits were comprised
of tier 1 benefits in the amount of $11,448, tier 2 benefits in
the amount of $7,794, and a supplemental pension of $612. Where
petitioner derived the first two amounts is unknown.
Whether petitioner received any tier 1 benefits at all is
also unclear. In general terms, the RRB uses Form RRB-1099,
Payments By the Railroad Retirement Board, to report tier 1
benefits, and Form RRB-1099-R to report tier 2 benefits. See
generally Internal Revenue Service Publication 575, Pension and
Annuity Income, and Internal Revenue Service Publication 915,
Social Security and Equivalent Railroad Retirement Benefits. In
the present case, on the same document in evidence on which the
Form RRB-1099-R was reproduced, there was also a copy of a Form
RRB-1099. This latter form was blank except for the notation
“THIS FORM NOT REQUIRED FOR YOUR 1998 TAXES”.
From the record in this case, we are unable to ascertain
whether petitioner in the first instance should have received
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tier 1 benefits in some amount, and in the second instance
whether or not he in fact did receive such benefits. However,
there may be countless reasons why petitioner should not have
received tier 1 benefits in the year in issue, and this specific
factual issue was not addressed at trial by either party. Even
if we were to accept petitioner’s testimony as to the division of
the benefits into tier 1 and tier 2 benefits, we would have no
way of determining the amount of the tier 2 benefits which would
be includable in gross income.
We are left with the fact that petitioner has admitted
receiving income in the amount of $19,844.96, as reflected in the
Form RRB-1099-R, and that he admits that he did not properly
report this amount on his tax return.1 Furthermore, he has
presented no reliable evidence that the Form RRB-1099-R is
incorrect.2 We therefore sustain respondent’s determination, as
modified by his concession, that petitioner received unreported
gross income from the RRB benefits in the amount of $6,554.96.
1
Pursuant to petitioner’s version of the facts in his
testimony, at least a portion of the benefits should have been
included in gross income on his return.
2
Sec. 7491(a) does not shift the burden of proof to
respondent in this case because petitioner has provided no
credible evidence with respect to the nature of the benefits he
received. Sec. 7491(a)(1). Furthermore, sec. 6201(d) does not
impose any evidentiary burden on respondent because petitioner
has admitted receiving the item of income at issue.
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Respondent’s calculation of petitioner’s tax liability in
the notice of deficiency is not in the record. However, based
upon the record before us we find that petitioner’s taxable
income was determined in the notice of deficiency as follows:
RRB benefits $19,845
Other income 10,857
Adjusted gross income (AGI) $30,702
Medical expenses 4,801
Less 7.5% AGI (2,303)
Taxes paid 6,976
Total itemized deductions (9,474)
Personal exemption deduction (2,700)
Taxable income 18,528
According to the explanation provided to the Court with regard to
respondent’s concession, respondent: (1) Decreased the taxable
income reflected in the notice of deficiency by $13,290 to
reflect that portion of the RRB benefits not includable in gross
income; and (2) reduced the taxable income by a further $492 to
reflect an increased medical expense deduction allowed in light
of the change to adjusted gross income. Based on these
adjustments to the notice of deficiency, respondent determined
that petitioner’s correct taxable income was $4,745 and that the
correct amount of the deficiency was $712. It appears, however,
that respondent’s calculations are in error in two respects.
First, the amount of the increase in the medical expense
deduction appears to be too small in light of the change to
petitioner’s adjusted gross income. See sec. 213(a). Second,
the calculation does not appear to account for a portion of
petitioner’s income which is long-term capital gain and
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consequently taxed at a lower rate. See sec. 1(h). We shall
therefore enter a decision under Rule 155 so that the parties may
compute petitioner’s proper tax liability pursuant to our
findings in this case.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
under Rule 155.