T.C. Memo. 2005-258
UNITED STATES TAX COURT
JOYCE M. THOMAS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10824-03. Filed November 1, 2005.
Joyce M. Thomas, pro se.
Andrew R. Moore, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: Respondent determined the following
deficiencies and additions to tax in petitioner’s Federal income
taxes:1
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure. All
(continued...)
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Sec. 6651(a)(1) Sec. 6654(a)
Year Deficiency Additions to tax Additions to tax
1998 $14,664 $791 --
1999 49,065 7,471 $1,343
2000 31,403 5,785 1,187
After concessions,2 the issues for decision are: (1)
Whether petitioner is liable for a 10-percent additional tax
under section 72(t)(1) on distributions made from her individual
retirement accounts (IRAs) in 1999 and 2000; (2) whether
petitioner is liable for additions to tax under section
6651(a)(1) for failure to timely file her Federal income tax
returns for 1998, 1999, and 2000 (years in issue); and (3)
whether petitioner is liable for additions to tax under section
6654(a) for failure to pay estimated income tax for 1999 and
2000.
FINDINGS OF FACT
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. At the time she filed the
petition, petitioner resided in Milpitas, California.
Petitioner was born in 1958. At some point during 1992 or
1
(...continued)
amounts are rounded to the nearest dollar.
2
In the stipulation of facts, the parties agreed to the
amount of income received by petitioner and the deductions
petitioner is entitled to for 1998, 1999, and 2000.
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1993, petitioner began suffering from bilateral tendinitis and
carpal tunnel syndrome. Her carpal tunnel symptoms were minimal,
and surgery was not recommended for either condition. Petitioner
also suffered from periods of depression.
During the years in issue, petitioner was employed by
Cypress Semiconductor Corporation (Cypress) to lay out computer
chips. Petitioner also operated her own startup network
marketing business.
At some point during 2000, Cypress transferred petitioner to
another job because her bilateral tendinitis and carpal tunnel
syndrome were aggravated by her chip-laying duties. Petitioner
was unable to perform her new duties and was transferred back to
her former job. During 2000 or 2001, petitioner’s medical
conditions limited her to working only 4 hours a day.
Petitioner owned several IRAs but became unhappy with the
rate of return from investments held in those accounts. In 1999
and 2000, petitioner received distributions from her IRAs
totaling $57,138 and reinvested the funds in non-IRA
investments.3
Petitioner did not file Federal income tax returns for the
3
During 1999, petitioner received a distribution of $4,992
from her Aim Family of Funds, Aim Balanced Fund B IRA. During
2000, she received the following distributions: (1) $14,518 from
the Aim Constellation Fund A; (2) $14,871 from the Aim Value Fund
B; (3) $6,348 from the Aim Balanced Fund B; and (4) $16,409 from
the Aim Weingarten Fund A.
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years in issue. Instead, petitioner testified that she filed
“tax statements”, but she could not recall when she filed the
statements or the nature of those statements. In addition,
petitioner made no estimated tax payments during 1999 or 2000.
On April 8, 2002, respondent prepared substitutes for
returns for petitioner for the years in issue. On April 9, 2003,
respondent sent petitioner notices of deficiency for the years in
issue. Respondent determined that petitioner was liable for
additional taxes of $499 and $5,215 for early distributions from
her IRAs for 1999 and 2000, respectively. Respondent also
determined that petitioner was liable for additions to tax under
sections 6651(a)(1) and 6654(a), as set out above.
In response to the notices of deficiency, petitioner filed a
petition with this Court on July 7, 2003.
OPINION
A. Petitioner Is Liable for a 10-Percent Additional Tax Under
Section 72(t)(1)
Respondent determined that, under section 72(t)(1),
petitioner is liable for a 10-percent additional tax on early
distributions from her IRAs in 1999 and 2000. Petitioner bears
the burden of proving that respondent erred in making this
determination. Rule 142(a).
Section 72(t)(1) imposes a 10-percent additional tax on
early distributions from qualified retirement plans. Qualified
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retirement plans are defined to include IRAs as defined in
section 408(a) and (b). Secs. 72(t)(1), 4974(c). There is no
dispute as to whether petitioner’s IRAs are “qualified retirement
plans” for purposes of section 72(t).
The 10-percent additional tax does not apply to certain
distributions from qualified retirement plans, including
distributions made after an employee attains age 59½ and
distributions attributable to the employee’s disability. Sec.
72(t)(2)(A)(i), (iii); see sec. 72(t)(2). For purposes of
section 72, an employee is disabled if she is “unable to engage
in any substantial gainful activity by reason of any medically
determinable physical condition or mental impairment which can be
expected to result in death or to be of long-continued and
indefinite duration.” Sec. 72(m)(7).
Petitioner was born in 1958. The distributions from her
IRAs were made in 1999 and 2000. Because petitioner had not
attained the age of 59½ at the time of the distributions, the
exception found in section 72(t)(2)(A)(i) does not apply.
During 1999 and 2000, petitioner was employed by Cypress and
was running her own startup network marketing business. Although
petitioner testified that the condition of her health slowed her
down and forced her to switch from full-time to part-time work
during 2000, petitioner was still able to engage in substantially
gainful activity. See sec. 72(m)(7). Because petitioner was not
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disabled within the meaning of section 72(m)(7), we find that the
exception in section 72(t)(2)(A)(iii) does not apply. See Dwyer
v. Commissioner, 106 T.C. 337 (1996); cf. Brown v. Commissioner,
T.C. Memo. 1996-421.
Petitioner has not argued, and the record is devoid of any
evidence which would indicate, that petitioner is qualified for
any other exception to section 72(t)(1). For the foregoing
reasons, we hold that petitioner is liable for a 10-percent
additional tax on the early distributions from her IRAs.
B. Additions to Tax Under Sections 6651(a)(1) and 6654(a)
1. Respondent Bears the Burden of Production
Respondent determined that petitioner is liable for
additions to tax under section 6651(a)(1) for failure to file
income tax returns for the years in issue. Respondent also
determined that petitioner is liable for additions to tax under
section 6654(a) for failure to make estimated tax payments on
income realized from the IRA distributions in 1999 and 2000.
Respondent bears the burden of production with respect to
petitioner’s liability for the additions to tax. Sec. 7491(c);
Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). To meet
his burden of production, respondent must come forward with
sufficient evidence indicating that it is appropriate to impose
the additions to tax. Higbee v. Commissioner, supra at 446-447.
Once respondent meets his burden of production, petitioner must
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come forward with evidence sufficient to persuade the Court that
respondent’s determination is incorrect. Id.
2. Petitioner Is Liable for Section 6651(a)(1) Additions
to Tax
Section 6651(a)(1) imposes an addition to tax for failure to
file a return on the date prescribed (determined with regard to
any extension of time for filing), unless petitioner can
establish that such failure is due to reasonable cause and not
due to willful neglect. Respondent submitted and the Court
received into evidence Forms 4340, Certificates of Assessments,
Payments, and Other Specified Matters (respondent’s Forms 4340),
applicable to petitioner for the years in issue. Respondent’s
Forms 4340 indicate that petitioner did not file income tax
returns for the years in issue, which petitioner confirmed in her
testimony at trial. We find that respondent has met his burden
of production.
To show reasonable cause, petitioner must show that she
“exercised ordinary business care and prudence and was
nevertheless unable to file the return within the prescribed
time”. Sec. 301.6651-1(c)(1), Proced. & Admin. Regs. For
illness or incapacity to constitute reasonable cause, petitioner
must show that she was incapacitated to such a degree that she
could not file her returns. Williams v. Commissioner, 16 T.C.
893, 905-906 (1951); see, e.g., Joseph v. Commissioner, T.C.
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Memo. 2003-19 (“Illness or incapacity may constitute reasonable
cause if the taxpayer establishes that he was so ill he was
unable to file.”); Black v. Commissioner, T.C. Memo. 2002-307,
affd. 94 Fed. Appx. 968 (3d Cir. 2004); Watts v. Commissioner,
T.C. Memo. 1999-416 (“taxpayer’s selective inability to perform
his or her tax obligations, while performing * * * regular
business, does not excuse failure to file”).
Although petitioner suffered from bilateral tendinitis,
carpal tunnel syndrome, and periods of depression, she was
constantly employed by Cypress and was running her own startup
network marketing business during the years in issue. In
addition, petitioner testified that she was able to file “tax
statements” for the years in issue. For these reasons, we find
that petitioner was not incapacitated to such a degree that she
could not file her tax returns.
Petitioner has not raised other arguments that would suggest
her failure to file was due to reasonable cause. Petitioner has
failed to show that she exercised ordinary business care and
prudence, but she was nevertheless unable to file her returns.
We find that petitioner did not have reasonable cause for her
failure to file. Therefore, we hold that petitioner is liable
for section 6651(a)(1) additions to tax for the years in issue.
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3. Petitioner Is Liable for Section 6654(a) Additions to
Tax
Section 6654(a) imposes an addition to tax on an
underpayment of estimated tax unless 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); see sec. 6654(e). Respondent’s Forms 4340 indicate that
petitioner did not make estimated tax payments in 1999 or 2000,
which petitioner confirmed in her testimony at trial. We find
that respondent has met his burden of production.
Under section 6654(e)(3)(B), the addition to tax will not be
imposed where the taxpayer becomes disabled in the taxable year
for which the estimated payments were required to be made or in
the preceding taxable year, and the underpayment is due to
reasonable cause and not due to willful neglect.
Petitioner was suffering from bilateral tendinitis, carpal
tunnel syndrome, and depression at the time the estimated
payments were required to be made. However, during this period,
petitioner was employed by Cypress and was running her own
startup network marketing business. We find that petitioner was
not disabled for purposes of section 6654. Therefore, the
exception found in section 6654(e)(3)(B) does not apply.
We do not find that any other statutory exception applies.
Therefore, we hold that petitioner is liable for additions to tax
under section 6654(a) for 1999 and 2000.
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Summary
For the above-stated reasons, we hold that petitioner is
liable for: (1) A 10-percent additional tax under section
72(t)(1) on her IRA distributions; (2) section 6651(a)(1)
additions to tax for all years in issue; and (3) section 6654(a)
additions to tax for 1999 and 2000.
In reaching our holdings, we have considered all arguments
made, and, to the extent not mentioned, we conclude that they are
moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.