T.C. Summary Opinion 2006-8
UNITED STATES TAX COURT
TERRY FRED BURNHAM, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 15339-04S. Filed January 26, 2006.
Terry Fred Burnham, pro se.
Anthony J. Kim, for respondent.
PANUTHOS, Chief 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 effect for the year in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
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Respondent determined a deficiency in petitioner’s 2000
Federal income tax and additions to tax as follows:
Additions to Tax
Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654(a)
$16,600 $3,735 $2,739 $892
After concessions,1 the issues for decision are: (1) Whether a
distribution of $20,102 petitioner received from the California
Field Ironworkers Trust Funds (CFITF) is includable in gross
income; (2) whether petitioner is entitled to a dependency
exemption deduction for Lupe Chitwood; (3) whether a distribution
petitioner received of $8,000 from Jackson National Life Ins. Co.
(Jackson) is includable in gross income, and (4) whether
petitioner is liable for an addition to tax under section
6651(a)(1) of $3,735.
Background
Some of the facts have been stipulated, and they are so
found. The stipulation of facts and the attached exhibits are
1
With respect to adjustments for the taxable year 2000,
petitioner concedes that: (1) He is taxable on Social Security
benefits received to the extent of $12,755, and (2) that he
received $37,050 in gambling winnings. Respondent concedes the
following: (1) Petitioner is entitled to deduct gambling losses
against gambling winnings of $37,050; (2) petitioner is entitled
to a deduction of $2,150 for mortgage interest; (3) petitioner is
entitled to a deduction of $1,648 for property tax paid; and (4)
petitioner is not liable for additions to tax under secs.
6651(a)(2) and 6654(a).
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incorporated herein by this reference.2 At the time the petition
was filed, petitioner resided in Santa Rosa, California.
Petitioner previously was employed as an ironworker. He was
injured on the job in 1991, became disabled, and was unable to
return to work. Petitioner received a disability pension from
CFITF. According to a statement from CFITF, petitioner received
$1,435.86 per month, plus two bonus checks, for a total annual
payment of $20,102. According to the terms of the disability
pension, payments would cease if petitioner were to return to
work.
During the year in issue, petitioner lived with his
girlfriend, Lupe Chitwood. The record is unclear as to whether
Ms. Chitwood worked during the year 2000. Ms. Chitwood received
a disability pension during at least part of the year 2000. Ms.
Chitwood sometimes gambled with petitioner, but the record is
unclear as to her winnings and losses during the year in issue.
On April 24, 1995, Jackson issued an annuity policy naming
petitioner as the owner. Petitioner paid $50,000 for the policy.
The anticipated maturity date was April 24, 2007. During the
taxable year 2000, petitioner received a distribution of $8,000
from Jackson. Respondent received an information document from
2
At the end of trial, the Court kept the record open to
permit petitioner to produce an additional document relating to a
distribution from Jackson National Life Ins. Co. When the
document was received, the Court admitted the document into
evidence and closed the record.
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Jackson indicating that a taxable distribution was made to
petitioner of $8,000.
Petitioner’s Federal income tax return for the taxable year
2000 was signed and submitted to the Internal Revenue Service on
November 16, 2004. Petitioner did not request an extension of
time to file his 2000 return. On the return, petitioner reported
$28,102 on line 16a (total pensions & annuities) and $8,000 on
line 16b (taxable amount).3 Petitioner further claimed a
dependency exemption deduction for Lupe Chitwood.
Discussion
Generally, the burden of proof is on the taxpayer. Rule
142(a)(1). However, if the taxpayer satisfies the limitations
under section 7491(a)(2) and introduces credible evidence with
3
The record is not clear as to the source of the amounts
reported on the return or the exact adjustments made by
respondent. It appears that the $28,102 reported on line 16a is
the sum of (1) the disability pension from CFITF of $20,102 and
(2) the annuity distribution from Jackson of $8,000. While it
appears that petitioner reported the $8,000 distribution from
Jackson as taxable income on line 16b, the record does not
contain a schedule of adjustments which would normally be
attached to the notice of deficiency. In his pretrial
memorandum, respondent lists as an issue the question of whether
petitioner received a taxable distribution of $8,000 from
Jackson. Respondent further indicates that the issue was
conceded by petitioner.
At trial petitioner initially appeared to agree with the
concession. He later explained, however, that he agreed that he
received the $8,000 distribution from Jackson but that he did not
agree that the distribution represented taxable income. Thus, we
consider whether the $8,000 distribution received from Jackson
represents taxable income.
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respect to any factual issue relevant to ascertaining the tax
liability, then the Commissioner bears the burden of proof with
respect to such issue. Sec. 7491(a). Moreover, if a taxpayer
asserts a reasonable dispute with respect to the income reported
on an information return and fully cooperates with the
Commissioner (including providing access to an inspection of all
witnesses, information, and documents within the control of the
taxpayer as reasonably requested by the Commissioner), then the
Commissioner shall have the burden of producing reasonable and
probative information in addition to such information return.
Sec. 6201(d); Tanner v. Commissioner, 117 T.C. 237 (2001), affd.
65 Fed. Appx. 508 (5th Cir. 2003); McQuatters v. Commissioner,
T.C. Memo. 1998-88. In the present case, petitioner has not
satisfied the requirements of either section 6201(d) or section
7491(a). Furthermore, to the extent that the distribution of the
disability payment or the annuity involves a legal issue, the
burden of proof does not affect the outcome. Unless indicated
otherwise, the burden of proof remains on petitioner.
Distribution From CFITF
Petitioner received $20,102 during 2000 from CFITF as a
disability pension on account of an employment-related injury he
received in 1991. Petitioner suggests that he has not reported
amounts received from CFITF in prior tax years, and therefore he
should not be taxable for the amount received in 2000.
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It is our obligation to apply the law to the facts of this
case, and the fact that the Commissioner may have treated a
taxpayer differently in another year does not change our
obligation. Malinowski v. Commissioner, 71 T.C. 1120, 1128
(1979); Robinson v. Commissioner, T.C. Memo. 1996-154.
Section 61(a) provides that, except as otherwise provided,
gross income includes all income from whatever source derived.
The Supreme Court has reiterated the sweeping scope of section
61. Commissioner v. Banks, 543 U.S. 426 (2005); Commissioner v.
Schleier, 515 U.S. 323, 327 (1995); Commissioner v. Glenshaw
Glass Co., 348 U.S. 426, 429-431 (1955). Section 104, in
contrast, provides an exclusion with respect to compensation for
injuries or sickness. Such exclusions are construed narrowly.
Commissioner v. Schleier, supra at 328. One of the conditions of
excludability, relevant in this case, is that the amounts
received through accident or health insurance for personal
injuries or sickness must not be amounts received by an employee,
to the extent such amounts are either attributable to
contributions of the employer and not includable in income of the
employee or are paid by the employer. There is no evidence in
this case that petitioner satisfies the conditions of section
104(a)(3).
Section 105(a) provides that amounts received by an employee
through accident or health insurance for personal injuries or
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sickness shall be included in gross income to the extent such
amounts are (1) attributable to contributions by the employer and
not includable in gross income of the employee, or (2) are paid
by the employer. Section 105(c) provides that gross income does
not include amounts referred to in section 105(a) to the extent
such amounts (1) constitute payment for personal loss of use of a
member or function of the body, or the permanent disfigurement,
of the taxpayer, and (2) are computed with reference to the
nature of the injury without regard to the period the employee is
absent from work. It is clear that petitioner received the
payments from CFITF so long as he did not return to work. Since
the payments are contingent on petitioner’s absence from work,
rather than based on the nature of the injury, the payments do
not fit within the exception of includability under section
105(a) and (c). Respondent’s determination is sustained on this
issue.
Dependency Exemption
As indicated petitioner claimed a dependency exemption for
his girlfriend, Lupe Chitwood. A taxpayer may be allowed a
deduction for a dependent over half of whose support is provided
by the taxpayer. Secs. 151(c)(1), 152(a). A dependent includes
an individual who, for the taxable year, has as her principal
place of abode the home of the taxpayer and is a member of the
taxpayer’s household. Sec. 152(a)(9). It is necessary that the
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taxpayer both maintain and occupy the household. Sec. 1.152-
1(b), Income Tax Regs. It is not necessary that the dependent be
related to the taxpayer. Id. The term “support” includes food,
shelter, clothing, medical and dental care, education, and the
like. Sec. 1.152-1(a)(2)(i), Income Tax Regs. The amount of
support that the claimed dependent received from the taxpayer is
compared to the total amount of support the claimed dependent
received from all sources. Id. The total amount of support for
each claimed dependent furnished by all sources during the year
in issue must be established by competent evidence. Blanco v.
Commissioner, 56 T.C. 512, 514 (1971).
Petitioner presented virtually no testimony or documentary
evidence to establish that he met the support test for Ms.
Chitwood. There is no evidence as to the amount of her
disability pension, the amount of her gambling winnings and
losses, nor the arrangement between petitioner and Ms. Chitwood
as to the allocation of living expenses. Given this lack of
evidence, we sustain respondent’s determination as to this issue.
Distribution From Jackson
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
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statutory exclusion. Commissioner v. Glenshaw Glass Co., supra
at 429-431.
In general, section 72 deals with the income tax treatment
of annuities. 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. Amounts are considered to be paid as an annuity
if they are received after the annuity starting date, they are
paid in periodic installments at regular intervals over a period
of more than one full year from the annuity starting date, and
the total of amounts payable can be determined at the annuity
starting date (subject to certain exceptions). Sec. 1.72-
2(b)(2), Income Tax Regs. As a general rule, payments received
on or after the annuity starting date are treated as payments not
received as an annuity and are taxable. Sec. 72(e)(2)(A).
There is simply not sufficient information in this record to
reach a conclusion whether some portion of the $8,000 payment is
not includable in income. The Court and respondent encouraged
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petitioner to provide sufficient information as to the facts
surrounding the distribution from Jackson. Petitioner did not
provide information, nor did he authorize Jackson to provide such
information to respondent. In this connection, the copy of the
policy from Jackson provided some relevant information. However,
given the complex rules relating to the taxation of annuities
under section 72, the Court required facts surrounding the
distribution, which were not forthcoming. Respondent’s
determination is sustained on this issue.
Addition to Tax Under Section 6651(a)(1)
If a Federal income tax return is not timely filed, an
addition to tax will be assessed “unless it is shown that such
failure is due to reasonable cause and not due to willful
neglect”. Sec. 6651(a)(1). A delay is due to reasonable cause
if “the taxpayer 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.;
see also United States v. Boyle, 469 U.S. 241, 243 (1985). The
Commissioner has the burden of production with respect to the
liability of any individual for an addition to tax under section
6651(a)(1). Sec. 7491(c). The burden of showing reasonable
cause under section 6651(a) remains on petitioner. Higbee v.
Commissioner, 116 T.C. 438, 446-448 (2001).
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In the present case, respondent met his burden of production
with respect to the addition to tax under section 6651(a)(1).
Petitioner did not provide any evidence as to the reasons for the
late filing for the 2000 taxable year. Nor did petitioner
provide any evidence to establish he had reasonable cause for the
failure to timely file. Respondent’s determination as to this
issue is sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
under Rule 155.4
4
As previously indicated, the Court was not provided with
a complete copy of the notice of deficiency, which would
presumably contain a copy of the adjustments. Accordingly, we
assume that the mutual concessions made by the parties, as stated
supra note 3, related to adjustments in the notice of deficiency
and that the amount of the deficiency and addition to tax will be
less than that determined as a result of concessions.