T.C. Summary Opinion 2009-134
UNITED STATES TAX COURT
DARYL L. KOELEMAY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24773-08S. Filed September 2, 2009.
Daryl L. Koelemay, pro se.
Ardney J. Boland III, for respondent.
JACOBS, Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
when the petition was filed. Pursuant to section 7463(b), the
decision to be entered is not reviewable by any other court, and
this opinion shall not be treated as precedent for any other
case.
- 2 -
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for 2006, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
Respondent determined for 2006 a deficiency in income tax of
$14,739 and an accuracy-related penalty of $1,300. At trial
petitioner conceded that he failed to report a lump-sum
distribution from his BASF pension plan as well as a series of
deemed distributions arising from money borrowed from, but not
repaid to, his section 401(k) plan account. The issues thus
remaining in dispute are: (1) Whether petitioner is liable for
the 10-percent additional tax on early distributions from
qualified retirement plans (the BASF pension plan lump-sum
distribution and the series of deemed distributions from the
section 401(k) plan account); and (2) whether petitioner is
liable for an accuracy-related penalty.
Background
Some of the facts have been stipulated, and they are so
found. We incorporate by reference the parties’ stipulation of
facts and accompanying exhibits. At the time he filed his
petition, petitioner resided in Louisiana.
Before March 2006 petitioner had been an employee of BASF
for 7 years, working at one of its manufacturing plants. In
March 2006 petitioner’s employment was terminated, and BASF gave
petitioner a severance package. BASF sent the Internal Revenue
- 3 -
Service and petitioner a Form W-2, Wage and Tax Statement, for
2006. Box 13, Retirement plan, on Form W-2, was checked,
indicating that petitioner was an “active participant” in BASF’s
qualified pension plan.1 Petitioner believed that the amount set
forth in the Form W-2 represented the entire amount he had to
report on his 2006 income tax return. But in fact, the amount
represented only the wages paid to petitioner from January 1,
2006, to the date of his termination and a severance payment.
Before his termination, petitioner borrowed money from his
section 401(k) plan account. When petitioner was laid off, his
participation in BASF’s section 401(k) plan was terminated and
his debt to his section 401(k) plan account was canceled. After
his termination, in November 2006 petitioner received a lump-sum
distribution from the BASF pension plan. As indicated supra p.
2, petitioner concedes that the lump-sum distribution from his
pension plan as well as the amount previously borrowed from his
section 401(k) plan account should have been reported on his 2006
1
The instructions for Form W-2, box 13, state:
Check this box if the employee was an “active
participant” (for any part of the year) in any of the
following:
1. A qualified pension, profit-sharing, or stock-
bonus plan described in section 401(a) (including a
401(k) plan). Instructions for Forms W-2 and W-3 (rev.
2006), at 13.
- 4 -
Federal income tax return, which was prepared by Jackson Hewitt
Tax Service.
Petitioner had not reached age 59-1/2 when he received the
aforementioned distributions. He does not recall receiving a
Form 1099-R, Distributions From Pensions, Annuities, Retirement
or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., with
respect to his BASF pension distribution.
Discussion
I. Application of the Section 72(t) Additional Tax to
Petitioner’s Pension Plan and Section 401(k) Distributions
Section 72(t)(1) imposes a 10-percent additional tax on
any distribution from a “qualified retirement plan” that fails to
satisfy one of the exceptions in section 72(t)(2).2 Both
petitioner’s BASF pension plan and his section 401(k) plan are
qualified retirement plans, and distributions from each plan are
subject to the 10-percent additional tax. See secs. 401(a),
(k)(1), 4974(c)(1).
2
Sec. 72(t)(1) provides:
SEC. 72(t). 10-Percent Additional Tax on Early
Distributions from Qualified Retirement Plans.--
(1) Imposition of additional tax.--If any taxpayer
receives any amount from a qualified retirement plan
(as defined in section 4974(c)), the taxpayer’s tax
under this chapter for the taxable year in which such
amount is received shall be increased by an amount
equal to 10 percent of the portion of such amount which
is includible in gross income.
- 5 -
Section 72(t)(2) provides a list of exceptions to the
additional tax imposed by section 72(t)(1). None of the
exceptions applies to petitioner’s situation.3 We therefore
sustain respondent’s determination with respect to the section
72(t) additional tax.
II. Section 6662(a) Accuracy-Related Penalty
Section 6662(a) imposes an accuracy-related penalty equal to
20 percent of the underpayment of tax attributable to, inter
alia, a substantial understatement of income tax, as provided in
section 6662(b)(2). An understatement pursuant to section
6662(b)(2) is equal to the excess of the amount of tax required
to be shown on the tax return over the amount of tax shown on the
return. Sec. 6662(d)(2)(A). The understatement is substantial
in the case of an individual if it exceeds the greater of 10
percent of the tax required to be shown or $5,000. Sec.
6662(d)(1)(A). Respondent has the burden of production with
respect to the section 6662(a) accuracy-related penalty. See
sec. 7491(c). Respondent has met his burden of production.
3
Petitioner does not argue that the burden of proof on this
issue should be shifted to respondent under sec. 7491. In any
event, we do not decide the issue on the burden of proof. Also,
regardless of whether the additional tax under sec. 72(t) would
be considered an “additional amount” under sec. 7491(c) and
regardless of whether the burden of production with respect to
this additional tax would be on respondent, respondent has met
any such burden of production by showing that petitioner received
the distribution when he was less than age 59-1/2. See H. Conf.
Rept. 105-599, at 241 (1998), 1998-3 C.B. 747, 995.
- 6 -
The accuracy-related penalty does not apply to any part of
an underpayment of tax if it is shown that the taxpayer acted
with reasonable cause and in good faith. Sec. 6664(c)(1). This
determination is made on a case-by-case basis, taking into
account all the pertinent facts and circumstances. Sec. 1.6664-
4(b)(1), Income Tax Regs. Petitioner bears the burden of proof
that he had reasonable cause and acted in good faith. See
Higbee v. Commissioner, 116 T.C. 438, 446 (2001).
Petitioner relied on Jackson Hewitt Tax Service to prepare
his 2006 tax return. There is no evidence that his return
preparer was not competent or that petitioner was not justified
in relying on the preparer’s expertise in preparing his tax
return. Moreover, it does not appear from the record that
petitioner was anything but forthright with respect to
information he gave to his return preparer.
Petitioner credibly testified that: (1) He did not receive
a Form 1099-R reflecting his pension plan distribution and (2) he
believed the amount of the pension plan distribution was included
in the amount reported on his Form W-2 because Box 13 was
checked. Petitioner also credibly testified that he did not
understand: (1) The process involved in borrowing money from a
section 401(k) plan account, (2) that his debt had been canceled,
and (3) that the cancellation resulted in income. We are
satisfied that this is a case of a taxpayer who tried to file his
- 7 -
income tax return properly but was tripped up by the complexity
of the Internal Revenue Code. On the totality of the record, we
find that petitioner acted in good faith and with reasonable
cause. Thus, we hold that the accuracy-related penalty provided
by section 6662(a) is not applicable.
To reflect the foregoing,
Decision will be entered
under Rule 155.