T.C. Summary Opinion 2011-99
UNITED STATES TAX COURT
JAMES D. AND BOBBIE ROGERS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 25365-09S. Filed August 1, 2011.
James D. and Bobbie Rogers, pro se.
John T. Arthur, 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 when the petition was filed.1 Pursuant to
section 7463(b), the decision to be entered is not reviewable by
1
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. All dollar amounts are rounded to the nearest
dollar.
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any other court, and this opinion shall not be treated as
precedent for any other case.
Respondent determined a $1,500 deficiency in petitioners’
2007 Federal income tax. The issue for decision is whether
a $10,000 withdrawal by petitioner husband from his annuity in
2007 is includable as gross income.
Background
Some of the facts have been stipulated, and the stipulations
and accompanying exhibits are incorporated by this reference.
Petitioners resided in Georgia when the petition was filed.
Mr. Rogers (petitioner) was an employee of Lockheed Martin
Corp. during the period 1986 through 2003. During this period
petitioner participated in an employer-sponsored savings plan
into which he directed 8 percent of his after-tax salary. The
savings plan was composed of petitioner’s after-tax
contributions, employer contributions, and accumulated interest.2
Petitioner retired in 2003, and on July 17, 2003, the funds
in petitioner’s Lockheed savings plan were transferred to a
Pershing Government Account money market fund (Pershing).3 On
July 25, 2003, petitioner withdrew $16,000 from Pershing, leaving
a balance of $71,995.
2
The exact nature of this plan is not reflected in the
record.
3
The record reflects an initial investment of $87,995 in the
Pershing account.
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On August 18, 2003, petitioner rolled over the remaining
funds in Pershing to an annuity with Allianz Life Insurance Co.
of North America (Allianz annuity). The Allianz annuity was
established with an initial deposit of $71,892,4 with payments to
begin June 1, 2036. The application for the Allianz annuity,
under the heading “Qualified Plans”, reflects that the box “IRA
transfer/rollover” was checked.
Petitioner made the following deposit and withdrawals from
his Allianz annuity:
Date Deposit Withdrawal
Aug. 18, 2003 $71,892 ---
Mar. 18, 2004 --- $7,000
Nov. 15, 2005 --- 5,000
Apr. 27, 2006 --- 4,000
July 20, 2006 --- 2,500
Apr. 3, 2007 --- 10,000
Mar. 24, 2008 --- 59,231
Petitioner surrendered his Allianz annuity on March 24, 2008,
when he received $59,231.
Petitioner’s 2004, 2005, and 2006 Forms 1099-R,
Distributions From Pensions, Annuities, Retirement or Profit-
Sharing Plans, IRAs, Insurance Contracts, etc., reflect that
4
The record reflects that petitioner transferred
$72,002 from Pershing to the Allianz annuity, less $110 in fees,
totaling $71,892. The record does not provide an explanation of
the discrepancy between the balance in the Pershing account of
$71,995 and the transfer amount of $72,002.
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Federal and State income taxes were withheld at the time of the
respective withdrawals.5 Petitioner’s 2007 Form 1099-R reflects
that petitioner elected not to have Federal or State income taxes
withheld from the $10,000 withdrawal.6 Petitioners timely filed
a joint Form 1040, U.S. Individual Income Tax Return, for 2007.
Petitioners did not report the $10,000 withdrawal on their
jointly filed 2007 Federal income tax return. Respondent
determined that the $10,000 withdrawal in 2007 is includable in
gross income and issued petitioners a statutory notice of
deficiency determining a deficiency of $1,500 on July 27, 2009.
Discussion
I. Burden of Proof
Generally, the Commissioner’s deficiency determination is
presumed correct, and the taxpayer bears the burden of proving
that the determination is incorrect. See Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933).
Section 7491(a) provides generally that the burden of proof
regarding factual matters may shift to the Commissioner if the
taxpayer satisfies certain substantiation and recordkeeping
5
Allianz sent petitioner a Form 1099-R for each year he made
a withdrawal.
6
Sec. 3405(b) provides generally that the payor of any
nonperiodic distribution shall withhold an amount equal to 10
percent of the distribution unless the individual elects not to
have any amount withheld. The record reflects that no Federal or
State income taxes were withheld at the time of the final
disbursement of the Allianz annuity in 2008.
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requirements. Petitioners have not alleged, and we do not find,
that the burden of proof should shift to respondent. See sec.
7491(a)(2)(A) and (B). Therefore, petitioners bear the burden of
proof. See Rule 142(a).
II. Gross Income
The Internal Revenue Code defines “gross income” as “all
income from whatever source derived”, including annuities. See
secs. 61(a)(9), 72(a). Additionally, any amount paid or
distributed from an individual retirement account (IRA) shall be
included in gross income by the payee. Sec. 408(d)(1); sec.
1.408-4(a)(1), Income Tax Regs. Subject to certain specific
restrictions, a taxpayer is generally allowed to deduct his
qualified retirement contributions to an IRA, up to a specified
dollar amount, for the year in which the contributions are made.
See sec. 219; sec. 1.219-1(a), Income Tax Regs. Under certain
circumstances, a taxpayer may also make nondeductible
contributions to his IRA. See sec. 408(o).
A taxpayer generally has a zero basis in an IRA. Sec.
1.408-4(a)(2), Income Tax Regs. The taxpayer may have basis in
an IRA to the extent allocable to the investment in the contract.
See sec. 72(e); Hoang v. Commissioner, T.C. Memo. 2006-47. A
taxpayer’s investment in the contract is composed of
nondeductible contributions to the IRA, less any withdrawals or
distributions of the previously taxed contributions. Sec.
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72(e)(6); Campbell v. Commissioner, 108 T.C. 54, 61-62 (1997). A
taxpayer is not considered to have received gross income upon a
distribution of funds that represents a return of his investment
in the contract. Sec. 72(b).
Nondeductible contributions made to an IRA must be reported
annually on Form 8606, Nondeductible IRAs. See sec. 408(o)(4).
The Form 8606 instructions state that a taxpayer must keep copies
of records, including completed Forms 8606 for previous years, in
order for the taxpayer to verify the nontaxable portion of the
IRA withdrawal or distribution. Furthermore, amounts received
before the annuity starting date are includable in gross income
to the extent allocable to income on the contract and are not
includable in income to the extent allocable to the investment in
the contract.7 Sec. 72(e)(2)(B); Campbell v. Commissioner, supra
at 61.
Petitioner contends that the $10,000 withdrawal is not
includable in gross income because the funds initially deposited
into his Allianz annuity are allocable to the previously taxed
contributions he made into his Lockheed savings plan and thus
constitute a return of his investment in the annuity. Petitioner
further argues that the previously taxed funds in his Lockheed
7
Sec. 72(c)(4) defines “annuity starting date” as the first
day of the first period for which an amount is received as an
annuity under the contract. Petitioner withdrew $10,000 from his
annuity in 2007, before his annuity starting date in 2036.
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savings plan were not properly allocated as such when transferred
to his Allianz annuity.
To establish whether the $10,000 withdrawal is includable in
petitioners’ 2007 gross income, we must determine the amount of
petitioner’s investment in the Allianz annuity. According to the
contract with Allianz, petitioner’s deposit, totaling $71,892,
was derived from untaxed earnings. The Allianz contract does not
make any reference to previously taxed funds.
Petitioner asserted at trial that he had documentation to
support the position that he had contributed approximately
$80,000 of previously taxed funds into his Lockheed savings plan
by the time he retired in 2003. He further argues that the
previously taxed funds were ultimately transferred to the Allianz
annuity. Petitioner seeks to support his position with
incomplete documents, in addition to vague testimony.8
Respondent acknowledges that the documents petitioner
provided support the assertion that petitioner made some after-
tax contributions to his employer-sponsored savings plan. These
after-tax contributions generally would represent petitioner’s
8
The Court left the record open to permit petitioner an
opportunity to substantiate his claim. Despite being provided an
opportunity to submit additional documents, petitioner did not
submit any additional documents for the Court’s consideration.
The Court accordingly closed the record and deemed the case
submitted.
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investment if petitioner could identify or trace the
contributions to any remaining funds in the plan.9
We conclude from the documents petitioner submitted that he
contributed a minimum of $5,92610 in after-tax dollars to his
Lockheed savings plan.11 Petitioner made multiple withdrawals
from his account, including a $16,000 withdrawal from Pershing in
2003. Petitioner failed to establish that the $16,000 withdrawal
did not deplete any investment that petitioner may have had in
the Lockheed savings account. Petitioner offered no
documentation to support an investment in his Lockheed savings
plan in excess of $5,926.
Petitioner did not provide copies of completed Forms 8606,
on which taxpayers are required to designate nondeductible
contributions to an IRA. See sec. 408(o)(4). It is the
9
There is no documentation to indicate whether petitioner
withdrew his after-tax contributions from his Lockheed savings
plan before he retired in 2003.
10
This amount was calculated by adding: (1) The post-1986
after-tax contributions of $3,247.55 specified on the Salaried
Savings Plan quarterly statement for the period 1/1/01 through
3/31/01, (2) the year-to-date Salaried Savings Plan after-tax
savings of $1,321.97 specified on petitioner’s Lockheed earnings
statement for the period 3/16/02 through 3/22/02, and (3) the
after-tax employee contributions of $1,356.42 specified on the
Salaried Savings Plan quarterly statement for the period 1/1/03
through 3/31/03. The total, $5,925.94, has been rounded up to
the nearest dollar.
11
Although we conclude that petitioner made after-tax
contributions of $5,926 to his Lockheed savings plan, there is no
documentation to show whether petitioner withdrew those after-tax
contributions before he retired.
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taxpayer’s responsibility to maintain records sufficient to
enable the Commissioner to determine his correct tax liability.
Sec. 6001; sec. 1.6001-1(a), Income Tax Regs. Although we found
petitioner’s testimony to be generally credible, petitioner’s
testimony by itself was insufficient to substantiate an
investment in his Lockheed savings plan, and therefore, in his
Allianz annuity.
On the basis of the foregoing, respondent’s determination is
sustained.
To reflect the foregoing,
Decision will be entered
for respondent.