Lonnie Wayne Hubbard

United States Tax Court

T.C. Memo. 2024-16

LONNIE WAYNE HUBBARD,
Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,
Respondent

—————

Docket No. 4464-21. Filed February 6, 2024.

—————

Lonnie Wayne Hubbard, pro se.

Phillip A. Lipscomb, for respondent.

MEMORANDUM OPINION

MARSHALL, Judge: In a notice of deficiency dated November 16,
2020 (Notice), respondent determined a deficiency of $165,353, an
addition to tax of $37,204 under section 6651(a)(1) 1 for failure to timely
file, an addition to tax of $28,937 under section 6651(a)(2) for failure to
timely pay, and an addition to tax of $3,959 under section 6654(a) for
failure to make estimated tax payments for petitioner’s 2017 tax year.
Respondent filed a Motion for Summary Judgment (Motion) with
supporting exhibits, wherein he requests that a decision be entered in
this case sustaining most of the proposed deficiency, as well as the

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the
Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and
Rule references are to the Tax Court Rules of Practice and Procedure. Except where
otherwise indicated, all monetary amounts are rounded to the nearest dollar.

Served 02/06/24
 2

[*2] failure to file and failure to pay additions to tax for petitioner’s 2017
tax year. 2

The issues for decision are whether (1) petitioner is liable for tax
with respect to a distribution from petitioner’s individual retirement
account (IRA) of $427,518 for the 2017 tax year and (2) whether
petitioner is liable for additions to tax for failure to timely file and failure
to timely pay. As discussed below, we conclude that petitioner
constructively received the income at issue; and because there is no
genuine dispute of material fact, we will grant respondent’s Motion.

Background

The following facts are derived from the pleadings, the parties’
Motion papers, and the Exhibits and Declarations attached thereto.
Petitioner stated that his legal residence was in Kentucky, and
petitioner was imprisoned in West Virginia, when the Petition was
timely filed.

On December 3, 2015, petitioner was indicted, as modified by
subsequent superseding indictments, for various crimes related to the
distribution of controlled substances and listed chemicals in violation of
21 U.S.C. §§ 841(a)(1), 841(c)(2), 846, 856(a)(1), and 18 U.S.C. §§ 2,
1956(h), and 1957. Before his criminal conviction, petitioner was a
pharmacist in Kentucky. The indictments included allegations with
respect to petitioner’s assets, including a T. Rowe Price Associates, Inc.
employee IRA (T. Rowe Price IRA). In 2017, following a jury trial,
petitioner was found guilty on most of the counts in the superseding
indictment, and petitioner’s property listed in the indictment, including
the IRA, was condemned and forfeited to the United States of America
(USA). In addition to forfeiture of his assets, petitioner was sentenced
to imprisonment for a term of 360 months, three years of supervised
release, and a criminal monetary penalty of $7,100. Petitioner was
incarcerated on February 16, 2017, and remained incarcerated during
all relevant times.

T. Rowe Price Trust Company Retirement Operations Group
(T. Rowe Price) issued petitioner Form 1099–R, Distributions From
Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs,
Insurance Contracts, etc., for the 2017 tax year, reporting an early

2 Respondent has conceded the 10% additional tax on an early distribution from

a qualified retirement plan under section 72(t) and the addition to tax under section
6654 for failure to pay proper estimated tax.
 3

[*3] taxable distribution of $427,518 from petitioner’s T. Rowe Price
IRA. Petitioner did not file a federal income tax return for the 2017 tax
year. In connection with his not having filed a federal income tax return,
petitioner did not report the $427,518, which was forfeited directly to
the USA.

Petitioner made no payments with respect to his 2017 Federal
income tax liability. Through respondent’s Automated Substitute for
Return Program, respondent prepared a substitute for return (SFR) as
authorized by section 6020(b) for petitioner’s 2017 tax year. On
February 18, 2020, respondent sent petitioner a Notice 2566, informing
him that, despite prior notices, respondent had not yet received Form
1040, U.S. Individual Income Tax Return, from petitioner for the 2017
tax year and warning him that respondent would assess tax should
petitioner fail to file by March 19, 2020.

On November 16, 2020, respondent issued the Notice. Petitioner
timely petitioned the Court on February 10, 2021, contesting the
deficiency.

On March 3, 2023, respondent filed the Motion. On April 3, 2023,
petitioner filed a Response objecting to respondent’s Motion
(Opposition). In his Opposition, petitioner agrees to the facts above but
objects to the deficiency on the basis that the funds were transferred
directly to the USA and that he never constructively received them.
Petitioner also argues that he had reasonable cause for his failure to
timely file a return and failure to timely pay the tax shown on the SFR
because he was incarcerated on February 16, 2017, and his assets were
criminally forfeited. He further asserts that he has earned no income
since his indictment in December 2015 and was unable to pay the tax
deficiency because of lack of funds. Additionally, he asserts that he did
not receive the Form 1099–R from T. Rowe Price because his wife
divorced him, did not communicate with him, and was not forwarding
his mail. Petitioner’s Opposition suggests, but does not directly state,
that the Form 1099–R was sent to his ex-wife or that she received it and
failed to forward it to him. Petitioner maintains that he lost most of his
assets in his divorce, as his wife received their shared home, all
possessions in the home, and the contents of their joint bank account.
Finally, he emphasizes his history of paying his income tax from 2002
through 2015.
 4

[*4] Discussion

I. Summary Judgment Standard

The purpose of summary judgment is to expedite litigation and
avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp.
v. Commissioner, 90 T.C. 678, 681 (1988). Under Rule 121(a), we may
grant summary judgment when there is no genuine dispute as to any
material facts and a decision may be rendered as a matter of law.
Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17
F.3d 965 (7th Cir. 1994).

The burden is on the moving party to demonstrate that no
genuine dispute as to any material fact remains and that it is entitled
to judgment as a matter of law. FPL Grp., Inc. & Subs. v. Commissioner,
116 T.C. 73, 74–75 (2001). In deciding whether to grant summary
judgment, we construe factual materials and inferences drawn from
them in the light most favorable to the nonmoving party. Sundstrand,
98 T.C. at 520. However, the nonmoving party may not rest upon the
mere allegations or denials in its pleadings but instead must set forth
specific facts showing that there is a genuine dispute for trial. Rule
121(d); Sundstrand, 98 T.C. at 520.

Petitioner contends that summary judgment is inappropriate
because the parties disagree over whether petitioner constructively
received the funds from his T. Rowe Price IRA. Constructive receipt,
however, is a legal doctrine. See Corliss v. Bowers, 281 U.S. 376 (1930).
The underlying facts, including that petitioner’s T. Rowe Price IRA was
forfeited to the USA and that petitioner never physically received the
funds in the account, are agreed by the parties. Whether the doctrine of
constructive receipt is properly applied to these facts is a question of
law, not fact. As petitioner has raised no genuine dispute of material
fact and the disagreements between the parties relate to disputes about
the law rather than facts, summary adjudication is appropriate.

II. Deficiency

A. Generally

Section 61(a) provides that gross income means “all income from
whatever source derived.” This includes all “accessions to wealth,
clearly realized, and over which the taxpayers have complete dominion.”
James v. United States, 366 U.S. 213, 219 (1961) (quoting Commissioner
v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955)). It is clear that pension
 5

[*5] and IRA distributions (with exceptions not applicable here) are
generally taxable as income. §§ 61(a)(10), 408(d)(1); Cabirac v.
Commissioner, 120 T.C. 163, 167 (2003), aff’d per curiam, No. 03-3157,
2004 WL 7318960 (3d Cir. Feb. 10, 2004).

Gross income under section 61(a) also includes items of income
that the taxpayer has constructively received. “Under the constructive
receipt doctrine ‘funds [or other property] which are subject to a
taxpayer’s unfettered command and which he is free to enjoy at his
option are constructively received by him whether he sees fit to enjoy
them or not.’” Estate of Caan v. Commissioner, No. 14783-18, 161 T.C.,
slip op. at 20 (Oct. 18, 2023) (quoting Estate of Brooks v. Commissioner,
50 T.C. 585, 592 (1968)); accord Benes v. Commissioner, 42 T.C. 358, 381
(1964), aff’d, 355 F.2d 929 (6th Cir. 1966); see also Corliss, 281 U.S.
at 378; Treas. Reg. § 1.451-2(a). As discussed below, this Court has
consistently applied the constructive receipt doctrine in cases where the
taxpayer’s assets were forfeited.

Where a taxpayer’s funds are criminally forfeited to the USA to
satisfy a forfeiture judgment, he is not relieved of the income tax
consequences that would have attached to the funds without said
forfeiture. See Gambina v. Commissioner, 91 T.C. 826, 828–29 (1988).
Instead, by forfeiting the funds, the taxpayer has realized the benefits
of them and must recognize the funds as gross income to the same extent
as if the taxpayer had physically received them. See Carione v.
Commissioner, T.C. Memo. 2008-262, 96 T.C.M. (CCH) 354, 357; cf. Old
Colony Tr. Co. v. Commissioner, 279 U.S. 716, 729 (1929) (“[D]ischarge
by a third person of an obligation to [the taxpayer] is equivalent to
receipt by the person taxed.”). More specifically, IRA funds constitute
gross income as an involuntary distribution when forfeited to a third
party. See, e.g., Rodrigues v. Commissioner, T.C. Memo. 2015-178,
at *11 (holding that taxpayer constructively received IRA distribution
when the distribution was made from taxpayer’s IRA to satisfy fine and
restitution related to criminal conviction and the distribution was
includible in taxpayer’s gross income); Schroeder v. Commissioner, T.C.
Memo. 1999-335, 78 T.C.M. (CCH) 566, 568 (holding that taxpayer
constructively received IRA distribution when the Commissioner levied
on taxpayer’s IRA and the distribution was includible in taxpayer’s gross
income even though the funds were paid to the Commissioner); Murillo
v. Commissioner, T.C. Memo. 1998-13, 75 T.C.M. (CCH) 1564, 1565–66
(same where taxpayer’s IRA was subject to a civil forfeiture to USA),
aff’d, 166 F.3d 1201 (2d Cir. 1998) (unpublished table decision); Santilli
v. Commissioner, T.C. Memo. 1995-278, 69 T.C.M. (CCH) 2974, 2975
 6

[*6] (holding that taxpayer had dominion and control over interest
income from interest-bearing bank accounts that were subsequently
forfeited as part of a criminal forfeiture, and therefore were includible
in taxpayer’s gross income); see also Larotonda v. Commissioner, 89 T.C.
287, 291 (1987) (holding that payment of federal taxes by means of levy
on a Keogh retirement account resulted in constructive receipt of the
funds by taxpayer that were includible in the taxpayers’ gross income).

B. Petitioner’s Arguments

Respondent contends that petitioner constructively received gross
income when he criminally forfeited his T. Rowe Price IRA. In the light
of the aforementioned caselaw, we agree. Petitioner argues, however,
that the cases respondent cites, Carione, Santilli, Old Colony Trust Co.,
and Murillo, do not support the position that petitioner constructively
received gross income when he involuntarily forfeited his T. Rowe Price
IRA pursuant to a criminal forfeiture.

Specifically, petitioner argues that Carione is inapposite to the
present case because the taxpayer in Carione willfully sold his business
and then applied the sale proceeds toward a criminal forfeiture. He
argues that Santilli is also inapplicable here because that case was
heard pursuant to section 7443A(b)(3) and the taxpayer did not address
whether he constructively received the interest income in question.
Petitioner argues that Old Colony Trust Co. does not address
constructive receipt and that respondent relies on an out-of-context
quote to support his position. Finally, petitioner argues that Murillo
does not support respondent’s position because in that case the taxpayer
willfully settled a forfeiture action by purposefully forfeiting several
IRAs that were unrelated to his criminal charges. We are unpersuaded
by petitioner’s arguments and address each of these cases, as well as
other relevant caselaw, below.

C. Analysis

As discussed above, the Court has consistently applied the
constructive receipt doctrine to cases involving both voluntary and
involuntary forfeitures. We have held that, where a taxpayer’s funds
are criminally forfeited to the USA to satisfy a forfeiture judgment, he
has constructively received the funds, and the funds are includible in
the taxpayer’s gross income. See Gambina, 91 T.C. at 828–29; Carione,
96 T.C.M. (CCH) at 357; Santilli, 69 T.C.M. (CCH) at 2975. The Court
has applied this rule in cases where the asset seized was a retirement
 7

[*7] account. See Larotonda, 89 T.C. at 291; Schroeder, 78 T.C.M. (CCH)
at 568. Moreover, a taxpayer that involuntarily forfeited an IRA that
was directly paid to a third party constructively received the IRA
distribution and the taxpayer had to include amount of the distribution
in his gross income. Rodrigues, T.C. Memo. 2015-178, at *11; Murillo,
75 T.C.M. (CCH) at 1566. These cases are based on the application of
the constructive receipt doctrine. Accordingly, as discussed in detail
below, the funds from petitioner’s T. Rowe Price IRA that were forfeited
to the USA as an involuntary distribution are includible in his gross
income for the 2017 tax year.

In Carione, 96 T.C.M. (CCH) at 355, the taxpayer was the sole
shareholder of an S corporation. The taxpayer was indicted with others
on charges of money laundering, conspiracy, and other crimes under the
Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C.
§§ 1961–1968 (2006). Carione, 96 T.C.M. (CCH) at 355. The indictment
also asked for RICO forfeiture of assets that the taxpayer had acquired
or maintained in violation of RICO. Id. The district court issued a
restraining order prohibiting the taxpayer from selling the assets of the
S corporation without the approval of the court. Id. The taxpayer
obtained the permission of the district court and sold the S corporation’s
assets to a third party and deposited the $548,309 proceeds into an
escrow account to be withdrawn only by an order of the court. Id. As
part of the taxpayer’s plea agreement, the district court issued a consent
order of forfeiture signed by the taxpayer and the other defendants that
they were jointly and severally liable for a $6.9 million forfeiture
judgment. Id. The consent order and forfeiture also provided that the
proceeds from the sale of the S corporation’s assets were subject to
forfeiture to pay the balance due as of the payment deadline. Id. In
August 2000 the sale proceeds were ordered to be withdrawn from the
escrow account and applied to the forfeiture judgment. Id.

The taxpayer reported the net capital gain from the sale of the
S corporation’s assets on the S corporation’s 1998 return and his
individual 1998 return as passthrough income. Id. at 355–56. He paid
the tax associated with the sale in 2000. Id. at 356. Subsequently, the
taxpayer filed an amended 1998 return asserting that the proceeds
should not be taxable to him because they were directly forfeited to the
U.S. Government and he never had dominion and control over them. Id.
The Commissioner did not allow a refund of the taxes paid, and the
taxpayer sued the Commissioner in district court for a refund. Id. The
district court ruled in the taxpayer’s favor and held that the proceeds
were taxable to the taxpayer in 2000 when they were ordered to be
 8

[*8] withdrawn from the escrow account and were used to satisfy
taxpayer’s forfeiture judgment. Id. The Commissioner mailed the
taxpayer a notice of deficiency for the 2000 tax year for the tax owed on
the sale of the S corporation’s assets. Id.

Before the Tax Court, the taxpayer in Carione made the same
argument that petitioner makes here: Because the sale proceeds were
paid directly to the U.S. Government, the taxpayer never had dominion
or control over them such that he could not have constructively received
those amounts. Id. The Court addressed the taxpayer’s dominion and
control argument by quoting the district court’s analysis on the issue.
The district court stated that the caselaw demonstrates “that a taxpayer
does not gain income only through his dominion and control over
something; a taxpayer also realizes taxable income where he ‘obtains the
fruition of the economic gain which has already accrued to him’.” Id.
at 357 (quoting Carione v. United States, 368 F. Supp. 2d 186, 194
(E.D.N.Y. 2005)). Thus the Court, like the district court, relied on
caselaw holding that an individual should be taxed on an economic
benefit conferred upon him if the benefit has an ascertainable value and
that the discharge by a third person of a taxpayer’s obligation is
equivalent to receipt by the taxpayer. Id. at 357–58. Accordingly, the
Court held that the sale proceeds were taxable to the taxpayer in 2000
because the taxpayer received the economic benefit of the proceeds when
the district court ordered the sale proceeds be released from escrow to
satisfy the taxpayer’s obligation under the criminal forfeiture. Id.
at 358.

Furthermore, the taxpayer in Santilli was convicted for the illegal
sale of narcotics and forfeited to the State of Rhode Island three interest-
bearing bank accounts that held the proceeds from the narcotics sales.
Santilli, 69 T.C.M. (CCH) at 2974. The Court considered whether the
interest earned in the forfeited accounts was excludable from gross
income because the interest was forfeited as a result of the taxpayer’s
conviction and, if not, whether the taxpayer was entitled to a deduction
under section 165(a). Id. Similar to the taxpayer in Carione, the
taxpayer argued that the interest earned on the forfeited accounts
should be excluded from his gross income because he never received the
interest income and never had a chance to use it. Santilli, 69 T.C.M.
(CCH) at 2974.

The Court restated the standard under section 61 that gross
income includes “all income from whatever source derived” and that it
includes “all ‘accessions to wealth . . . over which the taxpayers have
 9

[*9] complete dominion.’” Santilli, 69 T.C.M. (CCH) at 2975 (quoting
James, 366 U.S. at 219); see also Glenshaw Glass Co. v. Commissioner,
348 U.S. at 431 (“Here we have instances of undeniable accessions to
wealth, clearly realized, and over which the taxpayers have complete
dominion. The mere fact that the payments were extracted from the
wrongdoers as punishment for unlawful conduct cannot detract from
their character as taxable income to the recipients.”). The Court also
noted that “a taxpayer obtains possession, custody, and control of
unlawfully acquired proceeds on the date he acquires such proceeds.”
Santilli, 69 T.C.M. (CCH) at 2975 (citing Ianniello v. Commissioner,
98 T.C. 165, 173 (1992)). In Ianniello, the Court held that such proceeds
were gross income in the year in which they were acquired even though
they were subsequently forfeited in a later year. Ianniello, 98 T.C.
at 173. Relying on these authorities and principles, the Court in Santilli
held that the interest the taxpayer earned in the seized and forfeited
accounts was income to him in the year the interest was earned.
Santilli, 69 T.C.M. (CCH) at 2975. The Court also held that the
taxpayer was not entitled to a section 165(a) deduction because allowing
such a deduction would violate a clearly defined public policy in the
United States against trafficking in narcotics. Santilli, 69 T.C.M. (CCH)
at 2975.

We note that Santilli was heard pursuant to section 7443A(b)(3).
Section 7443A(b)(3) provides that a Tax Court proceeding where neither
the amount of the deficiency placed in dispute nor the amount of any
claimed overpayment exceeds $50,000 may be assigned to a special trial
judge. However, Santilli was not designated a small tax case that is
described in section 7463(a). 3 We further note that Santilli is consistent
with the relevant body of caselaw.

In Old Colony Trust Co. v. Commissioner, 279 U.S. at 719–20, the
executor of the taxpayer’s will challenged the Commissioner’s deficiency
determination that the taxpayer owed additional tax where the
taxpayer’s employer paid all of the taxpayer’s federal and state income
taxes. The Court considered whether the employer’s payment of the
income taxes assessed against the employee constituted additional
taxable income to the employee. Id. at 720. The Court agreed with the

3 Section 7463(b) provides that in the case of disputes involving $50,000 or less

that are described in section 7463(a) (i.e. small tax cases) where the taxpayer has opted
to proceed with the case as a small tax proceeding, a decision entered in such a
proceeding is not reviewable by any other court and shall not be treated as precedent
for any other case.
 10

[*10] Board of Tax Appeals and held that the employer’s payment of the
employee’s tax obligation was in consideration of the services rendered
by the employee and constituted additional taxable income to the
employee. Id. at 729. The Court expressly stated that the form of the
payment did not make a difference and that it was immaterial that the
taxes were directly paid to the Government. Id. It further explained
that “[t]he discharge by a third person of an obligation to him is
equivalent to receipt by the person taxed.” Id.

The Court’s decision in Old Colony Trust Co. preceded its decision
in Glenshaw Glass Co. However, its analysis in Old Colony Trust Co.
discussed the principle that gross income is broadly defined and that it
includes a taxpayer’s accession to wealth, which was later crystallized
in Glenshaw Glass Co. Implicit in the Court’s holding in Old Colony
Trust Co. was that the employer’s payment of the employee’s tax
obligation constituted an accession of wealth to the employee because he
did not have to pay the liability himself. This Court has reaffirmed
numerous times the principle that gross income is broadly defined and
includes an accession to wealth (including a discharge of liabilities). See
Young v. Commissioner, 113 T.C. 152, 157 (1999) (holding that taxpayer
realized gross income where taxpayer’s obligation to pay attorney’s fees
was discharged because taxpayer’s attorney’s fees were paid directly out
of certain sale proceeds), aff’d, 240 F.3d 369 (4th Cir. 2001); O’Malley v.
Commissioner, 91 T.C. 352, 361 (1988) (holding that taxpayer realized
gross income where a pension fund paid his legal fees related to a
criminal indictment); Huff v. Commissioner, 80 T.C. 804, 814 (1983)
(holding that payment by a third party of taxpayer’s civil liabilities
constituted gross income to the taxpayer); Chambers v. Commissioner,
T.C. Memo. 2000-218, 80 T.C.M. (CCH) 73, 75 (holding amounts
garnished from employee’s wages for alimony and child support were
includible in employee’s income), aff’d, 17 F. App’x 688 (9th Cir. 2001);
Vorwald v. Commissioner, T.C. Memo. 1997-15, 73 T.C.M. 1697,
1698–99 (holding that amounts transferred from taxpayer’s retirement
account to his former spouse in garnishment proceeding constituted
deemed distributions to taxpayer from his retirement account and were,
therefore, includible in his income). While the facts of these cases are
different, they are all based on the foundational principle that a third
party’s discharge of a taxpayer’s obligation is an accession to wealth for
the taxpayer.

In Larotonda, 89 T.C. at 291, the Court held that the taxpayer
constructively received $22,341 from his Keogh account and that the
proceeds had to be included in the taxpayer’s gross income when the
 11

[*11] funds were levied from the Keogh account to pay the taxpayer’s
tax liability. Next, the Court held that the early withdrawal additional
tax on distributions from Keogh plans under section 72(m)(5) did not
apply. Larotonda, 89 T.C. at 292. In reaching this second conclusion,
the Court relied on the purpose of the early withdrawal additional tax
under section 72(m)(5), which it said was to prevent voluntary, tax-
motivated withdrawal of funds by taxpayers before retirement age.
Larotonda, 89 T.C. at 292. The Court stated that the withdrawal in
Larotonda was involuntary because the funds were withdrawn pursuant
to the Commissioner’s levy and without the taxpayer’s participation. Id.
Thus, even though the withdrawal from the taxpayer’s Keogh account
was involuntary and the funds were paid directly to the USA pursuant
to the Commissioner’s levy, the taxpayer was deemed to constructively
receive the funds under section 72(m)(4)(A). 4

In Murillo, 75 T.C.M. (CCH) at 1564, the taxpayer pleaded guilty
to several financial crimes, including structuring cash deposits into
bank accounts for the purpose of avoiding federal currency transaction
reporting requirements. In a related civil proceeding, the taxpayer
agreed to forfeit several financial accounts, including two IRAs, to the
USA. Murillo, 75 T.C.M. (CCH) at 1564–65. The taxpayer reported
$230,161, the total amount forfeited from the IRAs, as taxable income
on his return for the year of the forfeiture but did not include the 10%
additional tax on early distributions pursuant to section 72(t). Murillo,
75 T.C.M. (CCH) at 1565. The taxpayer also claimed a section 165 loss
of $273,417 on Schedule C, Profit or Loss From Business, that the
Commissioner disallowed, attributed to the forfeiture. Murillo, 75
T.C.M. (CCH) at 1565.

The Court disallowed the section 165(a) loss deduction because
allowing the taxpayer a loss deduction for losses arising from illegal
activities would undermine a clearly defined public policy against
structuring transactions. Murillo, 75 T.C.M. (CCH) at 1565. Next, the
Court considered whether the taxpayer was subject to the section 72(t)
additional tax on early distributions with respect to his IRA forfeitures.
The Court rejected the Commissioner’s argument that the section 72(t)
tax applies regardless “of actual receipt by or benefit to the taxpayer or

4 Section 72(m)(4) provided that if, during a tax year, an owner-employee

assigned or pledged (or agreed to assign or pledge) any portion of his interest in a trust
described in section 401(a), the portion assigned or pledged would be treated as having
been received by the owner-employee as a distribution from the trust.
 12

[*12] the ‘voluntary’ nature of the distribution.” Murillo, 75 T.C.M.
(CCH) at 1566–67.

Relying on Larotonda, the Court in Murillo, 75 T.C.M. (CCH)
at 1566, first noted that the taxpayer “constructively received the IRA
distributions when his accounts were forfeited and cannot escape
taxation on the basis that the funds were disbursed to a third party.”
The Court addressed this threshold issue because, if the distributions
were not included in gross income, then there could not have been
additional tax under section 72(t). 5 See § 72(t)(1) (providing that the
amount of the additional tax is “equal to 10 percent of the portion of such
amount [of an early distribution] which is includible in gross income”).
After addressing the threshold issue of whether the distributions were
includible in gross income, the Court held that the additional tax under
section 72(t) did not apply because the decree of forfeiture triggered, and
was the event that constituted, the IRA withdrawals. Murillo, 75 T.C.M.
(CCH) at 1566. As in Larotonda, the Court did not believe that Congress
intended the additional tax under section 72(t) to apply in the context of
a forfeiture because the presence of a taxpayer’s obligation “is less
clearly defined in the case of a forfeiture than when there is a levy to
satisfy a previously determined tax liability.” Murillo, 75 T.C.M. (CCH)
at 1566.

Petitioner argues that Murillo does not support respondent’s
position that petitioner constructively received the IRA distribution
because the taxpayer in Murillo purposefully distributed his IRA
accounts and voluntarily reported the income on his return. In contrast,
petitioner argues he did not take any willful or voluntary act to
distribute the IRA that was forfeited. Finally, petitioner argues that
Larotonda is no longer good law because the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, § 236(b)(1), 96
Stat. 324, 510, repealed and superseded section 72(m)(4), the provision
that was at issue in Larotonda.

Petitioner misreads Murillo. In Murillo the Court expressly
stated that “[w]e do not believe the circumstances surrounding the plea
agreement were such as to impart a ‘voluntary’ patina to the IRA
withdrawals. In the final analysis, [the taxpayer] had no realistic

5 The Court did not have to specifically decide the threshold issue of whether

the distributions should be included in gross income in Murillo because the taxpayer
included the distributions in income on his 1992 return and the parties did not dispute
this point.
 13

[*13] choice.” Murillo, 75 T.C.M. (CCH) at 1567. Similarly, this case
involves an involuntary distribution, and this Court has held that
involuntary distributions from retirement accounts constituted gross
income to the taxpayer, even where the distributions were paid to a third
party. 6 For instance, in Rodrigues, T.C. Memo. 2015-178, at *2, the
taxpayer was the plan administrator for the United Public Workers
Mutual Aid Trust Fund (UPW plan) and was convicted of fraud, money
laundering and other crimes in relation to his operation of the UPW
plan. As part of his conviction, he was ordered to pay a $50,000 fine to
the district court and $378,104 in restitution to United Public Workers
(UPW). Id. The district court ordered the taxpayer’s IRA administrator
to disburse the funds it held in the taxpayer’s IRA to satisfy the
taxpayer’s fine and restitution obligations. Id. at *3. Subsequently, the
IRA administrator issued checks from the taxpayer’s IRA account to the
clerk of the district court and the UPW. Id. at *4.

The taxpayer, like petitioner, argued that the distribution should
not be taxable because he personally did not receive the funds nor
receive a benefit from the funds and the withdrawals were involuntary.
Id. at *11. Citing Larotonda and Old Colony Trust Co., the Court held
that the taxpayer constructively received the IRA distributions when
they were made by the IRA administrator to the district court and the
UPW in satisfaction of the taxpayer’s obligations and that he could not
escape taxation because the funds were disbursed to third parties. Id.
at *11–12. The Court noted that the fact that the transfer was
involuntary had no significance. Id. at *11.

Similarly, in Schroeder, 78 T.C.M. (CCH) at 567, the
Commissioner levied on the taxpayer’s IRA, and the IRA administrator
distributed funds from the taxpayer’s IRA to the Commissioner. The
taxpayer argued that he was not taxable on the distribution because he
did not receive the funds or benefit therefrom, and because the
distribution was involuntary. Id. at 568. The Court reached the same
conclusion as in Rodrigues and held that “[a] taxpayer constructively
receives an IRA distribution when his or her account is levied and is
taxed on it even though the funds are paid to a third party.” Id. (first
citing Larotonda, 89 T.C. at 291; and then citing Vorwald, 73 T.C.M.
(CCH) at 1698–99).

6 See also Larotonda, 89 T.C. at 291 (holding that the Commissioner’s levy on

the taxpayer’s Keogh account was an involuntary assignment of the Keogh funds, and
therefore the taxpayer constructively received those funds).
 14

[*14] Moreover, we disagree with petitioner that Larotonda was
abrogated by the repeal of section 72(m)(4). Former section 72(m)(4)(A)
was replaced by section 72(p)(1)(B), which is substantially similar to
section 72(m)(4)(A). 7 In addition, this Court has continued to cite
Larotonda as binding precedent. See Rodrigues, T.C. Memo. 2015-178,
at *11; Swanton v. Commissioner, T.C. Memo. 2010-140, 99 T.C.M.
(CCH) 1576, 1578; Schroeder, 78 T.C.M. (CCH) at 568; Murillo, 75
T.C.M. (CCH) at 1566; Pilipski v. Commissioner, T.C. Memo. 1993-461,
66 T.C.M. (CCH) 984, 984. In short, Larotonda was not abrogated by
the repeal of section 72(m)(4).

The funds from petitioner’s T. Rowe Price IRA were forfeited to
the USA as an involuntary distribution. Though they were not under
his control, petitioner constructively received the funds by having
received the economic benefit of the funds through satisfaction of his
forfeiture liability to the USA. See Old Colony Tr. Co., 279 U.S. at 729;
Larotonda, 89 T.C. at 291; Carione, 96 T.C.M. (CCH) at 358. Moreover,
the fact that petitioner did not willfully or purposefully cause the
distribution is irrelevant. See Rodrigues, T.C. Memo. 2015-178, at *11;
Schroeder, 78 T.C.M. (CCH) at 568. Petitioner constructively received
and must include in his gross income a taxable distribution of $427,518
from his retirement account with T. Rowe Price.

III. Additions to Tax

In the Notice, respondent determined that petitioner was liable
for an addition to tax of $37,204 under section 6651(a)(1) for failure to
timely file, an addition to tax of $28,937 under section 6651(a)(2) for
failure to timely pay, and an addition to tax of $3,959 under section
6654(a) for failure to make estimated tax payments. Respondent has
since conceded the addition to tax under section 6654(a).

Respondent bears the burden of producing sufficient evidence to
show that it is appropriate to impose the additions to tax. See § 7491(c);
Wheeler v. Commissioner, 127 T.C. 200, 206 (2006), aff’d, 521 F.3d 1289
(10th Cir. 2008); Higbee v. Commissioner, 116 T.C. 438, 446–47 (2001). 8
Once the Commissioner meets the burden of production under section
7491(c), the taxpayer bears the burden of proving the additions to tax do

7Section 72(m)(4) was repealed by TEFRA § 236(b)(1), 96 Stat. at 510.
Compare former § 72(m)(4) with § 72(p)(1)(B).
8 The written supervisory approval requirement found in section 6751(b)(1)

does not apply to section 6651 additions to tax. § 6751(b)(2)(A).
 15

[*15] not apply because of reasonable cause or other exculpatory factors.
Wheeler, 127 T.C. at 206; Higbee, 116 T.C. at 447.

Section 6651(a)(1) imposes an addition to tax if a taxpayer fails to
timely file a required income tax return, unless the taxpayer proves that
such failure is due to reasonable cause and not due to willful neglect.
United States v. Boyle, 469 U.S. 241, 245 (1985). The addition to tax
under section 6651(a)(1) is 5% of the tax required to be shown on the
return if the failure to file does not exceed 1 month, with an additional
5% per month while the failure continues, up to a maximum of 25%. A
return is generally considered filed with the Internal Revenue Service
(IRS) when the return is delivered to and received by the IRS. See, e.g.,
United States v. Lombardo, 241 U.S. 73, 76 (1916); Trout v.
Commissioner, 131 T.C. 239, 246 (2008).

Section 6651(a)(2) imposes an addition to tax for failure to timely
pay the amount shown as tax due on a return, unless the taxpayer
proves that such failure is due to reasonable cause and not due to willful
neglect. El v. Commissioner, 144 T.C. 140, 150 (2015). The addition to
tax under section 6651(a)(2) is 0.5% of the tax required to be paid if the
failure does not exceed 1 month, with an additional 0.5% per month
while the failure continues, up to a maximum of 25%. In a case such as
this, where the taxpayer did not file a return, the Commissioner must
introduce evidence that an SFR satisfying the requirements of section
6020(b) was made. Wheeler, 127 T.C. at 210.

The SFR prepared by the Commissioner is disregarded for
purposes of determining the amount of the taxpayer’s liability for the
addition to tax under section 6651(a)(1). § 6651(g)(1). The SFR
constitutes the return for purposes of the addition to tax under section
6651(a)(2), and the amount of the taxpayer’s liability for that addition
to tax is determined on the basis of his failure to pay the tax shown on
the SFR. § 6651(g)(2).

As discussed above, the section 6651(a)(1) and (2) additions to tax
may be reduced if the taxpayer can establish that his failure to file and
failure to pay were due to reasonable cause and not willful neglect.
Willful neglect means a “conscious, intentional failure or reckless
indifference.” Charlotte’s Off. Boutique, Inc. v. Commissioner, 121 T.C.
89, 109 (2003) (quoting Boyle, 469 U.S. at 245), supplemented by T.C.
Memo. 2004-43, aff’d, 425 F.3d 1203 (9th Cir. 2005). Treasury
Regulation § 301.6651-1(c)(1) gives some guidance on what constitutes
reasonable cause for a taxpayer’s failure to timely file and failure to
 16

[*16] timely pay. It provides, in relevant part, that “[i]f the taxpayer
exercised ordinary business care and prudence and was nevertheless
unable to file the return within the prescribed time, then the delay is
due to a reasonable cause.” It further provides that a taxpayer’s failure
to pay

will be considered to be due to reasonable cause to the
extent that the taxpayer has made a satisfactory showing
that he exercised ordinary business care and prudence in
providing for payment of his tax liability and was
nevertheless either unable to pay the tax or would suffer
an undue hardship (as described in § 1.6161-1(b) of this
chapter) if he paid on the due date.

Treas. Reg. § 301.6651-1(c)(1). All of the facts and circumstances of the
taxpayer’s financial situation are considered in determining whether
the taxpayer was unable to pay the tax in spite of the exercise of
ordinary business care and prudence, including the amount and nature
of the taxpayer’s expenses relative to income (or other amounts) that he
could, at the time of the expenses, reasonably expect to receive before
the due date of the tax payment. Id.

We note that, in his Petition, petitioner did not challenge
respondent’s determination of the additions to tax. However,
respondent raised the section 6651(a)(1) and (2) additions to tax in his
Motion and petitioner objected to the additions to tax in his Opposition.
Accordingly, we will consider them here. See Rule 41(b).

Under section 6012(a) petitioner had an obligation to file a federal
income tax return for the 2017 tax year, and his 2017 federal income tax
return was due by April 17, 2018. See § 6072(a). Respondent attached
petitioner’s IRS Account Transcript for the 2017 tax year (2017
transcript) to his Motion. The 2017 transcript indicates that petitioner
failed to file a federal income tax return for 2017 and made no payments
with respect to his 2017 federal income tax liability. Respondent has
satisfied his burden of production under section 7491(c) with respect to
the section 6651(a)(1) addition to tax by attaching a copy of the 2017
transcript to the Motion, which indicates that petitioner did not file a
2017 federal income tax return.

Respondent prepared an SFR as authorized by section 6020(b) for
petitioner’s 2017 tax year. The SFR informed petitioner that his
T. Rowe Price IRA distribution resulted in a tax liability for 2017. To
 17

[*17] satisfy his burden of production for the addition to tax under
section 6651(a)(2), respondent must introduce evidence that an SFR
satisfying the requirements of section 6020(b) was made. See Wheeler,
127 T.C. at 210. We have addressed on several occasions what
constitutes an SFR. See id. at 208–10 (discussing Phillips v.
Commissioner, 86 T.C. 433, 437–38 (1986), aff’d in part, rev’d in part on
another issue, 851 F.2d 1492 (D.C. Cir. 1988), Millsap v. Commissioner,
91 T.C. 926, 930 (1988), and Cabirac, 120 T.C. at 170–73). In Phillips,
86 T.C. at 437–38, we held that a “dummy return,” i.e., page 1 of Form
1040, showing only the taxpayer’s name, address, and Social Security
number, was not a section 6020(b) return. In Millsap, 91 T.C. at 930,
we held that unsubscribed Forms 1040 containing only the taxpayer’s
name, address, Social Security number, and filing status, but that
attached subscribed revenue agent reports that had sufficient
information to compute the taxpayer’s tax liability, were valid SFRs
under section 6020(b). In Cabirac, 120 T.C. at 170–73, we held that
unsubscribed SFRs, showing zeroes on the relevant lines for computing
a tax liability and no tax liability, did not meet the requirements of
section 6020(b).

In Cabirac, 120 T.C. at 172, the Commissioner asserted that a
notice of proposed adjustments which contained information as to how
the taxpayer’s tax liability was computed was in the record; however,
the Commissioner did not introduce any evidence that the notice of
proposed adjustments was attached to the SFRs. We distinguished
Millsap from Cabirac because in Millsap, the revenue agent’s report was
attached to the SFR. Cabirac, 120 T.C. at 172. In Rader v.
Commissioner, 143 T.C. 376, 382 (2014), aff’d in part, appeal dismissed
in part, 616 F. App’x 391 (10th Cir. 2015), we summarized the
requirements of a section 6020(b) SFR: “To constitute a section 6020(b)
SFR, ‘the return must be subscribed, it must contain sufficient
information from which to compute the taxpayer’s tax liability, and the
return form and any attachments must purport to be a ‘return’.” Rader,
143 T.C. at 382 (quoting Spurlock v. Commissioner, T.C. Memo.
2003-124, 85 T.C.M. (CCH) 1236, 1244).

Respondent attached the declaration of Phillip A. Lipscomb
(declaration), an attorney in respondent’s Office of Chief Counsel who is
representing respondent in this case, in support of the Motion. The
declaration attaches the administrative case file for the underlying
examination with respect to petitioner’s tax liability for 2017.
Respondent attached the SFR for petitioner’s 2017 tax year as Exhibit B
to the declaration. The SFR comprises (i) a February 18, 2020, “IRC
 18

[*18] Section 6020 (b) ASFR Certification” that is electronically signed
by respondent’s ASFR Operation Manager in his Brookhaven office and
(ii) the February 18, 2020, Notice 2566.

The ASFR Certification certifies that the Commissioner’s ASFR
Operation Manager intends that the electronic data including (1) the
taxpayer’s name, address, and taxpayer identification number, (2) a
computation of the taxpayer’s tax liability for the tax period in question,
and (3) the electronic version of the ASFR Certification with the
electronic signature of the officer identified on the document constitute
a valid return under section 6020(b). Attached to the ASFR Certification
is the Notice 2566 which contains petitioner’s name, address, Social
Security number, and filing status and a computation of petitioner’s tax
liability. The computation of the tax liability has separate line items for
petitioner’s adjusted gross income less the standard deduction for a
taxpayer with a filing status of “single” less a personal exemption
allowance to reach taxable income on which income tax was calculated.
As reflected in the Notice 2566, the computation of petitioner’s tax
liability was based on the Form 1099–R that respondent received from
T. Rowe Price. Accordingly, the SFR meets the requirements of a valid
return under section 6020(b). See Burnett v. Commissioner, T.C. Memo.
2023-46, at *4–5 (sustaining the Commissioner’s determination in the
notice of deficiency that was based on the Commissioner’s SFR, which
was based on unreported income from a Form 1099–R). Additionally,
the Notice 2566 and petitioner’s 2017 transcript that is attached to
respondent’s declaration reflects that petitioner failed to pay the tax
shown on the 2017 return.

Because respondent has presented evidence that an SFR
satisfying the requirements of section 6020(b) was made and that
petitioner failed to pay the tax shown on the return for 2017, we
conclude that respondent has satisfied his burden of production under
section 7491(c) with respect to the section 6651(a)(2) addition to tax.

Petitioner submitted a declaration in support of his Opposition
which alleges facts in support of his argument for reasonable cause. In
his Opposition, he argues that he had reasonable cause for his failure to
file a return and failure to pay the tax due for 2017 because he was
incarcerated on February 16, 2017, and his assets were criminally
forfeited. He further asserts that he has earned no income since his
indictment in December 2015, and was unable to pay the tax deficiency
because of lack of funds. Additionally, he asserts that he did not receive
the Form 1099–R from T. Rowe Price because his wife divorced him, did
 19

[*19] not communicate with him, and was not forwarding his mail.
Petitioner maintains that he lost most of his assets in his divorce, as his
wife received their shared home, all of the possessions in the home, and
the contents of their joint bank account. Finally, he emphasizes his
history of paying his income tax from 2002 through 2015.

As discussed, the section 6651(a)(1) and (2) additions to tax may
be reduced if petitioner can establish that his failure to timely file or
failure to timely pay was due to reasonable cause and not willful neglect.
While we are sympathetic to petitioner’s difficulties, we decline to
conclude that his failure to timely file and timely pay were justified by
reasonable cause. In petitioner’s declaration attached to the Opposition,
petitioner alleged that (i) he never received the Form 1099–R from
T. Rowe Price, (ii) he had not earned any income since 2015, (iii) he was
unaware of any filing obligation, and (iv) as a result of the criminal
forfeiture and his divorce in March 2018, he was unable to pay the tax
due.

Petitioner knew of a general duty to file his tax return as he
stated in his declaration that he had “habitually” done so in previous
years. He was also aware of the forfeiture that was part of the judgment
in his criminal case. Nonetheless, petitioner asserts that he did not
know that he had to file a tax return because he did not receive the Form
1099–R. Nonreceipt of tax information forms, such as a Form 1099, does
not excuse a taxpayer from his or her duty to report income. See Du Poux
v. Commissioner, T.C. Memo. 1994-448, 68 T.C.M. (CCH) 667, 668
(“[F]ailure to receive tax documents [such as Form 1099–MISC,
Miscellaneous Income] does not excuse taxpayers from the duty to report
income.”). Further, we have held that nonreceipt of a tax document does
not constitute reasonable cause to prevent the application of a section
6662(a) accuracy-related penalty. See Ashmore v. Commissioner, T.C.
Memo. 2016-36, at *13 (holding that any error by the company
responsible for issuing the taxpayer a Form W–2, Wage and Tax
Statement, did not provide reasonable cause because the taxpayer
should have known of his missing second Form W–2); Jones v.
Commissioner, T.C. Memo. 2010-112, 99 T.C.M. (CCH) 1457, 1461
(holding that nonreceipt of a Schedule K–1, Partner’s Share of Income,
Deductions, Credits, etc., did not constitute reasonable cause where the
taxpayer knew that her spouse received a distribution from the entity);
Brunsman v. Commissioner, T.C. Memo. 2003-291, 86 T.C.M. (CCH)
465, 466 (rejecting taxpayer’s reasonable cause defense where the
taxpayer received only one Form 1099–MISC but knew he had held two
jobs). Accordingly, petitioner’s arguments that he did not receive the
 20

[*20] Form 1099–R and that he was unaware that he had an obligation
to file a return, fail.

Petitioner should have recognized that there might be tax
implications as a result of the forfeiture of his T. Rowe Price IRA and
should have sought advice from his attorney or a tax professional
regarding a potential tax return filing obligation for 2017. He has not
responded with any specific fact that he sought any such guidance. We
conclude that petitioner did not exercise ordinary business care and
prudence. Moreover, we have held that incarceration is not a reasonable
cause for failure to timely file. See Llorente v. Commissioner, 74 T.C.
260, 268–69 (1980), aff’d in part, rev’d in part and remanded, 649 F.2d
152 (2d Cir. 1981); George v. Commissioner, T.C. Memo. 2019-128,
at *9–12, aff’d per curiam, 821 F. App’x 76 (3d Cir. 2020). In the absence
of evidence of reasonable cause, we conclude that petitioner is liable for
the addition to tax for failure to timely file under section 6651(a)(1).

As with the failure to file a return, incarceration is not a
reasonable cause for the failure to pay tax. See George, T.C. Memo.
2019-128, at *9–12; Kohn v. Commissioner, T.C. Memo. 2009-117, 97
T.C.M. (CCH) 1594, 1597, aff’d per curiam, 377 F. App’x 578 (8th Cir.
2010). In the Declaration and his Opposition, petitioner avers that he
was unable to pay the amounts owed because of the forfeiture of his
assets and his divorce; however, he has not responded to the motion with
specific facts showing that he exercised ordinary business care and
prudence in providing for his 2017 tax liability. Nor has he presented
specific facts concerning his financial situation while the failure to pay
penalty accrued. In opposing a motion for summary judgment, the
nonmovant may not rest upon the mere allegations or denials in his
pleadings but instead must set forth specific facts showing that there is
a genuine dispute for trial. Rule 121(d); see Sundstrand, 98 T.C. at 520;
Murphy v. Commissioner, T.C. Memo. 2019-72, at *7. We conclude that
petitioner is liable for the addition to tax for failure to timely pay under
section 6651(a)(2).

The Court has considered the parties’ remaining arguments and,
to the extent not discussed above, concludes that they are irrelevant,
moot, or without merit.

To reflect the foregoing,

Decision will be entered under Rule 155.