ROGERS v. COMMISSIONER OF INTERNAL REVENUE No. 25365-09S.
T.C. Summary Opinion 2011-99
JAMES D. AND BOBBIE ROGERS, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
United States Tax Court.
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.
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.
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.
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).
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,
Petitioner made the following deposit and withdrawals from his Allianz annuity:
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 Federal and State income taxes were withheld at the time of the respective withdrawals.
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);
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 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).
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);
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.
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 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.
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 investment if petitioner could identify or trace the contributions to any remaining funds in the plan.
We conclude from the documents petitioner submitted that he contributed a minimum 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 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,
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