The Internal Revenue Service (IRS) determined a $37,918 deficiency in petitioners' 2011 Federal income tax. The issues for decision are: (1) whether petitioners should receive a hardship waiver under section 402(c)(3)(B) with respect to pension distributions that Mr. Trimmer received from retirement accounts but did not roll over into another qualified retirement account within 60 days; (2) whether petitioners are liable for the 10% additional tax under section 72(t); and (3) whether petitioners failed to report $40 of dividend income.
FINDINGS OF FACT
The parties have stipulated some facts, which we find and incorporate by this reference. Petitioners resided in New York when they petitioned this Court.
Petitioners have been married over 25 years and have two sons. Mrs. Trimmer has been a New York City school teacher at all relevant times. Mr. Trimmer served as a police officer with the New York Police Department (NYPD) for 20 years until his retirement on April 30, 2011, when he was 47 years old.
Before retiring from the NYPD Mr. Trimmer had secured a position as a security guard with the New York Stock Exchange to supplement his pension income from the NYPD and help finance his sons' college educations. Shortly after he retired from the NYPD, however, this new job fell through. He was unable to find another position immediately, and NYPD policy prevented a retired officer from returning to work there.
About three weeks after retiring Mr. Trimmer began experiencing symptoms of major depressive disorder. In a stark departure from his pre-retirement personality, he became antisocial, irritable, and uncommunicative with his wife and two sons. He rarely left his house. He had trouble sleeping, and he lost weight. He neglected his hygiene and grooming. He stopped coaching his sons' sporting events and stopped attending their school events, which he had previously attended without fail. Although he occasionally wrote checks from petitioners' joint checking account (generally at the request of his wife or sons), otherwise, as he testified, he "kind of just didn't do much of anything".
Mrs. Trimmer testified that during this time her husband was "like a lost soul", and when she came home from work in the evening she would often find him where she had left him in the morning. Looming financial pressures caused marital tension. Mr. Trimmer was so changed that Mrs. Trimmer came to believe that she could not depend on him to carry out tasks he had previously performed reliably. She felt that she needed to monitor Mr. Trimmer, so that she might offer encouragement or intervene to help him through events or activities.
Through his employment with the NYPD Mr. Trimmer had retirement accounts with the New York City Employees' Retirement System and the New York City Police Pension Fund (retirement accounts). On May 27 and June 10, 2011—after his major depression had set in—Mr. Trimmer received from his retirement accounts distribution checks for $99,990 and $1,680 (two distributions). These checks lay on his dresser at home for over a month until, on July 5, 2011, he deposited them into petitioners' joint bank account.
Although petitioners had conferred about Mr. Trimmer's retirement, Mrs. Trimmer did not know exactly what needed to be done and did not get involved in this matter; she assumed that he was handling his retirement. This was in keeping with petitioners' division of household duties: While Mrs. Trimmer handled many of the day-to-day bill-paying responsibilities for petitioners' family, Mr. Trimmer handled their "large-scale" investment decisions, such as planning for retirement and college savings.
Mr. Trimmer also customarily handled the family's taxes, collecting the necessary information, making an appointment with a tax return preparer, and eventually bringing the completed forms home for Mrs. Trimmer to sign. Before retiring, he would usually have petitioners' tax returns prepared early, usually in February, so that petitioners could receive any refund early.
In the spring of 2012, however, still suffering from depression, he had to be reminded repeatedly by Mrs. Trimmer to have their 2011 return prepared. Finally, as the due date for the return approached, Mr. Trimmer went to petitioners' regular tax return preparer to handle their 2011 taxes.
In early 2012 Mr. Trimmer had received Forms 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., reporting the two distributions with taxable amounts of $99,990 and $710 reported in boxes 2a. He gave these forms to the return preparer, who noticed that the Forms 1099-R for the two distributions indicated a distribution code of "1": "Early distribution, no known exception". The return preparer advised Mr. Trimmer to put the two distributions into an IRA.
On March 29, 2012, petitioners filed their 2011 Form 1040. They reported the two distributions as nontaxable.
On April 16, 2012, acting upon his return preparer's advice, Mr. Trimmer opened an IRA at the same bank where petitioners had deposited the two distributions and immediately rolled the funds over to the new IRA. Between the time Mr. Trimmer received the two distributions and the time he opened the IRA, petitioners did not make any use of the funds from the two distributions.
Gradually Mr. Trimmer's depression began to dissipate; by the summer of 2012 it was in remission.
On December 16, 2013, respondent issued to petitioners a Notice CP2000, Proposed Changes to Your 2011 Form 1040, asserting that petitioners had failed to report $100,700 of taxable retirement income from the two distributions; that they were liable under section 72(t) for an additional 10% tax on premature distributions from a qualified plan; and that they had failed to report $40 of taxable dividend income. The Notice CP2000 indicated that, because of these proposed changes, petitioners owed $39,963 in additional taxes. The Notice CP2000 advised petitioners that if they disagreed with the proposed changes, they should complete an attached response form and send it to the IRS by January 15, 2014; otherwise, the letter indicated, the IRS would send petitioners a notice of deficiency reflecting the proposed changes. Petitioners requested an extension, and by letter dated March 27, 2014, the IRS granted their request, extending the response date to April 23, 2014. On April 30, 2014, Mr. Trimmer sent the IRS a letter which stated in its entirety:
By letter dated June 3, 2014, the operations manager of the IRS Andover, Massachusetts, Service Center thanked petitioners for their April 30, 2014, correspondence and stated: "You don't need to do anything else for now. We will contact you again within 60 days to let you know what action we are taking." Petitioners did not have to wait long, however, for by letter dated only three days later—June 6, 2014—the operations manager summarily denied petitioners' request for relief, stating only: "The law requires you to roll over your distribution within 60 days of the distribution date. If the roll over exceeds the time frame it becomes fully taxable." The letter did not mention respondent's statutory authority to grant hardship waivers or any procedure for applying for one; nor did it acknowledge Mr. Trimmer's particular circumstances as described in his letter. Much like the original Notice CP2000 to which petitioners had already responded, the operation manager's letter stated: "If you don't agree with our proposed changes, write to us and tell us why." The letter further indicated that if the IRS had not heard further from petitioners by July 2, 2014, "we will continue to process the proposed changes to your return based on the information we currently have."
On August 18, 2014, the IRS issued a notice of deficiency reflecting the changes proposed in the Notice CP2000. Petitioners timely petitioned this Court.
Burden of Proof
The Commissioner's determinations in a notice of deficiency are generally presumed correct, and the taxpayer bears the burden of proving them erroneous. Rule 142(a)(1);
Taxability of IRA Distributions
Section 61(a) provides generally that "gross income means all income from whatever source derived". Section 402(a) provides that "any amount actually distributed to any distributee by any employees' trust described in section 401(a) which is exempt from tax under section 501(a) shall be taxable to the distributee, in the taxable year of the distributee in which distributed, under section 72 (relating to annuities)." There is no dispute that the two distributions were actually made to Mr. Trimmer in 2011 from his retirement accounts, which were employees' trusts described in section 401(a).
Section 402(c)(1) excludes from gross income any portion of a distribution that is rolled over to an "eligible retirement plan" as defined in section 402(c)(8)(B). Section 402(c)(3)(A) provides: "Except as provided in subparagraph B", the rollover exclusion is not available for "any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed." Subparagraph B grants the Secretary the authority to waive the 60-day rollover requirement:
Mr. Trimmer received the two distributions in the form of checks on May 27 and June 10, 2011. And on July 5, 2011, he deposited the checks into petitioners' joint bank account. The 60-day rollover periods ended July 26 and August 9, 2011, respectively.
The Parties' Contentions
Petitioners do not dispute that Mr. Trimmer missed the 60-day deadline for rolling over the two distributions, but they contend that he qualifies for a hardship waiver under section 402(c)(3)(B) because his failure to make timely rollovers was caused by his major depressive disorder during the relevant period.
Respondent contends that the hardship waiver provision of section 402(c)(3)(B) is "inapplicable" because Mr. Trimmer failed to apply for relief pursuant to the terms of Rev. Proc. 2003-16, 2003-1 C.B. 359. Respondent also contends that there has been no final administrative determination denying petitioners relief, and that even if there had been, it would not be subject to judicial review.
Authority To Consider Hardship Waiver Request During Examination
In Rev. Proc. 2003-16,
On August 24, 2016, the IRS issued Rev. Proc. 2016-47, 2016-37 I.R.B. 346, which authorizes "additional" hardship waivers during the examination of the taxpayer's return.
It also provides: "Rev. Proc. 2003-16 is modified by Section 4 of this revenue procedure."
Respondent's primary position is that the hardship waiver provisions of section 402(c)(3)(B) are "inapplicable" because petitioners failed to request a private letter ruling and pay the associated fee, pursuant to section 3.01 of Rev. Proc. 2003-16. Respondent contends that because Rev. Proc. 2016-47,
We are not persuaded. Nothing in Rev. Proc. 2003-16,
Consequently, the purpose and effect of the 2016 modification of Rev. Proc. 2003-16,
Section 1 of Rev. Proc. 2016-47, 2016-37 I.R.B. at 346, describes dual purposes, to "provide for a self-certification procedure" and to modify Rev. Proc. 2003-16,
Moreover, among the many unmodified provisions of Rev. Proc. 2003-16,
Furthermore, the examining agent's authority to consider a hardship waiver during the examination strongly implies, we believe, that the taxpayer may request the waiver. It would be anomalous if the examining agent could consider the relief only if the taxpayer had not requested it.
In fact, it was during the examination of petitioners' 2011 return that respondent, in the Notice CP2000, invited petitioners to respond to his proposal to treat the two distributions as immediately taxable. In response to this invitation Mr. Trimmer wrote the IRS requesting relief. As might be expected from a self-represented taxpayer unversed in the technicalities of the tax law, he did not expressly cite section 402(c)(3)(B). But his letter leaves little doubt that he was seeking a hardship waiver of the 60-day rollover requirement, stating among other things that he "went through a rough time upon separation from my job, causing me emotional hard times that caused this situation", describing the devastating financial effects on his family that would result from immediate taxation of the two distributions, and concluding with a plea for a "fair decision".
Notably, respondent's agent did not decline to consider Mr. Trimmer's request, did not request that petitioners provide any additional information, and did not advise them that they were required to submit a private letter ruling request or do anything else in particular to have their request considered. To the contrary, in her June 3, 2014, letter, respondent's agent advised petitioners, in response to Mr. Trimmer's April 30, 2014, letter, that "[y]ou don't need to do anything else for now. We will contact you again within 60 days to let you know what action we are taking." Only three days later, on June 6, 2014, the agent wrote petitioners again, denying the requested relief, not on the basis that petitioners had requested it in the wrong manner or had provided insufficient information, but on the basis of cursory and incomplete legal analysis that failed to take into account the provision for hardship waivers under section 402(c)(3)(B).
Respondent points to several Memorandum Opinions in which this Court declined to consider equitable relief from the 60-day rollover requirement in circumstances where the taxpayer did not first request a waiver administratively from the IRS under section 408(d)(3)(I) (which provides, for IRA distributions, waiver authority analogous to that under section 402(c)(3)(B)).
On brief respondent asserts that the agent's June 6, 2014, letter was not a "final determination" because it invited petitioners to "write and tell us why" if they disagreed with its conclusions. But this was essentially the same invitation contained in the Notice CP2000, issued December 16, 2013, in response to which Mr. Trimmer dutifully sent his April 30, 2014, letter describing the facts and circumstances upon which he based his request for relief. Considering that Mr. Trimmer's letter had resulted in the IRS' summarily denying his request on legal grounds that seemed to admit of no possibility of administrative relief, without even acknowledging the specific facts and circumstances spelled out in Mr. Trimmer's letter, the invitation for petitioners to respond yet again if they disagreed strikes us as an empty gesture or mere boilerplate.
Having considered all of respondent's arguments, we hold that respondent had the authority to consider Mr. Trimmer's hardship request during petitioners' examination, and we conclude that respondent did in fact make a final determination to deny the hardship waiver.
Judicial Review of Hardship Waiver Denial
The timely filing of a petition in response to a notice of deficiency conferred jurisdiction on this Court in this proceeding.
In contrast, petitioners' claim for relief goes to the merits of the deficiency determination and under section 6213(a) does not require any "ticket" to the Tax Court apart from the notice of deficiency. It is well established that this Court's deficiency jurisdiction includes reviewing administrative determinations that are necessary to determine the merits of deficiency determinations.
There is a strong presumption that an act of administrative discretion is subject to judicial review.
Nothing in section 402(c)(3) expressly precludes judicial review, nor does the legislative history reveal any such congressional intent.
"To determine whether an action has been committed solely to agency discretionwe have followed the standards followed in other Federal courts."
None of these circumstances exists here. We believe that there are ascertainable standards on which to base our review. We may look not only to the terms of section 402(c)(3)(B) but also to related provisions and the overall legislative purpose, as well as the objective factors set out in Rev. Proc. 2003-16,
Although the Court's jurisdiction is carefully circumscribed, "once our deficiency jurisdiction has been properly invoked, we will examine de novo the merits of respondent's deficiency determinations", including his exercise of discretion under section 402(c)(3)(B), inasmuch as the "alleged deficiency * * * turn[s] upon respondent's discretionary actions."
For these reasons, we hold that we have jurisdiction to review respondent's denial of a hardship waiver to petitioners. We note that reviewing respondent's exercise of discretion is not contrary to our general policy of not looking behind a statutory notice of deficiency to examine respondent's motives or conduct in determining that deficiency.
We conclude that the appropriate standard of review is whether respondent has abused his discretionary authority by exercising it arbitrarily, capriciously, or without sound basis in law or fact.
In his answering brief respondent contends that the Court cannot find any abuse of discretion because "no administrative determination was made, and therefore no abuse of discretion can be determined." As previously discussed, however, we have found that respondent's agent made a determination in her June 6, 2014, letter, to deny Mr. Trimmer's request for a hardship waiver. Respondent also contends that the Court cannot find any abuse of discretion because, apart from Mr. Trimmer's letter to the operations manager, there "was no documentation or information submitted to respondent to substantiate Mr. Trimmer's claim that he had depression during the relevant periods." As previously discussed, however, the record indicates that the operations manager never requested any such documentation or information. In this proceeding petitioners have presented credible evidence—including expert testimony—that Mr. Trimmer did in fact suffer major depressive disorder during the relevant period. Respondent complains that the expert report was not offered during the examination. But again, it was not requested during the examination, and petitioners were provided no opportunity to offer such evidence during the examination. Therefore, as part of our judicial review the expert report is properly considered in this proceeding if it is admissible. This brings us to respondent's motion in limine.
Respondent's Motion in Limine To Exclude Petitioners' Expert Testimony
The day before trial respondent filed a motion in limine, objecting to the admission of the expert testimony and report of Kiu (Kathy) Ho, which petitioners offered at trial.
Ms. Ho is a licensed master social worker (LMSW) in New York, a licensed clinical social worker (LCSW) in California, and a clinical professor of law and a supervising social worker at the Fordham University School of Law. She opined that Mr. Trimmer suffered from major depressive disorder during portions of 2011 and 2012. Petitioners offered Ms. Ho's testimony and report to support their argument that Mr. Trimmer is entitled to a waiver of the 60-day rollover requirement under section 402(c)(3)(B). At trial Ms. Ho's report was marked as an exhibit and her testimony was heard solely as an offer of proof; the Court deferred ruling on respondent's motion in limine to allow the parties an opportunity to further address the matter in their posttrial briefs. We now examine respondent's various objections and determine whether this testimony is admissible. We conclude that it is admissible, for the reasons discussed below.
We conduct this proceeding in accordance with the Federal Rules of Evidence.
Rule 702(a) of the Federal Rules of Evidence requires that the "expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue". But the Supreme Court has explained that "[t]his condition goes primarily to relevance".
One disputed issue is whether Mr. Trimmer was suffering from depression during the relevant period. Ms. Ho's testimony undoubtedly tends to make that fact more probable: Her testimony is that, on the basis of her extensive experience and education, Mr. Trimmer's symptoms—as reported by petitioners and their son—are consistent with a diagnosis of depression.
Qualification of the Expert Witness
Having found Ms. Ho's testimony relevant, we turn to the requirement of rule 702 of the Federal Rules of Evidence that the proposed expert be qualified by knowledge, skill, experience, training, or education.
Ms. Ho is a candidate for a doctorate in social work at New York University. She has a master's degree in social work from the University of Southern California. She holds licenses as an LCSW in California and as an LMSW in New York.
After careful consideration of her experience, education, and licenses, we conclude that Ms. Ho is qualified to offer expert testimony on Mr. Trimmer's mental health history.
Finally, we consider whether Ms. Ho's testimony is reliable. In determining whether expert testimony is reliable, our inquiry is flexible, and our focus "must be solely on principles and methodology, not on the conclusions that they generate."
Essentially, Ms. Ho's testimony consists of application of definitions and categories—found in the Diagnostic and Statistical Manual of Mental Disorders (5th ed. 2013) (DSM-5)—to the data she gathered from Mr. Trimmer and his family.
Under rule 201 of the Federal Rules of Evidence this Court may take judicial notice of a fact that is not subject to reasonable dispute if it is generally known within our territorial jurisdiction or can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned. We take judicial notice that the information contained in the DSM-5 that relates to this case, and the techniques of determining which definitions and categories apply to a particular person, are widely accepted in the scientific community, have been subjected to peer review and publication, and are subject to professional standards.
To prepare her testimony, Ms. Ho directed her assistant to interview petitioners and their son and to research various issues. Ms. Ho also interviewed Mr. Trimmer personally to "gather more detail and to get clarifying information about his history". Ms. Ho considered various possible explanations for the symptoms described by petitioners and their son. Ms. Ho's assistant prepared a first draft of the expert report, which then went through multiple drafts. Upon review of Ms. Ho's credible testimony, we are satisfied that Ms. Ho provided careful supervision of her assistant's activities. It is clear that Ms. Ho took steps to verify the accuracy of the data that was gathered and actively participated in drafting the report; and nothing suggests that her approach deviated from the principles and methods referenced above. We therefore find that Ms. Ho reliably applied the aforementioned principles and methods to the facts and data.
Ms. Ho did not observe Mr. Trimmer's symptoms while they were occurring; she and her assistant interviewed petitioners and their son long after the symptoms had subsided. Respondent argues that Ms. Ho's retrospective assessment of Mr. Trimmer's condition is unreliable because she was not able to contemporaneously observe his symptoms. As petitioners observe, however, even if Ms. Ho had assessed his condition at the time Mr. Trimmer was experiencing symptoms, most or all of his symptoms would have been self-reported. Furthermore, as she gathered data and developed her opinion, Ms. Ho considered the possible effects of inaccurate memory or hindsight bias, and she also considered (and rejected) the possibility that Mr. Trimmer might be feigning or exaggerating symptoms. Finally, petitioners and their son were the sources for Ms. Ho's testimony, and all three testified. We were therefore able to directly judge the credibility of the sources of Ms. Ho's testimony, and we found all three to be highly credible. Moreover, their credible testimony corroborates the facts and data outlined in Ms. Ho's testimony. For all these reasons, after a thorough review of the record, we find that Ms. Ho's testimony was based on sufficient facts and data.
On the basis of the foregoing analysis, we find that Ms. Ho's testimony meets the
State Law Concerns
Respondent asserts that Ms. Ho's report "reflects a violation of New York State law, and should not be entertained by the Court."
First, some background. As part of a broader reworking of mental health services law, in 2002 New York enacted a new licensing regime for the practice of social work; it became effective in 2004. N.Y. Educ. Law secs. 7700-7713 (McKinney 2016).
Ms. Ho is an LMSW and not an LCSW under New York law. She was not supervised by an LCSW while preparing her testimony. Respondent argues that by preparing and submitting an expert report and then testifying, Ms. Ho has engaged in the unlawful practice of clinical social work without supervision and that therefore we should exclude her testimony. Because we find that Ms. Ho's testimony is not licensed clinical social work under New York law, we overrule respondent's objection.
The practices of licensed master social work and clinical social work are defined in N.Y. Educ. Law sec. 7701.
Diagnosis is a clinical social work activity that is expressly listed in the statute as "in addition" to the "scope of practice of licensed master social work". N.Y. Educ. Law sec. 7701.2(a). Yet the statute defines diagnosis as "the process of distinguishing,
Accordingly, we doubt that Ms. Ho's evaluation of Mr. Trimmer rises to the level of a "diagnosis" under New York State law; but even if it does, she did not thereby exceed her authority. As we discuss below, her evaluation was not clinical social work and was therefore permitted.
The statute defines clinical social work, as it exceeds the scope of licensed master social work, by listing those activities that an unsupervised LMSW may not perform; at the end of the list, this phrase appears: "[A]ll undertaken for the purpose of preventing, assessing, treating, ameliorating and resolving psychosocial dysfunction with the goal of maintaining and enhancing the mental, emotional, behavioral, and social functioning and well-being of individuals, couples, families, small groups, organizations, communities and society."
Ms. Ho did not evaluate Mr. Trimmer for the purpose of "preventing, assessing, treating, ameliorating and resolving" any dysfunction—Mr. Trimmer's depression was resolved by the time Ms. Ho saw him. She therefore could not have evaluated him for the purposes of preventing, treating, ameliorating, or resolving his illness, and as we noted above, an LMSW may undertake general social work assessment (by itself) without supervision. Additionally, the goal of Ms. Ho's testimony had nothing to do with "maintaining and enhancing the mental, emotional, behavioral, and social functioning and well-being" of Mr. Trimmer (or anyone else).
For these reasons we conclude that Ms. Ho's examination of Mr. Trimmer, the compilation of her expert report, and her testimony in this case were not undertaken for the purposes stated in N.Y. Educ. Law sec. 7701.2(a) and therefore are not clinical social work. Consequently, Ms. Ho's examination of Mr. Trimmer, her expert report, and her testimony were not prohibited by New York law, and accordingly we overrule respondent's objection.
Respondent's Remaining Objections
Respondent objects that Ms. Ho's report should be excluded under Rule 143(g)(2) because petitioners submitted it to the Court and served it on respondent 22 days before trial, instead of 30 days before as generally required under Rule 143(g)(2). We may, however, excuse untimeliness that is due to good cause and does not unduly prejudice the opposing party. Rule 143(g)(2).
Petitioners' counsel, a member of the Fordham Law School Clinic, represents that the lateness of the report was due to a variety of causes, including limitations and scheduling problems of an academic clinic. While we do not take missed deadlines lightly, upon due consideration of all the circumstances and the parties' arguments, we are satisfied there was good cause for the missed deadline.
Furthermore, respondent was not unduly prejudiced by the lateness of the report, which petitioners sent to respondent via email and overnight mail 22 days before trial. Respondent's counsel was able to prepare a thorough motion in limine detailing objections to the testimony. Respondent's counsel also ably argued her motion in limine and ably cross-examined Ms. Ho. Moreover, we reserved ruling on respondent's motion and allowed the parties to include arguments regarding the admissibility of Ms. Ho's testimony in their posttrial briefs. Finally, respondent's counsel has not outlined any measures, in addition to her motion and cross-examination, which she would have taken had she had an additional eight days. Respondent's objection is therefore overruled.
Respondent also contends that Ms. Ho's testimony must be excluded because the expert report fails to state the qualifications of her assistant, whose name and signature are on the report (along with Ms. Ho's name and signature). Respondent contends that "the true author" of the report was Ms. Ho's assistant and that Rule 143(g)(1)(D) requires the expert report to state the qualifications not only of the testifying expert but also of any assistant who signs the report.
We overrule this objection for several reasons. First, the plain language of Rule 143(g)(1)(D) requires the report to contain only "the witness's qualifications". Second, an expert witness is "permitted to use assistants in formulating his expert opinion, and normally they need not themselves testify".
Respondent also objects that Ms. Ho's report does not contain a statement of the compensation to be paid for her study and testimony, as required by Rule 143(g)(1)(F). But because Ms. Ho provided her services pro bono, there was no compensation for her to disclose. Respondent also objects that Ms. Ho's publications were not stated, as required by Rule 143(g)(1)(D). Respondent is mistaken; Ms. Ho's publications are listed on the curriculum vitae attached to her report. Respondent also objects that Ms. Ho's report does not include a list of all other cases in which she has testified as an expert during the previous four years, as required under Rule 143(g)(1)(E). But Ms. Ho has never testified as an expert before, so there was no prior testimony to disclose.
In sum, we overrule all of respondent's objections. Respondent's motion in limine will be denied and Ms. Ho's testimony admitted.
Petitioners' Hardship Waiver
This brings us, finally, to the merits of petitioners' request for a hardship waiver. For the reader's convenience, we once again set out the relevant provision of section 402(c)(3)(B): "The Secretary may waive the 60-day requirement * * * where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement."
The Code does not define the phrase "against equity or good conscience", and it appears nowhere else in the Code (except in section 408(d)(3)(I), which provides identical waiver authority for the analogous 60-day deadline in the IRA distribution context). However, a very similar phrase, "against equity
If we look outside the Code, the phrase "against equity or good conscience" or the more common phrase "against equity
Similarly, section 402(c)(3)(B), like the legislative history and Rev. Proc. 2003-16,
Largely mirroring section 402(c)(3)(B) and the conference committee report, section 3.02 of Rev. Proc. 2003-16, 2003-1 C.B. at 359, states that the IRS will issue a ruling waiving the 60-day rollover requirement "in cases where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the taxpayer." It goes on to provide the following objective factors to be used in determining whether to grant a hardship waiver:
Of these four factors, three present little difficulty in this case. The first factor is inapplicable—there was no error committed by any financial institution. The third and fourth factors are favorable to petitioners.
The remaining factor, "inability to complete a rollover due to * * * disability", Rev. Proc. 2003-16, sec. 3.02, requires more extended analysis. We have found that Mr. Trimmer suffered from major depressive disorder, which commenced approximately three weeks after his retirement on April 30, 2011, and persisted until the summer of 2012. Mr. Trimmer's depression caused a marked change in activity level and sleep patterns. He left his home infrequently and experienced difficulty interacting with other people. He was so changed during this period that Mrs. Trimmer came to believe that she could not depend on him to carry out tasks he had previously and reliably performed. She felt that she needed to monitor him, so that she might offer encouragement or intervene to help him through events or activities. On the basis of all the evidence in the record, we conclude that Mr. Trimmer's major depressive disorder constituted a disability throughout the relevant period for the purposes of section 402(c)(3)(B) in that it significantly impaired his ability to perform day-to-day activities.
We further conclude, on the basis of all the evidence in the record, that Mr. Trimmer's failure to meet the 60-day rollover requirement was attributable to his disability.
In sum, considering all the facts and circumstances, we conclude that Mr. Trimmer meets the objective factors for a hardship waiver as set forth in Rev. Proc. 2003-16,
Finally, although private letter rulings have no precedential effect, see sec. 6110(k)(3), and taxpayers are not entitled to rely upon private letter rulings not specifically issued to them, private letter rulings may be instructive insofar as they "reveal the interpretation put upon the statute by the agency charged with the responsibility of administering the revenue laws",
For the reasons discussed above, we conclude and hold that in the unique facts and circumstances of this case, pursuant to section 402(c)(3)(B) it would be against equity or good conscience to deny petitioners a waiver of the 60-day rollover requirement. Accordingly, we do not sustain respondent's determination to treat the two distributions as immediately taxable.
Additional Tax on Early Distribution
Respondent determined in the notice of deficiency that petitioners are liable for the additional tax under section 72(t), which is equal to 10% of the portion of an early distribution which is includible in gross income. We have held that no portion of the two distributions is included in petitioners' 2011 gross income. Accordingly, the section 72(t) additional tax is inapplicable.
In the notice of deficiency respondent determined that petitioners had unreported dividend income of $40, as reported on a Form 1099-DIV, Dividends and Distributions. Petitioners did not assign error to this determination in their petition as required by Rule 34(b)(4) and have not addressed this issue in any meaningful way on brief, other than to assert generalized objections to respondent's proposed findings of fact in this regard. We deem petitioners to have waived or conceded this issue.
In any event, at trial Mr. Trimmer acknowledged that he had purchased the stock using his Social Security number. His testimony suggested that his original intention had been to hold the stock only as a nominee for his then-newborn son, who had not yet received a Social Security number. But petitioners offered no evidence to support a finding that in 2011 the stock was owned by anyone other than Mr. Trimmer or that the dividend income belonged to, or was constructively received by, anyone other than Mr. Trimmer.
We therefore sustain respondent's determination that the $40 of unreported dividend income is includible in petitioners' 2011 taxable income.
To reflect the foregoing,