Respondent determined a deficiency in petitioner's Federal income tax of $6,436 and additions to tax under section 6651(a)(1) and (2) of $950 and $485, respectively, for 2009.
The parties submitted this case fully stipulated under Rule 122. The stipulated facts and facts drawn from the stipulated exhibits are incorporated herein by this reference. Petitioner resided in New York when he petitioned this Court.
In 2009 petitioner was an assistant with the Manhattan Psychiatric Center. The Manhattan Psychiatric Center is run by the New York State Office of Mental Health. In 2009 the State of New York (New York) paid petitioner wages of
Petitioner is a member of the Employees' Retirement System (ERS) through the Manhattan Psychiatric Center. ERS is a member of the New York State and Local Retirement System (NYSLRS). The ERS retirement plan in which petitioner participates permits participants to take loans against their accounts, and loans from the ERS retirement plan are governed by rules established for the NYSLRS. The parties do not dispute that ERS administers a qualified plan for purposes of section 72 and that petitioner participated in the qualified plan.
In years before 2009 petitioner had requested and received loans from his ERS retirement account. On April 14, 2009, petitioner again requested a loan in the maximum allowable amount from ERS. ERS issued a loan of $5,993 to petitioner on April 29, 2009. After ERS distributed the loan proceeds to petitioner, petitioner's retirement account showed that he had total contributions to his ERS retirement plan of $17,071 and that he had an outstanding loan balance of $12,802.
ERS determined for 2009 that $2,802 of petitioner's loan proceeds was taxable. The NYSLRS issued to petitioner a Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., for 2009, which reported that petitioner had received a taxable distribution of $2,802.
Petitioner did not file a Federal income tax return for 2009.
I. Preliminary Matters
Generally, the Commissioner's determination of a deficiency is presumed correct, and the taxpayer bears the burden of proving that the determination is improper. Rules 122(b), 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). However, the U.S. Court of Appeals for the Second Circuit, to which an appeal in this case appears to lie absent a stipulation to the contrary, see sec. 7482(b)(1)(A), (2), has
The parties stipulated that petitioner received unreported wages and unreported loan proceeds from his ERS retirement account in 2009. Respondent has therefore established the necessary evidentiary foundation for the presumption of correctness to attach. Respondent's determinations that petitioner had unreported income and is liable for a deficiency for 2009 are presumed correct, and petitioner bears the burden of proving that respondent's determinations are erroneous. See Rules 122(b), 142(a)(1); Welch v. Helvering, 290 U.S. at 115.
II. Requirement To File a Return for 2009
Section 6012 requires every individual who has gross income over a certain amount to file an income tax return. An unmarried individual taxpayer must make a return if he or she has gross income equal to or in excess of the sum of the exemption amount and the basic standard deduction applicable to that individual. See sec. 6012(a)(1)(A)(i). Under section 151(a), an individual is allowed an income exemption as a deduction when computing his or her taxable income. The exemption amount is adjusted each year for inflation and was $3,650 for 2009.
Petitioner does not contend that he was entitled to any additional deductions under section 63(c)(1) or that he was married in 2009. Consequently, petitioner is entitled only to a personal exemption of $3,650 under section 151(a) and a basic standard deduction of $5,700 under section 63(c)(1)(A) for 2009. The sum of these amounts is $9,350. Because petitioner's income for 2009 was greater than $9,350, see infra parts III and IV, he was required to file a return for that year.
III. Unreported Wage Income
Gross income includes "all income from whatever source derived", including wages. See sec. 61(a)(1). In 2009 New York paid petitioner wages of $48,001 for services that he provided to the Manhattan Psychiatric Center, but petitioner did not report the wage income on a filed tax return. Consequently, we sustain respondent's determination that petitioner had unreported wage income of $48,001 for 2009.
IV. Unreported Deemed Taxable Distribution
Section 402(a) provides that distributions from a trust described in section 401(a) are generally taxable to the distributee, in the year in which the distribution occurs, under section 72. Ordinarily, a loan from a qualified employer plan to a participant is a taxable distribution in the year received.
Respondent contends that ERS is a qualified employer plan and that distributions from petitioner's ERS retirement plan account are taxable under section 72. Because petitioner does not dispute these contentions, we deem them conceded and will analyze the tax treatment of the April 29, 2009, loan proceeds under the provisions of section 72(p).
After petitioner received the April 29, 2009, loan proceeds, petitioner's loan balance in his ERS retirement plan account was $12,802. This is $2,802 greater than the greater of one-half of his "nonforfeitable accrued benefit" (i.e., one-half of $17,071) or $10,000.
V. Additional Tax Under Section 72(t)
Subsection (t) of section 72 bears the descriptive title "10 Percent Additional Tax on Early Distributions From Qualified Retirement Plans". Paragraph (1) of subsection (t) imposes a 10% "additional tax" on any distribution from a
After reviewing the record, we observed that the parties did not stipulate or provide any evidence with respect to petitioner's age on the date on which he received the deemed distribution or that any other exception in section 72(t)(2) applied. Because we have not yet decided whether, under section 7491(c), the Commissioner bears the initial burden of production with respect to the additional tax under section 72(t), see Milner v. Commissioner, T.C. Memo. 2004-111, 87 T.C.M. (CCH) 1287, 1288 n.2 (2004), we ordered the parties to file supplemental briefs on this issue.
Respondent contends that (1) section 7491(c) does not place the initial burden of production with respect to the additional tax under section 72(t) on him because it is an "additional tax", sec. 72(t)(1), and not a "penalty, addition to tax, or additional amount", sec. 7491(c), and (2) even if the additional tax under section 72(t) is an "additional amount" under section 7491(c), the burden of production with respect to statutory exceptions should be on petitioner. We agree with respondent's first contention and need not address the second.
For the following reasons we are persuaded that the section 72(t) additional tax is a "tax" and not a "penalty, addition to tax, or additional amount" within the meaning of section 7491(c). First, section 72(t) calls the exaction that it imposes a "tax" and not a "penalty", "addition to tax", or "additional amount". Second, several provisions in the Code expressly refer to the additional tax under section 72(t) using the unmodified term "tax". See secs. 26(b)(2), 401(k)(8)(D), (m)(7)(A), 414(w)(1)(B), 877A(g)(6). Third, section 72(t) is in subtitle A, chapter 1 of the Code. Subtitle A bears the descriptive title "Income Taxes", and chapter 1 bears the descriptive title "Normal Taxes and Surtaxes". Chapter 1 provides for several income taxes, and additional income taxes are provided for elsewhere in subtitle A. By contrast, most penalties and additions to tax are in subtitle F, chapter 68 of the Code. In Ross v. Commissioner, T.C. Memo. 1995-599, 70 T.C.M. (CCH) 1596, 1600-1601 (1999), we relied on some of the same reasons in holding that the additional tax under section 72(t) is a tax and not a penalty for purposes of section 6013(d)(3) (relating to joint and several liability).
Because the section 72(t) additional tax is a "tax" and not a "penalty, addition to tax, or additional amount" within the meaning of section 7491(c), the burden of production with respect to the additional tax remains on petitioner. Petitioner
VI. Additions to Tax
A. Burden of Proof
The Commissioner bears the burden of production with respect to a taxpayer's liability for additions to tax and must produce sufficient evidence indicating that it is appropriate to impose the additions to tax. See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Once the Commissioner carries the burden of production, the taxpayer must come forward with persuasive evidence that the Commissioner's determination is incorrect or that the taxpayer had reasonable cause or substantial authority for the position. See Higbee v. Commissioner, 116 T.C. at 446-447.
Relying on Swain v. Commissioner, 118 T.C. 358, 364-365 (2002), respondent contends that petitioner conceded the additions to tax under section 6651(a)(1) and (2) by failing to assign error to the additions to tax in the petition. See also Rule 34(b)(4). We disagree.
In Swain, the parties did not try or submit the case by implied consent. By contrast, respondent first asserted that petitioner failed to properly plead his case after this case was submitted. Respondent's answer and pretrial memorandum both stated that the additions to tax were at issue, and — presumably on that basis — the case was submitted for decision under Rule 122. We therefore conclude that the parties submitted the issue of petitioner's liability for the additions to tax for decision by this Court by implied consent. See Rules 41(b), 122. The burden of production with respect to the additions to tax under section 6651(a)(1) and (2) is on respondent. See sec. 7491(c).
B. Addition to Tax Under Section 6651(a)(1)
Section 6651(a)(1) authorizes the imposition of an addition to tax for failure to timely file a return unless it is shown that such failure is due to reasonable cause and not due to willful neglect. See United States v. Boyle, 469 U.S. 241, 245 (1985). A failure to timely file a Federal income tax return
Petitioner was required to file a return for 2009, see supra part II, and failed to do so. Accordingly, respondent has carried his burden of producing evidence showing that the addition to tax under section 6651(a)(1) is appropriate.
Petitioner has failed to introduce any credible evidence showing that he had reasonable cause for failing to file his 2009 return. Accordingly, he is liable for the addition to tax under section 6651(a)(1).
C. Addition to Tax Under Section 6651(a)(2)
Section 6651(a)(2) imposes an addition to tax for failure to pay the amount of tax shown on a taxpayer's Federal income tax return on or before the payment due date, unless such failure is due to reasonable cause and not due to willful neglect.
Respondent concedes that he has not met his burden of production on this issue because he failed to introduce into evidence the substitute for return that he purportedly filed for petitioner. See Wheeler v. Commissioner, 127 T.C. at 210. Accordingly, petitioner is not liable for the addition to tax under section 6651(a)(2).
D. Penalty Under Section 6673(a)(1)
Under section 6673(a)(1), this Court may require a taxpayer to pay a penalty not in excess of $25,000 whenever it appears that: (1) the taxpayer has instituted or maintained proceedings primarily for delay; (2) the taxpayer's position is frivolous or groundless; or (3) the taxpayer unreasonably failed to pursue available administrative remedies. A taxpayer's position is frivolous or groundless if it is "`contrary to established law and unsupported by a reasoned, colorable argument for change in the law.'" Williams v. Commissioner, 114 T.C. 136, 144 (2000) (quoting Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986)).
Although petitioner asserted several frivolous positions in his answering brief, respondent did not request that we impose on petitioner a penalty pursuant to section 6673(a)(1). In the exercise of our discretion we will not impose a section 6673(a)(1) penalty on petitioner at this time. However, we warn petitioner that if, in the future, he maintains groundless positions in this Court, he runs the risk that we will sanction him under section 6673(a)(1).
We have considered the parties' remaining arguments, and to the extent not discussed above, conclude those arguments are irrelevant, moot, or without merit.
Decision will be entered for respondent as to the deficiency and the section 6651(a)(1) addition to tax and for petitioner as to the section 6651(a)(2) addition to tax.