                  T.C. Summary Opinion 2007-207



                      UNITED STATES TAX COURT



            RICHARD AND ARLINE MULLER, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 21941-05S.            Filed December 10, 2007.



     Richard Muller and Arline Muller, pro sese.

     Kristina L. Rico, for respondent.


     CARLUZZO, Special Trial Judge:   This case was heard

pursuant to the provisions of section 7463.1    Pursuant to section

7463(b), the decision to be entered is not reviewable by any

other court, and this opinion shall not be treated as precedent

for any other case.



     1
        Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended, in effect for the
relevant period.
                               - 2 -

     Respondent determined a $12,567 deficiency in petitioners’

2003 Federal income tax and a $2,513 accuracy-related penalty

under section 6662(a).   The issues for decision are:

(1) Whether a distribution from an individual retirement account

(IRA) is includable in petitioners’ 2003 income; and (2) whether

petitioners are liable for the accuracy-related penalty.

                            Background

     Some of the facts have been stipulated and are so found.

Petitioners are and were at all times relevant married to each

other.   Their joint 2003 Federal income tax return was timely

filed.   References to petitioner are to Richard Muller.

     Petitioner, who was born in 1934, spent most of his working

career in the trucking industry.    One of his former employers

went out of business during 2000.    As a result, petitioner

received a $72,000 distribution from some type of employment-

based employee benefit plan.   No portion of the $72,000

distribution was included in the income reported on petitioners’

2000 joint Federal income tax return.    As best can be determined

from the record, at least a portion of the $72,000 distribution

made its way into an individual retirement account that

petitioner maintained with Commerce Bank.

     The total value of the IRA as of January 1, 2003, was

$47,860.49.   Three interest accruals totaling $595.62 added to

the balance of the IRA during 2003; otherwise there were no
                                - 3 -

deposits or additions to the IRA.   Pursuant to a request made by

petitioner on December 17, 2003, the IRA was closed and, taking

into account an interest penalty, petitioner received a

$48,366.65 distribution from the IRA on that date (the IRA

distribution).   The IRA distribution is evidenced by a Form 1099-

R, Distributions From Pensions, Annuities, Retirement or Profit-

Sharing Plans, IRAs, Insurance Contracts, etc., issued to

petitioner by Commerce Bank.

     Petitioner deposited $40,000 of the IRA distribution into a

regular time deposit account.   The disposition of the remaining

portion of the IRA distribution ($8,366.65) is not known, and

petitioners now agree that at least that amount should have been

included in the income reported on their 2003 return.2

     The income reported on petitioners’ timely filed 2003

Federal income tax return, which was prepared by a paid income

tax return preparer, does not include any portion of the IRA

distribution, but it does include a different distribution, in a

much smaller amount, also evidenced by a Form 1099-R.

     In the notice of deficiency, respondent increased

petitioners’ income by the amount of the IRA distribution.

Respondent also imposed a section 6662(a) accuracy-related


     2
       Petitioner mistakenly believed that he used a portion of
the IRA distribution to pay an outstanding Federal income tax
liability from 2000. The record clearly demonstrates that the
payment he recalled was made in 2002, the year before the IRA
distribution.
                                 - 4 -

penalty upon the ground that the underpayment of tax required to

be shown on petitioners’ 2003 return is a substantial

understatement of income tax.

                             Discussion

     It is clear, and the parties agree, that the IRA

distribution was made from an account described in section

408(a).    They further agree that the IRA distribution is subject

to tax as provided in section 72.    See sec. 408(d)(1).    Section

72(a) requires that the IRA distribution be included in

petitioner’s income to the extent it exceeds petitioner’s

“investment in the contract”.    See secs. 72(b)(1), (c),

408(d)(2).

     Following trial, the Court held the record open so that any

question regarding petitioner’s investment in the contract in the

IRA account could be resolved.    As it turns out, petitioner’s

investment in the contract, within the meaning of the relevant

statutes, was zero as of the close of 2003.

     At trial petitioners took the position that $40,000 of the

IRA distribution was excludable from their 2003 income because

that amount was “rolled over” into a different qualifying

account.   They are mistaken on the point.   Although petitioner

used $40,000 of the IRA distribution to open a time deposit

account, the transaction was not a “rollover contribution” as
                                - 5 -

defined in section 408(d)(3) because the time deposit account

to which the funds were deposited is not the type of account

described in that section.

       Because petitioner had no investment in the contract in the

IRA, and no portion of the IRA distribution is excludable as a

rollover contribution, respondent’s determination that the entire

amount of the IRA distribution is includable in petitioners’ 2003

income is sustained.

       In the notice of deficiency respondent imposed a section

6662(a) accuracy-related penalty.     The $12,567 deficiency placed

in dispute in this case results entirely from petitioners’

failure to include the IRA distribution in the income reported on

their 2003 return.    As relevant here and for purposes of the

imposition of the penalty, the underpayment of tax and the

understatement of income tax are computed in the same manner as,

and equal to, the deficiency.    Cf. secs. 6211, 6662(d)(2),

6664(a).

        According to respondent, the penalty is applicable because

the underpayment of tax is a substantial understatement of income

tax.    See sec. 6662(b)(2), (d).   Because the understatement of

income tax exceeds $5,000, it is a substantial understatement of

income tax within the meaning of section 6662(b)(2).     See sec.
                                - 6 -

6662(d)(1)(A)(ii).3   Respondent’s burden of production with

respect to this penalty has been satisfied.   See sec. 7491(c).

     The section 6662(a) accuracy-related penalty does not apply

to any portion of the underpayment if the taxpayer demonstrates

that there was reasonable cause for such portion and the taxpayer

acted in good faith with respect to it (the good faith

exception).   Sec. 6664(c)(1); sec. 1.6664-4(a), Income Tax Regs.

     A taxpayer who reasonably relies upon the advice of a

competent tax professional can avoid the imposition of the

section 6662(a) penalty, if the taxpayer demonstrates that the

tax professional was supplied with sufficient information to

accurately prepare the taxpayer’s Federal income tax return.    See

United States v. Boyle, 469 U.S. 241 (1985); Schwalbach v.

Commissioner, 111 T.C. 215 (1998).

     Reliance on a tax adviser is not reasonable, however, where

the taxpayer has failed to disclose adequately “all necessary

information” affecting the computation of the taxpayer’s tax

liability.    Ellwest Stereo Theatres of Memphis, Inc. v.

Commissioner, T.C. Memo. 1995-610.

     Petitioners do not claim, and the record does not otherwise

indicate, that petitioners provided their return preparer with



     3
       Ten percent of the tax required to be shown on
petitioners’ 2003 return is less than $5,000. See sec.
6662(d)(1)(A)(i).
                                 - 7 -

information relating to the IRA distribution.       Petitioners have

failed to establish that the good faith exception applies to the

imposition of the section 6662(a) accuracy-related penalty.         See

Higbee v. Commissioner, 116 T.C. 438 (2001).       Respondent’s

imposition of that penalty is sustained.

     To reflect the foregoing,


                                         Decision will be entered

                                 for respondent.
