                        T.C. Memo. 2011-92



                      UNITED STATES TAX COURT



               KATHLEEN SUSAN STIPE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6488-08.                Filed April 25, 2011.



     Kathleen Susan Stipe, pro se.

     James A. Kutten, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     MARVEL, Judge:   Respondent determined a deficiency of

$5,4001 in petitioner’s 2005 Federal income tax and an accuracy-

related penalty for 2005 pursuant to section 6662(a)2 of $1,080.


     1
      All figures have been rounded to the nearest dollar.
     2
      Unless otherwise indicated, all section references are to
                                                   (continued...)
                                - 2 -

Petitioner contested the determination by filing a timely

petition.   After concessions,3 the issues for decision are:     (1)

Whether petitioner received taxable disability payments of

$22,650 in 2005 that she failed to report on her 2005 Federal

income tax return, and (2) whether petitioner is liable for the

10-percent additional tax under section 72(t) for an early

distribution from a qualified retirement plan.

                           FINDINGS OF FACT

     The parties did not execute a stipulation of facts.    On

February 25, 2010, we granted respondent’s motion to show cause

pursuant to Rule 91(f).4    On March 29, 2010, our order to show

cause was made absolute, and the facts and evidence set forth in

respondent’s proposed stipulation of facts were deemed

established.   Following the trial, the record was held open for

receipt of additional records, and the parties filed a first




     2
      (...continued)
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
     3
      Petitioner concedes that she received $29 in interest
income in 2005 that she failed to report on her 2005 Federal
income tax return. Respondent concedes that petitioner is not
liable for the accuracy-related penalty under sec. 6662(a).
     4
      Before filing the motion, respondent contacted petitioner
several times to discuss the facts and issues in the case and to
agree on a stipulation of facts pursuant to Rule 91(a).
Petitioner failed to respond to respondent’s letters and
telephone calls.
                                - 3 -

supplemental stipulation of facts and attached copies of

petitioner’s bank statements, which we admitted into evidence.

     Petitioner, who resided in Illinois when she filed her

petition, worked for the U.S. Department of Veterans Affairs (VA)

as a veterans claims examiner from 1991 until 2005.    On a date in

2005 that does not appear in the record, petitioner was placed on

disability, and she retired from the VA on February 10, 2005.

Petitioner was 46 years old when she retired.

     In 2005 petitioner received disability payments from the

U.S. Office of Personnel Management (OPM) as follows:

    Date          Gross payment     Amount withheld1   Net payment

Oct. 14, 2005        $13,782             $2,756         $11,026
Nov. 1, 2005           2,297                202           2,095
Nov. 1, 2005           4,236              2,476           1,760
Dec. 1, 2005           2,335                492           1,843
  Total               22,650              5,926          16,724
     1
      The amount withheld includes amounts withheld for Federal
tax, life insurance, and health insurance.

     When petitioner was placed on disability, she believed she

was still able to perform her job and has attempted to get her

old job back.   Since she retired from the VA in 2005, petitioner

has applied for more than 1,200 jobs but has not been able to

find permanent, full-time employment.

     When petitioner retired in 2005, she had two outstanding

loans of $7,872 and $3,624 from her Federal Employees’ Thrift

Savings Plan (TSP) account.    On or about February 25, 2005, the

TSP sent petitioner two letters regarding her loans.    The letters
                               - 4 -

informed petitioner that if she did not repay her outstanding

loans by May 16, 2005, the principal and interest then

outstanding would be declared a taxable distribution.    The

correspondence also stated that petitioner might also be liable

for early withdrawal penalties.   Petitioner did not repay the

loans.   On or about September 26, 2005, petitioner requested, and

received, a $12,000 distribution from her TSP account.

     For 2005 petitioner received Forms W-2, Wage and Tax

Statement, and Forms 1099-R, Distributions From Pensions,

Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance

Contracts, etc., reflecting the following wages and

distributions:

                                                  Federal income
            Forms W-2              Gross wages     tax withheld

   VA                                  $7,250           $1,089
   Volt Technical Res., L.L.C.            550               40
   Rose Intl., Inc.                     2,042              148
   Adecco USA, Inc.                       690                7
      Total                            10,532            1,284


                                       Gross      Federal income
          Forms 1099-R             distribution    tax withheld

                 OPM                   $22,650          $3,165
                 TSP                    23,496           2,400
                  Total                 46,146           5,565

     On her 2005 Form 1040, U.S. Individual Income Tax Return,

petitioner reported wage income of $10,532 and pension and

annuity income of $23,496.   Petitioner also reported on the Form

1040 that she was liable for additional tax of $1,150 for an
                                - 5 -

early distribution from a qualified retirement plan.    On Form

5329, Additional Taxes on Qualified Plans (Including IRAs) and

Other Tax-Favored Accounts, petitioner reported that the two TSP

loans she failed to repay, which totaled $11,496, were subject to

the 10-percent additional tax but that the $12,000 distribution

was not subject to the 10-percent additional tax because it was

due to total and permanent disability.    Petitioner did not report

the $22,650 she received from OPM in 2005 on her Form 1040.

     On December 10, 2007, respondent mailed a notice of

deficiency to petitioner with respect to petitioner’s 2005

Federal income tax.    In the notice of deficiency, respondent

determined that petitioner was liable for a $5,400 deficiency but

did not include an explanation of items.    Petitioner timely filed

a petition.

                               OPINION

I.   Burden of Proof

     Generally, the Commissioner’s determinations are presumed

correct, and the taxpayer bears the burden of proving that they

are incorrect.   See Rule 142(a); Welch v. Helvering, 290 U.S.

111, 115 (1933).   The U.S. Court of Appeals for the Seventh

Circuit, to which an appeal would lie absent a stipulation to the

contrary, see sec. 7482(b)(1)(A), has held, however, that the

presumption of correctness does not attach where the Commissioner

fails to introduce any evidence linking the taxpayer to an
                                - 6 -

income-producing activity.    See, e.g., Pittman v. Commissioner,

100 F.3d 1308, 1313 (7th Cir. 1996), affg. T.C. Memo. 1995-243;

see also Gold Emporium, Inc. v. Commissioner, 910 F.2d 1374, 1378

(7th Cir. 1990) (“courts will not recognize the presumption * * *

if an assessment is shown to be ‘without rational foundation’ or

is ‘arbitrary and erroneous’”), affg. T.C. Memo. 1988-559.

     Respondent introduced into evidence Forms W-2 and 1099-R

showing that petitioner received wages and distributions in 2005

in the amounts respondent determined.    The record also contains

copies of petitioner’s bank statements, which show that

petitioner received deposits from the U.S. Treasury in 2005 in

amounts consistent with the amounts reported on the Forms 1099-R

OPM issued to petitioner.    Petitioner does not dispute the

accuracy or authenticity of any of the forms.    Because respondent

has introduced evidence connecting petitioner with the income-

producing activity, the presumption of correctness attaches to

respondent’s notice of deficiency.

     In certain circumstances, section 7491(a) shifts the burden

of proof to the Commissioner.    However, petitioner does not argue

that section 7491(a) applies, and the record does not permit us

to conclude that the requirements of section 7491(a)(2) have been

satisfied.   Consequently, petitioner bears the burden of proof

with respect to all adjustments.    See Rule 142(a).
                                  - 7 -

II.   Payments From OPM

      Gross income includes all income from whatever source

derived unless excluded by a specific provision of the Internal

Revenue Code.   See sec. 61(a).    Thus, in the absence of a

statutory exclusion, petitioner’s disability payments are

includable in her gross income.

      In certain circumstances, sections 104 and 105 exclude

amounts received on account of personal injuries or sickness.

The taxpayer bears the burden of establishing that he or she is

entitled to the section 104 or 105 exclusion.     See, e.g.,

Guernsey v. Commissioner, T.C. Memo. 1979-444 (citing Scarce v.

Commissioner, 17 T.C. 830, 833 (1951)).

      Petitioner has not argued, let alone established, that the

disability payments she received from OPM in 2005 are excludable

under section 104 or 105.   On the contrary, petitioner appears to

concede that the payments are taxable.     Petitioner contends,

however, that the gross amount she received from OPM in 2005 was

$18,414--not $22,650, as respondent determined.     In the

alternative, petitioner argues that even if she received $22,650

from OPM in 2005, she is not liable for any increase in tax

because OPM withheld Federal income tax from her payments.     As we

interpret petitioner’s argument, petitioner is contending that

OPM withheld insufficient Federal income tax from the payments
                                - 8 -

and that she should not be blamed for OPM’s failure.

Petitioner’s arguments are without merit.

     The evidence in the record--which includes not only Forms W-

2 and 1099-R issued to petitioner by third-party payors but also

petitioner’s own bank statements--clearly reflects that

petitioner received gross payments of $22,650 from OPM in 2005.

Moreover, it is well established that an employer’s failure to

withhold income tax does not in any way lessen an employee’s

obligation to pay income tax.    Church v. Commissioner, 810 F.2d

19, 20 (2d Cir. 1987); Chenault v. Commissioner, T.C. Memo. 2011-

56 (a third party’s withholding obligation “does not excuse the

taxpayer from his or her duty to report income and pay the

resulting tax.”); Anderson v. Commissioner, T.C. Memo. 2007-265.

Consequently, we conclude that petitioner received $22,650 in

taxable disability payments from OPM in 2005 and that she failed

to report those payments on her 2005 Federal income tax return.

III. 10-Percent Early Withdrawal Penalty

     Section 72(t)(1) imposes a 10-percent additional tax on any

distribution from a qualified retirement plan that fails to

satisfy one of the statutory exceptions in section 72(t)(2).

Dollander v. Commissioner, T.C. Memo. 2009-187.   The TSP is a

qualified retirement plan, see secs. 4974(c)(1), 7701(j)(1), and

petitioner received a distribution from her TSP account in 2005
                               - 9 -

when she failed to repay loans totaling $11,496, see sec. 72(p);

see also sec. 1.72(p)-1, Q&A-4, Income Tax Regs.

     The relevant exception is section 72(t)(2)(A)(iii),5 which

provides that the 10-percent additional tax shall not apply to a

distribution “attributable to the employee’s being disabled

within the meaning of subsection (m)(7)”.   Section 72(m)(7)

provides that for purposes of section 72:

     an individual shall be considered to be disabled if he
     is unable to engage in any substantial gainful activity
     by reason of any medically determinable physical or
     mental impairment which can be expected to result in
     death or to be of long-continued and indefinite
     duration. An individual shall not be considered to be
     disabled unless he furnishes proof of the existence
     thereof in such form and manner as the Secretary may
     require.

     A taxpayer who is disabled for Social Security or employment

purposes is not necessarily disabled within the meaning of

section 72(m)(7).   See Kopty v. Commissioner, T.C. Memo. 2007-343

(taxpayer who received long-term disability benefits from the

U.S. Social Security Administration not disabled within the

meaning of section 72(m)(7)), affd. 313 Fed. Appx. 333 (D.C. Cir.

2009); see also Hemrick v. Commissioner, T.C. Memo. 2009-272

(taxpayer discharged from military duty upon certification of


     5
      The 10-percent additional tax imposed by sec. 72(t) does
not apply to distributions that are made on or after the date on
which the employee attains age 59-1/2, sec. 72(t)(2)(A)(i), or to
distributions made to an employee after separation from service
after attainment of age 55, sec. 72(t)(2)(A)(v). Petitioner was
46 years old when she was separated from Federal service.
Therefore, neither of these exceptions applies.
                                - 10 -

medical disqualification not disabled for purposes of section

72(m)(7)).   In determining whether a taxpayer is disabled within

the meaning of section 72(m)(7), primary consideration is given

to the nature and severity of the taxpayer’s ailment.     Sec. 1.72-

17A(f)(1), Income Tax Regs.   The regulation further provides that

in order for an individual to meet the requirements of section

72(m)(7), “an impairment must be expected either to continue for

a long and indefinite period or to result in death.”    Sec. 1.72-

17A(f)(3), Income Tax Regs.   An impairment that is remediable is

not a disability within the meaning of section 72(m)(7).    Sec.

1.72-17A(f)(4), Income Tax Regs.

     Petitioner testified at trial that a doctor had certified

she was permanently disabled.    However, the record does not

contain the doctor’s certification or any other evidence

substantiating   the nature or severity of petitioner’s condition,

the expected duration of the condition, or whether the condition

could be remedied.   In the absence of any evidence with respect

to the nature or severity of petitioner’s disability, we simply

cannot conclude that she was disabled within the meaning of

section 72(m)(7).    Accordingly, petitioner is liable for the 10-

percent additional tax under section 72(t) for an early

distribution from a qualified retirement plan in 2005.6


     6
      The 10-percent additional tax applies only to the TSP loans
that petitioner failed to repay. Respondent did not assert in
                                                   (continued...)
                              - 11 -

IV.   Conclusion

      In summary, we conclude that (1) petitioner received taxable

disability payments from OPM of $22,650 in 2005 that she failed

to report on her 2005 Federal income tax return, and (2)

petitioner is liable for the 10-percent additional tax under

section 72(t) with respect to the TSP loans she failed to repay

in 2005.

      We have considered the remaining arguments of both parties

for results contrary to those expressed herein and, to the extent

not discussed above, find those arguments to be irrelevant, moot,

or without merit.

      To reflect the foregoing,


                                       Decision will be entered

                                  under Rule 155.




      6
      (...continued)
the notice of deficiency or at trial that petitioner was liable
for a 10-percent additional tax under sec. 72(t) with respect to
the $12,000 distribution she received from her TSP account in
2005.
