                  T.C. Summary Opinion 2009-193



                     UNITED STATES TAX COURT



          CHARLES AND KATHY A. WELKER, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10595-09S.             Filed December 15, 2009.



     Charles and Kathy A. Welker, pro sese.

     Michael T. Shelton, for respondent.



     ARMEN, 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.1   Pursuant to section

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



     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
years in issue, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
                               - 2 -

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

for any other case.

     Respondent determined deficiencies in petitioners’ Federal

income taxes for 2005, 2006, and 2007, of $7,563, $1,964, and

$214, respectively.   After concessions by petitioners,2 the issue

remaining for decision is whether petitioners are liable for the

10-percent additional tax imposed by section 72(t) on an early

distribution received in 2005 from an individual retirement

account.

                            Background

     All of the facts have been stipulated, and they are so

found.   We incorporate by reference the parties’ stipulation of

facts and accompanying exhibits.   Petitioners resided in the

State of Illinois when the petition was filed.

     In 2001 petitioner, Kathy A. Welker (Ms. Welker), left her

employment with Illinois Bell Telephone Co. (Illinois Bell).

Before leaving her employment, Ms. Welker received a distribution

of $6,102 from a retirement plan, which amount was reported on a

Form 1099-R, Distributions From Pensions, Annuities, Retirement

or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.,

indicating that no known exception to the tax on early


     2
        In the petition, petitioners state: “We are conceding
all issues from the Notice of Deficiency with the exception of
the [additional] tax on [the] qualified [retirement] plan in the
amount of $6,625.”
                                - 3 -

distributions from a qualified retirement plan applied.    When Ms.

Welker left Illinois Bell in 2001 she received a distribution

from a retirement plan of $417,709, of which she rolled over

$366,902 into an individual retirement account held in her name

at A. G. Edwards & Sons (the IRA).

     From 2001 through 2005 Ms. Welker received distributions

from the IRA in the following amounts:    $69,330; $44,200;

$81,096; $80,039; and $66,248, respectively.    Each of these

amounts was reported on a Form 1099-R designating a distribution

code 3 indicating an early distribution due to disability.      The

fair market value of the IRA account at the end of 2005 was

$43,192.

     From 2001 through 2003 Ms. Welker received wages from

employment at a bookstore.    During 2003 and 2004 Ms. Welker

received unemployment compensation.

     For 2005 Ms. Welker received a Form W-2, Wage and Tax

Statement, and a Form 1099-MISC, Miscellaneous Income, reporting

modest amounts of income.    Petitioners timely filed a joint

Federal income tax return for 2005 and reported a distribution

from an IRA of $66,248.

     In 2006 Ms. Welker began employment as an assistant nurse.

     In a notice of deficiency respondent determined a deficiency

in petitioners’ Federal income tax for 2005 on the basis (in
                                - 4 -

part) of the section 72(t) 10-percent additional tax on an early

distribution from an IRA.

     In their petition, petitioners contest the additional tax on

the grounds that the distribution was either attributable to Ms.

Welker’s being disabled or part of a series of substantially

equal periodic payments.    Petitioners allege that Ms. Welker “is

a cancer survivor and left her job as a result of the cancer

treatment.”   Petitioners did not appear at trial, and the case

was submitted on the basis of the parties’ stipulation of facts.

                             Discussion

     In general, the Commissioner’s determination as set forth in

the notice of deficiency is presumed correct, and the taxpayer

bears the burden of proving that the determination is in error.

See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Pursuant to section 7491(a), the burden of proof as to factual

matters shifts to the Commissioner under certain circumstances.

Petitioners have neither alleged that section 7491(a) applies nor

established their compliance with its requirements.3

Accordingly, petitioners bear the burden of proof.     See Rule

142(a).

     3
        Regardless of whether the additional tax under sec. 72(t)
is a penalty or an additional amount to which sec. 7491(c)
applies and regardless of whether the burden of production with
respect to this additional tax would be on respondent, respondent
has satisfied his burden of production with respect to the
distribution. See H. Conf. Rept. 105-599, at 241 (1998), 1998-3
C.B. 747, 995.
                                 - 5 -

     Section 72(t)(1) generally imposes a 10-percent additional

tax on an early distribution from a qualified retirement plan,

unless the distribution comes within one of the statutory

exceptions under section 72(t)(2).       In their petition,

petitioners allege that the additional tax should not apply, on

the basis of the exceptions found in section 72(t)(2)(A)(iii)

and/or (iv).4

     Section 72(t)(2)(A)(iii) provides an exception for

distributions “attributable to the employee’s being disabled

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

     Section 72(m)(7) defines the term “disabled” as follows:

     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.

     In determining whether a taxpayer is disabled, primary

consideration is given to the nature and severity of the

impairment.     Sec. 1.72-17A(f)(1), Income Tax Regs.    The

regulation lists a number of examples of impairments that would

ordinarily be considered to prevent a taxpayer’s engaging in

substantial gainful activity including “Cancer which is

     4
        Petitioners did not allege any of the other exceptions
found in sec. 72(t)(2), nor do any of those other exceptions
apply under the facts before us.
                                - 6 -

inoperable and progressive”.    Sec. 1.72-17A(f)(2)(iv), Income Tax

Regs.    The impairment must be evaluated in terms of whether it

does, in fact, prevent the individual from engaging in his

customary, or any comparable, substantial gainful activity

considering the individual’s education, training, and work

experience.    See sec. 1.72-17A(f)(1), Income Tax Regs.

     Petitioners allege that Ms. Welker is a cancer survivor and

that she left her job in 2001 as a result of the cancer

treatment.5   Although Ms. Welker may have had or may have cancer,

the record is devoid of evidence regarding whether she received

treatment or the extent of her illness in 2005.    Though we are

sympathetic to petitioners’ position, on the limited record

before us, which includes the fact that Ms. Welker began a new

career in 2006 as an assistant nurse, we are unable to find that

the distribution from the IRA in 2005 was attributable to Ms.

Welker’s being disabled within the meaning of section 72(m)(7).

     Section 72(t)(2)(A)(iv) provides an exception for

distributions that are part of a series of substantially equal

periodic payments (not less frequently than annually) made for

the life (or life expectancy) of the employee.

     The Internal Revenue Code and the regulations thereunder do

not elucidate what qualifies as a series of substantially equal

     5
        “Ex parte affidavits, statements in briefs, and
unadmitted allegations in pleadings do not constitute evidence.”
Rule 143(b).
                                - 7 -

periodic payments under section 72(t)(2)(A)(iv).    However, the

Internal Revenue Service has promulgated guidance concerning this

exception in Notice 89-25, Q&A-12, 1989-1 C.B. 662, 666.    The

notice provides that payments will be considered substantially

equal periodic payments if the payments are determined by one of

three methods:    (1) The required minimum distribution method, (2)

the fixed amortization method, or (3) the fixed annuitization

method.   See Rev. Rul. 2002-62, 2002-2 C.B. 710 (reiterating that

payments will be considered to be substantially equal periodic

payments if they are made in accordance with one of the three

methods described in Notice 89-25, supra).     Each of the three

methods takes into account the taxpayer’s life expectancy.       The

Court is not bound by Notice 89-25, supra, but conforming to one

of its methodologies may relieve a taxpayer of the 10-percent

additional tax.   See Arnold v. Commissioner, 111 T.C. 250, 252

n.1 (1998).

     The record does not identify which, if any, methodology

petitioners used in calculating the amount of Ms. Welker’s

payments.   Petitioners did not provide any documentation

demonstrating (or testimony explaining) how they determined the

distribution amounts.   See id. at 252.    Ms. Welker received

distributions from the IRA over a period of 5 years in irregular

amounts ranging from $44,200 to $81,096.    In addition, although

the record does not provide any evidence regarding Ms. Welker’s
                                   - 8 -

life expectancy, the balance of the IRA at the close of 2005 was

only $43,192, an amount less than any of the prior distributions.

Thus, on the basis of distribution history, Ms. Welker could only

receive one such additional distribution before depleting the

IRA.    The variation in distribution amounts and the IRA balance

at the close of 2005 establish that the distributions could not

be substantially equal payments made for Ms. Welker’s life

expectancy.

       We conclude, therefore, that petitioners are subject to the

10-percent additional tax under section 72(t)(1).

       To reflect the foregoing,


                                                Decision will be entered

                                           for respondent.
