                                           ANDREW WAYNE ROBERTS, PETITIONER v. COMMISSIONER
                                                  OF INTERNAL REVENUE, RESPONDENT

                                                    Docket No. 23405–10.                   Filed December 30, 2013.

                                                 During 2008 P’s former wife (W) submitted withdrawal
                                              requests bearing what purported to be P’s signatures to two
                                              companies administering IRAs P owned. The requests were
                                              prepared and submitted without P’s knowledge, and P’s signa-
                                              tures on the requests were forged. The companies processed
                                              distributions from P’s IRAs in accordance with the requests
                                              and issued checks made payable to P. W received and
                                              endorsed the checks by forging P’s signatures, deposited the
                                              checks into a joint account that only she used, and used the
                                              proceeds from the checks for her personal benefit. P did not
                                              know about the withdrawals until sometime in 2009 when he
                                              received Forms 1099–R with respect to the purported distribu-
                                              tions, and he did not learn of W’s involvement in cashing the
                                              distribution checks and using the proceeds until the divorce
                                              proceeding in 2009. W electronically filed an income tax
                                              return for P for 2008 that she prepared using a filing status
                                              of single. She did not report the IRA withdrawals as income
                                              on P’s return. R determined that P is the distributee who
                                              must include the withdrawals in income pursuant to I.R.C.
                                              sec. 408(d) and that P is liable for the I.R.C. sec. 72(t) addi-
                                              tional tax on early distributions from qualified retirement
                                              plans. R also determined that P is liable for an accuracy-
                                              related penalty under I.R.C. sec. 6662(a) due to a substantial
                                              understatement of income tax. Held: P is not a ‘‘payee’’ or
                                              ‘‘distributee’’ within the meaning of I.R.C. sec. 408(d)(1). Held,
                                              further, P is not liable for the I.R.C. sec. 72(t) additional tax
                                              on early distributions from qualified retirement plans. Held,
                                              further, P’s proper filing status for 2008 is married filing sepa-
                                              rately. Held, further, P is liable for the accuracy-related pen-
                                              alty under I.R.C. sec. 6662(a) to the extent the adjustments

                                                                                                                                 569




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                                     570                 141 UNITED STATES TAX COURT REPORTS                                   (569)

                                              P conceded result in a substantial understatement of income
                                              tax.

                                           John A. Clynch and Scott A. Schumacher, for petitioner.
                                           Connor J. Moran and Dean H. Wakayama, for respondent.
                                       MARVEL, Judge: Respondent determined a deficiency in
                                     petitioner’s 2008 Federal income tax of $13,783 and an
                                     accuracy-related penalty of $3,357 under section 6662(a). 1 In
                                     an amendment to answer respondent asserted an increased
                                     deficiency of $14,177 and an increased accuracy-related pen-
                                     alty of $3,435. After concessions, 2 the issues for decision are:
                                     (1) whether petitioner must include in taxable income for
                                     2008 withdrawals from his individual retirement accounts
                                     (IRAs) of $37,020 that his former wife took without his
                                     knowledge or permission and that he did not receive directly
                                     or indirectly during 2008; (2) if so, whether he is liable for
                                     the 10% additional tax on early distributions under section
                                     72(t); (3) whether petitioner’s proper filing status for 2008 is
                                     married filing separately; and (4) whether petitioner is liable
                                     for the section 6662(a) penalty.

                                                                         FINDINGS OF FACT

                                       Some of the facts have been stipulated and are so found.
                                     The stipulation of facts is incorporated herein by this ref-
                                     erence. Petitioner resided in the State of Washington when
                                     he petitioned this Court.
                                     I. Background
                                       In 1990 petitioner married Cristie Smith (Ms. Smith).
                                     During 2008 petitioner was an employee of the U.S. Air
                                     Force, and Ms. Smith was an employee of Bethel Transpor-
                                     tation. Petitioner and Ms. Smith separated for a period in
                                     2008, permanently separated in January 2009, and were
                                     divorced in March 2010.

                                       1 Unless otherwise indicated, all section references are to the Internal

                                     Revenue Code (Code) in effect for the year in issue, and all Rule references
                                     are to the Tax Court Rules of Practice and Procedure. All monetary
                                     amounts are rounded to the nearest dollar.
                                       2 Petitioner concedes that he received wage income of $39,232 and inter-

                                     est income of $74 for 2008.




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                                     (569)                         ROBERTS v. COMMISSIONER                                       571


                                     II. Financial Accounts
                                        Petitioner and Ms. Smith maintained joint checking
                                     accounts at Washington Mutual and Harborstone Federal
                                     Credit Union (Harborstone). 3 Although the accounts were
                                     titled in joint name, petitioner exclusively used the
                                     Harborstone account during and after 2008 and Ms. Smith
                                     exclusively used the Washington Mutual account. Petitioner
                                     did not have a checkbook for, write checks on, or make with-
                                     drawals from the Washington Mutual account, and he did
                                     not receive or review the bank statements for the Wash-
                                     ington Mutual account during 2008. Petitioner did not know
                                     about, authorize, or benefit from any deposits into, or with-
                                     drawals from, the Washington Mutual account during 2008
                                     and after.
                                     III. IRA Withdrawals
                                           A. IRA Accounts
                                       Petitioner owned IRA accounts at AIG SunAmerica Life
                                     Insurance Co. (SunAmerica) and ING.
                                           B. SunAmerica IRA
                                       In September 2008 SunAmerica received a request
                                     purportedly from petitioner to withdraw $9,000 from his
                                     SunAmerica IRA. Petitioner did not make the request, and
                                     he did not authorize anyone else to make it on his behalf.
                                     SunAmerica received the withdrawal request from a fax
                                     machine at Bethel Transportation. Petitioner did not ask Ms.
                                     Smith or anyone else at Bethel Transportation to fax the
                                     withdrawal request to SunAmerica.
                                       The withdrawal request is signed ‘‘Andy Roberts’’. The sig-
                                     nature is not petitioner’s signature and was forged.
                                       SunAmerica issued a check made payable to petitioner
                                     from his SunAmerica IRA pursuant to the faxed withdrawal
                                     request. The SunAmerica check was endorsed ‘‘Andy Rob-
                                     erts’’ and was deposited into the Washington Mutual account.
                                     Petitioner, however, did not endorse the SunAmerica check,
                                     and he did not authorize anyone to sign the check on his
                                       3 The Washington Mutual account was later transferred to Chase Bank.

                                     We refer to the Washington Mutual/Chase Bank account as the Wash-
                                     ington Mutual account.




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                                     572                  141 UNITED STATES TAX COURT REPORTS                                   (569)


                                     behalf. The endorsement on the SunAmerica check is not
                                     petitioner’s signature and was forged.
                                           C. ING IRA
                                        Petitioner did not make any request for any distribution
                                     from his ING IRA account during 2008. 4 Nevertheless, in
                                     November 2008 ING issued a $9,000 check made payable to
                                     petitioner from his ING IRA. In December 2008 ING issued
                                     another check, for $18,980, made payable to petitioner from
                                     his ING IRA. Each ING check was endorsed ‘‘Andy Roberts’’
                                     and was deposited into the Washington Mutual account. Peti-
                                     tioner, however, did not endorse either of the ING checks,
                                     and he did not authorize anyone to sign the checks on his
                                     behalf. Petitioner’s signatures on the checks were forged.
                                     IV. Use of Misappropriated IRA Funds
                                       Petitioner did not receive the ING and SunAmerica IRA
                                     distribution checks during 2008, and he was unaware that
                                     the checks had been issued. Petitioner also was unaware that
                                     the IRA distribution checks had been deposited into the
                                     Washington Mutual account. 5
                                       We infer from the record and find that Ms. Smith or some-
                                     one on her behalf forged petitioner’s signature on each of the
                                           4 Withdrawalrequests related to the ING distributions are not part of
                                     the record. We find credible petitioner’s testimony that he was unaware of
                                     the ING distributions until sometime in 2009 and infer from the record
                                     that he did not request any distribution from his ING IRA account during
                                     2008.
                                        5 Respondent contends that petitioner directly benefited from the IRA

                                     withdrawals in 2008. We disagree. Petitioner and Ms. Smith shared ex-
                                     penses during their marriage. Petitioner deposited his paycheck into the
                                     Harborstone account and made the mortgage loan and car payments. Peti-
                                     tioner also paid bills such as the cable, electric, and insurance bills. Ms.
                                     Smith deposited her paycheck into the Washington Mutual account and
                                     used that account to pay the phone bill, buy groceries, and purchase cloth-
                                     ing for the children.
                                        Nothing in the record suggests that the IRA withdrawals were used to
                                     pay any expenses that were petitioner’s responsibility. Instead, the record
                                     shows that Ms. Smith used the IRA withdrawals to make large purchases
                                     at retail stores, such as Old Cannery Furniture; Bed, Bath & Beyond; Ikea;
                                     and Target; to take a trip to Disneyland; and to set up a household sepa-
                                     rate from petitioner’s. These expenditures were for the sole benefit of Ms.
                                     Smith and were made without petitioner’s knowledge. We do not find cred-
                                     ible any testimony by Ms. Smith to the contrary.




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                                     (569)                         ROBERTS v. COMMISSIONER                                       573


                                     distribution requests and the endorsements on the checks,
                                     and she deposited the checks into the Washington Mutual
                                     account that only she used. In the months following the IRA
                                     withdrawals Ms. Smith made large expenditures from the
                                     Washington Mutual account to, among other things, 6 estab-
                                     lish a separate household from petitioner. 7 From mid-
                                     November 2008 through mid-January 2009 Ms. Smith wrote
                                     checks and made withdrawals from the Washington Mutual
                                     account totaling $41,257; her payroll deposits from Bethel
                                     Transportation for this period totaled only $3,950. 8
                                        Petitioner first learned of the unauthorized withdrawals
                                     from his IRA accounts when SunAmerica and ING issued to
                                     him Forms 1099–R, Distributions From Pensions, Annuities,
                                     Retirement or Profit-Sharing Plans, IRAs, Insurance Con-
                                     tracts, etc., in 2009. When he received the first Form 1099–
                                     R, petitioner thought that he had been the victim of a theft,
                                     but he had no reason to believe at the time that Ms. Smith
                                     was involved. By the time of his divorce proceeding in 2009,
                                     however, petitioner had learned that Ms. Smith had depos-
                                     ited the checks into the Washington Mutual account and had
                                     used the proceeds for her benefit. 9 During the divorce pro-
                                     ceeding petitioner advised the trial court that Ms. Smith had
                                     taken and used the funds from his IRA accounts without his
                                     knowledge or permission. In 2010 the division of assets in
                                     the trial court’s decree of dissolution took into account that



                                        6 Ms. Smith frequently overdrew her Washington Mutual account during

                                     2008. The Washington Mutual account bank records show overdraft
                                     charges of $3,522 for 2008.
                                        7 In one instance, Ms. Smith made a withdrawal of $17,345 from the

                                     Washington Mutual account for the purpose of setting up her separate
                                     household.
                                        8 Beginning with the Washington Mutual statement for the period of De-

                                     cember 12, 2008, through January 14, 2009, Washington Mutual lists Ms.
                                     Smith’s separate address in Puyallup, Washington, as the account holders’
                                     address. Washington Mutual bank statements for periods before December
                                     12, 2008, list petitioner and Ms. Smith’s address in Spanaway, Wash-
                                     ington, as the account holders’ address.
                                        9 Ms. Smith filed for divorce from petitioner on February 18, 2009. The

                                     Pierce County, Washington, Superior Court entered a decree of dissolution
                                     of petitioner and Ms. Smith’s marriage on March 26, 2010.




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                                     574                  141 UNITED STATES TAX COURT REPORTS                                   (569)


                                     Ms. Smith had withdrawn funds from petitioner’s IRA
                                     accounts. 10
                                     V. Petitioner’s Tax Reporting and Notice of Deficiency
                                        For each year of their marriage until 2008, Ms. Smith pre-
                                     pared and filed a joint income tax return for petitioner and
                                     herself. Sometime before April 2009, petitioner, although
                                     separated from Ms. Smith, discussed with her the prepara-
                                     tion and filing of a joint income tax return for 2008, and he
                                     understood from that conversation that he and Ms. Smith
                                     would still file a joint return. He gave his tax information to
                                     her so that she could prepare the 2008 joint return. However,
                                     without telling him, Ms. Smith prepared and filed separate
                                     returns for herself and petitioner. Ms. Smith prepared her
                                     return for 2008 using married filing separate filing status,
                                     but she prepared petitioner’s return using single filing
                                     status. On petitioner’s return Ms. Smith underreported peti-
                                     tioner’s wage income by $3,000, claimed an overstated credit
                                     for withheld tax (the credit was overstated by $3,000), and
                                     omitted $74 of interest income. As prepared, petitioner’s
                                     return claimed that he was entitled to a refund of a $3,357
                                     overpayment, which was electronically deposited into Ms.
                                     Smith’s Washington Mutual account. 11
                                        Ms. Smith filed petitioner’s return electronically on April
                                     13, 2009. She did not show the return to petitioner or give
                                     him a copy of the return, despite his asking for one. Thus,
                                     petitioner did not sign or see his 2008 tax return before its
                                     filing. Ms. Smith did not report the withdrawals from the
                                     SunAmerica and ING IRAs as income on either the return
                                     she prepared for petitioner or her return. 12
                                           10 Although
                                                     the parties jointly stipulate that the ‘‘decree of dissolution
                                     was made taking into account the fact that funds, including funds from the
                                     SunAmerica IRA and the ING IRA had allegedly already been withdrawn
                                     by petitioner’s wife’’, we do not know what the stipulation means, and we
                                     cannot conclude from the stipulation as drafted that petitioner received
                                     any economic benefit in the form of an adjustment to the property that Ms.
                                     Smith was awarded in the divorce proceeding.
                                       11 The actual refund deposit to the Washington Mutual account from the

                                     Department of the Treasury was $3,092. We are unable to resolve the dis-
                                     crepancy between the claimed refund amount and the actual refund
                                     amount from the information in the record.
                                       12 Respondent issued a tax refund of $3,092 and deposited the refund

                                     electronically into the Washington Mutual account on April 24, 2009. On




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                                     (569)                         ROBERTS v. COMMISSIONER                                       575


                                       On August 2, 2010, respondent issued to petitioner a notice
                                     of deficiency. In the notice of deficiency respondent deter-
                                     mined that petitioner had failed to report income of $37,020
                                     attributable to the IRA withdrawals and adjusted the
                                     resulting tax deficiency by the amount of the overstated
                                     withholding credit. Respondent increased the deficiency in an
                                     amendment to answer to account for the incorrect filing
                                     status used on petitioner’s 2008 return.
                                                                                 OPINION

                                     I. Burden of Proof
                                       Ordinarily, the Commissioner’s determinations in a notice
                                     of deficiency are presumed correct, and the taxpayer bears
                                     the burden of proving that the determinations are erroneous.
                                     Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
                                     The burden of proof shifts to the Commissioner, however, if
                                     the taxpayer produces credible evidence with respect to an
                                     issue, the taxpayer complied with the substantiation require-
                                     ments, and the taxpayer cooperated with the Secretary 13
                                     regarding all reasonable requests for information. Sec.
                                     7491(a); see also Higbee v. Commissioner, 116 T.C. 438, 440–
                                     441 (2001). Further, if the Commissioner raises a new issue
                                     or seeks an increase in the deficiency, the Commissioner
                                     bears the burden of proof as to the new issue or increased
                                     deficiency. See Rule 142(a)(1).
                                       The U.S. Court of Appeals for the Ninth Circuit, to which
                                     an appeal in this case would lie absent a stipulation to the
                                     contrary, see sec. 7482(b)(1)(A), (2), has held that for the
                                     presumption of correctness to attach to the notice of defi-
                                     ciency in unreported income cases, the Commissioner must
                                     establish some evidentiary foundation connecting the tax-
                                     payer with the income-producing activity, see Weimerskirch v.
                                     the same day as the refund deposit Ms. Smith withdrew $3,000 from the
                                     Washington Mutual account. Petitioner was unaware at the time that re-
                                     spondent had issued a refund with respect to his 2008 return, and he did
                                     not receive it or benefit from it.
                                       13 The term ‘‘Secretary’’ means ‘‘the Secretary of the Treasury or his del-

                                     egate’’, sec. 7701(a)(11)(B), and the term ‘‘or his delegate’’ means ‘‘any offi-
                                     cer, employee, or agency of the Treasury Department duly authorized by
                                     the Secretary of the Treasury directly, or indirectly by one or more redele-
                                     gations of authority, to perform the function mentioned or described in the
                                     context’’, sec. 7701(a)(12)(A)(i).




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                                     576                 141 UNITED STATES TAX COURT REPORTS                                   (569)


                                     Commissioner, 596 F.2d 358, 361–362 (9th Cir. 1979), rev’g
                                     67 T.C. 672 (1977), or demonstrating that the taxpayer actu-
                                     ally received unreported income, see Edwards v. Commis-
                                     sioner, 680 F.2d 1268, 1270–1271 (9th Cir. 1982). If the
                                     Commissioner introduces some evidence that the taxpayer
                                     received unreported income, the burden shifts to the tax-
                                     payer, who must establish by a preponderance of the evi-
                                     dence that the unreported income adjustment was arbitrary
                                     or erroneous. See Hardy v. Commissioner, 181 F.3d 1002,
                                     1004 (9th Cir. 1999), aff ’g T.C. Memo. 1997–97.
                                        The record contains copies of the Commissioner’s computer
                                     records that reflect receipt of Forms 1099–R showing taxable
                                     distributions of $37,020 to petitioner, and the parties do not
                                     dispute that the distribution checks were issued and made
                                     payable to petitioner. Because respondent has introduced evi-
                                     dence that petitioner received unreported IRA distributions
                                     during 2008, the presumption of correctness attaches to
                                     respondent’s determination in the notice of deficiency. Peti-
                                     tioner bears the burden of proof with respect to that deter-
                                     mination. 14 See Rule 142(a); Hardy v. Commissioner, 181
                                     F.3d at 1004. Respondent, however, bears the burden of proof
                                     with respect to the increased deficiency attributable to the
                                     allegedly erroneous filing status. See Rule 142(a)(1).
                                     II. Analysis
                                        Section 408(d)(1) provides that any amount paid or distrib-
                                     uted out of an IRA is included in the gross income of the
                                     payee or distributee as provided under section 72. Generally,
                                     the payee or distributee of an IRA is the participant or bene-
                                     ficiary who is eligible to receive funds from the IRA. Bunney
                                     v. Commissioner, 114 T.C. 259, 262 (2000) (citing Darby v.
                                     Commissioner, 97 T.C. 51, 58 (1991)). However, this is not
                                     always the case. The taxable distributee under section
                                     408(d)(1) may be someone other than the recipient or pur-
                                     ported recipient eligible to receive funds from the IRA.
                                     Indeed, we have previously rejected the contention that the
                                     recipient of an IRA distribution is automatically the taxable
                                     distributee. See Bunney v. Commissioner, 114 T.C. at 262.
                                       14 Petitioner does not assert nor has he proven that he is entitled to a

                                     shift in the burden of proof under sec. 7491(a).




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                                     (569)                         ROBERTS v. COMMISSIONER                                       577


                                        Neither the Code nor applicable regulations define the
                                     terms ‘‘payee’’ or ‘‘distributee’’ or provide specific guidance on
                                     when an amount is considered to have been paid or distrib-
                                     uted to a payee or distributee under section 408(d)(1). This
                                     is not surprising because under most circumstances the
                                     payee or distributee is easily identifiable and the fact of the
                                     distribution can normally be ascertained without difficulty.
                                     In this case, however, we find that the distribution requests
                                     were forged, and the endorsements on the checks that were
                                     issued pursuant to the forged requests were also forged. Peti-
                                     tioner, the purported payee on the checks, did not know of
                                     or authorize the requests, and he did not receive or cash the
                                     checks. These facts present an issue of first impression under
                                     section 408(d)(1)—whether IRA withdrawals made pursuant
                                     to forged withdrawal requests that are not received by the
                                     purported distributee or used by the purported distributee
                                     for his or her economic benefit are distributions includible in
                                     the gross income of the purported distributee under section
                                     408(d). Common sense dictates that the answer must be no,
                                     and our findings of fact and analysis support that answer.
                                           A. Distributions From Petitioner’s IRAs
                                       Petitioner credibly testified that he did not sign the
                                     SunAmerica withdrawal request, endorse the SunAmerica
                                     IRA distribution check, endorse the ING IRA distribution
                                     checks, or authorize any person to do so on his behalf.
                                     Indeed, petitioner credibly testified that he did not learn of
                                     either the SunAmerica or ING IRA distributions until he
                                     received the Forms 1099–R sometime in 2009. Petitioner fur-
                                     ther testified that he signs his name ‘‘Andrew W. Roberts’’
                                     and dates his signature with the day first, then the month
                                     abbreviated, and finally the year. He formed the habit of
                                     signing and dating his name in this manner during his time
                                     in the military.
                                       The IRA distribution checks were all endorsed ‘‘Andy Rob-
                                     erts’’, and the SunAmerica withdrawal request was not dated
                                     in petitioner’s customary format. The SunAmerica with-
                                     drawal request was faxed from Ms. Smith’s place of employ-
                                     ment, and all of the IRA checks were deposited into the bank
                                     account used by Ms. Smith. We find that Ms. Smith or some-
                                     one on her behalf, and not petitioner, signed the withdrawal
                                     requests and the checks, and that the signatures were made




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                                     578                  141 UNITED STATES TAX COURT REPORTS                                   (569)


                                     without petitioner’s authorization. In effect, Ms. Smith per-
                                     petrated a fraud on, and stole from, the companies admin-
                                     istering petitioner’s IRAs.
                                        Petitioner credibly testified that he did not receive the IRA
                                     checks, and the record shows that the checks were deposited
                                     into an account that was joint in name only; the account was
                                     exclusively used by Ms. Smith. Petitioner did not have a
                                     checkbook for the Washington Mutual account, did not make
                                     any withdrawals from the Washington Mutual account, and
                                     was generally unaware of the use of the Washington Mutual
                                     account. Ms. Smith, however, routinely used the Washington
                                     Mutual account for her personal expenditures, which were
                                     often excessive and which generated numerous overdraft
                                     charges. We do not find credible Ms. Smith’s testimony 15
                                     that she was unaware of the source of the deposits made to
                                     the Washington Mutual account when, in many instances,
                                     the deposits dwarfed the account’s balance at the time. 16 Ms.
                                     Smith’s testimony is particularly unbelievable in the light of
                                     the evidence that she made large cash withdrawals and pur-
                                     chases in close proximity to the deposits of the IRA checks.
                                     In short, Ms. Smith, and not petitioner, received, spent, and
                                     benefited from the IRA distributions.
                                           B. Parties’ Arguments
                                       Respondent takes a strict view of petitioner’s obligation to
                                     report as income withdrawals from his IRA accounts. He
                                           15 Respondent
                                                      filed a motion in limine to exclude certain documents, tes-
                                     timony, and cross-examination related to a dismissed criminal charge
                                     against Ms. Smith. We denied respondent’s motion and at trial permitted
                                     cross-examination related to the dismissed criminal charge. However, we
                                     base our findings regarding Ms. Smith’s credibility solely on our observa-
                                     tions of her as a witness and our review of certain exhibits and not on any
                                     testimony regarding the dismissed criminal charge.
                                        16 The SunAmerica IRA distribution check of $9,000 was deposited to the

                                     Washington Mutual account during the statement period of August 14
                                     through September 12, 2008. The Washington Mutual account had a bal-
                                     ance of –$3 on August 14, 2008. The first ING IRA distribution check of
                                     $9,000 was deposited to the Washington Mutual account during the state-
                                     ment period of November 15 through December 11, 2008. The Washington
                                     Mutual account had a balance of –$1,000 on November 15, 2008. Finally,
                                     the second ING IRA distribution check of $18,980 was deposited to the
                                     Washington Mutual account during the statement period of December 12,
                                     2008, through January 14, 2009. The Washington Mutual account had a
                                     balance of $2,087 on December 12, 2008.




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                                     (569)                         ROBERTS v. COMMISSIONER                                       579


                                     argues that petitioner must report the withdrawals as tax-
                                     able distributions because petitioner was the owner of the
                                     IRAs and was the person entitled to receive distributions
                                     from the IRAs. Respondent further argues that the IRA
                                     account withdrawals were deposited into the Washington
                                     Mutual account, which was jointly owned by petitioner and
                                     Ms. Smith, and were used in part to pay ‘‘family living
                                     expenses during the time petitioner and his wife resided
                                     together’’, medical expenses, and a family Verizon Wireless
                                     account. Respondent emphasizes that petitioner ‘‘never
                                     attempted to return the funds to the IRAs after he discov-
                                     ered the payments nor did he otherwise contest the distribu-
                                     tions.’’ Citing Priv. Ltr. Rul. 201119040 (May 13, 2011) as an
                                     example, respondent also states that, if IRA funds were
                                     stolen and the owner of the IRA received a refund of the
                                     stolen funds, the owner could deposit the refund into the IRA
                                     as a tax-free rollover. However, because petitioner took no
                                     steps to replenish his IRAs for the allegedly stolen amounts,
                                     respondent contends that petitioner must recognize income
                                     equal to the distribution amounts in 2008.
                                        Petitioner contends that because the IRA withdrawals
                                     were made pursuant to forged withdrawal requests, the dis-
                                     tribution checks were stolen, the signatures on the distribu-
                                     tion checks were forged, and he did not receive an economic
                                     benefit from the distributions, we should hold that he is not
                                     a payee or distributee within the meaning of section
                                     408(d)(1). Petitioner also contends that under Washington
                                     State law, no distribution occurred from either the
                                     SunAmerica IRA or the ING IRA because he did not
                                     authorize the IRA withdrawal requests or the endorsements
                                     on the IRA distribution checks. Therefore, petitioner con-
                                     tends that as a matter of State law no amount was paid or
                                     distributed within the meaning of section 408(d)(1). 17
                                        We first address whether petitioner is a distributee within
                                     the meaning of section 408(d)(1) when he did not authorize
                                     the withdrawal requests, did not receive or endorse the IRA
                                     distribution checks, and did not receive an economic benefit
                                     from the distributions. We then address whether petitioner is
                                     a distributee within the meaning of section 408(d)(1) because
                                       17 Because we hold that petitioner was not a payee or distributee within

                                     the meaning of sec. 408(d)(1), we need not address this contention.




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                                     580                 141 UNITED STATES TAX COURT REPORTS                                   (569)


                                     he allegedly benefited from the IRA distributions or because
                                     he failed to file a claim against ING or SunAmerica for an
                                     unauthorized payment.
                                           C. Whether Petitioner Is a Payee or Distributee Within the
                                              Meaning of Section 408(d)(1)
                                        As an initial matter, respondent contends that petitioner
                                     must include in income the amounts withdrawn from his
                                     IRAs irrespective of State law and even though he did not
                                     consent to the distributions and was not aware that the dis-
                                     tributions occurred. Respondent relies on our opinions in
                                     Bunney v. Commissioner, 114 T.C. at 262, and Vorwald v.
                                     Commissioner, T.C. Memo. 1997–15, to support his conten-
                                     tions.
                                        In Bunney, we held that the distributee or payee of a dis-
                                     tribution from an IRA is generally ‘‘ ‘the participant or bene-
                                     ficiary who, under the plan, is entitled to receive the dis-
                                     tribution.’ ’’ Bunney v. Commissioner, 114 T.C. at 262
                                     (quoting Darby v. Commissioner, 97 T.C. at 58). However, we
                                     also rejected the Commissioner’s argument in Bunney that
                                     the recipient of an IRA distribution is automatically the tax-
                                     able distributee, noting that ‘‘in the context of a distribution
                                     from a pension plan the term ‘distributee’ is not necessarily
                                     synonymous with ‘recipient.’ ’’ Id. (citing Estate of Machat v.
                                     Commissioner, T.C. Memo. 1998–154). We reject respondent’s
                                     contention that petitioner, as the purported recipient of the
                                     IRA distributions, is automatically the taxable distributee
                                     under Bunney.
                                        In Vorwald, we held that a distribution of funds from an
                                     IRA pursuant to a court-ordered garnishment resulted in a
                                     taxable distribution to the taxpayer. The garnishment was
                                     ordered to satisfy the taxpayer’s child support obligation. The
                                     taxpayer in Vorwald did not consent to the distribution from
                                     his IRA and did not realize the distribution had occurred
                                     until he was notified of the distribution by the Commis-
                                     sioner. Nevertheless, we held that the distribution was
                                     income to the taxpayer because it discharged his legal child
                                     support obligation and was thus the equivalent of receipt by
                                     him.
                                        The distributions from petitioner’s IRAs were not court
                                     ordered and did not satisfy a legal obligation that petitioner
                                     owed to Ms. Smith or any other party. Instead, the distribu-




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                                     (569)                         ROBERTS v. COMMISSIONER                                       581


                                     tions were unauthorized and completed without petitioner’s
                                     knowledge. In addition, petitioner did not receive any benefit,
                                     directly or indirectly, from the distributions in 2008 as Ms.
                                     Smith used the funds from the unauthorized withdrawals to
                                     set up her postseparation household, take a vacation and a
                                     family trip, and pay expenses for which she was liable.
                                     Vorwald is distinguishable because the funds at issue in that
                                     case were legally obtained and were applied to a liability for
                                     which the taxpayer was personally liable. Because petitioner
                                     did not request, receive, or benefit from the IRA distribu-
                                     tions, we conclude that he was not a payee or distributee
                                     within the meaning of section 408(d)(1).
                                           D. Whether Petitioner Is a Distributee or Payee on the Basis
                                              of Ratification or His Failure To Assert a Claim for an
                                              Unauthorized Payment
                                        Respondent further contends that petitioner had one year
                                     to discover and report the unauthorized signatures and that
                                     petitioner’s failure to so report precludes any remedies under
                                     Washington law, thus making the distributions taxable to
                                     petitioner. In other words, according to respondent, State law
                                     would not require ING and SunAmerica to restore any
                                     amounts paid out of petitioner’s IRA accounts since he did
                                     not report the unauthorized signatures within one year.
                                     Therefore, respondent contends that petitioner received a dis-
                                     tribution within the meaning of section 408(d)(1).
                                        Under Washington’s version of the Uniform Commercial
                                     Code (U.C.C.), notwithstanding care or lack of care, for an
                                     account of an individual the individual must discover and
                                     report an unauthorized signature within one year. See Wash.
                                     Rev. Code Ann. sec. 62A.4–406(f) (West 2003). If the indi-
                                     vidual does not do so, he may not recover for the unauthor-
                                     ized signature. Id. But, even if Wash. Rev. Code Ann. sec.
                                     62A.4–406(f) precludes a remedy to petitioner against ING
                                     and SunAmerica, that does not mean that as of the end of
                                     2008 petitioner had received a taxable distribution from his
                                     IRA accounts. 18
                                        18 We express no opinion as to whether petitioner’s failure to exercise

                                     available remedies under Washington law resulted in a constructive dis-
                                     tribution from the IRA accounts in a later tax year.




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                                     582                 141 UNITED STATES TAX COURT REPORTS                                   (569)


                                        Under respondent’s analysis, petitioner acquiesced to the
                                     distributions by not making a claim under Washington law
                                     and by accepting the proposed settlement in his divorce,
                                     which the parties stipulated was ‘‘taken into account’’ in the
                                     decree of dissolution. Under Washington law, it appears peti-
                                     tioner could have made a claim to restore his IRA accounts
                                     within one year of the unauthorized withdrawals, but even
                                     if so, that right did not expire until sometime in 2009. Simi-
                                     larly, the decree of dissolution allocating property between
                                     petitioner and Ms. Smith was not entered until 2010. At
                                     best, under respondent’s theory, petitioner did not ratify the
                                     IRA distributions until 2009 at the earliest. Accordingly, any
                                     failure by petitioner to exercise his rights under Washington
                                     law and any purported benefit he received in the divorce does
                                     not affect our conclusion that he was not a payee or dis-
                                     tributee within the meaning of section 408(d)(1) in 2008, the
                                     year for which respondent determined the deficiency at issue.
                                        On the basis of the foregoing, we hold that petitioner is not
                                     a distributee or payee within the meaning of section 408(d)(1)
                                     because the IRA distribution requests were unauthorized, the
                                     endorsements on the checks that were issued pursuant to the
                                     requests were forged, he did not receive the economic ben-
                                     efit 19 of the IRA distributions, and the IRA distributions
                                     were not made to discharge any legal obligation of his.
                                     Accordingly, we conclude that petitioner did not fail to report
                                     any income attributable to distributions from his
                                     SunAmerica and ING IRAs in 2008.
                                     III. Section 72(t) Additional Tax
                                        Section 72(t)(1) provides for a 10% additional tax on early
                                     distributions from qualified retirement plans, unless the dis-
                                     tribution falls within a statutory exception. Because we hold
                                     that the withdrawals from petitioner’s IRA accounts at
                                     SunAmerica and ING were not distributions taxable to him
                                     under section 408(d)(1) in 2008, he is not liable for the sec-
                                     tion 72(t) additional tax.
                                       19 Whether there is an economic benefit accruing to the taxpayer is the

                                     crucial factor in determining whether there is gross income. See, e.g.,
                                     Afshar v. Commissioner, T.C. Memo. 1981–241 (citing James v. United
                                     States, 366 U.S. 213 (1961), Commissioner v. Glenshaw Glass Co., 348 U.S.
                                     426 (1955), and Rutkin v. United States, 343 U.S. 130 (1952)), aff ’d with-
                                     out published opinion, 692 F.2d 751 (4th Cir. 1982).




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                                     (569)                         ROBERTS v. COMMISSIONER                                       583


                                     IV. Filing Status
                                        Although petitioner does not discuss his filing status on
                                     brief and therefore could be deemed to have waived or aban-
                                     doned that issue, see Muhich v. Commissioner, 238 F.3d 860,
                                     864 n.10 (7th Cir. 2001), aff ’g T.C. Memo. 1999–192, we
                                     briefly explain why we sustain respondent’s determination of
                                     petitioner’s filing status. The determination of whether an
                                     individual is married for purposes of determining filing
                                     status is made as of the close of the taxable year. Sec.
                                     7703(a)(1). Under certain circumstances, a married taxpayer
                                     may be treated as unmarried if he or she lives apart from his
                                     or her spouse during the last six months of the taxable year.
                                     See sec. 7703(b).
                                        The parties agree that petitioner and Ms. Smith were still
                                     married on December 31, 2008, and that they were not sepa-
                                     rated for the last six months of the year. Accordingly, the
                                     single filing status that Ms. Smith used in preparing peti-
                                     tioner’s separately filed 2008 return was erroneous. We find
                                     that petitioner’s correct filing status for 2008 under these cir-
                                     cumstances was married filing separately.
                                     V. Accuracy-Related Penalty
                                        Respondent contends that petitioner is liable for the sec-
                                     tion 6662(a) penalty because petitioner’s underpayment was
                                     attributable to a substantial understatement of income tax. 20
                                     Section 6662(a) and (b)(1) and (2) authorizes the imposition
                                     of a 20% penalty on the portion of an underpayment that is
                                     attributable, among other things, to a substantial under-
                                     statement of income tax or to negligence or disregard of rules
                                     or regulations. A substantial understatement of income tax
                                     exists if the amount of the understatement exceeds the
                                        20 For the first time on reply brief, respondent contends that petitioner

                                     alternatively is liable for a sec. 6662(a) penalty due to negligence. Gen-
                                     erally, we will not consider an issue that is raised for the first time on
                                     brief. Estate of Aronson v. Commissioner, T.C. Memo. 2003–189 n.5 (citing
                                     Foil v. Commissioner, 92 T.C. 376, 418 (1989), aff ’d, 920 F.2d 1196 (5th
                                     Cir. 1990)). More importantly, by not raising the issue of negligence on
                                     opening brief, respondent has failed to provide petitioner with the oppor-
                                     tunity to address this issue. Respondent’s attempt to first raise the issue
                                     of negligence as a basis for imposition of the sec. 6662(a) penalty on reply
                                     is untimely and prejudicial to petitioner. See Kansky v. Commissioner, T.C.
                                     Memo. 2007–40. We therefore do not consider it.




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                                     584                 141 UNITED STATES TAX COURT REPORTS                                   (569)


                                     greater of 10% of the tax required to be shown on the return
                                     or $5,000. Sec. 6662(d)(1)(A). The term ‘‘understatement’’
                                     means the excess of the amount required to be shown on the
                                     return for the taxable year over the amount of tax imposed
                                     that is shown on the return, reduced by any rebate. Sec.
                                     6662(d)(2)(A). The amount of the understatement is reduced
                                     by that portion of the understatement that is attributable to
                                     (1) the tax treatment of any item if there is or was substan-
                                     tial authority for such treatment or (2) any item if the rel-
                                     evant facts affecting the item’s tax treatment are adequately
                                     disclosed in the return or in a statement attached to the
                                     return and there is a reasonable basis for the taxpayer’s
                                     treatment of the item. Sec. 6662(d)(2)(B).
                                        The Commissioner bears the initial burden of production
                                     with respect to the taxpayer’s liability for the section 6662
                                     penalty. Sec. 7491(c). At trial the Commissioner must intro-
                                     duce sufficient evidence ‘‘indicating that it is appropriate to
                                     impose the relevant penalty.’’ Higbee v. Commissioner, 116
                                     T.C. at 446. Once the Commissioner meets his 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. Id. at 446–447.
                                        A taxpayer may avoid liability for the section 6662 penalty
                                     if the taxpayer demonstrates that the taxpayer had reason-
                                     able cause for the underpayment and that the taxpayer acted
                                     in good faith with respect to the underpayment. Sec.
                                     6664(c)(1). Reasonable cause and good faith are determined
                                     on a case-by-case basis, taking into account all pertinent
                                     facts and circumstances. Sec. 1.6664–4(b)(1), Income Tax
                                     Regs. The most important factor is the extent of the tax-
                                     payer’s efforts to assess his or her proper tax liability. Id.
                                        We have found that petitioner is not liable for income tax
                                     in 2008 related to the payments from his SunAmerica IRA
                                     and his ING IRA. However, petitioner conceded that he
                                     failed to report certain interest income and that he under-
                                     reported wage income for 2008. Additionally, we have found
                                     that petitioner’s proper filing status for 2008 is married filing
                                     separately. Although petitioner did not see his tax return
                                     before Ms. Smith filed it on his behalf and he did not sign
                                     it, he did not disavow the return, nor did he file a different
                                     return for 2008. Petitioner did not introduce any evidence to




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                                     (569)                         ROBERTS v. COMMISSIONER                                       585


                                     prove that he took affirmative steps to ensure the correctness
                                     of his tax liability; and he cannot rely on Ms. Smith, who is
                                     not a professional tax return preparer. See sec. 1.6664–4(c),
                                     Income Tax Regs. Petitioner has not produced evidence that
                                     he acted with reasonable cause and in good faith with
                                     respect to these underpayments. Accordingly, to the extent
                                     that the Rule 155 computations show that the understate-
                                     ment of tax exceeds the greater of 10% of the tax required
                                     to be shown on the return or $5,000, see sec. 6662(d)(1)(A),
                                     petitioner is liable for the section 6662(a) penalty for an
                                     underpayment of tax attributable to a substantial under-
                                     statement of income tax.
                                       We have considered the parties’ remaining arguments, and
                                     to the extent not discussed above, conclude those arguments
                                     are irrelevant, moot, or without merit.
                                       To reflect the foregoing,
                                                                         Decision will be entered under Rule 155.

                                                                               f




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