                         T.C. Memo. 2006-92



                       UNITED STATES TAX COURT



                  ANNE C. SNYDER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13874-04.                Filed May 2, 2006.



     William F. Jones, for petitioner.

     C. Teddy Li, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Respondent determined a deficiency in, and

an accuracy-related penalty under section 6662(a)1 on, peti-

tioner’s Federal income tax (tax) for her taxable year 2001 of



     1
      All section references are to the Internal Revenue Code in
effect for the year at issue. All Rule references are to the Tax
Court Rules of Practice and Procedure.
                                 - 2 -

$66,497 and $12,926, respectively.

     In an amendment to answer, respondent asserted (1) an

increase in (a) the deficiency in, and (b) the accuracy-related

penalty under section 6662(a) on, petitioner’s tax for her

taxable year 2001 of $1,273 and $628, respectively, and (2) an

increased (a) deficiency in, and (b) accuracy-related penalty

under section 6662(a) on, petitioner’s tax for that year of

$67,770 and $13,554, respectively.

     The only issue remaining for decision is whether petitioner

is liable for her taxable year 2001 for the accuracy-related

penalty under section 6662(a).    We hold that she is.

                          FINDINGS OF FACT

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

     Petitioner resided in Ellicott City, Maryland, at the time

she filed the petition.

     Petitioner, who attended three years of college where she

majored in education, and E. Bruce Snyder (decedent) were married

for about 38 years when he died after a long illness in May 2001.

During their marriage, decedent retained Robert Hopkins (Mr.

Hopkins) with A.G. Edwards & Sons, Inc. (A.G. Edwards) as their

financial advisor.

     With Mr. Hopkins’s assistance, in December 1994, decedent

and petitioner each opened an individual retirement account (IRA)

with A.G. Edwards.   Petitioner was the primary beneficiary of
                                - 3 -

decedent’s IRA, and decedent was the primary beneficiary of

petitioner’s IRA.    The four children of petitioner and decedent

were the contingent beneficiaries of both decedent’s IRA and

petitioner’s IRA.

     At a time or times not disclosed by the record, decedent

purchased from Sun Life Assurance Company of Canada (Sun Life)

two annuity contracts, viz., the MFS Regatta Gold Fixed Annuity

(contract no. 76-7600-474212) and the MFS Regatta Gold

Fixed/Variable Annuity (contract no. 76-7600-574550), that were

in effect when he died on May 14, 2001.2   (We shall refer to

(1) decedent’s MFS Regatta Gold Fixed Annuity as decedent’s fixed

annuity contract, (2) decedent’s MFS Regatta Gold Fixed/Variable

Annuity as decedent’s fixed/variable annuity contract, and

(3) both such contracts collectively as decedent’s annuity

contracts.)    Mr. Hopkins of A.G. Edwards was the plan administra-

tor for each of decedent’s annuity contracts.

     In May or June 2001, Sun Life was notified that decedent had

died.    Upon receiving notice of decedent’s death, Sun Life sent

to the plan administrator for each of decedent’s annuity con-

tracts (1) a letter dated June 18, 2001, with respect to dece-

dent’s fixed annuity contract (Sun Life’s June 18, 2001 letter)

and (2) a letter dated June 19, 2001, with respect to decedent’s


     2
      It is not clear from the record whether decedent was re-
ceiving benefits before he died under the MFS Regatta Gold Fixed
Annuity and/or the MFS Regatta Gold Fixed/Variable Annuity.
                                  - 4 -

fixed/variable annuity contract (Sun Life’s June 19, 2001 let-

ter).    The respective bodies of those letters, which were virtu-

ally identical, stated in pertinent part:

     After review of this contract, it has been determined that
     Anne Snyder is entitled to the death benefit options. It is
     important that she [Anne Snyder] consult a tax or legal
     advisor before making a decision. Please have her choose
     one of the following options:

     (1)      Immediate lump Minimum Death Benefit.
              The Minimum Death Benefit is calculated by Sun
              Life and will pay the greatest of the following:
                   •    Contributions accruing at a rate of 5% annu-
                        ally, minus withdrawals also accruing at a
                        rate of 5% annually. This accrual will con-
                        tinue until the first day of the month fol-
                        lowing the 80th birthday of the annuitant or
                        until the contributions or withdrawals have
                        doubled as a result of the accumulation.
                   •    100% of the accumulated value on the date of
                        death notification and elected option paper-
                        work is received by Sun Life in good order.
                   •    Account value on the most recent 7th contract
                        anniversary, plus any contributions, minus
                        any withdrawals since that 7th year anniver-
                        sary.
                   •    Cash Surrender Value. This includes any
                        applicable surrender penalties and Market
                        Value adjustment (MVA - applies to fixed
                        series only)

              Note: If the Lump Sum option is chosen, we ask that the
              beneficiary provide the tax withholding information.
              Sun Life can withhold between 10%-50% for taxes only
              upon request.

        (2)   Defer the lump sum payment.
              The lump sum payment may be taken anytime within five
              years of the date of death. A new beneficiary can be
              named for the deferral period.

        (3)   Annuitize the contract.
              This option may be chosen within one year of the annu-
              itant’s date of death. If this option is chosen, it is
              irrevocable. For additional information regarding
                                  - 5 -

             annuitization, please see the enclosed annuitization
             kit.

     (4)     Re-register the contract.
             In order to proceed, we ask that Anne Snyder send a
             letter of instruction that includes the following
             information:

             •    chosen Death Benefit Option (listed above)
                  Note: If the Re-registration option is chosen
                  please have her [Anne Snyder] include her date of
                  birth and new beneficiary designation.
             •    an original signature
             •    mailing address
             •    Social Security number
             •    Signature Guarantee - needed only if the re-regis-
                  tration option is chosen or if the payout is
                  $250,000.00 or greater.

         *        *       *        *          *       *       *

     Please forward the following documents in addition to the
     letter of instruction:

     •       certified copy of the annuitant’s [decedent’s] death
             certificate.

     On July 9, 2001, petitioner signed and dated Form W-4P,

Withholding Certificate for Pension or Annuity Payments (Form W-

4P), for her taxable year 2001 with respect to decedent’s fixed

annuity contract (petitioner’s 2001 Form W-4P for decedent’s

fixed annuity contract).      In that form, petitioner directed that

no tax was to be withheld from any distribution with respect to

decedent’s fixed annuity contract.        The instructions for peti-

tioner’s 2001 Form W-4P for decedent’s fixed annuity contract

stated in pertinent part:
                         - 6 -

Withholding From Pensions and Annuities

Generally, Federal income tax withholding applies to the
taxable part of payments made from pension, profit-sharing,
stock bonus, annuity, and certain deferred compensation
plans; from individual retirement arrangements (IRAs); and
from commercial annuities. The method and rate of withhold-
ing depends on the kind of payment you receive. Also,
because your tax situation may change from year to year, you
may want to refigure your withholding each year. You can
change the amount to be withheld by using lines 2 and 3 of
Form W-4P.

Choosing not to have income-tax withheld. You * * * can
also choose not to have income tax withheld from your pay-
ments by using line 1 of Form W-4P. * * *

   *      *       *       *       *       *       *

Caution: There are penalties for not paying enough tax
during the year, either through withholding or estimated tax
payments.

   *      *       *       *       *       *       *

Nonperiodic payments–10% withholding. Your payer must
withhold a flat 10% from nonperiodic payments (but see
Eligible rollover distribution–20% withholding below) unless
you choose not to have income tax withheld. Distributions
from an IRA that are payable on demand are treated as
nonperiodic payments. You can choose not to have income tax
withheld from a nonperiodic payment by submitting Form W-4P
(containing your correct TIN) to your payer and checking the
box on line 1.

   *      *       *       *       *       *       *

Eligible rollover distribution–20% withholding.
Distributions you receive from qualified pension or annuity
plans (e.g., 401(k) pension plans) or tax-sheltered annu-
ities that are eligible to be rolled over tax free to an IRA
or qualified plan are subject to a flat 20% withholding.
The 20% withholding is required and you cannot choose not to
have income tax withheld for eligible rollover distribu-
tions. See Pub. 505 for more details. However, the payer
will not withhold income tax if the entire distribution is
transferred by the plan administrator in a direct rollover
                               - 7 -

     to a traditional IRA, qualified pension plan, or tax-shel-
     tered annuity. * * *

     On July 9, 2001, petitioner signed and dated Form W-4P for

her taxable year 2001 with respect to decedent’s fixed/variable

annuity contract (petitioner’s Form W-4P for fixed/variable

annuity contract).   In that form, petitioner directed that no tax

was to be withheld from any distribution with respect to dece-

dent’s fixed/variable annuity contract.   The instructions for

petitioner’s 2001 Form W-4P for decedent’s fixed/variable annuity

contract were identical to the instructions for petitioner’s 2001

Form W-4P for decedent’s fixed annuity contract.

     On July 17, 2001, Sun Life received an undated letter from

petitioner with respect to decedent’s fixed annuity contract

(petitioner’s July 17, 2001 letter with respect to decedent’s

fixed annuity contract).   In that letter, petitioner elected what

she referred to as a “lump sum death benefit payment” under

decedent’s fixed annuity contract and requested that Sun Life

“not withhold any taxes from this distribution.”   Petitioner

enclosed with petitioner’s July 17, 2001 letter with respect to

decedent’s fixed annuity contract, inter alia, petitioner’s 2001

Form W-4P for decedent’s fixed annuity contract, including the

instructions to such form, a form entitled “ANNUITIZATION DATA

FORM” on which no information was contained and which had been

crossed out, and a form entitled “Direct Deposit Authorization”

in which petitioner directed Sun Life to deposit directly into
                               - 8 -

her checking account at Bank of America (petitioner’s Bank of

America checking account)3 any payments that Sun Life made to her

under decedent’s fixed annuity contract.

     On July 17, 2001, Sun Life received an undated letter from

petitioner with respect to decedent’s fixed/variable annuity

contract (petitioner’s July 17, 2001 letter with respect to

decedent’s fixed/variable annuity contract).   In that letter,

petitioner elected what she referred to as a “lump sum death

benefit payment” under decedent’s fixed/variable annuity contract

and requested that Sun Life “not withhold any taxes from this

distribution.”   Petitioner enclosed with petitioner’s July 17,

2001 letter with respect to decedent’s fixed/variable annuity

contract, inter alia, petitioner’s 2001 Form W-4P for decedent’s

fixed/variable annuity contract, including instructions to such

form, and a form entitled “Direct Deposit Authorization” in which

petitioner directed Sun Life to deposit directly into her Bank of

America checking account any payments that Sun Life made to her

under decedent’s fixed/variable annuity contract.

     On November 16, 2001, the plan administrator of decedent’s

fixed annuity contract and decedent’s fixed/variable annuity

contract sent to Sun Life a letter (A.G. Edwards November 16,

2001 letter) with respect to both of those contracts, which Sun



     3
      Before decedent died, petitioner’s Bank of America checking
account was a checking account maintained by both decedent and
petitioner.
                              - 9 -

Life received on November 19, 2001.   Included with that letter

were two death certificates for decedent.   A.G. Edwards November

16, 2001 letter stated in pertinent part:

     As per our conversation today, please find the enclosed
     original death certificates to liquidate the above policies.

     Also, Mrs. Snyders bank account number is 007071707352, you
     have the rest of the information on file.

     I am under the assumption that these will be liquidated on
     November 19, 2001, and all any monies due per your calcula-
     tion will be deposited into the above account on Tuesday,
     November 20th, 2001. If this is NOT a correct assumption,
     please advise Robert Hopkins or myself immediately at (800)
     688-9334.

     On November 26, 2001, petitioner received into her Bank of

America checking account a payment of $25,940.28 from Sun Life

with respect to decedent’s fixed annuity contract.

     On November 26, 2001, petitioner received into her Bank of

America checking account a payment of $170,429.52 from Sun Life

with respect to decedent’s fixed/variable annuity contract.

     Sun Life reported to respondent for petitioner’s taxable

year 2001 the gross distributions of $25,940.28 and $170,429.52

that it made to petitioner during that year with respect to

decedent’s fixed annuity contract and decedent’s fixed/variable

annuity contract, respectively.   In this connection, Sun Life

prepared separate Forms 1099–R, Distributions From Pensions,

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

Contracts, etc. (Sun Life Form 1099-R), for 2001 that showed Sun

Life as the payer and petitioner as the recipient of such respec-
                              - 10 -

tive gross distributions.   The address for petitioner shown in

each such form was the same as the address shown in (1) the tax

return that petitioner filed for her taxable year 2001 and

(2) the petition that she filed with the Court.   One Sun Life

Form 1099-R showed a “Gross Distribution” of $25,940.28 and a

“Taxable Amount” of $25,940.28, which was the amount of the

distribution that Sun Life paid to petitioner in 2001 with

respect to decedent’s fixed annuity contract.   The other Sun Life

Form 1099-R showed a “Gross Distribution” of $170,429.52 and a

“Taxable Amount” of $170,429.52, which was the amount of the

distribution that Sun Life paid to petitioner in 2001 with

respect to decedent’s fixed/variable annuity contract.     The

“Distribution Code(s)” shown in each Sun Life Form 1099-R was

“4", and the box entitled “IRA/SEP/SIMPLE” was checked.4

     During 2001, petitioner received interest of $400 and other

income of $1,365 from American General Life Insurance Company

(American General).

     During 2001, A.G. Edwards made the following gross distribu-

tions totaling $8,500 from decedent’s IRA, with respect to which

an election had been made to withhold tax of 10 percent, by

issuing the following checks to decedent:



     4
      The instructions to Form 1099-R for 2001 describe distribu-
tion code “4" as “Death.” Those instructions also state: “If
the IRA/SEP/SIMPLE box is checked, you have received a tradi-
tional IRA, SEP, or SIMPLE distribution.”
                                  - 11 -

  Date of
A.G. Edwards             Normal          Tax             Gross
   Check              Distribution     Withheld       Distribution

February 2, 2001         $1,125            $125          $1,250
February 9, 2001            405              45             450
March 1, 2001             1,530             170           1,700
April 3, 2001             1,530             170           1,700
May 1, 2001               1,530             170           1,700
June 12, 2001             1,530             170           1,700

          Subtotals     $7,650             $850          $8,500

                                              Total      $8,500

The above-described checks issued by A.G. Edwards were deposited

into petitioner’s Bank of America checking account.5

     On June 12, 2001, petitioner sent to A.G. Edwards a death

certificate for decedent and a preprinted form prepared by A.G.

Edwards entitled “A.G. Edwards Self-Directed IRA Request Form”

(A.G. Edwards IRA request form).      In that form, petitioner

directed A.G. Edwards to make a total distribution rollover of

decedent’s IRA into petitioner’s IRA because of decedent’s death.

     In July 2001, petitioner requested A.G. Edwards to make

gross distributions to her from petitioner’s IRA of $1,700 a

month.   Pursuant to that request, during 2001, A.G. Edwards made

the following gross distributions totaling $10,200 from peti-

tioner’s IRA, with respect to which an election had been made




     5
      See supra note 3. Decedent endorsed the checks dated Feb.
2 and 9, Mar. 1, and Apr. 3, 2001. The only endorsement on each
of the checks dated May 1 and June 12, 2001, was “FOR DEPOSIT
ONLY”.
                                 - 12 -

to withhold tax of 10 percent, by issuing the following checks to

petitioner:

  Date of
A.G. Edwards            Normal          Tax                    Gross
   Check             Distribution     Withheld              Distribution

July 10, 2001           $1,530             $170                $1,700
August 6, 2001           1,530              170                 1,700
August 31, 2001          1,530              170                 1,700
September 28, 2001       1,530              170                 1,700
November 16, 2001        1,530              170                 1,700
December 3, 2001         1,530              170                 1,700

        Subtotals       $9,180            $1,020              $10,200

                                                   Total      $10,200

The above-described checks issued by A.G. Edwards were endorsed

by petitioner and deposited into petitioner’s Bank of America

checking account.

     A.G. Edwards prepared and issued to decedent and petitioner

separate Forms 1099-R (A.G. Edwards Form 1099-R) for 2001 with

respect to the gross distributions of $8,500 and $10,200 that

A.G. Edwards made during that year from decedent’s IRA and

petitioner’s IRA, respectively.     The address for decedent and for

petitioner shown in the respective A.G. Edwards Forms 1099-R

issued to them was the same as the address shown in (1) the tax

return that petitioner filed for her taxable year 2001 and

(2) the petition that she filed with the Court.            A.G. Edwards

Form 1099-R issued to decedent showed A.G. Edwards as the payer

and decedent as the recipient of a “Gross Distribution” of $8,500

and a “Taxable Amount” of $8,500, which was the total amount of
                              - 13 -

the gross distributions that A.G. Edwards made to decedent during

2001 from decedent’s IRA.   A.G. Edwards Form 1099-R issued to

petitioner showed A.G. Edwards as the payer and petitioner as the

recipient of a “Gross Distribution” of $10,200 and a “Taxable

Amount” of $10,200, which was the total amount of the gross

distributions that A.G. Edwards made to petitioner during 2001

from petitioner’s IRA.   The “Distribution Code(s)” shown in the

respective A.G. Edwards Forms 1099-R issued to decedent and

petitioner was “7", and the box entitled “IRA/SEP” was checked.6

     Petitioner and decedent timely filed a joint Form 1040, U.S.

Individual Income Tax Return, for their taxable year 2001 (2001

joint return).   In that return, petitioner reported wages of

$18,672 paid to petitioner by Chateau Builders of Maryland Inc.,

taxable interest of $62, ordinary dividends of $21, total IRA

distributions of $11,111 paid to petitioner by Allfirst Bank, and

Social Security benefits of $20,802, of which petitioner reported

$4,134 was taxable.   In the 2001 joint return, petitioner re-

ported total income of $34,000, total tax of $3,158, tax withheld

of $2,956, estimated tax payments of $700, and an overpayment of

$498.




     6
      The instructions to Form 1099-R for 2001 describe distribu-
tion code “7" as “Normal distribution.” Those instructions
further indicate that if the “IRA/SEP” box is checked, the
recipient has received a traditional IRA or SEP distribution.
                              - 14 -

     In the 2001 joint return, petitioner did not report interest

income of $400 and other income of $1,365 paid during 2001 by

American General.   Nor did petitioner report in the 2001 joint

return the gross distributions of $25,940.28 and $170,429.52 paid

during 2001 by Sun Life with respect to decedent’s fixed annuity

contract and decedent’s fixed/variable annuity contract, respec-

tively.   In addition, petitioner did not report in the 2001 joint

return the gross distributions of $8,500 and $10,200 made during

2001 by A.G. Edwards from decedent’s IRA and petitioner’s IRA,

respectively.

     In the notice of deficiency (notice) that respondent issued

to petitioner for her taxable year 2001, respondent determined to

include in gross income for that year:   (1) Interest income of

$400 paid by American General, (2) other income of $1,365 paid by

American General, (3) a gross distribution of $25,940 paid by Sun

Life with respect to decedent’s fixed annuity contract, (4) a

gross distribution of $170,429 paid by Sun Life with respect to

decedent’s fixed/variable annuity contract, and (5) gross distri-

butions of $10,200 made by A.G. Edwards from petitioner’s IRA.7

Respondent also determined in the notice that petitioner is



     7
      Respondent indicated in the notice that petitioner did not
report in the 2001 joint return gross distributions of $8,500
made by A.G. Edwards during that year from decedent’s IRA.
Respondent failed to include in the computation of the $66,497
deficiency determined in the notice those unreported gross
distributions. See infra note 10.
                                - 15 -

liable for her taxable year 2001 for a $12,926 accuracy-related

penalty under section 6662(a).

     In the amendment to answer, respondent asserted an increased

deficiency in, and an increased accuracy-related penalty under

section 6662(a) on, petitioner’s tax for her taxable year 2001 of

$67,770 and $13,554, respectively.8

                                OPINION

     The only issue remaining for our consideration is whether

petitioner is liable for her taxable year 2001 for the accuracy-

related penalty under section 6662(a).

     Pursuant to section 7491(c), respondent bears the burden of

production with respect to the issue presented under section

6662.     In order to meet respondent’s burden of production,

respondent must come forward with sufficient evidence indicating

that it is appropriate to impose the accuracy-related penalty in

this case.     Higbee v. Commissioner, 116 T.C. 438, 446 (2001).

The burden of proof remains with petitioner with respect to the

accuracy-related penalty that respondent determined in the

notice.9    See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933); Higbee v. Commissioner, supra at 446-447.     Respondent


     8
         See supra note 7 and infra note 10.
     9
      Thus, although respondent bears the burden of production
with respect to the accuracy-related penalty determined in the
notice, respondent “need not introduce evidence regarding reason-
able cause, substantial authority, or similar provisions.”
Higbee v. Commissioner, 116 T.C. 438, 446 (2001).
                               - 16 -

bears the burden of proof with respect to the increase in that

accuracy-related penalty that respondent asserted in the amend-

ment to answer.10   Rule 142(a).   However, our resolution of

whether petitioner is liable for the accuracy-related penalty

does not depend on who has the burden of proof.




     10
      If we were to sustain respondent’s position in the amend-
ment to answer that petitioner is liable for her taxable year
2001 for an accuracy-related penalty under sec. 6662(a) in excess
of the amount of such penalty determined in the notice, it would
be necessary for the parties to determine under Rule 155 the
increased amount of such penalty attributable to petitioner’s
underpayment for that year. That is because respondent incor-
rectly calculated the increased amount of the accuracy-related
penalty under sec. 6662(a) asserted in the amendment to answer.

     The increased deficiency in, and the increased accuracy-
related penalty under sec. 6662(a) on, petitioner’s tax for her
taxable year 2001 that respondent asserted in the amendment to
answer are attributable to gross distributions totaling $8,500
that petitioner concedes were made during 2001 from A.G. Edwards
and were not reported in the 2001 joint return. See supra note
7. Respondent calculated the increased amount of the accuracy-
related penalty under sec. 6662(a) to be $13,554. We believe
that respondent erred in making that calculation. It appears
that respondent calculated such increased amount as a percentage
of the increased amount of the deficiency that respondent as-
serted in the amendment to answer. However, the accuracy-related
penalty under sec. 6662(a) is equal to 20 percent of the portion
of the underpayment of tax to which that section applies. In the
instant case, the increased deficiency for petitioner’s taxable
year 2001 that respondent asserted in the amendment to answer and
that petitioner concedes is not equal to the underpayment for
that year to which respondent asserts sec. 6662 applies. In this
connection, we note that in the notice respondent determined that
the total tax withheld for taxable year 2001 was $4,825, and not
$2,956 as reported in the 2001 joint tax return. In addition,
petitioner reported in that return, and respondent did not adjust
in the notice, $700 of estimated tax payments for her taxable
year 2001.
                                - 17 -

     Section 6662(a) imposes an accuracy-related penalty equal to

20 percent of the underpayment to which section 6662 applies.

Section 6662 applies to the portion of any underpayment which is

attributable to (1) negligence or disregard of rules or regula-

tions, sec. 6662(b)(1), or (2) a substantial understatement of

tax, sec. 6662(b)(2).

     It is respondent’s position that petitioner’s underpayment

for her taxable year 2001 was attributable to (1) negligence or

disregard of rules or regulations and (2) a substantial under-

statement of tax.     We shall address only whether petitioner’s

underpayment for 2001 was attributable to a substantial under-

statement of tax.     That is because our resolution of that ques-

tion is determinative of whether petitioner is liable for the

accuracy-related penalty under section 6662(a).11

     For purposes of section 6662(b)(2), an understatement is

equal to the excess of the amount of tax required to be shown in

the tax return over the amount of tax shown in such return,

sec. 6662(d)(2)(A), and is substantial in the case of an individ-

ual if the amount of the understatement for the taxable year

exceeds the greater of 10 percent of the tax required to be shown

in the return for that taxable year or $5,000, sec.

6662(d)(1)(A).     The amount of the understatement is to be reduced

by that portion of the understatement which is attributable to


     11
          See supra note 10.
                              - 18 -

(1) “the tax treatment of any item by the taxpayer if there is or

was substantial authority for such treatment”, sec.

6662(d)(2)(B)(i), or (2) any item if (a) “the relevant facts

affecting the item’s tax treatment are adequately disclosed in

the return or in a statement attached to the return”, sec.

6662(d)(2)(B)(ii)(I), and (b) “there is a reasonable basis for

the tax treatment of such item by the taxpayer”, sec.

6662(d)(2)(B)(ii)(II).

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

apply to any portion of an underpayment if it is shown that there

was reasonable cause for, and that the taxpayer acted in good

faith with respect to, such portion.     Sec. 6664(c)(1).   The

determination of whether the taxpayer acted with reasonable cause

and in good faith depends on the pertinent facts and circum-

stances, including the taxpayer’s efforts to assess such tax-

payer’s proper tax liability, the knowledge and experience of the

taxpayer, and the reliance on the advice of a professional, such

as an accountant.   Sec. 1.6664-4(b)(1), Income Tax Regs.

     Petitioner concedes that she should have reported in the

2001 joint return the respective distributions that Sun Life,

A.G. Edwards, and American General made during 2001.     Petitioner

does not dispute that the understatement of tax in the 2001 joint

return exceeds the greater of 10 percent of the tax required to

be shown in that return or $5,000.     See sec. 6662(d)(1)(A).    On
                              - 19 -

the record before us, we find that respondent has satisfied

respondent’s burden of production under section 7491(c) with

respect to the accuracy-related penalty.

     In support of her position that she is not liable for the

accuracy-related penalty under section 6662(a), petitioner

claimed at trial12 that she never received:   (1) The separate Sun

Life Forms 1099-R showing the gross distributions made by Sun

Life during 2001 of $25,940 and $170,429 with respect to dece-

dent’s fixed annuity contract and decedent’s fixed/variable

annuity contract, respectively; (2) the separate A.G. Edwards

Forms 1099-R showing the gross distributions made by A.G. Edwards

during 2001 totaling $8,500 and $10,200 from decedent’s IRA and

petitioner’s IRA, respectively; and (3) the separate Forms 1099

showing the distributions made by American General during 2001 of

$400 of interest income and $1,365 of other income, respectively.

     In further support of her position that she is not liable

for the accuracy-related penalty under section 6662(a), peti-

tioner claimed at trial that she believed that the respective

gross distributions of $25,940 and $170,429 made by Sun Life

during 2001 with respect to decedent’s annuity contracts and the

respective gross distributions of $8,500 and $10,200 made by A.G.



     12
      At the conclusion of the trial in this case, the Court
directed the parties to file simultaneous opening briefs and
simultaneous answering briefs. However, petitioner filed a
notice of intent not to file posttrial briefs.
                              - 20 -

Edwards during 2001 from decedent’s IRA and petitioner’s IRA were

death benefits that are not taxable.   Petitioner explained at

trial that she held that belief because some of her friends who

were widows told her during informal discussions that death

benefits are not taxable.13

     We turn first to petitioner’s claim at trial that she did

not receive any of the Forms 1099 from Sun Life, A.G. Edwards, or

American General showing the respective distributions that those

companies made during 2001.   Petitioner’s claim that she received

none of those forms strains credulity, and we reject it.   The

record does not establish, and petitioner does not contend, that

the separate Sun Life Forms 1099-R showing the respective gross

distributions made by Sun Life during 2001 with respect to

decedent’s annuity contracts and the separate A.G. Edwards Forms

1099-R showing the respective gross distributions made by A.G.

Edwards during 2001 from decedent’s IRA and petitioner’s IRA were

addressed to an incorrect address.14   Nor does the record estab-

lish, and petitioner does not contend, that she was having any

problems in receiving mail around the time the payers in question



     13
      Petitioner did not give a similar explanation at trial as
to why she did not include in gross income in the 2001 joint
return the respective distributions of $400 of interest income
and $1,365 of other income made by American General during 2001.
     14
      The record does not contain copies of any Form 1099 that
American General issued with respect to the respective distribu-
tions during 2001 of interest and other income.
                               - 21 -

(viz., Sun Life, A.G. Edwards, and American General) would have

been required to issue Forms 1099 (i.e., by no later than January

31, 2002).

     We turn now to petitioner’s claim at trial that she believed

that the respective gross distributions made by Sun Life and A.G.

Edwards during 2001 were death benefits that are not taxable

because some of her widowed friends told her during informal

discussions that death benefits are not taxable.   We find that it

was unreasonable for petitioner to rely on any such informal

statements of her friends in concluding that the respective gross

distributions that Sun Life and A.G. Edwards made during 2001 are

not taxable.   In determining whether a taxpayer acted with

reasonable cause and in good faith, generally the most important

factor to consider “is the extent of the taxpayer’s effort to

assess the taxpayer’s proper tax liability.”   Sec. 1.6664-

4(b)(1), Income Tax Regs.   Petitioner should have consulted a

professional, and not her friends, about the tax treatment of the

respective gross distributions that Sun Life and A.G. Edwards

made during 2001.15   The record does not establish, and peti-


     15
      We note that the record does not establish that A.G.
Edwards referred to the respective gross distributions that it
made during 2001 as death benefits. The record shows that such
distributions were from decedent’s IRA and petitioner’s IRA. Nor
does the record establish that American General referred to the
respective distributions that it made during 2001 as death
benefits. The record shows that such distributions were of
interest and other income. Although the record establishes that
                                                   (continued...)
                                   - 22 -

tioner does not contend, that she consulted a professional about

the tax treatment of such distributions.16

     On the record before us, we find that petitioner did not

have reasonable cause for, and did not act in good faith with

respect to, any portion of the underpayment for her taxable year

2001.        See sec. 6664(c)(1); sec. 1.6664-4(b)(1), Income Tax Regs.

     Based upon our examination of the entire record before us,

we find that petitioner is liable for her taxable year 2001 for


        15
      (...continued)
in Sun Life’s June 18, 2001 letter and Sun Life’s June 19, 2001
letter Sun Life indicated that “Anne Snyder is entitled to the
death benefit options” and that one of those options was an
“Immediate lump Minimum Death Benefit”, the record shows that
“the death benefit options” available were under decedent’s
annuity contracts. Only a death benefit paid under a life
insurance contract because of the death of the insured is to be
excluded from gross income. Sec. 101(a). If petitioner had
consulted with a professional about the tax treatment of the
respective gross distributions that Sun Life made during 2001
with respect to decedent’s annuity contracts, she would have been
advised that a so-called death benefit paid under an annuity
contract is not to be excluded from gross income because of the
death of the annuity contract holder. See sec. 72.
        16
       It is significant that petitioner failed to call as wit-
nesses at trial (1) the plan administrator to testify about the
respective gross distributions that Sun Life made during 2001
with respect to decedent’s annuity contracts, (2) a representa-
tive of A.G. Edwards to testify about the respective gross
distributions that A.G. Edwards made during 2001 from decedent’s
IRA and petitioner’s IRA, and (3) the accountant who prepared the
2001 joint return to testify about why the respective distribu-
tions made by Sun Life, A.G. Edwards, and American General during
2001 were not reported in that return. We presume that peti-
tioner did not call those witnesses because their respective
testimonies would not have been favorable to petitioner’s posi-
tion in this case. See Wichita Terminal Elevator Co. v. Commis-
sioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2d 514 (10th Cir.
1947).
                             - 23 -

the accuracy-related penalty under section 6662(a) that is

attributable to petitioner’s underpayment for that year.17

     We have considered all of the contentions and arguments of

the parties that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.

     To reflect the foregoing,

                                     Decision will be entered under

                                 Rule 155.




     17
      The amount of the accuracy-related penalty under sec.
6662(a) for which petitioner is liable is an amount that is in
excess of the amount of such penalty determined in the notice and
is to be determined under Rule 155. See supra note 10.
