                  T.C. Summary Opinion 2002-51



                     UNITED STATES TAX COURT



              JAMES JOSEPH TIMMERMAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10735-00S.                Filed May 9, 2002.


     James Joseph Timmerman, pro se.

     Donald Brachfeld, for respondent.


     GOLDBERG, Special Trial Judge:    This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue, and Rule references are to the Tax

Court Rules of Practice and Procedure.
                               - 2 -

     Respondent determined a deficiency in petitioner’s Federal

income tax for the taxable year 1998 in the amount of $20,319,

and an accuracy-related penalty under section 6662(a) in the

amount of $4,064.

     The issues for decision are (1) whether a distribution

received by petitioner in 1998 from his deceased brother’s

profit-sharing plan is includable in petitioner’s gross income,

and (2) whether petitioner is liable for an accuracy-related

penalty for substantial understatement of income under section

6662(a).

     The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   At the time the petition

was filed, petitioner resided in Jersey City, New Jersey.

     Petitioner’s brother, Martin Timmerman (Martin), died

intestate on March 23, 1997.   On October 10, 1997, petitioner was

appointed Letters of Administration from the Surrogate’s Court of

Hudson County, New Jersey, to administer and settle Martin’s

estate.

     Prior to his death, Martin worked for JP Morgan and held a

deferred interest in a profit-sharing plan (plan).   In a letter

dated April 9, 1997, from Gary D. Naylor, Vice President of JP

Morgan, petitioner was notified of the monetary balance in the

plan and that he was the sole beneficiary of Martin’s plan.

Attached to the letter were an explanation of payment options
                               - 3 -

with tax implications and a JP Morgan election form.    Petitioner

failed to respond to this correspondence because “I was working

to settle my brother’s estate. * * * And I made no choice at that

time.”

     At the time of Martin’s death, the balance in the plan was

$69,473.55.   Martin died at the age of 52 years, prior to the

commencement of any distributions from the plan.   Petitioner

received a check dated December 23, 1998, from the Chase

Manhattan Bank for $70,194.88, reflecting the total net

distribution of his brother’s plan.1   The check was payable to

“James J. Timmerman”, individually.    On or about February 5,

1999, petitioner contributed the total net distribution from the

plan into an account at Charles Schwab & Co. originally titled

“Martin C. Timmerman in Trust for James Timmerman”.    Petitioner

made a second contribution of $7,799.43 on or about February 5,

1999, from his own funds to “keep the account intact”.    According

to petitioner, Martin opened this account for the benefit of

petitioner in 1995, and after the February 5, 1999,

contributions, the account was retitled the “James J Timmerman

Beneficiary Charles Schwab & Co. Cust Inherited IRA” (Inherited

IRA).

     At trial, petitioner provided a document entitled “Death


     1
          The total gross distribution from the plan was
$77,994.31 less $7,799.43 withheld for Federal income tax.
                                - 4 -

Benefit Election - Nonspousal Beneficiary/The Deferred Profit-

Sharing Plan of Morgan Guaranty Trust Company of New York and

Affiliated Companies for United States Employees” (election

form).    It appears on the face of the election form that

petitioner completed, signed, and dated the form October 30,

1998.    Under the “benefit election” paragraph, petitioner checked

off the box next to the choice “Annual installments over ____

years, beginning in the year the participant would have attained

age ____.    (No younger than 50 or no older than 70 ½.)”

Petitioner left the blanks unanswered.    The election form

requested that petitioner return the completed form by December

15, 1998.    It appears, however, that the form was never sent to

Morgan Guaranty Trust Company of New York, and, therefore, the

election was never in effect.

     Petitioner failed to provide at trial any fully executed

election forms, mail receipts, or other information to show that

an election was made.    According to petitioner, he misplaced a

folder of mail receipts and other documents and it could not be

retrieved.

     Petitioner received a 1998 Form 1099-R, Distributions From

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

Insurance Contracts, etc., issued from American Century Services

Corp. for JP Morgan, reflecting a gross distribution of

$77,994.31 and Federal income tax withheld of $7,799.43.
                               - 5 -

     Petitioner timely filed his 1998 return without reporting

the income as reflected on the Form 1099-R, and claimed Federal

income tax withheld of $7,799.43.   Petitioner received a refund

of $7,910.85 for his Federal income tax for 1998.

     Respondent issued a notice of deficiency determining that

petitioner received income of $77,994.31.   The derivation and the

computation of the amount reported on Form 1099-R by American

Century Services are not in dispute.   The only question is

whether this amount is includable in petitioner’s gross income

for 1998.

     Petitioner contends that the distribution is not subject to

tax because it was a “trustee-to-trustee” or “institution-to-

institution” transfer.   It appears that petitioner further

contends that he received the distribution from Martin’s plan as

the administrator of the estate, rather than the beneficiary.    We

disagree with both of petitioner’s arguments.

     Respondent’s determination is presumed correct, and

petitioner bears the burden of proving that respondent’s

determination is erroneous.   Rule 142(a); Welch v. Helvering, 290

U.S. 111, 115 (1933).2


     2
          Because petitioner failed to introduce any credible
evidence, he failed to meet the requirements of sec. 7491(a), as
amended, so as to place the burden of proof on respondent with
respect to any factual issue relevant to ascertaining liability
for the tax deficiency in issue. As to the accuracy-related
penalty, we find that respondent has satisfied his burden of
                                                   (continued...)
                                 - 6 -

     Gross income includes all income from whatever source

derived.    Sec. 61(a).   Section 61(b) specifically includes items

included under section 72 (relating to annuities).

     Petitioner does not dispute that he received the money from

Martin’s plan in 1998.    Petitioner instead argues that the

transfer of Martin’s plan into the Inherited IRA should not be

characterized as a taxable distribution of Martin’s plan, but

rather a tax exempt “trustee-to-trustee” transfer.

     The law is clear.    Section 402(a) generally provides that

any amount actually distributed to any distributee by any

employees’ trust, such as Martin’s plan, shall be taxable to the

distributee in the taxable year of the distributee in which

distributed, under section 72.    Section 402(c) provides that

certain amounts paid to an employee from a qualified trust are

considered “rollover” distributions, and thus excludable from

income.    Under section 402(c)(5), a transfer from a qualified

plan to an eligible retirement plan, including an individual

retirement account described in section 408(a) or individual

retirement annuity described in section 408(b), shall be treated

as a rollover contribution described in section 408(d)(3).

However, section 408(d)(3)(C) specifically denies the rollover



     2
      (...continued)
production under sec. 7491(c) because the record shows that
petitioner failed to include the income on his return. Higbee v.
Commissioner, 116 T.C. 438 (2001).
                                   - 7 -

treatment of inherited accounts, including inherited individual

retirement accounts or annuities.

       Section 402(c)(9) permits rollover treatment to a

distribution made to a spouse after the death of the employee.

However, the regulations state that such rollover treatment is

limited to the spousal beneficiary.3        Accordingly, a distribution

to a non-spousal beneficiary does not receive rollover treatment,

and therefore is taxable to the beneficiary upon receipt of the

distribution.

       Petitioner is not the employee of the plan or the employee’s

spouse.       Rather, petitioner is the non-spousal distributee and

sole beneficiary of Martin’s plan.         Petitioner received the total

net distribution of Martin’s plan in his individual name.

Petitioner then contributed the total amount into the Inherited

IRA.       We have no election form or other document reflecting a

valid annuity payment election.       Rather, we have petitioner’s


       3
          Sec. 1.402(c)-2, Q&A-12(b), Income Tax Regs., provides
the following:

            Q-12. How does section 402(c) apply to a
       distributee who is not an employee?

            A-12. (b) Non-spousal distributee. A distributee
       other than the employee or the employee’s surviving
       spouse (or a spouse or former spouse who is an
       alternate payee under a qualified domestic relations
       order) is not permitted to roll over distributions from
       a qualified plan. Therefore, those distributions do
       not constitute eligible rollover distributions under
       section 402(c)(4) and are not subject to the 20-percent
       income tax withholding under section 3405(c).
                               - 8 -

self-serving statements as our only evidence.   The facts

presented before us leave us no other choice but to find that the

receipt of the plan’s total net distribution is a lump sum

distribution from Martin’s plan.4

     Petitioner’s final argument is that he received the total

distribution of the plan as the personal representative of

Martin’s estate and not in the capacity of the sole beneficiary.

We find no merit in petitioner’s argument.   Under New Jersey law,

a pension plan, like an insurance policy, is a nontestamentary

asset, and therefore generally not subject to administration

under a probate estate.   See Czoch v. Freeman, 721 A.2d 1019,

1024 (N.J. Super. Ct. App. Div. 1999).   We find that petitioner

received the total plan amount in his individual capacity as the

beneficiary and not the personal representative of Martin’s

estate.



     4
          The pertinent part of sec. 402(d)(4)(A) states:

     (A) Lump sum distribution. For purposes of this
     section and section 403, the term “lump sum
     distribution” means the distribution or payment within
     1 taxable year of the recipient of the balance to the
     credit of an employee which becomes payable to the
     recipient-

          (i)   on account of the employee’s death,

               *    *    *    *    *    *    *
     from a trust which forms a part of a plan described in
     section 401(a) and which is exempt from tax under
     section 501 or from a plan described in section 403(a).
     * * *
                                 - 9 -

     Based upon the above, we find that petitioner received a

lump sum distribution in his individual name as the beneficiary

of Martin’s plan.    Accordingly, $77,994.31 is includable in

petitioner’s gross income.

     The last issue for decision is whether petitioner is liable

for an accuracy-related penalty pursuant to section 6662(a) for

the year in issue.    Section 6662(a) imposes a penalty of 20

percent of the portion of the underpayment which is attributable

to any substantial understatement of income tax.    Sec.

6662(b)(2).    A “substantial understatement” exists where the

amount of the understatement exceeds the greater of 10 percent of

the tax required to be shown on the return for the taxable year

or $5,000.    Sec. 6662(d)(1).

     No penalty shall be imposed if it is shown that there was

reasonable cause for the underpayment and the taxpayer acted in

good faith with respect to the underpayment.    Sec. 6664(c).

     Petitioner failed to address the accuracy-related penalty

and offered no evidence that he had reasonable cause for the

underpayment.    Petitioner apparently sought no advice on the

matter, and made no argument at trial.    Accordingly, we sustain

respondent’s determination.

     We have considered all arguments made by the parties, and,

to the extent not discussed above, conclude they are irrelevant

or without merit.
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    Reviewed and adopted as the report of the Small Tax Case

Division.

                                     Decision will be entered

                              for respondent.
