                               T.C. Memo. 2015-47



                         UNITED STATES TAX COURT



              BALVIN ANTHONY MCKNIGHT, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 20844-13.                          Filed March 16, 2015.



      Balvin Anthony McKnight, pro se.

      Kirsten E. Brimer, for respondent.



                           MEMORANDUM OPINION


      LAUBER, Judge: With respect to petitioner’s Federal income tax for 2011,

the Internal Revenue Service (IRS or respondent) determined a deficiency of

$76,638 and an accuracy-related penalty of $15,328. The case presents three

questions for decision: (1) whether distributions from petitioner’s qualified retire-

ment plan were includible in his gross income; (2) whether petitioner is liable for
                                        -2-

[*2] the 10% additional tax under section 72(t)1 on early distributions from a

qualified retirement plan; and (3) whether petitioner is liable for the accuracy-

related penalty under section 6662(a). Respondent has moved under Rule 121 for

summary judgment on all issues, contending that there are no material facts in

dispute and that he is entitled to judgment as a matter of law. We agree and

accordingly will grant the motion.

                                     Background

      There is no dispute concerning the following facts. These facts are derived

from the parties’ pleadings and motion papers and from the declaration and at-

tached exhibits filed by respondent in support of his summary judgment motion.

Petitioner resided in Pennsylvania when he petitioned this Court.

      Petitioner was a participant in the Lockheed Martin Salaried Savings Plan, a

qualified retirement plan. State Street Retiree Services (State Street) was the cus-

todian of petitioner’s account with this plan. During 2011 State Street issued peti-

tioner two Forms 1099-R, Distributions from Pensions, Annuities, Retirement or

Profit-Sharing Plans, IRAs, Insurance Contracts, etc. The first Form 1099-R re-

ported a “gross distribution” of $4,984; categorized the distribution as an “early

      1
       All statutory references are to the Internal Revenue Code in effect for the
tax year at issue, and all Rule references are to the Tax Court Rules of Practice and
Procedure. We round all monetary amounts to the nearest dollar.
                                        -3-

[*3] distribution, no known exception”; reported $4,984 as the “taxable amount”;

and reported “tax withheld” as zero. The second Form 1099-R reported a “gross

distribution” of $206,515; categorized the distribution as an “early distribution, no

known exception”; reported $206,515 as the “taxable amount”; and reported “tax

withheld” as $48,303. Petitioner is now 50 years old and was 47 when he received

these two distributions.

      During 2011 petitioner had outstanding tax liabilities for 2007 and 2008.

On October 14, 2011, the IRS posted payments to petitioner’s 2007 and 2008

accounts of $5,555 and $26,488, respectively. IRS records establish that these

payments, totaling $32,043, resulted from funds remitted pursuant to a levy. The

financial institution that remitted these funds was Wachovia Bank, N.A., then a

unit of Wells Fargo. Petitioner’s checking account statement from Wells Fargo for

the month ending October 12, 2011, shows a “subtraction” of $32,043, dated

September 19, 2011, and bearing the description “IRS Notice of Levy.”

      Petitioner filed a Federal income tax return for 2011 reporting retirement

distributions of $206,516, of which he listed $48,304 as the “taxable amount,” and

claiming a refund of $33,538. (What petitioner reported as the “taxable amount”

roughly corresponds to the $48,303 that State Street reported as the “tax with-

held.”) Upon examination of this return, the IRS determined that petitioner had
                                         -4-

[*4] failed to report the initial retirement distribution of $4,984 from State Street;

that his aggregate retirement distribution of $211,499 was includible in gross

income; that he was liable under section 72(t) for additional tax equal to 10% of

the retirement distribution includible in gross income; and that he was liable for an

accuracy-related penalty under section 6662(a). The IRS timely mailed petitioner

a notice of deficiency setting forth these determinations, and petitioner timely

sought review in this Court. On November 19, 2014, respondent filed a motion

for summary judgment, to which petitioner has responded.

                                      Discussion

A.    Summary Judgment Standard

      The purpose of summary judgment is to expedite litigation and avoid costly,

time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90

T.C. 678, 681 (1988). Under Rule 121(b) the Court may grant summary judgment

when there is no genuine dispute as to any material fact and a decision may be

rendered as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520

(1992), aff’d, 17 F.3d 965 (7th Cir. 1994). Rule 121(d) provides that where the

moving party properly makes and supports a motion for summary judgment, “an

adverse party may not rest upon the mere allegations or denials of such party’s
                                         -5-

[*5] pleading,” but rather must set forth specific facts, by affidavits or otherwise,

“showing that there is a genuine dispute for trial.”

      Petitioner asserts that there exist disputes of fact as to “the amount of the

disbursement” that he received in 2011, as to whether “significant taxes were

withheld from the disbursement to cover the tax liabilities,” and as to whether his

retirement plan was “garnished by the IRS to cover a 2008 tax liability.” Peti-

tioner has failed to establish a genuine dispute of material fact concerning the

amount of retirement distributions he received in 2011, $211,499, or the amount of

tax that State Street withheld from these distributions, $48,303. These sums are

clearly set forth in the Forms 1099-R that petitioner received and State Street

furnished to the IRS.2

      Petitioner has likewise failed to establish a genuine dispute of material fact

as to whether any portion of these distributions was “made on account of a levy


      2
        Section 6201(d) provides that the IRS in certain circumstances cannot rely
solely on information returns to establish unreported income but “shall have the
burden of producing reasonable and probative information” in addition thereto.
This provision applies only were the taxpayer “asserts a reasonable dispute with
respect to any item of income reported on an information return” and only if “the
taxpayer has fully cooperated with the Secretary.” Petitioner has not asserted a
reasonable dispute concerning the amounts of retirement income reported by State
Street; indeed, he self-reported the second distribution of $206,515. Nor did
petitioner fully cooperate with respondent, for example, in preparing a pretrial
stipulation of facts in this case.
                                         -6-

[*6] under section 6331 on the qualified retirement plan.” See sec.

72(t)(2)(A)(vii). IRS records and petitioner’s bank statements show that the IRS

took action to collect his 2007 and 2008 tax liabilities by levying, not on his

retirement plan, but on his checking account with Wachovia Bank/Wells Fargo.

We conclude that there exists no genuine dispute as to any material fact and that

this case is appropriate for summary adjudication.

B.    Taxability of Retirement Distributions

      Section 402(a) provides that “any amount actually distributed to any dis-

tributee by any employees’ trust described in section 401(a) which is exempt from

tax under section 501(a) shall be taxable to the distributee, in the taxable year of

the distributee in which distributed, under section 72 (relating to annuities).” The

facts establish that $211,499 was actually distributed to petitioner in 2011 by State

Street, the custodian of petitioner’s account with Lockheed Martin Salaried Sav-

ings Plan, a qualified retirement plan. This sum was taxable to petitioner unless

some exclusion applies.

      Section 402(c)(1) provides a “rollover” exception to this general rule. It ex-

cludes from gross income any portion of a distribution that is transferred to an

“eligible retirement plan” as defined in section 402(c)(8)(B). Section 402(c)(3)

provides that the rollover exclusion is not available for “any transfer of a distri-
                                         -7-

[*7] bution made after the 60th day following the day on which the distributee

received the property distributed.” Thus, to qualify for the rollover exclusion,

petitioner must show that he transferred some portion of the distributions he

received, within 60 days of receipt, to another eligible retirement plan.

       During the IRS examination, petitioner contended that he rolled over

$95,000 of the distribution from State Street into an ING retirement fund. But he

has failed to furnish, either to the IRS or to this Court, any documentation of such

a rollover, and he has failed to set forth specific facts showing that there is a

genuine dispute for trial concerning this issue. The only document he supplied

was an “account profile” showing a balance of $47,185 in an ING account at year-

end 2012. This document does not establish that petitioner rolled over $95,000 (or

any other amount) to an ING qualified plan during 2011, much less that he effec-

ted a rollover within 60 days of receiving the distributions from State Street.

Because petitioner has raised no genuine dispute for trial concerning his entitle-

ment to a rollover exclusion, and since he has suggested no other exclusion that

could conceivably apply, the $211,499 of retirement distributions that he received

from State Street is includible in his gross income for 2011.3

      3
      Petitioner asserts that he used $20,000 of the retirement distributions to
make repairs to the foundation of his home. This assertion, if true, has no bearing
                                                                       (continued...)
                                        -8-

[*8] C.      Additional Tax on Early Distribution

      A taxpayer who receives a distribution from a qualified retirement plan be-

fore the date on which he attains age 59-1/2 is generally subject to a 10% addi-

tional tax, computed upon “the portion of such * * * [distribution] which is

includible in gross income.” Sec. 72(t)(1), (2)(A)(i). Section 72(t)(2)(A)(vii) sets

forth, among other exceptions to this rule, situations where distributions are “made

on account of a levy under section 6331 on a qualified retirement plan.” Petitioner

contends that this exception applies here because the IRS levied on his State Street

account to collect his outstanding tax liabilities for 2007 and 2008.4

      Petitioner offers no factual support for this contention. IRS records estab-

lish that on October 14, 2011, the IRS posted payments of $5,555 and $26,488 to

petitioner’s 2007 and 2008 accounts, respectively, and that these funds were remit-

ted pursuant to levy. But IRS records also establish that the financial institution

that remitted these funds was not State Street, which was the custodian of peti-


      3
      (...continued)
on whether the distributions were includible in gross income.
      4
       Section 7491(c) shifts the burden of production to the Commissioner “with
respect to the liability of any individual for any penalty, addition to tax, or
additional amount imposed by this title.” This provision does not shift the burden
of production to the Commissioner with respect to the additional tax under section
72(t) because that additional tax is a tax and not a penalty, addition to tax, or
additional amount. El v. Commissioner, 144 T.C. ___ (Mar. 12, 2015)
                                         -9-

[*9] tioner’s qualified retirement account, but Wachovia Bank, then a unit of

Wells Fargo, with which petitioner had an ordinary checking account. Petitioner’s

Wells Fargo bank statement confirms that it subtracted $32,043 from his checking

account on September 9, 2011, because of an “IRS Notice of Levy.” It may be

that petitioner deposited a portion of the State Street distributions into his Wells

Fargo account.5 But a subsequent IRS levy on that account obviously does not

establish that there was “a levy under section 6331 on the qualified retirement

plan” or that the distributions from State Street to petitioner were “made on

account of a levy” within the meaning of section 72(t)(2)(A)(vii). Because the

levy exception is inapplicable, and because petitioner does not contend that any

other exception in section 72(t)(2) has relevance here, we conclude that the 10%

additional tax applies to the full amount of the retirement distributions that

petitioner received.

D.    Accuracy-Related Penalty

      Section 6662 imposes a 20% accuracy-related penalty on any underpayment

attributable to any substantial understatement of income tax. Sec. 6662(a), (b)(2).

An understatement is “substantial” if it exceeds the greater of $5,000 or 10% of


      5
       Petitioner’s Wells Fargo statement for the period ending September 12,
2011, shows a checking account deposit of $158,454 on August 26, 2011.
                                         - 10 -

[*10] the tax required to be shown on the return. Sec. 6662(d)(1)(A). The tax

deficiency set forth in the notice of deficiency, which we have sustained in full, is

$76,638. This amount exceeds 10% of $117,279, the amount of tax required to be

shown on petitioner’s 2011 return, which is greater than $5,000. Respondent has

thus carried his burden of production by demonstrating a “substantial understate-

ment of income tax.” See secs. 6662(b)(2), 7491(c).

      Section 6664(c)(1) provides that the accuracy-related penalty shall not be

imposed with respect to any portion of an underpayment “if it is shown that there

was a reasonable cause for such portion and that the taxpayer acted in good faith

with respect to * * * [it].” Once the Commissioner has carried his burden of pro-

duction, the taxpayer bears the burden of proving reasonable cause and good faith.

Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001).

      The decision as to whether the taxpayer acted with reasonable cause and in

good faith is made on a case-by-case basis, taking into account all pertinent facts

and circumstances. See sec. 1.6664-4(b)(1), Income Tax Regs. Circumstances

that may signal reasonable cause and good faith “include an honest misunder-

standing of fact or law that is reasonable in light of all of the facts and circum-

stances, including the experience, knowledge, and education of the taxpayer.”
                                          - 11 -

[*11] Ibid. “Reasonable cause” may also be shown by demonstrating reliance on

the advice of a competent tax professional. Id. para. (c).

         Petitioner on his 2011 tax return reported receipt of retirement distributions

in excess of $200,000; he had no colorable basis for taking the position that only

$48,304 was taxable. Indeed, he appears to have reported as the “taxable amount”

the amount that State Street reported to him as the “tax withheld.” The conten-

tions he advanced in this Court--that he made a $95,000 rollover contribution and

that the IRS “garnished” his retirement plan account--have no factual basis. And

he does not contend that he relied on the advice of a competent tax professional or

that he is entitled to any reductions of the penalty under section 6662(d)(2)(B).

We accordingly sustain respondent’s imposition of an accuracy-related penalty for

2011.6




         6
        Petitioner contends that State Street “on behalf of the IRS withheld an
amount that would have exceeded the tax liability of the total disbursement.”
State Street did withhold $48,303 of Federal income tax from the $206,515
distribution; this reflected the typical 20% withholding plus an additional amount
withheld at petitioner’s request. However, because petitioner reported only a
small portion of the distributions as taxable, he claimed on his return, and received
from the IRS, a substantial refund of tax, $33,538, for 2011. Thus, while the
amount of withholding petitioner requested was reasonable, his subsequent
treatment of the retirement distributions on his tax return was not.
                                  - 12 -

[*12] To reflect the foregoing,


                                           An appropriate order and decision for

                                  respondent will be entered.
