                     T.C. Summary Opinion 2009-134



                        UNITED STATES TAX COURT



                   DARYL L. KOELEMAY, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 24773-08S.           Filed September 2, 2009.



        Daryl L. Koelemay, pro se.

        Ardney J. Boland III, for respondent.



     JACOBS, Judge:     This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.     Pursuant to section 7463(b), the

decision to be entered is not reviewable by any other court, and

this opinion shall not be treated as precedent for any other

case.
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     Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for 2006, and all Rule references

are to the Tax Court Rules of Practice and Procedure.

     Respondent determined for 2006 a deficiency in income tax of

$14,739 and an accuracy-related penalty of $1,300.   At trial

petitioner conceded that he failed to report a lump-sum

distribution from his BASF pension plan as well as a series of

deemed distributions arising from money borrowed from, but not

repaid to, his section 401(k) plan account.   The issues thus

remaining in dispute are:   (1) Whether petitioner is liable for

the 10-percent additional tax on early distributions from

qualified retirement plans (the BASF pension plan lump-sum

distribution and the series of deemed distributions from the

section 401(k) plan account); and (2) whether petitioner is

liable for an accuracy-related penalty.

                            Background

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

found.   We incorporate by reference the parties’ stipulation of

facts and accompanying exhibits.   At the time he filed his

petition, petitioner resided in Louisiana.

     Before March 2006 petitioner had been an employee of BASF

for 7 years, working at one of its manufacturing plants.    In

March 2006 petitioner’s employment was terminated, and BASF gave

petitioner a severance package.    BASF sent the Internal Revenue
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Service and petitioner a Form W-2, Wage and Tax Statement, for

2006.    Box 13, Retirement plan, on Form W-2, was checked,

indicating that petitioner was an “active participant” in BASF’s

qualified pension plan.1    Petitioner believed that the amount set

forth in the Form W-2 represented the entire amount he had to

report on his 2006 income tax return.    But in fact, the amount

represented only the wages paid to petitioner from January 1,

2006, to the date of his termination and a severance payment.

     Before his termination, petitioner borrowed money from his

section 401(k) plan account.    When petitioner was laid off, his

participation in BASF’s section 401(k) plan was terminated and

his debt to his section 401(k) plan account was canceled.     After

his termination, in November 2006 petitioner received a lump-sum

distribution from the BASF pension plan.    As indicated supra p.

2, petitioner concedes that the lump-sum distribution from his

pension plan as well as the amount previously borrowed from his

section 401(k) plan account should have been reported on his 2006




     1
        The instructions for Form W-2, box 13, state:

     Check this box if the employee was an “active
     participant” (for any part of the year) in any of the
     following:

                 1. A qualified pension, profit-sharing, or stock-
            bonus plan described in section 401(a) (including a
            401(k) plan). Instructions for Forms W-2 and W-3 (rev.
            2006), at 13.
                                 - 4 -

Federal income tax return, which was prepared by Jackson Hewitt

Tax Service.

      Petitioner had not reached age 59-1/2 when he received the

aforementioned distributions.    He does not recall receiving a

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

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

respect to his BASF pension distribution.

                            Discussion

I.   Application of the Section 72(t) Additional Tax to
     Petitioner’s Pension Plan and Section 401(k) Distributions

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

any distribution from a “qualified retirement plan” that fails to

satisfy one of the exceptions in section 72(t)(2).2   Both

petitioner’s BASF pension plan and his section 401(k) plan are

qualified retirement plans, and distributions from each plan are

subject to the 10-percent additional tax.    See secs. 401(a),

(k)(1), 4974(c)(1).



      2
       Sec. 72(t)(1) provides:

           SEC. 72(t). 10-Percent Additional Tax on Early
      Distributions from Qualified Retirement Plans.--

                (1) Imposition of additional tax.--If any taxpayer
           receives any amount from a qualified retirement plan
           (as defined in section 4974(c)), the taxpayer’s tax
           under this chapter for the taxable year in which such
           amount is received shall be increased by an amount
           equal to 10 percent of the portion of such amount which
           is includible in gross income.
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      Section 72(t)(2) provides a list of exceptions to the

additional tax imposed by section 72(t)(1).    None of the

exceptions applies to petitioner’s situation.3   We therefore

sustain respondent’s determination with respect to the section

72(t) additional tax.

II.   Section 6662(a) Accuracy-Related Penalty

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

20 percent of the underpayment of tax attributable to, inter

alia, a substantial understatement of income tax, as provided in

section 6662(b)(2).    An understatement pursuant to section

6662(b)(2) is equal to the excess of the amount of tax required

to be shown on the tax return over the amount of tax shown on the

return.   Sec. 6662(d)(2)(A).   The understatement is substantial

in the case of an individual if it exceeds the greater of 10

percent of the tax required to be shown or $5,000.    Sec.

6662(d)(1)(A).    Respondent has the burden of production with

respect to the section 6662(a) accuracy-related penalty.     See

sec. 7491(c).    Respondent has met his burden of production.



      3
      Petitioner does not argue that the burden of proof on this
issue should be shifted to respondent under sec. 7491. In any
event, we do not decide the issue on the burden of proof. Also,
regardless of whether the additional tax under sec. 72(t) would
be considered an “additional amount” under sec. 7491(c) and
regardless of whether the burden of production with respect to
this additional tax would be on respondent, respondent has met
any such burden of production by showing that petitioner received
the distribution when he was less than age 59-1/2. See H. Conf.
Rept. 105-599, at 241 (1998), 1998-3 C.B. 747, 995.
                                - 6 -

     The accuracy-related penalty does not apply to any part of

an underpayment of tax if it is shown that the taxpayer acted

with reasonable cause and in good faith.    Sec. 6664(c)(1).   This

determination is made on a case-by-case basis, taking into

account all the pertinent facts and circumstances.    Sec. 1.6664-

4(b)(1), Income Tax Regs.    Petitioner bears the burden of proof

that he had reasonable cause and acted in good faith.    See

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

     Petitioner relied on Jackson Hewitt Tax Service to prepare

his 2006 tax return.   There is no evidence that his return

preparer was not competent or that petitioner was not justified

in relying on the preparer’s expertise in preparing his tax

return.    Moreover, it does not appear from the record that

petitioner was anything but forthright with respect to

information he gave to his return preparer.

     Petitioner credibly testified that:   (1) He did not receive

a Form 1099-R reflecting his pension plan distribution and (2) he

believed the amount of the pension plan distribution was included

in the amount reported on his Form W-2 because Box 13 was

checked.   Petitioner also credibly testified that he did not

understand:   (1) The process involved in borrowing money from a

section 401(k) plan account, (2) that his debt had been canceled,

and (3) that the cancellation resulted in income.    We are

satisfied that this is a case of a taxpayer who tried to file his
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income tax return properly but was tripped up by the complexity

of the Internal Revenue Code.    On the totality of the record, we

find that petitioner acted in good faith and with reasonable

cause.   Thus, we hold that the accuracy-related penalty provided

by section 6662(a) is not applicable.

     To reflect the foregoing,


                                           Decision will be entered

                                      under Rule 155.
