                          T.C. Memo. 2004-227



                      UNITED STATES TAX COURT



                   NORMA A. COHEN, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8404-02.              Filed October 7, 2004.



     Neil L. Prupis, for petitioner.

     Guy G. LaVignera and Patricia H. Delzotti, for respondent.



                          MEMORANDUM OPINION

     SWIFT, Judge:   Respondent determined a deficiency in

petitioner’s Federal income tax for 1999 and a penalty as

follows:


                               Accuracy-Related Penalty
             Deficiency           Under Sec. 6662(a)

               $22,252                 $4,450
                              - 2 -
     The principal issue for decision is whether $60,000

distributed to petitioner from an individual retirement account

is to be included in petitioner’s taxable income.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.


                           Background

     This case was submitted fully stipulated under Rule 122.

The stipulated facts are so found.

     At the time the petition was filed, petitioner resided in

Cedar Grove, New Jersey.

     Petitioner was born on February 24, 1948.

     On July 25, 1997, petitioner and Norman A. Cohen (Norman)

were divorced pursuant to a final judgment or decree of divorce,

at which time financial and other matters with respect to the

divorce were reserved for subsequent resolution.

     On June 30, 1999, the Superior Court of New Jersey, County

of Essex (Superior Court), entered an order reflecting its

decision relating to the separate financial and other matters

with respect to petitioner’s and Norman’s divorce.   With respect

to approximately $120,000 in funds that Norman had invested in an

individual retirement account (IRA) in his name managed by

Dreyfus Liquid Assets (Dreyfus), the court order stated that
                                - 3 -
Norman’s Dreyfus IRA (Norman’s IRA) “shall be forthwith divided

equally” between petitioner and Norman.

       In July of 1999, petitioner opened in her name a Dreyfus

IRA.    On the application for her Dreyfus IRA (petitioner’s IRA),

petitioner indicated that her IRA would be funded by a transfer

of $60,000 from Norman’s IRA.

       On July 23, 1999, Norman mailed to Dreyfus a letter,

enclosing a copy of the above court order, directing Dreyfus to

transfer $60,000 from his IRA into petitioner’s IRA.    In the

letter to Dreyfus, Norman indicated that the request to transfer

the $60,000 was “due to a divorce settlement”, and Norman

attached to the letter petitioner’s application to open her IRA.

       On August 4, 1999, Dreyfus transferred the $60,000 from

Norman’s IRA directly into petitioner’s IRA.

       Four and a half months later, on December 21, 1999,

petitioner signed a Dreyfus distribution request form, in which

petitioner directed Dreyfus to “liquidate $60,000” from her IRA.

The Dreyfus form stated expressly that --


       If you are requesting a distribution from a Traditional
       IRA * * *, you acknowledge that your Traditional IRA
       * * * will be subject to income tax and, if you are
       under age 59-1/2, a 10% penalty tax for premature
       distribution * * *.


Petitioner requested Dreyfus not to withhold any income tax from

the distribution.
                               - 4 -
     On December 23, 1999, Dreyfus issued a check payable to

petitioner in the amount of $60,000.   The check was drawn on

petitioner’s IRA, and when it was cashed, it was endorsed on the

reverse side by petitioner and by Norman.

     As between petitioner and Norman, the evidence is not clear

as to who actually received the $60,000.    Apparently, the $60,000

was used by petitioner to buy out Norman’s interest in the

marital home where petitioner was then living with petitioner’s

and Norman’s two children.

     A yearend statement of transactions relating to petitioner’s

IRA reflected a December 23, 1999, “Premature Distribution” of

$60,000.

     In early 2000, Dreyfus mailed to petitioner a Form 1099-R,

Distributions from * * * IRAs * * *, which reflected the $60,000

distributed by Dreyfus from petitioner’s IRA as a taxable

distribution to petitioner.   The Form 1099-R also reflected that

Dreyfus had not withheld any Federal income tax from the

distribution.   Petitioner alleges that she never received this

Form 1099-R.

     On April 6, 2000, on her individual Federal income tax

return for 1999, petitioner did not report the $60,000 IRA

distribution as taxable income.

     On February 8, 2002, respondent mailed a notice of

deficiency to petitioner relating to petitioner’s 1999 Federal
                               - 5 -
income tax return in which respondent treated the $60,000

distribution from petitioner’s IRA as taxable income to

petitioner against which an additional 10-percent tax applied,

reflecting a total $22,252 tax deficiency.     Also, respondent

determined that petitioner was liable for a $4,450 accuracy-

related penalty relating to petitioner’s failure to report the

$60,000 IRA distribution as taxable income.


                            Discussion

     Petitioner argues that the August 4, 1999, transfer of

$60,000 out of Norman’s IRA to petitioner’s IRA should be treated

as taxable to Norman, thereby giving petitioner a $60,000 tax

basis in the $60,000 transferred into her IRA, resulting in zero

taxable income on the distribution of the $60,000 out of her IRA.

     Petitioner contends that the reason the $60,000 transfer out

of Norman’s IRA should be taxable to Norman is that the court’s

order (directing equal division of Norman’s $120,000 IRA but not

expressly directing establishment of a new IRA for petitioner’s

benefit into which $60,000 necessarily would be transferred) does

not satisfy a requirement of section 408(d)(6) for Norman’s

distribution to be treated as a tax-free rollover.1


     1
         Sec. 408(d)(6) provides as follows:

          TRANSFER OF ACCOUNT INCIDENT TO DIVORCE.--The transfer
     of an individual’s interest in an * * * [IRA] to his spouse
     or former spouse under a divorce or separation instrument
     described in subparagraph (A) of section 71(b)(2) is not to
                                                   (continued...)
                               - 6 -
     We disagree.   The order of the Superior Court, dated June 30,

1999, directs the equal division of Norman’s IRA.   The language

of the court’s order clearly is referring to an interest in

Norman’s IRA.   The $60,000 transferred from Norman’s IRA to

petitioner’s IRA reflected a one-half interest in Norman’s IRA,

and the transfer was made pursuant to a divorce or separation

instrument.

     Petitioner cites Czepiel v. Commissioner, T.C. Memo. 1999-

289, in support of her position that the transfer of $60,000 from

Norman’s IRA to an IRA established for her benefit constituted a

taxable distribution to Norman.   Czepiel is distinguishable.

Therein, the taxpayer was ordered to pay his former spouse

$29,000 “as a further division of marital property” without any

reference to an IRA as the source of the payment, and the

taxpayer withdrew funds from his IRA to pay his former spouse.

     We conclude that the distribution out of Norman’s IRA to

petitioner’s IRA was not taxable to Norman, that Norman had no

tax basis therein that was transferred to petitioner,2 and that

the distribution in December of 1999 of the $60,000 held in



     1
      (...continued)
     be considered a taxable transfer made by such individual
     * * *, and such interest at the time of the transfer is to
     be treated as an * * * [IRA] of such spouse, and not of such
     individual. Thereafter such * * * [IRA] * * * is to be
     treated as maintained for the benefit of such spouse.
     2
        Petitioner does not argue that Norman had a tax basis in
his IRA prior to transferring an interest therein to petitioner.
                                - 7 -
petitioner’s IRA constituted taxable income to petitioner.

     Generally, under section 72(t)(1), a 10-percent additional

tax is imposed on a taxpayer on that portion of an early

distribution from a qualified IRA that is includable in the

taxpayer’s gross income.    Because we have concluded that the

$60,000 distribution constituted taxable income to petitioner and

because no exception applies, it follows that petitioner is

liable for the 10-percent additional tax on the $60,000 early

distribution.

     Under section 6662, an accuracy-related penalty is to be

added to the portion of an underpayment of tax attributable to

negligence, to a disregard of rules or regulations, or to a

substantial understatement of income tax.

     Generally, for purposes of the accuracy-related penalty,

negligence includes a failure to make a reasonable attempt to

comply with the tax laws.    Sec. 6662(c).    Negligence is indicated

where a taxpayer fails to make a reasonable attempt to ascertain

the correctness of the claimed tax treatment of an item, does not

have a reasonable basis for such tax treatment, and does not act

with reasonable cause and in good faith with respect to such tax

treatment.   Secs. 1.6662-3(b)(1)(ii), 1.6662-3(b)(3), 1.6664-

4(a), Income Tax Regs.

     Under section 7491(c), respondent has the burden of

production with respect to any penalty.      Once respondent comes
                               - 8 -
forward with evidence that a penalty is appropriate, respondent

generally is regarded as having satisfied his burden of

production, and the taxpayer continues to have the burden of

proof with regard to whether a penalty should be imposed.    See H.

Conf. Rept. 105-599, at 241 (1998), 1998-3 C.B. 747, 995.

     The Form 1099-R mailed by Dreyfus to petitioner clearly

reflected that the entire $60,000 distribution constituted the

“taxable amount” of the distribution and that no Federal income

tax was withheld from the distribution.   Under the regulations,

negligence is indicated where a taxpayer fails to include on her

tax return an amount shown as taxable income on an information

return.   Sec. 1.6662-3(b)(1)(i), Income Tax Regs.

     Despite petitioner’s uncorroborated testimony that she never

actually received the Form 1099-R mailed by Dreyfus to

petitioner, petitioner does not deny receiving an annual

statement that characterized the $60,000 distribution as a

“Premature Distribution”, and petitioner acknowledges that she

completed and signed the distribution request form, which

reflected a specific request not to apply income tax withholding

to the distribution.

     The evidence does not establish that petitioner had a

reasonable basis for not reporting the $60,000 distribution on

her 1999 Federal income tax return.    We conclude that petitioner

is liable for the section 6662(a) accuracy-related penalty.
                            - 9 -
To reflect the foregoing,

                                    Decision will be entered

                              under Rule 155.
