                       T.C. Memo. 2002-171



                     UNITED STATES TAX COURT



    J. KELLY ANDERSON AND MARTHA L. ANDERSON, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10760-00.              Filed July 19, 2002.


     Joe K. Gordon, for petitioners.

     Denise G. Dengler, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     LARO, Judge:   Petitioners petitioned the Court to

redetermine respondent’s determination of a $63,949 deficiency in

their 1997 Federal income tax.   We must decide whether

petitioners’ 1997 taxable income should include the $200,000

distribution that J. Kelly Anderson (Mr. Anderson) received from

his individual retirement account (IRA) and reported as
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nontaxable on his tax return.   We hold it does.    Unless otherwise

indicated, section references are to applicable versions of the

Internal Revenue Code.   Rule references are to the Tax Court

Rules of Practice and Procedure.

                         FINDINGS OF FACT

     Many facts were stipulated, and we incorporate by this

reference the parties’ stipulation of facts and the accompanying

exhibits.   Mr. Anderson and Martha L. Anderson (Mrs. Anderson)

are husband and wife, and they filed a joint 1997 Federal income

tax return.   They resided in Fort Worth, Texas, when their

petition was filed with the Court.      Mr. Anderson was born in 1932

and holds a bachelor’s degree in commerce.

     In 1993, Mr. Anderson retired from General Dynamics.     In

June 1994, Mr. Anderson rolled over $217,847.83 of his funds in

the General Dynamics Salaried Employee Plan to an IRA account

with National Financial Services Corporation (NFSC).     Before

establishing the account with NFSC, an NFSC portfolio

representative explained to Mr. Kelly the significance of an IRA,

including its investment options.    Mr. Kelly’s application for

the account with NFSC stated at the top that it was an “IRA

Account Application”.

     On June 2, 1997, Mr. Anderson closed his IRA account with

NFSC by withdrawing the balance of $200,688.97; he closed the
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account to secure a higher interest rate.1   On the withdrawal

form, Mr. Anderson checked the box for normal distribution but

handwrote “rollover” in the same section.    Upon receipt of the

check, Mr. Anderson went to Northwest National Bank of Arlington

(Arlington) and stated that he wanted to open an account with his

IRA check.2   The new accounts representative at Arlington advised

Mr. Anderson that he might want to open up two accounts, one for

himself and one for his wife, in order to maximize the insurance

coverage of the Federal Deposit Insurance Corporation (FDIC) on

their accounts.3   With the proceeds of his IRA check, Mr.

Anderson purchased from Arlington a 1-year, $100,000 Certificate



     1
       Each year, Mr. Anderson had withdrawn the income earned on
the account. The record does not explain the $17,158.86
difference between the deposited funds and the withdrawn balance.
     2
       Although petitioners testified summarily that they
specifically asked the representative to open an IRA account for
them, we find this testimony unbelievable in light of the record
as a whole. We decline to rely on that naked, self-serving
testimony for the purpose of reaching our decision herein. See
Commissioner v. Duberstein, 363 U.S. 278, 291 (1960); Casperone
v. Landmark Oil & Gas Corp., 819 F.2d 112, 115 (5th Cir. 1987);
Diamond Bros. Co. v. Commissioner, 322 F.2d 725, 731 (3d Cir.
1963), affg. T.C. Memo. 1962-132. Petitioners could have, but
did not, call as a witness the representative of the bank to
testify as to her memory of the conversation. (Mrs. Anderson
testified that the bank president disputed petitioners’ claim
that the bank had erroneously not opened an IRA account.) We
also note, as described infra, that Mr. Andersen is a college-
educated man who we believe would have noticed that the
application opening the account was not in the name of an IRA nor
was creating a trust account.
     3
       The representative advised Mr. Anderson that the FDIC
insured each account of a depositor up to a maximum of $100,000.
                                 - 4 -

of Deposit Special in his name and caused Mrs. Anderson to

purchase from Arlington a 1-year, $100,000 Certificate of Deposit

Special in her name.    Although a box appeared on the applications

to create a trust account, neither of the applications for the

purchases nor the actual certificates of deposit mention the

creation of a trust account or an IRA.    Neither petitioner ever

opened a trust account or an IRA account of Arlington, and none

of the $200,688.97 was ever rolled over into a trust account or

an IRA account.

     NFSC issued to Mr. Anderson a Form 1099-R, Distributions

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

IRAs, Insurance Contracts, Etc., reporting a gross taxable

distribution of $205,298.    On petitioners’ 1997 tax return, they

reported a total IRA distribution of $205,298 but that only

$5,298 was taxable.    On July 21, 2000, respondent mailed to

petitioners a notice of deficiency for the tax on the remaining

$200,000 of the distribution.

                                OPINION

     We must decide whether petitioners are taxable in 1997 on

their receipt of the remaining $200,000 of IRA funds.4


     4
       Our decision does not depend on which party has the burden
of proof. We note in passing, however, that petitioners do not
argue that sec. 7491(a) places the burden of proof on the
Commissioner here. We also note that Mr. Anderson was of a
permissible age to receive the distribution without a tax. Sec.
72(t). Thus, respondent did not determine that Mr. Anderson was
subject to the 10-percent tax for early distribution.
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Generally, a distribution from an IRA is includable in an

individual’s gross income in the year in which the distribution

in received.   Sec. 408(d); see sec. 1.408-4(a), Income Tax Regs.;

see also Schoof v. Commissioner, 110 T.C. 1, 7 (1998); Gallagher

v. Commissioner, T.C. Memo. 2001-34.     A distribution may be tax-

exempt if the funds distributed from an IRA to the individual for

whose benefit the account is maintained are rolled over to

another IRA for the benefit of such individual, provided certain

criteria are met.   Sec. 408(d)(3)(A).   Those criteria are:

          (i) the entire amount received (including money
     and any other property) is paid into an individual
     retirement account or individual retirement annuity
     (other than an endowment contract) for the benefit of
     such individual not later than the 60th day after the
     day on which he receives the payment or distribution;

          (ii) no amount in the account and no part of the
     value of the annuity is attributable to any source
     other than a rollover contribution (as defined in
     section 402) from an employee’s trust described in
     section 401(a) which is exempt from tax under section
     501(a) or from an annuity plan described in section
     403(a) (and any earnings on such contribution), and the
     entire amount received (including property and other
     money) is paid (for the benefit of such individual)
     into another such trust or annuity plan not later than
     the 60th day on which the individual receives the
     payment or the distribution; or

          (iii)(I) the entire amount received (including
     money and other property) represents the entire
     interest in the account or the entire value of the
     annuity,

                 (II) no amount in the account and no
          part of the value of the annuity is
          attributable to any source other than a
          rollover contribution from an annuity
                                - 6 -

          contract described in section 403(b) and any
          earnings on such rollover, and

                 (III) the entire amount thereof is
          paid into another annuity contract described
          in section 403(b) (for the benefit of such
          individual) not later than the 60th day after
          he receives the payment or distribution.

     Petitioners admit that they did not satisfy any of these

requirements to properly roll over Mr. Anderson’s IRA funds into

another IRA.5   Instead, petitioners argue that the failure to

satisfy the requirements of section 408(d)(3)(A) were caused by

errors committed by Arlington, which should not be held against

petitioners.    To support this argument that we should ignore the

failure to satisfy the literal requirements of the Code,

petitioners rely primarily upon Wood v. Commissioner, 93 T.C. 114

(1989).

     In Wood, the taxpayer consulted Merrill Lynch to effectuate

a rollover of a distribution from his IRA.    Id. at 115.   The

taxpayer signed the requisite documents to establish the IRA,

Merrill Lynch opened a valid IRA account for the taxpayer, and

Merrill Lynch recorded the deposit of the cash contribution as a

deposit into the IRA account.    Id. at 116-117, 120.   By virtue of

a bookkeeping error on the part of Merrill Lynch, Merrill Lynch


     5
       The Economic Growth and Tax Relief Reconciliation Act of
2001, Pub. L. 107-16, sec. 644(b), 115 Stat. 123, added sec.
408(d)(3)(I) to the Code effective for distributions after Dec.
31, 2001. That section allows the Commissioner to waive the 60-
day deadline in the name of equity or good conscience. By reason
of its effective date, that provision is inapplicable here.
                                 - 7 -

erroneously credited the transfer of the IRA funds to a non-IRA

account.   Id. at 117.    The Court held that Merrill Lynch’s

bookkeeping error did not disqualify the taxpayer’s transfer of

his IRA funds as a valid IRA rollover.     Id. at 122. The Court

stated that Congress did not intend “to deny rollover benefits to

taxpayers on the basis that a financial institution or other

qualified IRA trustee made a mistake in recording a transaction.”

Id. at 122.

     We believe that the case of Wood is factually

distinguishable from the instant case.    Whereas the taxpayer in

Wood established a valid IRA, Mr. Anderson never established, nor

instructed the bank officer to establish, a valid IRA (or trust)

account with Arlington in which the transferred IRA funds could

have been deposited.     Additionally, unlike Wood, which involved

“procedural defects in the execution of the rollover”, the case

here, as was true in Schoof v. Commissioner, supra at 11,

“involves the failure of a fundamental element of the statutory

requirements for an IRA rollover contribution”.    Mr. Anderson’s

failure is that he never created an IRA trust in which the

transferred funds could be placed.

     Lastly, unlike the taxpayer in Wood, petitioners did not

exercise the necessary due diligence in creating an IRA account.

We note in this regard that Mr. Anderson is a business-minded,

college-educated man who we believe (on the basis of our
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observation of him during his testimony) would have (or at least

should have through minimal diligence) noticed the fact that the

Arlington accounts were in his and his wife’s names rather than

the name of a trust or an IRA.    Mr. Anderson also has rolled over

his IRA once before.   His writing of “rollover” on his withdrawal

form also demonstrates his awareness of the need to roll over the

distribution into an eligible account.

     We have considered all arguments and find those not

discussed herein to be without merit.    Accordingly,

                                           Decision will be entered

                                      for respondent.
