                  T.C. Summary Opinion 2009-156



                      UNITED STATES TAX COURT



                   DEAN GOCHIS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8189-08S.                Filed October 13, 2009.



     Dean Gochis, pro se.

     S. Mark Barnes, for respondent.



     GERBER, Judge:   This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.1   Pursuant to section 7463(b), the




     1
      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.
                                -2-

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

this opinion shall not be treated as precedent for any other

case.

     Respondent determined a $5,572 income tax deficiency and a

$1,114 section 6662(a) accuracy-related penalty for petitioner’s

2005 tax year.   The issues for consideration are:   (1) Whether

petitioner must include in gross income partnership income he

assigned to his sons; (2) whether petitioner must include in

gross income a distribution from an individual retirement

annuity; (3) whether petitioner is liable for a section 72(t) 10-

percent additional tax on that distribution; and (4) whether

petitioner is liable for the section 6662(a) accuracy-related

penalty.

                            Background

     Petitioner resided in Utah at the time his petition was

filed.   In 1994 petitioner, an employee of the Federal

Government, accepted a Voluntary Separation Incentive Payment

(separation payment) of approximately $50,000 as part of the

Defense Base Closure and Realignment process.   At that time he

also had accumulated contributions in a Federal retirement plan

account.

     On the advice of his accountant, Mr. Vanderharr, petitioner

used $25,000 from his separation payment to purchase partnership

interests in the IEA Income Fund XII Limited Partnership (IEA)
                                -3-

and the Cronos Global Income Fund XIV Limited Partnership

(Cronos).   The partnerships’ main business consisted of renting

out space on cargo ships which they owned.    As a partner

petitioner received annual distributive shares of the

partnerships’ income and depreciation deductions on the ships.

He was informed of his share of partnership income and deductions

by means of Schedules K-1, Partner’s Share of Income, Deductions,

Credits, etc.   Petitioner irrevocably assigned the right to

receive the partnership income to his two sons.    In 2005 the

partnerships paid $23 in interest income and $2,232 in rental

income directly to petitioner’s sons.

     Petitioner used the accumulated contributions in his Federal

retirement plan account and the $20,000 remaining from his

separation payment to purchase an individual retirement annuity

from American Skandia Life Assurance Co. (ASLAC) in 1994.    In

2005 petitioner informed Mr. Vanderharr that he wished to

transfer the money in the ASLAC annuity account to an individual

retirement account (IRA).   Mr. Vanderharr arranged for ASLAC to

issue a check for the $38,535 value of the annuity (ASLAC

distribution) and instructed petitioner to deposit the check into

an IRA at Scottrade where petitioner had previously opened a non-

IRA account (regular account) on January 12, 2005.

     On July 27, 2005, petitioner received the check from ASLAC

and immediately went to a Scottrade office.    Petitioner told a
                                -4-

Scottrade employee that he wanted to open an IRA.    The employee

completed the necessary paperwork for him and gave him a receipt

for the deposit.   However, no IRA was actually established, and

the money was incorrectly deposited into petitioner’s regular

account.   When petitioner was made aware that his Scottrade

account was not an IRA, during October 2008, he caused a

Scottrade IRA to be opened in his name.

     In 2005 petitioner received monthly account statements via

email and continued to make trades in the account.    He noticed

that the funds had been credited to the regular account he had

initially opened, but he assumed the account had been converted

into an IRA.   Petitioner did, in fact, treat the account as an

IRA and did not withdraw any money from it.

     Petitioner filed a timely 2005 Federal income tax return.

On his return petitioner did not report the interest and rental

income paid to his sons by IEA and Cronos, but he did claim his

distributive share of the partnerships’ depreciation deductions.

Petitioner did not report the $38,535 ASLAC distribution because

he thought it had been timely reinvested in an IRA.

Additionally, petitioner did not report $31 in interest income

and $164 in dividend income that he received from Scottrade in

2005.
                                  -5-

      On January 7, 2008, respondent sent petitioner a notice

of deficiency determining a deficiency of $5,572 based on

petitioner’s failure to report the partnership income from

IEA and Cronos, the ASLAC distribution, and the dividend and

interest income from Scottrade.     Respondent also determined

that petitioner was liable for a section 6662(a) accuracy-related

penalty of $1,114.    On April 7, 2008, petitioner filed a petition

with this Court.     Petitioner has conceded that the interest and

dividend income from Scottrade should have been included in

his gross income.2

                              Discussion3

I.   Assignment of Partnership Income

      A fundamental principle of tax law is that income is taxed

to the person who earns it.     Lucas v. Earl, 281 U.S. 111, 114-115

(1930).   The power to dispose of income by causing the income to

be paid to another is the equivalent of ownership for tax

purposes.   Helvering v. Horst, 311 U.S. 112 (1940); Teschner v.

Commissioner, 38 T.C. 1003 (1962).      Therefore, a taxpayer

entitled to receive income at a future date cannot avoid tax on



      2
      We have assumed that the dividend and interest income was
attributable to the assets in the account that were not part of
petitioner’s IRA.
      3
      Petitioner did not argue that any burden or proof or
production shifted to respondent under sec. 7491(a). Respondent,
however, has the burden of production with respect to the
accuracy-related penalty. See sec. 7491(c).
                                  -6-

that income by making a gift of it by anticipatory assignment.

Helvering v. Horst, supra.     This is true regardless of whether

the assignment of income is irrevocable.      Id.; Galt v.

Commissioner, 216 F.2d 41, 48 (7th Cir. 1954), affg. on this

point 19 T.C. 892 (1953); Drake Univ. v. Commissioner, 44 T.C.

70, 72 (1965).

      Petitioner owned the partnership interests in IEA and

Cronos.   Although he irrevocably assigned the right to receive

the income from those partnership interests, he did not transfer

the partnership interests.     In effect, he retained the tree

(ownership) and transferred the fruit (right to the income).

Accordingly, the income from those partnership interests belonged

to petitioner even though it was paid directly to his children.

We hold that petitioner is required to report the partnership

income.

II.   Individual Retirement Annuity Distribution

      Amounts distributed from an individual retirement plan are

generally includable in gross income as provided under section

72.   Sec. 408(d)(1).    The term “individual retirement plan” means

either an individual retirement account or an individual

retirement annuity.     Sec. 7701(a)(37).   An individual retirement

plan distribution is not taxable under section 408(d)(1) if the

entire distribution is rolled over into another individual

retirement plan account within 60 days.     Sec. 408(d)(3)(A)(i).
                                 -7-

     Petitioner received a $38,535 distribution from his ASLAC

individual retirement annuity.   Petitioner requested that

Scottrade deposit it into an IRA at Scottrade so that it could be

rolled over into an individual retirement plan account within 60

days.

     Petitioner contends that he should be excused from the tax

and penalty on said withdrawal because the failure properly to

roll over the $38,535 was Scottrade’s error of which petitioner

was not aware.   There is support for petitioner’s argument in

Wood v. Commissioner, 93 T.C. 114 (1989).

     In Wood, the taxpayer received a lump-sum distribution of

cash and stock from a profit-sharing plan.   Intending to roll

over the distribution, he opened an IRA with a large brokerage

company as trustee.   Although the trustee accepted the cash and

stock for deposit to the IRA, it mistakenly recorded the stock as

having been transferred to the taxpayer’s other non-IRA account.

The taxpayer did not notice the error on his next statement.

About 4 months after the expiration of the 60-day rollover

period, the trustee independently corrected its records to

reflect the transfer of the stock to the IRA.   Because the

parties had a contractual agreement to hold the cash and stock in

the IRA, we found the trustee’s mistake to be a mere bookkeeping

error that failed to properly reflect the transaction.   We

accordingly held that the taxpayer’s rollover was timely.
                                 -8-

       Petitioner instructed a Scottrade employee to deposit the

proceeds of the ASLAC distribution into a new IRA.    The employee

completed the IRA paperwork required to open the account and gave

petitioner a receipt for the deposit.    As in Wood v.

Commissioner, supra, the Scottrade employee’s actions established

a contractual agreement to hold the proceeds of the distribution

in an IRA.

       We note that petitioner treated the account in all respects

as though it were an IRA.    He made a good-faith attempt to open

an IRA and presented Scottrade with everything necessary to do

so.    There is nothing in this record that indicates or implies

that he was aware that an IRA had not been opened.

       Accordingly, we hold that the distribution is not includable

in petitioner’s gross income.

III.    Section 72(t) Additional Tax

       Section 72(t) imposes an additional tax on an individual

retirement plan distribution equal to 10 percent of the amount

included in gross income, subject to certain exceptions.    Because

the ASLAC distribution is not includable in petitioner’s gross

income, petitioner is not liable for the section 72(t) additional

tax.

IV.    Section 6662(a) Penalty

       Section 6662(a) and (b)(1) and (2) imposes an accuracy-

related penalty of 20 percent on the portion of an underpayment
                                -9-

attributable to negligence, disregard of rules or regulations, or

a substantial understatement of income tax.   Negligence includes

any failure to make a reasonable attempt to comply with the

provisions of the Code or to exercise ordinary and reasonable

care in the preparation of a tax return.   Sec. 1.6662-3(b)(1),

Income Tax Regs.   Negligence is strongly indicated where a

partner fails to treat partnership items in a manner consistent

with the treatment of such items on the partnership return.   Sec.

1.6662-3(b)(1)(iii), Income Tax Regs.

     Petitioner was negligent in failing to treat the partnership

items consistent with the Schedules K-1 he received.    Although he

claimed his distributive shares of the partnerships’ depreciation

deductions, he did not include the income paid directly to his

sons, which was his share of the partnerships’ income.

Petitioner claims that Mr. Vanderharr advised him that the

partnership income paid to his sons would not be taxable to him.

     Section 6664(c)(1) provides a defense to the section 6662

penalty for any portion of an underpayment where reasonable cause

existed and the taxpayer acted in good faith.   In determining

whether a taxpayer reasonably relied in good faith on

professional advice, all facts and circumstances must be

considered, including the taxpayer’s education, sophistication,

and business experience.   Sec. 1.6664-4(c)(1), Income Tax Regs.

Generally, the most important factor is the extent of the
                                 -10-

taxpayer’s effort to assess the taxpayer’s proper tax liability.

Sec. 1.6664-4(b)(1), Income Tax Regs.

     Petitioner testified that Mr. Vanderharr handled his taxes

and specifically advised him that he would be “out of the tax

loop” in regard to the partnership interests.      However, the

record does not show what advice Mr. Vanderharr may have provided

and his qualifications for giving such advice.      Under the

circumstances we are unable to find that petitioner relied or

that it would have been reasonable for him to rely on Mr.

Vanderharr’s tax advice.   Petitioner prepared his own return and

claimed his share of the partnerships’ depreciation deductions

despite being advised that ownership of the partnership interests

would have no tax effect on him.

     Accordingly, we hold that petitioner is liable for the

section 6662(a) penalty on the underpayment attributable to the

partnership income.   Petitioner is also liable for the section

6662(a) penalty on the underpayment attributable to the conceded

interest and dividend income.    We leave to the parties the

computation of the correct amount of the penalty under section

6662(a).

     To reflect the foregoing,


                                             Decision will be entered

                                        under Rule 155.
