                  T.C. Summary Opinion 2002-143



                     UNITED STATES TAX COURT



                 ROBERT B. LEPPIN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 941-01S.                  Filed November 5, 2002.



     Robert B. Leppin, pro se.

     Sean R. Gannon, for respondent.



     DINAN, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in
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effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     Respondent determined a deficiency in petitioner’s Federal

income tax of $2,755 for the taxable year 1998.            Respondent

concedes the portion of the deficiency in excess of $712.

     The issue for decision is to what extent petitioner must

include in income amounts received as railroad retirement

benefits.

     Some of the facts have been stipulated and are so found.

The stipulations of fact and the attached exhibits are

incorporated herein by this reference.            Petitioner resided in

Blue Island, Illinois, on the date the petition was filed in this

case.

     During 1998, petitioner received retirement benefits of

$19,844.96 from the U.S. Railroad Retirement Board (RRB).            For

that year, petitioner received from the RRB a Form RRB-1099-R,

Annuities or Pensions By the Railroad Retirement Board.            This

form listed the following:

            Employee contributions       $13,290.20

            Contributory amount paid         19,242.96
            Supplemental annuity                602.00
            Total gross paid                 19,844.96

Petitioner reported $19,243 of the benefits on his 1998 Federal

income tax return, but listed this amount as fully nontaxable

Social Security benefits rather than as income from pension and

annuities.
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     The basis for respondent’s determination in the statutory

notice of deficiency does not appear in the record.     However, it

is respondent’s position in this proceeding that the full amount

that petitioner received from the RRB, $19,844.96, is annuity or

pension income, and that $6,554.96 of this amount is includable

in gross income.

     Railroad retirement benefits are divided into two portions

for purposes of Federal income taxation.     In general terms, the

portion of the benefits which is equal to the benefit to which a

taxpayer would have been entitled under the Social Security Act

if the taxpayer had been covered by the Social Security Act is

referred to as the “tier 1 railroad retirement benefit”.     Sec.

86(d)(4).   Tier 1 benefits are includable in gross income to the

same extent as are Social Security benefits.     Sec. 86(d)(1)(B).

The benefits other than tier 1 benefits (commonly referred to as

“tier 2 benefits”) generally are includable in gross income to

the same extent as are amounts received from a section 401(a)

qualified plan.    Sec. 72(r).   As such, these benefits generally

are treated as annuity payments subject to the provisions of

section 72.   Sec. 402(a).

     As a general rule, tier 2 benefits are includable in gross

income under section 72(a).      However, a portion of these benefits

may be excluded from income under section 72(b) or (d).     These

provisions exclude from a taxpayer’s gross income that portion of
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a tier 2 annuity payment which represents a ratable recovery of

the taxpayer’s contributions to the railroad retirement plan made

in the form of taxes.   Sec. 72(b)(1), (d)(1), (r)(2).

     Petitioner’s position in this case is unclear.    In his

petition, he argues that the “railroad retirement pension is

subject to form 1040, line 20”; namely that it should be treated

as Social Security benefits.   At trial, petitioner made a

somewhat contradictory statement that the benefits were comprised

of tier 1 benefits in the amount of $11,448, tier 2 benefits in

the amount of $7,794, and a supplemental pension of $612.     Where

petitioner derived the first two amounts is unknown.

     Whether petitioner received any tier 1 benefits at all is

also unclear.   In general terms, the RRB uses Form RRB-1099,

Payments By the Railroad Retirement Board, to report tier 1

benefits, and Form RRB-1099-R to report tier 2 benefits.     See

generally Internal Revenue Service Publication 575, Pension and

Annuity Income, and Internal Revenue Service Publication 915,

Social Security and Equivalent Railroad Retirement Benefits.       In

the present case, on the same document in evidence on which the

Form RRB-1099-R was reproduced, there was also a copy of a Form

RRB-1099.   This latter form was blank except for the notation

“THIS FORM NOT REQUIRED FOR YOUR 1998 TAXES”.

     From the record in this case, we are unable to ascertain

whether petitioner in the first instance should have received
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tier 1 benefits in some amount, and in the second instance

whether or not he in fact did receive such benefits.   However,

there may be countless reasons why petitioner should not have

received tier 1 benefits in the year in issue, and this specific

factual issue was not addressed at trial by either party.      Even

if we were to accept petitioner’s testimony as to the division of

the benefits into tier 1 and tier 2 benefits, we would have no

way of determining the amount of the tier 2 benefits which would

be includable in gross income.

     We are left with the fact that petitioner has admitted

receiving income in the amount of $19,844.96, as reflected in the

Form RRB-1099-R, and that he admits that he did not properly

report this amount on his tax return.1   Furthermore, he has

presented no reliable evidence that the Form RRB-1099-R is

incorrect.2   We therefore sustain respondent’s determination, as

modified by his concession, that petitioner received unreported

gross income from the RRB benefits in the amount of $6,554.96.




     1
      Pursuant to petitioner’s version of the facts in his
testimony, at least a portion of the benefits should have been
included in gross income on his return.
     2
      Sec. 7491(a) does not shift the burden of proof to
respondent in this case because petitioner has provided no
credible evidence with respect to the nature of the benefits he
received. Sec. 7491(a)(1). Furthermore, sec. 6201(d) does not
impose any evidentiary burden on respondent because petitioner
has admitted receiving the item of income at issue.
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     Respondent’s calculation of petitioner’s tax liability in

the notice of deficiency is not in the record.            However, based

upon the record before us we find that petitioner’s taxable

income was determined in the notice of deficiency as follows:

          RRB benefits                   $19,845
          Other income                    10,857
          Adjusted gross income (AGI)                 $30,702
          Medical expenses                4,801
          Less 7.5% AGI                  (2,303)
          Taxes paid                      6,976
          Total itemized deductions                    (9,474)
          Personal exemption deduction                 (2,700)
          Taxable income                               18,528

According to the explanation provided to the Court with regard to

respondent’s concession, respondent:        (1) Decreased the taxable

income reflected in the notice of deficiency by $13,290 to

reflect that portion of the RRB benefits not includable in gross

income; and (2) reduced the taxable income by a further $492 to

reflect an increased medical expense deduction allowed in light

of the change to adjusted gross income.            Based on these

adjustments to the notice of deficiency, respondent determined

that petitioner’s correct taxable income was $4,745 and that the

correct amount of the deficiency was $712.            It appears, however,

that respondent’s calculations are in error in two respects.

First, the amount of the increase in the medical expense

deduction appears to be too small in light of the change to

petitioner’s adjusted gross income.        See sec. 213(a).      Second,

the calculation does not appear to account for a portion of

petitioner’s income which is long-term capital gain and
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consequently taxed at a lower rate.       See sec. 1(h).   We shall

therefore enter a decision under Rule 155 so that the parties may

compute petitioner’s proper tax liability pursuant to our

findings in this case.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                         Decision will be entered

                                 under Rule 155.
