T .C . Summary'0pinion 009-8 6
UNITED STATES TAX COUR T
MICHAEL K . BILLUPS, Pet'tioner v .
COMMISSIONER'OF INTERNAL REVENUE, Respondent `
Docket No . 17470-07S .
Michael K . Billups, pro` se .
Abigail F . Dunnigan ` .and Michael Sh e respondent .
led June 1, 2009 .
lton ( student), for "
DEAN, Special .Trial Judge : This case was heard pursuan t the provisions of section 7463 of the Internal Revenue Code i effect when the petition was filed .- Puruant to section 7463 the decision to be entered"is not review ble by any other co u and this opinion shall not be treated as precedent for--any'o t case . Unless otherwise indicated, subse 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 .
Respondent determined a deficiency in petitioner's 2005
Federal income tax of $12,059 and an accuracy-related penalty under section 6662(a) of $2,412 .
The issues for decision are whether
: (1) The loan proceed s received from petitioner's qualified employer plan are taxable distributions under section 72(p) ; (2) petitioner is subject t o the-40-percent additional tax under section 72(t) ; and (3)
petitioner is liable for the accuracy-related penalty under section 6662(a)1 .
Backgroun d
Some of the facts have been stipulated and are so found
. The stipulation of facts and the exhibits received in evidence are incorporated herein by reference . Petitioner resided in .New York when the petition was filed .
During 2005 petitioner was employed with the New York Cit y Transit Authority (NYCTA)
. He had been an NYCTA employee sinc e 1988 .
Petitioner participated in the New York City Employees
' 1 1 Retirement System (NYCERS), a qualified employer plan . On Apri l 'Adjustments to petitioner's itemized deductions and child tax credit are computational and .willabe resolved consistent with the Court's decision . See secs . 24(b), 67(a) .41
3 -29, 2005, petitioner replaced'a prior 1 an with anew loan a received cash proceeds of $12,630 from YCERS . Thereplacem loan was to be amortized over 5 years a d repaid in biweekly n installments of $363 .34 . When petition r received the $12,60, ' the replaced loan had an outstanding balance of $27,012 .73 . receipt of $ 12,630 increased his,outsta ding loan balance to $ 39,748 . 06, the amount of the replacement loan . t Hi s At the time of-the April 29, 2005, loan, petitioner's annual annuity account balance was $52,863 .38 . On the loan application form for°the replacement loan, petitioner selected th e "refinance" option .
z NYCERS advised petitioner at the time he signed the loa application form that all or part of'th outstanding loan amount might be taxable . The application form notifies the borrower that more detailed tax information is available from NYCERS . Petitioner had . previously-borrowed from~NYCERS in 1993 ; 1995 through 2001, and 2003 through 2005, as'follows : ' Yea r 1,993 199 5 19 .96 1997 1998 1999 2000 2001 2003 2004 2005 Loan Prior Principal Repaymen t Amount Amount Ter m $5,110 -0- 10 year s 6,140 $3,147 .01 10 year s 5, 000 7, 694 .26 3 .77 year s 7,370 9,383 .36 3 .69 year s 7,180 .12,754 .46 5 years ' 7,240 16,359 .31 5 year s 7,870 19,482,80 5 years .
7,520 22,439 .39 5 year s 9, 00,0 22, 521 .97 5 years .
9, 000 26,140 .11 4 year s 12, 630 27,012 .73 5 years , Petitioner's loans were not in default as of 2005 . Petitioner and his wife purchased a home on June 25, 2004 . On October 11, 2005, petitioner refinanced the mortgage on his home . Petitioner did not use the loan proceeds from his retirement plan towards the purchase of his home or th e refinancing of his mortgage .
t Petitioner, received a Form 1099-R, Distributions Fro m Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs , Insurance Contracts, etc ., for 2005, reporting a gross distribution of $29,467 .00 . On the bottom of petitioner's Form 1099-R was the word "LOAN" and a distribution code "L1" . Petitioner's 2005 Form 1040, U .S . Individual Income Ta x Return, was prepared by Allen S . Lokensky Associates . On the advice of his accountant, petitioner reported a pension an d it annuities distribution of $29,467 on his 2005 Form .1040 bu t designated it as a "rollover" . No computation of the 10-percent to the outstanding balance ofall other $27,012 .23) could not exceed the lesser the excess, if any, of the highest out s from the plan during the 1-year perio d the date on which the loan was made, ov of loans from the plan .on the date on w the greater of $2 .6,431 .69 or $10,000 .
sec . 1 .72(p)-1, Q&A-20(b), Income Ta x determine the highest outstanding bala n year period ending the day before the d loan was made . It is necessary to know the excess, if any, of the highest outs from the plan during the 1-year period the date on which the loan was made, ov of loans from the plan on the date .on w Neither petitioner nor respondent provi Therefore, the Court-cannot determine t the $50,000 ceiling -is reduced pursuan t 72 (p) (2) (A) (i) .
'Sec . 1 .72(p)-1, .Q&A-20, Income Tax Regs ., applies to assignments, pledges, and loans made-on or after Jan . 1, 2004 Sec . 1 .72(p)-1, Q&A-22(d), Income Tax Regs .
loans from the plan, of $50,000 (reduced y anding balance of 1 0 ns' nding on the day bef rei r the outstanding balance ich the, loan was made) o r ec . 72(p) (2) (A) ; se e 4 S .
permit the Court t o e of loans during the 1to that the $39,642 .73 that amount to determine anding balance of loans ;
nding on the day before,, r the .outstanding balance ich the loan was made .
ed evidence on the issue, ; .
ch V -8_ The Court, however, can determine with reasonable certaint y from the evidence thatil,the lesser of the reduced $50,00 .0 ceiling limitation and one-hal of the present value of petitioner' s nonforfeitable accrued,benefit is theIlatter . Therefore, NYCERS used the appropriate amount available :to petitioner under section 72(p)(2)(A), the greater of one-half of the present value of petitioner's "nonforfeitable accrued benefit" under the plan, $26,431 .69, or $10,000 . NYCERS followed the correct procedure ; consequently petitioner is taxable on any amount in .exces ;,s of one-half of the present value of petitioner's nonforfeitabl e accrued benefit, $26,431 .69 .
The evidence shows that the sum of the new loan and the loan it replaced ($ 39,642 .73 + $27, 012 .73 ) is $66 , 655 .46 , and,it exceeds his applicable limitation . of $26 , 431 .69 by $39 , 748 .06 .5 Petitioner . failed to satisfy the requirements of the exception under , ; section 72(p) (2) ( ;'(A) , and that is enough to find that he . 'ha d a taxable distribution, notwithstanding that each loan provided for repayment terms of 5 years or less and substantially level amortization . See Prince v . Commissioner , supra . 'The Court notes that NYCERS deducted from the sum of the loans a $475 .71 "Cost Allocation" for a "Net Loan For Tax Calc" of $66,179 .75 and credited petitioner with a limitation amount of $26,435 . . The Court also notes that NYCERS credited petitioner with $10,277 .29 for "taxes previously reported", reducing the $39,748 .06 "excess" figure by that amount . NCYERS reported, therefore, a taxable amount of $29,467 .46 . Respondent has not challenged this figure . Petitioner has not alleged or proven any error with NYCERS's calculation of his taxable amount .
In 2005 petitioner refinanced hi s
Because he chose the refinancing option extended the prior loan's repayment ter prior loan and the refinanced loan ar e the date of .the refinancing . Sec . 72(p )
Q&A-20(a)(2), Income Tax Regs . Therefo exceed the limitation amount under sect excess results in a deemed distributio n III . 10-Percent Additional Tax for Ear]Iy Withdrawa l Section 72(t)(1) imposes an additi distribution from a qualified retiremen of the portion of the amount that is i n The .10-percent additional tax does, .not (1) To an employee age 59-1/2 or older ;
rior loan from NYCER S reated as outstandin g nal tax on an earl y plan equal to 10 pe r lu .dable in gross income .
the employee's estate) on or after the Oployee's death ; (3) p n account of the employee's disability ; (4) as part of a serie s e for life ; (5) to a employee after separation from service after attainment of ag A substantially equal periodic payments m 55 ; (6) as dividends paid with, respect to corporate stoc k described in section 404(k) ; (7) to an employee for medica l or (8) to an alternate payee pursuant tol a qualified domesti c relations order . Sec . 72(t) (2) ; , see also sec . '- 72 (t) (2) (B) - ( F (setting forth other exceptions not applicable here)
When petitioner received the loan proceeds, he had no t reached . the age of 59-1/2, and he has not alleged or shown tha t he comes within any of the other exceptions under section 72(t) .6 Therefore , respondent ' s determination that petitioner is liabl e for the 10-percent additional tax on the distribution i s sustained .
IV . Accuracy-Related Penalt v
Section 7491(c) imposes on the . Commissioner the burden o f production in any court proceeding with respect to the liabilit y of any individual for penalties and additions to tax . Higbee v . Co mm issioner , 116 T . C . .438 , 446 (2001 ) ; Trowbridge v . Commissioner , T .C . Memo . 2003-164, affd . 378 F .3d 432 (5th Cir . 2004)
.' In order to meet the burden of production under section 7491(c), the Commissioner need only make a prima facie case tha t imposition of the penalty or addition to tax is appropriate .
Higbee v : Commissioner ", supra at 446 .
Section 6662 ( a) and (b)(1) imposes a 20-percent penalty on the portion of an underpayment attributable to negligence o r disregard of rules or regulations . Negligence includes any failure to make a reasonable attempt to comply with th e 6 Whether or not the sec . 72(t) 10-percent additional tax is a penalty or additional amount for which respondent would have the burden of production, under sec . 7491(c), hehas met that burden by showing petitioner was not 59-1/2 when he received the distribution . See Milner v . Commissioner , T .C . Memo . 2004-111 n .2 .
-1 1provisions of the Internal Revenue Code Sec . 6662 ( c) ; sec . 1 .6662-3 ( b)(1), Income Tax Regs . But the section 6662(a) pe r does not apply to any portion of an underpayment of tax if ii i s shown that there was reasonable cause for the'taxpayer',spositio n taxpayer acted with reasonable cause an in good faith is ma d portion . Sec . 6664(c)°(l) . The determination of whether a and that the taxpayer acted in good fai h with respect to th a determination of the accuracy-related p nalty under sectio n 2005 return . Accordingly, the Court reects respondent ' accountant, finds that petitioner was not negligent in filin g The Court, on the basis of the testimony of petitioner ' T .C . Memo . 2001-71 ; sec . 1 .6664-4(b)(1), (c), Income Tax Reg s Commissioner , 51 T .C . 467, 475 (1968) ; lotkin v . Commissioner , advice in good faith is not negligent . Conlorez Corp . v . other qualified expert and reasonably relies on the expert' s A taxpayer who makes full disclosure to an accountant o r assess the taxpayer ' s proper tax liability . Id . most important factor is the extent of he taxpayer 's effort to , and circumstances . Sec . 1 .6664-4(b) (1) ' Income Tax Regs . Th e a case-by-case basis, taking into account all the pertinentact s 6662 (a) .
Other arguments made by the parties and not discussed herei n were considered and rejected as irrelevant, without merit, or moot .
To"reflect the foregoing, ti 1A Decision will be entered for respondent with respect to the deficiency and fo r petitioner with respect to the accuracy-related penalty under section 6662(a) .