Arthur F. Millard v. Commissioner, T.C. Memo. 2005-192

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U.S. Tax Court

Arthur F. Millard v. Commissioner

T.C. Memo. 2005-192 · Docket 3713-04 · Decided Aug 8, 2005 · Thomas B. Wells · T.C. Memo.

Source ↗

Addresses I.R.C. § 72

T.C. Memo. 2005-192

UNITED STATES TAX COURT

ARTHUR F. MILLARD, Petitioner v

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 3713-04. Filed August 8, 2005.

Arthur F. Millard, pro se.

Travis T. Vance III

, for respondent.

MEMORANDUM OPINION

WELLS, Judge

: Respondent determined a deficiency of $2,764 in petitioner’s Federal income tax for 2001. The issue to be decided is whether petitioner’s 2001 gross income includes the amount of a check petitioner received but did not cash in 2001. All section references are to the Internal Revenue Code (Code), as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Background

The parties submitted the instant case, fully stipulated, without trial, pursuant to Rule 122. The parties’ stipulations of fact are hereby incorporated by this reference and are found as facts in the instant case.

At the time of filing the petition, petitioner resided in

Doraville, Georgia. During 2001, petitioner owned an individual retirement account (IRA) with SouthTrust Bank. On May 10, 2001, SouthTrust Bank issued to petitioner a check in the amount of $10,841.06 (the original check). SouthTrust Bank debited petitioner’s IRA account by $10,841.06 and recorded the transaction as a premature distribution. Subsequently, SouthTrust Bank submitted to respondent a 2001 Form 1099-R, reporting a taxable distribution of $10,841.06. The records of SouthTrust Bank indicated a zero balance in petitioner’s IRA account as of January 15, 2002.

On March 21, 2003, petitioner presented the original check to SouthTrust Bank for payment. SouthTrust Bank canceled the original check but issued petitioner a second check in the amount of $10,841.06 (the replacement check), which reflected the current date.

On December 1, 2003, respondent mailed to petitioner’s last known address a statutory notice of deficiency with respect to petitioner’s 2001 tax year. Respondent determined that a deficiency resulted from petitioner’s failure to include the amount of the check in gross income for 2001. In addition to the regular tax liability, respondent determined that a 10-percent additional tax applied to the amount of the check pursuant to section 72(t). Petitioner timely filed a petition with this Court for a redetermination of the deficiency.

Discussion

Respondent contends that the distribution of the original check by SouthTrust Bank constituted an IRA distribution and, consequently, the amount of the original check must be included in petitioner’s gross income in the year of receipt. Petitioner concedes that he initiated closure of the IRA account and received the original check from SouthTrust Bank in 2001. However, petitioner contends that, because he did not endorse or negotiate the original check, the account remained open throughout 2001. Relying on articles 3 and 4 of the Uniform Commercial Code as adopted by Georgia and related caselaw, petitioner contends that the original check and the underlying funds remained the property of SouthTrust Bank during the year in issue, and, consequently, the receipt of the original check did not constitute the receipt of taxable income by petitioner. The

Footnotes

¹ In section 61(a), Congress intended “to exert ‘the full measure of its taxing power’ and to bring within the definition of income any ‘accession to wealth.’” United States v. Burke , 504 U.S. 229, 233 (1992) (citations omitted). Consequently, the definition of gross income has a broad scope, and exclusions are construed narrowly. Commissioner v. Schleier , 515 U.S. 323, 327-328 (1995); Commissioner v. Jacobson , 336 U.S. 28, 49 (1949).

² except as otherwise provided. The term “individual retirement plan” includes an IRA. Sec. 7701(a)(37). However, the amount distributed from an individual retirement plan is not subject to tax if the amount is rolled over into an individual retirement account or individual retirement annuity within 60 days of the distribution. See sec. 408(d)(3). In the instant case, petitioner concedes that he made no rollover contribution after receiving the original check from SouthTrust Bank. Cash method taxpayers must include all items of gross income in the taxable year of actual or constructive receipt.

³ Section 1.451-2(a), Income Tax Regs., sets forth the general rule for constructive receipt of income as follows:

⁴ Accordingly, petitioner’s 2001 gross income includes the IRA distribution of $10,841.06. Petitioner’s reliance on Georgia commercial statutes and related caselaw is misplaced. While State law creates legal interests and rights, it does not override the Federal doctrine

⁵ (...continued) of the employee, (iii) attributable to the employee’s being disabled within the meaning of subsection (m)(7), (iv) part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his designated beneficiary, (v) made to an employee after separation from service after attainment of age 55, (vi) dividends paid with respect to stock of a corporation which are described in section 404(k), or (vii) made on account of a levy under section 6331 on the qualified retirement plan. instant case, the record reveals that no exception to the 10percent additional tax applies with respect to the distribution of $10,841.06, and petitioner does not contend otherwise. Consequently, we find that the 10-percent additional tax applies to the distribution in issue. To reflect the foregoing, Decision will be entered for respondent .

Sections addressed

I.R.C. § 72 Annuities; certain proceeds of endowment and life…
(a) (t) (t)(1) (t)(2)