Albert Anthony Oliver v. Commissioner , 2018 T.C. Summary Opinion 16 ( 2018 )

T.C. Summary Opinion 2018-16UNITED STATES TAX COURT
ALBERT ANTHONY OLIVER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 25169-16S. Filed April 3, 2018.
Albert Anthony Oliver, pro se.
Christine A. Fukushima, for respondent.
SUMMARY OPINION
THORNTON, 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
1
All subsequent 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.
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Pursuant to section 7463(b), the 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 deficiency in petitioner’s 2014 Federal income tax
of $1,978. The issue for decision is whether respondent correctly determined that
petitioner was required to report an additional $7,200 of annuity payments as gross
income for 2014.
Background
The parties submitted this case fully stipulated pursuant to Rule 122. The
stipulated facts are found accordingly. When the petition was filed, petitioner
resided in California.
Petitioner retired from the Castaic Lake Water Agency in 2007 at 55 years
of age and began receiving annuity payments from the California Public
Employees Retirement System (CalPERS), a qualified employer retirement plan.
In anticipation of petitioner’s retirement, CalPERS informed him by letter of his
right to elect to make contributions and receive service credit for “Public Service”
and an “Additional Retirement Service Credit” (ARSC). In May 2007 petitioner
elected to make such contributions and made $123,664 in after-tax contributions
comprising $17,920 for “Public Service” and $105,744 for ARSC. He made no
other after-tax contributions to CalPERS.
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During 2014 petitioner received retirement distributions from CalPERS of
$31,973. For 2014 CalPERS reported to the Internal Revenue Service (IRS) that
$27,850 of the $31,973 in retirement distributions was taxable.2
Petitioner also received retirement distributions of $17,000 from OneWest
Bank.3
On his 2014 Form 1040, U.S. Individual Income Tax Return, petitioner
reported taxable retirement distributions of $37,650, comprising $17,000 from
OneWest Bank and $20,650 from CalPERS. In the notice of deficiency
respondent determined that petitioner should have reported $44,850 of taxable
retirement distributions, reflecting an additional $7,200 from CalPERS.
Discussion
The Commissioner’s determinations in a notice of deficiency are generally
presumed correct, and the taxpayer bears the burden of proving those
2
CalPERS calculated the nontaxable portion of petitioner’s monthly annuity
payment to be $343.51. In its report to the IRS, CalPERS rounded up when
computing the annual nontaxable portion of petitioner’s annuity (i.e., $343.51 ×
12 = $4,122.12 rounds up to $4,123) such that CalPERS reported $27,850 as
taxable ($31,973 ! $4,123 = $27,850).
3
Petitioner does not dispute that the distributions from OneWest Bank are
taxable.
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determinations erroneous. Rule 142(a); see INDOPCO, Inc. v. Commissioner, 503
U.S. 79, 84 (1992); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Section 61(a) defines “gross income” broadly as “all income from whatever
source derived.” It is well established that “gross income” is to be broadly
construed, while exclusions from income are to be narrowly construed.
Commissioner v. Schleier, 515 U.S. 323, 328 (1995); Taggi v. United States, 35
F.3d 93, 95 (2d Cir. 1994). Taxpayers seeking an exclusion from gross income
must demonstrate that they are eligible for the exclusion and bring themselves
“within the clear scope of the exclusion.” Dobra v. Commissioner, 111 T.C. 339,
349 n.16 (1998).
Section 61(a)(9) and (11) provides that annuities and pensions are among
the forms of income within the purview of section 61(a). Section 72 sets forth the
specific rules applicable to taxation of, among other things, annuities and
distributions from qualified employer retirement plans. See sec. 403(a). Those
rules generally include in the annuitant’s gross income any amount received as an
annuity, sec. 72(a), but allow tax-free recovery of the annuitant’s investment in the
contract, sec. 72(b). The term “investment in the contract” is defined by reference
to “the aggregate amount of premiums or other consideration paid for the
contract”. Sec. 72(c)(1)(A).
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Section 72(d) mandates a “simplified method” of recovering the investment
in the contract for amounts received as an annuity under a qualified employer
retirement plan. The simplified method excludes from gross income the amount of
any monthly annuity payment that does not exceed the amount obtained by
dividing the taxpayer’s investment in the contract by the number of anticipated
payments. Sec. 72(d)(1)(B). If the age of the annuitant on the annuity starting
date is not more than 55, the number of anticipated payments is 360. Sec.
72(d)(1)(B)(iii).
The parties agree that petitioner’s investment in the contract is $123,664.
Respondent contends that petitioner may, therefore, exclude from gross income
each month $343.51 ($123,664 ÷ 360 = $343.51) of petitioner’s annuity payment
from CalPERS under the simplified method in section 72(d). Therefore,
respondent contends that petitioner is entitled to a yearly exclusion of $4,122
($343.51 × 12 = $4,122.12). Consequently, respondent argues, petitioner must
include in gross income $27,850 of the $31,973 distributions from CalPERS.4
Petitioner counters that under the simplified method it would take him 30
years to recover his investment in the contract, at which time he would be 85 years
old. See sec. 72(d)(1)(B)(iii) (providing that the number of anticipated payments
4
See supra note 2.
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for an annuitant not more than age 55 is 360, or 30 years of annuity payments).
He believes that this is unfair because, he asserts, his preexisting medical
conditions cause his life expectancy to be much shorter than that. Therefore,
petitioner argues, fairness dictates that he should be allowed to calculate the
nontaxable portion of his annuity payments on the basis of a shorter life
expectancy.
We are cognizant of the inequity that petitioner perceives in the application
of the simplified method under the circumstances of his case. Nevertheless, absent
some constitutional defect in the law--and we see none here--we are constrained to
apply the law as written, notwithstanding any countervailing equitable
considerations. See Estate of Cowser v. Commissioner, 736 F.2d 1168, 1171-
1174 (7th Cir. 1984), aff’g 80 T.C. 783 (1983); see also Commissioner v. McCoy,
484 U.S. 3, 7 (1987); Woods v. Commissioner, 92 T.C. 776, 784-787 (1989); Hays
Corp. v. Commissioner, 40 T.C. 436, 442-443 (1963), aff’d, 331 F.2d 422 (7th Cir.
1964). We may not rewrite the law because we may deem its “effects susceptible
of improvement”. Commissioner v. Lundy, 516 U.S. 235, 252 (1996) (quoting
Badaracco v. Commissioner, 464 U.S. 386, 398 (1984)). As we stated in Hays
Corp. v. Commissioner, 40 T.C. at 443: “The proper place for a consideration of
petitioner’s complaint is in the halls of Congress, not here.”
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We have no reason to doubt that petitioner is a conscientious taxpayer who
takes his tax responsibilities seriously and tries to follow the rules. But, as just
discussed, we are constrained to follow the law as written. Accordingly, we
sustain respondent’s determination that petitioner was required to include
retirement distributions of $44,850 in gross income for 2014.5
The Court has considered all of petitioner’s arguments, contentions, and
statements. To the extent they are not discussed herein, the Court concludes that
they are moot, meritless, or irrelevant.
To reflect the foregoing,
Decision will be entered for
respondent.
5
Although possibly of small comfort to petitioner, sec. 72(b)(3) provides
that where annuity payments cease before the employee’s entire contribution is
recovered, the amount of the unrecovered contribution is allowed as a deduction
on the taxpayer’s final income tax return. See sec. 72(d)(1)(B)(ii).