Lonnie Wayne Hubbard

United States Tax Court

T.C. Memo. 2024-16

LONNIE WAYNE HUBBARD,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 4464-21. Filed February 6, 2024.

—————

Lonnie Wayne Hubbard, pro se.

Phillip A. Lipscomb, for respondent.

MEMORANDUM OPINION

MARSHALL, Judge: In a notice of deficiency dated November 16,

2020 (Notice), respondent determined a deficiency of $165,353, an

addition to tax of $37,204 under section 6651(a)(1) 1 for failure to timely

file, an addition to tax of $28,937 under section 6651(a)(2) for failure to

timely pay, and an addition to tax of $3,959 under section 6654(a) for

failure to make estimated tax payments for petitioner’s 2017 tax year.

Respondent filed a Motion for Summary Judgment (Motion) with

supporting exhibits, wherein he requests that a decision be entered in

this case sustaining most of the proposed deficiency, as well as the

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the

Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and

Rule references are to the Tax Court Rules of Practice and Procedure. Except where

otherwise indicated, all monetary amounts are rounded to the nearest dollar.

Served 02/06/24

2

[*2] failure to file and failure to pay additions to tax for petitioner’s 2017

tax year. 2

The issues for decision are whether (1) petitioner is liable for tax

with respect to a distribution from petitioner’s individual retirement

account (IRA) of $427,518 for the 2017 tax year and (2) whether

petitioner is liable for additions to tax for failure to timely file and failure

to timely pay. As discussed below, we conclude that petitioner

constructively received the income at issue; and because there is no

genuine dispute of material fact, we will grant respondent’s Motion.

Background

The following facts are derived from the pleadings, the parties’

Motion papers, and the Exhibits and Declarations attached thereto.

Petitioner stated that his legal residence was in Kentucky, and

petitioner was imprisoned in West Virginia, when the Petition was

timely filed.

On December 3, 2015, petitioner was indicted, as modified by

subsequent superseding indictments, for various crimes related to the

distribution of controlled substances and listed chemicals in violation of

21 U.S.C. §§ 841(a)(1), 841(c)(2), 846, 856(a)(1), and 18 U.S.C. §§ 2,

1956(h), and 1957. Before his criminal conviction, petitioner was a

pharmacist in Kentucky. The indictments included allegations with

respect to petitioner’s assets, including a T. Rowe Price Associates, Inc.

employee IRA (T. Rowe Price IRA). In 2017, following a jury trial,

petitioner was found guilty on most of the counts in the superseding

indictment, and petitioner’s property listed in the indictment, including

the IRA, was condemned and forfeited to the United States of America

(USA). In addition to forfeiture of his assets, petitioner was sentenced

to imprisonment for a term of 360 months, three years of supervised

release, and a criminal monetary penalty of $7,100. Petitioner was

incarcerated on February 16, 2017, and remained incarcerated during

all relevant times.

T. Rowe Price Trust Company Retirement Operations Group

(T. Rowe Price) issued petitioner Form 1099–R, Distributions From

Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs,

Insurance Contracts, etc., for the 2017 tax year, reporting an early

2 Respondent has conceded the 10% additional tax on an early distribution from

a qualified retirement plan under section 72(t) and the addition to tax under section

6654 for failure to pay proper estimated tax.

3

[*3] taxable distribution of $427,518 from petitioner’s T. Rowe Price

IRA. Petitioner did not file a federal income tax return for the 2017 tax

year. In connection with his not having filed a federal income tax return,

petitioner did not report the $427,518, which was forfeited directly to

the USA.

Petitioner made no payments with respect to his 2017 Federal

income tax liability. Through respondent’s Automated Substitute for

Return Program, respondent prepared a substitute for return (SFR) as

authorized by section 6020(b) for petitioner’s 2017 tax year. On

February 18, 2020, respondent sent petitioner a Notice 2566, informing

him that, despite prior notices, respondent had not yet received Form

1040, U.S. Individual Income Tax Return, from petitioner for the 2017

tax year and warning him that respondent would assess tax should

petitioner fail to file by March 19, 2020.

On November 16, 2020, respondent issued the Notice. Petitioner

timely petitioned the Court on February 10, 2021, contesting the

deficiency.

On March 3, 2023, respondent filed the Motion. On April 3, 2023,

petitioner filed a Response objecting to respondent’s Motion

(Opposition). In his Opposition, petitioner agrees to the facts above but

objects to the deficiency on the basis that the funds were transferred

directly to the USA and that he never constructively received them.

Petitioner also argues that he had reasonable cause for his failure to

timely file a return and failure to timely pay the tax shown on the SFR

because he was incarcerated on February 16, 2017, and his assets were

criminally forfeited. He further asserts that he has earned no income

since his indictment in December 2015 and was unable to pay the tax

deficiency because of lack of funds. Additionally, he asserts that he did

not receive the Form 1099–R from T. Rowe Price because his wife

divorced him, did not communicate with him, and was not forwarding

his mail. Petitioner’s Opposition suggests, but does not directly state,

that the Form 1099–R was sent to his ex-wife or that she received it and

failed to forward it to him. Petitioner maintains that he lost most of his

assets in his divorce, as his wife received their shared home, all

possessions in the home, and the contents of their joint bank account.

Finally, he emphasizes his history of paying his income tax from 2002

through 2015.

4

[*4] Discussion

I. Summary Judgment Standard

The purpose of summary judgment is to expedite litigation and

avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp.

v. Commissioner, 90 T.C. 678, 681 (1988). Under Rule 121(a), we may

grant summary judgment when there is no genuine dispute as to any

material facts and a decision may be rendered as a matter of law.

Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17

F.3d 965 (7th Cir. 1994).

The burden is on the moving party to demonstrate that no

genuine dispute as to any material fact remains and that it is entitled

to judgment as a matter of law. FPL Grp., Inc. & Subs. v. Commissioner,

116 T.C. 73, 74–75 (2001). In deciding whether to grant summary

judgment, we construe factual materials and inferences drawn from

them in the light most favorable to the nonmoving party. Sundstrand,

98 T.C. at 520. However, the nonmoving party may not rest upon the

mere allegations or denials in its pleadings but instead must set forth

specific facts showing that there is a genuine dispute for trial. Rule

121(d); Sundstrand, 98 T.C. at 520.

Petitioner contends that summary judgment is inappropriate

because the parties disagree over whether petitioner constructively

received the funds from his T. Rowe Price IRA. Constructive receipt,

however, is a legal doctrine. See Corliss v. Bowers, 281 U.S. 376 (1930).

The underlying facts, including that petitioner’s T. Rowe Price IRA was

forfeited to the USA and that petitioner never physically received the

funds in the account, are agreed by the parties. Whether the doctrine of

constructive receipt is properly applied to these facts is a question of

law, not fact. As petitioner has raised no genuine dispute of material

fact and the disagreements between the parties relate to disputes about

the law rather than facts, summary adjudication is appropriate.

II. Deficiency

A. Generally

Section 61(a) provides that gross income means “all income from

whatever source derived.” This includes all “accessions to wealth,

clearly realized, and over which the taxpayers have complete dominion.”

James v. United States, 366 U.S. 213, 219 (1961) (quoting Commissioner

v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955)). It is clear that pension

5

[*5] and IRA distributions (with exceptions not applicable here) are

generally taxable as income. §§ 61(a)(10), 408(d)(1); Cabirac v.

Commissioner, 120 T.C. 163, 167 (2003), aff’d per curiam, No. 03-3157,

2004 WL 7318960 (3d Cir. Feb. 10, 2004).

Gross income under section 61(a) also includes items of income

that the taxpayer has constructively received. “Under the constructive

receipt doctrine ‘funds [or other property] which are subject to a

taxpayer’s unfettered command and which he is free to enjoy at his

option are constructively received by him whether he sees fit to enjoy

them or not.’” Estate of Caan v. Commissioner, No. 14783-18, 161 T.C.,

slip op. at 20 (Oct. 18, 2023) (quoting Estate of Brooks v. Commissioner,

50 T.C. 585, 592 (1968)); accord Benes v. Commissioner, 42 T.C. 358, 381

(1964), aff’d, 355 F.2d 929 (6th Cir. 1966); see also Corliss, 281 U.S.

at 378; Treas. Reg. § 1.451-2(a). As discussed below, this Court has

consistently applied the constructive receipt doctrine in cases where the

taxpayer’s assets were forfeited.

Where a taxpayer’s funds are criminally forfeited to the USA to

satisfy a forfeiture judgment, he is not relieved of the income tax

consequences that would have attached to the funds without said

forfeiture. See Gambina v. Commissioner, 91 T.C. 826, 828–29 (1988).

Instead, by forfeiting the funds, the taxpayer has realized the benefits

of them and must recognize the funds as gross income to the same extent

as if the taxpayer had physically received them. See Carione v.

Commissioner, T.C. Memo. 2008-262, 96 T.C.M. (CCH) 354, 357; cf. Old

Colony Tr. Co. v. Commissioner, 279 U.S. 716, 729 (1929) (“[D]ischarge

by a third person of an obligation to [the taxpayer] is equivalent to

receipt by the person taxed.”). More specifically, IRA funds constitute

gross income as an involuntary distribution when forfeited to a third

party. See, e.g., Rodrigues v. Commissioner, T.C. Memo. 2015-178,

at *11 (holding that taxpayer constructively received IRA distribution

when the distribution was made from taxpayer’s IRA to satisfy fine and

restitution related to criminal conviction and the distribution was

includible in taxpayer’s gross income); Schroeder v. Commissioner, T.C.

Memo. 1999-335, 78 T.C.M. (CCH) 566, 568 (holding that taxpayer

constructively received IRA distribution when the Commissioner levied

on taxpayer’s IRA and the distribution was includible in taxpayer’s gross

income even though the funds were paid to the Commissioner); Murillo

v. Commissioner, T.C. Memo. 1998-13, 75 T.C.M. (CCH) 1564, 1565–66

(same where taxpayer’s IRA was subject to a civil forfeiture to USA),

aff’d, 166 F.3d 1201 (2d Cir. 1998) (unpublished table decision); Santilli

v. Commissioner, T.C. Memo. 1995-278, 69 T.C.M. (CCH) 2974, 2975

6

[*6] (holding that taxpayer had dominion and control over interest

income from interest-bearing bank accounts that were subsequently

forfeited as part of a criminal forfeiture, and therefore were includible

in taxpayer’s gross income); see also Larotonda v. Commissioner, 89 T.C.

287, 291 (1987) (holding that payment of federal taxes by means of levy

on a Keogh retirement account resulted in constructive receipt of the

funds by taxpayer that were includible in the taxpayers’ gross income).

B. Petitioner’s Arguments

Respondent contends that petitioner constructively received gross

income when he criminally forfeited his T. Rowe Price IRA. In the light

of the aforementioned caselaw, we agree. Petitioner argues, however,

that the cases respondent cites, Carione, Santilli, Old Colony Trust Co.,

and Murillo, do not support the position that petitioner constructively

received gross income when he involuntarily forfeited his T. Rowe Price

IRA pursuant to a criminal forfeiture.

Specifically, petitioner argues that Carione is inapposite to the

present case because the taxpayer in Carione willfully sold his business

and then applied the sale proceeds toward a criminal forfeiture. He

argues that Santilli is also inapplicable here because that case was

heard pursuant to section 7443A(b)(3) and the taxpayer did not address

whether he constructively received the interest income in question.

Petitioner argues that Old Colony Trust Co. does not address

constructive receipt and that respondent relies on an out-of-context

quote to support his position. Finally, petitioner argues that Murillo

does not support respondent’s position because in that case the taxpayer

willfully settled a forfeiture action by purposefully forfeiting several

IRAs that were unrelated to his criminal charges. We are unpersuaded

by petitioner’s arguments and address each of these cases, as well as

other relevant caselaw, below.

C. Analysis

As discussed above, the Court has consistently applied the

constructive receipt doctrine to cases involving both voluntary and

involuntary forfeitures. We have held that, where a taxpayer’s funds

are criminally forfeited to the USA to satisfy a forfeiture judgment, he

has constructively received the funds, and the funds are includible in

the taxpayer’s gross income. See Gambina, 91 T.C. at 828–29; Carione,

96 T.C.M. (CCH) at 357; Santilli, 69 T.C.M. (CCH) at 2975. The Court

has applied this rule in cases where the asset seized was a retirement

7

[*7] account. See Larotonda, 89 T.C. at 291; Schroeder, 78 T.C.M. (CCH)

at 568. Moreover, a taxpayer that involuntarily forfeited an IRA that

was directly paid to a third party constructively received the IRA

distribution and the taxpayer had to include amount of the distribution

in his gross income. Rodrigues, T.C. Memo. 2015-178, at *11; Murillo,

75 T.C.M. (CCH) at 1566. These cases are based on the application of

the constructive receipt doctrine. Accordingly, as discussed in detail

below, the funds from petitioner’s T. Rowe Price IRA that were forfeited

to the USA as an involuntary distribution are includible in his gross

income for the 2017 tax year.

In Carione, 96 T.C.M. (CCH) at 355, the taxpayer was the sole

shareholder of an S corporation. The taxpayer was indicted with others

on charges of money laundering, conspiracy, and other crimes under the

Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C.

§§ 1961–1968 (2006). Carione, 96 T.C.M. (CCH) at 355. The indictment

also asked for RICO forfeiture of assets that the taxpayer had acquired

or maintained in violation of RICO. Id. The district court issued a

restraining order prohibiting the taxpayer from selling the assets of the

S corporation without the approval of the court. Id. The taxpayer

obtained the permission of the district court and sold the S corporation’s

assets to a third party and deposited the $548,309 proceeds into an

escrow account to be withdrawn only by an order of the court. Id. As

part of the taxpayer’s plea agreement, the district court issued a consent

order of forfeiture signed by the taxpayer and the other defendants that

they were jointly and severally liable for a $6.9 million forfeiture

judgment. Id. The consent order and forfeiture also provided that the

proceeds from the sale of the S corporation’s assets were subject to

forfeiture to pay the balance due as of the payment deadline. Id. In

August 2000 the sale proceeds were ordered to be withdrawn from the

escrow account and applied to the forfeiture judgment. Id.

The taxpayer reported the net capital gain from the sale of the

S corporation’s assets on the S corporation’s 1998 return and his

individual 1998 return as passthrough income. Id. at 355–56. He paid

the tax associated with the sale in 2000. Id. at 356. Subsequently, the

taxpayer filed an amended 1998 return asserting that the proceeds

should not be taxable to him because they were directly forfeited to the

U.S. Government and he never had dominion and control over them. Id.

The Commissioner did not allow a refund of the taxes paid, and the

taxpayer sued the Commissioner in district court for a refund. Id. The

district court ruled in the taxpayer’s favor and held that the proceeds

were taxable to the taxpayer in 2000 when they were ordered to be

8

[*8] withdrawn from the escrow account and were used to satisfy

taxpayer’s forfeiture judgment. Id. The Commissioner mailed the

taxpayer a notice of deficiency for the 2000 tax year for the tax owed on

the sale of the S corporation’s assets. Id.

Before the Tax Court, the taxpayer in Carione made the same

argument that petitioner makes here: Because the sale proceeds were

paid directly to the U.S. Government, the taxpayer never had dominion

or control over them such that he could not have constructively received

those amounts. Id. The Court addressed the taxpayer’s dominion and

control argument by quoting the district court’s analysis on the issue.

The district court stated that the caselaw demonstrates “that a taxpayer

does not gain income only through his dominion and control over

something; a taxpayer also realizes taxable income where he ‘obtains the

fruition of the economic gain which has already accrued to him’.” Id.

at 357 (quoting Carione v. United States, 368 F. Supp. 2d 186, 194

(E.D.N.Y. 2005)). Thus the Court, like the district court, relied on

caselaw holding that an individual should be taxed on an economic

benefit conferred upon him if the benefit has an ascertainable value and

that the discharge by a third person of a taxpayer’s obligation is

equivalent to receipt by the taxpayer. Id. at 357–58. Accordingly, the

Court held that the sale proceeds were taxable to the taxpayer in 2000

because the taxpayer received the economic benefit of the proceeds when

the district court ordered the sale proceeds be released from escrow to

satisfy the taxpayer’s obligation under the criminal forfeiture. Id.

at 358.

Furthermore, the taxpayer in Santilli was convicted for the illegal

sale of narcotics and forfeited to the State of Rhode Island three interest-

bearing bank accounts that held the proceeds from the narcotics sales.

Santilli, 69 T.C.M. (CCH) at 2974. The Court considered whether the

interest earned in the forfeited accounts was excludable from gross

income because the interest was forfeited as a result of the taxpayer’s

conviction and, if not, whether the taxpayer was entitled to a deduction

under section 165(a). Id. Similar to the taxpayer in Carione, the

taxpayer argued that the interest earned on the forfeited accounts

should be excluded from his gross income because he never received the

interest income and never had a chance to use it. Santilli, 69 T.C.M.

(CCH) at 2974.

The Court restated the standard under section 61 that gross

income includes “all income from whatever source derived” and that it

includes “all ‘accessions to wealth . . . over which the taxpayers have

9

[*9] complete dominion.’” Santilli, 69 T.C.M. (CCH) at 2975 (quoting

James, 366 U.S. at 219); see also Glenshaw Glass Co. v. Commissioner,

348 U.S. at 431 (“Here we have instances of undeniable accessions to

wealth, clearly realized, and over which the taxpayers have complete

dominion. The mere fact that the payments were extracted from the

wrongdoers as punishment for unlawful conduct cannot detract from

their character as taxable income to the recipients.”). The Court also

noted that “a taxpayer obtains possession, custody, and control of

unlawfully acquired proceeds on the date he acquires such proceeds.”

Santilli, 69 T.C.M. (CCH) at 2975 (citing Ianniello v. Commissioner,

98 T.C. 165, 173 (1992)). In Ianniello, the Court held that such proceeds

were gross income in the year in which they were acquired even though

they were subsequently forfeited in a later year. Ianniello, 98 T.C.

at 173. Relying on these authorities and principles, the Court in Santilli

held that the interest the taxpayer earned in the seized and forfeited

accounts was income to him in the year the interest was earned.

Santilli, 69 T.C.M. (CCH) at 2975. The Court also held that the

taxpayer was not entitled to a section 165(a) deduction because allowing

such a deduction would violate a clearly defined public policy in the

United States against trafficking in narcotics. Santilli, 69 T.C.M. (CCH)

at 2975.

We note that Santilli was heard pursuant to section 7443A(b)(3).

Section 7443A(b)(3) provides that a Tax Court proceeding where neither

the amount of the deficiency placed in dispute nor the amount of any

claimed overpayment exceeds $50,000 may be assigned to a special trial

judge. However, Santilli was not designated a small tax case that is

described in section 7463(a). 3 We further note that Santilli is consistent

with the relevant body of caselaw.

In Old Colony Trust Co. v. Commissioner, 279 U.S. at 719–20, the

executor of the taxpayer’s will challenged the Commissioner’s deficiency

determination that the taxpayer owed additional tax where the

taxpayer’s employer paid all of the taxpayer’s federal and state income

taxes. The Court considered whether the employer’s payment of the

income taxes assessed against the employee constituted additional

taxable income to the employee. Id. at 720. The Court agreed with the

3 Section 7463(b) provides that in the case of disputes involving $50,000 or less

that are described in section 7463(a) (i.e. small tax cases) where the taxpayer has opted

to proceed with the case as a small tax proceeding, a decision entered in such a

proceeding is not reviewable by any other court and shall not be treated as precedent

for any other case.

10

[*10] Board of Tax Appeals and held that the employer’s payment of the

employee’s tax obligation was in consideration of the services rendered

by the employee and constituted additional taxable income to the

employee. Id. at 729. The Court expressly stated that the form of the

payment did not make a difference and that it was immaterial that the

taxes were directly paid to the Government. Id. It further explained

that “[t]he discharge by a third person of an obligation to him is

equivalent to receipt by the person taxed.” Id.

The Court’s decision in Old Colony Trust Co. preceded its decision

in Glenshaw Glass Co. However, its analysis in Old Colony Trust Co.

discussed the principle that gross income is broadly defined and that it

includes a taxpayer’s accession to wealth, which was later crystallized

in Glenshaw Glass Co. Implicit in the Court’s holding in Old Colony

Trust Co. was that the employer’s payment of the employee’s tax

obligation constituted an accession of wealth to the employee because he

did not have to pay the liability himself. This Court has reaffirmed

numerous times the principle that gross income is broadly defined and

includes an accession to wealth (including a discharge of liabilities). See

Young v. Commissioner, 113 T.C. 152, 157 (1999) (holding that taxpayer

realized gross income where taxpayer’s obligation to pay attorney’s fees

was discharged because taxpayer’s attorney’s fees were paid directly out

of certain sale proceeds), aff’d, 240 F.3d 369 (4th Cir. 2001); O’Malley v.

Commissioner, 91 T.C. 352, 361 (1988) (holding that taxpayer realized

gross income where a pension fund paid his legal fees related to a

criminal indictment); Huff v. Commissioner, 80 T.C. 804, 814 (1983)

(holding that payment by a third party of taxpayer’s civil liabilities

constituted gross income to the taxpayer); Chambers v. Commissioner,

T.C. Memo. 2000-218, 80 T.C.M. (CCH) 73, 75 (holding amounts

garnished from employee’s wages for alimony and child support were

includible in employee’s income), aff’d, 17 F. App’x 688 (9th Cir. 2001);

Vorwald v. Commissioner, T.C. Memo. 1997-15, 73 T.C.M. 1697,

1698–99 (holding that amounts transferred from taxpayer’s retirement

account to his former spouse in garnishment proceeding constituted

deemed distributions to taxpayer from his retirement account and were,

therefore, includible in his income). While the facts of these cases are

different, they are all based on the foundational principle that a third

party’s discharge of a taxpayer’s obligation is an accession to wealth for

the taxpayer.

In Larotonda, 89 T.C. at 291, the Court held that the taxpayer

constructively received $22,341 from his Keogh account and that the

proceeds had to be included in the taxpayer’s gross income when the

11

[*11] funds were levied from the Keogh account to pay the taxpayer’s

tax liability. Next, the Court held that the early withdrawal additional

tax on distributions from Keogh plans under section 72(m)(5) did not

apply. Larotonda, 89 T.C. at 292. In reaching this second conclusion,

the Court relied on the purpose of the early withdrawal additional tax

under section 72(m)(5), which it said was to prevent voluntary, tax-

motivated withdrawal of funds by taxpayers before retirement age.

Larotonda, 89 T.C. at 292. The Court stated that the withdrawal in

Larotonda was involuntary because the funds were withdrawn pursuant

to the Commissioner’s levy and without the taxpayer’s participation. Id.

Thus, even though the withdrawal from the taxpayer’s Keogh account

was involuntary and the funds were paid directly to the USA pursuant

to the Commissioner’s levy, the taxpayer was deemed to constructively

receive the funds under section 72(m)(4)(A). 4

In Murillo, 75 T.C.M. (CCH) at 1564, the taxpayer pleaded guilty

to several financial crimes, including structuring cash deposits into

bank accounts for the purpose of avoiding federal currency transaction

reporting requirements. In a related civil proceeding, the taxpayer

agreed to forfeit several financial accounts, including two IRAs, to the

USA. Murillo, 75 T.C.M. (CCH) at 1564–65. The taxpayer reported

$230,161, the total amount forfeited from the IRAs, as taxable income

on his return for the year of the forfeiture but did not include the 10%

additional tax on early distributions pursuant to section 72(t). Murillo,

75 T.C.M. (CCH) at 1565. The taxpayer also claimed a section 165 loss

of $273,417 on Schedule C, Profit or Loss From Business, that the

Commissioner disallowed, attributed to the forfeiture. Murillo, 75

T.C.M. (CCH) at 1565.

The Court disallowed the section 165(a) loss deduction because

allowing the taxpayer a loss deduction for losses arising from illegal

activities would undermine a clearly defined public policy against

structuring transactions. Murillo, 75 T.C.M. (CCH) at 1565. Next, the

Court considered whether the taxpayer was subject to the section 72(t)

additional tax on early distributions with respect to his IRA forfeitures.

The Court rejected the Commissioner’s argument that the section 72(t)

tax applies regardless “of actual receipt by or benefit to the taxpayer or

4 Section 72(m)(4) provided that if, during a tax year, an owner-employee

assigned or pledged (or agreed to assign or pledge) any portion of his interest in a trust

described in section 401(a), the portion assigned or pledged would be treated as having

been received by the owner-employee as a distribution from the trust.

12

[*12] the ‘voluntary’ nature of the distribution.” Murillo, 75 T.C.M.

(CCH) at 1566–67.

Relying on Larotonda, the Court in Murillo, 75 T.C.M. (CCH)

at 1566, first noted that the taxpayer “constructively received the IRA

distributions when his accounts were forfeited and cannot escape

taxation on the basis that the funds were disbursed to a third party.”

The Court addressed this threshold issue because, if the distributions

were not included in gross income, then there could not have been

additional tax under section 72(t). 5 See § 72(t)(1) (providing that the

amount of the additional tax is “equal to 10 percent of the portion of such

amount [of an early distribution] which is includible in gross income”).

After addressing the threshold issue of whether the distributions were

includible in gross income, the Court held that the additional tax under

section 72(t) did not apply because the decree of forfeiture triggered, and

was the event that constituted, the IRA withdrawals. Murillo, 75 T.C.M.

(CCH) at 1566. As in Larotonda, the Court did not believe that Congress

intended the additional tax under section 72(t) to apply in the context of

a forfeiture because the presence of a taxpayer’s obligation “is less

clearly defined in the case of a forfeiture than when there is a levy to

satisfy a previously determined tax liability.” Murillo, 75 T.C.M. (CCH)

at 1566.

Petitioner argues that Murillo does not support respondent’s

position that petitioner constructively received the IRA distribution

because the taxpayer in Murillo purposefully distributed his IRA

accounts and voluntarily reported the income on his return. In contrast,

petitioner argues he did not take any willful or voluntary act to

distribute the IRA that was forfeited. Finally, petitioner argues that

Larotonda is no longer good law because the Tax Equity and Fiscal

Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, § 236(b)(1), 96

Stat. 324, 510, repealed and superseded section 72(m)(4), the provision

that was at issue in Larotonda.

Petitioner misreads Murillo. In Murillo the Court expressly

stated that “[w]e do not believe the circumstances surrounding the plea

agreement were such as to impart a ‘voluntary’ patina to the IRA

withdrawals. In the final analysis, [the taxpayer] had no realistic

5 The Court did not have to specifically decide the threshold issue of whether

the distributions should be included in gross income in Murillo because the taxpayer

included the distributions in income on his 1992 return and the parties did not dispute

this point.

13

[*13] choice.” Murillo, 75 T.C.M. (CCH) at 1567. Similarly, this case

involves an involuntary distribution, and this Court has held that

involuntary distributions from retirement accounts constituted gross

income to the taxpayer, even where the distributions were paid to a third

party. 6 For instance, in Rodrigues, T.C. Memo. 2015-178, at *2, the

taxpayer was the plan administrator for the United Public Workers

Mutual Aid Trust Fund (UPW plan) and was convicted of fraud, money

laundering and other crimes in relation to his operation of the UPW

plan. As part of his conviction, he was ordered to pay a $50,000 fine to

the district court and $378,104 in restitution to United Public Workers

(UPW). Id. The district court ordered the taxpayer’s IRA administrator

to disburse the funds it held in the taxpayer’s IRA to satisfy the

taxpayer’s fine and restitution obligations. Id. at *3. Subsequently, the

IRA administrator issued checks from the taxpayer’s IRA account to the

clerk of the district court and the UPW. Id. at *4.

The taxpayer, like petitioner, argued that the distribution should

not be taxable because he personally did not receive the funds nor

receive a benefit from the funds and the withdrawals were involuntary.

Id. at *11. Citing Larotonda and Old Colony Trust Co., the Court held

that the taxpayer constructively received the IRA distributions when

they were made by the IRA administrator to the district court and the

UPW in satisfaction of the taxpayer’s obligations and that he could not

escape taxation because the funds were disbursed to third parties. Id.

at *11–12. The Court noted that the fact that the transfer was

involuntary had no significance. Id. at *11.

Similarly, in Schroeder, 78 T.C.M. (CCH) at 567, the

Commissioner levied on the taxpayer’s IRA, and the IRA administrator

distributed funds from the taxpayer’s IRA to the Commissioner. The

taxpayer argued that he was not taxable on the distribution because he

did not receive the funds or benefit therefrom, and because the

distribution was involuntary. Id. at 568. The Court reached the same

conclusion as in Rodrigues and held that “[a] taxpayer constructively

receives an IRA distribution when his or her account is levied and is

taxed on it even though the funds are paid to a third party.” Id. (first

citing Larotonda, 89 T.C. at 291; and then citing Vorwald, 73 T.C.M.

(CCH) at 1698–99).

6 See also Larotonda, 89 T.C. at 291 (holding that the Commissioner’s levy on

the taxpayer’s Keogh account was an involuntary assignment of the Keogh funds, and

therefore the taxpayer constructively received those funds).

14

[*14] Moreover, we disagree with petitioner that Larotonda was

abrogated by the repeal of section 72(m)(4). Former section 72(m)(4)(A)

was replaced by section 72(p)(1)(B), which is substantially similar to

section 72(m)(4)(A). 7 In addition, this Court has continued to cite

Larotonda as binding precedent. See Rodrigues, T.C. Memo. 2015-178,

at *11; Swanton v. Commissioner, T.C. Memo. 2010-140, 99 T.C.M.

(CCH) 1576, 1578; Schroeder, 78 T.C.M. (CCH) at 568; Murillo, 75

T.C.M. (CCH) at 1566; Pilipski v. Commissioner, T.C. Memo. 1993-461,

66 T.C.M. (CCH) 984, 984. In short, Larotonda was not abrogated by

the repeal of section 72(m)(4).

The funds from petitioner’s T. Rowe Price IRA were forfeited to

the USA as an involuntary distribution. Though they were not under

his control, petitioner constructively received the funds by having

received the economic benefit of the funds through satisfaction of his

forfeiture liability to the USA. See Old Colony Tr. Co., 279 U.S. at 729;

Larotonda, 89 T.C. at 291; Carione, 96 T.C.M. (CCH) at 358. Moreover,

the fact that petitioner did not willfully or purposefully cause the

distribution is irrelevant. See Rodrigues, T.C. Memo. 2015-178, at *11;

Schroeder, 78 T.C.M. (CCH) at 568. Petitioner constructively received

and must include in his gross income a taxable distribution of $427,518

from his retirement account with T. Rowe Price.

III. Additions to Tax

In the Notice, respondent determined that petitioner was liable

for an addition to tax of $37,204 under section 6651(a)(1) for failure to

timely file, an addition to tax of $28,937 under section 6651(a)(2) for

failure to timely pay, and an addition to tax of $3,959 under section

6654(a) for failure to make estimated tax payments. Respondent has

since conceded the addition to tax under section 6654(a).

Respondent bears the burden of producing sufficient evidence to

show that it is appropriate to impose the additions to tax. See § 7491(c);

Wheeler v. Commissioner, 127 T.C. 200, 206 (2006), aff’d, 521 F.3d 1289

(10th Cir. 2008); Higbee v. Commissioner, 116 T.C. 438, 446–47 (2001). 8

Once the Commissioner meets the burden of production under section

7491(c), the taxpayer bears the burden of proving the additions to tax do

7Section 72(m)(4) was repealed by TEFRA § 236(b)(1), 96 Stat. at 510.

Compare former § 72(m)(4) with § 72(p)(1)(B).

8 The written supervisory approval requirement found in section 6751(b)(1)

does not apply to section 6651 additions to tax. § 6751(b)(2)(A).

15

[*15] not apply because of reasonable cause or other exculpatory factors.

Wheeler, 127 T.C. at 206; Higbee, 116 T.C. at 447.

Section 6651(a)(1) imposes an addition to tax if a taxpayer fails to

timely file a required income tax return, unless the taxpayer proves that

such failure is due to reasonable cause and not due to willful neglect.

United States v. Boyle, 469 U.S. 241, 245 (1985). The addition to tax

under section 6651(a)(1) is 5% of the tax required to be shown on the

return if the failure to file does not exceed 1 month, with an additional

5% per month while the failure continues, up to a maximum of 25%. A

return is generally considered filed with the Internal Revenue Service

(IRS) when the return is delivered to and received by the IRS. See, e.g.,

United States v. Lombardo, 241 U.S. 73, 76 (1916); Trout v.

Commissioner, 131 T.C. 239, 246 (2008).

Section 6651(a)(2) imposes an addition to tax for failure to timely

pay the amount shown as tax due on a return, unless the taxpayer

proves that such failure is due to reasonable cause and not due to willful

neglect. El v. Commissioner, 144 T.C. 140, 150 (2015). The addition to

tax under section 6651(a)(2) is 0.5% of the tax required to be paid if the

failure does not exceed 1 month, with an additional 0.5% per month

while the failure continues, up to a maximum of 25%. In a case such as

this, where the taxpayer did not file a return, the Commissioner must

introduce evidence that an SFR satisfying the requirements of section

6020(b) was made. Wheeler, 127 T.C. at 210.

The SFR prepared by the Commissioner is disregarded for

purposes of determining the amount of the taxpayer’s liability for the

addition to tax under section 6651(a)(1). § 6651(g)(1). The SFR

constitutes the return for purposes of the addition to tax under section

6651(a)(2), and the amount of the taxpayer’s liability for that addition

to tax is determined on the basis of his failure to pay the tax shown on

the SFR. § 6651(g)(2).

As discussed above, the section 6651(a)(1) and (2) additions to tax

may be reduced if the taxpayer can establish that his failure to file and

failure to pay were due to reasonable cause and not willful neglect.

Willful neglect means a “conscious, intentional failure or reckless

indifference.” Charlotte’s Off. Boutique, Inc. v. Commissioner, 121 T.C.

89, 109 (2003) (quoting Boyle, 469 U.S. at 245), supplemented by T.C.

Memo. 2004-43, aff’d, 425 F.3d 1203 (9th Cir. 2005). Treasury

Regulation § 301.6651-1(c)(1) gives some guidance on what constitutes

reasonable cause for a taxpayer’s failure to timely file and failure to

16

[*16] timely pay. It provides, in relevant part, that “[i]f the taxpayer

exercised ordinary business care and prudence and was nevertheless

unable to file the return within the prescribed time, then the delay is

due to a reasonable cause.” It further provides that a taxpayer’s failure

to pay

will be considered to be due to reasonable cause to the

extent that the taxpayer has made a satisfactory showing

that he exercised ordinary business care and prudence in

providing for payment of his tax liability and was

nevertheless either unable to pay the tax or would suffer

an undue hardship (as described in § 1.6161-1(b) of this

chapter) if he paid on the due date.

Treas. Reg. § 301.6651-1(c)(1). All of the facts and circumstances of the

taxpayer’s financial situation are considered in determining whether

the taxpayer was unable to pay the tax in spite of the exercise of

ordinary business care and prudence, including the amount and nature

of the taxpayer’s expenses relative to income (or other amounts) that he

could, at the time of the expenses, reasonably expect to receive before

the due date of the tax payment. Id.

We note that, in his Petition, petitioner did not challenge

respondent’s determination of the additions to tax. However,

respondent raised the section 6651(a)(1) and (2) additions to tax in his

Motion and petitioner objected to the additions to tax in his Opposition.

Accordingly, we will consider them here. See Rule 41(b).

Under section 6012(a) petitioner had an obligation to file a federal

income tax return for the 2017 tax year, and his 2017 federal income tax

return was due by April 17, 2018. See § 6072(a). Respondent attached

petitioner’s IRS Account Transcript for the 2017 tax year (2017

transcript) to his Motion. The 2017 transcript indicates that petitioner

failed to file a federal income tax return for 2017 and made no payments

with respect to his 2017 federal income tax liability. Respondent has

satisfied his burden of production under section 7491(c) with respect to

the section 6651(a)(1) addition to tax by attaching a copy of the 2017

transcript to the Motion, which indicates that petitioner did not file a

2017 federal income tax return.

Respondent prepared an SFR as authorized by section 6020(b) for

petitioner’s 2017 tax year. The SFR informed petitioner that his

T. Rowe Price IRA distribution resulted in a tax liability for 2017. To

17

[*17] satisfy his burden of production for the addition to tax under

section 6651(a)(2), respondent must introduce evidence that an SFR

satisfying the requirements of section 6020(b) was made. See Wheeler,

127 T.C. at 210. We have addressed on several occasions what

constitutes an SFR. See id. at 208–10 (discussing Phillips v.

Commissioner, 86 T.C. 433, 437–38 (1986), aff’d in part, rev’d in part on

another issue, 851 F.2d 1492 (D.C. Cir. 1988), Millsap v. Commissioner,

91 T.C. 926, 930 (1988), and Cabirac, 120 T.C. at 170–73). In Phillips,

86 T.C. at 437–38, we held that a “dummy return,” i.e., page 1 of Form

1040, showing only the taxpayer’s name, address, and Social Security

number, was not a section 6020(b) return. In Millsap, 91 T.C. at 930,

we held that unsubscribed Forms 1040 containing only the taxpayer’s

name, address, Social Security number, and filing status, but that

attached subscribed revenue agent reports that had sufficient

information to compute the taxpayer’s tax liability, were valid SFRs

under section 6020(b). In Cabirac, 120 T.C. at 170–73, we held that

unsubscribed SFRs, showing zeroes on the relevant lines for computing

a tax liability and no tax liability, did not meet the requirements of

section 6020(b).

In Cabirac, 120 T.C. at 172, the Commissioner asserted that a

notice of proposed adjustments which contained information as to how

the taxpayer’s tax liability was computed was in the record; however,

the Commissioner did not introduce any evidence that the notice of

proposed adjustments was attached to the SFRs. We distinguished

Millsap from Cabirac because in Millsap, the revenue agent’s report was

attached to the SFR. Cabirac, 120 T.C. at 172. In Rader v.

Commissioner, 143 T.C. 376, 382 (2014), aff’d in part, appeal dismissed

in part, 616 F. App’x 391 (10th Cir. 2015), we summarized the

requirements of a section 6020(b) SFR: “To constitute a section 6020(b)

SFR, ‘the return must be subscribed, it must contain sufficient

information from which to compute the taxpayer’s tax liability, and the

return form and any attachments must purport to be a ‘return’.” Rader,

143 T.C. at 382 (quoting Spurlock v. Commissioner, T.C. Memo.

2003-124, 85 T.C.M. (CCH) 1236, 1244).

Respondent attached the declaration of Phillip A. Lipscomb

(declaration), an attorney in respondent’s Office of Chief Counsel who is

representing respondent in this case, in support of the Motion. The

declaration attaches the administrative case file for the underlying

examination with respect to petitioner’s tax liability for 2017.

Respondent attached the SFR for petitioner’s 2017 tax year as Exhibit B

to the declaration. The SFR comprises (i) a February 18, 2020, “IRC

18

[*18] Section 6020 (b) ASFR Certification” that is electronically signed

by respondent’s ASFR Operation Manager in his Brookhaven office and

(ii) the February 18, 2020, Notice 2566.

The ASFR Certification certifies that the Commissioner’s ASFR

Operation Manager intends that the electronic data including (1) the

taxpayer’s name, address, and taxpayer identification number, (2) a

computation of the taxpayer’s tax liability for the tax period in question,

and (3) the electronic version of the ASFR Certification with the

electronic signature of the officer identified on the document constitute

a valid return under section 6020(b). Attached to the ASFR Certification

is the Notice 2566 which contains petitioner’s name, address, Social

Security number, and filing status and a computation of petitioner’s tax

liability. The computation of the tax liability has separate line items for

petitioner’s adjusted gross income less the standard deduction for a

taxpayer with a filing status of “single” less a personal exemption

allowance to reach taxable income on which income tax was calculated.

As reflected in the Notice 2566, the computation of petitioner’s tax

liability was based on the Form 1099–R that respondent received from

T. Rowe Price. Accordingly, the SFR meets the requirements of a valid

return under section 6020(b). See Burnett v. Commissioner, T.C. Memo.

2023-46, at *4–5 (sustaining the Commissioner’s determination in the

notice of deficiency that was based on the Commissioner’s SFR, which

was based on unreported income from a Form 1099–R). Additionally,

the Notice 2566 and petitioner’s 2017 transcript that is attached to

respondent’s declaration reflects that petitioner failed to pay the tax

shown on the 2017 return.

Because respondent has presented evidence that an SFR

satisfying the requirements of section 6020(b) was made and that

petitioner failed to pay the tax shown on the return for 2017, we

conclude that respondent has satisfied his burden of production under

section 7491(c) with respect to the section 6651(a)(2) addition to tax.

Petitioner submitted a declaration in support of his Opposition

which alleges facts in support of his argument for reasonable cause. In

his Opposition, he argues that he had reasonable cause for his failure to

file a return and failure to pay the tax due for 2017 because he was

incarcerated on February 16, 2017, and his assets were criminally

forfeited. He further asserts that he has earned no income since his

indictment in December 2015, and was unable to pay the tax deficiency

because of lack of funds. Additionally, he asserts that he did not receive

the Form 1099–R from T. Rowe Price because his wife divorced him, did

19

[*19] not communicate with him, and was not forwarding his mail.

Petitioner maintains that he lost most of his assets in his divorce, as his

wife received their shared home, all of the possessions in the home, and

the contents of their joint bank account. Finally, he emphasizes his

history of paying his income tax from 2002 through 2015.

As discussed, the section 6651(a)(1) and (2) additions to tax may

be reduced if petitioner can establish that his failure to timely file or

failure to timely pay was due to reasonable cause and not willful neglect.

While we are sympathetic to petitioner’s difficulties, we decline to

conclude that his failure to timely file and timely pay were justified by

reasonable cause. In petitioner’s declaration attached to the Opposition,

petitioner alleged that (i) he never received the Form 1099–R from

T. Rowe Price, (ii) he had not earned any income since 2015, (iii) he was

unaware of any filing obligation, and (iv) as a result of the criminal

forfeiture and his divorce in March 2018, he was unable to pay the tax

due.

Petitioner knew of a general duty to file his tax return as he

stated in his declaration that he had “habitually” done so in previous

years. He was also aware of the forfeiture that was part of the judgment

in his criminal case. Nonetheless, petitioner asserts that he did not

know that he had to file a tax return because he did not receive the Form

1099–R. Nonreceipt of tax information forms, such as a Form 1099, does

not excuse a taxpayer from his or her duty to report income. See Du Poux

v. Commissioner, T.C. Memo. 1994-448, 68 T.C.M. (CCH) 667, 668

(“[F]ailure to receive tax documents [such as Form 1099–MISC,

Miscellaneous Income] does not excuse taxpayers from the duty to report

income.”). Further, we have held that nonreceipt of a tax document does

not constitute reasonable cause to prevent the application of a section

6662(a) accuracy-related penalty. See Ashmore v. Commissioner, T.C.

Memo. 2016-36, at *13 (holding that any error by the company

responsible for issuing the taxpayer a Form W–2, Wage and Tax

Statement, did not provide reasonable cause because the taxpayer

should have known of his missing second Form W–2); Jones v.

Commissioner, T.C. Memo. 2010-112, 99 T.C.M. (CCH) 1457, 1461

(holding that nonreceipt of a Schedule K–1, Partner’s Share of Income,

Deductions, Credits, etc., did not constitute reasonable cause where the

taxpayer knew that her spouse received a distribution from the entity);

Brunsman v. Commissioner, T.C. Memo. 2003-291, 86 T.C.M. (CCH)

465, 466 (rejecting taxpayer’s reasonable cause defense where the

taxpayer received only one Form 1099–MISC but knew he had held two

jobs). Accordingly, petitioner’s arguments that he did not receive the

20

[*20] Form 1099–R and that he was unaware that he had an obligation

to file a return, fail.

Petitioner should have recognized that there might be tax

implications as a result of the forfeiture of his T. Rowe Price IRA and

should have sought advice from his attorney or a tax professional

regarding a potential tax return filing obligation for 2017. He has not

responded with any specific fact that he sought any such guidance. We

conclude that petitioner did not exercise ordinary business care and

prudence. Moreover, we have held that incarceration is not a reasonable

cause for failure to timely file. See Llorente v. Commissioner, 74 T.C.

260, 268–69 (1980), aff’d in part, rev’d in part and remanded, 649 F.2d

152 (2d Cir. 1981); George v. Commissioner, T.C. Memo. 2019-128,

at *9–12, aff’d per curiam, 821 F. App’x 76 (3d Cir. 2020). In the absence

of evidence of reasonable cause, we conclude that petitioner is liable for

the addition to tax for failure to timely file under section 6651(a)(1).

As with the failure to file a return, incarceration is not a

reasonable cause for the failure to pay tax. See George, T.C. Memo.

2019-128, at *9–12; Kohn v. Commissioner, T.C. Memo. 2009-117, 97

T.C.M. (CCH) 1594, 1597, aff’d per curiam, 377 F. App’x 578 (8th Cir.

2010). In the Declaration and his Opposition, petitioner avers that he

was unable to pay the amounts owed because of the forfeiture of his

assets and his divorce; however, he has not responded to the motion with

specific facts showing that he exercised ordinary business care and

prudence in providing for his 2017 tax liability. Nor has he presented

specific facts concerning his financial situation while the failure to pay

penalty accrued. In opposing a motion for summary judgment, the

nonmovant may not rest upon the mere allegations or denials in his

pleadings but instead must set forth specific facts showing that there is

a genuine dispute for trial. Rule 121(d); see Sundstrand, 98 T.C. at 520;

Murphy v. Commissioner, T.C. Memo. 2019-72, at *7. We conclude that

petitioner is liable for the addition to tax for failure to timely pay under

section 6651(a)(2).

The Court has considered the parties’ remaining arguments and,

to the extent not discussed above, concludes that they are irrelevant,

moot, or without merit.

To reflect the foregoing,

Decision will be entered under Rule 155.