Jill Schermer v. Commissioner

2019 T.C. Memo. 28

• Court: United States Tax Court
• Decided: April 4, 2019
• Docket: 12182-17
• Status: Unpublished

Opinion

T.C. Memo. 2019-28

UNITED STATES TAX COURT

JILL SCHERMER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12182-17. Filed April 4, 2019.

Joyce Anne Rebhun, for petitioner.

Daniel V. Triplett, Jr., for respondent.

MEMORANDUM OPINION

KERRIGAN, Judge: Respondent determined a deficiency in petitioner’s

2014 Federal income tax of $49,829, an addition to tax pursuant to section

6651(a)(1) of $12,457, and a penalty pursuant to section 6662(a) of $9,966.

Unless otherwise indicated, all 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 -2-

[*2] Practice and Procedure. All monetary amounts are rounded to the nearest

dollar. After a stipulation of settled issues and a first supplemental stipulation of

settled issues, the remaining issue for our consideration is whether petitioner is

entitled to a miscellaneous deduction for Federal estate tax of $156,789 for 2014

attributable to her father-in-law.

Background

This case was submitted fully stipulated under Rule 122. The stipulated

facts are incorporated in our findings by this reference. Petitioner resided in

Nevada when she timely filed her petition.

Petitioner was married to Robert Schermer (R. Schermer) until his death on

August 2, 2002. A Form 706, United States Estate (and Generation-Skipping

Transfer) Tax Return, for R. Schermer was filed on September 15, 2003.

R. Schermer’s father, Albert Schermer (A. Schermer), had died on January 17,

1999. A Form 706 for A. Schermer had been filed on October 12, 1999.

In 2014 petitioner received the following distributions: a $174,832 annuity

from National Financial Services, LLC; $44,705 from an individual retirement

account (IRA) from UBS Financial Services, Inc. (UBS); and $50,000 from an

IRA from First Clearing, LLC (First Clearing). Petitioner reported these amounts

on her 2014 Form 1040, U.S. Individual Income Tax Return. Petitioner’s Forms -3-

[*3] 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-

Sharing Plans, IRAs, Insurance Contracts, etc., for UBS and First Clearing list her

as R. Schermer’s beneficiary.

On her 2014 Schedule A, Itemized Deductions, petitioner claimed a

miscellaneous deduction for Federal estate tax of $156,789. On February 27,

2017, respondent issued to petitioner a notice of deficiency disallowing the

deduction.

Discussion

Generally, the Commissioner’s determinations in a notice of deficiency are

presumed correct, and the taxpayer bears the burden of proving that those

determinations are erroneous. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111,

115 (1933). Under section 7491(a), in certain circumstances the burden of proof

may shift from the taxpayer to the Commissioner. Petitioner has not claimed or

shown that she has met the specifications of section 7491(a) to shift the burden of

proof to respondent as to any relevant factual issue.

Deductions are a matter of legislative grace, and a taxpayer must prove his

or her entitlement to a deduction. INDOPCO, Inc. v. Commissioner, 503 U.S. 79,

84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). “[A]

taxpayer seeking a deduction must be able to point to an applicable statute and -4-

[*4] show that [s]he comes within its terms.” New Colonial Ice Co. v. Helvering,

292 U.S. at 440. Petitioner contends that she is entitled to a miscellaneous

deduction for Federal estate tax attributable to A. Schermer for distributions she

received from inherited IRAs and an annuity.

Section 691(a) provides that income in respect of a decedent (IRD) is

includible in gross income. See also sec. 61(a)(14). IRD consists of amounts of

gross income which the decedent was entitled to receive at the time of death but

were not properly includible in the decedent’s gross income before death and

which were received by the taxpayer as the decedent’s successor in interest. Sec.

691(a); sec. 1.691(a)-1(b), Income Tax Regs.; see also Kitch v. Commissioner,

104 T.C. 1, 10 (1995), aff’d, 103 F.3d 104 (10th Cir. 1996).

A distribution to the beneficiary of a decedent’s IRA is includible in the

gross income of the beneficiary. Secs. 408(d)(1), 691(a)(1); Estate of Kahn v.

Commissioner, 125 T.C. 227, 232 (2005). When such a distribution is made in a

lump sum to the beneficiary, the portion equal to the value of the IRA on the date

of the decedent’s death, less any nondeductible contribution, is IRD and is

includible in the gross income of the beneficiary in the year the distribution is

received. Estate of Kahn v. Commissioner, 125 T.C. at 232. The recipient of IRD

is allowed an income tax deduction equal to the amount of Federal estate tax -5-

[*5] attributable to the IRD. Sec. 691(c); Estate of Kahn v. Commissioner, 125

T.C. at 232.

In 2014 petitioner received distributions from an annuity and two IRAs.

She contends that she is entitled to a miscellaneous deduction for estate tax

attributable to her father-in-law, A. Schermer. Petitioner was the beneficiary of

her husband’s accounts with UBS and First Clearing. Her husband’s Federal

estate tax return did not include income for these accounts. Petitioner provided no

evidence that these accounts were part of her husband’s estate and that estate tax

was paid for these accounts. No estate tax was paid for her husband.

Petitioner contends that her deduction was for Federal estate tax paid on

IRD attributable to A. Schermer, which transferred to her upon the death of her

husband. The Federal estate tax return for A. Schermer did not include the three

distributions petitioner received.

Petitioner has not met her burden of showing that she is entitled to a

deduction for Federal estate tax attributable to IRD. Therefore, we sustain

respondent’s determination.

Decision will be entered under

Rule 155.