INDIVIDUAL LIABLE FOR TAX ON LATE IRA ROLLOVER.

Kathryn K. Vetter, for respondent.

[3] Petitioner and his companion purchased a home in May 1999. At the end of 1999, while living in that home, petitioner learned of a house (house) that was being auctioned in a foreclosure sale. Petitioner bid on the house during December 1999. His bid was accepted in or about the second week of January 2000.

[4] During 2000, petitioner had an IRA (first IRA) at Nicholas Fund, Inc. He withdrew a total of $118,000 from the first IRA on January 19 and 21, 2000, in order to purchase the house. He had previously researched section 408 as it applied to withdrawing those funds and to paying them into another IRA within 60 days so as to exclude his withdrawals from his gross income. He concluded that the 60-day rule required that he pay the $118,000 into another IRA no later than March 20, 2000, in order to exclude both days' distributions from his gross income.²

[5] Petitioner used the $118,000 to purchase the house on February 7, 2000. Shortly thereafter, he contacted a mortgage broker to finance his purchase through a mortgage loan. He applied with the mortgage broker for the loan, and the mortgage broker sent petitioner's paperwork to a lender for approval. The lender approved the loan on March 24, 2000, after requesting and receiving from petitioner additional information. Escrow on the financing closed on April 3, 2000, and petitioner paid $118,000 of the resulting funds into a second IRA (second IRA) on April 4, 2000.

[6] Nicholas Fund, Inc., issued to petitioner a 2000 Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit- Sharing Plans, IRAs, Insurance Contracts, etc. The form stated that petitioner had during 2000 received $118,000 in distributions from the first IRA and that these distribution were taxable in full. Petitioner did not report the $118,000 on his 2000 Federal income tax return (2000 tax return). The 2000 tax return was timely received by respondent's service center for filing on August 17, 2001.

[8] We disagree with petitioner's argument that the $118,000 is excludable from his 2000 gross income. Under section 408(d)(1), distributions from an IRA are generally includable in the distributee's gross income in the year of distribution. Although an exception to this general rule lies in certain cases where a distribution is paid into another IRA, see sec. 408(d)(3)(A)(i), this case is not one of those cases. The exception requires that the distributed funds be paid into another IRA within 60 days after the distributee receives them. Id. Petitioner did not within this 60-day period pay into the second IRA any of the $118,000 withdrawn from the first IRA.

[9] Petitioner relies erroneously on Wood v. Commissioner, supra, in arguing that the distributions are excludable from his gross income even though he failed to meet the 60-day rule. There, the Court held that the taxpayers' rollover of stock to an IRA was timely even though the IRA trustee recorded the stock in the wrong account and did not correct this error until approximately 4 months after the 60-day period expired. In holding that the taxpayers had effected a rollover of the distribution within the 60-day period, the Court noted that the taxpayers had within that period opened up the IRA, delivered the stock to the trustee, instructed the trustee to roll over the stock into the IRA, been assured by the trustee that the rollover would be consummated as instructed, and in fact consummated the rollover. The Court did not, contrary to petitioner's assertion, "disregard" the applicable 60-day period to accommodate a rollover that was made after the 60-day period.

[10] Nor does petitioner rely appropriately on Shotgun Delivery, Inc. v. United States, supra, Prussner v. United States, supra, Am. Air Filter Co. v. Commissioner, supra, and Tipps v. Commissioner, supra, in arguing that he prevails under the substantial compliance doctrine. While petitioner observes correctly that these cases state that substantial compliance with "regulatory requirements" may suffice in certain circumstances, the 60-day rule is not regulatory but is found in the statute itself. This Court has applied the doctrine of substantial compliance to excuse taxpayers from strict compliance with procedural regulatory requirements such as the manner in which an election must be made. See Estate of Chamberlain v. Commissioner, T.C. Memo. 1999-181 (and cases cited therein), affd. 9 Fed. Appx. 713 (9th Cir. 2001). Other Federal courts also have applied the doctrine in the setting of regulatory requirements. See id.

[11] Although neither party has argued that the substantial compliance doctrine may also apply in the setting of a statutory requirement, the Court of Appeals for the Ninth Circuit, the court to which an appeal of this case lies, has indicated that the doctrine may apply to "statutory prerequisites". Sawyer v. County of Sonoma, 719 F.2d 1001, 1008 (9th Cir. 1983). However, the court stated:

[13] Moreover, an application of the substantial compliance doctrine to a statutorily prescribed fixed deadline such as the 60- day rule is problematic. By analogy, the Supreme Court has noted as to filing deadlines that "deadlines, like statutes of limitations, necessarily operate harshly and arbitrarily with respect to individuals who fall just on the other side of them, but if the concept of a filing deadline is to have any content, the deadline must be enforced." United States v. Locke, 471 U. S. 84, 100-101 (1985). In addition, as the Court of Appeals for the Seventh Circuit has noted:

[15] Respondent also determined that petitioner is liable for an accuracy-related penalty under section 6662(a) and (d). Section 6662(a) and (d) imposes an accuracy-related penalty if any portion of an underpayment is attributable to a substantial understatement of income tax. An understatement of income tax is substantial if it exceeds 10 percent of the tax required to be shown on the return or $5,000. Sec. 6662(d)(1). Respondent bears the burden of production under section 7491(c) and must come forward with sufficient evidence indicating that it is appropriate to impose an accuracy-related penalty. Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). Once respondent has met this burden, the taxpayer must come forward with persuasive evidence establishing that the accuracy-related penalty does not apply. Id. The taxpayer may establish, for example, that part or all of the accuracy-related penalty is inapplicable because it is attributable to an understatement for which the taxpayer acted reasonably and in good faith. Sec. 6664(c)(1). Whether a taxpayer acted in such a fashion is a factual determination, sec. 1.6664-4(b)(1), Income Tax Regs., for which the taxpayer's effort to assess the proper tax liability is usually the most important consideration.

[16] Here, respondent has met his burden of production in that the understatement on petitioner's return is "substantial" within the meaning of section 6662(d)(1). Petitioner argues that he acted reasonably and in good faith towards the subject matter of the deficiency. Petitioner notes that respondent has acknowledged through correspondence that petitioner aimed to meet the 60-day rule but was thwarted from doing so. In addition, petitioner testified that he stapled to his 2000 tax return a letter with three exhibits (collectively, letter) explaining that he had received the Form 1099- R and the $118,000 referenced therein but that he was of the view that this amount was not taxable because he had substantially complied with the 60-day rule. Petitioner testified that respondent's service center returned the letter to him on October 1, 2001, with correspondence.

[17] We disagree with petitioner's argument that he acted reasonably and in good faith with respect to the subject matter of the deficiency. Petitioner is a seasoned attorney who filed his 2000 tax return with the knowledge and understanding of the relevant provisions of section 408. The fact that he may have intended earnestly to meet the 60-day rule did not excuse him from not reporting the withdrawals as income when he failed to meet that rule. Nor do we believe that reasonableness and good faith may be found in petitioner's litigating position that he substantially complied with the 60-day rule by paying the amount of withdrawals into the second IRA contemporaneously with the closing of his escrow.

[18] Although we find petitioner to have been credible when he testified as to his intent to meet the 60-day rule, we do not find likewise as to his testimony concerning the letter. The parties stipulated that Exhibit 1-J was a copy of the "federal income tax return filed by petitioner for 2000" and that return contained neither the letter nor any mention thereof. We decline on the basis of the record at hand to make petitioner's desired finding that the letter was the enclosed "IRA Documentation" that respondent's service center returned to him on October 1, 2001, with correspondence. The correspondence states specifically that it relates to petitioner's "inquiry of Aug. 27, 2001" and, with the exception of a reference to December 31, 2000, as that of the tax period involved, contains no reference to petitioner's 2000 tax return that was received by respondent on August 17, 2001. We sustain respondent's determination as to the accuracy-related penalty under section 6662(a) and (d).

[19] All arguments made by the parties have been considered, and those arguments not discussed herein have been found to be without merit. Accordingly,

[20] Decision will be entered for respondent.

²Given that 2000 was a leap year, the 60th day after the first distribution actually fell on Mar. 19, 2000.

³Given that petitioner makes no claim that respondent bears the burden of proof under sec. 7491(a), we conclude that sec. 7491(a) has no applicability to this case. See, e.g., sec. 7491(b) (sec. 7491(a) applies with respect to an issue only if the taxpayer meets certain requirements). We note, however, that we decide this issue without resort to which party bears the burden of proof.

⁴Petitioner also cites Irwin v. VA, 498 U.S. 89 (1990), and notes that Irwin concerned equitable tolling. In that petitioner has made no claim of equitable tolling in this case, we do not decide that issue.

⁵In addition to tax on petitioner's receipt of the $118,000, respondent determined as part of this deficiency that petitioner was liable for the 10-percent additional tax under sec. 72(t). Petitioner does not in his brief address this determination, and we consider it conceded. Rybak v. Commissioner, 91 T.C. 524, 566 (1988); Money v. Commissioner, 89 T.C. 46, 48 (1987). We note, however, that the additional tax generally applies to all distributions from an IRA, see sec. 72(t)(1), and that the record does not establish that any of the exceptions to this general rule found in sec. 72(t)(2) are applicable.