Jill Schermer v. Commissioner ( 2019 )

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
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[*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
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[*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
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[*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. 232. The recipient of IRD
is allowed an income tax deduction equal to the amount of Federal estate tax
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[*5] attributable to the IRD. Sec. 691(c); Estate of Kahn v. Commissioner, 125
T.C. 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.