T.C. Summary Opinion 2015-37



                         UNITED STATES TAX COURT



                 CHARLES D. TRAINITO, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 7223-14S.                          Filed June 23, 2015.



      Kevin Kilduff and Drew A. Morris, for petitioner.

      R. Jeffrey Knight, Janet F. Appel, and Michael E. D’Anello, for respondent.



                              SUMMARY OPINION


      NEGA, Judge: This case was heard pursuant to the provisions of section

7463 of the Internal Revenue Code in effect when the petition was filed. 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. Unless

otherwise indicated, all subsequent section references are to the Internal Revenue
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Code in effect for the year at issue, and all Rule references are to the Tax Court

Rules of Practice and Procedure.

      Respondent determined a deficiency of $3,294 in petitioner’s 2011 Federal

income tax. The issues for decision are whether petitioner (1) is liable for the 10%

additional tax under section 72(t) for an early distribution from a qualified

retirement plan and (2) had cancellation of debt income of $3,186 in 2011.

                                    Background

      Some of the facts have been stipulated and are so found. Petitioner was

born in 1966 and resided in Massachusetts at the time he filed his petition.

      Petitioner was employed by the City of Boston as a traffic officer from 1994

to 1997. Beginning in 1997 petitioner was employed by the City of Boston

Department of Environmental Health (DEH). Petitioner’s duties with DEH

involved lifting heavy manhole covers and placing rat bait as a means of

decreasing the city’s rat population. Petitioner’s employment with DEH was

terminated in 2004, but he was rehired in 2005 and continued working for DEH

until October 2010. In addition to his work with DEH, petitioner worked part time

as a chef at an Italian restaurant in Boston. Petitioner resigned from DEH on

October 23, 2010, and continued to work as a chef at the Italian restaurant.
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      Petitioner was diagnosed with type 2 diabetes in 2005. As a result of his

diabetes, petitioner sometimes experienced symptoms such as blurry vision and

neuropathy, which he described as a “burning sensation” that feels like “needles”.

Petitioner has poorly managed his diabetes over the years. While he was working

for DEH, petitioner took medications to alleviate the symptoms of his diabetes, but

these medications did not always completely mitigate his neuropathy. Petitioner

attributes his resignation from his job with DEH in October 2010 to problems

stemming from diabetes, including being unable to perform the required task of

lifting the heavy manhole covers. Petitioner did not provide evidence as to

whether he considered applying for disability benefits from DEH. Following his

resignation, petitioner ceased taking medication to treat his diabetes.

      For one to two weeks before June 12, 2011, petitioner experienced nausea,

vomiting, and diarrhea and was unable to work as a result of these ailments.

Petitioner spoke with his mother by telephone on June 11, 2011, and complained

of weakness and a scratchy throat. Family members, alarmed at being unable to

reach petitioner the following day, contacted Emergency Medical Services (EMS).

EMS personnel discovered petitioner unconscious at his home on June 12, 2011,

and determined that he had lapsed into a diabetic coma. Petitioner was

hospitalized from June 12 to July 21, 2011, as a result of the coma and
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complications, including fevers and pneumonia. The coma resulted in muscle

atrophy and the reduced use of an arm and a leg. As a result petitioner had

difficulty performing basic tasks such as tying his shoes. Petitioner provided the

Court with over 300 pages of medical records relating to his treatment for the

diabetic coma. After the coma and his release from the hospital, petitioner applied

for disability benefits with the Massachusetts Department of Transitional

Assistance on March 16, 2012.

      Petitioner had a retirement savings account with the City of Boston

Retirement Board (retirement board). On April 22, 2011, petitioner received a

distribution of $22,510.97 from the retirement board, which represents a gross

distribution of $28,138.21 less $5,627.24 in Federal income tax withheld. There

are no facts in evidence about the use to which petitioner applied these proceeds.

Petitioner filed a Form 1040, U.S. Individual Income Tax Return, for tax year

2011 on November 5, 2012. He included with his tax return a Form 5329,

Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored

Accounts, claiming the distribution was exempt from the 10% additional tax on

early distributions because of his permanent disability. Separate and apart from

the distribution from petitioner’s retirement account, on August 25, 2011, Wells

Fargo Bank canceled $3,186 of debt that petitioner owed. Petitioner did not report
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receiving any income from the cancellation of debt. Petitioner does not dispute

that the debt was discharged but rather argues that the section 108(a)(1)(B)

exclusion applies.

                                    Discussion

I.    Burden of Proof

      In general, the Commissioner’s determination as to the taxpayer’s tax

liability is presumed correct, and the taxpayer bears the burden of proving

otherwise. See Rule 142(a); Welch v. Helvering, 

, 115 (1933). This

burden may shift to the Commissioner if the taxpayer introduces credible evidence

with respect to any relevant factual issue and meets other conditions, including

maintaining required records. See sec. 7491(a). Petitioner has not argued or

otherwise demonstrated that the burden of proof shifts to respondent, and

accordingly, petitioner bears the burden of proving that respondent’s

determination is incorrect.

II.   Early Distribution From Retirement Account

      Section 72(t)(1) imposes a 10% additional tax on a taxpayer who receives

an early distribution from a qualified retirement plan, unless such taxpayer

qualifies for one of the exemptions found in paragraph (2). As applicable in this

case, section 72(t)(2)(A)(iii) provides an exemption for distributions which are
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attributable to the taxpayer’s being disabled within the meaning of section

72(m)(7). Subsection (m)(7) provides that a taxpayer is considered disabled if he

is “unable to engage in any substantial gainful activity by reason of any medically

determinable physical or mental impairment which can be expected to result in

death or to be of long-continued and indefinite duration.” The “substantial gainful

activity” referenced in subsection (m)(7) is construed as the activity, or a

comparable activity, customarily engaged in by the taxpayer before the onset of

the disability. Sec. 1.72-17A(f)(1), Income Tax Regs.

      The determination as to whether an individual is disabled is to be made with

reference to all the facts. Id. subpara. (2). Primary consideration is given to the

nature and severity of the taxpayer’s impairment, and other considerations may

include the taxpayer’s education, training, and work experience. Id. subpara. (1).

For a taxpayer to be considered disabled the impairment must be expected to

continue for a long and indefinite period or result in the death of the individual.

Id. subpara. (3). Further, an impairment is not considered a disability if it is

remediable or if it can be diminished by the individual with reasonable effort and

safety to the extent that the individual will not be prevented by the impairment

from engaging in his customary or any comparable substantial activity. Id.

subpara. (4). Examples of impairments that are normally considered to prevent
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substantial gainful activity include progressive physical diseases, such as diabetes,

that have resulted in the physical loss or atrophy of a limb as well as mental

diseases, such as psychosis or severe psychoneurosis, that require continued

institutionalization or constant supervision of the afflicted individual. Id. subpara.

(2)(ii), (vi). However, the presence of such an impairment does not, by itself,

qualify the individual as disabled within the meaning of section 72(m)(7); the

impairment must be assessed with reference to whether it prevents the individual

from engaging in substantial gainful activity. Sec. 1.72-17A(f)(2), Income Tax

Regs. (flush language).

      Section 72(m)(7) places the burden of proving disability on the taxpayer,

requiring proof “in such form and manner as the Secretary may require”.

Petitioner provided records to the Court that relate to the diabetic coma he suffered

on June 12, 2011, but he did not provide any medical records for periods before

this date, including medical records for periods before April 22, 2011, the date of

the distribution of his retirement funds. Petitioner testified at trial that, following

his diagnosis with diabetes in 2005, he saw a primary care doctor twice per month

until his resignation from his job with DEH in October 2010. However, despite

receiving frequent treatment, petitioner did not produce any medical records

relating to these visits, nor did his primary care doctor testify on his behalf. Nor
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did he produce any records that would corroborate his claims that he suffered from

depression at any point before the distribution on April 22, 2011.

      Petitioner argues that he was disabled within the meaning of section

72(m)(7) because he suffered from diabetes, or alternatively, that he suffered from

depression. However, notwithstanding the severe medical event petitioner

experienced on June 12, 2011, the relevant date we must consider is April 22,

2011, because section 72(t)(2)(A)(iii) requires that the distribution be attributable

to the taxpayer’s being disabled. A taxpayer may not escape the 10% early

withdrawal penalty by suffering a disability at just any point during the tax year;

rather the disability must be present at the time the distribution is made. See,

e.g., Kopty v. Commissioner, T.C. Memo. 2007-343 (finding that distributions

were not attributable to disability where diagnosis of heart condition was not made

until after taxpayer received distributions from his retirement fund), aff’d, 313

Fed. Appx. 333 (D.C. Cir. 2009). Thus the fact that petitioner suffered a diabetic

coma on June 12, 2011, does not indicate whether he was disabled on April 22,

2011. Petitioner undoubtedly suffered from diabetes on April 22, 2011, but he has

not provided sufficient evidence to show that his diabetes caused him to be

disabled within the meaning of section 72(m)(7). See sec. 1.72-17A(f)(2), Income

Tax Regs. (flush language).
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      Alternatively, petitioner argues that he was disabled on April 22, 2011,

because of depression. Petitioner claimed he had clinical depression before

suffering the coma on June 12, 2011, with the depression arising from issues with

family members, the loss of his job, his diabetes diagnosis, and a gambling

addiction. Again petitioner did not provide any medical records that would

support a diagnosis of depression at any time, nor did any other individuals testify

in this regard. Petitioner’s uncorroborated testimony is insufficient to establish

disability due to depression within the meaning of section 72(m)(7). See, e.g.,

Kowsh v. Commissioner, T.C. Memo. 2008-204 (finding no disability where the

taxpayer did not offer documentary evidence or testimony from medical

professionals to corroborate his depression and anxiety); see also Dwyer v.

Commissioner, 

 (1996) (finding no disability where taxpayer sought

periodic professional consultation for his depression but did not require

supervision within the meaning of section 1.72-17A(f)(2)(vi), Income Tax Regs.).

      Accordingly, petitioner’s distribution from the retirement board on April 22,

2011, was not attributable to his being disabled within the meaning of section

72(m)(7). Petitioner has not shown that any other exception to the section 72(t)

early withdrawal penalty applies. See El v. Commissioner, 

__, __ (slip

op. at 14-15) (Mar. 12, 2015).
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III.   Cancellation of Indebtedness Income

       Gross income includes all income from whatever source derived, including

income from the discharge of indebtedness. Sec. 61(a)(12). However, if a

taxpayer is insolvent when the discharge of indebtedness occurs, the amount

otherwise includable is excluded from gross income. Sec. 108(a)(1)(B). The

amount excluded from gross income may not exceed the amount by which the

taxpayer is insolvent. Sec. 108(a)(3). “Insolvent” within the meaning of section

108 is defined as the excess of a taxpayer’s liabilities over the fair market value of

assets. Sec. 108(d)(3). The existence and extent of a taxpayer’s insolvency are

determined on the basis of the taxpayer’s assets and liabilities immediately before

the discharge of indebtedness. Id. The burden of proving insolvency rests with

the taxpayer. Rule 142(a); see also Merkel v. Commissioner, 

, 467

(1997), aff’d, 

 (9th Cir. 1999); Adeyemo v. Commissioner, T.C.

Memo. 2014-1; Hugee v. Commissioner, T.C. Memo. 2013-241.

       Petitioner did not provide the Court with any documentation relating to his

financial status at the time he received a cancellation of indebtedness on August

25, 2011. Petitioner provided respondent a Form 433-A, Collection Information

Statement for Wage Earners and Self-Employed Individuals, dated November 11,

2014, that claims to represent his financial circumstances immediately before
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Wells Fargo canceled his debt. Neither party supplied the Form 433-A to the

Court. We are not required to take petitioner’s testimony regarding his situation at

face value, and he has not provided sufficient documentation upon which we could

base a finding of insolvency. See Adeyemo v. Commissioner, T.C. Memo. 2014-

1. Petitioner has not proved that he was insolvent within the meaning of section

108(a)(1)(B) when he received a discharge of indebtedness on August 25, 2011.

Accordingly, petitioner’s 2011 gross income includes $3,186 from the cancellation

of indebtedness.

         In reaching our holding, we have considered all arguments made, and, to the

extent not mentioned above, we conclude they are moot, irrelevant, or without

merit.

         To reflect the foregoing,


                                                 Decision will be entered

                                        for respondent.