2. Deduction of Interest Paid on Estate Taxes Deferred Under Section 6166 A taxpayer may not deduct interest paid or incurred after entry of a decision, sec. 6512(a); Estate of Bailly v. Commissioner, supra at 954, unless section 7481(d) (discussed below) applies. The taxpayer in Estate of Bailly v. Commissioner, supra, elected to pay estate tax in 10 annual installments under section 6166. We delayed entry of decision in that case to allow the taxpayer to deduct interest on the tax. Id. at 958. Section 6512(a) would have prevented the taxpayer from deducting interest it paid after our decision became final. In Estate of Bailly v. Commissioner, supra, we said that we were troubled by the harshness of section 6512(a) with respect to estate tax cases. We agreed, in the interest of fairness and justice, to postpone entry of decision until the final installment of the estate tax liability is due, or paid, whichever is earlier. Section 7481(d) was enacted in 1988 in response to Estate of Bailly v. Commissioner, supra. Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, sec. 6247, 102 Stat. 3342, 3751-3752. Under section 7481(d), a taxpayer may move to reopen a case to which an extension of time to pay estate tax under section 6166 applies to ask the Court to modify the amount of the estate's deduction for interest. See Rule 262. B. Contentions of the Parties Petitioner asks the Court to postpone entry of decision until: (1) An extension of time to pay petitioner's Federal estate tax under section 6161(a) is no longer in effect and appeal of respondent's denial of an extension is final, or (2) petitioner pays the estate tax and interest it owes, whichever is earlier. Petitioner contends this situation is analogous to that in Estate of Bailly v. Commissioner, supra. Respondent contends: (1) This case is not like Estate of Bailly because no extension of time to pay tax is now in effect; (2) granting petitioner's motion would prevent respondent from reviewing the facts and circumstances to determine whether a hardship under section 6161 is present; and (3) Congress considered section 6161(a) when enacting section 7481(d) but did not provide a remedy for petitioner's situation. Respondent points out that if we delay entry of decision, petitioner can deduct interest, the deduction of which would otherwise be precluded by entry of decision. under section 6512(a). Neither party questions the Court's power to postpone entry of decision in this case. 1. Effect of the Fact That Petitioner's Request To Continue To Defer Tax Under Section 6161 Is Pending With the Commissioner Respondent contends this situation is unlike that in Estate of Bailly v. Commissioner, supra, because no extension of time to pay tax under section 6161(a) is now in effect. We disagree. Respondent has previously granted an extension under section 6161(a). According to our record, petitioner's request for a further extension is now pending. Respondent contends that we should not delay entry of decision because it would enable petitioner to deduct interest that it could not otherwise deduct. We disagree with respondent's view that such a result is improper. Section 6161(a), like section 6166, can result in an extension of time for a taxpayer to pay estate tax. We believe the situation in this case is analogous to that in Estate of Bailly v. Commissioner, supra. We distinguish this case from Estate of Nevelson v. Commissioner, T.C. Memo. 1996-361, because there the taxpayers asked the Court to delay entry of decision more than 5 years past the date the parties had agreed to file a stipulated decision. Here, the parties have not agreed to a date to file a stipulated decision. 2. Whether Granting Petitioner's Motion Would Interfere With Respondent's Exercise of Discretion Under Section 6161 Section 6161(a) gives the Commissioner discretion to grant a taxpayer's request for extension of time to pay taxes. Respondent contends that granting petitioner's motion would eliminate that discretion. We disagree. Our granting of this motion would not affect respondent's discretion to act on a taxpayer's request to defer payment of tax under section 6161(a). 3. Congressional Intent Respondent contends that we should deny petitioner's motion because Congress considered section 6161(a) extensions when enacting section 7481(d) but did not provide a remedy for petitioner's situation. We disagree. There is no indication in the conference report accompanying the enactment in 1988 of section 7481(d) that Congress considered (much less rejected) extending it to section 6161(a). H. Conf. Rept. 100-1104, at 232-233 (1988), 1988-3 C.B. 473, 722723. Respondent points to no other authority for that assertion. C. Conclusion We will not enter decision until an extension of time for the payment of petitioner's estate tax under section 6161 is no longer in effect and any administrative appeal of respondent's denial of petitioner's request for an extension is final, see sec. 20.6161-1(b), Estate Tax Regs., or until petitioner fully pays its outstanding Federal tax liability and related interest, whichever occurs first. The parties shall report to the Court when those conditions are met. An appropriate order will be issued. GEORGE AND ELAM CAMPBELL, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Docket No. 12931-95. Filed February 18, 1997. P was a State employee. In October 1989, P elected to transfer from the State Retirement System to the State Pension System effective November 1989. As a consequence, P received a transfer refund in 1989 consisting principally of previously taxed contributions and taxable earnings. Shortly thereafter, P deposited approximately one-half of the taxable portion into an IRA with Loyola. P included the entire taxable portion of the transfer refund in income on an amended tax return for 1989. See Dorsey v. Commissioner, T.C. Memo. 1995-97. In April 1991, P closed his Loyola IRA. On a 1991 tax return, P included in income a portion of the earnings generated by the IRA but not the balance. P contends that sec. 72(e)(6), I.R.C. 1986, provides P with a basis in his IRA equal to the amount rolled over from his transfer refund into the IRA. R contends that such an application of sec. 72(e)(6) Thomas F. DeCaro, Jr., for petitioners. OPINION DAWSON, Judge: This case was assigned to Special Trial Judge Robert N. Armen, Jr., pursuant to the provisions of section 7443A(b)(4) of the Internal Revenue Code of 1986, as amended, and Rules 180, 181, and 183.1 The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below. OPINION OF THE SPECIAL TRIAL JUDGE ARMEN, Special Trial Judge: For the taxable year 1991, respondent determined a deficiency in petitioners' Federal income tax, as well as a deficiency in Federal excise tax under section 4980A,2 in the total amount of $58,464. After concessions by the parties,3 the only issue for decision is whether the distribution received by petitioner George Campbell in 1991 from his individual retirement account with Loyola Federal Savings & Loan is taxable under sections 408(d)(1) and 72. This case was submitted fully stipulated under Rule 122, and the facts stipulated are so found. Petitioners resided in Prince Frederick, Maryland, at the time that their petition was filed with the Court. 1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for 1991, the taxable year in issue. All Rule references are to the Tax Court Rules of Practice and Procedure. 2 Sec. 4980A imposes a 15-percent excise tax on excess distributions from qualified retirement plans. This tax is included within ch. 43 of the I.R.C. and is subject to the deficiency procedures set forth in subch. B of ch. 63 of the I.R.C. See sec. 6211(a). 3 Petitioners concede that $7,762.11 and $9,612.14 of the distributions from petitioner George Campbell's Loyola IRA and Delaware Charter IRA, respectively, represent earnings and are includable in petitioners' gross income for 1991. Respondent concedes that the amount of unreported income from the IRA distributions is $91,513 (ie., $172,719 less $81,206), rather than the greater amount determined in the notice of deficiency. Respondent also concedes that petitioners are not liable for the excise tax under sec. 4980A. See infra p. 59 for further discussion regarding the parties' concessions. Background George Campbell (petitioner) was employed by the Maryland State Highway Administration (the highway administration) in 1989 and 1991 and remained so employed at least through the time that this case was submitted for decision. As an employee of the highway administration, petitioner was a member of the Maryland State Employees' Retirement System (the retirement system) until he transferred to the Maryland State Employees' Pension System (the pension system), effective November 1, 1989. The Retirement System and the Pension System The retirement system is a qualified defined benefit plan under section 401(a) and requires mandatory nondeductible employee contributions. The pension system is also a qualified defined benefit plan under section 401(a), but generally does not require mandatory nondeductible employee contributions. The State of Maryland contributes to both the retirement system and the pension system on behalf of the members of those systems. The trusts maintained as part of the retirement system and the pension system are both exempt from taxation under section 501(a).4 The Transfer Refund On October 4, 1989, petitioner elected to transfer from the retirement system to the pension system, effective November 1, 1989. As a result of his election to transfer, petitioner received a distribution (the transfer refund) from the retirement system in the amount of $174,802.14, which petitioner received in the form of a check dated November 30, 1989. Petitioner's transfer refund consisted of $11,695.84 in previously taxed contributions made by petitioner during his employment tenure with the highway administration, $693.52 in taxable employer "pick-up contributions",5 and $162,412.78 of taxable earnings in the form of interest. The earnings and "pick-up contributions", which total 4 For a further discussion of the retirement system and the pension system, see Adler v. Commissioner, 86 F.3d 378 (4th Cir. 1996), vacating and remanding T.C. Memo. 1995-148; Maryland State Teachers Association, Inc. v. Hughes, 594 F. Supp. 1353, 1357-1358 (D. Md. 1984). 5 See sec. 414(h)(2). |