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After a concession by petitioners,2 the issues for decision
are: (1) Whether petitioners realized gross income under section
72 from two annuity distributions; (2) whether petitioners are
liable for the 10-percent penalty on premature distributions from
nonqualified annuities under section 72(q);3 and (3) whether
petitioners are liable for the 20-percent accuracy-related
penalty for understatement of tax pursuant to section 6662(a).
The Court decides the issues in this case on the preponderance of
evidence in the record. Rule 142(a); sec. 7491.
Some of the facts were stipulated, and those facts, with the
annexed exhibits, are so found and are incorporated herein by
reference. At the time the petition was filed, petitioners'
legal residence was Caldwell, Texas.
Anthony Sadberry (petitioner) was born in Caldwell, Texas,
in 1949. During the year at issue, he was married to petitioner
2 At trial, petitioners conceded unreported Form W-2,
Wage and Tax Statement, wage and salary income of $602. Counsel
for respondent stated that a Rule 155 computation would be
necessary for self-employment taxes but did not elaborate on the
adjustment or adjustments necessitating such computation. The
Court, however, in this opinion, is allowing an adjustment to
petitioners with respect to overreported income from a
partnership that will necessitate a Rule 155 computation. See
infra note 11.
3 The 10-percent penalty was not a determination by
respondent in the notice of deficiency. The issue arises from an
amended Federal income tax return filed by petitioners for the
year 1999 that reported such penalty as “other taxes” in the
amount of $6,154.94, which petitioners now challenge.
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