Tax Court in Brief | Patrinicola v. Comm’r | Taxability of Pension Distributions

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The Tax Court in Brief – February 13th – February 17th, 2023

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Tax Litigation:  The Week of February 13th, 2022, through February 17th, 2023

Patrinicola v. Comm’r, T.C. Memo. 2023-16| February 14, 2023 | Goeke, J. | Dkt. No. 498-19

Summary: In this opinion, the Tax Court considered whether a deficiency was appropriate for Tony and Barbara Patrinicola’s 2016 tax year. The IRS determined that they had received unreported taxable pension distributions of $6,750. For the 2016 tax year, General Electric Pension Trust (General Electric) issued Form 1099–R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., to Mr. Patrinicola reporting payment of $22,773 in taxable pension distributions, and State Street Retiree Services (State Street) issued three Forms 1099–R that reported payments of $252, $4,627, and $3,412 in taxable pension distributions to Mr. Patrinicola. According to these Forms 1099–R, Mr. Patrinicola received total pension distributions of $31,064. Ms. Patrinicola received a Form 1099–R that reported that she received $2,592 in nontaxable retirement income. On their 2016 tax return, the Patrinicolas reported gross income from pensions of $24,610 and the taxable amount of such income as $19,687.

Key Issues: Whether the monthly pension distributions received by the Patrinicolas is excludable from income for federal income tax purposes?

Primary Holdings: No.

Key Points of Law:

In general, pensions are subject to federal income tax withholding, but taxpayers can choose not to have federal income tax withheld. Taxpayers use Form W–4P, Withholding Certificate for Periodic Pension or Annuity Payments, to elect the amount of withholding from periodic pension payments to ensure the correct amount is withheld to satisfy their individual tax obligations. Alternatively, taxpayers may use Form W–4P to choose not to have federal income tax withheld from pension payments at the risk that they will not have paid sufficient estimated tax throughout the year to cover their tax liability on the pension and other income. Pension distributions are included in the taxable income regardless of the taxpayer’s decision regarding withholding.

Insights: Pension distributions are taxable income under the Internal Revenue Code.