Lonnie Wayne Hubbard, T. C. Memo. 2024-16, filed 2/6/24, certainly caused Judge Alina I. (“AIM”) Marshall to employ a lot of somber reasoning and copious citation of precedent to establish that the IRA grab resulted in constructive receipt of the proceeds to satisfy the criminal forfeiture following Lonnie’s conviction in USDCEDKY for “various crimes related to the distribution of controlled substances and listed chemicals in violation of 21 U.S.C. §§ 841(a)(1), 841(c)(2), 846, 856(a)(1), and 18 U.S.C. §§ 2 1956(h), and 1957.,”. T. C. Memo. 2024-16, at p. 2.

Lonnie was a KY pharmacist; a source tells me Lonnie was selling pseudoephedrine, which can be a cold medicine but also can be used to make methamphetamine. Speed kills. Lonnie also was divorced, his ex-wife got their house and contents and their joint bank accounts, and refused to communicate with him. Wherefore he claims he never got the 1099-R from his IRA custodian when the Feds grabbed his IRA. And he made no money while in jail.

Lonnie’s argument is he never had constructive receipt of the $400K of IRA funds.

“The funds from petitioner’s T. Rowe Price IRA were forfeited to the USA as an involuntary distribution. Though they were not under his control, petitioner constructively received the funds by having received the economic benefit of the funds through satisfaction of his forfeiture liability to the USA. See Old Colony Tr. Co., 279 U.S. at 729; Larotonda, 89 T.C. at 291; Carione, 96 T.C.M. (CCH) at 358. Moreover, the fact that petitioner did not willfully or purposefully cause the distribution is irrelevant. See Rodrigues, T.C. Memo. 2015-178, at *11; Schroeder, 78 T.C.M. (CCH) at 568. Petitioner constructively received and must include in his gross income a taxable distribution of $427,518 from his retirement account with T. Rowe Price.” T. C. Memo. 2024-16, at p. 14.

Judge AIM Marshall does fall for Lonnie’s plight, somewhat. But she sticks Lonnie for late-filing and late-paying add-ons.

“While we are sympathetic to petitioner’s difficulties, we decline to conclude that his failure to timely file and timely pay were justified by reasonable cause. In petitioner’s declaration… petitioner alleged that (i) he never received the Form 1099–R from T. Rowe Price, (ii) he had not earned any income since 2015, (iii) he was unaware of any filing obligation, and (iv) as a result of the criminal forfeiture and his divorce… he was unable to pay the tax due.

“Petitioner knew of a general duty to file his tax return as he stated in his declaration that he had ‘habitually’ done so in previous years. He was also aware of the forfeiture that was part of the judgment in his criminal case. Nonetheless, petitioner asserts that he did not know that he had to file a tax return because he did not receive the Form 1099–R. Nonreceipt of tax information forms, such as a Form 1099, does not excuse a taxpayer from his or her duty to report income.” T. C. Memo. 2024-16, at p. 19.

So Lonnie has a Rule 155 beancount on tap, with $500K of deficiency and add-ons at the end. But it gets worse, as my source tells me Lonnie also got a civil judgment against him and his pharmacy from USDCEDKY of $4,474,000.

So why is Lonnie fighting about $500K in Tax Court (and doing a good research and briefwriting job, at that)?

Well, Judge AIM Marshall says USDCEDKY also gave Lonnie, at no extra charge, a “term of imprisonment for a term of 360 months, three years of supervised release, and a criminal monetary penalty of $7,100.” T. C. Memo. 2024-16, at p. 2. So see the title of this blogpost first written at the head hereof.