CourtListener opinion 4334792

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T.C. Memo. 2004-40

 UNITED STATES TAX COURT

 ANTHONY J. AND DENISE D. SADBERRY, Petitioners v.
 COMMISSIONER OF INTERNAL REVENUE, Respondent

 Docket No. 10499-02. Filed February 18, 2004.

 Anthony J. and Denise D. Sadberry, pro se.

 R. Scott Shieldes, for respondent.

 MEMORANDUM OPINION

 COUVILLION, Special Trial Judge: Respondent determined a

deficiency of $22,255 in petitioners' Federal income tax and a

penalty of $4,433 under section 6662(a) for the year 1999.1

 1
 Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the year at issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
 - 2 -

 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.
 - 3 -

Denise D. Sadberry, his wife of many years. Petitioner is an

attorney, and Mrs. Sadberry is a homemaker. Petitioners have one

daughter, Andrea Joi Sadberry, who is also known as Savannah J.

Spivey (Andrea). Petitioners own a ranch on the Brazos River in

Caldwell, Texas, across the river from Texas A&M University.

 Petitioner's education includes a bachelor's degree from the

University of Texas at Austin and a law degree from Georgetown

University Law Center at Washington, D.C. Upon receiving his law

degree in 1975, petitioner was employed in the Office of the

Attorney General for the State of Texas for 2 years. From 1977

until the date of trial, petitioner was engaged in the private

practice of law at various firms in Houston and San Antonio,

Texas. His area of practice is commercial litigation.

Additionally, petitioner has served as a member of the Attorney

Admissions Committee for the U.S. District Court for the Southern

District of Texas. In 1993, petitioner received a gubernatorial

appointment to the Texas Lottery Commission, on which he served

as a commissioner until 2001. As an appointed State official,

petitioner was required to and did file personal financial

statements with the Texas Ethics Commission.

 When petitioner commenced law practice, most firms did not

have retirements plans. Petitioner undertook his own financial

and retirement planning, which he continued throughout his

career. Initially, he invested primarily in certificates of
 - 4 -

deposit (regular CDs). Later, some of his CDs were converted

into or purchased as individual retirement accounts (IRA CDs).

To the extent pertinent to the issues before the Court,

petitioner's retirement planning transactions are described below

in greater detail.

 In 1993, petitioner became a name partner in the law firm of

Oldenettel & Sadberry. His partner was Rick Oldenettel. The law

firm had a qualified section 401(k) retirement plan in which

petitioner participated. The firm accountant was Dan Wendel,

from whom petitioner sought informal personal tax and retirement

advice from time to time during his tenure with the law firm and

thereafter.

 During 1996, petitioner purchased a number of annuities. In

May, he purchased a nonqualified annuity from Glenbrook Life and

Annuity with proceeds he received from the settlement of a

lawsuit (Glenbrook nonqualified annuity).4 In June, he purchased

a second nonqualified annuity from Southern Farm Bureau Life

Insurance Co., funded with an initial contribution of

petitioner's regular CDs (SFB nonqualified annuity).5 In

 4
 Glenbrook Life and Annuity, Flexible Premium Deferred
Annuity Contract, policy number GA295240. Petitioner did not
elect to include the Glenbrook annuity as a qualified retirement
plan under sec. 401(a) or 4974(c)(1), nor did it qualify as an
annuity plan under secs. 403(a) and 4974(c)(2).
 5
 Southern Farm Bureau Life Insurance Co., Flexible
 (continued...)
 - 5 -

August, he purchased another annuity, a qualified annuity, from

Southern Farm Bureau Life Insurance Co., funded with an initial

contribution of petitioner's IRA CDs.6

 In August 1996, petitioner left the Oldenettel & Sadberry

firm to join the law firm of Soules & Wallace in San Antonio.

Soules & Wallace did not have a section 401(k) retirement plan,

and that motivated petitioner to engage in an additional

retirement planning transaction based on the advice of the

accountant for his former law firm, Mr. Wendel. Because of his

understanding that a simplified employee pension (SEP) plan

allowed for greater funding than an IRA, petitioner purchased an

SEP plan late in 1996.7 However, he became concerned about

possible tax consequences of participating in a 401(k) plan and

an SEP plan in the same year. He therefore terminated the SEP

plan and deposited the funds from the SEP into the SFB

nonqualified annuity, again with the advice of Mr. Wendel.

 5
 (...continued)
Premium Retirement Annuity, policy number 185128F. Petitioner
likewise did not elect to include this annuity as a qualified
retirement plan.
 6
 Southern Farm Bureau Life Insurance Co., Flexible
Premium Retirement Annuity, policy number 186618F. Petitioner
elected to include this annuity as part of a qualified retirement
plan.
 7
 Southern Farm Bureau, Flexible Premium Retirement
Annuity, policy number 200288F. A SEP, as defined under sec.
408(k), is a qualified plan.
 - 6 -

 Petitioner's affiliation with the San Antonio firm of Soules

& Wallace continued until 1997, when he became self-employed

again and resumed practicing law in Houston. In November 1997,

petitioner purchased a new SEP plan from Southern Farm Bureau.

Some time thereafter, he became associated as "Of Counsel" with

the law firm of Wickliff & Hall, P.C., in Houston. He was

employed there during the year at issue, 1999.

 In addition to planning for retirement, a principal factor

that influenced petitioner's financial decisions was the

education of his daughter, Andrea. Initially, through her

experience with horses on petitioners' ranch, Andrea had intended

to enroll at Texas A&M University. However, she was also an

accomplished flutist at an early age. While attending the High

School for Performing and Visual Arts (HSPVA) in Houston, she

decided to pursue musical rather than agricultural endeavors.

Petitioner accompanied Andrea to auditions at various

conservatories, including Julliard in New York City, Oberlin

College in Ohio, Curtis Institute in Philadelphia, and the

Eastman School of Music (Eastman) in Rochester, New York.

Travel, private instruction, and other expenses were incurred in

connection with these auditions. Andrea was accepted and decided

to enroll in Eastman.

 Petitioner realized that Andrea's musical studies would cost

significantly more than a Texas A&M degree, which he had
 - 7 -

originally anticipated and budgeted. In part to finance Andrea's

education, he requested and received sizeable distributions from

the Glenbrook nonqualified annuity and the SFB nonqualified

annuity during 1999. He knew that portions of these

distributions would be taxable and attempted to anticipate his

tax obligations and Andrea's future expenses through

withholdings, advance planning, and record keeping. Petitioner

made the decisions regarding the distributions himself and did

not seek or receive tax advice regarding them.

 On January 21, 1999, petitioner requested a distribution of

$330,000 from the SFB nonqualified annuity (SFB distribution).

He requested that Southern Farm Bureau withhold 10 percent of the

gross distribution, or $33,000, for Federal income taxes.

Petitioner explained why he requested that the withholding be

calculated from the gross amount of the distribution, rather than

from the taxable portion, as he testified:

 to be safe. I knew enough to know that only a certain
 amount of it was going to be taxable * * *. And I said,
 Well, $33,000 ought to cover it * * *. I was getting a
 certain amount of money in the IRS' hands, in case I'm wrong
 about this whole thing.

On January 30, 1999, Southern Farm Bureau issued a check to

petitioner in the net amount of $297,000, after withholding

$33,000 income taxes. With these funds, petitioner purchased a
 - 8 -

CD in the amount of $247,000.8 Petitioner retained the remaining

$50,000 in his personal checking account in anticipation of

expenses to accompany Andrea to her auditions. The SFB

distribution was reported to petitioners on Forms 1099-R,

Distributions From Pensions, Annuities, Retirement or Profit-

Sharing Plans, IRAs, Insurance Contracts, etc. The taxable

portion of the distribution on the Form 1099-R was $48,856.87.

 Petitioner also requested four distributions from the

Glenbrook nonqualified annuity during 1999 (Glenbrook

distributions). These distributions totaled $76,408.13.

Petitioner requested that Glenbrook withhold 10 percent of the

taxable portions of the distributions, or $1,269.25, for Federal

income tax purposes. Those distributions, like the Southern Farm

Bureau distribution, were reported to the Internal Revenue

Service and to petitioners on Forms 1099-R. The taxable amount

of the Glenbrook distributions was $12,692.51. Thus, the taxable

distributions from the Southern Farm Bureau and Glenbrook

nonqualified annuities totaled $61,549.38, and the total income

tax withholdings from both payers was $34,265.26.

 8
 Citizens State Bank, CD No. 17140, dated Feb. 3, 1999.
Petitioner purchased the CD in the name of "Anthony J.
Sadberry/Trust, Anthony J. Sadberry, Trustee," but under his own
personal Social Security number. He later assigned these funds
to a properly formed trust with its own taxpayer identification
number, as will be further explained.
 - 9 -

 To further achieve his financial goals, petitioner formed

Anthony Sadberry Family Trust No. 1 (the Trust) in 1999 to

finance Andrea's education and provide for her in the event of

his death or incapacity. The Trust was assigned its own tax

identification number in March 1999 and was funded in part by the

net proceeds of the SFB distributions.9 In June 1999, petitioner

withdrew $28,988 from the Trust. He deposited that amount into

his personal checking account and then issued a check for that

amount to Eastman for Andrea's tuition for the 1999-2000 academic

year. Petitioner also paid for Andrea's travel to Hawaii in July

1999 to attend a flute class not associated with Eastman but

recommended by her upcoming professor at Eastman. After Andrea

enrolled at Eastman, petitioner withdrew additional funds from

the Trust to pay for her living expenses, clothing, a computer,

rent, and flights to and from school. As trustee of the Trust,

he filed Form 1041, U.S. Income Tax Return for Estates and

Trusts, timely for 1999.10

 During 1999, petitioner was approached by officials at

Georgetown University Law Center (Georgetown) to contribute to

the school's African-American Scholarship Endowment. Since he

 9
 Petitioner assigned CD No. 17140, which he had
purchased after receiving the SFB distribution, to the Trust on
Apr. 6, 1999.
 10
 The Trust return reported $6,909.05 in income, all of
which was interest, and a tax of $1,704.05.
 - 10 -

had attended Georgetown on a disadvantaged student scholarship,

he decided to honor the school's request. By letter dated

November 19, 1999, he informed Georgetown that he would make a

commitment of $25,000 to the endowment. An Endowed Fund

Agreement with Georgetown was executed in March 2000 wherein

petitioner agreed to pay $5,000 per year toward his commitment.

The first pledge payment was made in January 2000. Petitioner

agreed that this pledge would be a debt of his estate.

 Petitioners filed a joint, self-prepared Federal income tax

return timely for 1999 (original return) on which they reported

the following income:

 Salaries & wages $145,675.15
 Taxable interest income 577.97
 Unemployment compensation 5,594.00
 Other income (Form 1099) 3,396.60
 Total income $155,243.72

No income was reported on Line 16a of the return for pension and

annuity income. The return shows an income tax liability of

$34,538.64, Federal income taxes withheld of $35,524.89, and an

overpayment of $986.26, which was in due course refunded to

petitioners. The $35,524.89 in taxes withheld did not include

the taxes withheld in the SFB and Glenbrook annuity distributions

earlier described. Lines 50 through 56 of the tax return, Form

1040, is for "other taxes"; Line 53 is for "Tax on IRAs and other

retirement plans." Petitioners did not report any amount on Line
 - 11 -

53 but instead wrote in the space: "See note attached." Two

pages of handwritten notes were attached to the return. The

first page referenced line 53 and stated: "The required 10% IRS

withholding was made as to Glenbrook Life & Annuity-–see Form

1099-R attached." The second page referenced the Trust and

stated: "See attached Form 1099-R for Southern Farm Bureau Life

Insurance Company–10% IRS withholding occurred-–These funds were

placed in the Trust and/or were used for the Trust purposes."

Petitioner believed he was following the instructions to Form

1040 in not listing the taxable portions of the distributions as

income on line 16 (IRA distributions) and the 10-percent tax for

early distributions on line 53 (tax on IRAs, etc.). He believed

that the attached notes would satisfy those two lines on the

return. He believed that placing a portion of the proceeds from

the Southern Farm Bureau distribution into a trust constituted a

rollover, and that, if he were in error in that assumption, the

IRS would correct it.

 On April 25, 2000, petitioner signed a notarized personal

financial statement for 1999, which he filed with the Texas

Ethics Commission as required of him as a member of the Texas

Lottery Commission. He listed on that report the Southern Farm

Bureau and Glenbrook distributions, including the gross and

taxable portions of the distributions.
 - 12 -

 In August 2000, petitioners filed Form 1040X, Amended U.S.

Individual Income Tax Return, for 1999 (amended return). As was

the case with their original return, petitioners did not seek

advice or assistance with respect to this amended return. On

line 9 of the amended return, Other taxes, petitioners reported

$6,154.94 as a 10-percent penalty on the Southern Farm Bureau and

Glenbrook distributions, which they referred to in Part II of the

amended return, Explanation of changes to income, deductions and

credits. In addition, petitioners increased their withholding

credit to $69,794.14, to include the taxes withheld on the SFB

and Glenbrook distributions.11 Petitioners did not include the

taxable portion of the SFB and Glenbrook distributions as income

on the amended return. Petitioners calculated and claimed a tax

overpayment of $27,753.13. Respondent refunded the claimed

overpayment with interest (second refund), and the refund was

contributed by petitioner to the SFB nonqualified annuity on or

 11
 Additionally, on line 1 of the amended return,
petitioners reported partnership income of $1,088 that was not
reported on the original return. Petitioners attached Schedule
K-1, Partner's Share of Income, Credits, Deductions, etc., which
reflected partnership distributions to petitioner during 1999 of
$1,088. The Schedule K-1, however, reflected net income
attributable to petitioner of $476 and interest income of $168.
It is apparent, therefore, that petitioners erroneously reported
$1,088 as partnership income when, instead, petitioners should
have reported net partnership income of $476 and interest income
of $168. A Rule 155 computation will be necessary to correct
this error and to include any self-employment tax that may be due
on such income. See supra note 2.
 - 13 -

before October 31, 2000. Petitioner merely endorsed the check

over to Southern Farm Bureau.

 In the notice of deficiency and accompanying explanations,

respondent determined that petitioners failed to include on their

original and amended returns the taxable annuity proceeds of

$61,548.12 Respondent adhered to the $6,154.94 penalty that

petitioners self-assessed on their amended return for the

$61,549.38 taxable portion of early distributions by Southern

Farm Bureau and Glenbrook. Respondent included the previously

unreported SFB and Glenbrook distributions as gross income,

determined that self-employment tax was due, and allowed a

corresponding deduction for one-half of such tax. Respondent

reduced petitioners' exemptions deduction under section 151(d)

because of adjusted gross income greater than $189,950. Finally,

respondent determined that a 20-percent accuracy-related penalty

was due for substantial understatement of tax under section

6662(a).

 The first issue is whether petitioners received taxable

annuity proceeds of $61,548. Section 61(a)(9) provides that

 12
 The combined amount of taxable annuity proceeds
reported on Forms 1099-R by Southern Farm Bureau and Glenbrook is
actually $61,549.38. Respondent admitted a $1.38 error in
petitioners' favor on the amount of annuity proceeds includable
as income and did not seek an increased deficiency.
 - 14 -

gross income includes income from annuities, and that principle

is reiterated in section 72(a):

 Except as otherwise provided in this chapter, gross income
 includes any amount received as an annuity (whether for a
 period certain or during one or more lives) under an
 annuity, endowment, or life insurance contract.

Petitioners do not deny having received the distributions in

question and do not dispute the Glenbrook and Southern Farm

Bureau allocations between the taxable and nontaxable portions of

the distributions as reported on Forms 1099-R. Petitioner

reported the same allocations on his financial disclosure forms

filed with the Texas Ethics Commission.

 Nevertheless, petitioners disagree with respondent's

determination that $61,548 should be taxed. First, they contend

that the distributions of SFB and Glenbrook were rolled over.

They argue that a partial rollover occurred when petitioners'

second refund from the IRS of $27,753.13, plus interest, was

received and transferred over to the SFB nonqualified annuity.13

They argue that the date of their actual receipt of the second

refund from the IRS, rather than the date of the SFB

 13
 Petitioners initially argued that a partial rollover
occurred when a portion of the net SFB distribution was invested
in a CD held in trust for Andrea Sadberry. The record reflects
that petitioners changed their position, and the Court considers
this point conceded.
 - 15 -

distribution, commenced the 60-day period in which to rollover

that portion of the distribution.

 The Court disagrees that a rollover occurred or could have

occurred. A rollover occurs when distributions from certain

qualified retirement plans are contributed or deposited into

another qualified retirement plan within a 60-day time period.

Secs. 402(c)(4), 403(a)(4), 403(b)(8), 408(d)(3)(A). All of the

distributions petitioners received during 1999, including the SFB

distribution, were from nonqualified plans. Therefore, no

rollover could have occurred. Sec. 1.402(c)-2 Q&A-1, Q&A-2, Q&A-

3, Income Tax Regs. Because of this conclusion, the Court need

not address whether the timing requirements of a rollover were

met or when those requirements began to run.

 Secondly, petitioners argue that respondent is equitably

estopped from contending that the SFB and Glenbrook distributions

were not distributions that qualified for rollover treatment. In

advancing this argument, petitioners claim to have detrimentally

relied on the instructions to Form 1040 in reporting the tax

consequences of their 1999 distributions. Specifically,

petitioners cite page 24 of these instructions, which states: "A

rollover is a tax-free distribution of cash or other assets from

one retirement plan that is contributed to another plan."

Petitioners interpret these instructions to mean that they could

have rolled over their distributions and eliminated their
 - 16 -

liability for the 10-percent penalty. They claim detrimental

reliance in that had they known they would owe such tax,

petitioner would have paid off the pledge to Georgetown

University Law Center in full in 1999, and, in so doing,

petitioners could have taken an itemized charitable contribution

deduction for the $25,000 gift to Georgetown. Instead, they

claimed the standard deduction on their 1999 return and lost the

tax benefits of a charitable contribution they could have

realized.

 A more complete reading of the applicable instructions

undercuts petitioners' argument. The instructions clearly state

that they apply to rollovers from one qualified plan to another

qualified plan.14 Petitioners' SFB and Glenbrook nonqualified

 14
 The instructions read, in pertinent part:

 Rollovers

 A rollover is a tax-free distribution of cash or other
 assets from one retirement plan that is contributed to
 another plan. Use lines 16a and 16b to report a rollover,
 including a direct rollover, from one qualified employer's
 plan to another or to an IRA or SEP.

 Enter on line 16a the total distribution before income
 tax or other deductions were withheld. This amount should
 be shown in box 1 of Form 1099-R. From the total on line
 16a, subtract any contributions (usually shown in box 5)
 that were taxable to you when made. From that result,
 subtract the amount that was rolled over either directly or
 within 60 days of receiving the distribution. Enter the
 remaining amount, even if zero, on line 16b. Also, put
 "Rollover" next to line 16b.
 (continued...)
 - 17 -

annuities were not qualified plans, and petitioners have never

contended that their plans were qualified plans. Moreover,

equitable estoppel can be applied against the Government only

when the following elements, at a minimum, are present: (1) A

false representation or wrongful, misleading silence by the party

against whom the opposing party seeks to invoke the doctrine; (2)

an error in a statement of fact and not in an opinion or

statement of law; (3) ignorance of the true facts; (4) reasonable

reliance on the acts or statements of the one against whom

estoppel is claimed; and (5) adverse effects of the acts or

statement of the one against whom estoppel is claimed. Norfolk

S. Corp. v. Commissioner, 104 T.C. 13, 60 (1995), modified 104

T.C. 417 (1995), affd. 140 F.3d 240 (4th Cir. 1998). The

doctrine is applied against the Government with the utmost

 14
 (...continued)
 Special rules apply to partial rollovers of property.
 For more details on rollovers, including distributions under
 qualified domestic relations orders, see Pub. 575.

 Lump-Sum Distributions

 If you received a lump-sum distribution from a profit-
 sharing or retirement plan, your Form 1099-R should have the
 \Total distribution\" box in box 2b checked. You may owe an