T.C. Summary Opinion 2003-47
UNITED STATES TAX COURT
DEBRA SUE TUSSEY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2777-02S. Filed April 30, 2003.
Debra Sue Tussey, pro se.
Donald E. Edwards, for respondent.
DEAN, Special Trial Judge: This case was heard under the
provisions of section 7463 of the Internal Revenue Code as in
effect at the time the petition was filed. Unless otherwise
indicated, all other 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.
The decision to be entered is not reviewable by any other court,
and this opinion should not be cited as authority.
- 2 -
Respondent determined a deficiency in petitioner's Federal
income tax of $3,036 for 1999. Petitioner failed to address in
the petition or at trial the adjustment for unreported interest
income of $15, and the issue is therefore conceded. Rule
34(b)(4). The parties agree that petitioner is entitled to a
child tax credit of $500 and a Hope Scholarship Credit of
$1,237.50. The issues remaining for decision are: (1) Whether
the entire amount of a distribution from petitioner's Individual
Retirement Account (IRA) should be included in income; (2)
whether petitioner is liable for the 10-percent additional tax on
an early distribution from a qualified retirement plan; and (3)
whether the Internal Revenue Service (IRS) misled petitioner, and
if so, what is the effect of the action on this case.
The stipulated facts and exhibits received into evidence are
incorporated herein by reference. At the time the petition in
this case was filed, petitioner resided in Stillwater, Oklahoma.
Background
In May of 1999 petitioner graduated from nursing school.
Petitioner had an IRA with New York Life Insurance and Annuity
Corporation (NY Life). Her IRA was a qualified retirement plan
under section 4974(c). During 1999, when petitioner was not yet
59-1/2 years old, she received a $15,347 lump-sum distribution
from her IRA. She used at least $10,000 of the distribution to
buy her first house.
- 3 -
NY Life issued to petitioner a Form 1099-R, Distributions
From Pensions, Annuities, Retirement or Profit-Sharing Plans,
IRAs, Insurance Contracts, etc., showing a gross and taxable
distribution of $16,117. Petitioner has since received a
corrected Form 1099-R showing her distribution amount to have
been $15,347.20. Petitioner attached the original Form 1099-R
she received from NY Life to her Federal income tax return for
1999. She reported on line 10a of the return total IRA
distributions of $16,117 and on line 10b a "Taxable amount" of
$6,117. Petitioner did not report on her Federal income tax
return a 10-percent additional tax on an early distribution from
a retirement plan.
Petitioner received a statutory notice dated September 19,
2001, determining a deficiency of $3,036. Petitioner received
from the IRS a letter dated March 18, 2002, stating that her
"account" had been changed and that the amount she now owed was
"none". A transcript of account for petitioner's 1999 tax year
shows that additional tax of $3,036 was assessed on February 18,
2002, and subsequently abated on March 18, 2002.
Discussion
Petitioner argues that her tax treatment of the IRA
distribution follows the advice she received over the telephone
from one or more IRS employees. She further argues that the
March 18, 2002, letter she received stating that the amount she
- 4 -
owed for 1999 was "none" should mean that she does not owe any
additional tax.
Respondent concedes that $10,000 of the money that
petitioner used to buy a house qualifies under section
72(t)(2)(F) and (8)(B) for exclusion from the additional tax on
early distributions from a qualified retirement plan. Respondent
contends, however, that the entire distribution must be included
in income and that the amount of the distribution in excess of
$10,000 is subject to the additional 10-percent tax on early
distributions from qualified retirement plans. As to the letter
of March 18, 2002, respondent's position is that the letter was
generated due to an abatement of the premature assessment of the
deficiency in this case and has no legal significance here.
As there are no factual issues in dispute in this case,
section 7491 is not implicated. Petitioner testified that
unnamed IRS employees told her that if her IRA distributions were
used for the purchase of a new home they were not taxable and
there would be no "penalties". Whether or not petitioner was
given incorrect advice by IRS personnel, bad advice is not
binding on the Commissioner.1 Darling v. Commissioner, 49 F.2d
111, 113 (4th Cir. 1931), affg. 19 B.T.A. 337 (1930); Fortugno v.
Commissioner, 41 T.C. 316, 323-324 (1963), affd. 353 F.2d 429 (3d
1
Under certain circumstances, however, erroneous written
advice may be grounds for abatement of the portion of any penalty
or addition to tax attributable to the erroneous advice. Sec.
6404(f).
- 5 -
Cir. 1965); Bagnell v. Commissioner, T.C. Memo. 1993-378. The
Court cannot disregard statutory terms, even when the result in a
particular case seems harsh. INS v. Pangilinan, 486 U.S. 875,
883 (1988); Estate of Cowser v. Commissioner, 736 F.2d 1168,
1171-1174 (7th Cir. 1984), affg. 80 T.C. 783, 787-788 (1983).
The Court will follow the statutory provisions governing the
issue in this case. With exceptions not applicable here, any
amount distributed from an IRA must be included in income by the
distributee as provided by section 72. Sec. 408(d). Therefore,
the entire IRA distribution2 petitioner received in 1999 is
includable in her income for the year. In addition, section
72(t) provides that if a taxpayer receives any amount from a
qualified retirement plan, the taxpayer's tax "shall be increased
by an amount equal to 10 percent of the portion of such amount
which is includible in gross income."
There is an exception to the additional tax required by
section 72(t) in the case of "qualified first-time homebuyer
distributions". Sec. 72(t)(2)(F). The maximum amount of a
distribution that may be treated as a qualified first-time
homebuyer distribution, however, is $10,000. Sec. 72(t)(8)(B).
Any amount of a distribution that petitioner received in excess
2
For purposes of sec. 72, all IRA distributions during the
year are treated as one distribution. Sec. 408(d)(2).
- 6 -
of $10,000 remains subject to the 10-percent additional tax
required by section 72(t). See id.
Petitioner suggested during her testimony that she should be
relieved from additional tax liability because the IRS sent her a
letter, after she had received the notice of deficiency, saying
that she owed no tax for 1999. The letter was not an agreement
to rescind the notice of deficiency. Sec. 6212(d); Rev. Proc.
98-54, 1998-2 C.B. 529. Congress has provided that closing
agreements under section 7121 and compromise agreements under
section 7122 are the exclusive means by which the IRS can
administratively settle civil tax disputes with finality. See
Botany Worsted Mills v. United States, 278 U.S. 282, 288 (1929);
Estate of Meyer v. Commissioner, 58 T.C. 69, 70 (1972); see also
Sampson v. Commissioner, 444 F.2d 530, 531 (6th Cir. 1971), affg.
per curiam T.C. Memo. 1970-212.
The record is devoid of any evidence that petitioner and
respondent entered into either a valid closing or compromise
agreement. The evidence in the record indicates that there was a
premature assessment of the proposed $3,036 deficiency that was
abated. The abatement prompted the issuance of the letter
stating that no tax was due. The proposed deficiency may not
properly be assessed until our decision in this case has become
final. See secs. 6211(a), 6212(a), and 6213(a).
- 7 -
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.