T.C. Summary Opinion 2004-88
UNITED STATES TAX COURT
ALPHONSE M. AND DORIS ESPOSITO, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13786-03S. Filed June 30, 2004.
Alphonse M. and Doris Esposito, pro se.
Catherine R. Chastanet, for respondent.
POWELL, Special Trial Judge: This case was heard pursuant
to the provisions of section 74631 of the Internal Revenue Code
in effect at the time the petition was filed. The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority.
1
Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year in issue.
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Respondent determined a deficiency of $10,000 in
petitioners’ 1998 Federal income tax. The issue is whether
petitioners are liable for the 10-percent additional tax under
section 72(t) on an early distribution from a qualified section
401(k) retirement plan. Petitioners resided in Mt. Sinai, New
York, at the time the petition was filed.
The applicable facts may be summarized as follows.2 In
1998, petitioner Alphonse M. Esposito (petitioner) withdrew
$100,000 from his retirement plan to pay the higher education
expenses for four of his children. In preparing their 1998
Federal income tax return, petitioners included the $100,000
distribution but did not report the additional tax for an early
distribution under section 72(t). In the notice of deficiency,
respondent determined petitioners were liable for the additional
tax.
Section 72(t)(1) imposes an additional tax of 10 percent of
the taxable amount received from a “qualified retirement plan (as
defined in section 4974(c))”. Petitioner maintains that the
additional tax does not apply because the distribution qualifies
under section 72(t)(2)(E).
Section 72(t)(2)(E) provides that the additional tax on
early distributions does not apply to “distributions to an
2
The facts are not in dispute, and the issue is primarily
one of law. Sec. 7491, concerning burden of proof, has no
bearing on this issue.
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individual from an individual retirement plan to the extent such
distributions do not exceed the qualified higher education
expenses * * * of the taxpayer for the taxable year.” (Emphasis
added.) An “individual retirement plan” is defined as: “(A) an
individual retirement account described in section 408(a), and
(B) an individual retirement annuity described in section
408(b).” Sec. 7701(a)(37) (an individual retirement plan is
commonly referred to as an IRA). Section 72(t)(2)(E) was added
by section 203(a) of the Taxpayer Relief Act of 1997, Pub. L.
105-34, 111 Stat. 788, 809. The Report of the Committee on the
Budget refers only to withdrawals from IRAs. See H. Rept. 105-
148, at 288-289 (1997), 1997-4 C.B. (Vol. 1) 319, 610-611. It is
undisputed that the retirement plan from which petitioner
withdrew the $100,000 is a plan described in section 401(k), and,
therefore, the exception contained in section 71(t)(2)(E) does
not apply.
Petitioner relies on his interpretation of the instructions
to the 1998 Form 1040, U.S. Individual Income Tax Return, to
establish that section 71(t)(2)(E) is applicable. The
differences between a “qualified retirement plan” and an
“individual retirement plan” may be subtle. Nonetheless, they do
exist, and the authoritative sources of Federal tax law are the
statutes, regulations, and case law. Green v. Commissioner, 59
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T.C. 456, 458 (1972). The statutory framework is clear that
section 72(t)(2)(E) does not apply, and respondent is sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
for respondent.