T.C. Summary Opinion 2005-112
UNITED STATES TAX COURT
JAMES M. AND MARY N. GORSKI, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4338-04S. Filed August 4, 2005
James M. and Mary N. Gorski, pro sese.
Richard J. Hassebrock, 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, and Rule references are to the Tax Court Rules of
Practice and Procedure.
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Respondent determined a deficiency of $2,500 in petitioners’
2001 Federal income tax that was based solely on the failure to
pay the 10-percent additional tax on an early distribution of
$25,000 from an individual retirement account (IRA). After
respondent’s concession that $7,017.01 of the distribution was
used to pay qualified higher education expenses in the taxable
year 2001, the issue is whether petitioners are subject to the
10-percent additional tax under section 72(t)(1) on the remaining
$17,982.99. Petitioners resided in Liberty Township, Ohio, at
the time the petition was filed.
Background
Petitioners received an early distribution of $25,000 from
an IRA in 2001.2 Petitioners were both younger than 59-1/2 at
the time of the withdrawal. Petitioners reported the $25,000 as
income on line 15b of their jointly filed 2001 Form 1040, U.S.
Individual Income Tax Return, which was filed on August 14,
2002.3 Petitioners’ daughter Kathleen enrolled in classes at
Miami University in Oxford, Ohio, in August, 2001.
Respondent determined a deficiency of $2,500 for the taxable
year 2001 based solely on petitioners’ failure to pay the 10-
2
The record does not contain the exact date in 2001 of
the distribution.
3
This appears to be a timely filed return, though the
record does not specifically contain information regarding
extension requests.
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percent additional tax on the $25,000 IRA withdrawal.
Petitioners were able to substantiate, and respondent has
conceded, that $7,017.01 of the IRA distribution was used to pay
qualified higher education expenses in 2001 for Kathleen
consisting of tuition, fees, and room and board. Petitioners
argue that additional expenses totaling $2,684.30 are also
qualified higher education expenses and should not be subject to
the 10-percent additional tax. The disputed $2,684.30 is made up
of the following expenses: (1) $1,585 for a computer; (2) $400
for books; (3) $504.12 for housewares, appliances, and furniture;
and (4) $195.18 for bedding.
Respondent agrees that the expenses for the computer,
housewares, appliances, furniture, and bedding were incurred and
paid in 2001, but argues that they are not qualified higher
education expenses because they were not required by the
university. Respondent argues that the book expense was not
properly substantiated as having been incurred and paid in 2001
for books that were required for Kathleen’s enrollment in
classes.
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Discussion4
A. Tax Treatment of Early IRA Distributions
Section 408(d)(1) provides that any amount paid or
distributed out of an individual retirement plan shall be
included in gross income by the distributee in the year of
distribution in the manner provided under section 72. An IRA is
included in the definition of an individual retirement plan.
Sec. 7701(a)(37). Petitioners properly reported the entire
$25,000 distribution from their IRA as income on their 2001
return.
Section 72(t)(1) imposes an additional 10-percent tax on
that portion of a distribution from a qualified retirement plan
that is includable in the taxpayer’s gross income, unless the
distribution satisfies an exception found under section 72(t)(2).
An IRA is a qualified retirement plan for purposes of the
additional 10-percent tax. Secs. 72(t)(1), 4974(c)(4). The
additional tax does not apply to distributions from an IRA used
to pay for qualified higher education expenses. Sec.
72(t)(2)(E). Petitioners do not argue that any other exception
4
Sec. 7491(a), concerning burden of proof, has no
bearing on this case. The issue with respect to the computer,
housewares, appliances, furniture, and bedding expenses is
primarily one of law. Regarding the book expense, sec. 7491(a)
is not applicable because petitioners have not satisfied the
substantiation requirement. Sec. 7491(a)(2)(A).
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found in section 72(t)(2) applies to their 2001 IRA distribution.
B. Qualified Higher Education Expenses
For purposes of section 72(t)(2)(E), qualified higher
education expenses are expenses for tuition, fees, books,
supplies, and equipment required for enrollment or attendance at
an eligible educational institution.5 Sec. 529(e)(3)(A). Room
and board may be qualified higher education expenses for students
under guaranteed plans who are at least half-time students. Sec.
529(e)(3)(B). Furthermore, higher education expenses must be for
the education of the taxpayer, the taxpayer’s spouse, or any
child or grandchild of the taxpayer or taxpayer’s spouse. Sec.
72(t)(7).
1. The Computer
Neither the Internal Revenue Code nor the applicable
regulations provide specific guidance on whether a computer is a
qualified higher education expense. Petitioners point to
Internal Revenue Service Notice 97-60, 1997-2 C.B. 310, to argue
that a computer is a “necessary tool or equipment” and therefore
is a qualified higher education expense. Notice 97-60 does not,
5
An eligible educational institution is any college,
university, vocational school, or other postsecondary vocational
institution that is described in sec. 481 of the Higher Education
Amendments of 1986, Pub. L. 99-498, 100 Stat. 1476. Sec.
529(e)(5); Notice 97-60, sec. 4, 1997-2 C.B. 310, 317-318.
Respondent does not question, and we assume for the purpose of
this opinion, that Miami University is an eligible educational
institution.
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however, specifically define “equipment” or address the treatment
of expenses for computers. Notice 97-60, supra. Moreover, the
authoritative sources of Federal tax law are statutes,
regulations, and judicial case law and not informal Internal
Revenue Service sources. See Zimmerman v. Commissioner, 71 T.C.
367, 371 (1978), affd. without published opinion 614 F.2d 1294
(2d Cir. 1979); Green v. Commissioner, 59 T.C. 456, 458 (1972).
Thus, petitioners’ reliance on Notice 97-60 is misplaced.
Petitioners’ contention that a computer is included under
the meaning of the word equipment warrants consideration, as the
absence of detail from a statutory text, or Congressional
reluctance to legislate for all possible future situations, does
not mean that Congress thereby intended to adopt a policy
intolerant of adaptive interpretation. Zabolotny v.
Commissioner, 97 T.C. 385, 412 (1991) (citing Deluxe Corp. v.
United States, 885 F.2d 848, 850-851 (Fed. Cir. 1989)), affd. in
part and revd. in part 7 F.3d 774 (8th Cir. 1993). Therefore, it
cannot be said that Congress did not intend a computer to be
considered “equipment” for the purpose of section 72(t)(2)(E).
Petitioners’ argument loses steam in their assertion that a
computer was “necessary” for Kathleen’s attendance at the
university. According to the Code, the computer must be
“required”. Sec. 529(e)(3). Notwithstanding the absence of
documentation from Miami University stating that it requires
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students to purchase a computer, it cannot be said from this
record that a computer was required for Kathleen’s enrollment in
classes.
Petitioner James Gorski (Mr. Gorski) testified that there is
a bank of computers available for student use located in the
university’s library. Mr. Gorski admitted that he had not
personally seen the library computers, but that it was his
understanding there were only four or five available for 15,000
students at any time. He further testified that by having her
own computer, his daughter would not have to use these library
computers and risk walking from the library back to her dorm room
late at night.
Petitioners’ concern for their daughter’s safety, while
understandable, does not prove that the purchase of a computer
was required by Miami University. Mr. Gorski further testified
that professors use an Internet-based system to post syllabi and
course assignments, and that certain university information is
only available over the Internet. He admitted, however, that
Kathleen was not enrolled in any courses that specifically
required her to have her own computer. Furthermore, with
computers available to all students in the library, syllabi and
course assignments are accessible even to students who do not
have their own computers. No matter how necessary petitioners
think Kathleen’s having her own computer may be, the expense of
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one was not required for her enrollment or attendance at Miami
University and is not a qualified higher education expense for
purposes of section 72(t)(2)(E).
2. Housewares, Appliances, Furniture, and Bedding
Petitioners argue that expenses of $504.12 for housewares,
appliances, and furniture and $195.18 for bedding are qualified
higher education expenses. Petitioners did not specifically
address these items at trial, and from the record it does not
appear that any of these items were required by Miami University
for Kathleen’s enrollment. These expenses are not qualified
higher education expenses for purposes of section 72(t)(2)(E).
3. Books
Books required for the enrollment or attendance in a course
at an eligible educational institution are qualified higher
education expenses under section 529(e)(3). Petitioners claim
that they spent $400 of the IRA distribution on books for
Kathleen in 2001. Petitioners have not substantiated this
expense as having been incurred and paid in 2001, or that the
books purchased were required for Kathleen’s enrollment or
attendance in courses. Therefore, the claimed $400 expense for
books is not a qualified higher education expense.
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Conclusion
Petitioners’ additional claimed expenses are not qualified
higher education expenses for purposes of section 72(t)(2)(E).
Petitioners are therefore liable for the 10-percent additional
tax on the remaining $17,982.99 of their 2001 IRA early
distribution.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.