T.C. Summary Opinion 2006-177
UNITED STATES TAX COURT
RICHARD D. SMART, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12217-05S. Filed October 25, 2006.
Richard D. Smart, pro se.
Joseph T. Ferrick, for respondent.
ARMEN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect when the petition was filed.1 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, all subsequent section
references are to the Internal Revenue Code in effect for 2002,
the taxable year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
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Respondent determined a deficiency in petitioner’s Federal
income tax for the taxable year 2002 of $11,625.10. The sole
issue for decision is whether petitioner is liable, under section
72(t), for the 10-percent additional tax on an early distribution
from petitioner’s qualified retirement plan. We conclude that he
is.
Background
Some of the facts have been stipulated, and they are so
found. We incorporate by reference the parties’ stipulation of
facts and accompanying exhibits.
At the time that the petition was filed, petitioner resided
in Macomb, Illinois.
Petitioner worked for Connor Company for 22 years. He
participated in the company’s Employees Savings and Profit
Sharing 401(k) Plan (401(k)) and retired in 2002 at the age of
54.2
During 2002, petitioner received two distributions from his
401(k) account. One of the distributions comprised just the
earnings on the money invested into his 401(k) account;
petitioner rolled over the entire amount, $110,686.68, into an
individual retirement account. This distribution is not at issue
in this case.
2
There is no dispute that this 401(k) plan is a qualified
retirement plan for Federal tax purposes. See secs. 401(a),
(k)(1), 4974(c)(1).
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The other distribution, $116,251.20, comprised the employer
and pretax employee contributions to petitioner’s 401(k); income
tax was withheld from this distribution, and he used a portion of
the distribution to pay off personal debts. He used the
remainder, approximately $30,000, to assist in the acquisition of
his first home.
Petitioner timely filed a Form 1040, U.S. Individual Income
Tax Return, for 2002. On his return, petitioner properly
reported the $116,251.20 distribution as income but did not
report the 10-percent additional tax for early distributions
under section 72(t). In the notice of deficiency, respondent
determined that petitioner was liable for the 10-percent
additional tax on the early $116,251.20 distribution (hereinafter
the distribution) from his 401(k) plan pursuant to section 72(t).
Discussion3
Generally, a distribution from a qualified plan is
3
We decide the issue in this case without regard to the
burden of proof because the facts are not in dispute, and the
issue is legal in nature. See sec. 7491(a); Rule 142(a); Higbee
v. Commissioner, 116 T.C. 438 (2001). In addition, petitioner
does not argue that the burden of proof in this case should be
shifted to respondent under sec. 7491. Furthermore, as we do not
decide the issue in this case on the burden of proof, regardless
of whether the $11,625.10 additional tax under sec. 72(t) would
be considered an “additional amount” under sec. 7491(c), and
regardless of whether the burden of production with respect to
this additional tax would be on respondent, respondent in this
case has met any such burden of production by showing that
petitioner received the distribution when he was 54 years of age.
See H. Conf. Rept. 105-599, at 241 (1998), 1998-3 C.B. 747, 995.
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includable in the distributee’s gross income in the year of
distribution under the provisions of section 72. Secs.
61(a)(11), 402(a); see secs. 401(a), 4974(c)(1). Such
distributions made prior to a taxpayer’s attaining the age of 59½
that are includable in income are generally subject to a 10-
percent early withdrawal tax unless an exception to the tax
applies. Sec. 72(t)(1).
The section 72(t) additional tax is intended to discourage
premature distributions from retirement plans. Dwyer v.
Commissioner, 106 T.C. 337, 340 (1996); see also S. Rept. 93-383,
at 134 (1973), 1974-3 C.B. (Supp.) 80, 213. Being debt free is a
laudable financial goal. Regrettably, no exception applies for
that purpose; the money petitioner used to pay off his personal
debts remains subject to the 10-percent additional tax. While
petitioner’s hard work enabled him to retire a bit early, the tax
code is sometimes unforgiving in its attempts at standardization.
Section 72(t)(2)(F) does exempt distributions from the early
withdrawal tax to the extent such distributions are qualified
first-time homebuyer distributions. However, the maximum amount
of a distribution that may be treated as a qualified first-time
homebuyer distribution is $10,000. See sec. 72(t)(8)(B).
Therefore, only $10,000 of the approximately $30,000 petitioner
used to acquire his first home would be eligible for relief from
the additional 10-percent tax under the exception, if applicable,
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and the remainder would be subject to the additional 10-percent
tax.
A “[q]ualified first-time homebuyer distribution” is any
payment received by an individual to the extent that the
distribution is used by that individual within 120 days to pay
qualified acquisition costs with respect to a principal residence
if the individual is a first-time homebuyer. Sec. 72(t)(8)(A).
Unfortunately, the exception under 72(t)(8) is a technical one,
and, because of tragic family circumstances, petitioner falls
outside the exception.
Petitioner received the distribution in late 2002. His
younger brother passed away in 2003, and consequently,
petitioner’s new home acquisition was delayed until the fall of
2004, bringing him outside the 120-day window.
If the language of a statute is plain, clear, and
unambiguous, the statutory language is to be applied according to
its terms unless a literal interpretation of the statutory
language would lead to absurd results. Robinson v. Shell Oil
Co., 519 U.S. 337, 340 (1997); Consumer Prod. Safety Commn. v.
GTE Sylvania, Inc., 447 U.S. 102, 108 (1980); United States v.
Am. Trucking Associations, Inc., 310 U.S. 534, 543-544 (1940);
Allen v. Commissioner, 118 T.C. 1, 7 (2002). In the instant
case, the Court deeply sympathizes with petitioner for his loss,
but we are bound by the statutory language and unable to extend
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the time limit imposed by law.
Since the distribution was funded by petitioner’s own
contributions and matching contributions by his former employer,
petitioner argues that the additional tax should not be applied
to these funds even if it would have been applied to a
distribution consisting of the earnings on the funds contributed.
Unfortunately, the tax laws make no distinction, see sec.
61(a)(11), and the 10-percent additional tax applies equally to
both sources of funds.
In closing, we think it appropriate to observe that we found
petitioner to be a very conscientious taxpayer who takes his
Federal tax responsibilities seriously. The Tax Court, however,
is a court of limited jurisdiction and lacks general equitable
powers. Commissioner v. McCoy, 484 U.S. 3, 7 (1987); Hays Corp.
v. Commissioner, 40 T.C. 436, 442-443 (1963), affd. 331 F.2d 422
(7th Cir. 1964). Consequently, our jurisdiction to grant
equitable relief is limited. Woods v. Commissioner, 92 T.C. 776,
784-787 (1989); Estate of Rosenberg v. Commissioner, 73 T.C.
1014, 1017-1018 (1980). This Court is limited by the exceptions
enumerated in section 72(t). See, e.g., Arnold v. Commissioner,
111 T.C. 250, 255-256 (1998); Schoof v. Commissioner, 110 T.C. 1,
11 (1998). Although we acknowledge that petitioner used his
distributions for entirely reasonable purposes, absent some
constitutional defect we are constrained to apply the law as
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written, see Estate of Cowser v. Commissioner, 736 F.2d 1168,
1171-1174 (7th Cir. 1984), affg. 80 T.C. 783 (1983), and we may
not rewrite the law because we may “‘deem its effects susceptible
of improvement’”, Commissioner v. Lundy, 516 U.S. 235, 252 (1996)
(quoting Badaracco v. Commissioner, 464 U.S. 386, 398 (1984)).
Accordingly, we must sustain respondent’s determination.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect our disposition of the disputed issue,
Decision will be entered
for respondent.