T.C. Summary Opinion 2006-189
UNITED STATES TAX COURT
JAMES K. MOYER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16838-04S. Filed December 13, 2006.
James K. Moyer, pro se.
Diane L. Worland, for respondent.
GOLDBERG, 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. The decision to be entered
is not reviewable by any other court, and this opinion should not
be cited as authority. 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 $1,157 in petitioner’s
2002 Federal income tax. The issue for decision is whether
petitioner is liable for the 10-percent additional tax under
section 72(t) on a $11,572.40 early distribution from his
individual retirement account (IRA).
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time the petition
was filed, petitioner resided in Argos, Indiana.
In 1989, petitioner and his girlfriend, Melinda K. Garrison
(Ms. Garrison), had a son. Petitioner and Ms. Garrison never
married. When the child was 7 years old, Ms. Garrison
successfully petitioned the Marshall County, Indiana, Child
Support Division, for an Order of Support. Thereafter,
petitioner paid weekly child support to Ms. Garrison in the
amount of $108, which was taken by an automatic deduction from
his paycheck.
Petitioner worked as a laborer at Lobdell-Emery, an
automotive parts manufacturing plant, at the time that the Order
of Support was entered. Petitioner was employed at Lobdell-Emery
until June 2001, when the company decided to close its Indiana
plant and relocate its operations to Mexico. While employed at
Lobdell-Emery, petitioner participated in the company’s section
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401(k) program. When the plant shut down, petitioner elected to
“roll over” funds amassed in his section 401(k) account into a
separate IRA account he held with Edward D. Jones, Co. (Edward
Jones).
After the Lobdell-Emery plant closed, petitioner
participated in vocational rehabilitation, worked at several
part-time jobs as a laborer, and began studies towards an
associate’s degree at a local college. At the same time that
petitioner started college, he petitioned the Child Support
Division to reduce his weekly support payments based on his
status as a full-time student. Petitioner’s attempt to reduce
his payments, however, was unsuccessful. While the record is not
clear as to the exact date that petitioner stopped making his
required child support payments, by August 2002, the Child
Support Division determined that petitioner was $11,572.40 in
arrears on his child support obligation.
Petitioner completed his associate’s degree in May 2004, and
thereafter began part-time studies towards his bachelor’s degree.
Since completing his associate’s degree, petitioner has lived on
and tended to his parent’s farm. Petitioner receives income from
taking on occasional odd jobs and selling the firewood that he
cuts and bundles on the farm. In addition to his farm work and
part-time studies, petitioner has pursued full-time work. To
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this end, petitioner submitted “Employment Search Verification”
documentation to the Marshall County Circuit Court.
On August 27, 2002, the Child Support Division issued an
Order/Notice to Withhold Income for Child Support (the Order) on
Edward Jones. The Order stated that petitioner was in arrears on
his child support obligation for a total of $11,572.40. Edward
Jones received the Order on September 9, 2002, and on October 2,
2002, notified petitioner by letter that it had liquidated assets
in his IRA account totaling $11,572.40, and had forwarded this
amount to the State of Indiana Collections Unit. By check dated
October 2, 2002, Edward Jones paid $11,572.40 from petitioner’s
IRA account to the State Central Collection Unit in Indianapolis,
Indiana.
On his 2002 Federal income tax return, petitioner reported
the $11,572.40 distribution from his IRA as income. However,
petitioner did not report an additional tax of 10-percent of the
total distribution for the early withdrawal from the IRA.
Respondent determined in the notice of deficiency that petitioner
is liable for the additional tax on an early distribution from a
qualified retirement plan. Petitioner asserts that he is not
liable for the additional tax on the early distribution because
the Order meets the criteria of a qualified domestic relations
order (QDRO).
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Discussion
Section 72(t) provides for an additional tax of 10 percent
on any amount received as an early distribution from a qualified
retirement plan. Notably, the section 72(t) additional tax does
not apply in certain situations, and the situation on which
petitioner’s argument relies is described in section 72(t)(2)(C).
That section provides that distributions from qualified
retirement plans are not subject to the additional 10-percent tax
if they are made pursuant to a QDRO within the meaning of section
414(p)(1).
However, section 72(t)(3)(A) provides that the exception for
distributions pursuant to a QDRO does not apply to distributions
from an individual retirement plan. Sec. 72(t)(2)(C), (3)(A).
The term “individual retirement plan” is defined as an individual
retirement account or an individual retirement annuity. Sec.
7701(a)(37). Assuming arguendo that the Order was, in fact, a
QDRO, the exception provided by section 72(t)(2)(C) is not
applicable because the distribution at issue was made from
petitioner’s IRA.
Therefore, we must sustain respondent’s determination, and
conclude that petitioner is liable for the additional tax of 10
percent on the $11,572 early distribution from his IRA, pursuant
to section 72(t).
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Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.