T.C. Memo. 2007-306
UNITED STATES TAX COURT
DAVID BRIAN NOLAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8739-06. Filed October 9, 2007.
David Brian Nolan, pro se.
Ann M. Welhaf and Michael A. Raiken, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: Respondent determined a deficiency in
petitioner’s 2003 Federal income tax of $2,195.1 After
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, in effect for the year at issue. All
Rule references are to the Tax Court Rules of Practice and
Procedure. Amounts are rounded to the nearest dollar.
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concessions,2 the issue for decision is whether $3,480 in taxable
distributions from petitioners’s individual retirement account
(IRA) is subject to the 10-percent additional tax under section
72(t).
FINDINGS OF FACT
Petitioner resided in Alexandria, Virginia, when the
petition was filed.
Petitioner was born in 1951. In 2003, he received $21,950
in distributions from an IRA. Petitioner used the proceeds
during 2003 to help pay $18,470 in college expenses on behalf of
his sons David and John Nolan and $15,525 in tuition and fees to
Randolph-Macon Academy on behalf of a third son, Christopher
Nolan. Christopher was enrolled in the ninth grade at Randolph-
Macon Academy, a private high school that prepares students for
college and the military. Christopher is scheduled to receive
his high school diploma from Randolph-Macon Academy in 2007.
On February 8, 2006, respondent issued petitioner a notice
of deficiency for 2003. Respondent determined that petitioner
was liable for additional tax of $2,195 on the early
distributions from his IRA.
2
Respondent conceded that petitioner is not liable for the
10-percent additional tax to the extent of $18,470 used to pay
qualified higher education expenses on behalf of petitioner’s
children David and John Nolan. The expenses consisted of: (1)
$15,500 to Mount Olive College; (2) $2,556 to George Mason
University; and (3) $415 to Northern Virginia Community College.
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Petitioner is an attorney and has been admitted to practice
before this Court since 1981. He did not cooperate with
respondent in preparation of the trial, and he disobeyed our
orders and Rules on numerous occasions. On October 24, 2006, the
Court issued a standing pretrial order to petitioner. The order
required petitioner to stipulate all facts to the maximum extent
possible and to exchange with respondent all documents he
intended to present for trial at least 14 days before the date of
trial, March 26, 2007. Petitioner ignored the order. He
refused, even to the day of trial, to stipulate any facts.
On October 31, 2006, respondent’s attorney sent petitioner
an informal request for production of documents. Petitioner
ignored the request. On December 6, 2006, respondent again
requested the production of documents. Again petitioner ignored
the request. On February 2, 2007, respondent filed with the
Court a motion to compel production of documents and a motion to
compel responses to respondent’s interrogatories. On February 9,
2007, we granted respondent’s motions, requiring petitioner to
answer respondent’s interrogatories in full and to produce each
and every document requested on or before March 10, 2007. We
also warned petitioner that if he did not fully comply with our
orders, we would be inclined to impose sanctions pursuant to Rule
104. Petitioner did not comply with our orders. He did not
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answer any of respondent’s interrogatories. He produced no
documents.
On March 26, 2007, because of petitioner’s refusal to answer
respondent’s interrogatories and to produce the requested
documents, we granted a motion in limine precluding petitioner
from introducing any evidence that was not furnished to
respondent on or before March 10, 2007. After a conference call
with the parties, we vacated the motion, allowing petitioner the
opportunity to present his documentary evidence. On the morning
of trial, March 30, 2007, petitioner presented documents to
respondent’s counsel which substantiated the payment of education
expenses for his children. Respondent made concessions relating
to some of those expenses. Petitioner should have presented this
evidence during the 6 months he had to prepare for trial, as
repeatedly ordered by the Court.
At trial, we admonished petitioner for failing to obey
numerous orders and for wasting the Court’s time. At the close
of trial, we ordered the parties to submit opening briefs by May
29, 2007. Petitioner did not file a brief. We showed petitioner
extraordinary leniency by allowing him to present evidence
despite his repeated failure to obey our orders. In response to
our leniency, petitioner once again ignored our Rules and our
order.
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On account of petitioner’s repeated failure to obey our
Rules and orders, we considered dismissing this case as a
sanction pursuant to Rule 123(b). See Stringer v. Commissioner,
84 T.C. 693, 704-705 (1985), affd. without published opinion 789
F.2d 917 (4th Cir. 1986); Lopez v. Commissioner, T.C. Memo. 2001-
93. However, after respondent’s concessions, the only issue for
decision is whether petitioner is liable for the section 72(t)
additional tax with respect to $3,480 in early distributions from
his IRA. As petitioner is clearly liable for the additional tax,
we will address the issue on the merits.
OPINION
Respondent determined that under section 72(t)(1) petitioner
is liable for a 10-percent additional tax on early distributions
from his IRA. Petitioner bears the burden of proving that
respondent erred in making this determination. See Rule 142(a).
Section 72(t)(1) imposes a 10-percent additional tax on
early distributions from qualified retirement plans, which
includes an IRA as defined in section 408(a) and (b).3 Secs.
72(t)(1), 4974(c). However, the section 72(t) additional tax
does not apply to certain distributions from qualified retirement
plans, including distributions used for qualified higher
3
Petitioner does not dispute that the IRA is a qualified
retirement plan for purposes of sec. 72(t).
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education expenses, and distributions used for certain medical
expenses. Sec. 72(t)(2)(A), (B), (E).
Higher Education Expenses
Petitioner argued at trial that tuition and fees paid to
Randolph-Macon Academy on behalf of his son are qualified higher
education expenses and, therefore, the additional tax does not
apply to the IRA distributions pursuant to section 72(t)(2)(E).
This issue turns on whether Randolph-Macon Academy is an eligible
educational institution as defined in section 529(e)(5).
Qualified higher education expenses include tuition, fees,
books, and supplies. Sec. 529(e)(3). The expenses must be for
education furnished to the taxpayer, the taxpayer’s spouse, or
any child or grandchild of the taxpayer or the taxpayer’s spouse.
Sec. 72(t)(7)(A). Furthermore, the education must be furnished
at an eligible educational institution. Secs. 72(t)(7)(A),
529(e)(3). Section 529(e)(5) defines “eligible educational
institution.”
(5) Eligible educational institution.-- The term
“eligible educational institution” means an
institution--
(A) which is described in section 481 of the
Higher Education Act of 1965 (20 U.S.C. 1088), as
in effect on the date of the enactment of this
paragraph, and
(B) which is eligible to participate in a
program under Title IV of such Act.
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Paragraph (5) of section 529(e) was added pursuant to the
Taxpayer Relief Act of 1997, Pub. L. 105-34, sec. 211(b)(2), 111
Stat. 810, which was passed on August 5, 1997. Institutions
described in section 481 of the Higher Education Act of 1965, 20
U.S.C. section 1088, as in effect on August 5, 1997, are
accredited colleges, universities and other postsecondary
schools. Title IV of the Higher Education Act of 1965, 20 U.S.C.
section 1070, et seq., as in effect on August 5, 1997, authorizes
the Department of Education to provide scholarships, grants, and
reduced-interest loans to students attending eligible
institutions of higher education.
Thus, eligible educational institutions under section
529(e)(5) are colleges, universities, and other postsecondary
institutions which are eligible to participate in a student aid
program administered by the Department of Education. The term
includes virtually all accredited public, nonprofit, and
proprietary postsecondary institutions. Sec. 1.25A-2(b), Income
Tax Regs.; Notice 97-60, sec. 4, 1997-2 C.B. 310, 317-318. Only
postsecondary schools may be eligible educational institutions;
therefore, elementary schools and secondary schools4 do not
qualify.
4
A secondary school is “a school intermediate between
elementary school and college”. Merriam-Webster’s Collegiate
Dictionary 1052 (10th ed. 2002).
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Petitioner’s son will receive a high school diploma from
Randolph-Macon Academy, not a bachelor’s or associate’s degree.
Therefore, Randolph-Macon Academy is a secondary school and is
not an eligible educational institution under section 529(e)(5).
Accordingly, the expenses petitioner paid Randolph-Macon Academy
are not qualified higher education expenses, and the IRA
distributions are not excepted from the section 72(t) additional
tax under section 72(t)(2)(E).
Medical Expenses
Section 72(t)(2)(B) provides an exception to application of
the section 72(t) additional tax for “Distributions made * * * to
the extent such distributions do not exceed the amount allowable
as a deduction under section 213 * * * for amounts paid during
the taxable year for medical care”.
Petitioner testified that during 2003 he paid medical
expenses relating to his diabetes. He did not present any
evidence as to the amount of the medical expenses or their
deductibility under section 213. Therefore, petitioner failed to
meet his burden of proving that the section 72(t) additional tax
should not apply on account of the medical expense exception.
Conclusion
Petitioner has not argued, and the record is devoid of any
evidence that would indicate, that the distributions qualify for
any other exception to section 72(t)(1). For the foregoing
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reasons, we hold that petitioner is liable for a 10-percent
additional tax on $3,480 of early distributions from his IRA.
In reaching our holdings, we considered all arguments made,
and, to the extent not mentioned, we conclude that they are moot,
irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.