T .C. Su m m ary Op i n io n 2 01 9 -1 9

UNITED STATES TAX COURT

L ILY HILDA SOLTANI-AM ADI AND BAHM A N J USTIN AM ADI, Pet i t i o n ers v . COM MISSIONER OF INTERNAL REVENUE, R es p o n den t

Do ck etNo . 2 0 9 0-1 8S. Fi l edAu gu s t 8 , 2 0 1 9
.

Li l y Hi ld a So l t an i-Am ad i an d Bah m an J u s t i n Am ad i , p ro s es e. M o n i ca E. Ko ch , fo r res p o n d en t
.

SUM M ARY OPINION
ARM EN, Sp eci al Tri al J u d g e: Th i s cas e was h eardp u rs u an tt o th e p ro v is i o n s o f s ect i o n 7 4 6 3 o f t h e In t ern al Rev en u e Co d e i n effect wh en th e- 2
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p et i t i o n was fi l ed
. 1 Pu rs u an t t o s ect i o n 7 4 6 3(b ), th e d eci si on t o b e en t eredi s n o t
rev i ewab l e b y

an y o ther co u rt , an d t h i s o p i n i o n s h al l n o tb e t reat ed as p reced en t fo r an y o th er cas e. Fo r 2 0 1 5 res po n d en td et erm i n ed a d efi ci en cy o f $ 1 , 6 9 7 i n p et i t io n ers ’ Fed eral i nco m e t ax . Th e i s s u es fo r d eci s i o n are: (1 ) wh et h er p et i t i o n ers recei v ed , b u tfai l edt o rep o rt , t ax ab l e i n co m e i n th e fo rm o f a d i s tri b ut i o n fro m

a s ect i o n 4 0 1 (k ) ret i rem en tp l an ; an d , i f s o , (2 ) wh et h er p et i t i o n ers are l i ab l e fo r t h e 1 0 % ad d i t i o n al t ax u nd er s ect i o n 7 2 (t ) fo r an earl y

d i s tri b ut i o n fro m

th atp l an . Back gro u n d So m e o f t h e fact s h av e b een s ti p u lat ed , an dth ey are s o fo u n d . Th e Co u rt i n co rp o rat es b y referen ce t h e p art i es ’ s t i p u l at i o n o f fact s an dacco m p an y i n g
ex h ib i t s . Pet i t i o ners res i d edi n th e St at e o f New Yo rk wh en th e p et it i on was fi l ed wi th th e Co u rt
. Pet i t i o ners are h u s b an d an dwi fe. In 2 0 1 5 , th e t ax ab l e y ear i n i s s u e, th ey were b o th u n d er 5 5 y ears o f ag e.

1 Un l es s o th erwi s e i n d i cat ed , al l s ub s equ en t s ect i o n referen ces are t o th e In t ern al Rev enu e Co d e i n effect fo r 2 01 5 , th e t ax ab l e y ear i n i s s ue, an dal l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re.- 3
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Du ri n g 2 0 1 5 p et i t i o n er Li l y Hi l d a So l tan i -Am ad i wo rk ed fo r t h e St at e o f New Yo rk
. By

v i rtu e o f h er em

p l o y m en t , M s . So l t an i -Am ad i p art i ci p at edi n a
s ect i on 4 0 1 (k ) ret i rem en tp l an es t ab l i sh edb y th e St at e fo r t h e ex cl us i v e b en efi to f i t s em p l o y ees or t h ei r b en efi ci ari es . Th e p l an was b o th a qu al i fi edp l an wi th i n th e
m ean i n g o f s ect i o n 4 0 1 (a) an d ex em p t fro m i n co m e t ax u n d er s ect i o n 5 0 1 (a). In 2 0 1 5 p et i t i o n ers en t eredi n t o a co n tract t o p u rch as e t h ei r fi rs th o m e. In
o rd er t o h el p fi n an ce t h e d o wnp aym en tfo r i ts p u rch as e, M s . So l t an i -Am ad i req u es t eda d i s tri b u t i o n fro m h er s ect i o n 4 0 1 (k ) ret i rem en tp l an an d, p u rs u an tt o h er req u es t , recei v eda d i st ri b u t i o n o f $ 6 , 6 8 6 , wh i ch was u s edfo r t h e i n t en d ed p u rp os e. Th e p u rch as e was co ns u m m at ed , an dp et i t i o n ers acq u i redth e h om e. Pet i t i o ners fi l eda jo i nti n co m e t ax retu rn fo r 2 0 1 5. Onthei r retu rn th ey d i d
n o ti n cl u d e i n i n co m e th e d i st ri b u t i o n fro m M s . So l t an i -Am ad i’ s s ect i o n 4 0 1 (k ) ret i rem en tp l an , n o r d i dth ey treat th e d i s tri b u ti on as an earl y d i s tri b u t i o n fro m a ret i rem en tp l an o r rep o rtad di t i o n al t ax p u rs u an tt o s ect i o n 7 2 (t ). Res p o n d en tex am i n edp et i t i o n ers ’ 2 01 5 retu rn an du lt i m at el y i s s u eda
n o t i ce o f d efi ci en cy . Th e d efi ci en cy was at tri b u tab l e t o (1 ) th e $ 6,6 8 6 d i s tri b u t i o n fro m M s . So l t an i -Am ad i ’ s 4 0 1 (k ) p l an an d (2 ) a 1 0 % ad d i t io n al t ax o n t h e d i s tri b u t i o n p u rs u an tt o s ect i on 7 2 (t ).- 4
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Pet i t i o ners res p o n d edt o th e n o t i ce o f d efi ci en cy b y t i m el y fi l i n g a p et i t i o n wi th th e Co u rtd i s p u ti n g th e d et erm i n ed d efi ci en cy . In p arag rap h 5 o f th e p et i t i o n , p et i t i o n ers p l ead edas fo l l o ws : I, Li l y Am ad i , h ad to cas h o u tm y ret i rem en tm o ney

b ecau s e we fel l s h o rtfo r d own p aym en to f o u r h o u s e. I co n tact ed[a] rep res en tat i ve an das k edth em

ab o u tcas h i n g o u tearl y , an dh e s ai ds i n ce we are fi rs t t i m e h o m e b u y ers , we wo n ’ tb e p ay i n g fu l l p en al ty . I kn ew t h at we h adt o p ay

s o m e t ax o n i t , b u tn o t th i s m u ch ! W e fo u n d o ur d ream h o u s e, an d we p u tal l o u r s av in g s i n t o p u rch as i ng a h o u s e fo r o u r fam i l y . W e were wai t i n g fo r a l et t er fro m IRS, b u tn o tex pect i ng t o b e fi n eds o m

u ch , an d o th er fees o n t op o f t h at ! Th e m o n ey th atI h ad t o cas h o u twen t t o p urch as i n g a h o u s e t hatwe are p ay i n g v ery h i gh t ax es fo r. I wo u ld n ’ tu s e m y ret i rem en tm o n ey , i f I co u l d
. I u s ed i t t o wards o m et h i n g th atwe n eed ed fo r o u r g ro wi n g fam i l y . W e wan t ed t o g et a h ou s e aft er y ears o f ap art m en tl i v i ng . I d o n ’ tth i nkwe s h o u l d p ay t ax o n t o p o f wh atwe are p ay i n g , s i n ce we are p ay i n g t ax es o n o u r h o u s e. Pet i t io n ers wen to n t o m ak e t h e fo l lo wi n g p o i n t s i n p arag rap h 6 o f t h e p et i t i o n : Pen al t i es an d fees are t o o h i g h
. W e s p en t th e m o n ey p u rch as i n g o ur v ery fi rs th o u s e. Ou r h o u s e i s a fo rm

o f ret i rem en t m o n ey . Th e m o n ey wen tt o ward s o u r h o u s e, wh i ch i s l ik e a s av i n g fo r u s wh en we g eto l d! W e ju s tn eeda b reak . W e h av e wo rk edv ery h ardan dp u to u rs el v es th ro ug h s ch o o l. W e co u l d u s e a b reak
. Di s cu ss i o n A. Pres um

p t i o n o f Co rrect n es s an dBu rd eno f Pro of Th e Co m m is s i o n er’ s d et erm i n at i o n s i n a n o t i ce o f d efi ci en cy are g en eral l y p res u m edco rrect , an dth e t ax p ay er b ears th e b urd en o f p ro v i n g t h atth o s e- 5
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d et erm i n at i o n s are erro n eo u s . Ru l e 1 4 2 (a)(1 ); W el ch v . Hel v eri n g , 2 9 0 U.S. 1 1 1 , 1 1 5 (1 93 3 ). Ho wev er, i n an u nrep o rt edi n co m e cas e t h e Co m m i s s i o ner i s o b l i g ed t o i nt ro du ce atl eas ta m i n i m al ev i d en t i ary fo u n d at i on b efo re t h e p res u m p t i o n o f
co rrect nes s wi l l at t ach
. See e.g ., Pi t t m anv . Co m m is si o n er, 1 0 0 F.3 d 1 3 0 8 , 1 3 1 6
- 1 3 1 7 (7 th Ci r. 1 99 6 ), aff’ g T.C. M em o . 1 99 5 -2 4 3 ; W ei m ers k i rch v . Co m m i s s i o n er, 5 9 6 F.2 d3 5 8 , 3 6 1 (9 th Ci r. 1 9 7 9 ), rev ’ g 6 7 T.C. 6 7 2 (1 9 7 7 ); Ri v as
v . Co m m i s s i o n er, T.C. M em o . 2 0 1 6 -1 5 8 , at* 9 -* 1 0. Su ch an ev i d en t i ary fo u n dat i o n ex i s t s i n th e p res en tcas e, as th e reco rdcl earl y d em o n s trat es thatM s . So l t an i -Am ad i was em

p l o y ed by th e St at e o f New Yo rki n 2 0 1 5 , p art i ci pat edi n a
s ect i on 4 0 1 (k ) ret i rem en tp l an , an dp u rs u an tt o h er req u es t , recei v eda d i s tri b u t i o n
o f $ 6 , 6 8 6 fro m

th e p l an i n th aty ear. Co ns equ en t l y , the p res u m p t io n o f
co rrect nes s at t ach es t o res p on d en t ’ s i n co m e d et erm i n at i o n . In ad d i t i o n , s ect i o n 7 4 91 (a) m ay s erv e t o p l ace t h e b u rd en o f p ro o f o n th e Co m m i s s i o n er as t o an y

fact ual i s s u e rel ev an t t o as cert ai n i n g the t ax p ay er’ s l i ab i l i ty if t h e t ax p ay er (1 ) i n tro du ces cred ib l e ev i d en ce wi th res p ect t o th ati s s u e
an d (2 ) s at is fi es cert ai n o th er req u i rem en t s . Ho wev er, al th o u g h p et it i o n ers ’ t es t i m o ny was cred ib l e, s ect i o n 7 4 9 1 d o es n o t ap p l y b ecau s e t h ere i s n o d i s p u t e b et ween th e p art i es reg ard i ng an y fact u al i s su e. In o ther wo rd s , th e i s s u es p res en t edb y

th i s cas e are p u rel y

l eg al
.- 6
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B. Tax ab i l i ty

o f Sect i o n 4 0 1 (k ) Di s tri b u ti on s Gro s s i n co m e i n cl u d es “ al l ‘ acces s i on s t o weal th , cl earl y real i zed , an do ver wh i ch th e t ax p ay ers h av e co m p l et e d o m i n i o n .’ ” J am es v . Un i t edSt at es , 3 6 6 U.S. 2 1 3 , 2 1 9 (1 9 6 1) (q uo t i n g Co m m i s s i o n er v . Gl en s h aw Gl as s Co ., 3 4 8 U.S. 4 2 6 , 4 3 1 (1 95 5 )); s ee s ec. 6 1 (a). Gro s s i nco m e i n cl u des , b u ti s n o tl i m i t edt o , i t em s
s u ch as co m

p en s at i o n , an n ui ti es , i n co m e fro m l i fe i n s uran ce an d en d o w m en t
co n tract s, an dp en s i o ns . Sec. 6 1 (a)(1 ), (9 ), (1 0 ), (1 1 ). Sect io n 4 0 2 ad dres s es th e t ax ab i li ty o f am o un t s d i s tri b u t edb y an
em pl o y ees ’ tru s t
. 2 Sub s ect io n (a) o f t h ats ect i o n p ro v i d es g en eral ly th at“ an y
am ou n tactu al l y d i s tri b u t edt o an y d i s tri b u tee b y

an y em p l o y ees ’ tru s td es cri b edi n
s ect i on 4 0 1 (a) wh i ch i s ex em p tfro m t ax u n d er s ect i o n 5 0 1(a) s h al l b e t ax ab l e t o th e d i s tri b u t ee, i n th e t ax ab le y ear o f t h e d is tri b u t ee i n wh i ch d i s tri bu t ed , u n d er
s ect i on 7 2 (rel at in g t o an n u i t i es ).” Th e s ect i o n 4 0 1(k ) ret i rem en tp l an i n wh i ch M s . So lt an i-Am ad i p art i ci p at edwas a qual i fi edp l an u n d er s ect io n 4 01 (a) an d
ex em p tfro m i n co m e t ax u n d er s ect i o n 5 0 1(a), t h ereb y m ak i n g the am o u ntactu al l y

2 As ap p l i cab l e t o th e p res en tcas e, t h e em p l o y ees ’ tru s tfo rm s p arto f t h e s ec. 4 0 1(k ) ret i rem en t p l an es t ab l is h edb y th e St at e o f New Yo rkfo r t h e b en efi to f i t s em p l o y ees (s u ch as M s. So l t an i -Am ad i ) o r th ei r b en efi ci ari es . See s ec. 4 0 1 (a), (k )(2 ); s ee al s o Bo ri s I. Bi t tk er & Lawren ce Lo kk en , Fed eral Tax at i on o f In co m e, Es t at es an dGi ft s , p ara. 6 1 .1 6 (Tax Ex em p t i on o f Qu al ifi edTru s ts ) (W es t law 2 0 1 9 ).- 7
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d i s tri b u t edt o M s . So l t an i -Am ad i i n 2 0 1 5 (i .e., $ 6 ,6 8 6 ) t ax ab le t o h er fo r th aty ear p u rs u an t t o s ect io n 7 2. 3 See s ec. 4 0 2 (a). As a g en eral ru l e, a d i s tri b u t i o n fro m a s ect io n 4 0 1 (k ) ret i rem en tp l ani s fu l l y t ax ab l e p urs u an tt o s ect io n 7 2 b ecau s e t h e p art i ci p an t’ s co n tri b u t io n s t o th e p l an are m ad e wi th “p re-t ax d o l l ars ”. 4 W eav er-Ad am s v . Co m m i s s i o n er, T.C. M em o. 2 0 1 4 -7 3 , at* 5 ; s ee s ec. 1 .4 0 1 (k )-1 (a)(4 )(i i i ), In co m e Tax Reg s . Acco rd in g ly , th e $ 6 ,6 8 6 d i s tri b u t i o n th atM s. So l t an i -Am ad ai recei v edfro m h er
s ect i on 4 0 1 (k ) ret i rem en tp l an i s i n cl u d i b l e i n i n co m e i n i ts en t i ret y . See Ro b ert so n v . Co m

m i ss i o n er, T.C. M em o . 2 01 4 -1 4 3 , at* 5 , aff’ dp er cu ri am , 6 1 9 F. Ap p ’ x 2 6 1 (4 th Ci r. 2 0 1 5 ); s ee al s o W eav er-Ad am s v . Co m m is si o n er, at* 4 -* 5
.

3 Pet i t i o n ers s h o ul d u n d ers t an dth at i t i s th e em p l oy ees ’ tru s t(i .e., th e en t i ty ) t h ati s ex em

ptfro m i n co m e t ax u n d er s ec. 5 0 1 (a), an d n o t the b en efi ci ari es o f t h e em p l o y ees ’ tru s t(i
. e., th e p art i ci p at i n g em p l o y ees ). Rat her, as d i s cu s s edi n th e t ex tab ov e, the t ax ab i l i ty o f t h e b en efi ci ari es i s ad dres s ed b y s ec. 4 0 2
. 4 Sec. 7 2 (a)(1 ) p ro v i des g en eral l y th atg ro s s i n co m e i n cl ud es an y am o u n t recei v edas an an n u i ty u n d er an an n u i ty , en d owm en t , o r l i fe i n su ran ce co n tract , u n l es s o th erwi se p ro v i d ed . Bu ts ee s ec. 7 2 (b ) (p ro v i d i ng an ex cl u s i o n fro m g ro s s i n co m e, b u tl im i t i n g i tt o th e t ax p ay er’ s i n ves t m en ti n th e co n tract ). If an y am o u n ti s n o trecei v edas an an n u i ty b uti s n ev erth el es s recei v ed u n d er an an n u i ty , en d o wm en t , o r l i fe i n s u ran ce co nt ract , s ec. 7 2 (e) p ro v i d es g en eral l y th ats u ch an am o u nt , i f recei v edb efo re t he an n u i ty s t art i n g d at e, i s i n cl u d i b l e i n g ro s s i n co m e, ex cep tt o th e ex t en tal l o cab le t o th e t ax p ay er’ s i n v es t m en ti n t h e co n tract . Sec. 7 2 (e)(2 )(B). As s t at ed , a p art i ci p an t i n a s ec. 4 0 1 (k ) ret i rem en tp l an g en eral l y h as n o “ i n ves t m en t i n th e co n tract ” b ecau s e t h e p art ici p an t ’ s co n tri bu t i o n s t o th e p l an are m ad e wi th “p re-t ax d ol l ars ”.- 8
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Pet i t i o ners d o n otd i sp u t e t h atM s . So lt an i -Am ad i recei v eda d is tri bu t i o n o f $ 6 ,6 8 6 i n 2 0 1 5 fro m

h er s ect i o n 4 0 1 (k ) ret irem en t p l an . Fu rt h er, p et it i o n ers ack n owl ed gedi n th ei r p et i t i o n an dattri al th atth ey knew t h ey

h adt o p ay

s o m e t ax
o n th e d is tri b u t i o n al th o u gh th ey d i dn otrep o rtan y

p arto f t he d i s tri b u ti o n o n th ei r 2 0 1 5 retu rn . Nev erthel es s, p et i t i o n ers req u es trel i ef, co n t en di n g th at they h ad b een in fo rm edth atth ere wo u l d b e l i t t l e t o n o t ax wh en th ey “ cas h [ed ] o ut , b u t
* * * [t h ey

wo ul d ] hav e t o p res en t * * * [t h ei r] cas e”. Reg ard l es s o f th e ad v i ce recei v ed , th e l aw i s cl ear--t h e d i s tri b u t i o n M s. So l t an i -Am ad i recei v edi n 2 0 1 5 fro m h er s ect i o n 4 0 1(k ) ret irem en tp l an i s t ax ab l e an dm u stb e i n cl u d edi n i t s
en t i ret y i n p et it i on ers ’ t ax ab l e i n co m e fo r 2 0 1 5 . Secs . 4 0 2 (a), 7 2 (a), (e). C. Sect io n 7 2 (t ) W e tu rn n o w t o th e p ri nci p al i s s u e i n t h i s cas e; n am el y , wh et h er p et i t i o n ers are l i ab l e fo r t h e 1 0 % ad d i t i on al t ax u n d er s ect i o n 7 2 o n th e $ 6 ,6 86 d i st ri b u t i o n M s . So lt an i-Am ad i recei v edfro m h er s ect i o n 4 0 1 (k ) ret i rem en tp lan
. Sect io n 7 2 (t )(1 ) i m

p o s es a 1 0 % ad d i t i o nal t ax o n an earl y d i s tri b u t i o n fro m a qu al i fi edret i rem en tp l an . A qu al i fi edret i rem en tp l an , wh ich i s d efi ned i n
s ect i on 4 9 7 4 (c), i n cl ud es an i n d i v idu al ret i rem en tacco u ntd es cri bed i n s ect i o n 4 0 8 (a) an dan i n d iv i du al ret i rem en tan n ui ty d es cri bedi n s ect i o n 4 0 8(b ), s ee s ec. 4 9 7 4 (c)(4 ) an d(5 ), as wel l as a p l an d es cri b edi n s ect i o n 4 0 1 (a) wh i ch i n cl u d es a- 9
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tru s tex em

p tfro m t ax u n d er s ect i o n 5 0 1 (a), s ee s ec. 4 9 7 4 (c)(1 ). Th u s, th e s ect i o n 4 0 1 (k ) ret i rem en tp l an es t ab li s h edb y the St at e o f New Yo rk fo r th e b en efi to f i t s
em pl o y ees s u ch as M s . So l t an i-Am ad i co ns t i tu t es a qu al i fi edret i rem en tp l an , d i s tri b u t i o n s fro m

wh i ch are p o t en t i al l y

s ub ject t o th e i m

p o si t io n o f t ax p urs u an t t o s ect io n 7 2 (t )(1 ). Sect io n 7 2 (t )(2 ) ex cep ts fro m th e 1 0 % ad di t i o n al t ax cert ai n d is tri b ut i o n s . Am o n g t h em

are: d i s tri b ut io n s m ad e t o an em p l o y ee aft er s ep arat i o n fro m s erv i ce aft er at t ai n i n g th e ag e o f 5 5 , s ec. 7 2 (t )(2 )(A)(v ), d i s tri bu t i o n s fro m i nd i v i du al ret i rem en tp l an s fo r cert ai n h i g h er edu cat i o n ex p en s es , s ec. 7 2 (t )(2 )(E), an d d i s tri b u t i o n s fro m

i nd i v i du al ret i rem en tp lan s fo r fi rs th o m e p urch as es , s ec. 7 2 (t )(2 )(F). Pet i t i o ners co n t en dth atth e d i s tri b u t i on M s . So l t an i -Am ad i recei vedfro m h er s ect i on 4 01 (k ) ret i rem en tp l an i s ex cep t ed fro m th e 1 0 % ad d i t i o n al t ax b ecau s e th ey u s edi tt o h el p fi n an ce th e p u rch as e o f t hei r fi rs t h o m e. See s ec. 7 2 (t )(2 )(F). Res po n d en tread i l y

ad m i t s th atth e d is tri b u t i o n was u s edfo r t h atp u rp o s e b u t
co n ten d s t h atp et i t i o n ers d o n o tqu al i fy fo r t he ex cep t i o n fo r a h i g h ly t ech n i cal
reas on , n am el y , b ecau se t h e d i s tri b u t i o n was fro m a s ect i o n 4 0 1(k ) ret i rem en t p l an , as o p p os edt o an i n d i v i du al ret i rem en t acco u n to r i n d i v i du al ret i rem en t
an n ui ty .- 1 0 -

To res o l v e t h e p art ies ’ d i s p u t e t h e Co u rtb eg in s wi th a b i to f h i s t ory . Co n g res s en act ed s ect i o n 7 2 (t ) t o d i s co u rag e i n di v i du al s fro m t ak i n g p rem atu re d i s tri b u t i o n s fro m

qu al i fi edret i rem en tp l an s . See Dwy er v . Co m m i s s i on er, 1 0 6 T.C. 3 3 7 , 3 4 0 (1 9 9 6 ); S. Rep t. No . 9 3 -3 8 3 , at1 3 4 (1 97 4 ), 1 9 7 4 -3 (Sup p .) C.B. 8 0, 2 1 3 . “ Prem atu re d is tri b u ti o n s fro m IRAs fru s trat e t h e i n t en ti o n o f s av i n g fo r ret i rem en t , an ds ect i o n 7 2 (t ) d i s co u rag es th i s fro m h ap p en in g .” Dwy er v . Co m m i s s i o n er, 1 0 6 T.C. at3 4 0. Acco rd in g l y , s ect i o n 7 2 (t )(1 ) was en act edt o i m p o s e an ad d i t i o n al t ax o f 1 0 % o n th e p o rt i o n o f a d i st ri b u t i o n fro m a qu al i fi ed ret i rem en tp l an th ati s i n cl u d ib l e i n g ro s s i nco m e, u n l es s th e d i s tri b u t i o n i s
s p eci fi cal l y

ex cep t edfro m

th e t ax . H. R. Co n f. Rep t . No . 9 3 -1 2 8 0 , at 3 3 9 (1 9 7 4 ), 1 9 7 4 -3 C.B. 4 1 5 , 5 0 0. No t ab l y , fo r p u rp o s es o f t h e ad d i t i o n al t ax , a qu al i fi ed ret i rem en tp l an i n cl u des b o th a s ect io n 4 0 1 (k ) ret i rem en tp l an an d an i n di vi du al ret i rem en tacco u n to r i nd i v i du al ret i rem en tan n u it y . See s ecs . 4 0 1 (a), (k )(1 ), 4 0 8 (a) an d(b ), 4 9 7 4 (c)(1 ), (4 ), (5 ). As p arto f t h e Tax p ay er Rel ief Acto f 1 9 9 7 , Pub . L. 1 05 -3 4 , s ecs . 2 0 3 , 3 03 , 1 1 1 St at . at8 0 9 , 8 2 9 , Co n g res s en act edtwo ad d i t io n al ex cep ti o n s t o th e 1 0 % ad d it i o n al t ax : d i st ri b u t i o n s fo r h i g h er edu cat i o n ex p en s es an dd i s tri b u ti o n s fo r fi rs th o m e p u rch as es . Sec. 7 2(t )(2 )(E) an d(F). Of p aram o u n ti m p o rt an ce i s th e fact th atth es e tw o ex cep t io n s are av ai l ab l e o nl y i f t h e d i s tri b u t i o n fo r t he s p eci fi ed- 1 1 -

p u rp os e co m es fro m

an “ i n d i vi du al ret irem en t p l an ”, as d efi n edan dd i scu s s ed b el o w. To d eci d e wh et h er p et it i o n ers qu al i fy fo r t he fi rs th o m e p u rch as e ex cep t i o n t o the 1 0 % ad d i t i on al t ax , th e s t atu t e i t s el f m us tfi rs t b e co n s u l t ed , p ert i n en tp art s
o f wh ich readas fo l l o ws :

SEC. 7 2 (t ). 1 0 -Percen tAd d i t i o n al Tax OnEarl y Di s tri b u t i o ns * * * .-- (1 ) Im

po s it i o n o f ad d i t i o n al t ax .--If an y t ax pay er recei ves an y am o u n tfro m a qu al ifi edret i rem en t p l an (as d efi n edi n s ect i o n 4 9 7 4(c)), t h e t ax p ay er’ s t ax * * * fo r t he t ax ab l e y ear i n wh i ch s uch am o u nti s recei v eds h al l b e i n creas ed b y an am o u n tequ al t o 1 0 p ercen t o f t h e p o rt io n o f s u ch am o u n t wh i ch i s i n cl u d i b l e i n g ro s s i n co m e. (2 ) Sub s ect i o n n o t t o ap p l y t o cert ai n d i s tri b u t i o n s.-- * * * [P] arag rap h (1 ) s h al l n o tap p ly t o an y o f t h e fo l l o wi n g d is tri b u t i on s :
* * * * * * *

(F) Di s tri b u t i o n s fro m

cert ai n p l an s fo r fi rs t h om e p urch as es .--Di s tri b u t i o n s t o an i n d iv i du al fro m an i n d iv i du al ret i rem en tp l an wh ich are q u al i fi edfi rs t -t i m e h om eb u y er d i s tri b ut i on s * * * [Em ph as i s ad d ed .] Th e Co u rt ’ s ro le i n a cas e s u ch as the p res en to n e i s “ t o i n t erp retth e l an g u ag e o f t h e s t atu t e en act edb y Co n g res s .” Barn hart v . Si gm o n Co al Co ., 5 34 U.S. 4 3 8 , 4 6 1 (2 0 0 2 ). As th e Sup rem e Co u rts t at edi n y etan o th er cas e: “ [C] o urt s- 1 2 -

m u stp res u m e t h ata l eg i s l atu re s ay s i n a s tatu te wh ati t m ean s an dm ean s i n a
s t atu te wh at i ts ay s there.” Co n n . Nat ’ l Ban k v . Germ ai n , 5 0 3 U.S. 2 4 9 , 2 5 3 -2 5 4 (1 9 9 2). An d as th i s Co u rth as s t at ed : “ Wh en co n s tru i n g a s t atu t e, ‘ [i ] t i s o u r du t y

“ t o g i ve effect , i f p o s s ib l e, t o ev ery cl au s e an dwo rd ”’ s o as t o av o i dren d eri n g an y p arto f t he s t atut e m ean i n g les s s u rp l u s ag e.” 1 5 W . 1 7 th St . LLC v
. Co m m i s s i o n er, 1 4 7 T.C. 5 5 7 , 5 8 6 (2 0 1 6 ) (qu o t i n g Un i t edSt at es v . M en as ch e, 3 4 8 U.S. 5 28 , 5 3 8- 5 3 9 (1 95 5 )) (ci t i n g M arb u ry v . M ad i s o n , 5 U.S. (1 Cran ch ) 1 3 7 , 1 7 1 (1 8 0 3 ) (en u n ci at i n g “ an t i -s u rp l u s ag e” can o n o f co ns tru ct i o n)). W i th th e fo reg o i n g p ri n ci p l es i n m i n d , we tu rn t o s ect i o n 7 2(t )(2 )(F) an d b eg in wi th i t s t i t l e: “ Di s tri b u t io n s fro m cert ai n p lan s fo r fi rs th o m e p urch as es .” Al th o u g h s t atu t o ry

t i t l es an ds ect i o n h ead i n g s d o n o t d efi n e a s t atu t e’ s m ean i n g
an d are n o tg en eral l y

rel iedo n atth e ex p en s e o f th e s t atu to ry t ex t i t s el f, s u ch t i t l es
an d h ead i n g s “ ‘ are t oo ls av ai l ab l e fo r th e res o l u t io n o f a d o ub t ’ ab o u tth e m ean i n g
o f a s t atut e.” Al m en d arez-To rres v . Un i t edSt at es , 5 2 3 U.S. 2 2 4 , 2 3 4 (1 9 9 8 ) (qu o ti n g Bh d . o f R.R. Trai n m en v . Bal t. & Oh i o R.R. Co ., 3 3 1 U.S. 5 1 9 , 5 2 8 -5 2 9 (1 9 4 7)); s ee Tel eco m

m s . Reg u l at o ry

Bd . o f P.R. v . CTIA--W i rel es s As s ’ n , 7 5 2 F.3 d6 0 , 6 5 (1 s tCi r. 2 0 1 4 ); s ee al s o Cal t ex Oi l Ven tu re v . Co m m is s i o n er, 1 3 8 T.C. 1 8 , 2 8 n .1 0 (2 0 1 2 ); cf. s ec. 7 8 0 6 (b ). Th e u s e o f th e ad ject iv e “ cert ai n ” i n th e t i tl e o f s ect i o n 7 2 (t )(2 )(F)--“ Di s t ri b ut i o n s fro m cert ai n p l an s fo r fi rs th o m e- 1 3 -

p u rch as es ”--s ug ges ts th atth e s ub p arag rap h ex cep t s fro m th e 1 0 % ad di t i o n al t ax d i s tri b u t i o n s fro m

s o m e, b u tn o tal l , qu al ifi edret i rem en tp l an s . Bu t n ei th er t h e t i tl e o f s ect i o n 7 2 (t )(2 )(F) n o r t h e t ex to f t he s ect io n i t s el f t el ls u s wh i ch i n d i v i du al ret i rem en tp l an s co m e wi th in th e s co p e o f th e ex cep ti o n an d wh i ch d o n ot
. M o v i n g o n t o t h e s ect i o n i t s el f, i ti s cl ear t hatth e ex cep ti o n ap p l ies o n l y t o d i s tri b u t i o n s fro m

i nd i v i du al ret i rem en tp lan s . Th e t erm “ i n d i v i dual ret i rem en t p l an ” i s n o td efi n edi n s ect i o n 7 2 . Ho wev er, s ect io n 7 70 1 (a)(3 7 ) p ro vi d es a d efi n i t i o n th ati s g en eral l y ap p l i cab l e t h ro u g ho u tt i t l e 2 6 , i .e., th e In t ern al Rev en u e Co d e. Th ats ect i o n p ro v i d es th atth e t erm “ i n d i v i du al ret i rem en tp l an ” m ean s : (A) an i n d i v i du al ret i rem en tacco u n td es cri b edi n s ect io n 4 08 (a), an d(B) an i n d i v i du al ret i rem en tan n u i ty d es cri b edi n s ect i o n 4 0 8(b ). Th e d efi n it i on s d es cri b i ng th o se t y

p es o f acco u n t s i n s ect i on 4 0 8 (a) an d(b ) ap p l y o n l y t o i n d i v i du al ret i rem en tacco u n ts an dan n u i t i es (co l l ect i v el y , IRAs ) an dn o tt o o th er ty p es o f ret i rem en t p l an s , s u ch as s ect i o n 4 0 1 (k ) ret i rem en tp l an s . See Us ci n s k i v . Co m m i s s i o n er, T.C. M em o . 2 0 0 5 -1 2 4
. As h as al read y

b een di s cu s s ed , s ect i o n 7 2 (t )(1 ) s erv es t o i m p o s e t he 1 0 % ad d it i o n al t ax o n “ qu al i fi ed ret i rem en tp l an s ” as d efi n edi n s ect i on 4 9 7 4(c), an d
s u ch pl an s i n cl u d e b o th s ect i o n 4 0 1 (k ) ret i rem en tp l an s an d IRAs . Ins t ark
co n tras t , th e fi rs th om e p u rch as er ex cep t io n i n s ect io n 7 2(t )(2 )(F) ap pl i es o n l y t o- 1 4 -

an “ i nd i v i du al ret i rem en tp l an ”, a t erm wh i ch (as ju s t d i scu s s ed ) i n cl u d es o n l y IRAs . An dal s o , as ju s td i s cu s s ed , an IRA i s n o ta s ect i o n 4 0 1 (k ) ret i rem en tp l an . Us ci n s ki v . Co m

m i s si o ner, T.C. M em o 2 0 0 5 -1 2 4
. In l i g h to f the ab o v e d i s cu s s i o n , th ere i s n o n eedt o res o rt t o l eg i s l at i v e h i s t o ry t o as cert ai n th e m ean i n g o f t h e s t atu t e. Bu tev en i f th e Co u rtwere t o d o
s o , l eg i s l at i v e h i s t o ry

s up po rt s th e co n cl u s i on th atth e fi rs t h o m e p u rch as e
ex cep t i o n ap p li es o n l y t o d i s tri b u t i o n s fro m IRAs b ecau s e wh ens ect i o n 7 2 (t )(2 )(F) was en act ed , m en t i o n was m ad e o nl y o f IRAs as co m i n g wi th i n th e
ex cep t i o n affo rd edb y

th ats ect i o n . See g en eral l y H.R. Rep t . No . 1 05 -1 4 8 , at2 8 9
- 2 9 0 (1 99 7 ), 1 9 9 7 -4 C.B. (Vo l . 1 ) 3 19 , 6 1 1 -6 1 2. In s u m , M s . So l tan i -Am ad i recei v eda d i s tri b ut i o n fro m a t y pe o f ret i rem en t p l an th ati s n o t ex cep t edfro m th e 1 0 % ad di t i o n al t ax i m po s edb y s ect i on 7 2 (t )(1 ). Th e Co u rti s th erefo re co n s trai n edt o s u st ai n res po n d en t’ s d et erm i n at i o n th at p et i t i o n ers are l iab l e fo r t he ad di t i o n al t ax . In cl o si n g , Co n g res s ch o s e t o g ran trel ief u n d er s ect io n 7 2(t )(2 )(F) fo r d i s tri b u t i o n s fro m

IRAs b u t n otfo r d i s tri b ut i o ns fro m o th er q u al i fi edp lan s , s u ch
as a s ect i o n 4 0 1 (k ) ret i rem en tp l an . Al th o u gh th e Co u rtfo u n dp et i t i o ners t o b e
s i ncere, cred i b l e, an dearn es t, th e fact rem ai n s thatth e Co u rt i s a co u rt o f l i m i t ed juri s d i ct i o n an dl ack s g en eral equ i t ab l e p o wers . Co m m is si o n er v . M cCo y . 4 8 4- 1 5 -

U.S. 3 , 7 (1 9 8 7). Th u s , th e Co u rti s co n s trai n ed b y the t ex t o f t h e s tatu t e an dm ay
n o tactco n traryt o i t
. To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t eredfo r
res p o nd en t
.