1

 Unless otherwise indicated, 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.

T.C. Memo. 1998-379

UNITED STATES TAX COURT

DALE REID EDMONDS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

 Docket No. 11916-97. Filed October 20, 1998.

 Dale Reid Edmonds, pro se.

 J. Craig Young, for respondent.

MEMORANDUM OPINION

 COUVILLION, Special Trial Judge: This case was heard

pursuant to section 7443A(b)(3) and Rules 180, 181, and 182.1

 Respondent determined a deficiency of $418 in petitioner's

Federal income tax for 1994.
- 2 -

 The issues for decision are: (1) Whether petitioner is

entitled to a $2,000 deduction for a contribution to an

individual retirement account (IRA) in 1994; (2) whether a $500

distribution received by petitioner from an IRA is includable in

gross income; and (3) whether petitioner is liable for the 10-

percent additional tax under section 72(t) on a premature

distribution from an IRA.

 Some of the facts were stipulated, and those facts, with the

annexed exhibits, are so found and are incorporated herein by

reference. At the time the petition was filed, petitioner's

legal residence was Raleigh, North Carolina.

During the year at issue, petitioner was employed as a

research technician by the U.S. Department of Agriculture (USDA)

in Raleigh, North Carolina. Petitioner had a degree in

agricultural and biological life sciences from North Carolina

State University and, since the early 1990's, had studied DNA

breakdown in various plant life for USDA.

In November 1993 (the year prior to the year at issue),

respondent issued a Notice of Levy to Asheville Savings, a bank

in Asheville, North Carolina, with respect to petitioner's unpaid

tax liability for the 1985 tax year. Pursuant to the Notice of

Levy, Asheville Savings, in December 1993, paid $1,562 to

respondent in satisfaction of the notice. The $1,562 was paid

out of the proceeds of a premature withdrawal from petitioner's
- 3 -

2

Although the notice of deficiency was issued to petitioner

and his wife, the petition was filed only by petitioner. 

Petitioner's wife is not a party in this proceeding.

certificate of deposit (CD) at Asheville Savings. Petitioner was

required to pay a penalty of $115 to Asheville Savings because of

the premature withdrawal of funds from his CD. Petitioner claims

that he did not owe any unpaid Federal income taxes for 1985;

however, at the time of trial, petitioner had been unsuccessful

in recouping the $1,562 that he alleges was wrongfully seized by

respondent.

On the joint Federal income tax return filed by petitioner

and his wife for 1994,2 petitioner reported $65,514 in wage

income, $139 in taxable interest income, $1,350 in taxable

refunds of State and local income taxes, $1,800 in taxable

pension income, and a $7,140 loss from rental real estate, for a

total income of $61,663. Petitioner claimed a $2,000 deduction

for a contribution to an IRA and an $8,000 deduction for alimony

paid, resulting in an adjusted gross income of $51,663.

In the notice of deficiency, respondent determined that

petitioner received $19 in unreported taxable interest income and

a $500 unreported taxable distribution from an IRA, based on

information reported to respondent by the payor. Respondent also

disallowed petitioner's $2,000 IRA contribution deduction and

made computational adjustments to petitioner's miscellaneous

itemized deductions. Respondent allowed petitioner a $115
- 4 -

deduction under sections 62(a)(9) and 165 for payment of the

penalty for premature withdrawal of funds from his CD in December

1993. Finally, respondent determined that petitioner was liable

for the 10-percent additional tax on an early distribution from a

qualified retirement plan under section 72(t) in the amount of

$50.

At trial, petitioner conceded that he received $19 in

unreported taxable interest income in 1994. Also, the parties

agree that petitioner is entitled to the $115 deduction with

respect to the penalty for early cancellation of petitioner's CD

in December 1993. Moreover, the computational adjustments to

petitioner's miscellaneous itemized deductions will be resolved

by the Court's holdings on the issues herein. 

 The first issue is whether petitioner is entitled to a

$2,000 deduction for a contribution to an IRA in 1994. In

general, an individual is allowed a deduction for qualified

retirement contributions in an amount not in excess of the lesser

of $2,000 or "an amount equal to the compensation includible in

the individual's gross income". Sec. 219(a) and (b)(1). A

"qualified retirement contribution" is defined as "any amount

paid in cash for the taxable year by or on behalf of an

individual to an individual retirement plan for such individual's

benefit" and "any amount contributed on behalf of any individual

to a plan described in section 501(c)(18)." Sec. 219(e).
- 5 -

3

Sec. 219(g)(2)(A) provides that the $2,000 dollar limitation

shall be reduced by:

the amount which bears the same ratio to such

limitation as--

(i) the excess of--

(I) the taxpayer's adjusted gross income for such

taxable year, over

(II) the applicable dollar amount, bears to 

(ii) $10,000.

In the case of a taxpayer filing a joint return, the

applicable dollar amount is $40,000. Sec. 219(g)(3)(B). As

relevant here, adjusted gross income is determined without regard

to any deduction for an IRA. Sec. 219(g)(3)(A).

Section 219(g) limits the allowable deduction where the

individual or the individual's spouse is an active participant

for any part of any plan year ending with or within a taxable

year. An active participant is defined to include, inter alia,

an individual who is an active participant in "a plan established

for its employees by the United States, by a State or political

subdivision thereof, or by an agency or instrumentality of any of

the foregoing". Sec. 219(g)(5)(A)(iii). The allowable deduction

is reduced, as pertinent herein, by a factor based on the

adjusted gross income of the individual and the individual's

spouse. Sec. 219(g)(2).3 The net effect of this provision is

that the allowable deduction begins to be reduced when the joint

adjusted gross income reaches $40,000 and completely phases out

where the joint adjusted gross income reaches $50,000.

Respondent contends that petitioner did not make a qualified

retirement contribution to an IRA during 1994. In the
- 6 -

alternative, respondent argues that, even if petitioner did make

a qualified IRA contribution during 1994, he is precluded by the

limitations of section 219(g) from deducting such contribution.

Petitioner freely admits that he claimed the subject $2,000

IRA deduction solely in an attempt to recoup the funds collected

by respondent in connection with the 1993 levy of his CD at

Asheville Savings, which he contends was wrongful. Petitioner

acknowledged at trial that he did not make any contribution to an

IRA during 1994. Thus, the Court finds that petitioner did not

make a qualified retirement contribution to an IRA in 1994. 

Petitioner also admitted that he was a participant in the Federal

Employees Retirement System (FERS) in connection with his

employment at USDA during that entire year. Thus, the Court

finds that petitioner was an active participant in a retirement

plan for that year. Petitioner's adjusted gross income for 1994,

without regard to his deduction for an IRA contribution, was

$53,663, which exceeds the point at which an IRA deduction is

entirely phased out for a married couple filing jointly.

In short, petitioner failed to meet the statutory

requirements under section 219 for claiming a deduction for an

IRA contribution in 1994. Thus, the Court holds that petitioner

is not entitled to any deduction for a contribution to an IRA in

1994. Petitioner, moreover, is admonished over the manner in

which he attempted to circumvent what he felt was an improper
- 7 -

collection action by respondent totally unrelated to the year at

issue. Such conduct is not acceptable. Respondent, therefore,

is sustained on this issue.

The second issue is whether a $500 distribution received by

petitioner from an IRA is includable in gross income. Section

402(a) provides that "any amount actually distributed to any

distributee by any employees' trust described in section 401(a)

* * * shall be taxable to the distributee, in the taxable year of

the distributee in which distributed, under section 72 (relating

to annuities)." However, an exception to this general rule is

found in section 402(c)(1), which provides:

(1) Exclusion from income.--If.--

(A) any portion of the balance to the credit

of an employee in a qualified trust is paid to the

employee in an eligible rollover distribution,

(B) the distributee transfers any portion of

the property received in such distribution to an

eligible retirement plan, and

(C) in the case of a distribution of property

other than money, the amount so transferred

consists of the property distributed,

then such distribution (to the extent so transferred)

shall not be includible in gross income for the taxable

year in which paid.

Further, section 402(c)(3) provides that such a rollover

exclusion shall not apply "to any transfer of a distribution made

after the 60th day following the day on which the distributee
- 8 -

received the property distributed." In other words, if a

taxpayer receives a distribution from a retirement plan and fails

to make a rollover of such distribution to an eligible retirement

plan within 60 days of taxpayer's receipt of such distribution,

the amount shall be taxable under section 72 in the year of

distribution. The term "eligible retirement plan" is defined in

section 402(c)(8)(B) as "(i) an individual retirement account

* * *, (ii) an individual retirement annuity * * *, (iii) a

qualified trust, and (iv) an annuity plan described in section

403(a)." (Emphasis added.)

Petitioner admits receiving a $500 IRA distribution in 1994

but contends that it is not includable in his gross income

because he rolled it over into another IRA account soon after he

received the distribution. When questioned as to how much time

passed between the time petitioner received the $500 and the time

he deposited it into another IRA petitioner testified "I don't

recall". He stated that he was not willing to swear under oath

that he deposited the funds into another IRA on or before the

60th day following the date of their receipt. The parties

stipulated that petitioner phoned Asheville Savings on July 7,

1994, to request a $500 distribution from his IRA. Petitioner

testified that he felt certain he received that $500 distribution

within 2 weeks of the telephone call but he could not testify as

to a specific date. Moreover, petitioner produced the signature
- 9 -

page of an IRA application, signed by petitioner and dated

October 21, 1994, which purported to show a deposit of $28,406.99

into a new IRA (i.e., the IRA into which petitioner contends he

deposited the subject $500). Petitioner contends that he

deposited the subject $500 into this IRA prior to the date of the

application (although he did not attempt to specify how many days

or weeks prior thereto); however, the Court is not convinced. 

Petitioner failed to produce any documentary evidence of either

the date he received the $500 distribution or of the date he

deposited the same into a different IRA.

On this record, the Court holds that petitioner failed to

make a section 402(c)(1) rollover of the $500 distribution,

either to an IRA or any other type of eligible retirement plan. 

Consequently, the Court holds that the $500 distribution from the

IRA was not transferred to an eligible retirement plan as

required by section 402(c)(1)(B) in order for such distribution

to be excluded from petitioner's gross income. Respondent,

therefore, is sustained on this issue.

The final issue is whether petitioner is liable for the 10-

percent additional tax, under section 72(t), on a premature

distribution from an IRA. Section 72(t) provides for a 10-

percent additional tax on early distributions from qualified

retirement plans. Paragraph (1) provides in relevant part:

(1) Imposition of additional tax.--If any taxpayer

receives any amount from a qualified retirement plan (as
- 10 -

defined in section 4974(c)), the taxpayer's tax under this

chapter for the taxable year in which such amount is

received shall be increased by an amount equal to 10 percent

of the portion of such amount which is includible in gross

income.

Section 4974(c) provides that the term "qualified retirement

plan" includes an "individual retirement account". Sec.

4974(c)(4).

The 10-percent additional tax, however, does not apply to

certain distributions. Section 72(t)(2) exempts distributions

from the additional tax if the distributions are made: (1) To an

employee age 59-1/2 or older; (2) to a beneficiary (or to the

estate of the employee) on or after the death of the employee;

(3) on account of disability; (4) as part of a series of

substantially equal periodic payments made for life; (5) to an

employee after separation from service after attainment of age

55; (6) as dividends paid with respect to corporate stock

described in section 404(k); (7) to an employee for medical care;

or (8) to an alternate payee pursuant to a qualified domestic

relations order. Section 72(t)(3)(A) provides generally that

exceptions (5), (7), and (8) do not apply to distributions from

an IRA.

Petitioner received an early distribution of $500 from an

IRA during the year at issue, which the Court has held is

includable in his gross income for that year. Petitioner was

born on August 29, 1945; therefore, petitioner did not reach the
- 11 -

age of 59-1/2 during the year at issue. Petitioner presented no

evidence to show that any of the other exceptions under section

72(t)(2) applied to exclude his 1994 distribution from the 10-

percent additional tax provided for in section 72(t)(1). 

Accordingly, the Court holds that petitioner is liable for the

10-percent additional tax on early distributions from qualified

retirement plans under section 72(t) in the amount of $50. 

Respondent, therefore, is sustained on this issue.

 Decision will be entered 

for respondent.