1 Unless otherwise indicated, all subsequent section

references are to the Internal Revenue Code in effect for the

year in issue, and all Rule references are to the Tax Court Rules

of Practice and Procedure.

T.C. Summary Opinion 2008-98

UNITED STATES TAX COURT

ASHWANI K. AND SVELTLANA K. SHARMA, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 7173-07S. Filed August 7, 2008. 

Ashwani K. and Sveltlana K. Sharma, pro sese.

Charles J. Graves, for respondent.

VASQUEZ, 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 Pursuant to section 7463(b), the

decision to be entered is not reviewable by any other court, and
- 2 -

2 At trial petitioners conceded for 2004 $46 in additional

interest income and a taxable State income tax refund of $677. 

this opinion shall not be treated as precedent for any other

case.

Respondent determined a deficiency in petitioners’ 2004

Federal income tax of $1,017. After concessions,2 the issue for

decision is whether petitioners are liable for the 10-percent

additional tax pursuant to section 72(t) with respect to an early

distribution from a retirement account in 2004.

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 they filed

the petition, petitioners resided in New Mexico.

In 2004 petitioner Ashwani Sharma (Mr. Sharma) received from

the New Mexico Educational Retirement Board (the board) a

distribution of $10,098 of which $8,325 was taxable (the

distribution). Petitioners reported the distribution on their

2004 joint Federal individual income tax return but did not

report any additional tax from the distribution. At the time of

the distribution, neither petitioner had reached the age of 59-

1/2. 

Since 1995 petitioners have resided at the same location in

Albuquerque, New Mexico (the residence). At that time Mr.
- 3 -

3 Petitioners do not argue that the burden of proof on the

issue in this case should be shifted to respondent under sec.

7491. In any event, we do not decide the issue on the burden of

proof. Also, regardless of whether the $833 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

has met any such burden of production by showing that petitioner

(continued...)

Sharma’s parents, M.P. and Nirmal Sharma, owned the property

subject to a mortgage. On September 29, 1997, M.P. and Nirmal

Sharma conveyed to petitioners a joint tenancy in the residence. 

In February 1999 M.P. and Nirmal Sharma quitclaimed their

interest in the residence to petitioners. Also in February 1999

petitioners obtained a mortgage loan from Credit Union Mortgage

Service which was secured by the residence. From 1999 to 2004

petitioners paid the mortgage and property taxes on the

residence. In June 2004 petitioners paid in full the remaining

balance on their mortgage loan on the residence. At trial

petitioners testified that they used the distribution to pay off

the mortgage loan balance on the residence. 

In the notice of deficiency respondent increased

petitioners’ net income tax by additional tax of $833 pursuant to

section 72(t) on account of the distribution. 

Discussion

Petitioners have neither claimed nor shown that they

satisfied the requirements of section 7491(a) to shift the burden

of proof to respondent with regard to any factual issue.3
- 4 -

3(...continued)

received the distribution when he was less than 59-1/2 years of

age. See H. Conf. Rept. 105-599, at 241 (1998), 1998-3 C.B. 747,

995.

4 Respondent did not raise the issue as to whether the New

Mexico Educational Retirement Plan qualified as an “individual

retirement plan” under sec. 7701(a)(37), and there is

insufficient evidence in the record to make a determination of

such. We note that the determination would not affect the

outcome of this case.

 

Accordingly, petitioners bear the burden of proof. See Rule

142(a).

Generally, a distribution from a qualified retirement

account is includable in the distributee’s gross income in the

year of the distribution. See sec. 72(a). Distributions made

before the taxpayer’s attaining the age of 59-1/2 that are

includable in income are generally subject to a 10-percent

additional tax unless an exception applies. See sec. 72(t)(1). 

Section 72(t)(2) sets forth specific exceptions to the

additional tax. At issue is whether petitioners qualify for the

first-time homebuyer exception under section 72(t)(2)(F).4

Section 72(t)(8)(A) provides that any payment or distribution

received by an individual to the extent such payment or

distribution is used by the individual before the close of the

120 days after the day on which such payment or distribution is

received to pay qualified acquisition costs with respect to a

principal residence of a first-time homebuyer who is such
- 5 -

individual, the spouse of such individual, or any child,

grandchild, or ancestor of such individual, or the individual’s

spouse, satisfies the first-time homebuyer exception. A firsttime homebuyer means any individual “if--(I) such individual (and

if married, such individual’s spouse) had no present ownership

interest in a principal residence during the 2-year period ending

on the date of acquisition of the principal residence”. See sec.

72(t)(8)(D)(i)(I). Further, the date of acquisition is the date

“on which a binding contract to acquire the principal residence 

* * * is entered into, or (II) on which construction or

reconstruction of such a principal residence is commenced.” See

sec. 72(t)(8)(D)(iii).

Petitioners contend that they are first-time homebuyers

within the meaning of section 72(t)(8). Petitioners argue that

they did not acquire an ownership “interest” in the residence

until June 4, 2004, when they paid off the mortgage loan on the

residence. They contend that until April 4, 2004, the residence

was owned by the mortgage company, and therefore they had no

previous ownership interest in the residence. We disagree.

State law determines the property ownership of a taxpayer,

and Federal law controls the Federal income tax consequences of

that property ownership. See Aquilino v. United States, 363 U.S.

509, 512-513 (1960). In New Mexico where petitioners reside, a

“joint tenancy in real property is one owned by two or more
- 6 -

5 New Mexico law requires the filing of a written release

of a mortgage lien upon satisfaction of the mortgage. N.M. Stat.

Ann. sec. 48-7-4 (LexisNexis 2004).

persons, each owning the whole and an equal undivided share”. 

N.M. Stat. Ann. sec. 47-1-36 (LexisNexis 2004). A joint tenancy

is a property interest which entitles the holders to equal rights

to its enjoyment during their lives. See Estelle v. Estelle, 593

P.2d 663, 665 (Ariz. 1979). 

In 1997 M.P. and Nirmal Sharma conveyed to petitioners a

joint tenancy in the residence. Accordingly, petitioners had an

ownership interest in the residence as early as 1997. Contrary

to petitioners’ argument, they possessed a present ownership

interest in the residence during the 2-year period before they

received the distribution. Consequently, the distribution does

not meet the requirements for the exception in section

72(t)(2)(F). The only action that took place within 120 days

from the receipt of the distribution was the release of the

mortgage. The release of a mortgage is merely the release of

lien as was required by New Mexico law upon satisfaction of the

mortgage obligation.5

 Although petitioners request that we construe the statute

equitably in their favor, we must apply the law as Congress

enacted it, absent some constitutional defect, and we may not

rewrite it. See Commissioner v. Lundy, 516 U.S. 235, 252 (1996).

Petitioners’ argument that they did not have an ownership
- 7 -

interest in the residence before June 4, 2004, when they paid off

the mortgage on the property does not establish that the

distribution meets the requirements. Therefore, this exception

does not apply to petitioners, and we conclude that the

distribution is subject to the 10-percent additional tax under

section 72(t).

In reaching our holdings herein, we have considered all

arguments made by the parties, and to the extent not mentioned

above, we find them to be irrelevant or without merit.

To reflect the foregoing,

Decision will be entered

for respondent.