TAX COURT OPINION

Case: Richard Glen & Robin Venet
Docket Number: 13495-08
Judge: Vasquez
Opinion Type: memo
Filed: 11/24/2009
Pages: 7

RICHARD GLEN VENET AND ROBIIN VENET, Petitioners v . COMMISSIONER OF INTERNAL REVENUE, Responden t Richard Glen=Venet,and Robin-Venet pro :sese . Gary Begun , for respondent ) MEMORANDUM FINDINGS OE FACT AND OPINION . , VASQUEZ, Judge : Respondent determined an $11,069 .10 deficiency in petitioners' 2006 Federal ; income tax . ,"The .issue for decision is whether petitioners are liable for a 10-percent additional tax under section 72 (t) .4 1 Unless otherwise indicated,all section references are to . .) (continued . r FINDINGS OF FAC T Some of the facts have been stipulated and are so found . The stipulation of facts and the attached exhibits ar e incorporated herein by this reference .* Petitioners resided i n Michigan at the time they filed the petition . Richard Glen Venet (petitioner) worked for 22 years before .. being laid off in September 2001 . ,H6,twasfiunable to find suitabl e work again until 2005 . During this time petitioners used credit- card advances and home equity loans to meet their, persona l expenses . The credit card debt,-was accruing interest at 2 2 percent and the home equity ' .loan -at ;approximately . 5 or= ,6 percen t Petitioners have two children,,a son .and a daughter . Durin g J 2006 petitioners" daughter attended Michigan . State University . (MSU) .and lived in-an off-campus apartment . A Michigan ' Education . Trust Fund, which pet-itioners,sinvested : in before :2006, =pai d petitioners' daughter 's tuition . -~ .,PetitI oners , gave their daughter $575 per month for rent and $100 per . month for utilities i n addition tomoney for'food .' They would either gi v.e .her cash whe n they saw her or transfer funds from their LaSalle Bank account t o 1 .hers . Petitioners did not payµany of their,, daughter' s f 1 ( . . . continued ) n ssue, and .the internal Revenue Code in effect for the year all Rule-references are to the,-Tax . Court- :Rules -of 'Practice and Procedure . , -1. directly . They also did n .ot .keep 'records of the amounts- they , .- J gave' . to her . In.2006 petitioner worked in business .,development and sale s for RWD °Technologies, ~ Inc . Robin Venet (Mrs . Venet) :. worked for ABN AMRO Mort,gage . .Group, .Inc . By this time-petitioners had amassed $80,000 in credit card debt in ;addition-to°an $80,000- mortgage and a $40,000 home equity. ;loan, .2 To avoid putting their home in foreclosure or , filing . for bankruptcy, petitioners .decided to withdraw-cash from their individual,°retirement accounts (.IRAs ) to~reduce their debt . -Petitioner withdrew $110,691 from his : IRAs in 2006 . 3 instructed the distributing institutions ; to withhold .$22,138 .of that amount'for Federal income tax -Petitioners use d approximately $80,000 to pay off their outstanding credit . card debt and set aside the approximatej$8,5 .00 remaining ;,i-n-a bank account for end of year- .taxes . Ati;'the time of the distribution petitioner and Mrs . Venet-were 48 and 49 years old ;, respectively . 2 .These figures are approximations . .The early distributions were reported on three Forms 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans; IRAs, . Insurance Contracts,"etc . Vanguard Fiduciary Trust Co . issued a Form 1099-R showing,a $104,500 gross distribution and $20,900 withheld for Federal income tax . Capital Bank and Trust Co . issued two' Forms 1099-R ; one showed a $5,7 .67 gross distribution and,,$1,153 withheld for Federal income tax,'--and the other showed -a 4$424 . gross _ distribution .and $85 withheld for , Federal income-tax, . We refer . to the three distributions collectively as the distribution . . Petitioners timely filed(cid:127)their .joint Federal income ta x return for'2006 and reported the $110,691 distribution as taxable_ income . Petitioners attached Form :5329, Additional Taxes on Qualified Plans (Including IRAs) and Other, .Tax-Favored Accounts, to their 2006 return but did,not report a 10-percent additiona l tax related to,the early distribution . OPINION , Section 72(t)(1) imposes a 10-percent additional tax on .-th e taxable amount of an early distribution from a qualifie d retirement plan (as defined in section 4974(c)) .4 A distribution is early if made to an employee who has not attained age 59-1/2 . Sec . 72(t)(2)(A)(i) . . Petitioners conceded that they received the early IRA distribution totaling $110,691 .. and' reported that amount on their 2006 return'. However, petitioners contend that th e additional tax'should not apply at all because the early, distribution was the result of financial hardship and, in the, alternative, that an exception,to the 10-percent additional ta x for higher education expenses applies to a portion of the distribution . There is no .exception to the additional tax for financial hardship . Sec . 72(t)'(2) ; See Arnold v . Commissioner , 111 T .C . 250, 255 (1998) ; Milner v . Commissioner , T .C . Memo . 2004-111 ; 4 The term "qualified retirement . plan" includes an individual retirement account described in sec . 408(a) .(cid:127)-Sec .. 4974(c)(4) . Robertson v .. :Commissioner , T .C'. Memo . 2000-100 (no except-ion exists to additional tax for withdrawal,to ;provide for taxpayer' s own subsistence and that of,her ;family),affd . 15 Fed . Appx . 467 , (9th Cir . 2001 ) Taxpayers are limited to the exceptions in th e statute . Section 72 (t) .(2) (E) provides an .exception t the . 10 percen t additional tax for- distributions from fi individual retirement plan s to the 'extent such distributions do-knot exceed th'e qualified , higher education expenses' of the t xpayer~ -for .the taxable, year . 5 In general, "qualified higher educlti-on expenses means qualifie d hi-gher'education expenses (as,,defined'in section 529(e)(3))-for education furnished-,to 'the'taxpayer, .the taxpayer's spouse, or any child of the taxpayer. or the taxpayer's spouse, at_an . . eligible educational institution : 'Sec . .72 (t) (7) These includ e f: . tuition, fees, books, supplies, and equipment, and, in .limite d circumstances, room ; and board . Sec . 529(e) (3) (A) (i), (B) . The amount for room and . board1treated,as qualified highe r 11. education expenses fo r an eligible[student6 shall not exceed the ,student's allowance for room and board included in the cost o f .5 IRAs' are included in the definition-of "individual retirement plan" . Sec . 7701 (a) (37) 1 6 'In general, the term "eligible student" means,' with-, respect-to .any academic period, a .student who-is enrolled : a t least half time in a degree- or ce'rtfiificate . program . at an elig"ible . institution of' .higher education . See secs . 529 (e)(3) (B) .(i) , 25A(b) (3) ; 20 U . S .C .' 'sec . 1091 (a) (1) (2006) . attendance : (as defined .in section-,,472 of the Higher Education Ac t of "1965, _20 U. .'S . C .L section 1087,11) ' .asp determined=,by .the, . eligible educational institution, for., such . period , or, , in '°. the .case o f student living in housirng owned°=or<" operated by an eligibl e educational institution whose expenses are greater, the actua'l_ amount,charge,d the student by-the educational institution for, room and, board . ., Sec .- 529 (e)',,(3) (B) (ii )° . ' We are ; satisfied, on the, .basis of. 'pe,titioner's 'credibl e testimony, that . petitioners provided,their.daughter ; .with,$575 .per, month-.for rent, $100 per .month,for utilities, and $ 1 00 per month _- for food . ($775 . per month, total)in :2006 . However,, the . amount treated as' .qualifi{ed higher .education, expenses is limited to the „ allowance for, room and board included in-the cost'o .f attendanc e for,,;,2006 as : determined by MSU .B Accordingly, 'the .10-percen t additional tax does not .apply)to .:,the,amount of the distributio n ' The term "cost of attendance"includes an allowance (as' . determined by .the institution) for room and board costs incurred by the student which, for students residing off-campus but not at home with-parents, shall be an-allowance based on-the expenses reasonably incurred by .such students for room, and board . See '20 U .S .C . sec . 108711(3) (2006) . : .' 8 Sec . 529 (e .) ;(3')-(B) .. (ii:) (II)- doe-s, n'ot apply here . because petitioners : daughter did .not live in housing owned, or operate d by MSU,.in.2006 : General . Explanation of.- Economic .Growtn and Tax Relie f .Reconciliation Act of 2001 .(J . Comm . Print 2003) . See, , e .g .,, Staff .of Joint Comm . on .Taxation , equal to the lesser of the room and board expenses petitioner s incurred and MSU'±s allowance - for room and board in 2006 . 9 No other exception applies t tithe amount of the distribution in excess of the "allowable qualified higher education expenses . Accordingly, that excess amount isi[,subject to-the 10-percent . additional tax . fi In reaching all of 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 , 9 We leave it to the parties to determine as part of the Rule 155 computation petitioners' total room and board expenses using the(cid:127)Court's 'findings for the months petitioners' daughter was enrolled at MSU and the applicable limit on reasonable costs incurred for room'and board as determined by .MSU for 2006 . I