TAX COURT OPINION

Case: Candace Elaine
Docket Number: 26078-14S
Judge: Carluzzo
Opinion Type: bench
Filed: 10/21/2016
Pages: 6

RS UNITED STATES TAX COURT WASHINGTON, DC 20217 CANDACE ELAINE, Petitioner, v. ) ) ) ) Docket No. 26078-14S COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Special Trial Judge Lewis R. Carluzzo at Los Angeles, California, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered under Rule 155. (Signed) Lewis R. Carluzzo Special Trial Judge Dated: Washington, D.C. October 21, 2016 SERVED Oct 25 2016 Capital Reporting Company 3 1 Bench Opinion by Judge Lewis R. Carluzzo 2 October 5, 2016 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Candace Elaine v. Commissioner Docket No. 26078-14S THE COURT: THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE AND THE FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT AND OPINION (BENCH OPINION). Section references made in this bench opinion are to the Internal Revenue Code of 1986, as amended, in effect for the relevant period, and Rule references are to the Tax Court Rules of Practice and Procedure. This bench opinion is made pursuant to the authority granted by Section 7459(b) and Rule 152. This proceeding for the redetermination of a deficiency .is a small tax case subject to the provisions of Section 7463 and Rules 170 through 175. Pursuant to Section 7463(b), the decision entered in this case shall not be treated as precedent for any other case. Candace Elaine appeared on her own behalf. David J. Warner appeared on behalf of respondent. In a notice of deficiency dated July 28, 2014 (notice), respondent determined an $8,400 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 deficiency in, and imposed a Section 6662(a) penalty 2 with respect to petitioner's 2012 federal income tax. 3 4 5 6 7 8 9 10 11 12 13 14 15 After concessions the issues for decision are: (1) whether distributions from a qualified retirement account are subject to the additional tax imposed by Section 72(t) and (2) whether petitioner is liable for a Section 6662(a) penalty. Some of the facts have been stipulated and are so found. At the time the petition was filed, petitioner lived in California. During 2012, petitioner received distributions totaling $84,000 from a qualified retirement plan administered through Capital Bank and Trust Co. (retirement distributions.) As of the close of that year, petitioner was under 55 years of age. 16 All of the distributions are reported in the income 17 18 19 20 21 22 23 24 25 shown on her 2012 federal income tax return, but the additional tax imposed by Section 72(t) is not included in the amount of tax shown on that return. In the notice respondent determined that the Section 72(t) additional tax is applicable to the entire amount of the retirement distributions and imposed a section 6662(a) penalty on the entire amount of the underpayment of tax, which in this case is computed in the same manner as the deficiency. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 Another adjustment, now conceded by petitioner, is shown in the notice and will not be addressed in this bench opinion. Also, respondent now concedes that at least a portion of the retirement distribution is excepted from the Section 72(t) additional tax pursuant to Section 72(t)(2) (B) with respect to certain of petitioner's medical expenses. Otherwise, the stipulated facts establish that none of the exceptions to the imposition of the Section 72(t) additional tax is applicable to the retirement distributions. Petitioner explained that after losing her job in 2009, the retirement distributions were used for support for herself and her family. Instead of pointing to an exception listed in Section 72(t), petitioner argues that she should not be subject to the additional tax because the retirement distributions qualify for an exception due to the financial hardship caused by the loss of her employment. While it is evident that petitioner used the retirement distributions to avoid the loss of her home and a financial crisis, there is no hardship exception under Section 72(t)(2). See Arnold v. Commissioner, 111 T.C. 250, 255 (1998)(holding that a distribution received as a result of financial 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 hardship was subject to 72(t) additional tax, because no exception exists for financial hardship); Milner v. Commissioner, T.C. Memo. 2004-111 (same); 4 Gallagher v. Commissioner, T.C. Memo. 2001-34 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (holding that a distribution received by taxpayers due to financial hardship and used to pay bills, tuition at their son's private high school, and other personal expenses was subject to Section 72(t) additional tax); Robertson v. Commissioner, T.C. Memo. 2000-100, (holding that a distribution used for the taxpayer's "own subsistence and that of her family" was subject to Section 72(t) additional tax), aff'd, 15 Fed.Appx 467 (4th Cir. 2001); Pullman v. Commissioner, T.C. Memo. 1996-354 (holding that a distribution received by taxpayer due to financial hardship and used to pay off his debts was subject to Section 72(t) .additional tax.) It follows that except with respect to amounts now conceded by respondent, the retirement distributions are subject to the Section 72(t) additional tax, and respondent's determination to that end is sustained. The long list of cases cited above, as well as many others decided by this Court to the same effect, strongly suggests there is a common 25 misunderstanding among taxpayers that financial 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 hardship is an exception to the imposition of an otherwise applicable Section 72(t) additional tax. 3 Petitioner apparently proceeded under that 4 misunderstanding not only with respect to the year 5 here in dispute, but to several previous years as 6 well. Given her explanation at trial, we are 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 satisfied that petitioner had reasonable cause and acted in good faith with respect to the portion of the underpayment of tax resulting from her failure to include Section 72(t) additional tax in the tax liability shown on her 2012 return. See sec. 6664(c). Consequently, she is not liable for a Section 6662(a) accuracy-related penalty for that portion. Because the portion of the underpayment of tax attributable to the adjustment conceded by petitioner would seem to be negligible, we'll leave it up to one or the other of the parties to concede that amount and show the concession in the computation submitted under Rule 155. This concludes the Court's bench opinion in this matter. To reflect the foregoing, decision will be entered under Rule 155. (Whereupon, at 9:38 a.m., the above- entitled matter was concluded.) 866.488.DEPO www.CapitalReportingCompany.com