TAX COURT OPINION

Case: Weldon Dale Johnson
Docket Number: 11528-11S
Judge: Marvel
Opinion Type: bench
Filed: 04/27/2012
Pages: 8

DEM UNITED STATES TAX COURT WASHINGTON, DC 20217 WELDON DALE JOHNSON, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) Docket No. 11528-11S. ) ) ) ) ) ORD E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to petitioner and to respondent a copy of the pages of the transcript of the proceedings of the above case before Judge L. Paige Marvel at Atlanta, Georgia, on March 29, 2012, containing her oral findings of fact and opinion. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) L. Paige Marvel Judge Dated. Washington, D.C. April 27, 2012 SERVEDApr272012 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 3 Bench Opinion By Ju ge L. Paige Marvel Weldon Dale Johnson v. Commissioner Docket No. 11528-11S March 29, 2012 THE COURT: THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FA T AND OPINION IN THIS.CASE AND THE FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT AND OPINION. THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY OTHER CASE. This proceeding for the redetermination of a deficiency is a·sma(cid:16)041l tax case conducted pursuant to the provisions of section 7463 of the Internal Revenue Code of 1986 as amended and Rules 170 through 175 of the Tax Court Rules iof Practice and Procedure. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code of 1986 as amended and Rule 152 of the Tax Court Rules of Practice and Procedure. Unless othlerwise indicated, subsequent section references ade in this bench opinion are to the Internal Revenue Code of 1986 as amended (Code) in effect for the releviant period. We held a trial in this case on March 26, 2012. Petitioner, who resided in 'the State of Georgia Heritage Reporting Corporation (202) 628-4888 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 4 when he petitioned this Court, appeared pro se and testified. Peter T. McCary appeared on behalf of respondent . The isjsues for decision are whether a $1,635 distributionÍ that petitioner Weldon Dale Johnson withdrew duiring 2008 from an Edward Jones and Company (Edward Jones) traditional individual retirement account (IRA) to pay his daughter's private elementary school tµition was taxable income reportable on the 2 08 Federal income tax return, which he filed jointly with his wife; and whether petitioner is liable for the additional tax imposed by section 72(t) because the distribution in question was taken before petitioner had attained the age of 59-1/2 years . Facts Some of the facts have been stipulated. The stipulated facts arë incorporated herein by this reference. Petitioner was self -employed during at least part of 2008 because he had lost various jobs as a result of the poor economy and was struggling financially. Nevertheless, he was trying to care for his family as best as he could until the economy improved. During 2008 petitioner's daughter was Heritage Reporting Corporation (202) 628-4888 5 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 enrolled in private elementary school. Because of his difficult financial condition, petitioner decided to take, and did take, a distribution from an IRA he maintained at Edward Jones to pay his daughter's tuition. Petitioner had not yet attained the age of 59-1/2 years when h took the distribution nor did he attain that age by the end of 2008. Petitioner prepared a joint Federal.income tax return for himself and his wife, Janiese Arylan Johnson, for 2008 u ing the Internal Reveñue Service's free filing program and the TaxACT Online software. . Although petitioner thought he had done everything necessary to report the IRA distribution correctly, the distribution wa not included as taxable income on thø 2008 return nor was the additional tax due on the premature IRA distribution included in calculating petitioner and his wife's joint Federal income tax liability. Respondent issued a notice of deficiency dated February 14, 2011, in which he determined that the IRA distribution was taxable income and that petitioner and his wife were liable for the additional tax on the distribution imposed by section 72(t). Petitioner timely petitioned this Court on behalf of himself and his wife but his wife did not sign the Heritage; Reporting Corporation (202) 628-4888 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 petition nor did she ratify it. We granted respondent's motion to dismiss for lack of jurisdiction with nespect to Mrs. Johnson. Petitioner contends that he should not be liable for the deficiency, including the section 72(t) additional tax on tlhe 2008 premature distribution, because the distribution was the result of financial hardship he was expþriencing in 2008, the distribution was used to pay his daughter's educational expenses, and he did everything necessary to prepare his 2008 return correctly. $ Respondent, who has not asserted any penalty or addition to tax against petitioner, contends that the IRA distribution was taxable and that petitioner does not qualify foi any exception that relieves him of liability for the section 72(t) additional tax. While we accept petÉtioner's testimony that he attempted to file an accurate and complete return as credible, we can find no exception that would relieve petitioner of liability for the deficiency, including the section 72(t) addition to tax. We explain as follows. Discussion In general, amounts distributed from an IRA are includable in the distributee's gross income as Heritage Reporting Corporation (Ü02) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 3 14 15 16 17 18 19 20 21 22 23 24 25 7 provided in section 72. Sec. 408 (d) (1). Section 72(a) provides that gross income includes any amount received as an annuity except as otherwise provided in chapter 1 of the Code. Petitioner's distribution from his IRA at Edward Jones was therefore taxable. Section 72(t) (1) imposes an additional tax of 10% on the portion of a distribution from a qualified retiremen[t plan that is includable in gross income, unless the distribution falls under one of the exceptions in section 72(t) (2). A distribution made on or after the date on which the employee attains age .59-1/2 is generally not subject to the additional tax. Sec. 72 (t) (2) (A) ( . The parties do not dispute that L petitioner's IRA was a qualified retirement plan or that petitioner had not yet attained the age of 59-1/2 when he received the 2008 distribution. Petitioner, however, contends that he should not be subject to the 10% additional tax either because he used the funds to pay his daughter's elementary school tuition or because he wa.s experiencing financial hardship. Although we sympathize with petitioner's situation and accept as credible his testimony that he used the distribution to pay elementary school tuition, there is.no financial hardship exception under section 72(t) (2). Heritage Reporting Corporation (¡202) 628-4888 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 8 See Arnold v. Commissioner, 111 T.C. 250, 255-256 (1998); Milner v. Commissioner, T.C. Memo. 2004-111; Gallagher v. Commissioner, T.C. Memo. 2001-34. There is also no exception under section 72(t) (2) for distributions used to pay elementary school tuition. Generally, section 72(t) (2) (E) provides an exceptiön to the 10% additional tax for distributions from individual retirement plans to the extent such distrib(cid:0)540tionsdo not exceed the qualified higher education expenses of the taxpayer for the taxable year. "Qualified higher educatioå expenses" means qualified higher 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 ëligible educational institution. Sec. 72(t) (7). These include tuition, fees, books, supplies, and equipment. Sec. 529(e) (3) (A) (i). To qualify for the exception.under section 72(t) (7), the taxpayer must establish that the education is furnished at an eligible eduÃational institution within the meaning of section 529(e) (5). Secs. 72(t) (7) (A), 529(e) (3). We have prëviously held that eligible educational institutions under section 529(e) (5) are colleges, universities, and other Heritage Repórting Corporation (202) 628-4888 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 postsecondary institutions which are eligible to participate in a student aid program administered by the Department of Education. See Nolan v. Commissioner, T.C. Memo. 2007-306. Because elementary schools are not eligible educational inst'itutions, , petitioner's tuition expenses do not meet the LPN\ definition of qualified higher edgcationgexpgnge ccording y, petitioner has not established L that he comes within any of the exceptions to the general rule under section 72(t) (1), and the distribution petitipner received is subject to the 10% additional tax und'er section 72(t). We hold therefore that petitioner is liable for the 2008 income tax deficiency as determined by respondent. Decision will be entered for respondent. THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon, at 12:48 p.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // Heritage iReporting Corporation (202) 628-4888