TAX COURT OPINION

Case: Herbert Wallace Givin Clanton
Docket Number: 26862-09
Judge: Laro
Opinion Type: bench
Filed: 11/10/2011
Pages: 8

UNITED STATES TAX COURT WASHINGTON, DC 20217 CZ HERBERT WALLACE GIVIN CLANTON, Petitioner, v. Docket No. 26862-09. COMMISSIONER OF INTERNAL REVENUE, Respondent O R D 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 herewith to petitioner and to respondent a copy of the pages of transcript of the hearing in the above case before Judge David Laro at Detroit, MI, on October 27, 2011, containing his oral findings of hearing. fact and opinion rendered at the the conclusion of the In accordance with the oral findings of fact and opinion, decision will be entered for respondent. Dated: Washington, D.C. November 10, 2011 (Signed) David Laro Judge SERVED Nov 10 2011 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 Senior Judge David Laro Herbert Wallace.Givin Clanton v. Commissioner Docket No.: 26862-09 October 27, 2011 THE COURT: The Court has decided to render Oral Findings of Fact and Opinion in this case. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code, and Rule 152 of the Tax Court Rules of Practice and Procedure. Petitioner refers to Herbert Wallace Givin Clanton, State Street refers to State Street Retiree Services for State of Michigan Deferred Compensation PN/457, and the State of Michigan refers to the State of Michigan Department of Transportation. Section references are to the applicable version of the Internal Revenue Code, and Rule references are to the Tax Court Rules of Practice and Procedure. Dollar amounts have been rounded. Petitioner, while residing in Michigan, petitioned the Court to redetermine respondent's determination of a $4,783 deficiency in his 2007 Federal income tax. Following a trial on this case, we first decide whether petitioner was required to include in his 2007 income a $20,985 distribution from his individual retirement account (IRA). We hold he 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 was. We next decide whether petitioner is liable for a 10-percent additional tax on that distribution under 4 section 72 (t) (1) . We hold he is . Background Petitioner was born on May .29, 1958. He worked for the State of Michigan from October 1988 until June 2009, though he was on unpaid medical leave between June 2007 and July 2009. In 2007 petitioner received a gross distribution of $20,985 from his IRA when he was younger than 59-1/2 years old. State Street issued to petitioner a 2007 Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., reporting the gross distribution and the taxable amount as $20,985. The Form 1099-R also reported ederal income tax withheld of $2, 098, and a distribution code of "2". The 2007 instructions to Form 1099-R state that distribution code "2" identifies an early distribution to which there was a known exception to the additional tax under section 72 (t) . Petitioner filed with respondent a 2007 Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents. That return reported wages, salaries, and tips of $35,937, but did not include as 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 income the $20,985 distributed from State Street. On September 14, 2009, respondent issued to petitioner a notice of deficiency which determined a $4,783 deficiency in petitioner's 2007 Federal income tax. The deficiency was attributable to two adjustments. First, respondent determined that petitioner failed to report the $20,985 distribution from his IRA as income in 2007. Second, respondent determined that petitioner was liable for a 10-percent additional tax under section 72(t). Discussion The Commissioner's determinations in a notice of deficiency are generally presumed correct, and the taxpayer must prove those determinations erroneous in order to prevail. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Where a taxpayer meets certain substantiation and recordkeeping requirements, the burden of proof as to factual matters may shift to the Commissioner. See sec. 7491(a). Petitioner does not assert, and we do not conclude, that the burden of proof should shift to respondent. See sec. 7491(a) (2) (A) and (B). Respondent contends that petitioner was required to include in income the $20,985 distributed from petitioner's IRA. The Federal income tax 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 6 treatment of IRAs is governed by section 408. In particular, section 408(d) provides that distributions from an IRA are taxable in the manner provided under section 72 unless properly,rolled over within 60 days into another IRA or eligible retirement plan. Section 72(a) generally requires that amounts distributed from an IRA be included in a taxpayer's gross income to the extent that the amounts distributed exceed the taxpayer's "investment in the contract" (i.e., the taxpayer's basis). See secs. 72(b) (1), (c), 408 (d) (2). A taxpayer's basis in an IRA is generally zero. Sec. 1.408-4 (a) (2), Income Tax Regs. Petitioner received a gross distribution of $20,985 from his IRA during 2007, and he failed to report that distribution as taxable. He does not contend, and the record does not suggest, that he rolled over any portion of the distribution into another IRA or other retirement àccount. Nor does petitioner claim that he should be credited with any investment in the. IRA that would increase his basis above zero. We thus sustain respondent's determination that petitioner must include $20,985 in his 2007 gross income. Respondent next contends that petitioner is liable for a 10-percent addition-to-tax imposed on early distributions from a qualified retirement plan 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 under section 72(t). Section 72(t) (1) generally imposes a 10-percent additional tax on the amount of any early distribution from a qualified retirement plan unless that distribution satisfies any of the exceptions enumerated in section 72(t) (2). An IRA is a qualified retirement plan to which section 72(t) applies. See secs. 408 (a), 4974 (c) (4). Petitioner bears the burden of provin'g his entitlement to an exception under section 72(t) (2). See Bunney v. Commissioner, 114 T.C. 259, 265 (2000). Petitioner does not claim that he meets a specific exception enumerated under section 72(t) (2). Rather, petitioner asserts that he is excepted from the section 72(t) addition-to-tax due to financial hardship arising from his allegedly being forced off the job, losing all sources of ·income, and being ineligible for unemployment insurance. While we are sympathetic to petitioner's situation, we have held that financial hardship does not create an exception to the additional tax imposed by section 72(t). See Arnold v. Commissioner, 111 T.C. 250, 255 (1998); see also Venet v. Commissioner, T.C. Memo. 2009-268; Milner v. Commissioner, T.C. Memo. 2004-111; Gallagher v. Commissioner, T.C. Memo. 2001-34; Robertson v. Commissioner, T.C. Memo. 2000-100, affd. 15 Fed. Appx. 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 8 467 (9th Cir. 2001). Thus, petitioner's claim for relief under the pretense of general hardship is inadequate to avoid the 10-percent additional tax under section 72(t) (1). Nor are we persuaded that a different result is compelled by the fact that Form 1099-R reported distribution code "2" or that petitioner was on unpaid medical leave between June 2007 and July 2009. As to the former, the instructions to Form 1099-R clarify that distributions may be subject to the 10-percent additional tax notwithstanding the distribution code reported. Thus, the distribution code reported is subordinate to the statutory exceptions listed in section 72(t) (2). As to the latter, section 72(t) (2) (A) (iii) provides that the 10-percent additional tax does not apply to distributions at ributable to an employee's being disabled. An is considered to be disabled for purposes of section 72 if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. Sec. 72(m) (7). Petitioner alleged in the petition and at 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 trial that he was "forced off the job" due to allegedly improper behavior on the part of the State of Michigan not because of a specific medical disability that affected his ability to work. Allegedly improper behavior on the part of a State government is not an enumerated exception under section 72(t) (2). The Court has repeatedly held that we are bound by the statutory exceptions listed in section 72(t) (2). See Arnold v. Commissioner, supra at 255-256; Schoof v. Commissioner, 110 T.C. 1, 11 (1998). Petitioner has not shown that he comes within any of the exceptions to the 10-percent additional tax under section 72(t) (2). Accordingly, we sustain respondent's determination that petitioner is liable for a 10-percent additional tax on his $20,985 IRA distribution. In reaching these holdings, we have considered all arguments made at trial and, to the extent not mentioned above, we conclude that they are moot, irrelevant, or without merit. Decision will be entered for respondent. This concludes the Court's Oral Findings of Fact and Opinion in this case. (Whereupon, at 9:20 a.m., the bench opinion in the above-entitled matter was concluded.) // Heritage Reporting Corporation (202) 628-4888