TAX COURT OPINION

Case: Dale A. & Nancy L. Weimer
Docket Number: 4421-11
Judge: Gustafson
Opinion Type: bench
Filed: 03/20/2012
Pages: 9

UNITED STATES TAX COURT WASHINGTON, DC 20217 RMM DALE A. & NANCY L. WEIMER, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 4421-11. ) ) ) ) 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 herewith to petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge David Gustafson at Denver, Colorado, on March 6, 2012, containing his oral findings of fact and opinion rendered at the conclusion of the trial. In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) David Gustafson Judge Dated. Washington, D.C. March 20, 2012 SERVEDMar202012 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 Judge D,avid Gustaf son March 6, 2012 Weimer v. Commissioner Docket No. 4421-11 THE COURT: The Court has decided to render oral Findings of Fact and Opinion in this case. The following represents the Court's oral Findings of Fact and Opinion, which shall not be relied on as precedent in any other 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. By a statutory notice of deficiency dated November 29, 2010, the Internal Revenue Service (IRS) determined a.deficiency (in the Federal income tax of petitioners Dale A. and Nancy L. Weimer for the year 2008, in the amount of $4,934. Petitioners timely filed their petition in this Court on February 22, 2011. Trial of this case was conducted on March 5, 2012, in Denver, Colorado. The Weimers represented themselves, and respondent was represented by Randall L. Preheim. Two witnesses testified--Mrs. Weimer and the Weimers' return preþarer. After concessions by the parties, the only issue in dispute is the Weimers' liability under section 72(t) for additional tax on a distribution from a 401(k) plan. We hold that the Weimers are liable. 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 FINDINGS OF FACT 4 As petitioners, the Weimers have the burden of proof. See Rule 142. However, the following facts are essentially undisputed. In 2008 Mrs. Weimer was employed. Mr. Weimer was employed at the beginning of the year (full time, as he had been in years past), but early in the year he was laid off by his employer, Eckstine Electric Company. The Weimers do not know why he was laid off. Mr. Weimer has some physical problems, but he was not disabled in 2008. On May 22., 2008, the Weimers' home town of Windsor, Colorado, was hit by a tornado. At the request of the Governor;of Colorado, President George W. Bush declared a federal disaster in Colorado. The Weimers' house, in which they lived with two of their children, was seriously.damaged. On the heels of Mr. Weimer's unemployment, èhe tornado damage resulted in substantial economic hardship for the Weimers. Knowing that insurance money would be slow in coming, Mr. Weimer decided to obtain funds from his account in a 401(k) retirement plan maintained by his recent employer. Mr. Weimer was at that time only 52 years of age, but the 401(k) plan evidently allowed an early withdrawal in cases of financial hardship. Mr. 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 5 Weimer requested a distribution from the plan, and the plan administrator made a distribution of $20,022.49, from which it withheld federal tax of $4,004.50. Mr. Weimer used the proceeds of the distribution to repair his house, doing most of the work himself to save money. After the end of 2008, the Weimers provided to their regular return ipreparer their financial information for 2008, including a Form 1099-R from the 401 (k) plan . that reported the distribution and the tax withholding therefrom. However, the return preparer mistakenly omitted from ithe Weimers' return both the . distribution and the withholding. The IRS spotted the omission and, after several false steps in communicating with the Weimers, issued to them the notice of deficiency, which adjusted their income (to include the distribution) , their payments (tó include the withholding) , and their deductions (to include casualty loss on their house), none of which adjustments are in dispute. However, the notice of deficiency also included an additional tax of $2,002--i.e., 10 percent of the 401(k) plan distribution--pursuant to section 72(t). The Weimers filed their petition in this Court to challenge that additional tax. At the time 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 they filed their petition, they resided in the State of Colorado. DISCUSSION Section 72(t) (1) imposes a 10-percent additional tax on any distribution from a "qualified retirement plan", unless that. distribution satisfies one of the statutory exceptions in section 72(t) (2). The Weimers do not dispute that Mr. Weimer received the distributions at age 52 (i.e., before age 59-1/2) nor that the payor plan !was a qualified retirement plan (see sec. 4974 (c) (1)), but they appear to urge four reasons that they should not be liable. None of these reasons can prevail: First, the Weiimers argue that the early withdrawal was necessitated by financial hardship. They did prove that they suffered a financial hardship, and it is evidently for that reason that the plan made the distribution that Mr. Weimer requested. We assume that the withdrawal was entirely appropriate under the terms of the plan and was well justified by the Weimers' difficult financial circumstances. However, the additional tax of section 72(t) applies to every 401(k) plan distribution not explicitly excepted from its application; and financial hardship is not one of the excep¼ïons in section 72(t) (2). See 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 Dollander v. Commissioner, T.C. Memo. 2009-187. It is 7 true that hardship can be relevant under section 401(k), in that a qualified plan will not be disqualified if, on the occasion of financial hardship, it makes distributions to participants younger than retirement age. See sec. 401(k) (2) (B) (i) (IV), (k) (7) (C); 26 C.F.R. sec. 1.401(k)-1(d) (3) (I), Income Tax Regs. However, that non-disqualification provlsion pertaining to the plan does not affect the taxability of the distribution to the participant, nor his liability for the additional tax for early distribution. Thus, the early distribution is permitted to be made because of the hardship, but the distribution is ·subject to regular tax and to the additional tax. Second, the Weimers' petition apparently argued that the additional tax did not apply because of the President's declaration of disaster; but if they made this contention in their petition, they explicitly disclaimed it at trial. In any event, their disaster in Colorado did not qualify them for the relief in section 1400Q (available in the case of hurricane disasters in other states), as extended by section 702(a) of the Heartland Disaster Tax Relief Act of 2008, Pub. L. No. 110-343, 122 Stat. at 3912 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 (which did not apply to Colorado). Third, the Weimers seem to point to Mr. Weimer's physical problems as a disability. Section 72(t) (2) (A) (iii) does provide an exception for distributions "attributaible to the employee's being disabled"; but (a) the Weimer's did not give any elaboration of Mr. Weimer's physical problems, (b) they did not show that Ghe distribution was requested and made on account of à disability (rather, it appears to have been made on account of hardship), and (c) for this purpose, to be "disabled" means to be "unable to engage in any substantial gainful activity", sec. 72 (m) (7);, whereas Mr. Weimer was able to work full-time and to repair his house. Fourth, the Wëimers point out that, before the IRS sent the notice of deficiency, it first sent them one letter proposing a greater tax liability and then sent another letter proposing a refund. (The Weimers did not offer the complete letters into evidence, and the computations underlying them are not before us.) The Weimers suggest that these letters cast doubt on the position ultimately reflected in the notice of deficiency. However, it appears that the changes in the IRS's proposals were the result of its attempts to correct the admitted errors on the Heritage Repprting Corporation (202r) 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 Weimers' return, affected by such factors as the additional information that the Weimers provided during the process and the IRS's decision not to pursue penalties. Just as a taxpayer is allowed to change and clarify his position as an examination proceeds, so the IRS is allowed to change and clarify its position. The issue at trial was not the correctness or incorrectness of the parties' various positions over time but rather the Weimers' actual tax liability under the Internal Revenue Code. It is immaterial in this case whether the IRS's earlier letters were.in error. The IRS's notice of deficiency was its latest word on he subject and is the position we review pursuant to section 6213(a). It was incumbent on the Weimers to show that the notice of deficiency was in erroriin asserting the additional tax under section 72(t). They made an orderly, rational, well-prepared, and sympathetic presentation; but they did·not show that the notice of deficiency was in error, and we find them liable for the additional tax. To give effect to this opinion and to the parties' concessions., decision will be entered after the parties have recomputed the liability pursuant to Rule 155. 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 This concludest the Court ' s oral Findings of Fact and Opinion in this case. (Whereupon, at 4:13 p.m, the bench opinion in the above-entitled matter was concluded.) 10 // // // // // // // // //, // // // // // // // // // // // // Heritage Rep)orting Corporation (202) 628-4888