TAX COURT OPINION

Case: Julius Ceasar Clark
Docket Number: 19455-06S
Judge: Colvin
Opinion Type: bench
Filed: 06/02/2008
Pages: 9

I ADM . RECORDED SERVIC E CAL STA T S .T . JUDGE FILE S UNITED STATES TAX COURT WASHINGTON , DC 2021 7 JULIUS CEASAR CLARK , Petitione r V . COMMISSIONER OF INTERNAL REVENUE , Respondent Docket No . 19455-06S . O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s 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 of the above case before Special Trial Judge Robert N . Armen, Jr . at Chicago, Illinois, on April 23, 2008, 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, a Decision will be entered for__respondent . (Signed ) Robert N . Armen, Jr. Special Trial Judg e DATED : Washington, D .C . June 2, 2008 SERVED JUN - 3 2008 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 2 Bench Opinion by Special Trial Judge Robert N . Armen Jr . April 23, 200 8 Clark v . Commissioner Docket No . 19455-06 S I . THE COURT : THE COURT HAS DECIDED TO RENDE R ORAL FINDINGS OF FACT AND OPINION IN THIS CASE, AND THE FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS O F FACT AND OPINION . THE ORAL FINDINGS OF FACT AN D OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN AN Y OTHER CASE . II . This proceeding was heard as a Small Ta x Case, pursuant to the provisions of section 7463 o f the Internal Revenue Code of 1986, as amended, and Rules 170 through 175 of the Tax Court Rules o f Practice and Procedure . III . This bench opinion is made pursuant to th e authority granted by section 7459(b) of the Interna l Revenue Code of 1986, as amended, and Rule 152 of th e Tax-Court Rules of Practice and Procedure . Hereinafter in this bench opinion, al l section numbers refer to the Internal Revenue Code, a s amended and in effect for 2004, the taxable year i n issue, and all Rule numbers refer to the Tax Cour t Heritage Reporting Corporation (202) 628-4888 3 1 Rules of Practice and Procedure . 2 IV . 3 Julius Ceasar Clark appeared on his ow n 4 behalf . Julie Jebe appeared on behalf of respondent, 5 as did Nicholas Jenkins, who was specially recognized 6 by the Court for purposes of this case . 7 V . 8 For the taxable year 2004, responden t 9 determined a deficiency in petitioner's Federal income 10 tax of $4,968 . 11 VI . 12 The issues for decision by the Court Qr -),~- a s A 13 follows : 14 (1) Whether petitioner received a n 15 unreported taxable distribution in 2004 from JP Morgan 16 Retirement Plan Services of $16,633 . If so , 17 (2) Whether petitioner is liable for the 18 10-percent additional tax imposed by section 72(t) on 19 an early distribution from a qualified retirement plan 20 in respect of the foregoing distribution . 21 (3) Whether petitioner received unreported 22 wage income in 2004 from Berkeley Premium 23 Nutraceuticals Inc . of $66 . 24 VII . 25 Some of the facts have been stipulated, an d Heritage Reporting Corporation (202) 628-4888 4 1 they are so found . 2 Petitioner resided in the state of Illinois 3 at the time that the petition was filed with th e 4 Court. 5 From 1997 to 2004, petitioner was employed 6 by Best Buy Stores, L . P . During his employment with 7 Best Buy , petitioner participated in the Best Bu y 8 Retirement Savings Plan . This plan was section 401(k ) a- A 9 arrangement, under which petitioner contributed a 10 portion of his wages on a pretax basis and hi s 11 employer contributed a matching percentage . The plan 12 was administered by JP Morgan Retirement Pla n 13 Services . 14 In or about June 2004, petitioner received a 15 total distribution of his account balance, which, at 16 the time, totaled $16,633 . Of that amount, $3326 was 17 withheld for Federal income tax . At the time , 18 petitioner was experiencing financial difficulties and 19 needed money to pay bills and meet other living 20 expenses, and he could not afford to roll over th e 21 distribution into an individual retirement account or 22 other retirement plan . 23 For a very short period of time in 2004, 24 petitioner was employed by Berkeley Premiu m 25 Nutraceuticals Inc . and received wages of $66 in that Heritage Reporting Corporatio n (202) 628-4888 5 1 year . 2 Petitioner turned 30 years old in 2004 . 3 Petitioner filed a Federal income tax return 4 (Form 1040EZ) for 2004 . Petitioner misunderstood the 5 tax ramifications of the section 401(k) distribution, 6 and he did not include that distribution in hi s 7 income . Also, petitioner overlooked the modest amount 8 of wages from Berkeley Premium Nutraceuticals and did 9 not report that amount . 10 In the notice of deficiency, responden t 11 determined that both the $16,633 distribution and the 12 $66 of Berkeley wages are includable in petitioner's 13 income . The resulting deficiency of $4,968 includes 14 additional tax under section 72(t) of $1,663, i .e ., 10 15 percent of the $16,633 distribution . Also in th e 16 notice of deficiency, respondent expressl y 17 acknowledges that petitioner is entitled to a credit 18 of $3,326 attributable to the Federal income tax 19 withheld by JP Morgan Retirement Services from th e 20 distribution . Thus, the "out-of-pocket" deficiency in 21 tax amounts to $1,642, i .e ., $4,968 minus $3,326 . 22 VIII . 23 We begin with a few words about the burden 24 of proof and the burden of production in cases before 25 this Court . Heritage Reporting Corporation (202) 628-4888 6 1 In general, the Commissioner' s 2 determinations in a notice of deficiency are presumed 3 correct, and the taxpayer bears the burden of showing 4 that those determinations are erroneous . Rule 142(a) ; 5 INDOPCO, Inc . v . Commissioner , 503 U .S . 79, 84 , 6 (1992) ; Welch v . Helvering , 290 U .S . 111, 115 (1933) . 7 Pursuant to section 7491(a), the burden of proof as to 8 factual matters may shift to the Commissioner unde r 9 certain circumstances . 10 We decide the instant case without regard to 11 the burden of proof . Accordingly, we need not decide 12 whether section 7491(a) applies in this case . 13 Insofar as section 7491(c) is concerned, we 14 note that pursuant to that section, the Commissioner 15 bears the burden of production with respect to any 16 penalty, addition to tax, or additional amount . Even 17 if the 10-percent additional tax under sec . 72(t) is 18 an "additional amount" for which respondent bears the 19 burden of production, respondent has met such burden 20 by demonstrating that petitioner turned 30 years of 21 age in 2004, the year in which he received the 22 distribution in issue . See Milner v . Commissioner , 23 T .C . Memo . 2004-111 n . 2 ; H . Conf . Rept . 105-599, at 24 241 (1998), 1998-3 C .B . 747, 995 . 25 We turn now to the substantive law . Heritage Reporting Corporation (202) 628-4888 7 1 Generally, a distribution from a qualified 2 plan is includable in the distributee's gross income 3 in the year of distribution under the provisions of 4 section 72 . Secs . 61(a)(11), 402(a) ; see secs . 5 401 (a) , 4974 (c) (1) . 6 In the instant case, there is no reason not 7 to apply this general principle, and petitione r 8 essentially concedes the matter by recognizing that 9 his section 401(k) distribution should have bee n 10 included in his income . We turn, therefore, to 11 section 72(t) . 12 That section provides for a 10-percen t 13 additional tax on early distributions from qualified 14 retirement plans, such as section 401(k) plans . 15 However, the 10-percent additional tax does not apply 16 to certain distributions . Thus, section 72(t) sets 17 forth specific exceptions . The most common of these 18 exceptions include distributions that are made on or 19 after the date on which the employee attains age 59- 20 1/2, distributions that are attributable to th e 21 employee's being disabled, or distributions made to an 22 employee after separation from service afte r 23 attainment of age 55 . 24 The legislative purpose underlying th e 25 section 72(t) tax is that premature distributions from Heritage Reporting Corporatio n (202) 628-4888 8 1 qualified retirement plans "frustrate the intention of 2 saving for retirement, and section 72(t) discourage s 3 this from happening ." Arnold v . Commissioner , 11 1 4 T .C . 250, 255 (1998) ; Dwyer v . Commissioner , 106 T .C . 5 337, 340 (1996) ; see S . Rept . 93-383, at 134 (1974), 6 1974-3 C .B . (Supp .) 80, 213 . 7 Petitioner does not contend that any of the 8 statutory exceptions apply to him, and none do . 9 Rather, petitioner essentially seeks relief from the 10 10-percent additional tax based on financial hardship . 11 Although paying one's bills is laudatory , 12 and the need to meet living expenses is readil y 13 apparent, there is, unfortunately for petitioner, no 14 exception in section 72(t) for general financial 15 hardship . E .G ., Arnold v . Commissioner , supra ; 16 17 18 19 Thompson v . Commissioner , T .C . Memo . 2007-327 ; Cole v . Commissioner , T .C . Memo . 2006-44 ; Milner v . Commissioner , T .C . Memo . 2004-111 ; Gallagher v . Commissioner , T .C . Memo . 2001-34 . Accordingly, we are 20 constrained to conclude that petitioner is liable for 21 the 10-percent additional tax under section 72(t) . 22 Finally, there remains the matter of 23 petitioner' s wages from Berkeley Premium 24 Nutraceuticals . Petitioner appears to recognize, 25 consistent with the clear mandate of the law, that Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 1 4 1 5 1 6 1 7 1 8 1 9 2 0 2 1 2 2 2 3 24 25 wages are a species of gross income and therefor e includable on a taxpayer ' s return . Sec . 61(a)(1 ) United States v . Romero , 640 F .2d 1014, 1016 (9th Cir . 9 1981) . IX . In order to give effect to our dispositio n of the disputed issues, decision will be entered fo r respondent . X . THIS CONCLUDES THE COURT'S ORAL FINDINGS O F FACT AND OPINION IN THIS CASE . (Whereupon, at 12 :20 p .m ., the bench opinio n in the above-entitled matter was concluded . ) Heritage Reporting Corporation (202) 628-4888