TAX COURT OPINION

Case: John C. Armbrust
Docket Number: 8231-08S
Judge: Goldberg
Opinion Type: summary
Filed: 01/19/2010
Pages: 11

JOHN C .. A MBRUST, Petitioner v . COMMISSTONEROF INTERNAL 'REVENUE, Responden t .° Filed .' January' "19, 2010 . GOLDBERG , Special Trial" Judge : ,' This case was heard-pursuant to the provision 's of secti n6 7463 of' .the Internal Revenue Code i n effect at the time the {pet'tion was filed . Pursuant ' to '-sectio n 7463(b), the decision to b entered is note reviewable by any other court, and this opiri 'on ''shall hot be treated as precedent for any other case . Unles otherwise indicated,, 'subseque t section references are e ,Internal Revenue Code ( .Code) in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure . Respondent determined a Federal income tax deficiency of $5,000 for 2006 . The sole issue for decision is whether petitioner is liable for a 10-percent additional tax for a $50,000 premature distribution from his employer's qualifie d retirement plan . Background Some of the facts have been stipulated and are so found . The stipulation of facts and the attached exhibits are incorporated herein by this preference . Petitioner :resided in Illinois when he filed his petition . . In 2006 petitioner earned $57,374 working as a traffic manager for Armbrust Paper Tubes, Inc . (APT), a manufacturer of paper packaging, shipping, and storage products .-Petitioner's grandfather started the business : Tired of living in apartments and paying rent with no equit y to show for the payments, .petitioner: .decided to buy a house . , found-one he liked outside Chicago, settling .on a purchase pric e of $217,000 . However, because of,his low credit rating, , petitioner was not able to obtain-bank financing . To help, petitioner's father closed the purchase on October 12, 2006, recording the deed,and obtaining a mortgage from Citibank in .-his ; . own name, Christopher Armbrust .,, Petitioner promptly moved into . the house, and the house s residence, with petitioner making the mortgage payments . Respondent stipulated that as .of December 11, 2 008, petitioner had made mortgage payment s to Citibank totaling $26,278 .79 wit h respect to-the house . About a week'after'th closing, petitioner reimbursed his father for the'closing costs (an amount not in the record) and for the $21,700 downpaymen (10 percent of the $217,000 purchas e price) . On April 2, .'2008, 1petitioner's father executed a quitclaim deed officially transferring ownership of the house t o petitioner and his wife a s tenants by the entirety . The hous e was the first residence th t petitioner . owned . Petitioner obtained the funds to reimburse his father in September 2006 by requesti g a $50,000 lump-sum distribution from his retirement plan account . APT maintained 'a pension plan named the Armbrust Paper Tubes-P ns°on Trust (APTPT) . At the time of , petitioner's distribution equest, APT was converting its pension plan into a section 401(k ) plan . The value of petition is share of the APTPT as of th e October 2006 distribution date was $70,801 . Petitioner had-made no contributions into th e lan ; APT contributions and market returns made'up the entire balance . APTPT fulfilled petit oner's'-request by withholding $10,000 (20 percent of $50,000) fob Federal income'tax distributing - 4 $40,000 topetitioner,,and rolling over the remaining $20,80 7 ($70,807 minus $50,000) into petitioner's new APT section 401(k) plan-account . Respondent stipulated, . and the Court received int o evidence, a letter from Citibank confirming that petitioner ' father purchased the home on petitioner's behalf becaus e petitioner's credit rating was too,low to-qualify for a mortgag e and confirming that petitioner used the proceeds from the APTPT distribution to reimburse his father for the closing costs . APTPT issued two Forms 1,099-R, . :Distributions,From Pensions , Annuities, Retirement or Profit-,Sharing Plans, IRAs,,Insurance- . Contracts .,,: etc ., to petitioner-for 2006 . One Form 1099- R reported the $50,000 distribution, listing, a code + .. indicating tha t the distribution was premature .. The other Form 1099-R reporte d the $20,807-as-a rollover distribution . Petitioner,timely,filed a2006-Federalincome .tax . return, properly reporting the $70,807 in total distributions from .the APT retirement plan and properly, including $50,000 of the tota l in gross income . The inclusion of $50,000 in gross . income pu t petitioner into a higher tax bracket,, causing him to have a balance due of $1,999 beyond the $10,000 in Federal income ta x withholding . on the . distribution and beyond the $10,623 in-Federa l income tax withholding on his earnings of $57, 374.,from APT . Petitioner had no sources of income other than these,two items, and he'claimed the standard deduction . -The address-petitione r listed on his,,2006 Form 1040, U .S .- Individual Income Tax Return, is that of the house at issue . } Respondent, after exa lining pet#itioner's 2006 Federal income tax return, issued a,notic of .deficency determining that petitioner owed an additio al $5,00& in Federal income tax for 2006 . According to respon lent the additional tax arises because the $50,000 retirement pla distribution was premature and because the distribution dd(cid:127)not qualify for any of the exceptions to the 10-perce t additional tax .. 'Petitioner agrees tha~ the distributionwas premature bu t argues that the,.distributi n satisfies the , exceptionlto the 10- percent additional tax fortaxpayersk :who .-use distribution proceeds to pay . for qualif .ed acquisition-costs of a first-tim e home purchase . I . Burden of .Proo f t I Discussion . In general, the Court presumes that the Commissioner ' s determination set forth in a notice of deficiency is 'correct, and the taxpayer bears the bur en of showing that the determinatio n is in error .. . Rule 142(a) (~,) ; Welch V . Helverina , 290 U . S . 111, ' 115 (1933) . The burden may shift,to the Commissioner regardin g factual matters if the taxpayer produces credible evidence and meets the other requirements of the section . Sec . 7491(a) . The Commissioner has the burde of production with 'respect . to any 6 - penalty, . addition to tax, or-additional amount that title 26~(the . Internal Revenue Code) imposes . Sec . 7491(c) . The consideration of burden 'is moot here because no issue of material fact is-in dispute, and we therefore render our-decisio n II . . 10-Percent Additional Tax - A . The Law Pertaining to the 10-Percent Additional .Ta x To discourage individuals from taking premature distributions from retirement plans,_Congress enacted section 72(t), imposing an-additional tax of "10 percent of the portio n of such amount which is'includible in gross income ." Sec . 72(t)(1) ; see also Dwyer v . Commissioner , 106 T .C . 337, .. 34 0 (1996) (citing S .. Rept . 93-383, at 134 .(1973), 1974-3 C .B . (Supp .) .80, 213 ("Premature distributions frustrate the 'intention - of saving for retirement, and the committee bill, to-prevent this from happening, imposes a penalty tax" of 10-percent)) ., . Section 4974(cy describes the various types of-retirement accounts and plans whose distributions are subject to the additional-'10 - . percent tax of: section 72(t)(1), including individual retirement accounts (IRAs) described in section 408(a) and (b) and , . .pertinent here, qualified retirement plans described in .sectio n 401(a) and ( .k), . Congress enacted section 72(t)(2) to grant relief .in certai n circumstances from-the 10-percent additional tax .- Examples . . I include premature distrib u ions mad e the taxpayer, sec . 72(t).(2 (A)(ii) because of the taxpayer' s being disabled, sec . 72(t) (2) (A) (iii)-and .to pay healt h insurance premiums for the taxpayer during certainperiods of unemployment, sec . 72(t)( 2 (D) , In 1997, as part of t e Taxpayer Relief Act of 1997 ; Pub . L . 105-34, secs 203, 303, 11 Stat 809, 829, Congress enacted two more exceptions to the 10- ercent additional tax : Prematur e distributions for ~qualifie educatio-i expenses,,sec . 72(t) (2) (E) , and, pertinent to this cas premature distributions for first- time home buyers, sec . 72( (2) (F) These two exceptions ar e available as' long as the d stribution comes from an individual retirement plan, defined b low . With respect to first-time home purchases, Congress cappe d the exem p t ion at a l fetime i distribution limit of $10, 00 . Sec . 72(t) (8 ) ( B) As a result, the total lifetime tax sav ngs under]-this provision is $1,00 0 ($10,000 times 10 percent ) Application of th Circumstance s Petitioner asserts th t he qualifies for relief from-th e 10-percent additional tax ithin°the guidelines of sectio n 72(t) (2) ('F) because,-he use home . Respondent counters that petitioner does not qualify fo r the exception of section 7 (t) (2) (F) for two reasons . First , .respondent asserts that th exception does not apply because petitioner withdrew his funds from an employer- sponsored . qualified retirement plan instead of from an IRA ., Secondly, respondent asserts that petitioner, failed to .-show compliance with certain technical requirements,, including : (1) Purchasing the residence within 120 days of the distribution ; (2) spending,the .,, entire $50,000 for qualified acquisition costs ; and (3) . having no ownership in .a-prior,principal residence .for at least 2 years before the current,acquis.ition . To resolve this matter, we first look to .the statute, whic h allows an exemption from the,10-percent additional tax as follows : (F) Distributions from certain plans for first home purchases .--Distributions -to an individual from an individual ,retirement plan which are qualified first-time homebuyei distributions (as defined in paragraph (8)) . Distributions shall not be taken intoaccount under the preceding sentence if such distributions are described in subparagraph (A), , (C), (D), or .(E) or to the extent paragraph (1) does not apply to such distributions by reason of subparagraph (B) . [Sec . 72 (t) (2) (F) . ] The plain language of the title alerts the'reader that onl y distributions from "certain plans" are entitled to the exclusion, and the detail identifies the sole acceptable distribution as coming from an "individual retirement plan" . The exceptions in the second sentence apply to situations that are not ,relevant to petitioner's .cir.cumstances . . The Code defines an "individual retirement plan .in section . 7701(a)(37), stating that "The .term 'individual- retirement plan' . means--(A) an individual, r tirement account described in sectio n 408(a), and (B)° an indivi d retirement annuity described i n section 408(b) ." Thedef i itions in}section 408(a) and (b) . include solely IR A Petitioner' s distribu ion was from ,a pension plan an d therefore falls outside th protection of section 72(t) (2) (F) . Even if for argument's sa k his distribution was from APT' s section 401(k) plan, the o tcome would be the same . Both pensions and section 401( k plans are employer-sponsore d retirement plans qualified under sec~tion 401(a) and (k) , n 'other, wotds , the definition of IRAs .in sectio n 408(a) "and ; (b) . simply doe s not include petitioner's qualifie d retirement plan . Absent some constitut onal defect, conflicting provisions , or ;ambiguous language, non of which .. exist here, our role is . limited to interpreting th plain language of "the statute a s Congress enacted it . Barn Sicamon Coal Co . , 53:4 U .FS . 438 , 461 '(2002) . _ The Supreme=C urt .of the . United . States has 'state d time and again that courts must presume that a legislature says in a statute what it mean s and meansin a statute what it say s there . When the words o statute are unambiguous, then, thi s first canon is also the-l a "judicial inquiry is complete" .' " Id . .at 461-462 (quoting C o n . Natl . Bank v . Germain , 503-U .S . 249, 253-254 (1992)-) . 10 Additionally, more than a decade has passed since Congress- enacted section 72(t)(2)(E) and (F) in 1997, and despit e significant .legislation in the retirement plan area, including : the Pension Protection Act of 2006, Pub . L . 109-280, 120 Stat . 780, Congressf.has not amended the statute . Likewise, this Court . has repeatedly'declined!to expand the exceptions unde r 72(t)(2) (E) ,and . (F) to include distributions from qualified retirement plans . :See, e .g ., Uscinski v . Commissioner , T .C . Memo . 2 .005-124 (education expenses paid from a section .401(k)_ plan do not qualify for the exception . of ,section 72(t) (2) (E))-; Milner v . Commissioner , T .'C .'.Memo . 2004-111 (no "umbrell a hardship exception" .for a distribution from a qualified plan use d to complete remodeling on an existing home, to help purchase -a replacement home, and to cover-medical disability) . Thus, petitioner is not entitled-to relief under sectio n 72(t)(2)(F) or any other provision from the 10-percent additiona l tax .on his $50,000 distribution 'in 2006 from the .APT, retirement , plan . This result renders irrelevant an analysis of respondent' .. s second contention regarding petitioner's technical complianc e with the statute . Finally,- in applying the statute to the facts of this case, it appears odd that Congress granted relief to distributions from IRAs but note from qualified plans in the light of the , circumstance that a taxpayer can transfer or roll over a balance . 1 1 qualified retiremen plan into an IRA . However, the House discussing the enac merit of section 72(t) .(2)(q) and (F) , clearly shows that Congres0 was .focusing solely on ..IRAs, makin g no mention of qualified r e at 288=.289 (1997) ., 1997-14 the Tax Court is a court limited jurisdiction and .lacks . general equitable powers . Commissioner v . McCoy , 484, U '.S . 3, 7 (1987), ; Hays Corp . v . Comm Toner , ; 40 T .C . 436, 442- :443 (1963) , affd . 331° .F .2 d We may not rewrite a la w simply because we migh t effects susceptible(cid:127)o f improvement .." Commissio n , 516 U .S . 235, 252 (1996 ) (quoting .Badaracco v ssioner, 464 U .S . 386 , 398 (1984) .) . In closing, we note t at we found petitioner to be sincere , credible, and forthright . remedy for petitioner and lies with Congress, not th Commissioner , 123 T.. .C . 32 6 originate with Congress) . To reflect the forego- Decision will be entere d for respondent .