JOHN C . . A MBRUST, Petitioner v .
COMMISSTONEROF INTERNAL 'REVENUE, Responden t
.° Filed .' January` "19, 2010 .
GOLDBERG , Specia l Trial" Judge : ,' This case w as 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 Respondent stipulated that had made mortgage payment s respect to-the house .
making the mortgage payments .
as .of December 11, 2 008, petitioner to Citibank totaling $26,278 .79 wit h 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 was the first residence th tenants by the entirety . The hous e 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 plan into a section 401(k )
The value of petition equest, APT was converting its pension plan .
is share of the APTPT as of th e October 2006 distribution date was $70,801 . Petitioner had-mad e no contributions into th e returns made'up the entire lan ; APT contributions and market 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 evidence, a letter from Citibank confirming that petitioner ' ($70,807 minus $50,000) into petitioner's new APT section 401(k) plan-account . Respondent stipulated, . and the Court received int o and confirming that petitioner used the proceeds from the APTPT distribution to reimburse his father for the closing costs . petitioner's credit rating was too,low to-qualify for a mortgag e father purchased the home on petitioner's behalf becaus e APTPT issued two Forms 1,099-R, . :Distributions,From Pensions , reported the $50,000 distribution, listing, a code + . . indicating tha t Annuities, Retirement or Profit-,Sharing Plans, IRAs,,Insurance- . Contracts .,, : etc ., to petitioner-for 2006 . One Form 1099- R the distribution was premature . . The other Form 1099-R reporte d petitioner into a higher tax bracket,, causing him to have a in gross income . The inclusion of $50,000 in gross . income pu t 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 the $20,807-as-a rollover distribution .
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 Petitioner had no sources of income other than these,two items, and he'claimed the standard deduction . -The address-petitione r income tax withholding on his earnings of $57, 374 .,from APT .
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 ddnot 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 10percent additional tax fortaxpayersk :who .-use distribution proceeds to pay . for qualif .ed acquisition-costs of a first-tim e home purchase .
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 I . Burden of .Proo f 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 A . The Law Pertaining to the 10-Percent Additional .Ta x II . . 10-Percent Additional Tax -circumstances from-the 10-percent additional tax .- Examples . . Congress enacted section 72(t)(2) to grant relief .in certai n 401(a) and ( .k), .
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 (Supp .) .80, 213 ("Premature distributions frustrate the 'intention -(1996) (citing S . . Rept . 93-383, at 134 .(1973), 1974-3 C .B . of such amount which is'includible in gross income ." Sec . 72(t)(1) ; see also Dwyer v . Commissioner , 106 T .C . 337, . . 34 0 distributions from retirement plans,_Congress enacted section 72(t), imposing an-additional tax of "10 percent of the portio n To discourage individuals from taking premature I include premature distrib u the taxpayer, sec . 72(t) .(2 being disabled, sec . 72(t)
insurance premiums for the unemployment, sec . 72(t)( 2 In 1997, as part of t 105-34, secs 203, 303, 11 more exceptions to the 10distributions for ~qualifie and, pertinent to this cas time home buyers, sec . 72( available as` long as the d retirement plan, defined b purchases, Congress cappe d distribution limit of $10, the total lifetime tax sav ($10,000 times 10 percent )
Application of th
Circumstance s
Petitioner asserts th
10-percent additional tax 72(t) (2) ('F) because,-he use home . Respondent counters the exception of section 7 .respondent asserts that th ions mad e (A)(ii) because of the taxpayer' s (2) (A) (iii)-and .to pay healt h taxpayer during certainperiods of (D) , e Taxpayer Relief Act of 1997 ; Pub . L .
Stat 809, 829, Congress enacted two ercent additional tax : Prematur e educatio-i expenses,,sec . 72(t) (2) (E) , premature distributions for first-(2) (F) These two exceptions ar e stribution comes from an individual low . With respect to first-time home t i ion at a l fetime the exem p 00 . Sec . 72(t) (8 ) ( B) As a result, ngs under]-this provision is $1,00 0 t he qualifies for relief from-th e ithin°the guidelines of sectio n that petitioner does not qualify fo r (t) (2) (F) for two reasons . First , 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 t o 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 408(a), and (B)° an indivi d section 408(b) ." Thedef i include solely IR A Petitioner' s distribu therefore falls outside th Even if for argument's sa k section 401(k) plan, the o pensions and section 401( k retirement plans qualified tirement account described in sectio n retirement annuity described i n itions in}section 408(a) and (b) .
ion was from ,a pension plan an d protection of section 72(t) (2) (F) .
his distribution was from APT' s tcome would be the same . Bot h plans are employer-sponsore d under sec~tion 401(a) and (k) , n 'other, wotds , 408(a) "and ; (b) . simply doe s retirement plan .
Absent some constitut or ;ambiguous language, non limited to interpreting th Congress enacted it . Barn 461 '(2002) . _ The Supreme=C time and again that courts in a statute what it mean s there . When the words o first canon is also the-l a Id . .at 461-462 (quoting C o 249, 253-254 (1992)-) .
the definition of IRAs .in sectio n not include petitioner's qualifie d onal defect, conflicting provisions , of which . . exist here, our role is .
plain language of "the statute a s Sicamon Coal Co . , 53 :4 U .FS . 438 , urt .of the . United . States has `state d must presume that a legislature says and meansin a statute what it say s statute are unambiguous, then, thi s "judicial inquiry is complete" .' "
n . Natl . Bank v . Germain , 503-U .S .
1 1 qualified retiremen plan into an IRA . However, the Hous e 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) ., 199714 the Tax Court is a court general equitable powers .
(1987), ; Hays Corp . v . Com m affd . 331° .F .2 d simply because we migh t improvement . ." Commissio n (quoting . Badaracco v In closing, we note t credible, and forthright .
remedy for petitioner and lies with Congress, not th Commissioner , 123 T . . .C . 32 6 originate with Congress) .
To reflect the foregolimited jurisdiction and .lacks . Commissioner v . McCoy , 484, U ' .S . 3, 7 Toner , ; 40 T .C . 436, 442- :443 (1963) , We may not rewrite a la w effects susceptibleo f , 516 U .S . 235, 252 (1996 )
ssioner , 464 U .S . 386 , 398 (1984) .) .
at we found petitioner to be sincere , Decision will be entere d for respondent .