UNITED STATES TAX COURT
JOHN AND MICHELE MCGOVERN, Petitioners v
.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19183-02S. Filed September 30, 2003.
John McGovern and Michele McGovern, pro se.
James Brian Urie
, for respondent.
PANUTHOS, Chief Special Trial Judge
: This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect at the time the petition was filed. Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the year in issue. The decision to be entered is not reviewable by any other court, and this opinion should not be cited as authority.
On April 15, 2000, petitioners filed a Form 1040, U.S. Individual Income Tax Return, for the 1999 taxable year (1999 tax return). They reported “Total pensions and annuities” of $27,880 and included $12,880 of that amount as part of their total income for the 1999 taxable year. However, petitioners did not report any additional tax under section 72(t)(1) with respect to the $12,880 distribution from their TSP.
Respondent issued petitioners a notice of deficiency dated
September 10, 2002, determining a deficiency in Federal income tax of $1,288 for the 1999 taxable year. Respondent contends that, with respect to the $12,880.04 distribution from petitioner’s TSP, petitioners are subject to a 10-percent additional tax on an early distribution from a qualified retirement plan under section 72(t)(1).
Petitioners contend that they are not subject to the 10percent additional tax under section 72(t)(1) for one of two reasons. First, they rely upon Larotonda v. Commissioner , 89 T.C. 287 (1987), and contend that the form of the transaction complies with the requirements of the exception under section 72(t)(2)(E) when petitioners used $12,880.04 from the TSP to pay Villanova University for tuition and education fees during the 1999 taxable year. In the alternative, petitioners seek to disavow the transaction under the doctrine of substance over form . In other words, petitioners seek to recharacterize the received the funds and had no opportunity to avoid the 10-percent premature distribution penalty under former section 72(m)(5). Compare Larotonda v. Commissioner , supra , with Aronson v.
Commissioner
, 98 T.C. 283, 292-293 (1992) (sustaining the imposition of the 10-percent additional tax under former section 408(f)(1) when taxpayers had an opportunity to avoid such tax). Petitioners also ask that we apply the doctrine of substance over form to the $12,880.04 distribution from petitioner’s TSP to Villanova University. “The substance-over-form doctrine is applicable to instances where the ‘substance’ of a particular transaction produces tax results inconsistent with the ‘form’ embodied in the underlying documentation, permitting a court to recharacterize the transaction in accordance with its substance.” Neonatology Associates, P.A. v. Commissioner , 299 F.3d 221, 230 n.12 (3d Cir. 2002), affg. 115 T.C. 43 (2000). However, the Supreme Court “has observed repeatedly that, while a taxpayer is free to organize his affairs as he chooses, nevertheless, once having done so, he must accept the tax consequences of his choice, whether contemplated or not, * * * and may not enjoy the benefit of some other route he might have chosen to follow but did not.” Commissioner v. Natl. Alfalfa Dehydrating & Milling Co.
, 417 U.S. 134, 149 (1974) (citations omitted). Similarly, the United States Court of Appeals for the Third Circuit has also observed: “The government has the right to claim that the form of a transaction should not be utilized to postpone taxes that are otherwise due. The taxpayer does not have the like right to contend that the form that it has chosen should be ignored so that avoidance or postponement of the tax can be accomplished.” Strick Corp. v. United States , 714 F.2d 1194, 1206 (3d Cir.
1983).
We conclude that petitioners are liable for the 10-percent additional tax under section 72(t)(1) on the $12,880.04 distribution from petitioner’s TSP to Villanova University. Reviewed and adopted as the report of the Small Tax Case Division.
To reflect the foregoing, Decision will be entered for respondent .