Petitioner was informed that if he wanted Sterling Trust to transfer the assets and cash directly into another IRA, he would have to forward to them the appropriate forms of a successor trustee before April 30, 2000. Sterling Trust explained that a direct transfer of the IRA’s assets and cash to another IRA account on or before April 30, 2000, would not be reported to the Internal Revenue Service. Sterling Trust further explained that if petitioner did not initiate a direct transfer into a successor IRA, they would be forced to distribute the assets to him directly, resulting in a reportable, taxable event that would subject him to a “10% premature penalty” if he did not then transfer the assets and cash into another IRA within 60 days of the distribution.

Petitioner also received a letter regarding Sterling Trust’s resignation as trustee from Mr. Butler. Mr. Butler suggested JW Genesis Securities, Inc. (Genesis) as a successor trustee and told petitioner to contact him for the appropriate forms. Petitioner did not contact Sterling Trust before their resignation as his IRA trustee. On May 31, 2000, Sterling Trust distributed all of the assets in the IRA directly to petitioner. Ownership of the OppenheimerFunds investment and the Allen’s Creek note was transferred to petitioner, and Sterling Trust issued petitioner a check for the cash balance. Petitioner eventually cashed out the OppenheimerFunds investment and used Petitioner does not dispute his ownership of the Allen’s Creek note.

Prior to trial, petitioner agreed and stipulated that he received and failed to roll over the distributed assets valued at $96.83 and $2,471.23, representing the cash balance and the OppenheimerFunds investment respectively. Petitioner disputes the inclusion of the value of his Allen’s Creek note in income and the imposition of the 10-percent additional tax. Discussion 1. Tax Treatment on Distributions Section 408(d)(1) provides that any amount paid or distributed out of an IRA shall be included in gross income by the distributee in the manner provided under section 72. Section 408(d)(3)(A) provides that section 408(d)(1) will not apply if the entire amount received from an IRA distribution to the individual for whose benefit the account is maintained is rolled over into another IRA for the benefit of such individual no later than 60 days after the receipt of the distribution.

2. 10-Percent Additional Tax on Early Distributions Section 72(t)(1) imposes an additional 10-percent tax on that portion of a distribution from a qualified retirement plan that is includable in the taxpayer’s gross income. The 10percent additional tax does not apply to certain distributions as set forth in section 72(t)(2). Generally these exceptions include distributions made on or after the date the employee reaches the age of 59-1/2, sec. 72(t)(2)(A)(i), made to a beneficiary on or after the death of the employee, sec. 72(t)(2)(A)(ii), and when attributable to a disability of the employee, sec. 72(t)(2)(A)(iii).

Petitioner does not argue that any of the statutory exceptions under section 72(t)(2) apply to his situation, and indeed none of them do. Instead, he is seeking relief on the grounds that because the distribution from his IRA did not cashout his Allen’s Creek investment he should not be subject to the 10-percent additional tax. He testified that he is having financial problems, needs the immediate use of the money he invested in the Allen’s Creek project, and that if he had received this amount as a cash distribution he would not object to paying the tax owed.

However unfortunate petitioner’s situation may be, there is no exception under section 72(t) for financial hardship. This principle has been applied consistently in cases dealing with premature IRA distributions. See Arnold v. Commissioner , 111 T.C. 250, 255 (1998); Gallagher v. Commissioner , T.C. Memo. 200134; Deal v. Commissioner , T.C. Memo. 1999-352; Pulliam v.

Commissioner

, T.C. Memo. 1996-354. Furthermore, there is no exception regarding in-kind distributions of IRA assets, and this Court has repeatedly ruled that it is bound by the list of statutory exceptions enumerated in section 72(t)(2). See, e.g., Arnold v. Commissioner , supra at 255; Schoof v. Commissioner , 110 T.C. 1, 11 (1998); Clark v. Commissioner , 101 T.C. 215, 224-225 (1993). As the legislative history of section 408(f), the predecessor to section 72(t), explains, the purpose of the 10percent additional tax was to discourage early distributions from retirement plans because “Premature distributions frustrate the intention of saving for retirement”. S. Rept. 93-383, at 134 (1974), 1974-3 C.B. (Supp.) 80, 213. Petitioner is therefore subject to the 10-percent additional tax under section 72(t) on the entire amount of the IRA distribution.

Reviewed and adopted as the report of the Small Tax Case

Division.

Decision will be entered for respondent .