UNITED STATES TAX COURT
JAMES J. LEONARD, Petitioner v
.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20205-02S. Filed February 4, 2004.
James J. Leonard, pro se.
Michael K. Park
, for respondent.
GOLDBERG, 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. The decision to be entered is not reviewable by any other court, and this opinion should not be cited as authority. Unless otherwise indicated, subsequent section references are to the Internal Revenue Code in effect for the year in issue.
from June 2001 through March 2002 to be sent to this address: “8713 Airport Fwy Sui, North Star Plaza II, N. Richland Hills, TX”. Neither of the two addresses above contained the name of petitioner’s operating division, GE Lighting, and the latter address omitted petitioner’s suite number.
From the time that the loan was distributed to petitioner in
June 2000, no loan payments were ever deducted from petitioner’s paychecks because of petitioner’s transfer to GE Lighting. Petitioner was aware that no deductions were being made, but he did not remit any payment to the GE Railcar plan. During this same timeframe, certain child support payments which petitioner was required to make also were not being deducted from his paychecks. Petitioner was aware of this fact, and in response he made payments directly to the appropriate child support enforcement authority.
On November 27, 2000, GE Investment Retirement Services sent a letter to petitioner notifying him that no payments had been applied against his loan and requesting that petitioner remit to the GE Railcar plan, by no later than December 29, 2000, either the delinquent payments or the full amount of the loan. The letter stated that failure to do so would result in a deemed distribution due to a loan default. In January 2001, a Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., was issued to petitioner, reporting the full amount of the loan as a taxable distribution. The Form 1099-R was mailed to “8713 Airport Freeway, North Star Plaza II, N. Richland Hills, TX 76118”; petitioner’s operating division and suite number were again omitted.
On petitioner’s Federal income tax return for taxable year
2000, petitioner did not report the $14,500 loan amount as income. In the notice of deficiency, respondent determined that the $14,500 was both includable in petitioner’s income as a taxable distribution and subject to the section 72(t) additional tax on early distributions from qualified retirement plans. The first issue for decision is whether petitioner’s failure to make payments on the loan from the qualified retirement plan resulted in a taxable distribution from the plan.
Distributions from qualified plans generally are included in the distributee’s income in the year of the distribution in accordance with the provisions of section 72. Sec. 402(a). As a general rule, a qualified plan participant who receives a loan from a plan is treated as having received a distribution from the plan in the year the loan is received. Sec. 72(p)(1)(A). However, paragraph (2) of section 72(p) provides an exception for certain loans which prevents the inclusion in income. A limitation upon this exception is found in subparagraph (C) of paragraph (2), which provides as follows:
Thus, as of December 29, 2000, the terms of the loan could no longer have required “substantially level amortization * * * over the term of the loan”. Id.
Because at that time the loan violated the terms of section 72(p)(2)(C), it no longer met the requirements for the section 72(p)(2)(A) exception, and under section 72(p)(1)(A) the loan amount was treated as having been distributed to, and received by, petitioner in the taxable year 2000.
Petitioner argues that he did not receive a deemed distribution from his retirement plan because he never received (a) the quarterly retirement account statements that were mailed to his employment address, (b) the letter dated November 27, 2000, that requested that he remit the delinquent payments, or (c) the Form 1099-R which was issued to him. Petitioner admits that he knew the payments were not being deducted from his paycheck. In fact, petitioner asserts that he contacted GE’s accounting department by e-mail, notifying them that neither his loan payments nor his child support payments were being deducted from his paychecks. Petitioner also admits that he did not make any loan payments directly to the plan.
None of the assertions that petitioner offers in support of his argument, even if accepted as fact, would alter the result under the statute. As discussed above, petitioner did not make the periodic payments required under the terms of the loan and required under section 72(p)(2)(C). The result was a deemed distribution to petitioner in 2000.
The second issue for decision is whether petitioner is liable for a section 72(t) additional tax on the distribution from the qualified retirement plan. Section 72(t)(1) generally imposes a 10-percent additional tax on certain early distributions from qualified retirement plans, unless a distribution comes within one of several statutory exceptions. See sec. 72(t)(2). Petitioner does not argue, and nothing in the record indicates, that any of the exceptions apply to the case at hand. We therefore hold that petitioner is liable for the section 72(t) additional tax as determined by respondent. Reviewed and adopted as the report of the Small Tax Case Division.
Decision will be entered for respondent .