2004 Tax Ct. Summary LEXIS 165">*165 PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b), THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.
GOLDBERG, Special Trial Judge: This case was heard pursuant to the provisions of
Respondent determined a deficiency in petitioner's Federal income tax of $ 1,000.11 for the taxable year 2000.
The issue for decision is whether petitioner is liable for the 10-percent additional tax on an early distribution pursuant to
Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioner resided in Hillsborough, California, on the date the petition was filed in this case.
Charlotte Marie Scott2004 Tax Ct. Summary LEXIS 165">*166 (petitioner) began working for Digital Equipment Corp. in 1985. Petitioner worked 13 years for Digital Equipment Corp. until she was laid off in 1998. During her employment with Digital Equipment Corp., petitioner set up an Individual Retirement Account (IRA). This IRA was established through Donaldson, Lufkin and Jenrette Securities Corp. as an agent for Gruntal and Co., LLC. At the end of her employment, this account was valued at about $ 30,000.
After being laid off from Digital Equipment Corp., petitioner received unemployment benefits for the remainder of 1998 to April 1999, when she was employed by High Voltage Engineering Corp. (referred to as Robicon). Petitioner worked for Robicon from April to October 1999, when she was again laid off. While with Robicon, petitioner became a member of her employer's 401(k) qualified retirement plan. This retirement plan was established by Robicon through Vanguard Fiduciary Trust Co. At the time of her dismissal from Robicon, the plan was valued at about $ 1,170. After her dismissal from Robicon, petitioner once again began to receive unemployment benefits for the remainder of 1999.
Petitioner moved from Pennsylvania to California in January2004 Tax Ct. Summary LEXIS 165">*167 2000 to care for her sister. Petitioner was receiving unemployment benefits from the Commonwealth of Pennsylvania when she moved to California. However, petitioner did not receive unemployment benefits from California in 2000 because she was not eligible.
During 2000, petitioner had a sporadic employment record. Between January and April 2000, petitioner was employed on a "project by project" basis by Changing Places, a packing and moving company. From April 2000 until the end of the year, petitioner was employed on a "project by project" basis designing closets by Ronald Duerksen. Petitioner earned purely commission income from her employment with Ronald Duerksen, and such compensation was reported on her Schedule C, Profit or Loss From Business.
During 1999, petitioner had COBRA medical insurance coverage due to her previous employment at Robicon. Petitioner paid a $ 239 per month insurance premium for the insurance policy, which covered only herself. However, in 2000, petitioner extended her COBRA coverage to include her husband, which resulted in her premiums increasing to $ 772 per month. Petitioner was notified in 2001 that such coverage was canceled retroactively to November2004 Tax Ct. Summary LEXIS 165">*168 2000 due to unpaid premiums. Petitioner would eventually file for bankruptcy in 2001.
During 2000, the year in issue, petitioner withdrew $ 1,168.39 from her Vanguard 401(k) qualified retirement plan and $ 10,000 from her Gruntal IRA. Petitioner did not roll over the distributed amounts into another qualified employee retirement plan or individual retirement plan. Petitioner reported the $ 11,168.39 combined amount withdrawn on her 2000 Federal income tax return. Although the amount of the distributions was reported on the return, petitioner did not compute the 10-percent additional tax due for the early withdrawals. Petitioner, who was born in 1948, was 52 years of age in 2000 when the distributions were made.
Petitioner filed a joint Federal income tax return with her then-husband, Robert J. Scott, for the taxable year 2000. Between January and July 2000, Mr. Scott was a salesman with the Pittsburgh Post Gazette. In July, he moved to San Francisco, California, to live with petitioner and began work with the San Francisco Chronicle, where he remained employed until November when he left for Florida.
In the notice of deficiency, the Commissioner determined a deficiency in the amount2004 Tax Ct. Summary LEXIS 165">*169 of $ 1,000.11. 1 This amount represents a 10-percent additional tax on the early IRA distribution pursuant to
Although admitting that the early distributions were made, the gist of petitioner's contention is that she is not liable for the additional tax on the IRA distribution because it was (1) used to pay medical insurance premiums and therefore met the requirements of the
The parties do not dispute that petitioner's accounts were qualified employee retirement plans and that petitioner did not "roll over" her distributions pursuant to
With respect to
The exceptions relevant to the case at hand are found in (i) In General.--Distributions from an individual retirement plan to an individual after separation from employment-- (I) if such individual has received unemployment compensation for 12 consecutive weeks under any Federal or State unemployment compensation law by reason of such separation, (II) if such distributions are made during any taxable year during which such unemployment compensation is paid or the succeeding taxable year, and (III) to the extent such distributions do not exceed the amount paid during the taxable year for insurance described in (ii) Distributions After Reemployment.--Clause (i) shall not apply to any distribution made after the individual has been employed for at least 60 days after the separation from employment to which clause (i) applies. (iii) Self-Employed Individuals.--To the extent provided in regulations, a self-employed individual shall be treated as meeting the requirements of clause (i)(I) if, under Federal or State law, the individual would have received unemployment compensation but for the fact the individual was self-employed.
It is clear that the retirement plan established by Robicon, from which petitioner withdrew the $ 1,168.39 distribution, was a qualified retirement plan described in section 401(a), and, therefore, the exception contained in
After petitioner was dismissed from employment at Robicon at the end of October 1999, she claims she received unemployment benefits for the remainder of 1999. However, petitioner also testified that she was "sporadically" employed between January and April 2000. Petitioner stated that she requested her 401(k) qualified retirement plan distribution2004 Tax Ct. Summary LEXIS 165">*173 in January 2000. Therefore, even if
Petitioner has not substantiated receiving unemployment compensation for 12 consecutive weeks in the year of the distribution from her IRA or the preceding year. Id. Therefore, she has not fulfilled the requirements of
2004 Tax Ct. Summary LEXIS 165">*174 In the petition to this Court, it is unclear whether petitioner contended that her distributions were not subject to the 10-percent additional tax because they were used for medical expenses under
(B) Medical Expenses.--Distributions made to the employee * * * to the extent such distributions do not exceed the amount allowable as a deduction under
On petitioner's Schedule A, Itemized Deductions, 4 petitioner calculated that the total medical and dental expenses paid by her and her husband in 2000 was $ 3,365. Petitioner's 2000 Federal2004 Tax Ct. Summary LEXIS 165">*175 income tax return reflects that her and her husband's joint adjusted gross income was $ 54,340. Therefore, 7.5 percent of their 2000 adjusted gross income was $ 4,076. Thus, petitioner's expenses paid for medical care in 2000 did not satisfy the requirements of
Finally, petitioner contends that, because of her financial hardship, the $ 11,168 should not be subject to the 10-percent additional tax imposed by
Moreover, petitioner alluded that her requests for her distributions in 2000 were based on reliance of advice given to her by her accountant. The authoritative sources of Federal tax law are the statutes, regulations, and judicial decisions.
Reviewed and adopted as the report of the Small Tax Case Division.
Decision will be entered for respondent.
1. The record is unclear as to how the Commissioner calculated the amount of deficiency.↩
2. The Commissioner's notice of deficiency mentioned the additional tax only with regard to petitioner's IRA distribution; there was no mention of her 401(k) qualified retirement plan distribution.↩
3. We note that even if petitioner had satisfied the requirements of
4. Petitioner decided against itemizing her deductions and instead used the standard deduction in her 2000 joint Federal income tax return. However, petitioner introduced her Schedule A, Itemized Deductions, into evidence in this case.↩
