T.C. Summary Opinion 2010-5



                        UNITED STATES TAX COURT



                 JOHN C. ARMBRUST, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8231-08S.               Filed January 19, 2010.



     John C. Armbrust, pro se.

     David S. Weiner, 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.    Pursuant to section

7463(b), the decision to be entered is not reviewable by any

other court, and this opinion shall not be treated as precedent

for any other case.    Unless otherwise indicated, subsequent

section references are to the Internal Revenue Code (Code) in
                               - 2 -

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 qualified

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 reference.   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 equity

to show for the payments, petitioner decided to buy a house.     He

found one he liked outside Chicago, settling on a purchase price

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
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the house, and the house served from then on as petitioner’s sole

residence, with petitioner making the mortgage payments.

Respondent stipulated that as of December 11, 2008, petitioner

had made mortgage payments to Citibank totaling $26,278.79 with

respect to the house.

     About a week after the closing petitioner reimbursed his

father for the closing costs (an amount not in the record) and

for the $21,700 downpayment (10 percent of the $217,000 purchase

price).   On April 2, 2008, petitioner’s father executed a

quitclaim deed officially transferring ownership of the house to

petitioner and his wife as tenants by the entirety.   The house

was the first residence that petitioner owned.

     Petitioner obtained the funds to reimburse his father in

September 2006 by requesting a $50,000 lump-sum distribution from

his retirement plan account.   APT maintained a pension plan named

the Armbrust Paper Tubes Pension Trust (APTPT).   At the time of

petitioner’s distribution request, APT was converting its pension

plan into a section 401(k) plan.

     The value of petitioner’s share of the APTPT as of the

October 2006 distribution date was $70,807.   Petitioner had made

no contributions into the plan; APT contributions and market

returns made up the entire balance.

     APTPT fulfilled petitioner’s request by withholding $10,000

(20 percent of $50,000) for Federal income tax, distributing
                               - 4 -

$40,000 to petitioner, and rolling over the remaining $20,807

($70,807 minus $50,000) into petitioner’s new APT section 401(k)

plan account.   Respondent stipulated, and the Court received into

evidence, a letter from Citibank confirming that petitioner’s

father purchased the home on petitioner’s behalf because

petitioner’s credit rating was too low to qualify for a mortgage

and confirming that petitioner used the proceeds from the APTPT

distribution to reimburse his father for the closing costs.

     APTPT issued two Forms 1099-R, Distributions From Pensions,

Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance

Contracts, etc., to petitioner for 2006.    One Form 1099-R

reported the $50,000 distribution, listing a code indicating that

the distribution was premature.   The other Form 1099-R reported

the $20,807 as a rollover distribution.

     Petitioner timely filed a 2006 Federal income tax return,

properly reporting the $70,807 in total distributions from the

APT retirement plan and properly including $50,000 of the total

in gross income.   The inclusion of $50,000 in gross income put

petitioner into a higher tax bracket, causing him to have a

balance due of $1,999 beyond the $10,000 in Federal income tax

withholding on the distribution and beyond the $10,623 in Federal

income tax withholding on his earnings of $57,374 from APT.

Petitioner had no sources of income other than these two items,

and he claimed the standard deduction.    The address petitioner
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listed on his 2006 Form 1040, U.S. Individual Income Tax Return,

is that of the house at issue.

      Respondent, after examining petitioner’s 2006 Federal income

tax return, issued a notice of deficiency determining that

petitioner owed an additional $5,000 in Federal income tax for

2006.   According to respondent the additional tax arises because

the $50,000 retirement plan distribution was premature and

because the distribution did not qualify for any of the

exceptions to the 10-percent additional tax.

      Petitioner agrees that the distribution was premature but

argues that the distribution satisfies the exception to the 10-

percent additional tax for taxpayers who use distribution

proceeds to pay for qualified acquisition costs of a first-time

home purchase.

                             Discussion

I.   Burden of Proof

      In general, the Court presumes that the Commissioner’s

determination set forth in a notice of deficiency is correct, and

the taxpayer bears the burden of showing that the determination

is in error.   Rule 142(a)(1); Welch v. Helvering, 

,

115 (1933).    The burden may shift to the Commissioner regarding

factual matters if the taxpayer produces credible evidence and

meets the other requirements of the section.   Sec. 7491(a).   The

Commissioner has the burden 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 decision

entirely by application of the law to undisputed facts.

II.   10-Percent Additional Tax

      A.   The Law Pertaining to the 10-Percent Additional Tax

      To discourage individuals from taking premature

distributions from retirement plans, Congress enacted section

72(t), imposing an additional tax of “10 percent of the portion

of such amount which is includible in gross income.”    Sec.

72(t)(1); see also Dwyer v. Commissioner, 

, 340

(1996) (citing S. Rept. 93-383, at 134 (1973), 1974-3 C.B.

(Supp.) 80, 213 (“Premature distributions frustrate the intention

of saving for retirement, and the committee bill, to prevent this

from happening, imposes a penalty tax” of 10-percent)).    Section

4974(c) 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 section

401(a) and (k).

      Congress enacted section 72(t)(2) to grant relief in certain

circumstances from the 10-percent additional tax.    Examples
                                 - 7 -

include premature distributions made as a result of the death of

the taxpayer, sec. 72(t)(2)(A)(ii); because of the taxpayer’s

being disabled, sec. 72(t)(2)(A)(iii); and to pay health

insurance premiums for the taxpayer during certain periods of

unemployment, sec. 72(t)(2)(D).

     In 1997, as part of the Taxpayer Relief Act of 1997, Pub. L.

105-34, secs. 203, 303, 111 Stat. 809, 829, Congress enacted two

more exceptions to the 10-percent additional tax:      Premature

distributions for qualified education expenses, sec. 72(t)(2)(E),

and, pertinent to this case, premature distributions for first-

time home buyers, sec. 72(t)(2)(F).      These two exceptions are

available as long as the distribution comes from an individual

retirement plan, defined below.     With respect to first-time home

purchases, Congress capped the exemption at a lifetime

distribution limit of $10,000.     Sec. 72(t)(8)(B).   As a result,

the total lifetime tax savings under this provision is $1,000

($10,000 times 10 percent).

     B.     Application of the Law to Petitioner’s Facts and
            Circumstances

     Petitioner asserts that he qualifies for relief from the

10-percent additional tax within the guidelines of section

72(t)(2)(F) because he used the distribution to buy his first

home.     Respondent counters that petitioner does not qualify for

the exception of section 72(t)(2)(F) for two reasons.      First,

respondent asserts that the exception does not apply because
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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 acquisition.

     To resolve this matter, we first look to the statute, which

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 homebuyer distributions (as defined in
     paragraph (8)). Distributions shall not be taken into
     account 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 only

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 to

petitioner’s circumstances.

     The Code defines an “individual retirement plan” in section

7701(a)(37), stating that “The term ‘individual retirement plan’
                                - 9 -

means--(A) an individual retirement account described in section

408(a), and (B) an individual retirement annuity described in

section 408(b).”   The definitions in section 408(a) and (b)

include solely IRAs.

     Petitioner’s distribution was from a pension plan and

therefore falls outside the protection of section 72(t)(2)(F).

Even if for argument’s sake his distribution was from APT’s

section 401(k) plan, the outcome would be the same.   Both

pensions and section 401(k) plans are employer-sponsored

retirement plans qualified under section 401(a) and (k),

respectively.   In other words, the definition of IRAs in section

408(a) and (b) simply does not include petitioner’s qualified

retirement plan.

     Absent some constitutional defect, conflicting provisions,

or ambiguous language, none of which exist here, our role is

limited to interpreting the plain language of the statute as

Congress enacted it.    Barnhart v. Sigmon Coal Co., 

,

461 (2002).   The Supreme Court of the United States has “‘stated

time and again that courts must presume that a legislature says

in a statute what it means and means in a statute what it says

there.   When the words of a statute are unambiguous, then, this

first canon is also the last: “judicial inquiry is complete”.’”

(quoting Conn. Natl. Bank v. Germain, 

, 253-254 (1992)).
                              - 10 -

     Additionally, more than a decade has passed since Congress

enacted section 72(t)(2)(E) and (F) in 1997, and despite

significant legislation in the retirement plan area, including

the Pension Protection Act of 2006, Pub. L. 109-280, 120 Stat.

780, Congress has not amended the statute.   Likewise, this Court

has repeatedly declined to expand the exceptions under

72(t)(2)(E) and (F) to include distributions from qualified

retirement plans.   See, e.g., Uscinski v. Commissioner, T.C.

Memo. 2005-124 (education expenses paid from a section 401(k)

plan do not qualify for the exception of section 72(t)(2)(E));

Milner v. Commissioner, T.C. Memo. 2004-111 (no “umbrella

hardship exception” for a distribution from a qualified plan used

to complete remodeling on an existing home, to help purchase a

replacement home, and to cover medical disability).

     Thus, petitioner is not entitled to relief under section

72(t)(2)(F) or any other provision from the 10-percent additional

tax on his $50,000 distribution in 2006 from the APT retirement

plan.   This result renders irrelevant an analysis of respondent’s

second contention regarding petitioner’s technical compliance

with the statute.

     Finally, in applying the statute to the facts of this case,

it appears odd that Congress granted relief to distributions from

IRAs but not from qualified plans in the light of the

circumstance that a taxpayer can transfer or roll over a balance
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from a qualified retirement plan into an IRA.    However, the House

report discussing the enactment of section 72(t)(2)(E) and (F)

clearly shows that Congress was focusing solely on IRAs, making

no mention of qualified retirement plans.    See H. Rept. 105-148,

at 288-289 (1997), 1997-4 C.B. (Vol. 1) 319, 610-611.    Further,

the Tax Court is a court of limited jurisdiction and lacks

general equitable powers.   Commissioner v. McCoy, 

, 7

(1987); Hays Corp. v. Commissioner, 

, 442-443 (1963),

affd. 

(7th Cir. 1964).    We may not rewrite a law

simply because we might “‘deem its effects susceptible of

improvement.’”   Commissioner v. Lundy, 

, 252 (1996)

(quoting Badaracco v. Commissioner, 

, 398 (1984)).

     In closing, we note that we found petitioner to be sincere,

credible, and forthright.   In the final analysis, however, the

remedy for petitioner and for all taxpayers in his circumstances

lies with Congress, not the judiciary.    See, e.g., Prevo v.

Commissioner, 

, 332 (2004) (a remedy, if any, must

originate with Congress).

     To reflect the foregoing,

                                            Decision will be entered

                                       for respondent.