                   T.C. Summary Opinion 2010-44



                     UNITED STATES TAX COURT



 JAMES THOMAS COLEGROVE AND SUSAN JANE COLEGROVE, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10171-09S.              Filed April 13, 2010.



     James Thomas Colegrove and Susan Jane Colegrove, pro sese.

     Randall B. Childs, for respondent.



     ARMEN, Special Trial Judge:   This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.1   Pursuant to section

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



     1
       Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
year in issue, and all Rule references are to the Tax Court Rules
of Practice and Procedure.
                                 - 2 -

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

for any other case.

     Respondent determined a deficiency in petitioners’ 2006

Federal income tax of $13,031.    After concessions by

petitioners,2 the issues remaining for decision are:      (1) Whether

petitioners must include in income as a distribution from an

individual retirement account a withdrawal of $52,132.27; and, if

so, (2) whether petitioners are liable, under section 72(t), for

the 10-percent additional tax on an early distribution from a

qualified retirement plan.   We hold that petitioners must include

the $52,132.27 withdrawal in income and that petitioners are

liable for the 10-percent additional tax.

                             Background

     Some of the facts have been stipulated, and they are so

found.   We incorporate by reference the parties’ stipulation of

facts and accompanying exhibits.    Petitioners resided in the

State of Florida when the petition was filed.

     In 2006, petitioner husband (Mr. Colegrove) worked as a real

estate agent for 9 months.   Market pressures resulted in a

drastic reduction in business, and therefore income, and an

increase in overhead and expenses.       Eventually Mr. Colegrove was



     2
        Petitioners concede they received an additional $722 in
taxable nonemployee compensation and $50 in taxable dividends in
2006.
                                 - 3 -

able to secure full-time employment with Novartis

Pharmaceuticals.

     During the period of reduced income, Mr. Colegrove struggled

to pay his business expenses, pay the home mortgage, and provide

for the living expenses for a family of four.    To meet those

needs, Mr. Colegrove requested funds from a Rollover Individual

Retirement Account he owned at Charles Schwab (the IRA).      Mr.

Colegrove’s intent was that the funds withdrawn would be in the

form of a loan and not a distribution.

     During 2006 Mr. Colegrove received six distributions from

the IRA in the following amounts:    $8,500; $2,090.61; $10,000;

$10,000; $10,218; and $11,323.66.    Under the “Distribution

Summary” section of the Charles Schwab account statements for

2006 is an entry for “premature”.    The IRA’s monthly account

statements for 2006 show an increase in the gross amount of the

year-to-date premature distribution to reflect the amount

distributed during that month.    The account statement for

December 2006 reflects the gross amount of the premature

distribution year-to-date as $52,132.27.    The monthly account

statements also demonstrate that Mr. Colegrove did not make any

contributions to the IRA in 2006.

     Petitioners timely filed a Form 1040, U.S. Individual Income

Tax Return, for 2006.   On the return, petitioners did not report

the $52,132.27 distribution from the IRA as income and did not
                              - 4 -

report the 10-percent additional tax on an early distribution

under section 72(t), believing the distribution was a loan from

the IRA and not an early withdrawal.    In a notice of deficiency,

respondent determined, inter alia, that the $52,132.27

distribution from the IRA is includable in income and that

petitioners are liable for the 10-percent additional tax on the

early distribution pursuant to section 72(t).

                           Discussion

     In general, the Commissioner’s determination as set forth in

the notice of deficiency is presumed correct, and the taxpayer

bears the burden of proving that the determination is in error.

See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Pursuant to section 7491(a), the burden of proof as to factual

matters shifts to the Commissioner under certain circumstances.

Petitioners have neither alleged that section 7491(a) applies nor

established their compliance with its requirements.3

Accordingly, petitioners bear the burden of proof.     See Rule

142(a).



     3
       Regardless of whether the additional tax under sec. 72(t)
is a penalty or an additional amount to which sec. 7491(c)
applies and regardless of whether the burden of production with
respect to this additional tax would be on respondent, respondent
has satisfied his burden of production with respect to the
distribution. See H. Conf. Rept. 105-599, at 241 (1998), 1998-3
C.B. 747, 995.
                                 - 5 -

A.   Distribution From the IRA

      Generally, section 408(d)(1) provides that “any amount paid

or distributed out of an individual retirement plan shall be

included in gross income by the payee or distributee * * * in the

manner provided under section 72.”       See also Campbell v.

Commissioner, 108 T.C. 54 (1997).    Petitioners argue that the

distribution from the IRA was to be in the form of a loan;

however, unlike a loan from a qualified employer plan pursuant to

the limitations in section 72(p), “a loan from an IRA to its

owner is always a prohibited transaction (there is no exception

for loans from an IRA to its beneficiary).”4      Patrick v.

Commissioner, T.C. Memo. 1998-30 n.8, affd. without published

opinion 181 F.3d 103 (6th Cir. 1999); sec. 4975(c)(1)(B);

Employee Retirement Income Security Act of 1974, Pub. L. 93-406,

sec. 408(d), 88 Stat. 885.   If such a loan were made, the IRA

would lose its exemption and all assets would be deemed

distributed.   Sec. 408(e)(1) and (2); Patrick v. Commissioner,

supra.

      The distribution was not received by petitioners as an

annuity; consequently, the provisions of section 72(e) are



      4
        At trial Mr. Colegrove alluded to a withdrawal from an
IRA in the form of a loan in the 1990s for the purchase of his
first home, but the petition indicates that he previously took
out a loan from his sec. 401(k) plan account. A loan from a sec.
401(k) plan account may be a nontaxable distribution if it
satisfies the limitations in sec. 72(p).
                               - 6 -

applicable.   See Vorwald v. Commissioner, T.C. Memo. 1997-15.

Consistent with the presumption of correctness applicable to

respondent’s determination, see Welch v. Helvering, supra, and

because Mr. Colegrove did not make any contributions to the IRA,

we must assume that his tax basis in the IRA was zero, see sec.

1.408-4(a)(2), Income Tax Regs.     Therefore petitioners can be

given no credit for any investment in the IRA, within the meaning

of section 72(e)(3)(A)(ii) and (6).     Consequently, the entire

amount of the distribution is allocated to, and must be included

in, petitioners’ income.   See sec. 72(e)(3)(A).    Accordingly,

respondent’s adjustment increasing petitioners’ income by the IRA

distribution is sustained.

B.   Section 72(t) Additional Tax

      Section 72(t)(1) imposes a 10-percent additional tax on an

early distribution from a qualified retirement plan unless the

distribution comes within one of the statutory exceptions under

section 72(t)(2).   The section 72(t) additional tax is intended

to discourage premature distributions from retirement plans.

Dwyer v. Commissioner, 106 T.C. 337, 340 (1996); see also S.

Rept. 93-383, at 134 (1973), 1974-3 C.B. (Supp.) 80, 213.

      Petitioners used the funds withdrawn from the IRA to pay

business and living expenses and a home mortgage.     Regrettably

for petitioners, no exception applies for those purposes;

therefore, petitioners’ distribution remains subject to the 10-
                               - 7 -

percent additional tax.   Although petitioners’ financial

circumstances were not unusual during this tumultuous period, the

tax code is sometimes unforgiving in its attempts at

standardization.

     If the language of a statute is plain, clear, and

unambiguous, the statutory language is to be applied according to

its terms unless a literal interpretation of the statutory

language would lead to absurd results.   Robinson v. Shell Oil

Co., 519 U.S. 337, 340 (1997); Consumer Prod. Safety Commn. v.

GTE Sylvania, Inc., 447 U.S. 102, 108 (1980); United States v.

Am. Trucking Associations, Inc., 310 U.S. 534, 543-544 (1940);

Allen v. Commissioner, 118 T.C. 1, 7 (2002).   In the instant

case, the Court sympathizes with petitioners’ financial

predicament, but we are constrained by the statutory language and

unable to create an exception where none exists.

     In closing, we think it appropriate to observe that we found

petitioners to be conscientious taxpayers who take their Federal

tax responsibilities seriously.   The Tax Court, however, is a

court of limited jurisdiction and lacks general equitable powers.

Commissioner v. McCoy, 484 U.S. 3, 7 (1987); Hays Corp. v.

Commissioner, 40 T.C. 436, 442-443 (1963), affd. 331 F.2d 422

(7th Cir. 1964).   Consequently, our jurisdiction to grant

equitable relief is limited.   Woods v. Commissioner, 92 T.C. 776,

784-787 (1989); Estate of Rosenberg v. Commissioner, 73 T.C.
                                 - 8 -

1014, 1017-1018 (1980).   This Court is limited by the exceptions

enumerated in section 72(t).   See, e.g., Arnold v. Commissioner,

111 T.C. 250, 255-256 (1998); Schoof v. Commissioner, 110 T.C. 1,

11 (1998).   Although we acknowledge that Mr. Colgrove used his

distribution for entirely reasonable purposes, absent some

constitutional defect we are constrained to apply the law as

written, see Estate of Cowser v. Commissioner, 736 F.2d 1168,

1171-1174 (7th Cir. 1984), affg. 80 T.C. 783 (1983), and we may

not rewrite the law because we may “deem its effects susceptible

of improvement”, Commissioner v. Lundy, 516 U.S. 235, 252 (1996)

(quoting Badaracco v. Commissioner, 464 U.S. 386, 398 (1984)).

Accordingly, we must sustain respondent’s determination that

petitioners are liable for the section 72(t) 10-percent

additional tax.

                            Conclusion

     We have considered all of the arguments made by petitioners,

and, to the extent that we have not specifically addressed them,

we conclude that they do no support a result contrary to that

reached herein.

     To reflect the foregoing,


                                              Decision will be entered

                                         for respondent.
