                               T.C. Memo. 2016-15



                         UNITED STATES TAX COURT



                 ROBERT LEON MARTIN, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket Nos. 13012-13, 13418-14.              Filed February 3, 2016.



      Robert Leon Martin, for himself.

      Ann Louise Darnold, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      MORRISON, Judge: On March 18, 2013, the respondent (referred to here

as the “IRS”) issued a notice of deficiency to the petitioner, Robert Leon Martin,

for the 2010 taxable year, determining an income-tax deficiency of $1,399. In this

notice of deficiency the IRS disallowed a $5,597.63 deduction that Martin claimed
                                           -2-

[*2] on his 2010 tax return. This deduction was the amount he reported and paid

as his liability for the section 72(t) additional tax.1

       On March 10, 2014, the IRS issued a notice of deficiency to Martin for the

2011 taxable year. In this notice of deficiency the IRS determined a $250 income-

tax deficiency resulting from Martin’s failure to report $1,000 in gambling

winnings.

       Martin filed a separate timely petition for each notice of deficiency. The

two cases were consolidated for trial, briefing, and opinion. The following two

issues must be decided:

       (1) Whether the section 72(t) additional tax of $5,597.63 for the 2010

taxable year is deductible. We hold that it is not deductible.

       (2) Whether gambling winnings of $1,000 are includible in Martin’s income

for the 2011 taxable year. We hold that they are includible.

                                 FINDINGS OF FACT

       The parties stipulated some facts, and those facts are incorporated by this

reference. Martin resided in Oklahoma at the time he filed the petitions.2


      1
     All section references are to the Internal Revenue Code of 1986 as
amended and in effect for the tax years at issue, 2010 and 2011.
      2
          Therefore, an appeal of our decisions in these cases would go to the U.S.
                                                                         (continued...)
                                        -3-

[*3] In the 2010 taxable year, Martin received a distribution of $55,976.29 from

Fidelity Investments Institutional Operations Co. (“Fidelity”). Fidelity reported

the distribution on a Form 1099-R, “Distributions From Pension, Annuities,

Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.”. At the time

Martin received the distribution, he was 54 years old.

      During 2010, Martin was not a first-time homebuyer. He did not incur any

higher-education expenses. He was not in the military. He also did not pay

health-insurance premiums or any medical expenses.

      Martin timely filed his 2010 Form 1040, “U.S. Individual Income Tax

Return”. On his 2010 tax return, he reported a taxable individual retirement

account (IRA) distribution of $55,976.29. He attached a copy of the Form 1099-R

from Fidelity to his 2010 tax return. He also reported that he owed a 10%

additional tax of $5,597.63 on an early IRA distribution. Martin claimed a

deduction in the same amount on line 30 of his 2010 tax return (a line labeled

“Penalty on early withdrawal of savings”). Martin paid the tax reported on his

return, including the 10% additional tax.




      2
       (...continued)
Court of Appeals for the Tenth Circuit, see sec. 7482(b)(1), unless the parties
designate another circuit, see id. para. (2).
                                         -4-

[*4] During 2011, Martin received $1,000 from the Kaw Southwind Casino after

his name was chosen in a lottery. He had earned entries into the lottery by playing

slot machines. The casino reported the payment to the IRS on a Form 1099-MISC,

“Miscellaneous Income”.

      Martin timely filed a 2011 Form 1040 and claimed the standard deduction.

He did not report the $1,000 he received from the casino or any other gambling

winnings. On line 21 of his 2011 tax return (a line labeled “Other income”),

Martin entered zero and wrote: “All winnings were slot-related and below the

$1,200 legal cutoff.” Martin did not claim a gambling-loss deduction on his 2011

tax return.

                                      OPINION

1.    Deductibility of Section 72(t) Additional Tax

      Section 72(t)(1) provides that “[i]f any taxpayer receives any amount from a

qualified retirement plan[3] * * *, the taxpayer’s tax * * * shall be increased by an

amount equal to 10 percent of the portion of such amount which is includible in

gross income.” Martin does not dispute that the distribution he received in 2010

was from a qualified retirement plan or that it was includible in gross income. Nor


      3
       “Qualified retirement plan” is defined in sec. 4974(c) and includes IRAs as
described in sec. 408(a).
                                        -5-

[*5] does he dispute that the 10% additional tax imposed by section 72(t) applies

to this distribution.4

       Martin claimed a deduction for the section 72(t) additional tax on his 2010

Form 1040. The IRS disallowed this deduction. The IRS contends that taxpayers

may not deduct the additional tax imposed by section 72(t).

       Martin argues that the additional tax imposed by section 72(t) is deductible

under section 62(a)(9). We disagree. Section 62(a)(9) provides a deduction for an

amount “forfeited to a bank, mutual savings bank, savings and loan association,

building and loan association, cooperative bank or homestead association as a

penalty for premature withdrawal of funds from a time savings account, certificate


       4
         At trial Martin conceded on the record that he was liable for the sec. 72(t)
additional tax. In his pretrial memorandum, however, he had contended that the
distribution should be excepted from the tax because of financial hardship. In his
posttrial brief he also refers to financial hardship. Although we consider his
concession at trial to be binding--therefore his eligibility for an exception from
sec. 72(t) is not at issue--we observe that the record does not demonstrate his
eligibility for an exception from sec. 72(t). Sec. 72(t)(2) lists a number of
exceptions under which the additional tax does not apply. These “exceptions are
narrow.” Rousey v. Jacoway, 544 U.S. 320, 332 (2005). Because Martin received
the distribution before age 59-1/2, he is not eligible for the first and most common
of those exceptions. See sec. 72(t)(2)(A)(i). He does not show his eligibility for--
nor does he invoke--any of the other exceptions. Martin stipulated that he was not
a first-time home-buyer, did not incur any higher-education expenses, was not in
the military, and did not pay health-insurance premiums or any medical expenses.
See sec. 72(t)(2)(A), (B), (D)-(G). There is no exception for financial hardship in
sec. 72(t)(2). See Arnold v. Commissioner, 111 T.C. 250, 255 (1998).
                                         -6-

[*6] of deposit, or similar class of deposit.” The section 72(t) additional tax is

payable to the federal government, not to a “bank” or similar institution listed in

section 62(a)(9). Therefore, it is not deductible under section 62(a)(9). Further,

the additional tax imposed by section 72(t) is a federal-income tax. Section

275(a)(1) disallows any deductions for “Federal income taxes” (A deduction for

certain other taxes, including State income taxes and some other federal taxes, is

allowed by section 164(a).).

         Therefore, Martin may not deduct the additional tax imposed by section

72(t).

2.       Gambling Winnings

         Martin does not contest that he received $1,000 of gambling winnings from

the casino. He argues that only income that must be reported to the IRS on an

information return is taxable and that the casino was not required to report his

gambling winnings. Therefore, he argues that the $1,000 is not taxable.

         Section 61(a) defines gross income as “all income from whatever source

derived”. It is well settled that gambling winnings, including slot machine and

lottery winnings, are includible in gross income. See United States v. Maginnis,

356 F.3d 1179, 1183 (9th Cir. 2004) (lottery winnings); Park v. Commissioner,
                                         -7-

[*7] 136 T.C. 569, 573 (2011) (slot machine winnings), rev’d and remanded on

other grounds, 722 F.3d 384 (D.C. Cir. 2013).

      There may be some question as to whether the $1,000 of gambling winnings

had to be reported by the casino on an information return. The general threshold

for reporting a payment on an information return is $600. Sec. 6041(a), (d); sec.

1.6041-1(d)(3), Income Tax Regs. However, the IRS has instructed information-

return filers that a payment of gambling winnings is reportable only if it is greater

than $600 and is at least 300 times the amount of the wager. Instructions for

Forms W-2G and 5754, at 2-3 (2011) (“File Form W-2G for every person to whom

you pay $600 or more in gambling winnings if the winnings are at least 300 times

the amount of the wager.”). And there is a more specific rule for gambling

winnings from slot machines. Such winnings must be reported only if the payment

is $1,200 or more. Id. at 3; see also sec. 7.6041-1, Temporary Income Tax Regs.,

42 Fed. Reg. 33286 (June 30, 1977).

      The casino reported on an information return its $1,000 payment to Martin.

Martin argues that, because he earned entries into the lottery by playing slot

machines, his gambling winnings should be subject to the $1,200 reporting

threshold. Thus, Martin argues, the casino should not have reported the gambling
                                        -8-

[*8] winnings of $1,000 because the payment fell below the $1,200 reporting-

requirement threshold for gambling winnings from slot machines.

      Martin assumes that gambling winnings that are not reportable on

information returns are not includible in gross income. At trial he said that the

IRS is “trying to separate the taxation from the reporting when it is undeniably one

and the same”. Martin does not see, or refuses to see, the distinction between

information-reporting requirements and the imposition of income tax. Whether

the casino was required to report Martin’s winnings is irrelevant to the question of

whether his winnings are includible in his gross income. The Internal Revenue

Code does not exclude a payment from income when the payment is not large

enough to require the payor to report the payment on an information return.

      Martin also argues that he had losses from slot-machine gambling. Even

assuming that the amount of Martin’s losses from slot-machine gambling during

2011 could count against his $1,000 in winnings, the record provides no basis for

us to estimate Martin’s losses from slot-machine gambling. See Schooler v.

Commissioner, 68 T.C. 867, 869-871 (1977).

      We hold that the gambling winnings of $1,000 are includible in Martin’s

income for the 2011 taxable year.
                                       -9-

[*9] In reaching our holdings, we considered all arguments made, and, to the

extent not mentioned, we conclude that they are moot, irrelevant, or without merit.

      To reflect the foregoing,


                                             Decisions will be entered for

                                      respondent.
