                  T.C. Summary Opinion 2002-108



                     UNITED STATES TAX COURT



                 CLAUDIA J. DUNN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5131-01S.            Filed August 22, 2002.



     Claudia J. Dunn, pro se.

     Rollin G. Thorley, for respondent.



     WOLFE, 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,

all section references are to the Internal Revenue Code in effect

for the year in issue, and all Rule references are to the Tax
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Court Rules of Practice and Procedure.

     Respondent determined a deficiency of $4,199 in petitioner’s

1998 Federal income tax.    The issue for decision is whether

petitioner is subject to the 10-percent additional tax under

section 72(t)(1) on a distribution from a qualified retirement

plan.

                             Background

     Petitioner resided in Roseville, California, when the

petition was filed.    Prior to and during the year at issue

petitioner worked as a registered nurse.    At some point during

1998, petitioner apparently became convinced from watching

television that, according to a recently enacted law, early

distributions from qualified retirement plans no longer were

subject to a 10-percent additional tax if the distributions were

used to pay the taxpayer’s qualified higher education expenses.

Petitioner telephoned respondent’s assistance number and spoke

with a representative.    As a result of her conversation with

respondent’s representative, petitioner had the impression that

the information she had heard on television was correct.

     Before hearing about the new law, petitioner had been

considering continuing her education in order to advance her

career as a nurse.    After speaking with respondent’s

representative, petitioner withdrew $41,993 from a qualified

retirement plan account at the Lincoln National Life Insurance
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Company.    Petitioner received the entire distribution in 1998.

     Petitioner included the distribution from her retirement

plan in her income tax return for 1998.    In a notice of

deficiency dated March 8, 2001, respondent determined a

deficiency of $4,199 in petitioner’s 1998 Federal income tax.

Respondent determined that the entire distribution from

petitioner’s retirement plan in 1998 is subject to the additional

tax under section 72(t)(1).

                              Discussion

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

distributions from qualified retirement plans.    Section 72(t)(2)

lists specified exceptions to the imposition of the 10-percent

additional tax.    Under the exception described in section

72(t)(2)(E), distributions to an individual from a qualified

retirement plan generally are not subject to the 10-percent

additional tax to the extent the distributions do not exceed the

individual’s qualified higher education expenses for the taxable

year.    Qualified higher education expenses include tuition, fees,

books, supplies, and equipment required for enrollment or

attendance of the taxpayer or the taxpayer’s spouse or child,

among others, at an eligible educational institution.    Secs.

72(t)(7)(A), 529(e)(3)(A).    Under some circumstances, qualified

higher education expenses also may include the costs of room and

board.    However, in the present case petitioner has failed to
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show that she satisfied the statutory requirements to deduct room

and board.

     Section 529(e), expressly limits room and board benefits to

individuals who are eligible students, as defined in section

25A(b)(3), and satisfy specified additional requirements.

     Petitioner’s educational program at the University of

Phoenix commenced on September 30, 1998.    The “Student Schedule

Listing” provided by petitioner shows only two courses in 1998,

“Role of the Nurse Practitioner,” a three-credit course held at 6

p.m. each Wednesday between September 30, 1998 and November 4,

1998, and “Advanced Nursing Theory,” also a three-credit course

at 6 p.m. on Wednesdays from November 11, 1998 to January 6,

1999.   Petitioner has failed to substantiate that in 1998 she was

an “eligible student,” as defined in section 25A(b)(3)(B),

“carrying at least ½ the normal full-time work load for the

course of study the student is pursuing.”    The record in this

case shows that petitioner continued her full-time employment as

a nurse throughout the year in issue and incurred no room and

board expenses allocable to her education.

     Petitioner submitted into evidence a copy of a Customer

Account History maintained by the University of Phoenix, which

lists the invoice dates and the payment dates of petitioner’s

transactions with the University of Phoenix from September 1998
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to January 2002.    The following transactions had invoice dates in

1998:

 Payment      Method of payment        Invoice date       Payment date

  $50.00           Check                9/11/1998           9/10/1998
   45.00           Check                9/11/1998           9/10/1998
   80.27           Check                9/23/1998           9/23/1998
1,038.00           EFT1                 9/30/1998           1/25/1999
   86.20           Check               11/10/1998          11/10/1998
1,038.00           EFT                 11/11/1998           1/25/1999
Petitioner made four payments to the University of Phoenix in

1998 totaling $261.47.     Petitioner also made two payments to the

University of Phoenix in 1999 for expenses that were incurred in

1998.    The latter two expenses cannot be treated as qualified

higher education expenses for 1998.       Petitioner, as a cash method

taxpayer, is not entitled to accrue expenses.         Under the cash

receipts and disbursements method of accounting “Expenditures are

to be deducted for the taxable year in which actually made”.

Sec. 1.446-1(c)(1)(i), Income Tax Regs.; see secs. 446, 461; sec.

1.461-1(a)(1), Income Tax Regs.       Petitioner’s higher education

expenses for 1998 are limited to the qualified higher education

expenses that she actually paid during 1998.        Accordingly, only

$261.47 of petitioner’s payments to the University of Phoenix

qualify as qualified higher education expenses for 1998.

     Petitioner mentioned that her daughter was a student.        But

petitioner provided no information to indicate the amount of any

expenses she may have incurred for the education of her daughter


     1
         Electronic funds transfer.
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during 1998.

     Petitioner argues that it would be inequitable for the 10-

percent additional tax to apply to any part of the distribution

from her retirement plan in 1998 because it is unrealistic to

expect a student to complete higher education in less than one

year.

     Petitioner’s argument is misguided.   There is no requirement

in either section 72(t) or section 529(e)(3) that a taxpayer must

complete a higher education within one year to avoid the section

72(t)(1) additional tax on early distributions from a qualified

retirement plan.   A taxpayer-student can avoid the section

72(t)(1) tax simply by withdrawing during the year an amount less

than or equal to the amount that the taxpayer pays for higher

education expenses for that year.

     In the present case, petitioner explained that she withdrew

$41,993 from her qualified retirement account because she

required funds to buy a car and to pay off bills in addition to

paying amounts to the University of Phoenix during 1998.    On this

record it is clear that petitioner did not withdraw the $41,993

from her retirement account for education expenses but used the

bulk of the amounts withdrawn for personal living expenses.

     Petitioner further argues that the distribution should not

be subject to the 10-percent additional tax because she is

entitled to rely on the advice of respondent’s representatives.
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     Although we cannot be certain whether petitioner

misunderstood the advice she received or whether erroneous advice

was rendered, that distinction does not make a difference in this

case.   It is well established that respondent is not bound by an

erroneous interpretation of the law by his agents or employees

but must follow the statutes, regulations, and case law.       See

Dixon v. United States, 381 U.S. 68, 72-73 (1965); Zimmerman v.

Commissioner, 71 T.C. 367, 371 (1978), affd. without published

opinion 614 F.2d 1294 (2d Cir. 1979); Neri v. Commissioner, 54

T.C. 767, 771-772 (1970).

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                              Decision will be entered

                                         under Rule 155.
