                  T.C. Summary Opinion 2006-55



                     UNITED STATES TAX COURT



    LINDA L. DOMANICO AND ANTHONY M. DOMANICO, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18992-04S.              Filed April 19, 2006.


     Linda L. Domanico and Anthony M. Domanico, pro sese.

     Joan Casali, 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   The decision to be entered

is not reviewable by any other court, and this opinion should not

be cited as authority.



     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2001,
the taxable year in issue. All monetary amounts are rounded.
                               - 2 -

     Respondent determined a deficiency in petitioners’ Federal

income tax for the taxable year 2001 of $4,046.   The deficiency

is attributable solely to the 10-percent additional tax under

section 72(t) on an early distribution from a qualified

retirement plan.

     After petitioners’ partial concession concerning the amount

of the deficiency in dispute,2 the sole issue for decision is

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

percent additional tax on an early distribution from petitioner

Linda L. Domanico’s section 401(k) qualified retirement plan

(401(k) plan).   We hold that they are.

                            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.

     At the time that the petition was filed, petitioners resided

in Lindenhurst, New York.

     From 1978 to 1996, petitioner Linda L. Domanico (Mrs.

Domanico) worked as a flight attendant for Trans World Airlines,


     2
        On or about Dec. 11, 2003, petitioners paid to respondent
$931 in respect of the $4,046 deficiency representing the 10-
percent additional tax under sec. 72(t) on $8,560 of petitioner
Linda L. Domanico’s 401(k) plan distribution, which portion
petitioners conceded was not used for higher education expenses,
plus interest thereon. However, as discussed infra in the text,
the distribution of $40,457 less her education expenses of
$32,147 equals $8,310. This discrepancy is not explained in the
record.
                               - 3 -

Inc. (TWA).   During her employment with TWA, Mrs. Domanico

participated in TWA’s 401(k) plan.

     In 1996, Mrs. Domanico terminated her employment with TWA

because of a permanent injury that she incurred on board an

aircraft.   Several years later, she continued her studies towards

a permanent teaching certificate.    In 2000, Mrs. Domanico began

her graduate studies.   She incurred the following higher

education expenses:

     Year       College                        Amount
     1999       Adelphi & St. John’s
                   University                   $6,273
     2000       St. John’s University           11,848
     2001       St. John’s University           10,357
     2002       Teacher Education Institute        517
     2003       Teacher Education Institute      3,152
                  Total                        $32,147

During 2001, Mrs. Domanico was also employed as a librarian.

     TWA informed Mrs. Domanico by letter dated July 25, 2001,

that American Airlines had acquired TWA and that she was

     eligible to “roll over” your account balance to another
     qualified plan or IRA. You were advised that, once
     your TWA-sponsored Plan (the “Plan”) is terminated, you
     will be required to: (i) make an election either to
     roll over the balances in that plan to the American
     Airlines $uper $aver Plan (or other qualified plan if
     you take a job with another company that allows such
     rollovers); (ii) transfer your balances to an
     individual IRA; or (iii) take a direct distribution.

     On the basis of her research of the 2001 U.S. Master Tax

Guide (Master Tax Guide), a tax guide published by Commerce

Clearing House, Inc., a private commercial publisher, Mrs.

Domanico decided to take a direct distribution of $40,457 from
                               - 4 -

the 401(k) plan in 2001.   At the time of the distribution, she

had not reached 55 years of age, nor was she disabled.

     In 2001, the year that she received the distribution, Mrs.

Domanico used $10,357 of the distribution to pay higher education

expenses that she incurred in that year.   With the exception of

$8,560, see supra note 2, she used the remaining funds to (1) pay

off debt that she had incurred in 1999 and 2000 for higher

education expenses and (2) pay for higher education expenses that

she subsequently incurred in 2002 and 2003.

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

Tax Return, for 2001.   On their return, petitioners reported the

$40,457 distribution as income but did not report the 10-percent

additional tax for an early distribution under section 72(t).     On

Form 5329, Additional Taxes on Qualified Plans (Including IRAs),

and Other Tax-Favored Accounts, petitioners indicated that the

early distribution was not subject to the additional tax by

virtue of exception 8 (IRA distributions made for higher

education expenses).

     In the notice of deficiency, respondent determined that

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

early distribution from Mrs. Domanico’s 401(k) plan pursuant to

section 72(t).   An attachment to the notice of deficiency stated,

in relevant part:

     the qualified retirement plan in question was not an
     individual retirement plan, and that the additional tax
                               - 5 -

     cannot be avoided by offset of the distribution by
     qualified education expenses. * * * any qualified
     education expense offset is limited to expenses paid
     during the taxable year of distribution.

     Petitioners timely filed a petition with the Court disputing

the determined deficiency.   Paragraph 4 of the petition states:

     I used an early distribution from a qualified plan for
     educational expenses. I was forced to make a decision,
     by my employer, and I thought I interpreted the tax
     code correctly. The monies that I used were entirely
     my contributions. I was told that had I rolled them
     over for “one day”, they would be exempt from the
     penalty (10%). I feel I am being penalized (harshly)
     for such a finite misinterpretation. I would greatly
     appreciate a favorable ruling.

                             Discussion3

     Petitioners contend that the distribution from Mrs.

Domanico’s 401(k) plan is excepted from the 10-percent additional

tax on early distributions because they used the funds to pay for

Mrs. Domanico’s higher education expenses incurred from 1999

through 2003.   In support of their contention, petitioners rely

on paragraph 2179 of the Master Tax Guide that states in

pertinent part:

          2179. Early Distributions. Distributions from a
     traditional IRA to a participant before the individual
     has reached age 59 ½ are generally subject to the same
     10% penalty that applies to early distributions from
     qualified plans. Many of the exceptions to the early
     distribution penalty also apply to early distributions
     from a traditional IRA. * * * The following



     3
        The facts are not in dispute, and the issue is
essentially one of law. Accordingly, we decide the issue without
regard to sec. 7491.
                                - 6 -

     exceptions to the 10% penalty also apply when early
     distributions are made from an IRA.

                *    *    *     *       *   *   *

          Education Expenses. The 10% penalty does not
     apply if the individual uses the IRA money to pay for
     “qualified higher education expenses” for the
     individual, the individual’s spouse, child, or
     grandchild of the individual or the individual’s
     spouse. Qualified expenses included [sic] tuition at a
     post-secondary educational institution, books, fees,
     supplies and equipment (Code Sec. 72(t)(2)(E)).
     [Emphasis added.]

Therefore, in petitioners’ view, because distributions from an

IRA and a qualified plan; i.e., a 401(k) plan, are treated the

same in some instances for purposes of the 10-percent penalty and

because a distribution from an IRA that is used for higher

education expenses is exempt from the 10-percent penalty, a

distribution from a qualified plan that is used for higher

education expenses should also be exempt from the 10-percent

penalty.   Moreover, according to petitioners, a one-time

distribution should cover expenses incurred over a number of

years because paragraph 2179 of the Master Tax Guide does not

state that the funds must be used in the same calendar year that

the distribution is received.   As discussed below, we disagree

with petitioners’ contention.

     First, it is well settled that the authoritative sources of

Federal tax law are the statutes, regulations, and judicial

decisions and not guides such as the Master Tax Guide that are

published by private commercial publishers.     See, e.g., Zimmerman
                               - 7 -

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

opinion 614 F.2d 1294 (2d Cir. 1979).

     Second, section 72(t)(1) imposes an additional tax on

distributions from a “qualified retirement plan” equal to 10

percent of the portion of such amount that is includable in gross

income unless the distribution comes within one of several

statutory exceptions.   For purposes of the 10-percent additional

tax, a qualified retirement plan includes both a 401(k) plan and

an individual retirement account or individual retirement annuity

(collectively, IRAs).   See secs. 72(t)(1), 401(a), (k)(1),

4974(c)(1), (4), and (5).

     Lastly, as relevant herein, the 10-percent additional tax

imposed on early distributions from qualified retirement plans

does not apply to distributions from “individual retirement

plans” used for higher education expenses of the taxpayer for the

taxable year.   Sec. 72(t)(2)(E).4    An individual retirement plan

is defined as an individual retirement account or individual

retirement annuity (commonly referred to as IRAs).     Sec.


     4
         Sec. 72(t)(2)(E) provides:

     SEC. 72(t) 10-PERCENT ADDITIONAL TAX ON EARLY DISTRIBUTIONS
                FROM QUALIFIED RETIREMENT PLANS.--
               *    *    *    *    *    *    *
               (E) Distributions From Individual Retirement
     Plans For Higher Education Expenses.-- Distributions to
     an individual from an individual retirement plan to the
     extent such distributions do not exceed the qualified
     higher education expenses * * * of the taxpayer for the
     taxable year. * * *
                                - 8 -

7701(a)(37).   Retirement plans qualified under section 401(a) and

(k), however, are not included in the definition of “individual

retirement plan” under section 7701(a)(37).

     Clearly, Congress intended this exception to apply only to

distributions from “individual retirement plans”; i.e., IRAs, and

not to all qualified retirement plans.   See secs. 4974(c)(4) and

(5) and 7701(a)(37); Taxpayer Relief Act of 1997, Pub. L. 105-34,

sec. 203(a), 111 Stat. 809.   This is evident in the report of the

Committee on the Budget, which provides:

          Penalty free IRA withdrawals for education
     expenses--The bill provides that individuals may make
     penalty-free withdrawals from their IRAs to pay for the
     undergraduate and graduate higher education expenses of
     themselves, their spouses, their children and
     grandchildren or the children or grandchildren of their
     spouses. [Emphasis added.]

H. Rept. 105-148, at 288-289 (1997), 1997-4 C.B. (Vol. 1) 319,

610-611.   The report of the Committee on the Budget specifically

provides that only withdrawals from IRAs that are used for higher

education expenses will qualify as withdrawals excepted from the

10-percent additional tax.    Id.

     In the present case, Mrs. Domanico’s 401(k) plan is a

qualified retirement plan, and distributions therefrom are

subject to the 10-percent additional tax under section 72(t)(1)

absent an applicable statutory exception.5    Although Mrs.


     5
        None of the exceptions under sec. 72(t)(2)(A) (e.g.,
distributions (1) made after the employee attains age 59 ½, (2)
                                                   (continued...)
                               - 9 -

Domanico used her 401(k) plan distribution for a commendable

purpose; i.e., to pay for higher education expenses, the

distribution does not qualify for the higher education expenses

exception under section 72(t)(2)(E) because the distribution was

not from an IRA.   Although the common retirement-oriented purpose

of a 401(k) plan and an individual retirement plan may have led

petitioners to a “finite misinterpretation” based on their

reading of the Master Tax Guide, a 401(k) plan and an individual

retirement plan are separate and distinct in that only

withdrawals from an IRA may qualify for this exception.6   See

secs. 72(t)(2)(E), 401(k), 408(a), and (b).   The distinction

between the two for purposes of section 72(t)(2)(E) may appear to

exalt form over substance, but it is a distinction that is

legislatively mandated.

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

petitioners to be very conscientious taxpayers who obviously take

their Federal tax responsibilities quite seriously.   We recognize

that the difference between a qualified retirement plan and an



     5
      (...continued)
attributable to an employee’s being disabled, or (3) made to an
employee after separation from service after attainment of age of
55) apply in this case.
     6
        In contrast to petitioners’ “finite misinterpretation”,
we note that par. 2179 of the Master Tax Guide is consistent with
the statutory language in that it identifies education expenses
as an additional exception that applies “when early distributions
are made from an IRA”.
                               - 10 -

IRA is highly technical, and we applaud petitioners for their

efforts in researching the tax consequences of receiving a 401(k)

plan distribution.   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. 1014, 1017-1018

(1980).    Although we acknowledge that petitioners used the 401(k)

plan distribution for a laudable purpose, 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, 787-788 (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, petitioners’ appeal for relief must,

in this instance, be addressed to their elected representatives.

“The proper place for a consideration of petitioner’s complaint

is the halls of Congress, not here.”    Hays Corp. v. Commissioner,

supra at 443.

     Therefore, we conclude that Mrs. Domanico’s 401(k) plan

distribution is subject to the additional tax under section
                              - 11 -

72(t).   Accordingly, we sustain respondent’s determination on

this issue.

                            Conclusion

     We have considered all of the other arguments made by

petitioners, and, to the extent that we have not specifically

addressed them, we conclude that those arguments are contrary to

the legislative mandate.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect our disposition of the disputed issue, as well as

petitioners’ partial concession, see supra note 2,



                                    Decision will be entered

                               for respondent.
