                  T.C. Summary Opinion 2003-41



                     UNITED STATES TAX COURT



                 LARRY JOE MILLS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7036-02S.              Filed April 22, 2003.


     Larry Joe Mills, pro se.

     Donald E. Edwards, for respondent.



     DEAN, Special Trial Judge:     This case was heard under the

provisions of section 7463 of the Internal Revenue Code as in

effect at the time the petition was filed.    Unless otherwise

indicated, all other section references are to the Internal

Revenue Code in effect for the year at issue.    The decision to be

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

should not be cited as authority.
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     Respondent determined a deficiency in petitioner's Federal

income tax of $2,901 for 1998.    The issues for decision are:

(1) Whether petitioner may deduct the Federal income tax withheld

from a distribution from an Individual Retirement Account (IRA),

and (2) whether petitioner is liable for the 10-percent

additional tax on an early distribution from a qualified

retirement plan.

     The stipulated facts and exhibits received into evidence are

incorporated herein by reference.    At the time the petition in

this case was filed, petitioner resided in Jennings, Oklahoma.

                           Background

     In 1994, petitioner rolled over an amount from his 401(k)

profit sharing plan at Moore Corporation into an IRA, a qualified

retirement plan, at Payne County Bank (PCB) in Perkins, Oklahoma.

On November 14, 1997, the District Court In And For Lincoln

County, State of Oklahoma, issued a Qualified Domestic Relations

Order (QDRO) in the case of Alvetta J. Mills v. Larry J. Mills.

The QDRO ordered PCB to segregate for the benefit of Alvetta

Mills, the alternate payee, the sum of $17,745 along with the

interest accruing between November 14, 1997, until the date of

distribution.

     Petitioner signed on January 10, 1998, an "IRA Distribution

Form", containing several sections, including:    (1) "IRA Owner

Information"; (2) "Distribution Reason"; (3) "Payment
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Information"; and (4) "Withholding Election".   In the

"Distribution Reason" section, box number 1 was checked for

"Premature Distribution.   Under 59-1/2 and no other exceptions

apply".    Under "Withholding Election", the box was checked for "I

elect to have Federal income tax withheld from my IRA

distribution (10% withholding)".   The amount of $2,518 is listed

in the "Payment Information" section as the amount of Federal

income tax withheld and the net distribution is listed as

$22,662.

     On January 12, 1998, pursuant to the terms of the QDRO,

$17,895 was distributed from petitioner's IRA at PCB to his

former wife.   At the same time, the balance of the IRA, $25,180,

was distributed to petitioner as described above.   Petitioner was

not yet 59-1/2 years old at the time of the distribution.

     PCB issued to petitioner a Form 1099-R, Distributions From

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

Insurance Contracts, etc., showing a gross and taxable

distribution of $25,180 and Federal income tax withheld of

$2,518.    Petitioner filed his Federal income tax return for 1998

in which he reported the distribution of $25,180 as income on

line 15b.   Petitioner, however, deducted on line 30, "Penalty on

early withdrawal of savings", $2,518, and failed to report any

amount in the "Other Taxes" section on line 53 of his return,

"Tax on IRAs, other retirement plans, and MSAs.   Attach Form 5329
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if required".   Form 5329 is for reporting "Additional Taxes on

Qualified Plans (Including IRAs) and Other Tax-Favored Accounts".

     Respondent determined in the notice of deficiency that

petitioner is liable for the additional tax on an early

distribution from a qualified retirement plan.   Petitioner

believes that the additional tax on early distributions is not

applicable in this case because he believes his distribution of

$25,180 was "forced" under his wife's QDRO.

                            Discussion1

The Deduction of Federal Withholding Tax

     Section 62(a)(9) allows deductions under section 165 from

gross income for amounts "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".   The Federal income

tax withheld from petitioner's IRA distribution is not an amount

forfeited to a bank or other financial institution as a penalty.

     The Court notes that petitioner also claimed a credit for

Federal withholding tax of $4,191 on line 57 of his 1998 Federal

income tax return.   That amount represents the sum of the amounts

reported on petitioner's Form W-2, Wage and Tax Statement, of

$1,673 and the amount reported on his Form 1099-R, Distributions


     1
      Because the issues in this case are not factual but are
instead legal, sec. 7491 does not apply.
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From Pensions, Annuities, Retirement or Profit-Sharing Plans,

IRAs, Insurance Contracts, etc., issued by PCB that shows Federal

income tax withheld of $2,518.    What petitioner did was to claim

a deduction and a withholding credit for the same $2,518.

Petitioner properly reported the amount as Federal income tax

withheld.   The Court concurs in respondent's determination that

the deduction of the $2,518 as an amount forfeited as a penalty

to a bank is improper.

Additional Tax on Early Distributions

     Section 72(t)(1) provides for the imposition of a 10-percent

additional tax on early distributions from qualified retirement

plans with certain exceptions.

     Petitioner testified that he received the distribution of

$25,180 in 1998 upon the oral advice of a bank employee.      If he

was going to make the QDRO distribution to his wife, "she said

you have to take it all out.   You can't take a part of it out

without borrowing the money to replace it back."    Unfortunately

for petitioner, he relied on bad advice.   Even if the advice were

true, however, the operative provision offers him no relief.

     Section 72(t)(2) provides that the additional tax on early

distributions shall not apply to certain types of distributions.

One type of distribution that is not subject to the additional

tax is "Payments to alternate payees pursuant to qualified

domestic relations order".   Sec. 72(t)(2)(C).   Under this
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provision, a distribution to an "alternate payee" under a QDRO is

excepted from the additional tax on early distributions.   Section

402(e)(1)(A) provides that an "alternate payee" who is the spouse

or former spouse of the plan participant shall be treated as the

distributee of any distribution or payment made to the "alternate

payee" under a "qualified domestic relations order" as defined in

section 414(p).   Therefore, a distribution made to such an

alternate payee under a QDRO will be taxable to that alternate

payee, and not to the plan participant, because section

402(e)(1)(A) treats the alternate payee as the distributee.

     But it is not the distribution to his wife, the alternate

payee, that is under consideration here.   The distribution in

dispute is the distribution to petitioner himself.   Petitioner is

a distributee, the plan participant or beneficiary who, under the

plan, is entitled to receive the distribution.    See Darby v.

Commissioner, 97 T.C. 51, 58 (1991); Estate of Machat v.

Commissioner, T.C. Memo. 1998-154; Smith v. Commissioner, T.C.

Memo. 1996-292.   As petitioner is not an "alternate payee", he

may not look to section 72(t)(2)(C) for relief.

     It does not appear that any of the statutory exceptions to

the application of section 72(t) apply in this case, and

petitioner has not suggested otherwise.
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     The Court concurs in respondent's determination that

petitioner is subject to the 10-percent additional tax on an

early distribution from a qualified retirement plan.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                      Decision will be entered

                             for respondent.
