                       T.C. Memo. 2003-194



                     UNITED STATES TAX COURT



               EDWARD A. BOUGAS III, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13256-01.              Filed July 2, 2003.


     Edward A. Bougas III, pro se.

     Steven W. Ianacone, for respondent.


             MEMORANDUM FINDINGS OF FACT AND OPINION


     GOLDBERG, Special Trial Judge:   Respondent determined a

deficiency in petitioner’s Federal income tax for the taxable

year 1998 in the amount of $25,000.   Unless otherwise indicated,

section references are to the Internal Revenue Code in effect for

the year at issue.

     The issue for decision is whether petitioner is liable for

the 10-percent additional tax under section 72(t) on a $250,000
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early distribution from his individual retirement account (IRA).

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   At the time the petition

was filed, petitioner resided in Millburn, New Jersey.

     Petitioner was married to Kathleen O. Bougas (Ms. Bougas) on

December 27, 1969.   On July 11, 1996, petitioner and Ms. Bougas

were separated.   On April 6, 1998, in a Dual Judgment of Divorce

Incorporating Property Settlement Agreement (divorce judgment)

filed in the Superior Court of New Jersey for Monmouth County

(New Jersey court), petitioner and Ms. Bougas were ordered

divorced.

     The divorce judgment, inter alia, ordered petitioner to pay

(1) a lump sum of $150,000 tax free to Ms. Bougas, (2) Ms.

Bougas’s credit card debt of $46,714.41 to various credit card

companies, and (3) a $10,000 attorney’s fee to Ms. Bougas’s

lawyer.   Further, the divorce judgment contains a provision that

petitioner’s 401(k) and IRA accounts shall be his sole and

exclusive property, free and clear of any claims by Ms. Bougas.

     No provision exists in the divorce judgment dictating that

petitioner must pay the ordered obligations from his IRA account.

The divorce judgment did not provide for a specific source of

funds from which petitioner was required to pay his divorce
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obligations.    Petitioner was free to pay the ordered obligations

from whatever sources he had available.    There is no mention of a

qualified domestic relations order (QDRO) in the divorce

judgment, nor any reference to making Ms. Bougas an alternate

payee on petitioner’s IRA.

     In a June 27, 1997, divorce hearing held at the New Jersey

court, the Honorable Milton H. Gelzer, J.S.C., suggested that

petitioner withdraw pension funds to prevent foreclosure on the

marital home, even though such withdrawal may be subject to an

early withdrawal penalty.    There was no mention of a QDRO at the

divorce hearing.

     Sometime prior to the divorce, petitioner rolled over an

amount from his 401(k) retirement plan at Salomon, Smith Barney

into an IRA at Charles Schwab.    Because petitioner’s resources

were limited at the time he was required to pay the amounts

ordered in the divorce judgment, he chose to take a distribution

from his IRA.   Petitioner requested a distribution from his IRA

in the amount of $250,000, without presenting the plan

administrator with a copy of the divorce judgment.    Charles

Schwab honored petitioner’s request and distributed a check to

petitioner in his name.   On March 20, 1998, petitioner deposited

the $250,000 check into his personal checking account at Republic

National Bank of New York (RNB).

     On March 31, 1998, petitioner paid Ms. Bougas by personal
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check the $150,000 ordered in the divorce judgment.    On April 1,

1998, petitioner paid Ms. Bougas’s $10,000 attorney’s fee by

check made payable to Frank Louis.     By checks dated April 19 and

20, 1998, petitioner paid the various credit card companies for

the debts incurred by Ms. Bougas.    All the checks mentioned above

were drawn against petitioner’s personal checking account at RNB.

No funds were transferred from petitioner’s IRA directly to Ms.

Bougas or any other party to satisfy the terms of the divorce

judgment.

     On his 1998 Federal income tax return, petitioner reported

the $250,000 distribution from his IRA as income.    However,

petitioner did not report an additional tax of 10 percent of the

total distribution for the early withdrawal from the IRA.

Respondent determined in the notice of deficiency that petitioner

is liable for the additional tax on an early distribution from a

qualified retirement plan.   Although admitting that a QDRO was

never issued, petitioner asserts he is not liable for the

additional tax on the early distribution because the divorce

judgment and his actions meet the criteria of a QDRO within the

spirit of the law.

                              OPINION

     We decide the deficiency issue in this case on the basis of

the preponderance of the evidence in the record without regard to

the burden of proof.   Accordingly, we need not decide whether
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section 7491(a)(1) is applicable in this case.   See Higbee v.

Commissioner, 116 T.C. 438 (2001).

     A “domestic relations order” is defined in pertinent part as

any judgment which relates to the provision of marital property

rights to a spouse, or former spouse, of a participant and is

made pursuant to a State domestic relations law.   Sec.

414(p)(1)(B).   A QDRO is a specific type of domestic relations

order which in pertinent part (1) creates an alternate payee’s

right to receive all or part of the benefits payable with respect

to a participant under a plan, (2) clearly specifies certain

facts, and (3) does not alter the amount of the benefits under

the plan.   Sec. 414(p)(1)(A), (2), and (3).

     Section 72(t) provides for an additional tax of 10 percent

on any amount received as an early distribution from a qualified

retirement plan.   A “qualified retirement plan” includes an IRA.

See sec. 4974(c)(4).   The section 72(t) additional tax does not

apply in certain situations, and the sole exception on which

petitioner relies is section 72(t)(2)(C).   That section provides

that distributions from qualified retirement plans are not

subject to the additional tax if they are made to an alternate

payee pursuant to a QDRO within the meaning of section 414(p)(1).

Section 414(p)(8) defines the term “alternate payee” as any

spouse, former spouse, child or other dependent of a participant

who is recognized by a domestic relations order as having a right
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to receive all, or a portion of, the benefits payable under a

plan with respect to such participant.

     To qualify for the section 72(t)(2)(C) exception to the

additional tax the distribution must be made by the plan

administrator to an alternate payee in response to a QDRO.

Section 414(p) provides certain procedural rules with respect to

domestic relations orders to provide guidance to plan

administrators when making QDRO determinations.    “Implicit in

these procedural rules, and in their underlying purpose to

provide rational rules to guide plan administrators, is the

requirement that a domestic relations order be presented to the

plan administrator and adjudged ‘qualified’ before any

distribution is made by the plan to the spouse or former spouse.”

Rodoni v. Commissioner, 105 T.C. 29, 36 (1995).

     The New Jersey court entered the divorce judgment with

respect to petitioner and Ms. Bougas.    The divorce judgment

waived any right, title, or claim by Ms. Bougas to petitioner’s

IRA account.   The divorce judgment relates to marital property

rights of petitioner and Ms. Bougas pursuant to the domestic

relations laws of New Jersey.   The divorce judgment is therefore

a domestic relations order under section 414(p)(1)(B).

     However, the divorce judgment did not effectively create or

recognize Ms. Bougas’s right as an alternate payee to receive any

portion of petitioner’s IRA, nor did it award Ms. Bougas any
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interest in petitioner’s IRA.    See sec. 414(p)(1)(A).    Petitioner

initiated, received, and controlled the distribution from his

IRA, which funds he used to comply with the divorce judgment.

Since petitioner was the plan participant and the distribution

was made directly to him, petitioner was not an alternate payee.

See sec. 414(p)(8).    In addition, petitioner never submitted a

copy of the divorce judgment to the plan administrator prior to

requesting and receiving the distribution from the IRA.

Therefore, the divorce judgment does not qualify as a QDRO under

section 414(p).

     Since petitioner is not an alternate payee and the section

414(p) requirements for a QDRO were not met, petitioner does not

fall within the section 72(t)(2)(C) exception to the section

72(t) additional tax on an early distribution from a qualified

retirement plan.

     Perhaps realizing he may not prevail under the language of

section 414(p), petitioner claims that the facts in this case

indicate compliance with the QDRO provisions within the spirit of

the law.    Where the requirements of a statute relate to the

substance or essence of the statute, they must be rigidly

observed.   Taylor v. Commissioner, 67 T.C. 1071, 1077 (1977);

Sperapani v. Commissioner, 42 T.C. 308, 331 (1964).       On the other

hand, if the requirements are procedural or directory in that

they do not go to the essence of the thing to be done, but rather
                               - 8 -

are given with a view to the orderly conduct of business, they

may be fulfilled by substantial compliance.   Taylor v.

Commissioner, supra at 1077-1078; Sperapani v. Commissioner,

supra at 330-331.

     We need not address whether all the requirements of section

414(p) go to the essence of the statute or are merely procedural

because we find that the divorce judgment and petitioner’s

actions fail to comply substantially with the QDRO requirements

in section 414(p).   See Rodoni v. Commissioner, supra at 39-40.

     Petitioner never submitted a copy of the divorce judgment to

the plan administrator for a determination, nor was he even

required by the divorce judgment to pay the ordered obligations

from his IRA.   The divorce judgment fails to name Ms. Bougas as

an alternate payee, fails to specify clearly an amount or

percentage of petitioner’s IRA that was to be paid by the plan to

Ms. Bougas, and fails to create or recognize any rights of Ms.

Bougas to receive any portion of petitioner’s IRA.   See sec.

414(p)(1) and (2).   In direct conflict with the requirements of

section 414(p), the divorce judgment explicitly states that the

IRA is petitioner’s sole and exclusive property, free and clear

of any claims of Ms. Bougas.   Clearly, the divorce judgment did

not substantially comply with the section 414(p) QDRO

requirements.

     Petitioner further claims that he should not be penalized
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for following the direction of the New Jersey court.     Petitioner

contends that the New Jersey court required him to make the IRA

distributions to pay his divorce obligations.    This same argument

was rejected in Czepiel v. Commissioner, T.C. Memo. 1999-289,

affd. without published opinion 86 AFTR 2d 2000-7304, 2000-1 USTC

par. 50,134 (1st Cir. 2000).   As in Czepiel, petitioner was not

required to pay his divorce obligations from his IRA; petitioner

chose to use the IRA because he had no other source of funds to

pay his divorce obligations.   Here, the IRA distribution was made

voluntarily by petitioner, with his active participation and

control, and not at the order of any court.    See id.

     Petitioner also blames the New Jersey court for not issuing

a QDRO.   However, the New Jersey court did not order petitioner

to pay his divorce obligations from his IRA; the New Jersey court

merely suggested during a divorce hearing that the IRA was a

potential source to meet petitioner’s obligations.    Because the

New Jersey court did not award Ms. Bougas any rights or interest

in petitioner’s IRA, there was no reason for that court to issue

a QDRO.   In addition, it does not appear from the record that

petitioner or his attorney ever requested a QDRO.

     Petitioner testified that he expressed concerns to his

attorney about taking a distribution from his IRA, but he

ultimately did as his attorney instructed.    Petitioner further

testified that had he “been aware there was such a thing as a
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qualified domestic relations order, and that there would have

been some type of a penalty, [he] most certainly would have

requested [his] attorney to make sure that it was done in full

compliance.”   Assuming petitioner was given inadequate advice by

his counsel, this is not the proper forum for petitioner to seek

redress for that alleged wrong.   Estate of Quirk v. Commissioner,

T.C. Memo. 1995-234.

     On the record before the Court, we find that petitioner is

liable for the 10-percent additional tax on the $250,000 early

distribution from his IRA, pursuant to section 72(t).

     To reflect the foregoing,



                                         Decision will be entered

                                    for respondent.
