                      T.C. Memo. 2005-162



                    UNITED STATES TAX COURT



LINDA LOUISE LODDER-BECKERT AND TIMOTHY BECKERT, Petitioner v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



   Docket No. 10752-04.               Filed July 5, 2005.



        P stopped working in 1999 to attend college. At
   that time, P had $34,656.29 in a public employees
   retirement system (PERS) account. When she asked PERS
   to transfer that balance to an individual retirement
   account (IRA), she was advised that the Ohio General
   Assembly was actively pursuing legislation that would
   significantly increase the value of her PERS account.
   P deferred her transfer request and paid for her
   education with student loans and credit card debts.
   When the legislation was enacted in late 2000, P
   renewed her request for the transfer of the PERS
   balance (which on account of the legislation then
   totaled $81,513.38). PERS completed the transfer on or
   about Jan. 2, 2001. In 2001, P requested and received
   two distributions from her IRA. P used part of the
   distributed amounts to pay down her credit card debts
   which were incurred to pay qualified higher education
   expenses for 1999 and 2000.
        Held: Sec. 72(t)(2)(E), I.R.C., does not allow P
   to escape the additional tax of sec. 72(t)(1), I.R.C.,
                                -2-

     as to any part of the distributions used for her 1999
     and 2000 expenses; to escape that tax, sec.
     72(t)(2)(E), I.R.C., requires that qualified higher
     education expenses be for the taxable year of the
     distribution.



     Linda Louise Lodder-Beckert and Timothy Beckert, pro sese.

     Terry Serena, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     LARO, Judge:   Petitioners petitioned the Court to

redetermine a $2,476.35 deficiency in their 2001 Federal income

tax and a related $929.84 late filing addition to tax under

section 6651(a)(1).1   The deficiency stems in part from

respondent’s determination that petitioners are liable for a

10-percent additional tax under section 72(t)(1) on $20,000 that

petitioner2 received in 2001 through two distributions from her

individual retirement account (IRA).   The deficiency also is

attributable to respondent’s determination that petitioners were

not entitled to a $476.35 rate reduction credit.

     Respondent concedes that petitioners are entitled to the

rate reduction credit and that they are not liable for the


     1
       Unless otherwise noted, section references are to the
applicable versions of the Internal Revenue Code, and Rule
references are to the Tax Court Rules of Practice and Procedure.
     2
       When used in the singular, the term “petitioner” refers to
Linda Louise Lodder-Beckert.
                                 -3-

addition to tax.   Respondent also concedes that $7,937 of the

distributions is not subject to the additional tax under section

72(t)(1) by virtue of section 72(t)(2)(E) and the fact that

petitioner used those funds during 2001 to pay $7,937 of

qualified higher education expenses for that year.   Following

these concessions, we are left to decide whether the remaining

distributions totaling $12,063 (disputed distributions) are

subject to the additional tax under section 72(t)(1); petitioner

used part of those funds during 2001 to pay her qualified higher

education expenses for 1999 and 2000.   We hold that the $12,063

is subject to the additional tax under section 72(t)(1) in that

none of those funds was used by petitioner to pay qualified

higher education expenses for 2001.

                         FINDINGS OF FACT

     Some facts were stipulated.   We incorporate herein by this

reference the parties’ stipulation of facts and the exhibits

submitted therewith.   We find the stipulated facts accordingly.

Petitioners are husband and wife, and they filed a joint 2001

Federal income tax return.   They resided in Cincinnati, Ohio,

when their petition was filed.

     On August 18, 1999, petitioner stopped working for the

University of Cincinnati (University) to attend college.   She had

worked for the University for 18 years and had participated in

the Public Employees Retirement System of Ohio (PERS).   When she
                                  -4-

stopped working for the University, her PERS account had a

balance of $34,665.66, all of which represented her

contributions.

     Petitioner desired to use the balance of her PERS account to

pay for her college education and was told that she could receive

that balance approximately 3 months after requesting it.    She

knew at the time that her withdrawal of those funds would subject

the funds to an additional tax under section 72(t)(1) unless she

used the funds to pay for her education.    On August 19, 1999, she

established an IRA and asked the trustee of PERS to transfer the

$34,665.66 to the IRA.    PERS replied through a letter dated

November 9, 1999, that legislation was pending in the Ohio

General Assembly that would retroactively add interest to her

PERS account.    The letter stated that the legislation, S. 144,

123d Gen. Assembly Reg. Sess. (Oh. 2000) (S. 144), had passed the

Senate and had been forwarded to the House.    The letter advised

petitioner that she may wish to defer her withdrawal request

until after the legislation was effective.    Petitioner deferred

her request for the transfer of funds.

     From at or around the end of August 1999 through May 2001,

petitioner attended the Art Academy of Cincinnati and, in the

summer of 2000, the University.    She graduated from the former

school in May 2001 with a bachelor of fine arts.    During 1999,

2000, and 2001, she incurred $7,250, $17,097, and $7,937 of
                                -5-

expenses, respectively (or $32,284 in total), for tuition, books,

and supplies connected to her college education.   She paid the

expenses of the earlier 2 years by borrowing $10,185 in student

loans and by charging the $14,162 balance to her credit cards.

     PERS notified petitioner through a letter dated October 5,

2000, that S. 144 had been passed by the Ohio General Assembly

with an effective date of December 13, 2000.   The letter stated

that allowable interest would be added to the balance of

petitioner’s contributions to PERS as of December 31, 1999.    The

letter also stated that petitioner would receive an additional

amount equal to 2/3 of the total of her contributions plus

interest.   The letter estimated that the balance of petitioner’s

PERS account as of January 1, 2001, was $81,513.37.

     In 2000, after the passage of S. 144, petitioner asked PERS

to transfer her PERS balance (inclusive of the additional

amounts) to her IRA.   By letter dated January 2, 2001, PERS

notified petitioner that it had transferred $77,309.77 of the

balance to her IRA and had enclosed a “warrant” in the amount of

$4,203.61, which represented her previously taxed contributions.

The letter stated that the total amount of $81,513.38 ($77,309.77

+ $4,203.61) consisted of her accumulated contributions of

$34,665.66 plus her allowable interest of $14,144.75 plus

“applicable matching” of $32,702.97.
                                 -6-

       On January 8, 2001, petitioner withdrew $15,000 from her

IRA.    Approximately 5 months later, she withdrew another $5,000

from her IRA.    She used $7,937 of the $20,000 ($15,000 + $5,000)

to pay her qualified higher education expenses incurred in 2001.

She also used part of the $20,000 to pay down her credit card

debts consisting, in part, of her qualified higher education

expenses that were charged to those cards before December 31,

2000.

       Petitioners reported the $20,000 as gross income on their

2001 Federal income tax return, but they did not report or pay

any additional tax under section 72(t)(1) with respect thereto.

Respondent determined in the notice of deficiency that the

$20,000 was subject to that additional tax.      Respondent has since

conceded that $7,937 of the distributions is not subject to the

additional tax under section 72(t)(1) by virtue of section

72(t)(2)(E) and of the fact that petitioner used those funds

during 2001 to pay $7,937 of her qualified higher education

expenses for 2001.

                               OPINION

       Respondent determined that the distributions made to

petitioner out of her IRA were subject to the 10-percent

additional tax of section 72(t)(1).      As relevant here, section

72(t)(1) imposes that tax on an early distribution from an IRA.

See also secs. 408(a), 4974(c)(4).     Section 72(t)(2)(E) is an
                                 -7-

exception to this rule.    Section 72(t)(2)(E), added to the Code

by the Taxpayer Relief Act of 1997, Pub. L. 105-34, sec. 203(a),

111 Stat. 809, provides:

          (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 (as defined in paragraph (7))
     of the taxpayer for the taxable year. * * *

Petitioner has the burden of proving the applicability of section

72(t)(2)(E).    See Matthews v. Commissioner, 92 T.C. 351, 361-362

(1989), affd. 907 F.2d 1173 (D.C. Cir. 1990).

     Given respondent’s concessions, we concern ourselves only

with the question of whether the distributions not used for

petitioner’s qualified higher education expenses for 2001 fall

within the exception of section 72(t)(2)(E).    According to

petitioner, all of her distributions (inclusive of the disputed

distributions) are within the exception because her total

distributions were less than her total qualified higher education

expenses.    Respondent argues that none of the disputed

distributions fall within the exception.    As respondent sees it,

a literal reading of section 72(t)(2)(E) requires that the

distributions and qualified higher education expenses be in the

same year.

     We agree with respondent.    Because the statute is not

unescapably ambiguous, we construe it according to its plain

meaning.    Allen v. Commissioner, 118 T.C. 1, 7 (2002).   Section
                                 -8-

72(t)(2)(E) states specifically that distributions are excepted

from the additional tax to the extent that they do not exceed the

qualified higher education expenses “for the taxable year.”

Because the distributions from petitioner’s IRA occurred in 2001

and the disputed qualified higher education expenses were for

1999 and 2000, we conclude that the exception of section

72(t)(2)(E) does not apply to any portion of the disputed

distributions.

     Petitioner asks the Court to construe the statute equitably

in her favor.    We decline to do so.    We must apply the law as

Congress enacted it and may not rewrite it.      See Hildebrand v.

Commissioner, 683 F.2d 57, 59 (3d Cir. 1982), affg. T.C. Memo.

1980-532.    We hesitate, however, to concur that the equities

favor petitioner.    The transfer to her IRA more than doubled by

reason of her decision to defer it, and she would in a sense have

it both ways if she were now permitted to escape the 10-percent

additional tax as to the disputed distributions.

     We sustain respondent’s determination modified by his

concessions.    We have considered all arguments made by the

parties and have rejected those arguments not discussed herein as

meritless.


                                             Decision will be entered

                                        under Rule 155.
