                  T.C. Summary Opinion 2001-148



                     UNITED STATES TAX COURT



                PATRICK L. O’BRIEN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8217-00S.                 Filed September 21, 2001.


     Patrick L. O’Brien, pro se.

     William I. Miller, for respondent.



     PAJAK, 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,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.
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     Respondent determined a deficiency in petitioner’s 1997

Federal income tax in the amount of $14,148, and a penalty under

section 6662(a) in the amount of $2,830.    Respondent conceded

that petitioner was not liable for $19,990 of additional income,

or for the section 6662(a) penalty.    The sole issue the Court

must decide is whether petitioner is liable for the 10-percent

additional tax under section 72(t).

     Some of the facts in this case have been stipulated and are

so found.   Petitioner resided in Schaumburg, Illinois, at the

time he filed his petition.

     In 1997, petitioner Patrick L. O’Brien (petitioner) received

a distribution of a rounded amount of $51,623 from a defined

benefit plan, and a distribution of a rounded amount of $27,846

from an employee stock ownership plan, for a total of $79,469.

Hereinafter, both distributions will be referred to as one

distribution.   On his 1997 Federal income tax return, petitioner

reported that $37,848 of the $79,469 distribution was taxable.

     Respondent determined that the section 72(t) additional tax

on early distributions applied to $79,467.    The parties

stipulated that this amount should have been $79,469.    The

difference appears to be due to rounding, and we shall use the

stipulated amount.   Respondent now concedes that $41,621 of the

distribution is not subject to the section 72(t) additional tax.

Therefore, respondent now asserts that only the taxable amount of
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$37,848 of petitioner’s distribution is at issue with respect to

the section 72(t) additional tax.

     The funds were distributed to petitioner as a result of his

termination of employment.   He does not contend that the

distribution was made due to death, disability, a series of

periodic payments, separation from service after attaining the

age of 55, or for the purpose of medical expenses.   Petitioner

contends that the distribution is not subject to the section

72(t) additional tax because the distribution was made pursuant

to a qualified domestic relations order.

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

on any amount received as an early distribution from a qualified

retirement plan (as defined in section 4974(c)).   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 qualified domestic

relations order (QDRO) within the meaning of section 414(p)(1).

A QDRO is a 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).   A “domestic relations order” is defined in pertinent
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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).

     The Circuit Court of Cook County, Illinois, entered a

“Judgment for Dissolution of Marriage” (Judgment) with respect to

petitioner and his former wife.    The Judgment states that the

parties acknowledged that petitioner’s retirement plan was

marital property.   The Judgment determined that “in consideration

of [petitioner’s] waiver of his vested interest in the marital

real estate, [petitioner’s former wife] hereby waives any and all

right, title, claim or interest she may have in the [retirement

plan] in favor of [petitioner].”

     The Judgment relates to the marital property rights of

petitioner and his former wife pursuant to the domestic relations

laws of Illinois.   It is a domestic relations order under section

414(p)(1)(B).   The Judgment did not award petitioner’s former

wife any interest in the pension plan distribution.    Petitioner

admits that the Judgment did not require any distribution of his

retirement funds.   The distribution took place after petitioner’s

divorce from his former wife.   Only petitioner received the

$37,848 distribution.   What is most significant is that

petitioner was not an alternative payee under his retirement

plan, but was a participant in that plan.    For the foregoing
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reasons, the Judgment is not a QDRO under section 414(p)(1).

Petitioner’s distribution was not a payment to an alternate payee

pursuant to a QDRO and does not fall within the section

72(t)(2)(C) exception to the section 72(t) additional tax.

     Petitioner further argues that he is not liable for the

72(t) additional tax because he received a closing letter from

the Internal Revenue Service (IRS) accepting the additional

information he provided and informing him that he would not:

“need to file a petition with the United States Tax Court to

reconsider the tax [he owed].   If you have already filed a

petition, the office of the District Counsel will contact you on

[sic] the final closing of this case.”     Petitioner took this to

mean that the case was closed based on the heading, “Closing

Letter”.

     A closing letter is to be sharply distinguished from a

closing agreement entered under section 7121.       Kiourtsis v.

Commissioner, T.C. Memo. 1996-534.      A closing agreement is

entered into by both the taxpayer and the Commissioner and is

binding in accordance with its terms.      Id.   Section 7121 sets

forth the exclusive procedure under which a final closing

agreement as to the tax liability of any person can be executed.

Botany Worsted Mills v. United States, 278 U.S. 282, 288 (1929);

Estate of Meyer v. Commissioner, 58 T.C. 69, 70-71 (1972);

Reynolds v. Commissioner, T.C. Memo. 2000-20.
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     Section 7121 envisages an agreement knowingly entered into

by both parties.   Harrington v. Commissioner, 48 T.C. 939, 953

(1967), affd. on another issue 404 F.2d 237 (5th Cir. 1968).

Petitioner and respondent did not enter into a valid closing

agreement.   The closing letter issued by the IRS to petitioner is

not a closing agreement under the provisions found in section

7121 and does not affect petitioner’s liability for tax.       We hold

that petitioner is liable under section 72(t) for the additional

10 percent tax on the $37,848 of early distributions from his

qualified retirement plans.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,



                                              Decision will be entered

                                         under Rule 155.
