                  T.C. Summary Opinion 2001-182



                     UNITED STATES TAX COURT



                 ROY ROBERT BOTTS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4543-00S.                 Filed December 11, 2001.


     Roy Robert Botts, pro se.

     James E. Gray, 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 of $18,296 and a penalty under section 6662 of

$1,456.   After concessions by petitioner and respondent, the sole

issue we must decide is whether petitioner is liable for the 10-

percent additional tax under section 72(t) due to an early

distribution to him from his section 401(k) retirement plan.

     Petitioner resided in Durham, North Carolina, at the time he

filed his petition.   Petitioner was born on September 27, 1953.

     Petitioner timely filed his 1997 Form 1040EZ, Income Tax

Return for Single and Joint Filers with No Dependents.

Respondent determined that petitioner failed to report $55,075

from a pension plan and that he was liable for the 10-percent

additional tax of $5,508.

     During 1997, Union Bank of California (Union Bank) made a

distribution of $55,404.63 from petitioner’s    Mitsubishi Electric

America, Inc. (Mitsubishi) 401(k) account.    The distribution

included $329.49 of employee contributions.    Petitioner conceded

that the total taxable distribution during 1997 from his 401(k)

account was $55,075.14 ($55,404.63 minus $329.49).

     Union Bank withheld $21,976.34 from the $55,404.63 401(k)

distribution to petitioner.   Union Bank withheld Federal income

tax of $11,015.03 and State income tax of $3,304.51.    This left a

balance of $7,656.80 ($21,976.34 minus $11,015.03 and $3,304.51).

Union Bank identified the $7,656.80 as a loan payoff.    Petitioner
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disputes this representation and contends that the amount was

withheld to satisfy the early withdrawal penalty.     (This

contention, if valid, would mean $2,148.80 ($7,656.80 less

$5,508) would remain unexplained.    This point was not addressed

at trial).

     On or about May 12, 1997, Union Bank issued petitioner a

check in the amount of $33,428.29.     The amount of the check

reflected the 401(k) distribution of $55,404.63 less the

$21,976.34 total withholdings made by Union Bank.     About May 16,

1997, petitioner negotiated the check at a branch of First Union

National Bank.

     Respondent’s position is that the $7,656.80 additional

withholding from petitioner’s early 401(k) distribution was not

in satisfaction of the section 72(t) 10-percent additional tax.

Respondent states that the evidence proves that the $7,656.80

withholding made by Union Bank was a payoff in satisfaction of a

loan and that petitioner is liable for the section 72(t) 10-

percent additional tax.

     Early distributions from a qualified retirement plan are

subject to a 10-percent additional tax, with exceptions not

applicable in this case.   Sec. 72(t).    Petitioner does not

contest that the section 72(t) 10-percent additional tax applies

to the distribution of $55,404.63 made by Union Bank to him from

his 401(k) account.
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     Petitioner testified that when he received the 1997

distribution from his 401(k) account he “believed all of the

taxes and penalties had been withdrawn from it, as the company

stated they would do when they distributed the monies.”

Petitioner claims he was unaware of any outstanding loan balance.

Petitioner’s boldfaced testimony was that he “had not taken a

loan out.”   He further testified that his only withdrawal from

the 401(k) plan “was to settle a divorce agreement.”

Petitioner’s Divorce Agreement contained no indication of any

required withdrawal from petitioner’s 401(k) account.   Although

petitioner provided a retirement plan statement from Mitsubishi

for the last quarter of 1994, he failed to provide any such

statement for any period ending after 1994.   Petitioner claimed

that he lost these records.

     A statement provided by Union Bank reflecting the total

withholdings from petitioner’s 1997 Mitsubishi 401(k) account

distribution showed that the $7,656.80 withholding represented a

“Loan Payoff”.   According to Union Bank, the loan had been made

to petitioner in 1996.   A letter dated May 10, 2001, from Wanda

Green, a Trust Officer at Union Bank, stated that petitioner

received an $8,000 loan check dated November 20, 1996, from his

Mitsubishi 401(k) account.    A Union Bank “Miscellaneous Cash and

Disbursements MEA [Mitsubishi Electric America] 401(k) Loan

Account from 1/01/96 to 12/31/96" report reflected a November 20,
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1996, loan disbursement of $8,000 to petitioner.     A Union Bank

“Mitsubishi Electric America Inc. Retirement Plan New Loan

Report, 10/20/96 - 10/20/96" showed that petitioner was to repay

the $8,000 loan by making 130 biweekly payments of $76.97.       Union

Bank also furnished a copy of an $8,000 loan check payable to

petitioner.

     For 1997, petitioner reported $10,820 as income on his

Federal tax return.   Yet, he claims he did not remember an $8,000

loan in 1996.   This defies reason.

     The record clearly reflects that in 1996 petitioner received

an $8,000 loan from his Mitsubishi 401(k) account.       It is also

evident that the $7,656.80 withholding made by Union Bank from

petitioner’s 1997 401(k) distribution is in satisfaction of his

outstanding loan balance at the time of the distribution.

Accordingly, petitioner is liable for the 10-percent additional

tax on his 401(k) distribution.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                            Decision will be entered

                                       under Rule 155.
