                  T.C. Summary Opinion 2006-23



                     UNITED STATES TAX COURT



                STACEY LYNN REESE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5598-05S.              Filed February 13, 2006.


     Stacey Lynn Reese, pro se.

     George W. Bezold, for respondent.



     DEAN, 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.    Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code as 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 $3,291.90 for 2003.1       The issue for decision is

whether petitioner is liable for the 10-percent additional tax on

an early distribution under section 72(t).

                           Background

     The stipulated facts and the exhibits received into evidence

are incorporated herein by reference.       At the time the petition

in this case was filed, petitioner resided in Winneconne,

Wisconsin.

     In August 2001, petitioner’s former husband was involved in

a diving accident and became a quadriplegic.       From August 2001 to

September 2003, petitioner was employed, but she resigned at the

end of 2003 to care for her two young children.       During 2003,

because of financial hardship, petitioner took a lump-sum

distribution of $32,917 from her 401(k) account maintained by her

former employer (distribution).    Petitioner used the funds to pay

normal day-to-day living expenses.       Petitioner had not yet

reached the age of 55 in 2003.

     On April 15, 2004, petitioner electronically filed a Form

1040, U.S. Individual Income Tax Return, for 2003.       The

distribution was reported as income on the return.




     1
      In the statutory notice of deficiency, respondent
determined that petitioner is liable for a 10-percent additional
tax of $3,291.70 and a child care credit adjustment of $.20.
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     Respondent subsequently issued to petitioner a statutory

notice of deficiency for 2003.    Respondent determined that

petitioner is liable for a 10-percent additional tax on the

distribution under section 72(t), because she received the

distribution prematurely.

                              Discussion

     Section 72(t)(1) generally imposes a 10-percent additional

tax on premature distributions from “a qualified retirement plan

(as defined in section 4974(c))”, unless the distributions come

within one of the statutory exceptions under section 72(t)(2).

The parties do not dispute that petitioner’s 401(k) account was a

qualified retirement plan.

     The legislative purpose underlying the section 72(t) tax is

that “premature distributions from IRAs frustrate the intention

of saving for retirement, and section 72(t) discourages this from

happening”.     Arnold v. Commissioner, 111 T.C. 250, 255 (1998)

(quoting Dwyer v. Commissioner, 106 T.C. 337, 340 (1996)); S.

Rept. 93-383, at 134 (1974), 1974-3 C.B. (Supp.) 80, 213.      The

Court has repeatedly held that it is bound by the statutory

exceptions enumerated in section 72(t)(2).    See, e.g., Arnold v.

Commissioner, supra at 255-256; Schoof v. Commissioner, 110 T.C.

1, 11 (1998).    Petitioner has not shown that she comes within any

of the exceptions to the 10-percent additional tax under section

72(t)(2).
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     Petitioner contends that she should not be subject to the

10-percent additional tax, because she has a “qualifying

hardship”.   While it is evident that petitioner took the

distribution because of financial hardship, and the Court

sympathizes with her, there is, however, no hardship exception

under section 72(t)(2).   This principle has been applied

consistently in cases dealing with premature retirement

distributions.   See Arnold v. Commissioner, supra at 255 (holding

that premature distribution received as a result of financial

hardship was subject to section 72(t) additional tax, because no

exception exists for financial hardship); Milner v. Commissioner,

T.C. Memo. 2004-111 (same); Gallagher v. Commissioner, T.C. Memo.

2001-34 (holding that premature distribution received by

taxpayers due to financial hardship and used to pay bills,

tuition at their son’s private high school, and other personal

expenses was subject to section 72(t) additional tax); Robertson

v. Commissioner, T.C. Memo. 2000-100, affd. 15 Fed. Appx. 467

(4th Cir. 2001) (holding that premature distribution used for the

taxpayer’s “own subsistence and that of her family” was subject

to section 72(t) additional tax); Pulliam v. Commissioner, T.C.

Memo. 1996-354 (holding that premature distribution received by

taxpayer due to financial hardship and used to pay off his debts

was subject to section 72(t) additional tax).   Thus, the

distribution received by petitioner is subject to the 10-percent
                              - 5 -

additional tax under section 72(t).

     Reviewed and adopted as the report of the Small Tax Case

Division.


                                           Decision will be entered

                                      for respondent.
