                   T.C. Summary Opinion 2006-106



                      UNITED STATES TAX COURT



                CHRISTINE L. GIBBONS, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 5464-05S.               Filed July 13, 2006.


     Christine L. Gibbons, pro se.

     Bryan E. Sladek, for respondent.



     COUVILLION, Special Trial Judge:    This case was heard

pursuant to section 7463 in effect at the time the petition was

filed.1   The decision to be entered is not reviewable by any

other court, and this opinion should not be cited as authority.

     Respondent determined a deficiency of $3,044 in petitioner’s

2002 Federal income tax.    The sole issue for decision is whether



     1
      Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year at issue.
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petitioner is liable for the 10-percent additional tax under

section 72(t) for an early distribution from a qualified

retirement plan.

     Some of the facts were stipulated.   Those facts and the

accompanying exhibits are so found and are incorporated herein by

reference.   Petitioner’s legal residence at the time the petition

was filed was Casco Township, Michigan.

     Petitioner was employed as a schoolteacher by the Fraser

Public School System (the school system).   The school system

maintained a pension plan for its employees (including

petitioner), which qualified, as stipulated by the parties, as a

section 403(b) plan.

     During the year 2002, petitioner, as an employee and a

participant in the pension plan, withdrew $67,552.64 from the

plan, the proceeds of which were to fund her daughter’s higher

education expenses.

     On her Federal income tax return for 2002, petitioner

reported the entire amount of the pension plan withdrawal as

income; however, petitioner failed to report a liability for the

10-percent section 72(t) additional tax for an early withdrawal

from a qualified pension plan.    In the administrative review or

audit of petitioner’s tax return, the IRS agreed that $37,112.64

of the $67,552.64 withdrawn from the pension plan was

appropriately expended for the qualified higher education
                               - 3 -


expenses of petitioner’s daughter under section 72(t)(2)(E), and,

therefore, the section 72(t) addition to tax was not applicable

to that portion of the distribution.   The remainder of the

pension plan distribution, or $30,440, was determined to be

subject to the section 72(t) additional tax for the reason that

petitioner did not substantiate that this portion of the

distribution was used for higher education expenses.

     At trial, respondent’s position was that no portion of the

$67,552.64 early distribution qualified for higher education

expenses for the reason that the pension plan of the school

system was not in the category of qualified plans as to which the

provisions of section 72(t)(2)(E) are applicable.   The parties

stipulated, as noted above, that the school system plan was

qualified under section 403(b).2

     Section 72(t)(1) imposes an additional tax on distributions

from a “qualified retirement plan” equal to 10-percent of the

portion of such amount that is includable in gross income unless

the distribution comes within one of several statutory

exceptions.   For purposes of the 10-percent additional tax, a



     2
      Even though respondent’s position at trial was that no
portion of the $67,552.64 early withdrawal was subject to
exclusion from the sec. 72(t) additional tax, counsel for
respondent stated that respondent would not move to increase the
deficiency to apply the sec. 72(t) additional tax to the
$37,112.64, which was allowed as a higher education expense prior
to issuance of the notice of deficiency.
                                - 4 -


qualified retirement plan includes both a section 401(k) plan and

an individual retirement account or individual retirement

annuity.    See secs. 72(t)(1), 401(a), (k)(1), 4974(c)(1), (4) and

(5).    The 10-percent additional tax imposed on early

distributions from qualified retirement plans does not apply to

distributions from an individual retirement plan used for higher

education expenses of the taxpayer for the taxable year.     Sec.

72(t)(2)(E).    The term “individual retirement plan” is defined as

an individual retirement account or individual retirement annuity

(commonly referred to as IRAs).    Sec. 7701(a)(37).   Retirement

plans qualified under section 403(b), as in this case, are not

included in the definition of “individual retirement plan” under

section 7701(a)(37).

       Congress intended the exception of section 72(t)(2)(E) to

apply only to distributions from “individual retirement plans”;

i.e., IRAs, and not to all qualified retirement plans.     See secs.

4974(c)(4) and (5) and 7701(a)(37); Taxpayer Relief Act of 1997,

Pub. L. 105-34, sec. 203(a), 111 Stat. 809.    This is evident in

the report of the Committee on the Budget, which states:

            Penalty free IRA withdrawals for education
       expenses--The bill provides that individuals may make
       penalty-free withdrawals from their IRAs to pay for the
       undergraduate and graduate higher education expenses of
       themselves, their spouses, their children and
       grandchildren or the children or grandchildren of their
       spouses. [Emphasis added.]
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H. Rept. 105-148, at 288-289 (1997), 1997-4 C.B. (Vol. 1) 319,

610-611.   The report of the Committee on the Budget specifically

provides that only withdrawals from IRAs that are used for higher

education expenses will qualify as withdrawals excepted from the

10-percent additional tax.   Id.   No other types of qualified

plans are provided this exemption from the section 72(t)

additional tax.

     As noted earlier, the parties stipulated that the school

system plan in which petitioner participated was a section 403(b)

plan.   The plan, therefore, was not an individual retirement

plan.   Petitioner, therefore, was not the beneficiary of an

individual retirement plan under section 7701(a)(37), which

defines an individual retirement plan as an individual retirement

account under section 408(a) or an individual retirement annuity

under section 408(b).   The school system plan in which petitioner

participated was not a section 408(a) or (b) plan but a section

403(b) plan.   A section 403(b) plan (such as the school system

plan) is altogether different from a section 408(a) or (b) plan.

In short, petitioner’s claim that the withdrawal at issue was

excluded from the 10-percent additional tax is incorrect.   The

section 72(t)(2)(E) exclusion from the additional tax does not

apply to section 403(b) withdrawals.

     In Uscinski v. Commissioner, T.C. Memo. 2005-124, this Court

stated that the 10-percent additional tax on early distributions
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from qualified plans (used for higher education purposes) applies

only as to early distributions from an individual retirement

account or an individual retirement annuity, collectively

referred to as IRAs, as described in section 408(a) or (b).         The

school system plan in which petitioner participated was not an

IRA; therefore, the early withdrawals from that plan, even if

used for higher education expenses, are not excluded from the

section 72(t) additional tax.3

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                         Decision will be entered

                                 for respondent.




     3
      Because the Court holds that the withdrawal by petitioner,
as a matter of law, was not subject to the exemption from the
sec. 72(t) additional tax, the Court need not decide whether the
evidence presented at trial established that the funds withdrawn
from the pension plan were in fact used for higher educational
expenses.
