                               T.C. Memo. 2017-125


                         UNITED STATES TAX COURT



                 JEREMY RAY SUMMERS, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 32259-15.                          Filed June 26, 2017.



      Jeremy Ray Summers, pro se.

      Brandon A. Keim, Doreen Marie Susi, and Rachael J. Zepeda, for

respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


      LAUBER, Judge: The Internal Revenue Service (IRS or respondent) deter-

mined a deficiency of $1,738 in petitioner’s Federal income tax for 2013. The

sole question for decision is whether petitioner is liable for the 10% additional tax

imposed by section 72(t)(1) on early distributions from a qualified retirement
                                         -2-

[*2] plan.1 Petitioner claims an exception from this additional tax under section

72(t)(2)(C), which applies to a distribution made to an “alternate payee” pursuant

to a “qualified domestic relations order” (QDRO). Although we have great

sympathy for petitioner’s position, we are unable to conclude that he satisfied the

technical requirements that Congress placed in the statute. We accordingly have

no alternative but to sustain the deficiency determination.

                               FINDINGS OF FACT

      The parties filed a stipulation of facts with attached exhibits that is incor-

porated by this reference. Petitioner resided in Arizona when he filed his petition.

      During 2013 petitioner Jeremy Ray Summers (Jeremy), then age 35, was

employed by Intel Corp. as a manufacturing technician. He was married to Karie

Rae Summers (Karie), and they had four young children. Jeremy and Karie con-

cluded that their marriage had irretrievably broken down and decided to separate.

To their credit they were determined to do this in the least acrimonious manner

possible. And to minimize costs they decided to accomplish their divorce without

involving lawyers.




      1
       All statutory references are to the Internal Revenue Code in effect for the
tax year in issue, and all Rule references are to the Tax Court Rules of Practice and
Procedure. We round all monetary amounts to the nearest dollar.
                                        -3-

[*3] Jeremy and Karie reached an agreement concerning child custody, visitation

rights, child support, spousal maintenance, and division of property. On March

18, 2013, Jeremy filed a petition for dissolution of marriage, incorporating these

agreements, in the Superior Court of Arizona, Maricopa County. At that time he

had an individual retirement account (IRA) administered by Edward D. Jones &

Co. that he believed should be split 50-50 with Karie. His petition for divorce

accordingly requested that “[t]he proceeds of IRA should be divided 50% to

Petitioner and 50% to Respondent.”

      Karie did not work outside the home and had several debts. With the di-

vorce petition pending, she was eager to simplify her financial affairs in order to

get a fresh start. To accommodate her wishes Jeremy agreed to split the value of

the IRA before the divorce decree became final.

      In late April 2013 Jeremy withdrew the total proceeds of the IRA, $17,378.

On April 30, 2013, he deposited a check in that amount in a Bank of America

checking account that he and Karie jointly held. The next day he wrote a check

for $8,618 to pay off Karie’s obligation on a car loan. He later transferred another

$71 to her to ensure that she received her full 50% interest in the IRA.

      On June 3, 2013, the Arizona trial court entered a consent decree of dissolu-

tion of marriage. This decree incorporated substantially all of the agreements set
                                         -4-

[*4] forth in Jeremy’s March 18 petition. However, since he and Karie had

already divided up the IRA, the decree provided, in an attached exhibit captioned

“Property and Debts,” that “[n]either party has a retirement, pension, deferred

compensation, §401(k) Plan and/or benefits.”

      Jeremy timely filed a Form 1040, U.S. Individual Income Tax Return, for

2013, claiming head-of-household filing status. On this return he properly re-

ported the $17,378 distribution from his IRA as a taxable distribution. However,

he did not report on line 58 any “additional tax” attributable to the fact that it was

an early distribution.

      The IRS received from Edward D. Jones & Co. a Form 1099-R, Distribu-

tions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insur-

ance Contracts, etc., reporting the $17,378 distribution as an “early distribution, no

known exception.” This triggered a document-matching audit. On September 21,

2015, the IRS issued Jeremy a timely notice of deficiency determining that he was

liable for the 10% additional tax under section 72(t)(1). He timely petitioned this

Court to challenge that determination.
                                         -5-

[*5]                                  OPINION

A.     Burden of Proof

       The IRS’ determinations in a notice of deficiency are generally presumed

correct though the taxpayer can rebut this presumption. Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). Because section 72(t) imposes an “addi-

tional tax” as opposed to a “penalty” or an “addition to tax” within the meaning of

section 7491(c), Jeremy bears the burden of production. See El v. Commissioner,

144 T.C. 140, 145-149 (2015). In certain circumstances the burden of proof on

factual issues may shift to respondent. See sec. 7491(a); Rule 142(a)(1). Jeremy

does not contend that this provision applies here.

B.     Analysis

       Section 72(t)(1) imposes a 10% additional tax on early distributions from

qualified retirement plans. A qualified retirement plan includes an IRA. See secs.

408(a), 4974(c)(4); Bunney v. Commissioner, 114 T.C. 259, 265 (2000). Section

72(t)(2) lists various types of distribution that are excepted from this additional

tax, such as the exception (concededly inapplicable here) for a distribution to a

taxpayer age 59-1/2 or older. See sec. 72(t)(2)(A)(i).

       The exception on which Jeremy relies appears in section 72(t)(2)(C). It ap-

plies to a distribution that is made “to an alternate payee pursuant to a qualified
                                         -6-

[*6] domestic relations order (within the meaning of section 414(p)(1)).” Section

414(p)(8) defines an “alternate payee” as “any spouse, former spouse, child or

other dependent of a participant who is recognized by a domestic relations order as

having a right to receive all, or a portion of, the benefits payable under a plan with

respect to such participant.” Section 414(p)(1)(B) defines a “domestic relations

order” as a “judgment, decree, or order” relating to “the provision of child support,

alimony payments, or marital property rights” that “is made pursuant to a State

domestic relations law.”

      Karie indirectly received half the value of Jeremy’s IRA account, and re-

spondent readily agrees that the transaction could likely have been organized so as

to entitle Jeremy to a section 72(t)(2)(C) exception for her 50% share. (Jeremy

concedes that he erred in claiming this exception for his own 50% share.) As it is,

respondent contends persuasively that Jeremy does not qualify for this exception

for two reasons.

      First, the IRA distribution was made directly to Jeremy, and he deposited

the check into a bank account that he and Karie jointly held. He subsequently

transferred, to Karie or for her benefit, an amount equal to half of the proceeds.

But while she ultimately received those proceeds, the distribution itself was made
                                         -7-

[*7] to Jeremy, not to “a former spouse * * * who is recognized by a domestic

relations order as having a right to receive” a share of the proceeds. See sec.

414(p)(8).

        Second, the distribution was not made “pursuant to a qualified domestic re-

lations order.” Although Jeremy’s petition for dissolution of marriage requested a

50-50 division of the IRA, any judicial action on that request was pretermitted by

his well-intentioned decision to divide the IRA with Karie a month before the di-

vorce decree was entered. That decree accordingly recited that “[n]either party has

a retirement, pension, deferred compensation, §401(k) Plan and/or benefits.” The

IRA distribution was not made “pursuant to” that order or any other judicial de-

cree.

        We have held that a taxpayer must strictly comply with the requirements of

section 72(t)(2)(C) in order to be entitled to the exception it provides. See Hartley

v. Commissioner, T.C. Memo. 2012-311, 104 T.C.M. (CCH) 553, 554 (stating that

in order for a distribution to qualify for this exception, the distribution must be

made directly “in response to a qualified domestic relations order”); Bougas v.

Commissioner, T.C. Memo. 2003-194, 2003 WL 21512099, at *3 (stating gener-

ally that the requirements of the QDRO provisions must be “rigidly observed”

because they “relate to the substance or essence of the statute”). We have con-
                                        -8-

[*8] siderable sympathy for petitioner’s position: In effect, his willingness to help

minimize stress on his soon-to-be ex-wife disabled him from satisfying the

statutory requirements. But we are not at liberty to add equitable exceptions to the

statutory scheme that Congress enacted, and we thus have no alternative but to

sustain the 10% additional tax that respondent has determined.

      To implement the foregoing,


                                              Decision will be entered

                                       for respondent.
