                  T.C. Summary Opinion 2005-103



                     UNITED STATES TAX COURT



         BASMAN AHMAD AND KHITAM AMERNEH, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 266-04S.               Filed July 25, 2005.


     Basman Ahmad and Khitam Amerneh, pro se.

     John W. Strate, for respondent.



     COUVILLION, Special Trial Judge:     This case was heard

pursuant to section 7463 of the Internal Revenue Code 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.



     1
      Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
year in issue.
                                - 2 -

     Respondent determined a deficiency in petitioners’ Federal

income tax for 2001 in the amount of $8,388.10.   The deficiency

is attributable to the 10-percent additional tax under section

72(t) for an early distribution from a qualified retirement plan.

The sole issue, therefore, is whether petitioners are liable

under section 72(t).   The distribution was from petitioner Basman

Ahmad’s (Mr. Ahmad) qualified retirement plan.

     Some of the facts were stipulated and are incorporated

herein.   At the time the petition was filed, petitioners resided

in Barstow, California.

     In 1984, Mr. Ahmad, a native of Jordan, moved to the United

States where he received a bachelor’s degree in civil engineering

from the University of Toledo in 1990.   Following graduation, Mr.

Ahmad was employed as a civil engineer by the Ohio Department of

Transportation.   During his nearly 11 years of service, Mr. Ahmad

accumulated over $83,000 in the Ohio Public Employees Retirement

System (PERS).    Mr. Ahmad married his first wife, Amal Ahmad (Ms.

Ahmad) in 1991.   The couple lived at 3518 Angola Road (Angola

Road property), Toledo, Ohio, for the duration of their marriage.

According to petitioners, the residence was titled in the name of

Mr. Ahmad’s brother, Basem Sulieman (Mr. Sulieman), because Mr.

Sulieman had provided the purchase price.

     In 1997, Mr. Ahmad received a master’s degree and began to

pursue a Ph.D. in civil engineering at the University of Toledo.
                                - 3 -

Mr. Ahmad was enrolled in the program until 2002, when the

university notified him that he had not passed a written

examination.

     In 1998, Ms. Ahmad obtained a divorce from Mr. Ahmad in a

Jordanian court.   Mr. Ahmad married his second wife, Khitam

Amerneh, in 1999, and petitioners had their first child in

February 2000.   In November 2000, Ms. Ahmad was granted a divorce

in the United States by the Court of Common Pleas in Lucas

County, Ohio (Court of Common Pleas).   The Court of Common Pleas

awarded Ms. Ahmad alimony and found that the Angola Road property

and Mr. Ahmad’s PERS pension constituted marital property subject

to division.   The divorce decree does not indicate that the Court

of Common Pleas considered the fact that Mr. Ahmad had a new wife

and child to support.   During the divorce proceedings, a lender

foreclosed on a mortgage attached to the Angola Road property,

and Mr. Ahmad eventually lost the property.

     Petitioners moved to California in 2000, where Mr. Ahmad has

since worked for the California Department of Transportation.

Mr. Ahmad testified that in 2001 he worked 8 hours per day and

earned over $50,000.    In 2001, an early distribution of $83,881

was received by Mr. Ahmad from his PERS pension.   Mr. Ahmad wired

the distribution proceeds, after $16,776 of Federal income tax

was withheld, to Mr. Sulieman to reimburse him for the loss from

the foreclosure of the Angola Road property.
                                - 4 -

     On their joint Federal income tax return for 2001,

petitioners reported as gross income the $83,881 retirement

distribution.    Petitioners included with their 2001 tax return

Form 5329, Additional Taxes on Qualified Plans (Including IRAs),

and Other Tax-Favored Accounts, on which they listed the $83,881

retirement plan distribution but elected on Form 5329 that the

distribution was not subject to the early withdrawal tax under

section 72(t).    Respondent, in the notice of deficiency,

determined that the $83,881 early distribution was subject to the

additional tax under section 72(t) and determined a deficiency of

$8,388.

     Section 72(t) imposes a 10-percent additional tax on early

distributions from a qualified retirement plan.    Paragraph (1)

provides in relevant part:


          (1) Imposition of additional tax.–-If any taxpayer
     receives any amount from a qualified retirement plan (as
     defined in section 4974(c)), the taxpayer’s tax under this
     chapter for the taxable year in which such amount is
     received shall be increased by an amount equal to 10 percent
     of the portion of such amount which is includable in gross
     income.


     The 10-percent additional tax, however, does not apply to

certain distributions.    Section 72(t)(2) excepts distributions

from the additional tax if the distributions are made:    (1) To an

employee age 59-1/2 or older; (2) to a beneficiary (or to the

estate of the employee) on or after the death of the employee;
                               - 5 -

(3) on account of the employee’s disability; (4) as part of a

series of substantially equal periodic payments made for life;

(5) to an employee after separation from service after attainment

of age 55; (6) as dividends paid with respect to corporate stock

described in section 404(k); (7) to an employee for medical care;

or (8) to an alternate payee pursuant to a qualified domestic

relations order.

     Petitioners contend they do not owe the section 72(t)

additional tax for four reasons:

     (1)   The divorce settlement in 2000 caused financial and

emotional hardship.

     (2)   Mr. Ahmad suffers from fibromyalgia (a rheumatic

condition) and chronic fatigue syndrome.

     (3)   Mr. Ahmad was enrolled as a student at the University

of Toledo in 2001.

     (4) The divorce court considered Mr. Ahmad’s PERS pension as

marital property and subject to division.

     As to the first argument, petitioners contend that they are

not liable for the 10-percent addition to tax because Mr. Ahmad

experienced financial and emotional hardship due to the Court of

Common Pleas’ ignoring his new wife and child in its order.   This

Court has repeatedly held that we are bound by the specific

restrictions contained in section 72(t)(2).   See, e.g., Clark v.

Commissioner, 101 T.C. 215, 224-225 (1993); Vorwald v.
                                - 6 -

Commissioner, T.C. Memo. 1997-15.    General financial or emotional

hardship is not an exception from the section 72(t) additional

tax on early retirement plan distributions.      Milner v.

Commissioner, T.C. Memo. 2004-111.      Although the divorce

settlement may have been difficult for Mr. Ahmad, general

hardship is not one of the enumerated exceptions in section

72(t)(2).

     Petitioners also assert that they are not liable for the

section 72(t) penalty because Mr. Ahmad suffers from fibromyalgia

and chronic fatigue syndrome.   Distributions attributable to a

disability within the meaning of section 72(m)(7) are exempted

from the 10-percent penalty.    Sec. 72(t)(2)(A)(iii); Meyer v.

Commissioner, T.C. Memo. 2003-12.    Under section 72(m)(7), an

individual shall be considered to be disabled if he is unable to

engage in any substantial gainful activity by reason of any

medically determinable physical or mental impairment that can be

expected to result in death or to be of long-continued and

indefinite duration.   Whether the impairment constitutes a

disability is to be determined with reference to all facts in the

case.   Sec. 1.72-17A(f)(2), Income Tax Regs.

     Mr. Ahmad testified that he was employed by the State of

California in 2001 and regularly worked 8-hour days.     His claimed

disabilities evidently did not prevent him from engaging in a

gainful activity in 2001.   Moreover, Mr. Ahmad wired the proceeds
                                 - 7 -

from the early distribution to Mr. Sulieman to reimburse him for

losses associated with the Angola Road property.      There is no

evidence in the record that suggests the early distribution was

attributable to Mr. Ahmad’s afflictions.    Accordingly, the

exception in section 72(t)(2)(A)(iii) offers no relief to

petitioners.

     Petitioners also maintain that the section 72(t) penalty is

inapplicable because Mr. Ahmad was a student at the University of

Toledo in 2001.   Under section 72(t)(2)(E), the 10-percent

addition to tax does not apply to distributions from individual

retirement plans for higher education expenses.    An individual

retirement plan is an individual retirement account (IRA) or an

individual retirement annuity.    Sec. 7701(a)(37).    In this case,

Mr. Ahmad received an early distribution from the Ohio PERS,

which is a “qualified retirement plan” under section 4974(c).

Freese v. Commissioner, T.C. Memo. 1996-224.     Since Mr. Ahmad

received his distribution from a qualified retirement plan rather

than an individual retirement plan, the section 72(t)(2)(E)

exception is unavailable to petitioners.

     Finally, petitioners argue that the section 72(t) penalty

should be waived because Mr. Ahmad’s PERS pension was considered

marital property by the Court of Common Pleas.    Payments to

alternate payees pursuant to a qualified domestic relations order

are not subject to the section 72(t) addition to tax.      Sec.
                                - 8 -

72(t)(2)(C).    Section 402(e)(1)(A) provides that an “alternate

payee” who is the spouse or former spouse of the plan participant

shall be treated as the distributee of any distribution or

payment made to the “alternate payee” under a “qualified domestic

relations order” as defined in section 414(p).      Thus, section

402(e)(1)(A) treats the alternate payee as the distributee, and

the alternate payee will be taxable on the distribution.      Here,

the marital settlement agreement is not a qualified domestic

relations order and does not designate an alternate payee.

Furthermore, the distribution in question is a distribution to

Mr. Ahmad himself, the plan participant.      As the settlement

agreement is not a qualified domestic order, and Mr. Ahmad is not

an alternate payee, the exception in section 72(t)(2)(C) is

inapplicable.

     In light of the foregoing, the Court holds that petitioners

are liable for the 10-percent additional tax imposed under

section 72(t).

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                        Decision will be entered

                                for respondent.
