                  T.C. Summary Opinion 2005-71



                     UNITED STATES TAX COURT



    VINCENT A. SUAREZ, JR. AND ESTHER SUAREZ, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19455-03S.           Filed June 6, 2005.


     Vincent A. Suarez, Jr. and Esther Suarez, pro sese.

     Ric D. Hulshoff, for respondent.



     PANUTHOS, Chief Special Trial Judge:   This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect when 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, all subsequent section references are to the Internal

Revenue Code in effect at relevant times.
                                - 2 -

     Respondent determined a deficiency of $3,359 in petitioners’

Federal income tax for 2001.    The sole issue for decision is

whether petitioners are liable under section 72(t) for the 10-

percent additional tax on an early distribution from a qualified

retirement plan.

                             Background

     Some of the facts have been stipulated, and they are so

found.    The stipulation of facts and the attached exhibits are

incorporated by this reference.    Petitioners resided in Sierra

Vista, Arizona, at the time the petition was filed.

     Petitioners, Victor A. and Esther Suarez, are husband and

wife.    During the year in issue (2001), they were homeowners of

property at 4934 Raffaele Drive, in Sierra Vista, Arizona.       In

2001, Victor A. Suarez (hereinafter petitioner) withdrew $33,5901

from his Individual Retirement Account (IRA).   He received the

IRA distribution from National Financial Services, LLC.   The

funds from the IRA were used for a downpayment and the rebuilding

costs of a house petitioners purchased from the Department of

Veterans Affairs in 2001.

     Petitioners timely filed a Form 1040, U.S. Individual Income

Tax Return, for 2001.   On their 2001 return, petitioners included

in gross income a distribution from petitioner’s IRA account in


     1
       On petitioners’ Federal income tax return for 2001 the
amount of distribution from the IRA was listed as $33,590.54.
The stipulation of facts rounded the amount down to $33,590.
                               - 3 -

the amount of $33,590.   Petitioners did not report, on their 2001

return, the additional 10-percent tax imposed by section 72(t)

with respect to the $33,590 distribution.

     In the notice of deficiency, respondent determined that

petitioners are liable for the 10-percent additional tax on the

early distribution from petitioner’s IRA.    Petitioners

acknowledge that the distribution from the IRA does not qualify

for any of the exceptions under section 72(t)(2)(A).

                            Discussion

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

distribution from qualified retirement plans equal to 10 percent

of the portion of such amount which is includable in gross

income.   A qualified retirement plan includes a qualified pension

or profit sharing plan under section 401(a).    Sec. 401(a)(1).

     The section 72(t) additional tax does not apply to certain

distributions.   Since petitioners concede that they do not come

within any of the exceptions under section 72(t)(2)(A), we

consider whether any other provisions would permit petitioners to

be relieved from the 10-percent additional tax.

     Section 72(t)(2)(F) provides, in relevant part, an exception

to the 10-percent additional tax for distributions to an

individual from an individual retirement plan which are qualified

first-time home buyer distributions.     A qualified first-time home

buyer distribution is any payment or distribution received by an
                               - 4 -

individual to the extent such payment or distribution is used by

the individual to pay qualified acquisition costs with respect to

a principal residence of a first-time home buyer who is such

individual.   Sec. 72(t)(8)(A).2   A first-time home buyer, in

relevant part, means any individual if such individual (and if

married, such individual’s spouse) had no present ownership

interest in a principal residence during the 2-year period ending

on the date of acquisition of the principal residence.    Sec.

72(t)(8)(D)(i)(I).

     Petitioners cannot avail themselves of the first-time home

buyer exception.   While the record is not entirely clear, the

parties stipulated that “During 2001, petitioners were existing

homeowners residing at 4934 Raffaele Drive, Sierra Vista,

Arizona”.   There was no argument put forth by petitioners that

this was not their principal residence.    Based on this record, we

conclude that petitioner’s IRA distribution does not come within

the provisions of section 72(t)(2)(F).

     Petitioners argue that the withdrawal did not cause the

Government harm because they have other retirement accounts, and

that petitioners will not be a burden to the Government when they




     2
       There is a lifetime limitation of $10,000 pursuant to sec.
72(t)(8)(B).
                                 - 5 -

retire because they have “sufficient money to take * * * care of

[them]selves”.

     Deductions, which are strictly construed, are a matter of

legislative grace, and the burden of clearly showing the right to

the claimed deduction is on the taxpayer.        INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992).       We are bound by the

Internal Revenue Code, and it is within the province of the

legislature to decide the circumstances of inclusion, deductions,

and exceptions.   See Wilkins v. Commissioner, 120 T.C. 109, 112

(2003).   The 10-percent additional tax applies to early

distributions unless otherwise specifically exempted.        Roundy v.

Commissioner, 122 F.3d 835, 837 (9th Cir. 1997), affg. T.C. Memo.

1995-298.

     Accordingly, respondent’s determination that petitioners are

liable for the 10-percent additional tax is sustained.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,


                                         Decision will be entered for

                                 respondent.
