                  T.C. Summary Opinion 2005-78



                     UNITED STATES TAX COURT



 HOSSAM HELMY EL-BIBANY AND SALMA HASSAN KANDIL, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9960-04S.               Filed June 8, 2005.


     Hossam Helmy El-Bibany and Salma Hassan Kandil, pro sese.

     Anthony J. Kim and Aaron Stonecash, for respondent.



     ARMEN, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time that 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 2001,
the taxable year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                               - 2 -

     Respondent determined a deficiency in petitioners’ Federal

income tax for the taxable year 2001 of $4,498.   The deficiency

is attributable solely to the 10-percent additional tax under

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

retirement plan.

     After respondent’s concession,2 the issue for decision is

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

percent additional tax on an early distribution from petitioner

Hossam Helmy El-Bibany’s (Mr. El-Bibany) retirement plan.    We

hold that they are to the extent provided herein.

                             Background

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

found.   We incorporate by reference the parties’ stipulation of

facts, supplemental stipulation of facts, and accompanying

exhibits.

     At the time that the petition was filed, petitioners resided

in Menlo Park, California.

     Mr. El-Bibany obtained a Ph.D. from Stanford University in

1992 and joined the faculty at Penn State University in 1993,

until his job ended in 1999.   At that time, petitioners had two

small children, and petitioner Salma Hassan Kandil (Mrs. Kandil)


     2
        Respondent concedes that petitioners are entitled to an
exception from the early distribution penalty under sec.
72(t)(2)(E) of $846 for qualified higher education expenses for
books and supplies.
                                - 3 -

wanted to obtain her teaching credentials, so they returned to

California.3

     In the fall of 2000, Mrs. Kandil became a full-time graduate

student at San Jose State University (SJSU).    As part of her

studies, Mrs. Kandil became a student teacher at Jordan Middle

School in August 2001, and she obtained her teaching credentials

in elementary education in April 2002.    Currently, Mrs. Kandil is

a sixth-grade teacher of math and science at Jordan Middle

School.

     During the high-tech bubble in 2000, Mr. El-Bibany worked in

“some nonemployment type of activities” related to high-tech

investments.    In the beginning of September 2001, Mr. El-Bibany

left the United States on an employment contract as an

international faculty member in the United Arab Emirates.    Mr.

El-Bibany, however, soon returned to the United States because of

the general atmosphere resulting from the terrorist events of

September 11, 2001.    Aside from the 2 weeks he worked in the

United Arab Emirates, Mr. El-Bibany remained unemployed during

2001.    At a time not disclosed in the record, Mr. El-Bibany

applied for unemployment compensation, but was not eligible

because he had not worked in California for a specified period of

time.



     3
          Mrs. Kandil has a bachelor’s degree in civil engineering.
                               - 4 -

     In 2001, Mr. El-Bibany withdrew $48,720 from his retirement

fund.4

     Respondent does not dispute that petitioners incurred the

following expenses in 2001:5

     Room and board for petitioners’
     family collectively
          Apartment rent                 $33,875
          Utilities                        1,200
          Food                             7,200
        Subtotal                         $42,275

     Health insurance for petitioners’
     family collectively
     (including health insurance
     premiums and health care expenses) $1,800
     Transportation for Mrs. Kandil       1,981
     Books and supplies for Mrs. Kandil     846
        Total                           $46,902

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

Tax Return, for 2001.   On their return, petitioners disclosed the

$48,720 distribution and reported $44,982 as the taxable amount.

Petitioners did not report the 10-percent additional tax imposed

by section 72(t) on line 55 “Tax on qualified plans, including

IRAs, and other tax-favored accounts”, but attached Form 5329,

Additional Taxes on Qualified Plans (Including IRAs) and Other

Tax-Favored Accounts, to their return.   On Form 5329, petitioners

     4
        There is no evidence in the record describing Mr. El-
Bibany’s retirement fund. In respondent’s trial memorandum and
on brief, respondent indicated that this fund was a “qualified
retirement fund with TIAA-CREF”. But see Rule 143(b) regarding
ex parte statements in briefs and the like.
     5
        Mrs. Kandil received a scholarship that covered her
tuition expense.
                               - 5 -

indicated that the early distribution was not subject to tax

under exception 7 (Individual retirement account (IRA)

distributions made to unemployed individuals for health insurance

premiums) and exception 8 (IRA distributions made for higher

education expenses).

     In the notice of deficiency, respondent determined that

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

early distribution from a qualified retirement plan.

     Petitioners timely filed a petition with the Court disputing

the determined deficiency.

                             Discussion6

     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.7

     As relevant herein, section 72(t)(2) exempts the following

distributions from the additional tax if the distributions are

made for:   (1) Health insurance premiums for an unemployed

individual, sec. 72(t)(2)(D); or (2) qualified higher education

     6
        We decide the issue in this case without regard to the
burden of proof because the issue is essentially one of law.
     7
        Although the record does not describe Mr. El-Bibany’s
retirement plan, the parties have proceeded on the basis that the
distribution was from an individual retirement plan within the
scope of sec. 72(t).
                                 - 6 -

expenses for the taxpayer or the taxpayer’s spouse to the extent

such distributions do not exceed the taxpayer’s qualified higher

education expenses for the taxable year, sec. 72(t)(2)(E), (7).

A.   Health Insurance Premiums

     A distribution qualifies under section 72(t)(2)(D) if it was

made from an individual retirement plan to an individual after

separation from employment:   (1) If such individual has received

unemployment compensation for 12 consecutive weeks under any

Federal or State unemployment compensation law by reason of such

separation, sec. 72(t)(2)(D)(i)(I); (2) if such distribution was

made during any taxable year during which such unemployment

compensation is paid or the succeeding taxable year, sec.

72(t)(2)(D)(i)(II); and (3) to the extent such distribution does

not exceed the amount paid during the taxable year for insurance,

sec. 72(t)(2)(D)(i)(III).   A self-employed individual shall be

treated as having satisfied the requirement of section

72(t)(2)(D)(i)(I) if, under Federal or State law, the individual

would have received unemployment compensation but for the fact

that the individual was self-employed.   Sec. 72(t)(2)(D)(iii).

     Respondent does not dispute that petitioners incurred health

insurance expenses of $1,800.    Respondent contends, however, that

the exception under section 72(t)(2)(D) does not apply because

Mr. El-Bibany does not satisfy the statutory requirements.    We

agree.
                                 - 7 -

     The record is clear that Mr. El-Bibany did not receive any

Federal or State unemployment compensation at any relevant time.

See sec. 72(t)(2)(D)(i)(I).   Mr. El-Bibany, however, testified

that he worked in “some nonemployment activities” related to

high-tech investments in 2000.    Mr. El-Bibany’s testimony raises

the question whether he was self-employed.   See sec.

72(t)(2)(D)(iii).   Assuming arguendo that he was self-employed,

there was no evidence to suggest that Mr. El-Bibany continued to

work in such “nonemployment activities” in 2001.   Indeed, Mr. El-

Bibany was employed for only 2 weeks during 2001 in the United

Arab Emirates.   Moreover, Mr. El-Bibany presented no evidence

that he would have been eligible to receive any Federal or State

unemployment compensation.    By his own testimony, Mr. El-Bibany

applied for unemployment compensation, but he was not eligible

because he had not worked for a specified period in California.

     In view of the foregoing, we conclude that petitioner does

not satisfy the requirements under section 72(t)(2)(D).

Accordingly, we sustain respondent’s determination on this issue.

B.   Qualified Higher Education Expenses

     Qualified higher education expenses for purposes of section

72(t)(2)(E) are defined by section 529(e)(3).8   Sec. 72(t)(7)(A).

Section 529(e)(3)(A) defines qualified higher education expenses

     8
        Sec. 529 sets forth criteria for higher education
entities to be exempt from taxation as a qualified tuition
program.
                               - 8 -

specifically as “tuition, fees, books, supplies, and equipment

required for the enrollment or attendance” of the taxpayer or the

taxpayer’s spouse or child, among others, at an eligible

educational institution.   In addition, an eligible student

attending school at least half-time shall also include reasonable

costs for an academic period (as determined under the qualified

State tuition program) incurred by such student for room and

board while attending such institution.   Sec. 529(e)(3)(B)(i).

Section 529(e)(3)(B)(ii), however, limits the amount of room and

board expenses that may be treated as qualified higher education

expenses as follows:9

     The amount treated as qualified higher education
     expenses by reason of the preceding sentence [sec.
     529(e)(3)(B)(i)] shall not exceed the minimum amount
     (applicable to the student) included for room and board
     for such period in the cost of attendance (as defined
     in section 472 of the Higher Education Act of 1965, 20
     U.S.C. 1087ll, as in effect on the date of the
     enactment of this paragraph) for the eligible
     educational institution for such period.


     9
        As described in the conference report, the Taxpayer
Relief Act of 1997, Pub. L. 105-34, sec. 211(a), 111 Stat. 810,

     expands the definition of “qualified higher education
     expenses” under section 529(e)(3) to include room and
     board expenses (meaning the minimum room and board
     allowance applicable to the student as determined by
     the institution in calculating costs of attendance for
     Federal financial aid programs under sec. 472 of the
     Higher Education Act of 1965) for any period during
     which the student is at least a half-time student.

H. Conf. Rept. 105-220, at 361 (1997), 1997-4 C.B. (Vol. 2) 1457,
1831.
                              - 9 -

The statute thus mandates that room and board expenses are

limited to the minimum amount as determined in the “cost of

attendance”, as defined in the Higher Education Act of 1965, Pub.

L. 89-329, 79 Stat. 1219, as amended by the Higher Education

Amendments of 1986, Pub. L. 99-498, sec. 406 (adding sec. 472 to

the Higher Education Act of 1965), 100 Stat. 1454, codified at 20

U.S.C. sec. 108711(3) (Supp. IV 1998), as in effect on the date

of the enactment of this paragraph.10

     Section 529(e)(3) was added by the Taxpayer Relief Act of

1997, Pub. L. 105-34, sec. 211(a), 111 Stat. 810.   This

paragraph, however, was effective as if it were included in the

amendments to the Small Business Job Protection Act of 1996, Pub.

L. 104-188, sec. 1806, 110 Stat. 1895, which enacted section 529.

Accordingly, our analysis must be guided by 20 U.S.C. sec.

1087ll(3) (1998), as in effect on August 20, 1996, the effective

date of section 529(e)(3).

     As of August 20, 1996, and as applicable to the issue in

this case, the term “cost of attendance” was defined as:


     10
        The Higher Education Act of 1965, Pub. L. 89-329, 79
Stat. 1219, 20 U.S.C. sec. 108711(3) (1994) was first enacted on
Nov. 8, 1965, to strengthen college and university resources and
to provide financial assistance to students in postsecondary and
higher education. As relevant herein, the Higher Education
Amendments of 1986, Pub. L. 99-498, sec. 406, 100 Stat. 1454, 20
U.S.C. sec. 108711(3) (Supp. IV 1998) added sec. 472 to the
Higher Education Act of 1965. The purpose of this section was to
define “cost of attendance” in determining a student’s financial
need for student financial aid assistance.
                              - 10 -



     an allowance (as determined by the institution) for
     room and board costs incurred by the student which --

          (A) shall be an allowance of not less than
          $1,500 for a student without dependents
          residing at home with parents;

          (B) for students without dependents residing
          in institutionally owned or operated housing,
          shall be a standard allowance determined by
          the institution based on the amount normally
          assessed most of its residents for room and
          board; and

          (C) for all other students shall be an
          allowance based on the expenses reasonably
          incurred by such students for room and board,
          except that the amount may not be less than
          $2,500. [Emphasis added.]

20 U.S.C. sec. 1087ll(3) (Supp. IV 1998).11

     Petitioners contend that their total room and board expenses

of $42,275 qualify as higher education expenses.   In contrast,

respondent contends that the amount of room and board expenses

that qualify as higher education expenses is limited under

section 529(e)(3)(B)(ii).   We agree with respondent.

     There is no dispute that room and board expenses related to

Mrs. Kandil’s education qualify as higher education expenses.

The amount that can qualify as higher education expenses,

however, is specifically limited by statute.   As stated earlier,

     11
        We note that the Higher Education Amendments of 1998,
Pub. L. 105-244, sec. 471(2)(B), 112 Stat. 1729, deleted the
phrase “except that the amount may not be less than $2,500”,
effective for tax years beginning after Dec. 31, 2001. This
amendment, however, does not apply in the instant case.
                              - 11 -

section 529(e)(3)(B)(ii) allows such expenses up to the minimum

amount included for room and board in the cost of attendance as

defined by 20 U.S.C. sec. 1087ll(3) (1998).   Based on the

applicable law, room and board expenses are limited to $2,500

(the minimum amount for off-campus students).

     We recognize that college and graduate students may incur

expenses beyond those projected by the educational institution.12

Congress, however, has imposed limitations on the amount of room

and board expenses that qualify for favorable tax treatment.

However unfair this statute might seem to petitioners, the Court

is bound to apply the law as written.   See Estate of Cowser v.

Commissioner, 736 F.2d 1168, 1171-1174 (7th Cir. 1984), affg. 80

T.C. 783 (1983).   Accordingly, we conclude that petitioners are

entitled to qualified higher education expenses for room and

board of $2,500.

     With regard to transportation expenses, respondent, at trial

and in his trial memorandum, conceded that Mrs. Kandil’s

qualified higher education expenses included transportation costs

up to the amount allowed as determined by SJSU.   On brief,

however, respondent argues that the concession was in error.    In

essence, respondent now contends that petitioners are not

entitled to an allowance for transportation expenses because such


     12
        For example, SJSU’s cost of attendance for a student
living off-campus for the academic year 2001-2 was $7,613.
                               - 12 -

expenses do not qualify as higher education expenses under

section 529(e)(3)(A).

     Respondent’s change in position raises the issue of

equitable estoppel against respondent.    “Equitable estoppel is a

judicial doctrine that ‘precludes a party from denying his own

acts or representations which induced another to act to his

detriment.’”    Hofstetter v. Commissioner, 98 T.C. 695, 700 (1992)

(quoting Graff v. Commissioner, 74 T.C. 743, 761 (1980), affd.

673 F.2d 784 (5th Cir. 1982)).   It is well settled, however, that

equitable estoppel does not bar or prevent respondent from

correcting a mistake of law, even where a taxpayer may have

relied to his detriment on that mistake.     Dixon v. United States,

381 U.S. 68, 72-73 (1965); Auto. Club of Mich. v. Commissioner,

353 U.S. 180, 183 (1957); see also Schuster v. Commissioner, 312

F.2d 311, 317 (9th Cir. 1962), affg. in part and revg. in part 32

T.C. 998 (1959); Zuanich v. Commissioner, 77 T.C. 428, 432-433

(1981).   An exception exists only in the rare case where a

taxpayer can prove he or she would suffer an unconscionable

injury because of that reliance.    Manocchio v. Commissioner, 78

T.C. 989, 1001 (1982), affd. 710 F.2d 1400 (9th Cir. 1983).

Moreover, equitable estoppel is applied “against the Government

with utmost caution and restraint”.     Schuster v. Commissioner,

supra at 317.
                                 - 13 -

     The doctrine of estoppel is not applicable unless the party

relying on it establishes all of the following elements at a

minimum:    (1) A false representation or wrongful, misleading

silence by the party against whom estoppel is to be invoked; (2)

an error in a statement of fact and not an opinion or statement

of law; (3) ignorance of the true facts; (4) the party claiming

estoppel must be adversely affected by the acts or statements of

the person against whom an estoppel is claimed; and (5) detriment

suffered by the party claiming estoppel because of his or her

adversary’s false representation or wrongful, misleading silence.

Norfolk S. Corp. v. Commissioner, 104 T.C. 13, 60 (1995), affd.

140 F.3d 240 (4th Cir. 1998); Estate of Emerson v. Commissioner,

67 T.C. 612, 617-618 (1977); Megibow v. Commissioner, T.C. Memo.

2004-41; see also Lignos v. United States, 439 F.2d 1365, 1368

(2d Cir. 1971).

     The doctrine of equitable estoppel was raised for the first

time by respondent on brief.13    Initially, respondent conceded

that qualified higher education expenses include transportation

costs.     In respondent’s trial memorandum, respondent relied on

section 1.221-1(e)(2)(i), Income Tax Regs., for the proposition




     13
        Although the Court offered petitioners the opportunity
to file a response to respondent’s brief, petitioners did not do
so.
                             - 14 -

that transportation costs qualify as higher education expenses.14

Section 1.221-1(e)(2)(i), Income Tax Regs., defines qualified

higher education expenses as the “cost of attendance (as defined

in section 472 of the Higher Education Act of 1965, 20 U.S.C.

1087ll, as in effect on August 4, 1997)” and further states that

consistent with 20 U.S.C. sec. 1087ll (Supp. IV 1998) the cost of

attendance includes an allowance for transportation.15

     For purposes of section 72(t)(2)(E), however, section

529(e)(3) defines qualified higher education expenses as tuition,

fees, books, supplies, equipment, and room and board.    Clearly,

transportation expenses are not included within this definition.

With regard to the definition of qualified higher education

expenses under section 529(e)(3)(B)(ii), the term “cost of

attendance” is applicable only in the context of determining the

minimum allowance for room and board expenses.   On brief,

respondent admitted that respondent’s position was misguided by

section 1.221-1(e)(2)(i), Income Tax Regs.   Thus, respondent’s

misconceived concession was an erroneous representation of law.

As such, equitable estoppel does not bar respondent from changing

respondent’s position to correct a mistake of law unless

     14
        Sec. 221 and the regulations thereunder set forth the
criteria to deduct interest paid on qualified education loans.
     15
        The Higher Education Act of 1965 sec. 472, currently
codified at 20 U.S.C. 1087ll(2) (2000), provides that the term
“cost of attendance” means an allowance for transportation as
determined by the institution.
                              - 15 -

petitioners would suffer an unconscionable injury because of

their reliance on respondent’s concession at trial.   Although

petitioners did not file a brief in response, the record in its

entirety fails to demonstrate that petitioners suffered an

unconscionable injury because of their reliance on respondent’s

misrepresentation.   Accordingly, we conclude that Mrs. Kandil’s

transportation expenses do not constitute qualified higher

education expenses for purposes of section 72(t)(2)(E).

                            Conclusion

     We have considered all of the other arguments made by

petitioners, and, to the extent that we have not specifically

addressed those arguments, we conclude that they are without

merit.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect our disposition of the disputed issue, as well as

respondent’s concession,



                                    Decision will be entered

                               under Rule 155.
