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CITATION: Fulcher, Douglas R., T.C. Summary Opinion 2003-157

ISSUE: Is the petitioner liable for the 10-percent additional tax under section 72(t) for early distributions from two qualified retirement plans?

FACTS: Petitioner's legal residence at the time the petition was filed was Martinsville, Virginia. During 1999, petitioner received the following distributions from two qualified individual retirement accounts:

 Nationwide Life Insurance Co.  $5,000.00  First National Bank  $3,943.33  Total distributions   $8,943.33 Both institutions issued to petitioner Forms 1099-R, Distributions from Pensions, Annuities, Retirement or Profit- Sharing Plans, IRAs, Insurance Contracts, etc. The Form 1099-R from Nationwide Life Insurance Co. stated that the taxable amount of the $5,000 distribution was $4,700.47. On his Federal income tax return for 1999, petitioner included $8,643.80 as income, representing the taxable distributions from the two plans. In the notice of deficiency, respondent determined that petitioner was liable for the additional tax under section 72(t) for early distributions from qualified retirement plans. Petitioner contends he is not liable for the additional tax because the proceeds of the distribution were used to purchase a home as a first-time homeowner under section 72(t)(8). 

During 1999, petitioner was employed by several employers doing electrical maintenance work. Petitioner married on July 1, 1999, and he and his spouse purchased a home in August 1999, into which they moved. Sometime in December 1999, petitioner and his spouse separated; however, petitioner continued living in the house. Petitioner had previously been married but was divorced in 1990. During the first marriage, petitioner served in the United States military, and he and his spouse never purchased a home. His testimony is that the home purchased in August 1999 was the first home he had ever purchased, and that the proceeds of the two distributions in question were applied to the $54,000 purchase price for the home. Respondent presented no evidence to discredit petitioner's testimony, nor did respondent present any other evidence to establish that the August 1999 home purchase was not petitioner's first home purchase, or that the individual retirement accounts proceeds in question were not applied to the purchase price of the home.

HOLDING: On this record, the Court is satisfied that the distributions in question constituted distributions that were used by petitioner in the acquisition of a principal residence, and that such distributions were qualified first-time hom buyer distributions within the intent and meaning of 72(t)(8). Petitioner, accordingly, is sustained on the sole issue before the Court.

ANALYSIS: Under section 72(t)(1) imposes a 10-percent additional tax on early distributions from qualified retirement plans. There are several situations, however, in which the additional tax does not apply. Pertinent to this case is section 72(t)(2)(F), which provides generally that the additional tax does not apply to distributions that qualify as first-time homebuyer distributions as defined in 72(t)(8). 72(t)(8)(A) provides generally that the term "qualified first-time homebuyer distribution" means any payment or distribution received by an individual to the extent such payment or distribution is used by the individual before the close of the 120th day after the day on which such distribution or payment is received to pay qualified acquisition costs with respect to a principal residence of a first-time home buyer who is such individual, the spouse of such individual, or any child, grandchild, or ancestor of such individual or the individual's spouse. 72(t)(8)(D) defines a first-time home buyer as an individual (and, if married, his spouse) who had no present ownership interest in a principal residence during the 2-year period ending on the date of acquisition of the principal residence in question. Other provisions in that section are not pertinent here.