In Uncategorized on 08/08/2019 at 16:14

This word sinks Lily Hilda Soltani-Amadi and Bahman Justin Amadi, 2019 T. C. Sum. Op. 19, filed 8/8/19, when Lily draws $6K from her New York State Employees’ 401(k) to buy a first home for her and Bah.

Lily’s plea: “Penalties and fees are too high. We spent the money purchasing our very first house. Our house is a form of retirement money.  The money went towards our house, which is like a saving for us when we get old! We just need a break.  We have worked very hard and put ourselves through school.  We could use a break.” 2019 T. C. Sum. Op. 19, at p. 4.

When she and Bah bought the house, someone told them they wouldn’t pay a penalty. I suppose that meant the Section 72(t) 10% tax or addition or whatever it is.

That would be true if Lily drew down an IRA. But not a 401(k).

The Judge with a Heart, STJ Robt N Armen, has this one, but he can’t help Lilly.

“Regardless of the advice received, the law is clear–the distribution Ms. Soltani-Amadi received…from her section 401(k) retirement plan is taxable and must be included in its entirety in petitioners’ taxable income….  Secs. 402(a), 72(a), (e).” 2019 T. C. Sum. Op. 19, at p.

OK, no difference between IRA and 401(k) when it comes to the base draw. But what about the 10%? Lilly and Bah are both younger than 55.

Well, back in 1997 Congress accorded relief to first-time homebuyers who drew down retirement plans in order to become first-time homebuyers. And they chose upon whom to bestow this largesse in Section 72(t)(2)(F), exempting from the 10% chop or hit “(F) Distributions from certain plans for first home purchases.–Distributions to an individual from an individual retirement plan which are qualified first-time homebuyer distributions * * *  [Emphasis added.]” 2019 T. C. Sum. Op. 19, at p. 11.

Tax Court must construe any statute by giving effect to every word. Tax Court must presume that Congress meant what it said.

“Congress chose to grant relief under section 72(t)(2)(F) for distributions from IRAs but not for distributions from other qualified plans, such as a section 401(k) retirement plan.  Although the Court found petitioners to be sincere, credible, and earnest, the fact remains that the Court is a court of limited jurisdiction and lacks general equitable powers. Thus, the Court is constrained by the text of the statute and may not act contrary to it.” 2019 T. C. Sum. Op. 19, at pp. 14-15.

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