Friday, July 27, 2007

Tax Help: "Hardship" will not eliminat 10% early withdrawal penalty

Unfortunately, the courts stricly construe the statutory limitations for avoiding the 10% penalty for from a retirment plans.

Jeffrey Lee Golian v. Commissioner.Docket No. 6603-06S . Filed July 26, 2007.[

On line 15a of his return, petitioner reported an IRA distribution of $86,333.33, and on line 15b he reported the entire distribution as the taxable amount, which he included in gross income.
section 7491(a) applies in this case.4

section 401(k) plan and an IRA. See 408(a), 5

iv), (F).The 10-percent additional tax does not apply to certain distributions, including distributions: (1) To an employee age 59-1/2 or older; (2) on account of the employee's disability; (3) as part of a series of substantially equal periodic payments made for the employee's life (or life expectancy); or (4) to an individual from an IRA which are qualified first-time home buyer distributions.6 7

Petitioner also does not contend that he satisfies any of the specific exceptions set forth in section 72(t). E.g., Arnold v. Commissioner, 111 T.C. 250, 255 (1998); Milner v. Commissioner, T.C. Memo. 2004-111; Gallagher v. Commissioner, T.C. Memo. 2001-34.

We recognize that petitioner received his IRA distribution at a time when he was both a single parent and temporarily unemployed and that he used the distribution for a laudable purpose. Unfortunately for petitioner, we are bound by the list of statutory exceptions set forth in

Finally, the fact that respondent only determined the 10-percent additional tax sometime after making a mechanical adjustment to petitioner's return upon its initial processing is of no moment.8 The fact of the matter is that respondent sent petitioner the notice of deficiency within the applicable statute of limitations. See sec. 6404(e), (h); Rule 280(b); see generally tit. XXVII, Tax Court Rules of Practice and Procedure, regulating actions for review of failure to abate interest; see also Bax v. Commissioner, 13 F.3d 54, 56-57 (2d Cir. 1993) (Tax Court ordinarily lacks jurisdiction to consider interest on a deficiency in the context of an action for redetermination of deficiency); Pen Coal Corp. v. Commissioner, 107 T.C. 249, 255 (1996) (same).

To reflect our disposition of the disputed issue, as well as the parties' concessions, see supra note 2,
Decision will be entered for respondent as to the deficiency in income tax and for petitioner as to the accuracy-related penalty under 1 All subsequent section references are to the Internal Revenue Code in effect for 2003, the taxable year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.2 Petitioner concedes that he received taxable nonemployee compensation of $1,106 from Translink, Inc., that was not reported on his 2003 return. Respondent concedes that petitioner is not liable for the accuracy-related penalty under 3 The distribution did not exhaust petitioner's account balance; however, the distribution was not part of a series of substantially equal periodic payments made for petitioner's life (or life expectancy).4 Pursuant to sec. 72(t) is an "additional amount" for which respondent bears the burden of production, respondent has met such burden by demonstrating that petitioner was 46 years old in 2003 when he received the distribution in issue. See Milner v. Commissioner, T.C. Memo. 2004-111 n. 2.5 At trial, petitioner accurately described his IRA as an account "for my retirement." This is precisely why a preretirement distribution is generally subject to the 10-percent additional tax and why there are relatively few exceptions. "The legislative purpose underlying the 6 For purposes of Sec. 72(t)(5).7 Generally, a distribution from an IRA is includable in the distributee's gross income in the year of distribution under the provisions of sec. 408(d)(1); see also 8 See sec. 6213(b)(1), permitting summary assessments arising out of mathematical or clerical errors.
Alvin S. Brown, Esq.
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