Alphonse M. and Doris Esposito - Page 3

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               Respondent determined a deficiency of $10,000 in                       
          petitioners’ 1998 Federal income tax.  The issue is whether                 
          petitioners are liable for the 10-percent additional tax under              
          section 72(t) on an early distribution from a qualified section             
          401(k) retirement plan.  Petitioners resided in Mt. Sinai, New              
          York, at the time the petition was filed.                                   
               The applicable facts may be summarized as follows.2  In                
          1998, petitioner Alphonse M. Esposito (petitioner) withdrew                 
          $100,000 from his retirement plan to pay the higher education               
          expenses for four of his children.  In preparing their 1998                 
          Federal income tax return, petitioners included the $100,000                
          distribution but did not report the additional tax for an early             
          distribution under section 72(t).  In the notice of deficiency,             
          respondent determined petitioners were liable for the additional            
          tax.                                                                        
               Section 72(t)(1) imposes an additional tax of 10 percent of            
          the taxable amount received from a “qualified retirement plan (as           
          defined in section 4974(c))”.  Petitioner maintains that the                
          additional tax does not apply because the distribution qualifies            
          under section 72(t)(2)(E).                                                  
               Section 72(t)(2)(E) provides that the additional tax on                
          early distributions does not apply to “distributions to an                  


               2   The facts are not in dispute, and the issue is primarily           
          one of law.  Sec. 7491, concerning burden of proof, has no                  
          bearing on this issue.                                                      




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