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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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Last modified: May 25, 2011