9
represented loan proceeds.3 We find that petitioner failed to
report taxable income in the amount of $580 from DOA. Respondent
is sustained on this issue.
Issue 5. Penalty for Premature Distribution
Respondent determined that petitioners were liable for a 10-
percent penalty in the amount of $1,787.58 under section 72(t) on
premature distributions of $16,831.81, $464, and $580 from
qualified plans. Petitioners dispute this determination.
Section 72(t) provides for a 10-percent additional tax on
distributions from qualified plans, unless the distributions come
within one of the statutory exceptions. Sec. 72(t)(1) and (2).
The exceptions include certain distributions: (1) Made on or
after the date on which an employee attains the age of 59-1/2;
(2) made to an employee after separation from service and the
attainment of age 55; (3) to a beneficiary on or after the death
of an employee; (4) attributable to an employee's disability; and
(5) to an employee to the extent they do not exceed certain
deductible medical expenses. Sec. 72(t)(2)(A) and (B).
3
Because petitioner conceded this issue up until trial,
respondent was not prepared to refute petitioner's argument with
supporting documents. Nevertheless, respondent suggests that the
$580 may represent a forgiveness by DOA of an unpaid portion of a
loan taken by petitioner. As a general rule, a debtor excused
from an obligation to repay must include the amount forgiven in
his or her gross income. See sec. 108. Although we find
respondent's suggestion credible, without more, we are unable to
say with certainty that such a scenario is more likely than not.
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