3
that petitioners were liable for income tax on the $26,110 shown
on Form 1099-R pursuant to section 408(d),2 and an early
withdrawal penalty on the same amount pursuant to section 72(t).
OPINION
Section 402(a) applies to distributions from any employees'
trust described in section 401(a) (including a profit sharing
plan) that is exempt from tax under section 501(a). Section
402(a) provides that, subject to certain exceptions not relevant
here, any amount distributed from such a trust shall be taxable
to the distributee, in the year of distribution, under section 72
(relating to annuities). Section 72(e) provides that an amount
not received as an annuity is includable in gross income, except
to the extent attributable to an individual's investment in the
contract.
Petitioner received a distribution from a profit sharing
plan.3 Since none of the exceptions in section 402 apply,
section 72 governs the taxability of the distribution. The
distribution was not received in the form of an annuity, so
section 72(e) requires that the distribution, reduced by a
proportionate share of petitioner's investment in the contract,
2 In the notice of deficiency, and throughout this litigation,
respondent has erroneously asserted that sec. 408(d) governs the taxability of
the distribution. Sec. 408(d) governs the taxability of distributions from
individual retirement accounts. Distributions from profit sharing plans are
covered by sec. 402(a).
3 Because neither party disputes the issue, we assume the profit
sharing plan constitutes a "qualified trust" within the meaning of sec.
401(a), which is exempt from tax under sec. 501(a).
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Last modified: May 25, 2011