Harold L. and Gladys M. Humberson - Page 9

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          402(e)(4)(A).  Respondent also contends that petitioners are                
          liable for the 10-percent additional tax imposed by section 72(t)           
          because the Transfer Refund constitutes an early distribution               
          from a qualified retirement plan.  Petitioners disagree.                    
          Lump Sum Distribution Issue                                                 
               As a general rule, a distribution from a qualified plan,               
          such as the Retirement System, is taxed to the recipient in the             
          year distributed under the rules relating to annuities.  Sec.               
          402(a)(1); see sec. 72.  However, section 402(e)(1) provides a              
          preferential forward averaging method of computing the tax on               
          certain such distributions.  The parties agree that petitioners             
          are entitled to this preferential method of computing the tax on            
          the Transfer Refund if the Transfer Refund constitutes a "lump              
          sum distribution" within the meaning of section 402(e)(1)(A).10             
               A lump sum distribution, for purposes of section 402, is               
          defined in section 402(e)(4)(A) as follows:                                 
                    (A) Lump sum distribution.--For purposes of this                  
               section * * * , the term "lump sum distribution" means                 
               the distribution or payment within one taxable year of                 

          10 The Tax Reform Act of 1986 replaced the 10-year forward                  
          averaging method with a 5-year forward averaging method for lump            
          sum amounts distributed after Dec. 31, 1986, in taxable years               
          ending after such date.  Tax Reform Act of 1986, Pub. L. 99-514,            
          sec. 1122(a)(2), (h)(1), 100 Stat. 2085, 2466, 2470.  However,              
          Tax Reform Act of 1986, secs. 1122(h)(5) and 1124 provide                   
          transitional rules under which lump sum distributions made after            
          Dec. 31, 1986, will nevertheless continue to qualify, under                 
          certain limited circumstances, for the more generous 10-year                
          forward averaging method; 100 Stat. 2085, 2471, 2475.  Because of           
          his age, petitioner falls within the scope of the transitional              
          rules, provided, of course, that the Transfer Refund qualifies as           
          a lump sum distribution.                                                    

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