- 9 -
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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