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Based on existing case law, we hold that the Transfer Refund
does not qualify for tax-free rollover treatment under section
402(a)(5) because it does not constitute a qualified total
distribution.
II. Section 72(t) Additional Tax Issue
We turn next to respondent's determination that petitioners
are liable for the 10-percent additional tax imposed by section
72(t).
Section 72(t) provides for a 10-percent additional tax on
early distributions from qualified retirement plans. Paragraph
(1), which imposes the tax, provides in relevant part as follows:
(1) Imposition of Additional Tax.--If any taxpayer
receives any amount from a qualified retirement plan
* * * the taxpayer's tax under this chapter for the
taxable year in which such amount is received shall be
increased by an amount equal to 10 percent of the
portion of such amount which is includible in gross
income.
We have already sustained respondent's determination that
the taxable portion of the Transfer Refund is includable in
petitioners' gross income in the year of receipt. Because none
of the exceptions of section 72(t)(2) apply to relieve
petitioners of this additional tax, we can see no alternative but
to sustain respondent's determination that petitioners are liable
for the 10-percent additional tax imposed by section 72(t).
Petitioners argue, however, that there is an alternative.
First, petitioners contend that they have already paid the
additional tax under section 72(t) on the taxable portion of the
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