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the notice of deficiency respondent determined that petitioners
were liable for income tax on the portion of the distribution
reported as taxable income on the Form 1099-R ($25,709).
Respondent further determined that the 10-percent additional tax
imposed by section 72(t) applied to this amount, and that
petitioners were liable for a negligence penalty pursuant to
section 6662(a).
OPINION
Savings Plan Distribution
Under section 402(a) any distribution from any employees'
trust described in section 401(a) that is exempt from tax under
section 501(a) shall be taxable to the distributee in the year of
distribution under section 72.2 Section 72(e) provides that the
amount received is includable in gross income, except to the
extent attributable to an individual's investment in the
contract. For our purposes here, petitioner's investment in the
contract is the amount of his "after-tax contributions".
Section 402(a)(5) excludes from gross income any portion of
a distribution from a qualified trust that is transferred to an
eligible retirement plan. The term "eligible retirement plan" is
defined as (1) an individual retirement account described in
2 The parties agree that the savings plan constitutes a
"qualified plan". We presume this means a "qualified trust"
within the meaning of sec. 401(a), which is exempt from tax under
sec. 501(a), because neither party has argued to the contrary.
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Last modified: May 25, 2011