Herman E. and Sheri L. Villarroel - Page 7

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               The second issue for decision is whether the amount of the             
          distribution which must be included in petitioners' gross income            
          is subject to the section 72(t) additional tax.                             
               Section 72(t)(1) provides:                                             
                    (1) Imposition of additional tax.--If any taxpayer                
               receives any amount from a qualified retirement plan                   
               (as defined in section 4974(c)), 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.                                         
               The term "qualified retirement plan" includes any plan                 
          described in section 401(a), which includes qualified stock bonus           
          plans such as the Gillette ESOP.  Sec. 4974(c)(1).  Section                 
          72(t)(2) provides exceptions to the imposition of the additional            
          tax with respect to certain distributions.  Petitioners, however,           
          have not proved that any exception applies in their case.  We               
          therefore hold that the portion of the distribution which we held           
          must be included in their gross income is subject to the section            
          72(t) additional tax.                                                       
               The third issue for decision is the amount and character of            
          the gain petitioner must recognize from her sale of a portion of            
          the Gillette common stock.                                                  
               Section 61(a)(3) includes as gross income gains derived from           
          dealings in property such as the sale of stock.  The amount of              
          the gain is the excess of the amount realized from the sale over            
          the adjusted basis of the property at the time of the sale.  Sec.           
          1001(a).  The entire amount of the gain determined under section            




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