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or individual retirement annuity for the benefit of the
distributee within 60 days after the receipt of the distribution.
Petitioners do not qualify for the exception provided for in
section 408(d)(3), because petitioners did not roll over the
$6,000 IRA distribution into another IRA or other retirement
account but rather used the money to pay for personal expenses.
In general, the basis of an IRA is zero. See sec. 1.408-
4(a)(2), Income Tax Regs.; see also Costanza v. Commissioner,
T.C. Memo. 1985-317. Petitioners did not make any nondeductible
or excess contributions that would have increased their basis,
and, thus, petitioners’ tax basis in the IRA was zero. See
Patrick v. Commissioner, T.C. Memo. 1998-30, affd. 181 F.3d 103
(6th Cir. 1999).
Section 72(t) provides for a 10-percent additional tax on
early distributions from an IRA. The 10-percent additional tax,
however, does not apply to certain distributions. Section
72(t)(2) sets forth specific exemptions. As the Court stated in
Arnold v. Commissioner, supra at 255:
The legislative purpose underlying the section 72(t)
tax is that “premature distributions from IRAs
frustrate the intention of saving for retirement, and
section 72(t) discourages this from happening.” Dwyer
v. Commissioner, 106 T.C. 337, 340 (1996); see also S.
Rept. 93-383, at 134 (1973), 1974-3 C.B. (Supp.) 80,
213.
Petitioners do not argue that any of the statutory
exceptions apply to them. Petitioners, instead, seek relief from
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