Daniel R. and Margaret J. Kallmyer - Page 4




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          Petitioner alleges that he used $19,000 from the distributions to           
          pay the taxes resulting from the IRA distributions and the                  
          balance of the funds was used to finance petitioner’s business              
          activities.  Petitioners did not report the $42,870 distributions           
          on their joint 1996 Federal income tax return.                              
               On February 24, 1999, respondent issued a notice of                    
          deficiency to petitioners asserting that the $42,870 was                    
          includable in petitioners’ gross income for 1996, and determined            
          a deficiency of $13,839 plus an addition to tax and penalties.              
          The deficiency included the additional tax of $4,287 under                  
          section 72(t) that is at issue here.  Petitioners did not file a            
          petition with this Court.  Instead, petitioners contacted                   
          respondent in an attempt to negotiate a settlement of the                   
          deficiency.                                                                 
               By letter dated March 4, 1999, petitioners asserted that the           
          distributions resulted from a threat of levy and that the                   
          additional tax under section 72(t) should not be imposed.                   
          Respondent mailed to petitioners a letter dated March 31, 1999,             
          which proposed changes in petitioners’ 1996 Federal income tax to           
          include the $42,870 distributions in petitioners’ gross income,             
          and determined a delinquency penalty and interest but omitted the           
          additional tax under section 72(t).  Petitioners disagreed with             
          the proposed changes.  Petitioner testified, however, that he had           
          contacted Mary Flanagan (Ms. Flanagan), an employee in                      






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