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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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