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petitioners did not compute the 10-percent additional tax imposed
by section 72(t). However, petitioners attached to both returns
several letters from Mr. Keeley’s physicians and a statement as
follows:
Form 5329[8], Line 2 Distributions exempt from tax -
The taxpayer became permanently disabled in 1997
with respect to his employment as an insurance broker
as a result of neurological and spinal conditions,
which prevent the taxpayer from engaging in customary
substantial gainful activities (See medical opinions
attached). The taxpayer continues to be disabled.
Accordingly, distributions from the taxpayer’s IRA
account are not subject to the 10% penalty for early
withdrawal.
During the examination of petitioners’ returns, petitioners
received a letter dated September 25, 2000, from respondent’s tax
examiner stating that respondent does not “dispute the contention
regarding the taxpayer’s ability to perform substantial gainful
activity”, but contends that petitioners did not provide
substantiation (physician’s letters) stating that “Mr. Keeley is
‘totally and permanently’ disabled or his condition was expected
to result in death or to be of long continued or indefinite
duration.” Petitioners submitted a response referring to the
letters attached to petitioners’ returns and also attaching a
copy of Dr. Dillon’s letter dated October 24, 2000.
8 Form 5329 is entitled “Additional Taxes Attributable to
Qualified Retirement Plans (Including IRAs), Annuities, Modified
Endowment Contracts, and MSAs”. Part I of the form is entitled
“Tax on Early Distributions”. A taxpayer would report on Line 2
of Part I of the form “Distributions excepted from additional
tax”.
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Last modified: May 25, 2011