Manuel Francisco Palomo and Jane Lyon Potter - Page 8

                                                                                - 7 -- 7 -                                                                                 
                    of-pocket expenses.  Because petitioners have failed to                                                                                                
                    substantiate that the Smith payments were reimbursements for out-                                                                                      
                    of-pocket expenses, we concur with respondent's determination as                                                                                       
                    to this issue.  Sec. 6001.                                                                                                                             
                              In general, section 72 deals with the tax treatment of                                                                                       
                    distributions from pensions, annuities, and IRAs.  See secs.                                                                                           
                    72(a), (e), 408(d).  Section 1.72-1(a), Income Tax Regs.,                                                                                              
                    provides that section 72 prescribes rules relating to the                                                                                              
                    inclusion in gross income of amounts received under a life                                                                                             
                    insurance, endowment, or annuity contract unless such amounts are                                                                                      
                    specifically excluded from gross income under other provisions of                                                                                      
                    chapter 1 of the Code.  The burden is on petitioners to                                                                                                
                    demonstrate that the payments in question fall into a specific                                                                                         
                    statutory exclusion.  See Commissioner v. Glenshaw Glass Co., 348                                                                                      
                    U.S. at 429-431.                                                                                                                                       
                              Under section 72(t), a 10-percent additional tax is imposed                                                                                  
                    on an early distribution from a qualified retirement plan, to the                                                                                      
                    extent that the distribution is includable in gross income.3  An                                                                                       
                    exception to the additional tax is provided in section                                                                                                 
                    72(t)(2)(B) for medical expenses.  Section 72(t)(2)(B) provides                                                                                        

                              3 An early distribution with respect to a distributee who                                                                                    
                    continues employment with the employer is one made before the                                                                                          
                    employee attains the age of 59-1/2.  See sec. 72(t)(2)(A)(i).  It                                                                                      
                    is unclear what the age of either petitioner was at the time of                                                                                        
                    the distribution from the IRA.  The Court concludes, based on the                                                                                      
                    unrefuted assumptions made at trial and in the exhibits, that                                                                                          
                    neither petitioner had attained the age of 59-1/2.                                                                                                     





Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  Next

Last modified: May 25, 2011