Michael J. Barkley - Page 14

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          III. Ten-Percent Additional Tax on Early Distributions                      
               Section 72(t)(1) imposes an additional tax of 10 percent on            
          the portion of a distribution from a qualified retirement plan              
          that is includable in gross income, unless the distribution falls           
          under one of the exceptions in section 72(t)(2).  Section                   
          72(t)(2)(A)(iii) provides the additional 10-percent tax does not            
          apply to a distribution that is attributable to the employee’s              
          being disabled within the meaning of section 72(m)(7).  For                 
          purposes of section 72(t) as relevant here, the term “employee”             
          includes any participant.  Sec. 72(t)(5).                                   
               Petitioner argues that the 10-percent additional tax should            
          not apply to Mrs. Barkley’s half of the distribution because she            
          was a vested plan participant by virtue of State community                  
          property law, and she received the distribution on account of her           
          disability.  According to petitioner, section 72(t)(5) “broadens            
          the definition of employee to include a plan participant who is             
          otherwise not an employee”.  Petitioner relies on the definitions           
          of “vested participant” and “inactive participant” in sections              
          417(f)(1) and 418D(e) to support his contention that Mrs. Barkley           
          was a plan participant.                                                     
               Respondent does not address whether Mrs. Barkley was a                 
          participant.  Rather, he argues that although Mrs. Barkley may              
          have been disabled, she was not an employee for purposes of the             
          exception in section 72(t)(2)(A)(iii).  Therefore, respondent               

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