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During February 1999, petitioner suffered illness from
exposure to chemicals used to fumigate her leased living
quarters. Petitioner reached agreement with her landlord to be
released from her lease obligation in exchange for her releasing
her landlord for any responsibility for her illness. On March 1,
2002, respondent timely issued a notice of deficiency to
petitioner. In the notice of deficiency respondent determined
that petitioner was liable for the 10-percent additional tax with
respect to the $9,514 distribution.
OPINION
Section 72(t)2 imposes a 10-percent additional tax on early
distribution from qualified retirement plans. There is no
dispute about the distribution’s being “early” and otherwise
subject to the 10-percent additional tax. The question we
consider is whether petitioner qualified for the exception from
the 10-percent additional tax under section 72(t)(2)(B). That
section provides for an exception from the 10-percent additional
tax for distributions made to employees “to the extent such
distributions do not exceed the amount allowable as a deduction
under section 213 to the employee for amounts paid during the
taxable year for medical care (determined without regard to
whether the employee itemizes deductions for such taxable year).”
Respondent did not question petitioner’s claim that
2 All section references are to the Internal Revenue Code as
amended and in effect for the period under consideration.
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Last modified: May 25, 2011