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of the portion of such amount which is includible in gross
income.
Section 72(q)(2) provides a number of exceptions to the 10-
percent penalty for premature distributions from annuity
contracts. These exceptions are similar, but not identical, to
the exceptions provided under section 72(t) with respect to
distributions from qualified retirement plans. Petitioners argue
that the Southern Farm Bureau and Glenbrook distributions are
excepted from the 10-percent penalty because the distribution
proceeds were used to pay qualified higher education expenses.
This exception, however, applies only to qualified plans. Sec.
72(t)(2)(E). There is no such exception for distributions from
nonqualified plans. As previously stated, petitioners’
distributions in 1999 were solely from nonqualified plans. The
record is devoid of evidence that any of the section 72(q)(2)
exceptions apply. Respondent is sustained on this issue.
The final issue is whether petitioners are liable for the
20-percent accuracy-related penalty for substantial
understatement pursuant to section 6662(a). Section 6662(a)
imposes a penalty equal to 20 percent of the portion of an
underpayment of tax attributable to a taxpayer’s negligence,
disregard of rules or regulations, or substantial understatement
of income tax. Sec. 6662(a), (b)(1) and (2). There is an
understatement where the amount of tax shown on the return is
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