Basman Ahmad and Khitam Amerneh - Page 5

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               On their joint Federal income tax return for 2001,                     
          petitioners reported as gross income the $83,881 retirement                 
          distribution.  Petitioners included with their 2001 tax return              
          Form 5329, Additional Taxes on Qualified Plans (Including IRAs),            
          and Other Tax-Favored Accounts, on which they listed the $83,881            
          retirement plan distribution but elected on Form 5329 that the              
          distribution was not subject to the early withdrawal tax under              
          section 72(t).  Respondent, in the notice of deficiency,                    
          determined that the $83,881 early distribution was subject to the           
          additional tax under section 72(t) and determined a deficiency of           
               Section 72(t) imposes a 10-percent additional tax on early             
          distributions from a qualified retirement plan.  Paragraph (1)              
          provides in relevant part:                                                  

                    (1) Imposition of additional tax.–-If any taxpayer                
               receives any amount from a qualified retirement plan (as               
               defined in section 4974(c)), the taxpayer’s tax under this             
               chapter for the taxable year in which such amount is                   
               received shall be increased by an amount equal to 10 percent           
               of the portion of such amount which is includable in gross             

               The 10-percent additional tax, however, does not apply to              
          certain distributions.  Section 72(t)(2) excepts distributions              
          from the additional tax if the distributions are made:  (1) To an           
          employee age 59-1/2 or older; (2) to a beneficiary (or to the               
          estate of the employee) on or after the death of the employee;              

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