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The exceptions that may be relevant to the case at hand are
found in section 72(t)(2)(B) and section 72(t)(2)(E).1 Section
72(t)(2)(B) provides that the following distributions are not
subject to the additional tax:
(B) Medical expenses.--Distributions made to the
employee * * * 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).
The deduction allowed under section 213(a) is for “the expenses
paid during the taxable year, * * * for medical care * * * to the
extent that such expenses exceed 7.5 percent of adjusted gross
income.” On petitioners’ Schedule A, Itemized Deductions,
petitioner calculated that the total medical and dental expenses
they paid in 2001 was $774. Petitioners’ 2001 Federal income tax
return reflects that their joint adjusted gross income was
$172,703. Therefore, 7.5 percent of their 2001 adjusted gross
income was $12,953. Thus, petitioners’ expenses paid for medical
care in 2001 did not satisfy the requirements of section 213(a).
Therefore, the distributions do not fall under the exception of
section 72(t)(2)(B).
1Petitioners assert that they used a portion of the
distributions to make a downpayment on a home. Sec. 72(t)(2)(F),
regarding distributions made for first time home purchases, is
inapplicable here because petitioner’s 401(k) plan is not an
individual retirement account as required by the exception.
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Last modified: May 25, 2011