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Discussion4
A. Tax Treatment of Early IRA Distributions
Section 408(d)(1) provides that any amount paid or
distributed out of an individual retirement plan shall be
included in gross income by the distributee in the year of
distribution in the manner provided under section 72. An IRA is
included in the definition of an individual retirement plan.
Sec. 7701(a)(37). Petitioners properly reported the entire
$25,000 distribution from their IRA as income on their 2001
return.
Section 72(t)(1) imposes an additional 10-percent tax on
that portion of a distribution from a qualified retirement plan
that is includable in the taxpayer’s gross income, unless the
distribution satisfies an exception found under section 72(t)(2).
An IRA is a qualified retirement plan for purposes of the
additional 10-percent tax. Secs. 72(t)(1), 4974(c)(4). The
additional tax does not apply to distributions from an IRA used
to pay for qualified higher education expenses. Sec.
72(t)(2)(E). Petitioners do not argue that any other exception
4 Sec. 7491(a), concerning burden of proof, has no
bearing on this case. The issue with respect to the computer,
housewares, appliances, furniture, and bedding expenses is
primarily one of law. Regarding the book expense, sec. 7491(a)
is not applicable because petitioners have not satisfied the
substantiation requirement. Sec. 7491(a)(2)(A).
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Last modified: May 25, 2011