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distribution. The distribution was used, in part, to pay for
building the above-mentioned deck and repairs to the house.
Petitioners filed a timely 2000 joint Federal income tax
return that was prepared by H&R Block. The distribution is not
included in the income reported on that return, and no part of
the tax liability reported on the return is attributable to
section 72(t). Petitioners elected to itemize deductions but did
not claim a casualty loss deduction on their 2000 return.
In the notice of deficiency, respondent determined that the
entire amount of the distribution is includable in petitioners’
2000 income. Respondent further determined that the entire
distribution was subject to the additional tax imposed by section
72(t) and imposed a section 6662(a) accuracy-related penalty.
Other adjustments made in the notice of deficiency are
computational and need not be addressed.
Discussion
Petitioners now agree that the distribution is includable in
their 2000 income but argue that they are not liable for the
section 72(t) additional tax because the retirement distribution
was attributable to petitioner’s disability. Petitioners also
claim that they are entitled to a casualty loss deduction for the
collapsed deck. Finally, petitioners argue that they are not
liable for the accuracy-related penalty under section 6662(a).
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