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During 1999, petitioner was terminated by his employer, and
he thereafter began a self-employed consulting business in his
field of work. That endeavor was not successful and resulted in
petitioners' filing for bankruptcy. Because of their financial
needs, petitioner withdrew $115,142.97 during the year 2000 from
his qualified plans.
On their joint Federal income tax return for 2000,
petitioners reported as gross income the $115,142.97 in
distributions from their qualified plans. Petitioners included
with their 2000 tax return Form 5329, Additional Taxes
Attributable to IRAs, Other Qualified Retirement Plans,
Annuities, Modified Endowment Contracts, and MSAs, on which they
listed the $115,142.97 in retirement plan distributions but
elected on Form 5329 that the distributions were not subject to
the early withdrawal tax under section 72(t). On Part I, line 2
of the form, "Early distributions not subject to additional tax",
petitioners entered exception number 11 as the appropriate
exception from page 2 of the instructions for the entire amount
of the distribution. The Form 5329 did not otherwise include any
statement to describe the basis upon which petitioners claimed
that the section 72(t) tax was not applicable. Respondent, in
the notice of deficiency, determined that the $115,142.97 early
distribution was subject to the additional tax under section
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