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described in section 404(k); (7) to an employee for medical care;
or (8) to an alternate payee pursuant to a qualified domestic
relations order.
Petitioners contend they do not owe the section 72(t)
additional tax for three reasons:
(1) The distributions are not subject to the section 72(t)
additional tax because of their financial hardship;
(2) The Internal Revenue Service, even though notice was
served of petitioners' bankruptcy proceeding, failed to file a
proof of claim in the bankruptcy proceeding; therefore, the
additional tax was discharged; and
(3) Even if the additional tax was not discharged, following
their discharge, the bankruptcy proceeding was reopened to
include in the bankruptcy estate a monetary judgment of $607,500
that petitioner recovered against a former employer, which, if
collected, would pay off all creditors. Therefore, petitioners
contend, pending collection of this asset, respondent, as a
creditor, is stayed from instituting collection action, including
the deficiency in this case.
With respect to petitioners' first contention, as noted
earlier, section 72(t)(2) excepts from the additional tax certain
categories of distributions. Petitioners agree that none of
these categories apply to their fact situation. Instead,
petitioners contend that, because of financial hardship, they are
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