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relieved of the section 72(t) additional tax and argue that the
availability of that relief is provided and allowed on Form 5329
and the specific instructions for that form. In particular,
petitioners point to the instructions for line 2 of Form 5329.
Those instructions, in addition to describing the exceptions that
are expressly provided in section 72(t)(2), also include another
category described as "other", which is explained as number 11 in
the instructions for Form 5329. The "other" situations in which
the additional tax does not apply are described in the
instructions as: (1) Distributions that are incorrectly labeled
as an early distribution; (2) distributions from an employer plan
as to an employee's separation from service prior to March 1,
1986; (3) distributions that are dividends from stock described
in section 404(k); and (4) distributions from certain annuity
contracts. It is very clear that the distributions to petitioner
in this case do not fit under any of these categories. Financial
hardship is not described as an exemption from the tax on an
early distribution. Petitioners, however, argue on brief:
In fact, the Service has responded to the growing list of
exemptions identified under Form 5329. Form 5329
specifically lists eleven (11) such exemptions with number
11 listed simply as "other". Petitioner had duly asserted
his exemption as number 11 on the form submitted.
Certainly, the dire financial situation of being unemployed
leading the petitioners to file bankruptcy in this case can
be considered as great an economic hardship as a minimal
standard compared to the examples listed above. At the very
least, the Service had the duty to respond to petitioner's
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Last modified: May 25, 2011