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Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance
Contracts, etc., issued by the Employees Retirement System of
Texas, petitioners reported the $13,817.18 as income. In the
notice of deficiency, respondent determined that petitioners are
liable for the section 72(t) additional tax. In the explanation
of adjustments accompanying the notice of deficiency, the
determination is explained as follows:
A. Tax on Premature Distribution
It is determined that you received a distribution from a
retirement plan in the amount of $13,817.00, before age 59-
1/2, which is subject to a 10% early withdrawal tax. The
distribution does not meet an exception to the early
withdrawal tax. Although you used the funds for higher
education expenses, the distribution was not made from an
individual retirement account. Accordingly, your tax is
increased $1,382.00.
Petitioners contend that, because the withdrawn amounts were
used exclusively for higher education expenses, they are not
subject to the section 72(t) additional tax. Respondent agrees
that the withdrawn proceeds were used exclusively for higher
education expenses within the intent and meaning of section
72(t)(2)(E); however, respondent argues that the Employees
Retirement System of Texas is not in the category of qualified
plans to which the provisions of section 72(t)(2)(E) are
applicable. Petitioners argue that they consulted various
employees of the Internal Revenue Service and were advised that
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Last modified: May 25, 2011