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the 401(k) plan in 2001. At the time of the distribution, she
had not reached 55 years of age, nor was she disabled.
In 2001, the year that she received the distribution, Mrs.
Domanico used $10,357 of the distribution to pay higher education
expenses that she incurred in that year. With the exception of
$8,560, see supra note 2, she used the remaining funds to (1) pay
off debt that she had incurred in 1999 and 2000 for higher
education expenses and (2) pay for higher education expenses that
she subsequently incurred in 2002 and 2003.
Petitioners timely filed a Form 1040, U.S. Individual Income
Tax Return, for 2001. On their return, petitioners reported the
$40,457 distribution as income but did not report the 10-percent
additional tax for an early distribution under section 72(t). On
Form 5329, Additional Taxes on Qualified Plans (Including IRAs),
and Other Tax-Favored Accounts, petitioners indicated that the
early distribution was not subject to the additional tax by
virtue of exception 8 (IRA distributions made for higher
education expenses).
In the notice of deficiency, respondent determined that
petitioners are liable for the 10-percent additional tax on the
early distribution from Mrs. Domanico’s 401(k) plan pursuant to
section 72(t). An attachment to the notice of deficiency stated,
in relevant part:
the qualified retirement plan in question was not an
individual retirement plan, and that the additional tax
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