Linda L. Domanico and Anthony M. Domanico - Page 6

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               cannot be avoided by offset of the distribution by                     
               qualified education expenses.  * * *  any qualified                    
               education expense offset is limited to expenses paid                   
               during the taxable year of distribution.                               
               Petitioners timely filed a petition with the Court disputing           
          the determined deficiency.  Paragraph 4 of the petition states:             
               I used an early distribution from a qualified plan for                 
               educational expenses.  I was forced to make a decision,                
               by my employer, and I thought I interpreted the tax                    
               code correctly.  The monies that I used were entirely                  
               my contributions.  I was told that had I rolled them                   
               over for “one day”, they would be exempt from the                      
               penalty (10%).  I feel I am being penalized (harshly)                  
               for such a finite misinterpretation.  I would greatly                  
               appreciate a favorable ruling.                                         
               Petitioners contend that the distribution from Mrs.                    
          Domanico’s 401(k) plan is excepted from the 10-percent additional           
          tax on early distributions because they used the funds to pay for           
          Mrs. Domanico’s higher education expenses incurred from 1999                
          through 2003.  In support of their contention, petitioners rely             
          on paragraph 2179 of the Master Tax Guide that states in                    
          pertinent part:                                                             
                    2179.  Early Distributions.  Distributions from a                 
               traditional IRA to a participant before the individual                 
               has reached age 59 � are generally subject to the same                 
               10% penalty that applies to early distributions from                   
               qualified plans.  Many of the exceptions to the early                  
               distribution penalty also apply to early distributions                 
               from a traditional IRA.  * * *  The following                          

               3  The facts are not in dispute, and the issue is                      
          essentially one of law.  Accordingly, we decide the issue without           
          regard to sec. 7491.                                                        

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