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not, at the time of the contributions, treated as taxable income
to the employees.
However, distributions from the annuity accounts to the
employees are treated as taxable income to the employees in the
year of the distributions. Sec. 403(b)(1) (flush language);
sec. 72(a).
As indicated, respondent takes the position that the $15,422
petitioner received from her annuity accounts prior to petitioner
attaining the age of 59-1/2 is also subject under section 72(t)
to a 10-percent additional tax.
Petitioner argues that the distributions she received from
her annuity accounts are governed not by section 72(t) but by
section 72(q), under the latter of which no 10-percent penalty or
additional tax would apply to the early distributions petitioner
received.1
However, as a result of the section 72(t)(1) cross-reference
to section 4974(c), annuity accounts established and funded by
section 501(c)(3) organizations are explicitly covered by section
72(t), and early distributions from such annuity accounts are
generally subject to a 10-percent additional tax. In its
1 Under the sec. 72(q)(2)(E) cross reference to subsec.
72(e)(5)(D), early distributions from annuity accounts
established and funded by sec. 501(c)(3) organizations are
excepted from the application of the sec. 72(q) 10-percent
penalty provided therein on early distributions. See sec.
72(e)(5)(D)(ii)(III).
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Last modified: May 25, 2011