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the year of exercise.14 Therefore, we find that the $746,191 in
taxable income reported on the Intel W-2, including the $606,963
attributable to the exercise of nonqualified stock options, is
included in petitioners’ gross income as ordinary income.
III. Additional Tax on Early Distributions From Qualified
Retirement Plans and IRAs
Section 72(t)(1) imposes a 10-percent additional tax on
early distributions from qualified retirement plans. Qualified
retirement plans are defined to include IRAs as defined in
section 408(a) and (b). Secs. 72(t)(1), 4974(c). The 10-percent
additional tax does not apply to certain distributions, including
distributions made after an employee attains age 59-1/2 and
distributions attributable to the employee’s disability. Sec.
72(t)(2)(A)(i), (iii). Respondent alleges that petitioners are
liable for the 10-percent additional tax on the taxable
distributions from Plan 15105 and Plan 15106 (both qualified
retirement plans) of $14,443 and $30,623, respectively, and on
the taxable distributions totaling $749,930 from the Fidelity IRA
and the US Bancorp IRA.
Petitioners were born in 1955 and 1960, respectively. The
qualified retirement plan distributions and the IRA distributions
14 Petitioners do not argue that the stock was subject to a
substantial risk of forfeiture. Thus, the gain was recognized at
the time petitioner acquired beneficial ownership of the stock
(the time of exercise). See sec. 83(a); Walter v. Commissioner,
T.C. Memo. 2007-2.
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