Wayne Smith - Page 13



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          distribution from a qualified plan is made as a result of a levy            
          action under section 6331.  As we cannot point to authoritative             
          case law, we accordingly begin our analysis with the relevant               
          legislative history and intent behind the enactment of clause               
          (vii) of section 72(t)(2)(A).                                               
               Section 72(t)(2)(A)(vii) was enacted as an amendment to                
          section 72(t) as part of the IRS Restructuring and Reform Act of            
          1998, Pub. L. 105-206, 112 Stat. 685.  As reasoning for the                 
          addition of clause (vii), the Senate report states:                         
               the imposition of the 10-percent early withdrawal tax on               
               amounts distributed from employer-sponsored retirement plans           
               or IRAs on account of an IRS levy may impose significant               
               hardships on taxpayers.  Accordingly, the Committee believes           
               such distributions should be exempt from the 10-percent                
               early withdrawal tax.  [S. Rept. 105-174, at 83 (1998),                
               1998-3 C.B. 537, 619.]                                                 

               Notably, in further explanation of clause (vii), the Senate            
          report emphasizes that the exception provided in clause (vii)               
          shall only apply if “the plan or IRA is levied; it does not                 
          apply, for example, if the taxpayer withdrawals funds to pay                
          taxes in the absence of a levy, [or] in order to release a levy             
          on other interests.”  Id.                                                   
               Therefore, the distinction that gives section                          
          72(t)(2)(A)(vii) precedence over the recapture tax clause in                
          section 72(t)(4)(A) is the concept of voluntariness; namely, that           
          clause (vii) is intended to apply where the action that caused a            
          distribution to be made did not originate with the taxpayer                 
          and/or did not occur at the discretion or direction of the                  






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