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additional tax on early distributions imposed by section
72(t)(1).
Initially, the Internal Revenue Service promulgated guidance
concerning the exception for substantially equal periodic
payments in Notice 89-25, Q&A-12, 1989-1 C.B. 662, 666. That
notice states that payments will be considered to be
substantially equal periodic payments if the annual payment is
determined by one of three methods: (1) Under a method that
would be acceptable for purposes of calculating the minimum
distribution required under section 401(a)(9); (2) by amortizing
the taxpayer's account balance over the life expectancy of the
account owner or the joint life and last survivor expectancy of
the account owner and beneficiary at an interest rate that does
not exceed a reasonable interest rate on the date payments
commence; or (3) by dividing the taxpayer's account balance by an
annuity factor (the present value of an annuity of $1 per year
beginning at the taxpayer's age attained in the first
distribution year and continuing for the life of the taxpayer)
with such annuity factors derived using a reasonable mortality
table and using an interest rate that does not exceed a
reasonable interest rate on the date payments commence.
Notice 89-25, supra, also refers to the so-called recapture
rule set forth in section 72(t)(4) which applies if the series of
periodic payments is subsequently modified (other than by death
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