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During 2004, there were two additional retirement
distributions to Mr. Olivas that were not shown on either the
original or the amended return: $654 from the Social Security
Administration, from which no Federal tax was withheld, and
$1,940 from the Arizona State Retirement System, from which $388
of Federal tax was withheld. Petitioner did not know that these
distributions had been made.3 Hereinafter, these distributions
will be referred to as the additional distributions.
Inclusion of the additional distributions in income caused
an increase in the couple’s 2004 adjusted gross income, a
reduction in their allowable itemized deductions, a consequent
increase in their income tax, and a 10-percent additional tax on
early distributions from qualified retirement plans. The
increased income tax was offset by a corresponding increase in
the child tax credit. The 10-percent additional tax on early
distributions from qualified retirement plans was offset by the
amount withheld by the Arizona State Retirement System. However,
the inclusion of the additional retirement distributions in
income caused a reduction in the amount of allowable earned
income credit, and the increase in the child tax credit used to
offset the income tax reduced the amount of allowable additional
3Petitioner and Mr. Olivas did not have a joint bank
account.
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Last modified: March 27, 2008