T.C. Summary Opinion 2006-155
UNITED STATES TAX COURT
CHARLES J. OLINTZ, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 763-05S. Filed September 25, 2006.
Charles J. Olintz, pro se.
Lauren B. Epstein, for respondent.
COUVILLION, Special Trial Judge: This case was heard
pursuant to section 7463 of the Internal Revenue Code in effect
at the time the petition was filed.1 The decision to be entered
is not reviewable by any other court, and this opinion should not
be cited as authority.
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
year in issue, and all Rule references are to the Tax Court Rules
of Practice and Procedure.
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Respondent determined a deficiency in petitioner’s Federal
income tax for 2002 in the amount of $5,361 and the accuracy-
related penalty under section 6662(a) in the amount of $1,072.
The principal issue is whether petitioner is liable for the
10-percent additional tax under section 72(t) for an early
distribution from a qualified retirement plan, and whether
petitioner is liable for the penalty under section 6662(a).2
Some of the facts were stipulated and are incorporated
herein. At the time the petition was filed, petitioner resided
in Melbourne, Florida.
Petitioner was an employee of Bell Atlantic for 10 years.
Bell Atlantic, either by merger or other type of corporate
reorganization, became known as Verizon or Verizon
Communications. During the year 1999, petitioner retired. At
the time of his retirement, petitioner was 56 years old.
As an employee, petitioner was a participant in two pension
plans of his employer. One plan was described as a “Direct
Savings Account Plan”, and the other plan was described as a
“401(k) plan”. Both plans were qualified plans under section
401. The issue in this case arises from a withdrawal by
2
The notice of deficiency also included an adjustment of $62
in unreported interest income. Petitioner conceded that issue at
trial. Petitioner also reported nonemployee compensation of
$2,354, which he reported as other income on his income tax
return. In the notice of deficiency, respondent determined that
this income was subject to self-employment tax. Petitioner did
not challenge that determination.
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petitioner of $50,545.27 from the Direct Savings Account Plan
during the year at issue, 2002. Petitioner included that amount
as income on his 2002 Federal income tax return. Petitioner,
however, did not include a computation or payment of the
additional tax under section 72(t) for an early distribution from
a qualified retirement plan. In the notice of deficiency,
respondent determined that the distribution was subject to the
additional tax under section 72(t).
Section 72(t) imposes a 10-percent additional tax on early
distributions from a qualified retirement plan. Paragraph (1)
provides in relevant part:
(1) Imposition of additional tax.–-If any taxpayer
receives any amount from a qualified retirement plan (as
defined in section 4974(c)), the taxpayer’s tax under this
chapter for the taxable year in which such amount is
received shall be increased by an amount equal to 10 percent
of the portion of such amount which is includable in gross
income.
The 10-percent additional tax, however, does not apply to
certain distributions. Section 72(t)(2) excepts distributions
from the additional tax if the distributions are made: (1) To an
employee age 59-1/2 or older; (2) to a beneficiary (or to the
estate of the employee) on or after the death of the employee;
(3) on account of the employee’s disability; (4) as part of a
series of substantially equal periodic payments made for life;
(5) to an employee after separation from service after attainment
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of age 55; (6) as dividends paid with respect to corporate stock
described in section 404(k); (7) to an employee for medical care;
or (8) to an alternate payee pursuant to a qualified domestic
relations order.
Petitioner acknowledged at trial that he used the proceeds
of the distribution to pay personal expenses and a substantial
amount was used to pay expenses of his fiancee, who was in a
financial bind.
The Court agrees with respondent that petitioner’s use of
the distribution proceeds in this fashion does not exempt the
distribution from the additional tax under section 72(t).
However, section 72(t)(2)(A)(v) provides that the section 72(t)
additional tax does not apply to distributions made to an
employee after separation from service after attainment of age
55. Petitioner testified he was separated from service at age
56. Respondent did not challenge that assertion. On these
facts, the Court sustains petitioner under section
72(t)(2)(A)(v).
Petitioner conceded the other adjustment noted earlier
relating to two items of unreported income. Petitioner presented
no evidence addressing the section 6662 penalty as relates to
these two items. Respondent, therefore, is sustained on the
penalty.
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Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.