T.C. Summary Opinion 2007-122
UNITED STATES TAX COURT
ANNA E. AND MARK S. WARRINGTON, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6035-06S. Filed July 19, 2007.
Anna E. and Mark S. Warrington, pro sese.
Ronald S. Collins, for respondent.
RUWE, Judge: This case was heard pursuant to the provisions
of section 74631 of the Internal Revenue Code in effect when the
petition was filed. Pursuant to section 7463(b), the decision to
be entered is not reviewable by any other court, and this opinion
shall not be treated as precedent for any other case.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code 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 of $8,055.90 in
petitioners’ 2004 Federal income tax. The issue we must decide
is whether petitioners are liable for the 10-percent additional
tax for an early distribution from a retirement account under
section 72(t) in 2004.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated by this reference. When the petition was filed,
petitioners resided in West Grove, Pennsylvania.
During 2004, petitioner Anna Warrington (Ms. Warrington)
was employed by Blue Cross/Blue Shield of Delaware as a customer
service representative. Ms. Warrington had worked for Blue
Cross/Blue Shield for 10 years. Apparently due to some problems
involving her daughter, Ms. Warrington began suffering from a
self-characterized “nervous breakdown” in 2004. This breakdown
caused Ms. Warrington to miss work and, often, left her unable to
leave the house. Ms. Warrington’s employment with Blue
Cross/Blue Shield was terminated in May 2004. On June 11, 2004,
MetLife Insurance Co. (MetLife) sent Ms. Warrington a letter
approving her for 1 month of disability benefit payments.
Although Ms. Warrington had seen a psychiatrist in the past
in relation to her problems with her daughter, Ms. Warrington
felt that the psychiatrist’s treatments were unhelpful. At some
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point, Ms. Warrington began seeing a general practitioner, Dr.
O’Brien. Petitioners submitted medical records dated June 2004
pertaining to Ms. Warrington’s medical treatment during the
relevant timeframe, indicating that she was unable to perform
work.
Because Ms. Warrington could not work in 2004, her family
suffered from financial problems. As a result, she withdrew
money from her retirement account in July or August of 2004. Ms.
Warrington began working in 2005 for Comcast in its customer
service department. Although she had some setbacks, on December
20, 2005, Ms. Warrington’s physician wrote in his office notes
that Ms. Warrington could return to work without restrictions.
Ms. Warrington earned wages of $7,653 in 2005 and was employed as
of the date of trial.
Petitioners filed their 2004 joint Federal income tax return
on April 15, 2005. On the return, petitioners reported income
from pensions and annuities in the amount of $80,559. Respondent
issued a notice of deficiency, in which he asserted an increase
in tax of $8,055.90 pursuant to section 72(t) for an early
distribution from Ms. Warrington’s retirement account in 2004.
Ms. Warrington was 45 years old in 2004.
Discussion
As a general rule, the Commissioner’s determinations set
forth in a notice of deficiency are presumed correct, and the
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taxpayer bears the burden of proving that these determinations
are in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933).2
Section 72(t) provides for an additional tax where a person
under the age of 59-1/2 withdraws money from a qualified
retirement account, unless that person falls within an enumerated
exception. Section 72(t)(1) and (2) provides in relevant part:
SEC. 72(t). 10-Percent Additional Tax on Early
Distributions From Qualified Retirement Plans.--
(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
includible in gross income.
(2) Subsection not to apply to certain
distributions.--Except at provided in paragraphs
(3) and (4), paragraph (1) shall not apply to any
of the following distributions:
(A) In general.--Distributions which
are--
* * * * * * *
(iii) attributable to the employee’s
being disabled within the meaning of
subsection (m)(7),[3]
2
Petitioners do not claim that the burden of proof shifts
to respondent under sec. 7491(a).
3
Ms. Warrington testified that the qualified plan at issue
was a sec. 401(k) plan. Distributions from a sec. 401(k) plan
are subject to sec. 72(t). See secs. 4974(c)(1), 401(a).
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Section 72(m)(7) provides:
(7) Meaning of disabled.--For purposes of
this section, an individual shall be considered to
be disabled if he is unable to engage in any
substantial gainful activity by reason of any
medically determinable physical or mental
impairment which can be expected to result in
death or to be of long-continued and indefinite
duration. An individual shall not be considered
to be disabled unless he furnishes proof of the
existence thereof in such form and manner as the
Secretary may require.
Generally, it is intended that the proof of disability be
the same as where the individual applies for disability payments
under Social Security. Dwyer v. Commissioner, 106 T.C. 337, 341
(1996) (citing S. Rept. 93-383 at 134 (1974), 1974-3 (Supp.) C.B.
80, 213).
In Dwyer, we stated:
The regulations, promulgated pursuant to the statutory
authorization contained in section 72(m)(7), provide
that an individual will be considered to be disabled if
he or she is unable to engage in any “substantial
gainful activity” by reason of any medically
determinable physical or mental impairment that can be
expected to result in death or to be of long-continued
and indefinite duration. Sec. 1.72-17A(f)(1), Income
Tax Regs. Significantly, the regulations also provide
that an impairment which is remediable does not
constitute a disability. Sec. 1.72-17A(f)(4), Income
Tax Regs.
Id.
Petitioners contend that Ms. Warrington was disabled within
the meaning of section 72(m)(7), and that they are therefore
entitled to an exception from the additional tax pursuant to
section 72(t)(2)(A)(iii). Ms. Warrington testified that her
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illness was so severe that she was unable to go to work in 2004
and most of 2005. Indeed, Ms. Warrington’s testimony established
that she and her family suffered financially from her inability
to leave the house and make a living during that period.
However, Ms. Warrington’s testimony and the parties’ stipulations
show that Ms. Warrington’s doctor told her and wrote in his notes
on December 20, 2005, that he believed she would be able to
return to work. Ms. Warrington was employed during part of 2005
and at the time of trial.
Notwithstanding the apparent severity of Ms. Warrington’s
illness in 2004, the evidence does not support a conclusion that
her illness fell within the definition of “disabled” as
contemplated by section 72(t) and (m)(7) or the regulations
thereunder. Ms. Warrington resumed work in 2005 and is now able
to engage in an activity comparable to the one in which she
engaged prior to her illness. Accordingly, Ms. Warrington fails
to meet the regulatory requirement that an individual be so
impaired as to be unable to engage in a “substantial gainful
activity”, in order to be exempted from the 10-percent additional
tax. Sec. 1.72-17A(f)(1), (4), Income Tax Regs. Unfortunately
for petitioners, it is not whether their family was in need of
Ms. Warrington’s retirement money due to Ms. Warrington’s
illness; the question is whether a taxpayer fits within the
technical parameters of a particular law. In this situation,
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petitioners withdrew money from Ms. Warrington’s qualified
retirement plan prematurely and failed to fall within the
exception provided in section 72(t) and (m)(7).
For the foregoing reasons, we hold that petitioners are
liable for the 10-percent additional tax under section 72(t) on
the early distribution from Ms. Warrington’s qualified retirement
plan in 2004.
To reflect the foregoing,
Decision will be entered
for respondent.