T.C. Summary Opinion 2009-21
UNITED STATES TAX COURT
SUSAN ELIZABETH MACHLAY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13291-07S. Filed February 10, 2009.
Susan Elizabeth Machlay, pro se.
Jon D. Feldhammer, for respondent.
PANUTHOS, Chief Special Trial Judge: This case was heard
pursuant to the provisions of section 7463 of the Internal
Revenue Code in effect when the petition was filed.1 Pursuant to
section 7463(b), the decision to be entered is not reviewable by
1
Unless otherwise indicated, all 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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any other court, and this opinion shall not be treated as
precedent for any other case.
Respondent determined a deficiency of $8,555.70 in
petitioner’s 2005 Federal income tax.
The issue for decision is whether petitioner is liable for
the 10-percent additional tax imposed by section 72(t) on an
early distribution she received in 2005 from an employer-provided
pension plan.
Background
Some of the facts have been stipulated, and we incorporate
the stipulation and accompanying exhibits by this reference.
Petitioner was born in 1958 and lived in California when she
filed the petition.
Petitioner began working for a telephone company in 1980.
In 1993 the company fired petitioner over an incident with a
customer. However, she was diagnosed with a medical problem and
began treatment. The telephone company reinstated her about 6
weeks later (with seniority but without backpay). Petitioner’s
medical condition continued and was later exacerbated by certain
choices petitioner made.2 As a result, petitioner was absent
from work many times.
2
Petitioner described the diagnoses and treatment she
received for her medical problems, and she explained the self-
destructive choices she made which amplified her medical
problems.
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Petitioner quit her job in August 2005 because she was
afraid more absences would result in the company’s firing her and
in her losing her entire pension. Petitioner withdrew $85,557 in
a lump-sum distribution from the company’s pension plan in 2005
and reported the entire amount as income on her Federal tax
return.
Petitioner worked intermittently between August 2005 and the
fall of 2006, when she realized her funds were running out. In
2006 petitioner enjoyed a substantial improvement in her medical
condition. She found a job at a small newspaper, and she was
working at the time of trial. The pay was far less than what she
had earned working for the telephone company.
Respondent determined a deficiency of $8,555.70, resulting
from the 10-percent additional tax imposed by section 72(t) on
petitioner’s distribution, and issued a notice of deficiency.
Petitioner filed a timely petition for redetermination.
Petitioner asserts that she cannot afford to pay the additional
tax. As of the time of trial, petitioner was not receiving
either treatment or medication for the medical problems that
plagued her in 2005.
Discussion
In general, the Commissioner’s determinations set forth in a
notice of deficiency are presumed correct, and the taxpayer bears
the burden of proving that these determinations are in error.
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Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Pursuant to section 7491(a), the burden of proof as to factual
matters shifts to the Commissioner under certain circumstances.
Petitioner has neither alleged that section 7491(a) applies nor
established her compliance with its requirements. Petitioner
therefore bears the burden of proof.3
Section 72(t) generally provides for a 10-percent additional
tax on an early distribution from a qualified retirement plan,
unless the distribution comes within one of the statutory
exceptions. Sec. 72(t)(1) and (2). At issue here is the
exception provided in section 72(t)(2)(A)(iii), pertaining to
distributions attributable to an employee’s being disabled within
the meaning of section 72(m)(7).
Section 72(m)(7) defines the term “disabled” as follows:
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.
3
In any event, we do not decide the issue in this case on
the burden of proof. Also, regardless of whether the additional
tax under sec. 72(t) would be considered an “additional amount”
under sec. 7491(c) and regardless of whether the burden of
production with respect to this additional tax would be on
respondent, respondent has met any such burden of production by
showing that petitioner received the distribution when she was 46
or 47 years of age. See H. Conf. Rept. 105-599, at 241 (1998),
1998-3 C.B. 747, 995.
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A disability must render a taxpayer unable to engage in the
same activity or an activity comparable to the one the taxpayer
engaged in before the disability arose. Sec. 1.72-17A(f)(1),
Income Tax Regs. The regulation lists a number of examples of
impairments that would ordinarily be considered to prevent a
taxpayer’s engaging in substantial gainful activity. Sec. 1.72-
17A(f)(2), Income Tax Regs. However, the regulation makes it
clear that the expected duration of the impairment must be
indefinite and that the impairment must be irremediable. If with
reasonable effort and safety an impairment can be so diminished
that it will not prevent the taxpayer from engaging in her
customary or comparable gainful activity, then the taxpayer is
not disabled within the meaning of section 72(m)(7) and she is
not eligible for the disability exception of section
72(t)(2)(A)(iii). Kovacevic v. Commissioner, T.C. Memo. 1992-
609; sec. 1.72-17A(f)(4), Income Tax Regs.
In 2006 petitioner discontinued the self-destructive life
choices which had previously increased the severity of her
medical condition. She explained at trial that although she
received treatment from doctors in 2005, she did not seek or
require constant care or supervision, then or later. At the time
of trial she was not being treated or taking medication for these
ailments.
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Petitioner worked intermittently while her pension funds
lasted and then struggled to find permanent employment. Although
she was unable to secure a job as remunerative as her position
with the telephone company, she was gainfully employed in a
position that provided her funds for food, shelter, and regular
visits to her family.
Absent persuasive evidence that petitioner’s ailments were
permanent and irremediable and precluded her from engaging in
substantial gainful activity, we conclude that petitioner does
not qualify for the exception provided by section
72(t)(2)(A)(iii). See Dwyer v. Commissioner, 106 T.C. 337, 341
(1996); Kowsh v. Commissioner, T.C. Memo. 2008-204.
We conclude on this record that petitioner is subject to the
additional 10-percent tax imposed by the statute on early
distributions.
To reflect our disposition of the issues,
Decision will be entered
for respondent.