The story of Jennifer Lynn Fields, featured in 2014 T. C. Memo. 48, filed 3/19/14, is an example of the truth of this headline, cribbed from my blogpost “Cracking Up”, 2/27/14.

Jenny had a 401(k) with that alleged corporate badguy Wal-Mart. When Jenny and Wally parted ways, Jenny took her 401(k) by check, asking Wally to withhold whatever tax she owed.

Wally took 20%, sent it to the Feds, and gave Jenny a 1099-R. Jenny reports the income and the withholding. Jenny was less than 59-1/2 years of age on the last day of the year in question. Jenny prepared her own return.

Need I say more? Battle-hardened practitioners can see the SNOD coming.

Judge Vasquez is sorry, but of course has no choice; Jenny owes the 10% excise tax on this early distribution. “…petitioner admits that the distribution was not used to pay medical expenses, health insurance premiums, or expenses attributable to a disability, or to make a first home purchase.” 2014 T. C. Memo. 48, at p. 3. So Jenny can’t use the safe harbors of Section 72(t)(2).

“Petitioner argues that she should not be required to pay any additional tax because she asked that all taxes be withheld at the time of the distribution. Despite her good intentions, petitioner should have reported a 10% additional tax on the distribution on line 58 of her return. Petitioner’s failure to do so caused her to improperly claim a $639 refund.” 2014 T. C. Memo. 48, at p. 5.

Judge Vasquez is “sympathetic to petitioner’s plight”, but the law is clear. Jenny owes the 10%.

And Jenny, don’t trust Wal-Mart to give you tax advice.