In Uncategorized on 03/12/2015 at 17:14

No, it’s nothing about tin whistles or foghorns; for that, see Lonnie Donegan’s 1959 cover of the 1924 Billy Rose, Ernest Breuer, and Marty Bloom chewing gum canzone.

Rather, this is a reprise of Ralim S. El, formerly just a request for enlightenment from Judge Marvel in an old order, more particularly bounded and described in my blogpost “Mein! Was Ist Das?”, 5/16/14.

Judge Marvel wanted to know upon whom descends the burden of proof for the Section 72(t) 10% chop for premature IRA withdrawals. She asked Ralim and IRS to enlighten her, because Section 7491(c) places the burden on IRS for “penalties, additions to tax, and additional amounts”, but on petitioners for “taxes”.

Now Section 72(t) calls the chop an “additional tax”, but does that make it a tax? And please don’t ask Chief Justice Roberts.

Well, it took almost a year, but we have an answer to this “hotly burning question”. And it’s inscribed in a full-dress T. C., 144 T. C. 9, filed 3/12/15.

Ralim is arguing that, since withholding was taken from his wages at the Manhattan Psychiatric Center (not to be confused with a structure at 60 Centre Street, despite certain resemblances), he needn’t file a return. Well, he loses, but since IRS can’t find an SFR, Ralim doesn’t get the failure to pay chop.

But his premature withdrawal (still no evidence of Ralim’s age in the year at issue) is subject to tax and additional tax.

Enlightened Judge Marvel: “Section 7491(c) provides as follows: ‘Penalties.–Notwithstanding any other provision of this title, the Secretary shall have the burden of production in any court proceeding with respect to the liability of any individual for any penalty, addition to tax, or additional amount imposed by this title.’ The terms ‘penalty, addition to tax, or additional amount’ mirror, in part, the title of chapter 68 of the Code: ‘Additions to the Tax, Additional Amounts, and Assessable Penalties’. What these terms have in common is that they refer to amounts that are assessed and collected as taxes but are not themselves taxes or surtaxes.” 144 T. C. 9, at pp. 12-13 (Citations and footnotes omitted).

And the Section 72(t) chop is called a tax elsewhere in the IRC: see Sections 26(b)(2), 401(k)(8)(D), (m)(7)(A), 414(w)(1)(B), and 877A(g)(6).

Finally, “…section 72(t) is in subtitle A, chapter 1 of the Code. Subtitle A bears the descriptive title “Income Taxes”, and chapter 1 bears the descriptive title ‘Normal Taxes and Surtaxes’. Chapter 1 provides for several income taxes, and additional income taxes are provided for elsewhere in subtitle A. By contrast, most penalties and additions to tax are in subtitle F, chapter 68 of the Code. In Ross v. Commissioner, T.C. Memo. 1995-599, 70 T.C.M. (CCH) 1596, 1600-1601 (1999), we relied on some of the same reasons in holding that the additional tax under section 72(t) is a tax and not a penalty for purposes of section 6013(d)(3) (relating to joint and several liability).” 144 T. C. 9, at p. 14. (Footnote omitted).

And that’s what Congress wanted. “The legislative history indicates that sec. 72(t) was enacted to ‘impose an additional income tax on early withdrawals’ to discourage early withdrawals from retirement accounts for nonretirement purposes and, in the event of such early withdrawals, to recapture a measure of the tax benefits provided. H.R. Rept. No. 99-426, at 729 (1985), 1986-3 C.B. (Vol. 2) 1, 729; S. Rept. No. 99-313, at 613 (1986), 1986-3 C.B. (Vol. 3) 1, 613; see Pulliam v. Commissioner, T.C. Memo. 1996-354.” 144 T. C. 9, at p. 14, footnote 13.

Self-represented Ralim didn’t put in any evidence that he wasn’t liable for the chop, so he gets it, with a Section 6673 frivolity warning thrown in at no extra charge.

Thanks, IRS and Judge Marvel. Now, if tin whistles are made out of tin, what do they make foghorns out of?



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