The exclusions from taxable income of IRA distributions are few and narrow. There are no hardship exceptions, or medical expense exceptions except for expenses paid by taxpayer, for self, spouse or dependent, and then only to extent exceeds the 7.5% or 10% AGI limitation. And while reliance on expert may save taxpayer the penalties, it will not save the tax.

Here’s another example on a dull day, Cheryl Lynn Ireland, 2015 T. C. Sum. Op. 60, filed 10/1/15.

STJ Daniel A. (“Yuda”) Guy tells the story.

Cheryl Lynn is under the 59-1/2 plateau. Thus the Section 72(t) additional tax on her IRA distribution she used to pay her son’s medical expenses.

The problem is her son isn’t a dependent. “Likewise, section 72(t)(2)(B) limits the imposition of additional tax to the extent that retirement plan distributions do not exceed the amount allowable as a deduction under section 213 (i.e., ‘the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent (as defined in section 152 * * *)’). The record reflects that petitioner did not claim her son as a dependent for the year in issue and fails to demonstrate that her son met the definition of a dependent provided in section 152.” 2015 T.C. Sum. Op. 60, at p. 6.

Cheryl Lyn said her accountant told her it was OK to leave out the IRA distribution. That’s definitely a “no go.”

“Petitioner’s alleged reliance on the mistaken advice of her accountant does not excuse her from the obligation to include the IRA distribution in her taxable income for the year in issue or to pay the appropriate amount of Federal income tax and additional tax related thereto. See United States v. Boyle, 469 U.S. 241, 252 (1985); De Aycardi v. Commissioner, T.C. Memo. 1997-308, slip op. at 7-8 (‘Reasonable reliance on an agent may constitute a possible defense to penalties but not to the underlying tax [liability].’).

“Petitioner maintains that it would be inequitable to hold her liable for the additional tax due. We have considered similar claims in the past and have observed that there is no authority in the Code, the legislative history, or caselaw for a general financial hardship exception to the imposition of the 10% additional tax on early distributions.” 2015 T.C. Sum. Op. 60, at p. 7.

Tax Court doesn’t rewrite the law, Cheryl Lynn.