Attorney-at-Law

THE 72(t) MISUNDERSTANDING

In Uncategorized on 10/25/2016 at 16:05

High on the list of Robert Gover’s (he of the cult novel The Hundred Dollar Misunderstanding) offspring is the Section 72(t) misunderstanding.

Case in point: Candace Elaine, Docket No. 26078-14S, filed 10/25/16, an off-the-bencher by STJ Lewis (“Oh, that name makes me want to sing”) Carluzzo.

The usual sad tale: Candace gets canned in 2009, as the economy melted down. Like many others, she used her retirement plan (type not stated) to feed and house her family. She declares the income therefrom but pays not the 10% chop thereon. Candace is in the under-59-1/2 set at the time.

Note that even STJ Lew gets messed up, as he states, at p. 5 of the order (page 4 of the transcript) that Candace was under 55; even if she was over 55, she was up for the chop if under 59-1/2.

Candace’s plea that economic distress and hardship should exempt her from the 10% chop avails her naught.

STJ Lew catalogues five (count ‘em, five) cases that say that economic hardship doesn’t help. If you take too young, you’re hung.

“The long list of cases cited above, as well as many others decided by this Court to the same effect, strongly suggests there is a common misunderstanding among taxpayers that financial hardship is an exception to the imposition of an otherwise applicable Section 72(t) additional tax. Petitioner apparently proceeded under that misunderstanding not only with respect to the year here in dispute, but to several previous years as well. Given her explanation at trial, we are satisfied that petitioner had reasonable cause and acted in good faith with respect to the portion of the underpayment of tax resulting from her failure to include Section 72(t) additional tax in the tax liability shown on her 2012 return.” Order, at pp. 6 -7.

So Candace gets a bye on the negligence chop, and her actual deficiency, after STJ Lew gives her credit for some medicals she paid with the distribution (and medicals are OK), is under the five-and-ten radar.

STJ Lew is a judge with a heart, like his colleague, STJ Armen.

But Candace still owes the 10%.

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