When it comes to the Section 72(t) 10% add-on (is it a tax? an addition? a penalty?), exceptions are few and jealously guarded by IRS. And Judge Buch has bad news for Kathryn J. Gillette and Raif Szczepanski, 2018 T. C. Memo. 195, filed 11/20/18.
Kathryn’s prescription-drug-induced compulsive gambling isn’t a “disability” sufficient to get Kathryn off the hook for the 10% whatever.
Her insurer wanted her to go generic with a prescription medicine, so she did. But the dosages had to be increased, and that triggered the compulsive behavior. Finally, having nearly ruined her life, she stopped taking the stuff.
I don’t know if any of my readers have witnessed the nastier prescription drug side effects in anyone they know; I have. It’s no joke. Some of that stuff can be deadly.
But for tax purposes, no one so suffering is disabled for Section 72(t)(2) relief.
“Ms. Gillette argues that her gambling addiction falls under two examples enumerated in section 1.72-17A(f)(2), Income Tax Regs. The first is ‘[d]amage to the brain or brain abnormality which has resulted in severe loss of judgment, intellect, orientation, or memory”. The second is ‘[m]ental diseases (e.g. psychosis or severe psychoneurosis) requiring continued institutionalization or constant supervision of the individual’. Notwithstanding these two examples ‘[a]n impairment which is remediable does not constitute a disability within the meaning of section 72(m)(7).” An impairment is remediable if the taxpayer can treat the impairment ‘with reasonable effort and safety to himself’, and where the taxpayer ‘will not be prevented by the impairment from engaging in his customary or any comparable substantial gainful activity.’” 2018 T. C. Memo. 195, at pp. 16-17. (Footnotes omitted, but they’re just cites to the IRC and regs.)
Kathryn’s doctors took her off the medication, so the condition was “remediable.”
How the taxpayer is supposed to know this while the mental firestorm is going on is nowhere stated.
And Kathryn’s bid for an OIC based on ETA fails. The SO didn’t send her case to the ETA unit, but didn’t have to. Kathryn wasn’t sufficiently disabled, says Judge Buch.
Takeaway- For Section 72(t)(2) relief, one has to be seriously, irremediably, disabled.
