Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Friday, September 30, 2011

Tax Court Rules on Penalty for Early Retirement Distribution

Taxes-dollars Ms. Watson was a participant in her employer’s qualified retirement plan. At age fifty-five, Ms. Watson received $30,006 in distributions from the qualified plan and included the amount as income on her income tax return. Ms. Watson paid the tax on the $30,006 but did not include the ten percent additional tax of that amount.

The IRS issued a notice of deficiency and determined that because Ms. Watson had not reached age fifty-nine and half at the time of the distributions, she was liable for the ten percent additional tax of the $3,000.60. Ms. Watson argued she qualified for the exception to the additional ten percent tax because she did not receive the distributions until after she was fifty-five years old.

In Watson v. Commissioner, T.C. Summary Opinion 2011-113 (Sep. 28, 2011), the U.S. Tax Court held that Ms. Watson was required to pay the additional ten percent penalty on the retirement distributions under section 72(t) because she “was obviously less than 59-1/2 years of age when she received $30,006 in distributions.”

See Adam Bair, Taxpayer Required to Pay Penalty for Early Retirement Distribution, Wealth Strategies Journal 2.0, Sep. 29, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for brining this article to my attention.


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