T.C. Memo. 2004-11

UNITED STATES TAX COURT

GRACEANN BERRY, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 6951-02. Filed January 12, 2004.

Graceann Berry, pro se.

Timothy Maher, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GERBER, Judge: Respondent determined a $966 deficiency for

petitioner’s 1999 taxable year. The deficiency is attributable,

in substantial part, to the disputed issue of whether petitioner

is liable for a 10-percent penalty for the early distribution of

$9,514 from a qualified retirement plan. There was also a small, 
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1 Petitioner presented no evidence and made no argument

concerning the computational adjustment and, accordingly,

respondent’s determination on that item is sustained.

purely mathematical adjustment relating to petitioner’s incorrect

use of the tax tables in computing her tax.1

FINDINGS OF FACT 

Petitioner was a resident of Miami, Florida, at the time of

the filing of her petition in this proceeding. Petitioner timely

filed a 1999 U.S. Individual Income Tax Return (Form 1040). On

that return, petitioner reported taxable distributions from

“pensions and annuities” in the amounts of $6,700 and $9,514,

which resulted in an adjusted gross income of $16,214. 

Petitioner attached to the 1999 Form 1040 a Form 5329, Additional

Taxes Attributable to IRAs, Other Qualified Retirement Plans,

Annuities, Modified Endowment Contracts, and MSAs, indicating

that $3,293.20 of the $6,700.00 distribution was for qualified

medical expenses and excepted from the 10-percent additional tax

for early distribution. Petitioner also contends that she

attached a second Form 5329 to her return for 1999, seeking to

except the $9,514 distribution from the 10-percent additional tax

for early distribution from qualified retirement plans, but the

copy of the 1999 return stipulated by the parties does not

contain the Form 5329 with respect to the $9,514 taxable

distribution.
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2 All section references are to the Internal Revenue Code as

amended and in effect for the period under consideration.

During February 1999, petitioner suffered illness from

exposure to chemicals used to fumigate her leased living

quarters. Petitioner reached agreement with her landlord to be

released from her lease obligation in exchange for her releasing

her landlord for any responsibility for her illness. On March 1,

2002, respondent timely issued a notice of deficiency to

petitioner. In the notice of deficiency respondent determined

that petitioner was liable for the 10-percent additional tax with

respect to the $9,514 distribution. 

OPINION 

Section 72(t)2 imposes a 10-percent additional tax on early

distribution from qualified retirement plans. There is no

dispute about the distribution’s being “early” and otherwise

subject to the 10-percent additional tax. The question we

consider is whether petitioner qualified for the exception from

the 10-percent additional tax under section 72(t)(2)(B). That

section provides for an exception from the 10-percent additional

tax for distributions made to employees “to the extent such

distributions do not exceed the amount allowable as a deduction

under section 213 to the employee for amounts paid during the

taxable year for medical care (determined without regard to

whether the employee itemizes deductions for such taxable year).”

Respondent did not question petitioner’s claim that
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$3,293.20 of the $6,700.00 distribution was for qualified medical

expenses and was an exception to the 10-percent additional tax

due to early distribution. In that regard, petitioner claimed a

standard deduction of $4,300 on her 1999 income tax return. 

Presumably, respondent assumed that petitioner’s medical

deductions did not exceed the standard deduction and that the

$3,293.20 amount claimed for exception from the additional tax

was a feasible amount, which was less than the claimed standard

deduction of $4,300.

At trial, petitioner described her illness during 1999, but

she neither testified to nor provided evidence of the amount

incurred for medical care during the 1999 year. Her testimony

with respect to the medical care expenses was vague. Petitioner

simply stated that the medical care expenses were large. 

Petitioner’s testimony also included a very implausible

explanation for why she did not have documentary evidence either

showing that she attached the second Form 5329 (covering the

$9,514 distribution) or the type and amount of medical expenses

incurred for care during 1999. We also note that petitioner’s

testimony was contradictory and selective as to her reasons for

not having documentary evidence. Petitioner claimed that she

discarded her records because they had become besmirched by a

sewage overflow 1 week prior to trial. In spite of that claim,

petitioner did provide the Court with some related documents. 

Petitioner’s explanation regarding the supporting documentation
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was questionable considering the fact that the documents she did

provide to the Court would have been part of the documents she

claimed to have discarded due to the alleged sewage problem.

Petitioner’s argument must fail for failure to show that the

amount that should be excepted under section 72(t)(2)(B) exceeded

the amount allowed by respondent.

To reflect the foregoing,

Decision will be entered

for respondent.