T.C. Summary Opinion 2004-57

UNITED STATES TAX COURT

BERNADETTE WILLIAMS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 123-03S. Filed May 13, 2004.

Bernadette Williams, pro se.

Richard F. Stein, for respondent.

CARLUZZO, Special Trial Judge: This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the taxable year in issue. The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority.
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1 The record contains little information regarding the

exact nature of the retirement plan. The parties proceeded as

though the retirement plan is described in secs. 72(t) and

4974(c), and we do likewise.

Respondent determined a deficiency of $1,609.80 in

petitioner’s 2000 Federal income tax. The issue for decision is

whether petitioner is liable for the 10-percent additional tax

imposed by section 72(t) with respect to a distribution from a

qualified retirement plan.

Background

Some of the facts have been stipulated and are so found. At

the time the petition was filed, petitioner resided in Burke,

Virginia.

Petitioner began working at the U.S. Postal Service (USPS)

as a mail carrier in 1985 and, at least as of the date of trial,

has been employed by USPS in some capacity ever since. As an

employee of USPS, petitioner participated in a qualified

retirement plan (the retirement plan) made available to her

through her employer.1 During 1999 petitioner borrowed from, and

made some repayments to, the retirement plan. 

Petitioner began experiencing back problems in 1995.

Her back problems caused her to miss work from October through

December 4, 1999. During that time she stopped making loan

repayments to the retirement plan.
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On December 2, 1999, petitioner’s physician cleared

petitioner to return to “full duty” work with USPS. Shortly

thereafter, petitioner returned to work at USPS and resumed her

duties as a mail carrier. 

Petitioner filed a bankruptcy proceeding in January 2000. 

Throughout 2000, petitioner made specified payments to her

various creditors as required by the terms of the bankruptcy

plan; however, the bankruptcy plan did not provide for any

repayments to the retirement plan. Accordingly, petitioner did

not resume making loan repayments to the retirement plan.

In or around May 2000, petitioner’s back condition caused

her to stop working again. In September 2000, the U.S.

Department of Labor denied petitioner’s disability claim. In a 

letter dated May 18, 2001, petitioner’s physician stated that

petitioner could perform all duties with respect to her job

except for getting in and out of the mail truck, and that she

could return to “light duty” work. After being away from work

for approximately 1 year, petitioner returned to work for 4 hours

a day, but she did not resume her job as a mail carrier. In a

letter dated October 9, 2001, petitioner’s physician further

stated that petitioner is “not totally disabled” and that she is

“capable of working an eight hour day” within prescribed limits. 

In March 2002, petitioner returned to work full-time.
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2 Petitioner does not argue for the application of sec.

7491.

As of the close of 2000, petitioner had not attained the age

of 59 1⁄2. At the time, her outstanding loan balance from the

retirement plan was $16,098 (the distribution). The distribution

is reported on a Form 1099-R, Distributions From Pensions,

Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance

Contracts, etc., issued to petitioner by USPS. 

Petitioner filed a timely 2000 Federal income tax return. 

In addition to other items, the distribution is included in the

income reported on that return. The Federal income tax reported

on her 2000 return does not include the additional tax imposed by

section 72(t). In the notice of deficiency, respondent

determined that petitioner is liable for the additional tax

imposed by section 72(t) with respect to the distribution.

Discussion2

Section 72(t)(1) imposes an additional tax on early

distributions from qualified retirement plans “equal to 10

percent of the portion of such amount which is includable in

gross income.” Failure to make any installment payment when due

in accordance with the terms of a loan from a qualified

retirement plan may result in a taxable distribution. Sec.

72(p). Accordingly, a loan that constitutes a taxable

distribution is subject to the 10-percent additional tax on early
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distributions under section 72(t). Plotkin v. Commissioner, 

T.C. Memo. 2001-71. 

The additional tax imposed by section 72(t) does not apply

to certain distributions from qualified retirement plans. For

example and most common, distributions that are made on or after

the date on which the taxpayer attains the age of 59 1⁄2 are not

subject to the additional tax. Sec. 72(t)(2)(A)(i). Petitioner

did not attain the age of 59 1⁄2 as of the close of 2000, and she

does not claim that she did. Instead, she argues that section

72(t) is not applicable to the distribution because she was

disabled at the time. She further suggests that the section

72(t) additional tax should not be imposed because she was

prohibited from making loan repayments to her retirement plan 

by the terms of her bankruptcy plan. 

Among other exceptions, none of which applies here, section

72(t)(2)(A)(iii) provides an exception for distributions

“attributable to the employee’s being disabled within the meaning

of subsection (m)(7)”. Section 72(m)(7) defines the term

“disabled” as follows:

(7) Meaning of disabled.--For purposes of this section,

an individual shall be considered to be disabled if he

is unable to engage in any substantial gainful activity

by reason of any medically determinable physical or

mental impairment which can be expected to result in

death or to be of long-continued and indefinite

duration. An individual shall not be considered to be

disabled unless he furnishes proof of the existence

thereof in such form and manner as the Secretary may

require.
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The determination of whether a taxpayer is disabled is made

on the basis of all the facts. Sec. 1.72-17A(f)(2), Income Tax

Regs. The regulations emphasize that the “substantial gainful

activity” to which section 72(m)(7) refers is the activity, or a

comparable activity, in which the individual customarily engaged

prior to the disability. Sec. 1.72-17A(f)(1), Income Tax Regs.

The regulations also provide that the nature and severity of the

impairment are the primary consideration in determining whether

an individual is able to engage in any substantial gainful

activity. Id. Other factors to consider in the evaluation of

the impairment include the taxpayer’s education, training, and

work experience. Sec. 1.72-17A(f)(2), Income Tax Regs. 

Therefore, the impairment must be evaluated in terms of whether

it does, in fact, prevent the individual from engaging in his

customary, or any comparable, substantial gainful activity. Id.

Additionally, the impairment must be expected either to

continue for a long and indefinite period or to result in death.

Sec. 1.72-17A(f)(3), Income Tax Regs. In this context, the term

“indefinite” means that it cannot reasonably be anticipated that

the impairment will, in the foreseeable future, be so diminished

as no longer to prevent substantial gainful activity. Id. More

specifically, the regulations provide that “An individual will

not be deemed disabled if, with reasonable effort and safety to
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himself, the impairment can be diminished to the extent that the

individual will not be prevented by the impairment from engaging

in his customary or any comparable substantial gainful activity.”

Sec. 1.72-17A(f)(4), Income Tax Regs.

Respondent contends that petitioner was not disabled within

the meaning of section 72(m)(7). Specifically, respondent argues

that petitioner’s condition did not persist for a long and

indefinite period as to prevent her from engaging in substantial

gainful activity within the meaning provided by the above

regulations.

Although petitioner’s back condition began in 1995, she

continued to work full-time as a mail carrier until October 1999. 

After approximately a 2-month absence from her job in 1999,

petitioner was cleared by her physician to return to “full duty”

work as a mail carrier. Petitioner continued to work full-time

as a mail carrier until May 2000, at which time petitioner again

stopped working due to her back condition. In September 2000,

the U.S. Department of Labor denied petitioner’s disability

claim. In May 2001, petitioner’s physician determined that she

could return to “light duty” work at USPS. Petitioner returned

to work part-time in the office at USPS in May 2001. In October

2001, petitioner’s physician further determined that she was not
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3 Because petitioner was working full-time as a mail

carrier, she was likewise not disabled within the meaning of sec.

72(m)(7) at the time that she obtained the loan from the

retirement plan.

disabled and fully capable of working an 8-hour day. Petitioner

returned to work full-time in March 2002.

Based on the record before us, we find that petitioner’s

condition was not of a long-continued and indefinite duration as

required by section 72(m)(7). Petitioner’s condition did not

prevent her from returning, and, in fact, petitioner did return,

to comparable substantial gainful activity at USPS. Therefore,

we find that petitioner was not disabled within the meaning of

section 72(m)(7) at the time of the distribution.3 

Petitioner’s suggestion with respect to the consequences of

the bankruptcy plan is somewhat undermined by the fact that she

stopped making repayments prior to the date that the bankruptcy

proceeding was commenced. Furthermore, there is no specific 

exception under section 72(t)(2) that addresses her situation. 

With respect to section 72(t), this Court has repeatedly ruled

that it is bound by the list of statutory exceptions under

section 72(t)(2), none of which is applicable here. Arnold v.

Commissioner, 111 T.C. 250, 255 (1998); Schoof v. Commissioner,

110 T.C. 1, 11 (1998); Swihart v. Commissioner, T.C. Memo. 1998-

407. Although the Court is somewhat sympathetic to petitioner’s

situation, we are constrained to sustain respondent’s
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determination. Accordingly, we hold that petitioner is liable

for the additional tax imposed by section 72(t) with respect to

the distribution. 

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing,

Decision will be entered

for respondent.