T.C. Summary Opinion 2006-62

UNITED STATES TAX COURT

BEVERLY JOHNSON, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5609-05S. Filed April 19, 2006. 

Beverly Johnson, pro se.

Stephen A. Haller, for respondent.

DEAN, 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 as in effect for the year at issue. The decision to

be entered is not reviewable by any other court, and this opinion

should not be cited as authority.
- 2 -

Respondent determined a deficiency in petitioner’s Federal

income tax of $4,899.40 for 2003. The issue for decision is

whether petitioner is liable for the 10-percent additional tax on

an early distribution under section 72(t).

Background

The stipulated facts and the exhibits received into evidence

are incorporated herein by reference. At the time the petition

in this case was filed, petitioner resided in Los Angeles,

California.

In 2003, petitioner was employed by Comcast of California as

a customer service representative. Petitioner began a leave of

absence from Comcast on June 3, 2003. Petitioner filed a claim

for disability insurance benefits with California’s Employment

Development Department (department) on grounds of acute

depression. The claim was approved effective as of June 3, 2003,

and petitioner thereafter received disability insurance benefits

from June 3, 2003, to February 28, 2004.

On January 20, 2004, at the department’s request, petitioner

appeared for an examination with a psychiatrist chosen by the

department. The psychiatrist opined in his written report that

petitioner should be able to return to her regular work beginning

January 20, 2004. On the basis of the report, the department

determined that petitioner was no longer eligible for disability

insurance benefits. The department’s determination was upheld by
- 3 -

a decision from an administrative law judge, and that decision

was subsequently affirmed by the California Unemployment

Insurance Appeals Board. 

At the end of 2003, petitioner received a lump-sum

distribution of $48,994 from her Verizon Pension Plan

(distribution). At the time, petitioner was 52 years old.

On March 26, 2004, petitioner electronically filed a Form

1040, U.S. Individual Income Tax Return, for 2003. The

distribution was reported as income on the return. 

Respondent subsequently issued to petitioner a statutory

notice of deficiency for 2003. Respondent determined that

petitioner is liable for a 10-percent additional tax on the

distribution under section 72(t), because she received the

distribution prematurely.

In her petition, petitioner contended that she is not liable

for the 10-percent additional tax on early distribution, because

she used the distribution to pay her college education expenses. 

Petitioner later conceded at trial that she was not entitled to

the higher education expense exception to avoid the 10-percent

additional tax. Petitioner instead asserted, for the first time,

that she withdrew the distribution on account of her disability.
- 4 -

Discussion

Section 72(t)(1) generally imposes a 10-percent additional

tax on premature distributions from “a qualified retirement plan

(as defined in section 4974(c))”, unless the distributions come

within one of the statutory exceptions under section 72(t)(2).

The legislative purpose underlying the section 72(t) tax is

that “‘premature distributions from IRAs frustrate the intention

of saving for retirement, and section 72(t) discourages this from

happening.’” Arnold v. Commissioner, 111 T.C. 250, 255 (1998)

(quoting Dwyer v. Commissioner, 106 T.C. 337, 340 (1996)); S.

Rept. 93-383, at 134 (1974), 1974-3 C.B. (Supp.) 80, 213. 

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)

provides:

 (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.

The determination of whether a taxpayer is disabled is made

with reference to all the facts of the case. Sec. 1.72-

17A(f)(2), Income Tax Regs. The regulations also set forth

general considerations upon which a determination of disability
- 5 -

is to be made, such as the nature and severity of the impairment. 

Sec. 1.72-17A(f)(1), Income Tax Regs. However, 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 before the

disability. Id. Therefore, the impairment must be evaluated in

terms of whether it does, in fact, prevent the individual from

engaging in her customary, or any comparable, substantial gainful

activity considering the individual’s education, training, and

work experience.

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. Sec. 1.72-17A(f)(3), Income Tax Regs. An impairment

which is remediable does not constitute a disability. Sec. 1.72-

17A(f)(4), Income Tax Regs. 

Petitioner contends that she is eligible for the disability

exception under section 72(t)(2)(A)(iii) because she suffered

from depression which rendered her unable to work as of June of

2003. Petitioner submitted into evidence three notes from a Dr.

Oscar Moore as evidence of her disability. Dr. Moore specializes

in internal medicine and hypertension and is not a psychiatrist. 

In his notes, Dr. Moore certified that petitioner was totally
- 6 -

incapacitated from October 2 to December 2, 2003, and from

February 1 to April 1, 2004. 

Dr. Moore further certified that petitioner was “released to

full duty” on June 7, 2004. Thus, petitioner should have been

capable of engaging in substantial gainful activity as of that

date. See Kovacevic v. Commissioner, T.C. Memo. 1992-609

(holding that the taxpayer was not “disabled” within the meaning

of section 72(m)(7) even though he suffered from severe

depression and was hospitalized twice, because he had not shown

that his condition was irremediable). 

Moreover, as certified by her own physician, petitioner’s

disability was not indefinite. The Court finds that petitioner

was and is not disabled within the meaning of section 72(m)(7)

and is therefore not eligible for the disability exception under

section 72(t)(2)(A)(iii).

The distribution petitioner received is subject to the 10-

percent additional tax under section 72(t).

Reviewed and adopted as the report of the Small Tax Case

Division.

Decision will be entered

for respondent.