T.C. Summary Opinion 2007-101

UNITED STATES TAX COURT

STEVEN A. DYKES, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 6488-06S. Filed June 20, 2007.

Steven A. Dykes, pro se.

Erin K. Salel, for respondent.

DEAN, Special Trial Judge: This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code. 

Unless otherwise indicated, subsequent section references are to

the Internal Revenue Code as in effect for the year at issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure. Pursuant to section 7463(b), the decision to be

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

shall not be treated as precedent for any other case.
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Respondent determined for 2003 a deficiency in petitioner’s

Federal income tax of $3,909. The issue for decision is whether

a qualified retirement plan distribution was attributable to

petitioner’s being “disabled” within the meaning of section

72(m)(7), thereby excepting him from liability for the section

72(t) 10-percent additional tax.

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 Yuma, Arizona. 

During the year in issue, petitioner was a detention officer

at Grays Harbor County Juvenile Court Services in the State of

Washington. Petitioner had been a detention officer for 17

years.

In the early 1990s, petitioner suffered an illness

characterized by profound fatigue which was later diagnosed as

hepatitis C. Petitioner received medical treatment, and his

medical report noted that he “did well for a number of years with

excellent physical reserve and stamina.”

At the end of 2002, petitioner began to develop some

fatigue, and he requested a medical evaluation. Dr. William

Mitchell, petitioner’s physician, determined that petitioner had

an apparent viral recurrence of hepatitis C. From approximately

March to August of 2003, petitioner received medication to treat
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1Since this case is decided by applying the law to the

undisputed facts, sec. 7491 is inapplicable.

his illness. In September of 2003, petitioner quitted his job

and moved to Arizona.

The State of Washington’s Public Employees’ Retirement

System filed with respondent a Form 1099-R, Distributions From

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

Insurance Contracts, etc., reporting that petitioner received an

early distribution of $39,087.10 in 2003 (distribution). At the

time, petitioner was 50 years old.

Petitioner filed for 2003, a Form 1040, U.S. Individual

Income Tax Return, reporting the distribution as income. 

Respondent subsequently issued to petitioner a statutory notice

of deficiency for 2003, determining that petitioner is liable for

an additional tax of $3,909 for an early distribution from his

retirement plan.

Discussion

The Commissioner’s determinations are presumed correct, and

generally taxpayers bear the burden of proving otherwise.1 Rule

142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Respondent determined that, under section 72(t)(1),

petitioner is liable for a 10-percent additional tax on an early

distribution from his retirement plan. Petitioner disputes

respondent’s determination, contending that he is not liable for
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the additional tax because he became disabled during 2003. 

Petitioner claims that the distribution was used to cover both

daily living costs and medical costs. 

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 (1973), 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-
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17A(f)(2), Income Tax Regs. The regulations also set forth

general considerations upon which a determination of disability

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 his customary, or any comparable, substantial gainful

activity considering the individual’s education, training, and

work experience.

According to Dr. Mitchell’s medical reports, petitioner

experienced fatigue as a result of his illness. Nevertheless,

petitioner was able to continue working. In order to treat the

fatigue, petitioner was prescribed a medication called Ritalin. 

Dr. Mitchell noted on petitioner’s subsequent visits that Ritalin

had made a significant difference in petitioner’s work

performance and that petitioner was having less problems with

fatigue and attention. 

Petitioner’s illness, however, ultimately prompted him to

switch to a graveyard shift which had a lighter workload. See

Thomas v. Commissioner, T.C. Memo. 2005-258 (holding that the

taxpayer was still able to engage in substantially gainful
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activity even though she was forced to switch from full-time to 

part-time). Dr. Mitchell’s medical reports indicate that

petitioner was not so impaired as to be unable to engage in any

substantial gainful activity during 2003. See Dwyer v.

Commissioner, supra at 341 (holding that the taxpayer was not

“disabled” within the meaning of section 72(m) because the

taxpayer continued to function in his customary activity despite

facing clinical depression).

Petitioner claims that, contrary to Dr. Mitchell’s reports,

he did not work from March to July of 2003 because of his

illness. At trial, petitioner presented as evidence a letter

that was handwritten on a plain piece of paper from a Thomas

Morgan. Morgan allegedly was a former Director of Detention

services at Grays Harbor County Juvenile Court. Morgan stated in

the letter that petitioner took a leave of absence from his job

as a detention officer from approximately mid-March to the end of

July of 2003 because of a “major medical problem”. The Court

finds that the letter, by itself and without more, is of little

probative value.

Even if it is true that petitioner did not work while he

received treatment for hepatitis C in 2003, i.e., he did not

engage in substantial gainful activity, he must still show that

his illness was expected to continue for a long and indefinite

period to satisfy the meaning of “disabled” under section
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72(m)(7). Sec. 1.72-17A(f)(3), Income Tax Regs. 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.

Petitioner testified at trial that he has recovered from his

illness and that he feels fine now. Petitioner’s illness,

therefore, is not indefinite.

Petitioner argues that he was disabled during 2003. He

claims that hepatitis C is “indefinite” in the sense that it is

an incurable and permanent disease. Although petitioner’s

hepatitis C is permanent, this condition is remediable through

medication. The regulations provide that an impairment which is

remediable does not constitute a disability within the meaning of

section 72(m)(7). Sec. 1.72-17A(f)(4), Income Tax Regs. Section

1.72-17A(f)(4), Income Tax Regs., further provides that:

An individual will not be deemed disabled if,

with reasonable effort and safety to 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.

Petitioner’s illness is not a disability within the meaning

of section 72(m)(7) because it is remediable and is not

indefinite. Petitioner has not argued, and the record is devoid

of any evidence which would indicate, that petitioner is

qualified for any other exception to section 72(t)(1). 
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Petitioner therefore is not eligible for the disability exception

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

Accordingly, the distribution is subject to the 10-percent

additional tax under section 72(t).

Decision will be entered

for respondent.