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No penalty tax on additional IRA distributions.

The Tax Court ruled that paying higher education higher education

Study beyond the level of secondary education. Institutions of higher education include not only colleges and universities but also professional schools in such fields as law, theology, medicine, business, music, and art.
 expenses from an IRA Ira, in the Bible
Ira (ī`rə), in the Bible.

1 Chief officer of David.


3 Two of David's guard.
IRA, abbreviation
 was not a modification of a taxpayer's annuity payments from the IRA that would have made the payments subject to the 10% additional tax on early distributions.

Generally under IRC (Internet Relay Chat) Computer conferencing on the Internet. There are hundreds of IRC channels on numerous subjects that are hosted on IRC servers around the world. After joining a channel, your messages are broadcast to everyone listening to that channel.  [section] 72(t), distributions received from an IRA before a taxpayer reaches age 59 1/2 are subject to the penalty But there are many exceptions. They include distributions roiled over in a timely manner; made due to death or disability; made to a qualified military reservist re·serv·ist  
A member of a military reserve.


a member of a nation's military reserve

Noun 1.
 called to active duty; or used to buy, build or rebuild a first home. Taxpayers with certain medical expenses or qualified higher education expenses Qualified Higher Education Expense

Expenses such as tuition and tuition related expenses that an individual, spouse, or child must pay to an eligible post-secondary institution.
 also qualify for the exception, as do taxpayers who receive a series of substantially equal payments over their life expectancy Life Expectancy

1. The age until which a person is expected to live.

2. The remaining number of years an individual is expected to live, based on IRS issued life expectancy tables.
 or the joint lives or life expectancies of the taxpayer and beneficiary (the annuity exception).

The annuity exception requires that taxpayers use a method approved by the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws.  and receive at least one distribution annually If the annual payments are modified (for any reason other than death or disability) before age 59 1/2 or within a five-year period that begins with the date of the first payment before age 59 1/2, the 10% penalty tax is applied to distributions received before age 59 1/2 (IRC [section] 72(t)(4)).

Kim Benz owned an IRA while she was employed. In 2002, she ended her employment and elected to receive a series of payments of $102,311 (based on her life expectancy) on or before Jan. 15 each year, starting in 2002. In 2004, before reaching age 59 1/2, she received her annual annuity payment of $102,311 and two additional distributions totaling $22,500. Benz and her husband included the $22,500 as income on their 2004 return but did not apply the penalty tax because they had qualified educational expenses of $35,221 in 2004. The IRS disagreed and assessed the 10% penalty tax on $89,590 (the total amount received, $124,811, minus the qualified educational expenses of $35,221). The Service determined that by taking the two additional payments, she had impermissibly im·per·mis·si·ble  
Not permitted; not permissible: impermissible behavior.

 modified her series of payments before she reached age 59 1/2, and therefore the substantially equal periodic payment exception was no longer effective for the 2004 distribution. The Benzes petitioned the Tax Court for relief.

The IRS argued in Tax Court that a taxpayer who elects a series of substantially equal periodic payments Substantially equal periodic payments (SEPP)

A method of distribution from IRA account assets that under certain conditions is not subject to the IRS's 10% premature withdrawal penalty for those under age 59-1/2.
 is not allowed any further distributions within the first five years of the election irrespective of irrespective of
Without consideration of; regardless of.

irrespective of
preposition despite 
 whether the distribution would qualify for another statutory exception to the section 72(t) tax, unless the employee dies or becomes disabled. The court rejected this position and stated that the language of section 72(t)(2)(E) permits taxpayers to qualify for more than one of the exceptions in a given tax year. It further found that there was no indication in the legislative history of section 72(t) that Congress intended the election of the annuity method to preclude the use of other exceptions to the penalty The court also concluded that the purpose of the penalty, to discourage early withdrawals from retirement savings accounts, is not defeated if a taxpayer withdraws money from an IRA under more than one exception.

* Gregory T. and Kim D. Benz v. Commissioner, 132 TC no. 15

By Charles J. Reichert, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , professor of accounting, University of Wisconsin--Superior.
Top Math Errors on Individual Returns, Tax Year 2007

Tax calculation/
other taxes                    26%

Earned income
tax credit                   15.8%

Exemption number/
amount                       15.6%

deduction                    11.3%

Adjusted gross/taxable
income amount                 8.6%

Child tax credit              6.5%

Other                          16%

Source: IRS Statistics of Income, 2008 Data Book,
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Author:Reichert, Charles J.
Publication:Journal of Accountancy
Date:Sep 1, 2009
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