Kim v. Comm'r of Internal Revenue, No. 11-3390 (7th Cir. 2012)
Annotate this CaseAt age 56, plaintiff left his position as a partner in a law firm and enrolled in school. Employees who depart at age 55 or older may withdraw money from the employer's retirement plan. They must pay income tax, but a 10 percent additional tax imposed on most withdrawals before age 59½ does not apply to distributions "made to an employee after separation from service after attainment of age 55," 26 U.S.C. 72(t)(1), (2)(A)(v). Plaintiff moved the funds from the plan to an individual retirement account then withdrew about $240,000. A rollover is not taxable 26 U.S.C. 402(c). Plaintiff paid income tax. The IRS claimed he owed the 10 percent additional tax, plus a penalty for substantial underpayment of taxes. The Tax Court held that he owed the tax on money not used for tuition. The Seventh Circuit affirmed; the distribution was made to an IRA, not to the employee. Section 6662 excuses the taxpayer if there was substantial authority for the tax return's treatment, but there was no authority for plaintiff's position.
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