Tax Court in Brief | Lucas v. Comm’r

Deficiency for Early 401(k) Distribution; 10% Additional Tax; Exclusion for “Unable to Engage in Any Substantial Gainful Activity

Lucas v. Comm’r, T.C. Memo. 2023-9| January 17, 2023 | Urda, J. | Dkt. No. 2808-20

Summary: In 2017, Robert Lucas worked as a software developer, but he lost his job in that year. To make ends meet, he obtained a distribution of $19,365 from a section 401(k) plan. He had not reached 59 1/2 years old at the time. The administrator reported the amount as an early distribution with no known exception on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Lucas reported the distribution on his 2017 return but did not include it as taxable income. His return reflected his understanding that the distribution did not constitute income because of his diabetic medical condition. The IRS issued a notice of deficiency for his 2017 tax year, determining a deficiency of $4,899 based on the inclusion of the retirement plan distribution in Lucas’s 2017 gross income and a ten-percent additional tax imposed by section 72(t).

Key Issues: Whether Lucas’s 401(k) plan account distribution is taxable and subject to the ten-percent additional tax imposed by 26 U.S.C. section 72(t)(1)?

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