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

• Jurisdiction: United States,Federal
• Law Firm: Freeman Law
• Subject Matter: Employment and HR, Tax, Retirement, Superannuation & Pensions, Income Tax, Tax Authorities
• Author: Freeman Law
• Published date: 06 February 2023

The Tax Court in Brief - January 16th - January 20th, 2023

Freeman Law's "The Tax Court in Brief" covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

Tax Litigation: The Week of January 16th, 2022, through January 20th, 2023

• Patacsil v. Comm'r, T.C. Memo. 2023-8| January 17, 2023 |Holmes, J. | Dkt. No. 21902-19

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)?

Primary Holdings: Yes. Lucas received the distribution, he was not 59 ' years of age at the time, and the "unable to engage in any substantial gainful activity" exclusion did not apply. Deficiency determination is sustained.

Key Points of Law:

Burden of Proof. The IRS's determinations in a notice of deficiency are generally presumed correct, and the taxpayer bears the burden of proving those determinations erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). In cases involving failure to report income in this jurisdiction (9^th Circuit), the IRS must establish "some evidentiary foundation" linking the taxpayer to an alleged income-producing activity before the presumption of correctness attaches to the deficiency determination. Weimerskirch v. Commissioner, 596 F.2d 358, 361-62 (9th Cir. 1979), rev'g 67 T.C. 672 (1977)...