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Catania v. Commissioner (T.C. Memo. 2021-33)

On March 15, 2021, the Tax Court issued a Memorandum Opinion in the case of Catania v. Commissioner (T.C. Memo. 2021-33). The primary issue presented in Catania was whether the early withdrawal penalty of IRC § 72(t) applied to petitioner, an early retiree, on the basis that he was an early retiree.

Quick Background

The petitioner retired from Home Depot when he was 55.  He took distributions from his 401(k) when he was 57.  When he took said distributions, he was not 59 ½.

Argument

The petitioner argues that the IRC § 72(t)(2)(A)(v) exception should apply to the distribution at issue because he was 55 years old when he retired from Home Depot. Unfortunately for the petitioner, the Tax Court is a stickler when it comes to “reading” the “statute” for “what it says,” and IRC § 72(t)(2)(A)(v) in no way applies to premature IRA distributions. See IRC § 72(t)(3)(A).

Law

IRC § 72(t)(1) imposes an additional tax of 10% on distributions from qualified retirement plans unless one of the exceptions set forth in IRC § 72(t)(2) applies. One such exection (IRC § 72(t)(2)(v)) includes “separation from service” at 55. Unfortunately, however, the separation from service exception, codified at IRC § 72(t)(2)(A)(v), expressly is not applicable to early IRA distributions. See IRC § 72(t)(3)(A); Emerson v. Commissioner, T.C. Memo. 2000-137, *20, n. 4.

(T.C. Memo. 2021-33) Catania v. Commissioner

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