## Facts

- Charlotte Gee and Charles T. Gee filed a joint 2002 federal income tax return; the IRA transactions involved Charlotte.
- In 1993, Charlotte opened an IRA; her then-husband, Ray A. Campbell, Jr., opened a separate IRA.
- Campbell died in 1998; Charlotte was the primary beneficiary of Campbell’s IRA and the sole owner of her own IRA.
- In 1998, at Charlotte’s direction, the entire balance of Campbell’s IRA ($1,010,988.38) was directly rolled into Charlotte’s existing IRA in her own name.
- Charlotte later transferred her IRA to another trustee; in 2002, while under age 59½, she took a $977,887.79 distribution from her IRA.
- Petitioners reported the distribution as income but did not pay the 10% additional tax on early distributions; they asserted the distribution should be treated as related to a deceased spouse’s IRA.
- The IRS determined a deficiency and asserted an accuracy-related penalty under I.R.C. § 6662(a); the case was submitted fully stipulated.

## Issues

1. Whether the 2002 distribution from Charlotte Gee’s IRA qualified for the § 72(t)(2)(A)(ii) “death” exception, or was subject to the 10% additional tax under § 72(t).
2. Whether petitioners were liable for the accuracy-related penalty under § 6662(a) for substantial understatement.

## Decision

- The court held the 2002 distribution was subject to the 10% additional tax under § 72(t).
- The court held the § 72(t)(2)(A)(ii) death exception did not apply because the funds were distributed from Charlotte’s own IRA after she rolled the inherited IRA into her own account.
- The court held petitioners were not liable for the § 6662(a) accuracy-related penalty.

## Legal Principles

- Section 72(t)(1) imposes a 10% additional tax on early distributions from IRAs to the extent includible in gross income, unless an exception applies.
- The § 72(t)(2)(A)(ii) exception for distributions “made to a beneficiary … on or after the death” applies to distributions received in the taxpayer’s capacity as beneficiary of the decedent’s account.
- When a surviving spouse rolls a decedent’s IRA into an IRA in the spouse’s own name, the spouse treats the funds as her own; later withdrawals are distributions from the spouse’s own IRA, not distributions to a beneficiary on account of the decedent’s death for § 72(t) purposes.
- A taxpayer may avoid the § 6662(a) penalty by showing reasonable cause and good faith; a non-obvious legal question can support relief even when the underlying tax position is rejected.

## Conclusion

The Tax Court held that a surviving spouse who rolls inherited IRA assets into her own IRA cannot later claim the § 72(t) death-beneficiary exception for withdrawals before age 59½; however, the court declined to impose the § 6662(a) penalty because the taxpayers acted with reasonable cause and good faith.


Gee v. Commissioner, 127 T.C. 1 (2006)