Footnotes

¹ The decision to be entered is not reviewable by any other court, and this opinion should not be cited as authority.

² After a concession by respondent,

³ the issue for decision is whether petitioners are liable under section 72(t) for the 10percent additional tax on early distributions from qualified retirement plans. We hold that they are. Background Some of the facts have been stipulated, and they are so found. Petitioners resided in Chicago, Illinois, at the time that their petition was filed with the Court. Petitioner Mary G. Keeley (Mrs. Keeley) worked part-time for the West Chicago School District in 1997 for a time period not disclosed in the record. From the end of December 1997 to the present, Mrs. Keeley has been working for Tyndale House Publishers. Petitioner Brian P. Keeley (Mr. Keeley) worked as a leasing manager with Hughes Enterprises, a commercial laundry equipment distributor, for some time until August 1996. In August 1996, Mr. Keeley left Hughes Enterprises because he was dissatisfied with the annual reduction in his base salary and commission

⁴ Mr. Keeley withdrew funds in 1997 from his individual retirement account

⁵ (pension) in the amount of $2,998. At the time, Mrs. Keeley was 52 years of age and not disabled. Petitioners used the entire balance in the National and pension accounts “to survive and pay our bills”, e.g., their mortgage and daughter’s college loans. With respect to Mr. Keeley’s medical history, he has been diagnosed with anxiety, depression, and panic disorder for which he has been receiving treatment from his internist, Scott McNaughton, M.D. (Dr. McNaughton). According to Dr. McNaughton, Mr. Keeley “has been treated with medication in 1994 and required several physician visits for follow up and medicine adjustment during 1997 and 1998”. In addition, Mr. Keeley had been seeing David E. Dillon,

⁶ During the years in issue, Mr. Keeley had at least one or two sessions monthly with Dr. Dillon.

⁷ According to a letter dated October 24, 2000, from Dr. Dillon: [Mr. Keeley] was under my care as a psychologist, treating moderately severe symptoms associated with depression. Mr. Keeley reported feeling depressed and exhibited symptoms of low energy, sadness, somatic complaints, anhedonia, and hopelessness, all of which are consistent with a depressed condition. Depression lasting longer than two weeks is often considered serious enough for medical and psychological intervention. Such a depression is often triggered by a combination of serious social and/or career disappointments coupled with an innate tendency toward depression. Mr. Keeley suffered two serious set backs which appear to account for the onset of depression: 1) a change in jobs following several alterations of tasks and financial remuneration at Hughes Enterprises; 2) although successful as a New York Life agent, Mr. Keeley was unable to sell enough insurance to overcome the company’s rejection rate. After this he floundered in one menial job after another until his present employment with ATI. At the time, neither he nor I could have predicted how long these conditions and his

⁸ Form 5329 is entitled “Additional Taxes Attributable to Qualified Retirement Plans (Including IRAs), Annuities, Modified Endowment Contracts, and MSAs”. Part I of the form is entitled “Tax on Early Distributions”. A taxpayer would report on Line 2 of Part I of the form “Distributions excepted from additional tax”. petitioners did not compute the 10-percent additional tax imposed by section 72(t). However, petitioners attached to both returns several letters from Mr. Keeley’s physicians and a statement as follows: Form 5329 [ 8 ] , Line 2 Distributions exempt from tax -The taxpayer became permanently disabled in 1997 with respect to his employment as an insurance broker as a result of neurological and spinal conditions, which prevent the taxpayer from engaging in customary substantial gainful activities (See medical opinions attached). The taxpayer continues to be disabled. Accordingly, distributions from the taxpayer’s IRA account are not subject to the 10% penalty for early withdrawal. During the examination of petitioners’ returns, petitioners received a letter dated September 25, 2000, from respondent’s tax examiner stating that respondent does not “dispute the contention regarding the taxpayer’s ability to perform substantial gainful activity”, but contends that petitioners did not provide substantiation (physician’s letters) stating that “Mr. Keeley is ‘totally and permanently’ disabled or his condition was expected to result in death or to be of long continued or indefinite duration.” Petitioners submitted a response referring to the letters attached to petitioners’ returns and also attaching a copy of Dr. Dillon’s letter dated October 24, 2000.

⁹ Generally, section 72(t)(1) imposes a 10-percent additional tax on early distributions from qualified retirement plans,

¹⁰ unless the distribution comes within one of several statutory exceptions. For example, distributions that are made on or after

¹¹ There are also limited exceptions available for distributions made to an employee for medical care expenses, sec. 72(t)(2)(B),

¹² and for qualified higher education expenses, sec. 72(t)(2)(E). Petitioners contend that the exception under section 72(t)(2)(A)(iii) applies because Mr. Keeley was disabled during the years in issue because of severe depression that petitioners thought was indefinite and for which Mr. Keeley is still under medical treatment. On the other hand, respondent argues that Mr. Keely was not disabled because “a long-term psychiatric illness where petitioner [Mr. Keeley] is able to work and where there wouldn’t be a need for some type of constant treatment” is inconsistent with the definition of disability under section

¹³ Generally, proof of disability is the same as where the individual applies for disability payments under Social Security. S. Rept. 93-383, at 134 (1974), 1974-3 C.B. (Supp.) 80, 213. 72(m)(7). Respondent further argues that Mr. Keeley’s continued psychological consultations do not constitute “constant treatment”. Section 72(m)(7) provides: (7) Meaning Of Disabled.--For purposes of this section, an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require. [13] The determination of whether a taxpayer is disabled is made on the basis of all the facts. Sec. 1.72-17A(f)(2), Income Tax Regs. The regulations also set forth general considerations upon which a determination of disability is to be made such as the nature and severity of the impairment. Sec. 1.72-17A(f)(1), Income Tax Regs. However, the regulations emphasize that the “substantial gainful activity” to which section 72(m)(7) refers is the activity, or a comparable activity, in which the individual customarily engaged prior to the disability. Id.

¹⁴ (...continued) he was not able to perform substantial gainful activity. However, we note further that Mr. Keeley began working at ATI in December 1997 and in 1998 earned a gross salary of $44,352 from ATI. constrained to sustain respondent’s determination for the reasons below. Petitioners assert that Mr. Keeley’s depression was expected to last for a long and indefinite period. Although we are sensitive to the severity of Mr. Keeley’s mental health problems and the fact that he continues to take antidepressants and receive psychological counseling, we conclude that his state of depression does not qualify as a “mental disease”, as defined under section 72(m)(7), requiring continued institutionalization or constant supervision. See Dwyer v. Commissioner , 106 T.C. 337, 342 (1996) (The taxpayer suffered from severe depression for which he had periodic consultations with a psychologist; the Court held that periodic professional consultation alone does not equate with the constant supervision envisioned by the regulation). Further, based on the record, Mr. Keeley’s psychological condition is not irremediable within the meaning of section 1.72-17A(f)(2), Income Tax Regs. Therefore, we must sustain respondent’s determination as to Mr. Keeley’s IRA distributions. In addition, the record demonstrates that Mrs. Keeley was not disabled during the years in issue or that any exception to

¹⁵ for the distributions they received in 1998, they testified that one purpose for the distributions was to pay for their daughter’s college loans. However, petitioners did not present any evidence for this Court to determine whether this exception applies in the present case. In closing, we think it appropriate to observe that we found petitioners to be very conscientious taxpayers who obviously take their Federal tax responsibilities quite seriously. We are also sympathetic to the hardship that Mr. Keeley’s mental health problems have brought to petitioners’ lives, and we acknowledge that petitioners used the IRA and pension distributions for laudable purposes. Nevertheless, we are constrained to hold for respondent based on the applicable law. Reviewed and adopted as the report of the Small Tax Case Division. To give effect to our disposition of the disputed issue, as