COMPULSIVE GAMBLING IS NOT A DISABILITY EXCEPTION TO THE ADDITIONAL TAX OF 10% TO AN UNDERAGE 59 ½ DISTRIBUTION FROM AN IRA
In Gillette v. Commissioner, 125 AFTR 2d 2020-518 (7th Cir, Jan. 15, 2020), a taxpayer was a compulsive gambler, which the taxpayers claimed was linked to prescription medication. To fuel her gambling, taxpayer made a withdrawal from her IRA prior to her attaining age 59 ½. The taxpayer argued that they qualified for an exception to the 10% penalty for an early IRA withdrawal because the taxpayer’s compulsive gambling qualified as a disability under Internal Revenue Code S 72 (m) (7). The Tax Court concluded that the taxpayer was not disabled because her impairment could be remedied. The Circuit Court cited 26 C.F.R. S 1.72-17A (d) (4), which states that a person is not deemed disabled if, “with reasonable effort and safety to himself, the impairment can be diminished to the extent that the individual will not be prevented by the impairment from engaging in his customary or any comparable substantial gainful activity.” The Court noted that the taxpayer continued to operate a rental property business during the year in which the IRA withdrawal occurred, and received treatment for her gambling addiction in a reasonable and safe manner without interrupting her business. The Court affirmed the Tax Court’s finding that the 10% penalty applied.
Ref: Philadelphia Estate Planning Council Current Developments—February 2020
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