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Part 1. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 72.-Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
Substantially equal periodic payments; premature distributions. This ruling provides that a change to the required minimum distribution method of calculating substantially equal periodic payments within the meaning of section 72(t)(2)(A)(iv) of the Code will not generate additional income tax under section 72(t)(1). Q&A-12 of Notice 89-25 modified.
SECTION 1. PURPOSE AND BACKGROUND
.01 The purpose of this revenue ruling is to modify the provisions of Q&A-12 of Notice 89-25, 1989-1 C.B. 662, which provides guidance on what constitutes a series of substantially equal periodic payments within the meaning of sec 72(t)(2)(A)(iv) of the Internal Revenue Code from an individual account under a qualified retirement plan. Section sec 72(t) provides for an additional income tax on early withdrawals from qualified retirement plans (as defined in sec 4974(c)). Section 4974(c) provides, in part, that the term "qualified retirement plan" means (1) a plan described in sec 401 (including a trust exempt from tax under sec 501 (a)), (2) an annuity plan described in sec 403(a), (3) a tax-sheltered annuity arrangement described in sec 403(b), (4) an individual retirement account described in sec 408(a), or (5) an individual retirement annuity described in sec 408(b).
.02 (a) Section 72(t)(1) provides that if an employee or IRA owner receives any amount from a qualified retirement plan before attaining age 59/2, the employee's or IRA owner's income tax is increased by an amount equal to 10-percent of the amount that is includible in the gross income unless one of the exceptions in 72(t)(2) applies.
(b) Section 72(t)(2)(A)(iv) provides, in part, that if distributions are part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancy) of the employee and beneficiary, the tax described in sec 72(t)(1) will not be applicable. Pursuant to sec 72(t)(5), in the case of distributions from an IRA, the IRA owner is substituted for the employee for purposes of applying this exception.
(c) Section 72(t)(4) provides that if the series of substantially equal periodic payments that is otherwise excepted from the 10-percent tax...