• PLR 201011036 (Dec. 14, 2009)
  • June 16, 2010
  • Law Firm: Proskauer Rose LLP - New York Office
  • In this Private Letter Ruling request, the IRS held that the 10% early distribution penalty would not apply to taxpayer’s withdrawals from his IRA because of taxpayer’s disability.

    Taxpayer was diagnosed with multiple sclerosis, which forced taxpayer to stop working and apply for Social Security disability benefits. Taxpayer was under age 59-1/2 and wanted to withdraw amounts from his IRA before attaining that age. A ruling was requested that the 10% early distribution penalty did not apply because of taxpayer’s disability. (This ruling was requested because there is no specific definition of disabled under the applicable tax provisions.)

    In general, the 10% early distribution penalty does not apply to distributions attributable to an employee being disabled within the meaning of IRC § 72(m)(7). That section provides that an individual shall be considered to be disabled if he or she is unable to engage in any substantial gainful activity by reason of any medically determined physical or mental impairment which can be expected to result in death or to be of long continued and indefinite duration.

    Here, taxpayer demonstrated that he has multiple sclerosis and is unable to engage in any substantial gainful activity by reason of this physical impairment. Based on the documentation submitted, the IRS determined that the taxpayer is not expected to recover from this physical impairment in the foreseeable future. Accordingly, the IRS concluded that the taxpayer could make withdrawals from his IRA without being subject to the 10% early distribution penalty.