Gee v. Commissioner

In 1993, Charlotte Gee (plaintiff) opened an individual retirement account (IRA) with PaineWebber. Her then-husband, Ray Campbell, Jr., also opened an IRA with PaineWebber the same year. Campbell was the sole owner of his IRA, and Gee was the primary beneficiary. When Campbell died in 1998, Gee was 51 years old. Following Campbell’s death, Gee directed PaineWebber to distribute the entire balance of Campbell’s IRA (approximately $1,010,988) directly into her IRA. Gee later transferred her IRA to SEI Private Trust Co. In 2002, at age 55, Gee requested and received a distribution of $977,887.79. Gee reported this distribution on her federal income tax return but did not report or pay the 10 percent additional tax imposed on early distributions under Internal Revenue Code § 72(t). The commissioner of the Internal Revenue Service (defendant) issued a deficiency notice. The commissioner acknowledged that the 1998 rollover from Campbell’s IRA to Gee’s was exempt from the penalty but concluded that the 2002 withdrawal from Gee’s own IRA was not. The commissioner reasoned that once Gee rolled the inherited funds into an IRA in her own name, she became the sole owner of the account for tax purposes. Because the 2002 distribution was made from her own IRA, it did not qualify for the death-beneficiary exception under § 72(t)(2)(A)(ii). Gee petitioned the tax court for a redetermination, arguing that the funds in her IRA retained their character as funds from her late husband’s IRA.