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Young Kim v. Commissioner of Internal Revenue

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ARGUED APRIL 12, 2012

Before EASTERBROOK, Chief Judge, and MANION and SYKES, Circuit Judges.

At age 56, Young Kim left his position as a partner in a law firm and enrolled in the London School of Economics. Employees who depart at age 55 and up may withdraw money from the em- ployer’s retirement plan. They must pay income tax (retirement plans contain pre-tax dollars), but they do not owe the 10% additional tax that the Internal Revenue Code imposes on most withdrawals before age 59½. 26 U.S.C. §72(t)(1), (2)(A)(v). During 2005 Kim moved the funds from the law firm’s retirement plan to an individual retirement account. A rollover is not a taxable event. 26 U.S.C. §402(c); 26 C.F.R. §1.402(c)-2. During 2006 Kim withdrew about $240,000 from the IRA. He paid the income tax but not the 10% additional tax. The Commissioner of Internal Revenue concluded that he owes the 10% tax and, because he had not paid it, also owes a penalty for substantial underpayment of taxes. 26 U.S.C. §6662.

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