UNITED STATES TAX COURT



  ROBERT J. DWYER AND CATHERINE DWYER, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 2626-95.                       Filed May 15, 1996.



     P husband, age 53 at the time, made a premature
withdrawal from his individual retirement account (IRA)
in 1989. P was actively engaged as a stock trader
specializing in trading corporate stock on a short-term
basis throughout 1989. During the latter part of the
year he was diagnosed as suffering from clinical
depression. Held: Ps are liable for the 10-percent
additional tax on the premature IRA withdrawal. Sec.
72(t), I.R.C. Although Ps claimed the exception for
disability contained in sec. 72(t)(2)(A)(iii), I.R.C.,
P husband was not "disabled" within the definition of
that term contained in sec. 72(m)(7), I.R.C. and sec.
1.72-17A(f), Income Tax Regs., since he was not
prevented by his illness from engaging in any
substantial gainful activity.
     Robert J. Dwyer and Catherine Dwyer, pro se.

     Andrew J. Mandell, for respondent.


     NIMS, Judge:       For the year 1989, respondent determined the

following deficiency in petitioners' Federal income tax and

penalties:

                                   Addition to Tax       Penalty
             Deficiency            Sec. 6651(a)(1)     Sec. 6662(a)

              $79,092                  $19,773            $15,818


     Unless otherwise stated, all section references are to

sections of the Internal Revenue Code in effect for the year

1989, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

     After concessions, the only issue remaining for decision is

whether petitioners are liable under section 72(t) for the 10-

percent additional tax on an early distribution from a qualified

retirement plan.

                             FINDINGS OF FACT

     Some of the facts were stipulated and are so found.      The

stipulation of facts and attached exhibits are incorporated

herein by this reference.      Petitioners resided in Remsenburg, New

York, when they filed their petition.

     Robert J. Dwyer (petitioner or Robert) is a stock trader,

specializing in trading corporate stock on a short-term basis.

He was 53 years old in 1989.
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     Sometime in 1989, petitioner organized Hampton Partners, of

which he was the sole general partner and one of three limited

partners.   The three limited partners contributed a total of

$1,750,000 to Hampton Partners, with petitioner contributing

$250,000.

     Hampton Partners was formed with the objective that

petitioner would use the contributed capital to generate profits

in the stock market.   During the first six months of 1989

petitioner made numerous stock trades that generated large

profits.    However, in the latter part of the year the partnership

lost a substantial amount in a trade involving stock of United

Airlines.   A dispute then arose among the partners, resulting in

lawsuit's being filed involving claims by the other partners

against petitioner, and a counterclaim by him against them.

     Petitioner repaid the other partners, against the advice of

his accountant, in the way he thought the money should go back,

but the partners were not satisfied.    Petitioner had never been

sued before, and he found the litigation to be very stressful and

career threatening.

     In October, 1989, petitioner withdrew $208,802 from his

individual retirement account (IRA), out of which amount he

placed $200,000 in his own brokerage account.   The $208,802 was

reported as a taxable distribution on petitioners' 1989 Form

1040.
                                 - 4 -


     During the last three months of 1989 petitioner traded in

excess of 350 stocks, and had stock sales for his own account

grossing over $20 million.    Petitioner felt that if he could

somehow stay in business as a "big butter and egg man", he could

somehow "float into nirvana", but instead he "floated down the

East River", since he lost a substantial part of the $208,802 he

had withdrawn from his IRA.    Petitioner intended to treat the IRA

withdrawal as a loan that he intended to repay with the money he

earned through his stock trading, but because of his continuing

losses he was unable to do so.

     Sometime in 1989 petitioner was diagnosed as having a

biochemical depression.   As a result of the acrimonious lawsuit,

which at the time seemed to petitioner to have resulted almost

from a character failure on his part, petitioner's clinical

depression significantly deepened.       In the opinion of Dr. Steven

Gardner, a Diplomate of the American Board of Psychiatry and

Neurology, depression is recognized to be a devastating

psychiatric disease.   According to Dr. Gardner, the etiology of

depression is multifactorial and the evolution of the signs and

symptoms, and the degree of dysfunction, are neither abrupt nor

uniform.

     The first physician with whom petitioner consulted in 1989

placed him on a combined medication consisting of Prozac and

Pamelor, which were subsequently found to be counteracting each
                                - 5 -


other, giving petitioner no relief from his condition and causing

him to be very disoriented.   Subsequently, petitioner consulted a

second physician, Dr. Gardner, who prescribed only Pamelor,

which, in about six weeks' time, cleared up petitioner's

condition.    Petitioner continued to see Dr. Gardner for about two

years, but discontinued seeing him after that time because he

could no longer afford the consultation fees.   Petitioner is no

longer on medication.   Petitioner regularly exercises to avoid

"putting myself in positions any longer where I can have this

kind of a setback."

     Respondent determined an additional tax of $20,880 on the

$208,802 premature distribution from petitioner's IRA.

                               OPINION

     The legislative history accompanying the enactment of former

section 408(f) explains the purpose of what is now section 72(t),

as follows:   Premature distributions from IRAs frustrate the

intention of saving for retirement, and section 72(t) discourages

this from happening.    S. Rept. 93-383 at 134 (1974), 1974-3 C.B.

(Supp.) 80, 213.   Thus, in the event of a distribution to an

individual from his or her IRA before such individual attains age

59-1/2, the individual's tax on the amount distributed is

increased by 10 percent of the total distribution.    H. Conf.

Rept. 93-1280, at 339 (1974), 1974-3 C.B. 415, 500.

     Section 72(t)(1) and (2) provides in relevant part:
                              - 6 -



          SEC. 72(t). 10-Percent Additional Tax on Early
     Distributions From Qualified Retirement Plans.--

               (1) Imposition of additional tax.--If any
          taxpayer receives any amount from a qualified
          retirement plan (as defined in section 4974(c)), the
          taxpayer's tax under this chapter for the taxable year
          in which such amount is received shall be increased by
          an amount equal to 10 percent of the portion of such
          amount which is includible in gross income.

               (2) Subsection not to apply to certain
          distributions.--Except as provided in
          paragraphs (3) and (4), paragraph (1) shall
          not apply to any of the following
          distributions:

                    (A) In general.--
               Distributions which are--

                    *    *    *       *    *   *   *

                         (iii) attributable
                    to the employee's being
                    disabled within the
                    meaning of subsection
                    (m)(7),

     Section 72(m)(7) provides:

               (7) Meaning of disabled.--For purposes
          of this section, an individual shall be
          considered to be disabled if he is unable to
          engage in any substantial gainful activity by
          reason of any medically determinable physical
          or mental impairment which can be expected to
          result in death or to be of long-continued
          and indefinite duration. An individual shall
          not be considered to be disabled unless he
          furnishes proof of the existence thereof in
          such form and manner as the Secretary may
          require.


S. Rept. 93-383, supra at 134, 1974-3 C.B. (Supp.) at 213 states

that "Generally it is intended that the proof [of disability] be
                                - 7 -


the same as where the individual applies for disability payments

under social security."

     The regulations, promulgated pursuant to the statutory

authorization contained in section 72(m)(7), provide that an

individual will be considered to be disabled if he or she is

unable to engage in any "substantial gainful activity" by reason

of any medically determinable physical or mental impairment that

can be expected to result in death or to be of long-continued and

indefinite duration.   Sec. 1.72-17A(f)(1), Income Tax Regs.

Significantly, the regulations also provide that an impairment

which is remediable does not constitute a disability.    Sec. 1.72-

17A(f)(4), Income Tax Regs.

     Notwithstanding the apparent severity of petitioner's

illness in 1989, which, according to Dr. Gardner, persisted into

the spring of 1992, the illness did not fall within the

definition of "disabled" as contemplated by sections 72(t)(1) and

(2) and 72(m)(7), and the regulations thereunder.    Petitioner

continued to function as an active stock trader in the face of

his clinical depression, and in fact withdrew his IRA funds to

further that activity.    Thus, his condition fails to meet the

regulatory requirement that the individual be so impaired as to

be unable to engage in any substantial gainful activity.    Sec.

1.72-17A(f)(4), Income Tax Regs.
                              - 8 -


     Petitioners argue that Robert's activities during 1989

resulted in a net loss of $94,000, which, they say, is not an

indication of participating in a "gainful activity".   But we have

held in another context, which by analogy is relevant here, that

a taxpayer may be engaged in a profit-making activity, even

without actually making a profit in a given year, if the

individual has an actual and honest profit-making objective.    See

Dreicer v. Commissioner, 

, 646 (1982), affd. without

published opinion 

(D.C. Cir. 1983).   We equate a

"substantial gainful activity" in this context with an "actual

and honest objective of making a profit."    Obviously, petitioner

did not have failure to make a profit as his objective, even

though as it turned out he failed to make a profit from his

trading activities in 1989.

     Petitioners criticize, as being too restrictive, the

regulatory standard of a mental disease impairment that would be

considered as preventing gainful activity.   The standard is

contained in section 1.72-17A(f)(2)(vi), Income Tax Regs., which

reads as follows:


               (vi) Mental diseases (e.g., psychosis
          or severe psychoneurosis) requiring continued
          institutionalization or constant supervision
          of the individual;


     Petitioners argue that Robert was under "constant

supervision" for two years and that the alternative regulatory
                               - 9 -


requirement of "continued institutionalization" is outdated

because "medical practice in the latter part of the 20th century

attempts NOT to institutionalize patients".   The fact that Robert

was never institutionalized does not, of course, mean that the

issue must automatically be decided in favor of the Government,

but we do not believe that Robert's psychiatric consultations

rise to a level that could properly be categorized as "constant

supervision".   Petitioners assert that more Americans are

affected annually by clinical depression than by heart disease or

cancer.   We would simply respond by recognizing that many seek

professional help with the expectation (or hope) that their

depression manifestations can be alleviated, just as persons

suffering from other illnesses, many of them quite serious, seek

and obtain periodic medical assistance to alleviate their

conditions.   But periodic professional consultation (such as

petitioner's) alone does not, in our judgment, equate with the

constant supervision envisioned by the regulation.   And

petitioners have not suggested that Robert suffered from

psychosis or severe psychoneurosis such as would require his

continued, constant supervision.

     Petitioners also assert that the remediability of

petitioner's condition was uncertain in 1989, and that the fact

that the condition abated is a tribute to medical science, but

was by no means a certainty in 1989.   While this may or may not
                               - 10 -


be true, we would again point out that regardless of the

potential permanency of his condition, or the absence thereof,

petitioner was not so impaired as to be unable to actively pursue

the substantial gainful activity of securities trading in which

profession he was engaged throughout the year in question.

     In conclusion, we might also point out that Congress has

provided a means of access to IRAs before retirement in some

cases of medical problems which, though serious, do not result in

permanent disability.   Section 72(t)(2)(B) permits premature IRA

distributions without penalty to the extent such distributions do

not exceed the amount allowable as a deduction under section 213

for medical care (determined without regard to whether an

individual itemizes deductions).    Petitioners have not claimed

the protection of this section, presumably because they reported

only $5,481 in unreimbursed medical and dental expenses on their

1989 Form 1040, which amount was not deductible by petitioners

because it did not exceed 7.5 percent of their adjusted gross

income, as required by section 213(a).

     For the foregoing reasons we hold that petitioners are

liable for the 10-percent additional tax on a premature

distribution from Robert's qualified plan in 1989, pursuant to

section 72(t).    See also, to the same effect, Kovacevic v.

Commissioner, T.C. Memo. 1992-609, and Kane v. Commissioner, T.C.

Memo. 1992-218.    To reflect this holding and concessions,
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     Decision will be entered

under Rule 155.