I would appreciate any input from the forum about this topic.

I am helping a relative prepare their tax return.
She had to get out her retirement early and is subject to the 10% early withdrawal penalty.
I feel that she may be able to get the disability exception to the penalty but from my reading the IRS is not exactly interested in how bad the disability is but how long it will last... will it be indefinite.
The client has major depression for atleast 10 years. She sees a psychiatrist regularly and has applied for Social Security Disability but is having to go to a hearing. The last few years things got very bad for her. I really don't want to go into details but it was bad. Of course the family hopes she will get better but I don't know how much better.

I've read various tax court cases in regards to depression being a disability. Most cases were ruled in favor of the IRS but it appears these people tried to or continued to generate income in some fashion. My relative is not nor can I see ever being able to work again.

My question:
Would the best route be to file the return paying the penalty and then amending to include the disability exception?

The reason I am thinking this way is because the amount taken out of retirement is very large and so the penalty is pretty large. I would like to avoid letters from the IRS adding the penalty back to the return and including interest. Plus my relative really would not be able to deal with such a situation. So I thought filing the return and then amending would allow my relative to provide the documents from the doctor in regards to the disability and most importantly not be hounded by the IRS to pay the penalty. She would be given a chance to prove her disability.

Thank you all for any comments on this situation.