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$18,112.25, and the taxable amount as the difference or
$154,446.89.
On their Federal income tax return for 1989, petitioners
disclosed the receipt of the Transfer Refund. Specifically, on
line 17a of Form 1040, petitioners entered $154,447 as the amount
of "Total pensions and annuities". On line 17b they reported
$84,447 as the taxable amount thereof, and immediately below such
entry they disclosed that the balance, or $70,000, was rolled
over. Petitioners included the $84,447 amount in taxable income
and paid regular income tax thereon. See sec. 1(a).
Petitioners also attached to their 1989 income tax return
Form 5329 (Return for Individual Retirement Arrangement and
Qualified Retirement Plans Taxes). In Part II of such form,
petitioners reported liability for the 10-percent additional tax
imposed by section 72(t) on early distributions from qualified
retirement plans. Petitioners computed the additional tax as
follows:
Total distribution received $172,559
Taxable amount 154,447
Less: amount rolled over -70,000
Balance 84,447
10 percent rate of tax x .10
Sec. 72(t) additional tax 8,445
Petitioners combined their liability for the section 72(t)
additional tax with their liability for the regular income tax in
reporting their total tax liability on page 2 of their Form 1040
for 1989.
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