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because the taxpayer qualifies as a first-time
homebuyer under section 408A(d)(2).
Respondent examined petitioners’ 2003 Federal income tax
return and issued a notice of proposed adjustments, commonly
referred to as a 30-day letter, in August 2005. Respondent
proposed to include the distributions in gross income and impose
a 10-percent early withdrawal penalty. The 30-day letter states
in part: “Our records indicate that the full taxable amount of
your retirement distribution(s) as shown on Form 1099R was not
reported on your tax return. Please complete and return a Form
8606, Nondeductible IRAs, as verification of the taxable amount
of the distribution(s).”
Petitioners disagreed with the proposed adjustments and
indicated that they would provide respondent with Forms 8606,
Nondeductible IRAs. As is relevant here, Form 8606 asks
taxpayers to provide the total distributions from Roth IRAs,
including distributions for qualified first-time homebuyer
expenses. The taxpayer then subtracts from this amount his basis
in his Roth IRA contributions and his qualified first-time
homebuyer expenses. Form 8606 indicates that the remainder, if
any, is the amount of taxable Roth IRA distributions.
In their response to the 30-day letter, petitioners stated
that they were moving and that some of their records were in
storage. Petitioners also questioned the need to provide basis
information for their Roth IRA contributions. Petitioners
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