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or the merged amounts. Respondent mailed petitioners a notice of
deficiency on March 31, 1993.
Fazi I
A review of the arguments and our holding of Fazi I is
necessary to understand the issues in this case. Fazi I dealt
with the taxability of the distributions from disqualified plan 1
in 1987. Mr. Fazi dissolved the corporation in 1986 and
distributed all of the assets in the plan 1 trust to the
employees during 1987. Mr. Fazi timely attempted to roll over
his distribution to an individual retirement account. Although
plan 1 was in operational compliance at all times, we held that
"petitioners are taxable on the distributions received to the
extent they exceed contributions made for or by them for 1985 and
1986, including the amount merged from plan 2 to plan 1 during
1986." Fazi I, 102 T.C. at 714. In so holding, we overruled our
decision in Baetens v. Commissioner, 82 T.C. 152 (1984), revd.
777 F.2d 1160 (6th Cir. 1985), which would have allowed
distributions attributable to amounts contributed while plan 1
was qualified to be rolled over, tax free, into an individual
retirement account.
The rationale for exempting amounts contributed to the
unqualified plan in 1985 and 1986 from taxation when distributed
in 1987 was that those amounts were taxable to petitioners when
the contributions were made: "respondent has conceded that the
taxable distribution for 1987 should not include those
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