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contributions made during 1985 or 1986 because they would be
taxable to petitioners in the years contributions were made to an
unqualified trust and not at the time of distribution." Fazi I,
supra at 713.
Respondent conceded in Fazi I that the merged amount would
be taxable in 1986, rather than 1987. Petitioners, in Fazi I,
argued for taxing the merged amounts prior to 1987, rather than
in 1987, albeit on different theories.5 We accepted respondent's
concession in Fazi I as to the timing of the taxability of the
merged amount without analysis of the underlying substantive
issues.
Discussion
Whereas Fazi I dealt with the taxability to petitioners of
distributions made in 1987 from a nonexempt trust, this case
deals with the taxability to petitioners of contributions to a
nonexempt trust by the corporation in 1986 and whether the merged
amount should be taxed in the same manner as a contribution. We
must first decide if petitioners should be taxed on the merged
amount in 1986. Only if the merged amount is properly includable
in petitioners' gross income in 1986 is the 6-year limitations
period applicable and the year open to adjustment. If the merged
5 Petitioners argued that secs. 83 and 402(b) combined to make incremental
increases in their interests in the nonexempt trusts taxable, though not
because they were "contributions" in the traditional usage of the word.
Petitioners also argued that the merged amount would be taxable in years prior
to 1987 because, under secs. 402(b)(1) and 72, their interests in the
nonexempt trust were "made available" to them in such prior years.
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