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amount is not properly includable in 1986, the 6-year limitations
period will not apply and the other adjustments set forth in the
notice of deficiency will be barred since the sum of those other
adjustments does not exceed 25 percent of petitioners' gross
income. The Court, in Fazi I, did not purport to decide the
taxability of amounts in 1986; it could only determine tax
liability for 1987. Sec. 6214(b).
Taxability of the Merged Amount
In this case, respondent originally argued that the merged
amount was taxable to petitioners in the year of merger, 1986.
She now concedes that the merged amount should have been taxed in
1987, the year it was distributed to petitioners.6 Respondent
states on brief that:
Upon reconsideration, however, respondent's interest in
sound tax administration requires that she inform the
Court that she has reached a different conclusion. The
correct result in Fazi I would have been to include the
full amount of Plan 002 assets in petitioners' income
for 1987. In respondent's view, the merger of Plan
002, a qualified plan, with Plan 001, a nonqualified
plan, resulted in the immediate disqualification of
Plan 002. The 1986 merger did not represent a
"contribution" to Plan 001, but rather a pooling of
nonqualified assets all of which should have been taxed
on distribution in 1987, consonant with the remainder
of the Court's opinion in Fazi I and with I.R.C. sec.
402(b)(2) and Treas. Reg. sec. 1.402(b)-1(c).
In Fazi I, we accepted respondent's concession that the merged
amount was not taxable in 1987. Consequently, we are reluctant
6 Respondent, in Fazi I, originally argued that the merged amount was taxable
to petitioners in 1987, but later conceded that it was properly taxable in
1986. Hence, respondent's position on this issue has come full circle.
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