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States, 513 F.2d 170, 175 (6th Cir. 1975); Shimota v. United
States, 21 Cl. Ct. 510, 512 (1990), affd. 943 F.2d 1312 (Fed.
Cir. 1991). The amount contributed by the employing agency and
any interest earned on the employee’s investment are not taxed to
the employee until distribution. Secs. 72, 402(a).
The parties agree that petitioner’s contributions to the
CSRS should be recovered tax-free. Petitioner, however,
maintains that he is entitled to recover his contributions, free
of tax, "up front" because the lump-sum payment he received from
the CSRS represents a refund of his contributions. Respondent
relies on section 72(b), which excludes a portion of each annuity
payment from gross income, allowing for the tax-free recovery of
the participant’s contributions over the life of the annuity.
Petitioner’s lump-sum distribution was made pursuant to 5
U.S.C. sec. 8343a (Supp. 1987), which permits the continued
receipt of an annuity, reduced by the actuarial value of the
lump-sum payment. The total of the lump-sum payment plus the
reduced annuity should be actuarially equivalent to the basic
annuity that petitioner would have received in accordance with
the CSRS plan. Id. As explained in Malbon v. United States,
supra at 471:
The fact that the contribution amount was the measure
of the lump-sum does not affect the ultimate amount of
the benefit as a whole. The difference merely depends
on whether the former employee received the entire
benefit spread out over the life of the annuity, or
whether a portion was accelerated to be paid at the
time of retirement. * * *
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