Richard J. Montgomery and Adele S. Montgomery - Page 4

                                        - 4 -                                         
               On May 15, 1990, petitioner elected to transfer from the               
          Retirement System to the Pension System, effective June 1, 1990.            
          As a result of the election to transfer, petitioner received a              
          distribution (the Transfer Refund) from the Retirement System in            
          the amount of $338,451.01.  Petitioner received the Transfer                
          Refund in the form of two checks dated June 29, 1990, and                   
          November 30, 1990.                                                          
               Petitioner's Transfer Refund consisted of $37,064.27, in               
          previously taxed contributions made by petitioner during his                
          employment tenure with Hagerstown Junior College, $402.70 in                
          employer "pick-up contributions"4 and interest thereon, and                 
          $300,984.04 of taxable earnings in the form of interest.  The               
          earnings, "pick-up contributions", and interest on the pick-up              
          contributions; i.e. $301,386.74, constitute the taxable portion             
          of the Transfer Refund.                                                     
               When petitioner transferred from the Retirement System to              
          the Pension System, and when he received his Transfer Refund, he            
          had attained the age of 56.  If petitioner had not transferred to           
          the Pension System but had remained a member of the Retirement              
          System, he would have been entitled to retire and receive a                 
          normal service retirement benefit, including a regular monthly              
          annuity, at age 60.  He would not have been entitled to receive a           

          4 See sec. 414(h)(2).  The parties stipulated that                          
          petitioner received $403.70 of employer pick up contributions and           
          interest; however, the record demonstrates that petitioner                  
          actually received $402.70 of such contributions and interest.               

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