Jerry Silver - Page 4

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          relates to the taxation of annuities and certain proceeds of                
          endowment and life insurance contracts.  Section 72(e) is                   
          applicable to amounts received under an annuity contract but                
          which are not received as an annuity.  The distribution received            
          by petitioner falls into this category.  Sec. 1.72-2(a)(1),                 
          Income Tax Regs.  Under the general rule, amounts received before           
          the annuity starting date are included in income to the extent              
          such amounts are allocable to income on the contract, and not               
          included in income to the extent such amounts are allocable to              
          the investment in the contract.  Sec. 72(e)(2)(B).  Section                 
          72(c)(4) defines the annuity starting date as the first day of              
          the first period for which an amount is received as an annuity              
          under the contract.                                                         
               The record indicates that the distribution petitioner                  
          received in July 1989 was the first and only distribution that              
          petitioner received from the Plan.  The record also indicates               
          that the distribution at issue was not received as an annuity,              
          but rather as a lump-sum distribution of the balance of                     
          petitioner’s account.  The record further indicates that the                
          distribution occurred prior to the annuity starting date.  Thus,            
          section 72(e)(2)(B) applies. Under section 72(e)(2)(B), amounts             
          which are allocable to the investment in the contract will not be           
          included in income.  Section 72(e)(6) defines investment in the             
          contract as of any date as:                                                 

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