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$82,900 less $2,000). The genesis of such contribution was in
petitioner's retirement savings which petitioners reported as
income on their amended Form 1040 for 1989. This contribution
was distributed to petitioner by his IRA on April 11, 1991.
As a general rule, any amount "paid or distributed out of"
an IRA is includable in gross income by the taxpayer in the
manner provided under section 72. Sec. 408(d)(1). Section 72(e)
is applicable, inter alia, to amounts received under an annuity
contract but not received as an annuity. The distribution
received by petitioner on April 11, 1991, falls into this
category.
Amounts received before the annuity starting date are
includable in income to the extent allocable to income on the
contract and are not includable in income to the extent allocable
to the investment in the contract.12 Sec. 72(e)(2)(B). Thus,
section 72(e)(2)(B) effectively gives a taxpayer a basis in the
taxpayer's IRA to the extent of his or her investment in the
contract. The investment in the contract is defined in section
72(e)(6) as the aggregate amount of consideration paid for the
contract reduced by the amount received that was previously
12 Under sec. 72(c)(4), "annuity starting date" is defined
as the first day of the first period for which an amount is
received as an annuity under the contract. Petitioner received a
single payment in the amount of $90,662.11 from his Loyola IRA
prior to drawing annuity payments from his retirement account.
Thus, the distribution was received by petitioner before the
annuity starting date and, accordingly, sec. 72(e)(2)(B) applies.
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