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The individual retirement provisions of ERISA expressly
provided that a distribution from an IRA was fully taxable to the
distributee upon distribution. Specifically, section 408(d)(1),
as originally enacted by ERISA, provided:
any amount paid or distributed out of an [IRA] * * * shall
be included in gross income by the payee or distributee
* * * for the taxable year in which the payment or
distribution is received. The basis of any person in such
an account or annuity is zero. [Emphasis added.]
The committee report reveals that Congress intended for taxpayers
to have a zero basis in their IRA's because "neither the
contributions nor the earnings thereon will have been subject to
tax previously." H. Rept. 93-779 (1974), 1974-3 C.B. 244, 369;
see also H. Conf. Rept. 93-1280, at 339 (1974), 1974-3 C.B. 415,
500.
In adopting the IRA provisions of ERISA, Congress recognized
that, despite the dollar limitation on deductible contributions
to an IRA, a taxpayer might have an incentive to make
nondeductible contributions to an IRA because the tax on the
earnings would be deferred. See H. Rept. 93-779, supra at 136,
1974-3 C.B. at 371; H. Conf. Rept. 93-1280, supra at 340, 1974-3
C.B. at 501. Accordingly, Congress enacted sanctions to prevent
excess contributions and the misuse of IRA's. In particular,
Congress imposed a 6-percent excise tax on excess contributions
to an IRA in order to offset the benefit that would otherwise
result from the deferral of tax on the earnings in the IRA. See
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