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sec. 4973. Additionally, Congress continued to fully tax excess
contributions upon distribution, despite the fact that such
contributions were made with after-tax dollars. H. Conf. Rept.
93-1280, supra at 340, 1974-3 C.B. at 501; H. Rept. 93-807, supra
at 130-131, (1974), 1974-3 C.B. (Supp.) 365-366. Significantly,
the ERISA conference report states, in pertinent part, as
follows:
In general, where contributions in excess of the
deductible limits are made to an individual retirement
account, no deduction is allowed for the excess amount, and
this amount will be subject to a 6 percent tax for the year
in which it is made, and each year thereafter, until there
is no excess. The distribution is not to be includible in
income if the excess is distributed to the individual on or
before the due date for filing the employee's tax return for
the year in question (including extensions). If the
distribution occurs after that date, however, the
distribution is to constitute taxable income to the employee
(because his basis in his account is always zero) and will
also give rise to a 10-percent additional tax if the
distribution occurs before the employee is 59 �. [H. Conf.
Rept. 93-1280, supra at 340, 1974-3 C.B. at 501; emphasis
added.]
As this excerpt illustrates, in enacting section 408(d)(1),
Congress consciously and expressly declined to provide a taxpayer
with a basis in IRA contributions exceeding the deductible limit.
This created the possibility that a taxpayer could be fully taxed
on an IRA distribution funded with after-tax contributions.
In the Tax Reform Act (TRA) of 1986, Congress made two
significant changes to the IRA provisions. First, Congress
enacted section 408(o), which permits individuals to make
"designated nondeductible contributions" to the extent that
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