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on a prorated basis pursuant to section 72(b).8 We need not
address whether any portion of Mr. Logsdon's lump-sum credit is
includable pursuant to section 72(b), for petitioners have not
established that Mr. Logsdon made a deemed deposit or redeposit.
In any event, a similar argument as to a deemed deposit was
rejected by the Ninth Circuit in Malbon v. United States, 43 F.3d
at 471-472, concluding that the economic substance of the
arrangement required that the deemed deposit be taxed as part of
the lump-sum payment in accordance with section 72(e).
III. Section 6662(a)--Accuracy-Related Penalty
Respondent determined that petitioners are liable for an
accuracy-related penalty of $4,870 pursuant to section 6662(a)
for 1991. Section 6662 imposes a 20-percent penalty on any
portion of any underpayment that is attributable to any
substantial understatement of income tax. Sec. 6662(a)(2),
8Sec. 72(b) provides in pertinent part:
SEC. 72(b). Exclusion Ratio.--
(1) In general.-- Gross income does not include
that part of any amount received as an annuity under an
annuity, endowment, or life insurance contract which
bears the same ratio to such amount as the investment
in the contract (as of the annuity starting date) bears
to the expected return under the contract (as of such
date).
(2) Exclusion limited to investment.-- The portion
of any amount received as an annuity which is excluded
from gross income under paragraph (1) shall not exceed
the unrecovered investment in the contract immediately
before the receipt of such amount.
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