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participation in the plan was terminated. At some point prior to
the gross distribution petitioner had taken out a loan or loans
from his pension plan account to pay for the education of
petitioners' three children and to make improvements to
petitioners' residence, resulting in the outstanding loan balance
of $9,109.93 at the time of the gross distribution.
A statement of petitioner's pension plan account as of April
30, 1990, the effective date of petitioner's termination from the
plan, indicated that there was an attached check in the amount of
$16,203.29, and that the outstanding loan balance of $9,109.93
would be included in the gross distribution for purposes of
determining taxable income. On the Form 1099R issued to
petitioner, the plan administrator reported the gross
distribution as a taxable distribution of $25,313.12, indicating
that this amount included a defaulted loan of $9,109.93. The
Form 1099R indicated that no amount of the gross distribution was
eligible for a capital gains election.
All of petitioners' tax returns for the years in issue were
submitted to the Internal Revenue Service after the notices of
deficiency in this case were issued. Petitioners did not pay any
tax for the 1990 taxable year except withholding tax. With
respect to the 1990 taxable year, petitioners filed a tax return
and two amended returns during the first 3 months of 1996. There
are inconsistencies within each return, and inconsistencies
between the returns. Petitioners' first tax return for 1990
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