- 13 -
not received as an annuity is not includable in income. See sec.
72(e)(2)(B).
With respect to the actual distribution of $16,203.29, which
petitioners agree must be included in income in some form,
petitioners attempted to elect 5-year averaging and capital gains
treatment in the second amended return for tax year 1990.4
Respondent argues that petitioners do not qualify for either 5-
year averaging or capital gains treatment because the elections
were untimely, and that petitioners have failed to prove that
they qualify for capital gains treatment in any event.
Section 402(e) permits a taxpayer to elect 5-year averaging.
With 5-year averaging, the tax is imposed in the year of
distribution, but the amount of the tax is equal to the tax on
1/5 of the distribution multiplied by 5, giving the taxpayer the
advantage of lower tax rates on the smaller amount of income.5
Under section 11.402(e)(4)(B)-1(c)(1), Temporary Income Tax
Regs., 40 Fed. Reg. 1016 (Jan. 6, 1975), an election for 5-year
averaging must be made within the time for filing a claim for
4 The second amended return is the only return that can be
read consistently with petitioners' position on brief.
5 Sec. 402(e) permits 5-year averaging. Prior to the Tax
Reform Act of 1986 (TRA 1986), Pub. L. 99-514, 100 Stat. 2085,
sec. 402(e) of the Code as then in effect permitted 10-year
averaging. TRA 1986 prospectively eliminated 10-year averaging,
but grandfathered the existing availability of 10-year averaging
for persons who attained age 50 before Jan. 1, 1986. See TRA
1986, sec. 1122(h)(5), 100 Stat. 2471-2472. Respondent concedes
on brief that petitioner had reached age 50 before Jan. 1, 1986.
Nevertheless, petitioner sought to use 5-year averaging.
Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NextLast modified: May 25, 2011