Dona Elizabeth Conway - Page 6

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          income the $895 taxable portion of the $5,149 Great-West                    
          distribution.  Petitioner, however, reported no additional tax              
          under section 72(t) with respect to the $895 taxable portion of             
          the Great-West distribution.                                                
               On audit, respondent determined that petitioner’s transfer             
          of a portion of the funds invested in the Fortis annuity contract           
          into the Equitable annuity contract did not qualify as a                    
          nontaxable exchange under section 1035 and that petitioner                  
          received $30,535 of unreported taxable income relating thereto.             
          Respondent also determined that petitioner is liable under                  
          section 72(q) for a 10-percent penalty of $3,054 on the $30,535             
          portion of the withdrawal from the Fortis annuity contract that             
          respondent treated as taxable.                                              
               Further, in calculating petitioner's taxable gain on the               
          sale of her home, respondent disallowed entirely petitioner's               
          claimed tax basis of $335,492.  Respondent disallowed                       
          petitioner's claimed miscellaneous itemized deductions of                   
          $13,250, and respondent determined that petitioner is liable for            
          a 10-percent additional tax of $90 under section 72(t) on the               
          $895 taxable portion of petitioner's $5,149 Great-West                      
               Before trial, respondent allowed petitioner a tax basis in             
          her home of $221,633, consisting of the purchase price of $53,500           
          and all of the claimed $168,133 in improvements that were made to           

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