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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
distribution.
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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