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annuity". Sec. 1.72-1(b), Income Tax Regs. The transcript of
account shows that the payments received by petitioner were not
periodic or regular. Petitioner's payments were section 72
payments not received as an annuity.
Petitioners distributions were received before the section
72(c)(4) "annuity starting date". For payments not received as
an annuity, section 72(e)(2)(B) provides that, for distributions
received before the annuity starting date, the distributee is
entitled to exclude from income any part of the distribution that
is allocable to the "investment in the contract" as defined in
section 72(e)(6). Amounts allocable to income on the contract
are on the other hand, includable in gross income. Sec.
72(e)(2)(B), (5)(D), (8)(A) and (B). In order to determine the
investment in the contract, the premiums or other consideration
paid for the contract must be calculated. Sec. 72(e)(6).
Premiums or Other Consideration Paid
Under section 72(f), employees generally are given credit
only for nondeductible premiums or other consideration that they
have contributed for purposes of computing the "investment in the
contract" under section 72(e)(6).4 See Campbell v. Commissioner,
108 T.C. 54, 66 (1997); Patrick v. Commissioner, T.C. Memo. 1998-
30. Amounts, however, contributed by the employer are also to be
4Under prior law, an individual would never have an
"investment in the contract" or "basis" in an IRA. See Campbell
v. Commissioner, 108 T.C. 54, 64-66 (1997).
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Last modified: May 25, 2011