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nontaxable return of contributions.8 A portion of the remaining
balance of $504.36 is an amount of net income attributable to the
contributions for the 1992 taxable year. See sec. 408(d)(4);
sec. 1.408-4(c)(2)(ii) and (iii), Income Tax Regs. This amount
is includable in gross income in 1992 and as the parties have
agreed, is subject to the 10 percent premature distribution tax
under section 72(t).
Distributions Subject to Section 72 Computation
The balance of $504.36, reduced by the amount of net income
attributable to withdrawn contributions for 1992, is subject to
the computation under section 72(e)(8) as modified by section
408(d)(1) and (2). After reduction by the amount of net income
attributable to withdrawn contributions, the balance of the
amount distributed to petitioner in 1992 that is not taxable is
determinable by the section 72(e)(8)(B) formula as modified by
section 408(d)(1) and (2):
Total Nondeductible Contributions1
x Distribution
Amount
Total IRA Account Balances + Distribution Amount
8Respondent has published notice that when using the sec.
72(e)(8) fraction to determine the amount of a premature
distribution to be includable in income, "Neither the numerator
nor the denominator of the above equation shall include amounts
previously withdrawn pursuant to section 408(d)(4) of the Code."
Notice 87-16, 1987-1 C.B. 446, 452. Taxpayers are entitled to
rely on and the Internal Revenue Service states that it will be
bound by substantive and procedural guidance provided by notices
or announcements. Rev. Rul. 90-91, 1990-2 C.B. 262.
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Last modified: May 25, 2011