Wayne L. Patrick - Page 18

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          Wayne further contends that the funds received from the IRA were            
          loans.  Wayne did not address this issue at trial or on brief.8             
               Under section 408(d)(1), "any amount paid or distributed out           
          of an individual retirement plan shall be included in gross                 
          income by the payee or distributee * * * in the manner provided             
          under section 72."  See also Campbell v. Commissioner, 108 T.C.             
          54 (1997).  Generally, any amount distributed from an IRA is                
          includable in the gross income of the recipient in the year in              
          which the distribution is received.  Sec. 408(d)(1); sec. 1.408-            
          4(a)(1), Income Tax Regs.  Because there is no evidence in the              
          record that Wayne made nondeductible contributions to his IRA, we           
          find that his tax basis in the IRA was zero.  Sec. 1.408-4(a)(2),           
          Income Tax Regs.; see also sec. 72(e)(2)(B).  Therefore, he is              
          afforded no credit for any investment in the IRA within the                 
          meaning of section 72(e)(3)(A) and (6).  See also Vorwald v.                
          Commissioner, T.C. Memo. 1997-15.  The distributions are thereby            
          allocated to, and included in, Wayne's gross income as follows:             
          $9,000 for 1993 and $9,307 for 1994.                                        



               8  Wayne appears to have abandoned his untenable position              
          that the funds were received in the form of loans.  Unlike a loan           
          from a qualified plan, a loan from an IRA to its owner is always            
          a prohibited transaction (there is no exception for loans from an           
          IRA to its beneficiary).  Sec. 4975(d); Employee Retirement                 
          Income Security Act of 1974, Pub. L. 93-406, sec. 408(d), 88                
          Stat. 829, 885.  If such a loan was made, the IRA would lose its            
          exemption and all assets would be deemed distributed.  Sec.                 
          408(e)(1) and (2).                                                          




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