Ronny H. and Charlotte A. Schmalzer - Page 4

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          contribution in 1987.4  Petitioners’ tax returns from 1988                  
          through 1991 are part of the record and reflect that petitioners            
          did not claim any deduction for contributions to the IRA account            
          for 1989, 1990, and 1991, but did claim a $300 deduction for a              
          contribution in 1988.                                                       
               On their 1992 Federal income tax return, petitioners did not           
          disclose the receipt of the distribution from the IRA account and           
          did not report any amount as taxable income.  In the notice of              
          deficiency respondent determined that the $6,100 withdrawn from             
          the IRA account in 1992 is includable in petitioner’s gross                 
          income, pursuant to sections 408(d)(1) and 72.                              
               Petitioners contend that they are entitled to exclude from             
          gross income the IRA distributions on the grounds that they had a           
          basis in the IRA contributions.  Respondent contends that                   
          petitioners had a zero basis in the contributions.                          
               Generally, taxpayers do not have a basis in IRA                        
          contributions that were made prior to 1987.  Section 408(d)(1),             
          as in effect for 1986 provides:  “Notwithstanding any other                 
          provision of this title * * * the basis of any person in such an            
          account or annuity is zero.”  For contributions made after 1986,            
          however, taxpayers are allowed a basis in IRA contributions to              


          4  The exhibit containing most of the 1987 return does have a               
          “data sheet” which, if closely examined, lends the inference that           
          no IRA contribution was deducted but does not permit any                    
          inference as to whether any IRA contribution was made.                      




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