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the extent the contribution is considered an “investment in the
contract”. Secs. 408(d)(2), 72. Thus, a distribution of IRA
contributions that were made before 1987, as well as the earnings
thereon, are fully includable in the taxpayer’s gross income upon
distribution. Further, a distribution of IRA contributions that
are made after 1986 may or may not be includable in the
taxpayer’s gross income depending upon whether the contributions
are considered an investment in a contract.
Under these rules, petitioner is not entitled to any basis
in his contributions made for 1985 and 1986. The record does not
reflect whether petitioner made any contributions in 1987 or
whether petitioners claimed a deduction on their return for
contributions made in 1987. In 1988, petitioner made a
contribution of $300 based upon the fact that petitioners claimed
a $300 deduction on their 1988 return. Petitioner is not
entitled to a basis in that contribution.
In the years 1989 and 1990, petitioner deposited $1,350 in
the IRA account, and petitioners did not claim any deduction
therefor on their 1989 or 1990 Federal income tax return.
Accordingly for these contributions, petitioner has a basis of
$1,350. In 1991 petitioner withdrew $1,400 and, within 60 days
thereafter, deposited $2,000 to the IRA account. Accordingly,
the $1,400 withdrawn and redeposited does not constitute a
deposit, as it is a timely rollover of a previous withdrawal.
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Last modified: May 25, 2011