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However, the return itself indicated that only $1,083.14 of the
distribution was taxable. An attached schedule showed tax-free
rollover treatment of $628,000 as invested in a qualified plan.
At the time she signed the return, petitioner did not
understand the tax consequences of the transfer refund
distribution or the purpose of the rollover she was advised to
effect. She did not ask why a relatively small amount of the
entire distribution was taxable. She relied upon Mr. Browne, her
tax adviser, in concluding that the amount of the distribution
treated as taxable on the return was correct. When she signed
the return, she was not aware that the treatment of the
distribution thereon was incorrect. She was not aware that her
failure to treat $629,083.14 of the distribution as taxable
income would give rise to a deficiency.
After signing the return, petitioner made expenditures from
the various IRA accounts she had created with the proceeds of the
distribution. Among other things, she made repairs and
improvements to her residence; she paid down the mortgage; she
paid her family’s medical bills; she made gifts to her children
and her mother; and she paid off her children’s college loans and
credit card balances for various family members. Her spending
over the 3 years 1992 through 1994 totaled more than $441,000.
She also established a trust for her children in the amount of
$132,000.
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