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income of the employee. However, unless the plan specifies
otherwise, any distribution from a qualified employer plan will
not be treated as made from the accumulated deductible employee
contributions until all other amounts to the credit of the
employee have been distributed. See sec. 72(o)(6).
The record does not reflect the terms of the plan, nor that
the distributions were made from deductible employee
contributions. Further, petitioner did not establish all other
amounts (not considering the deductible employee contributions)
were distributed. Therefore, the loan proceeds received in 1997
constitute taxable distributions to petitioner, and we sustain
respondent’s determination.
B. State Income Tax Refund
Pursuant to section 111, if State income tax was deducted on
a Federal income tax return for a prior taxable year and if such
deduction resulted in a tax benefit to the taxpayer, such as a
reduction of Federal income tax for the prior taxable year, a
subsequent recovery by the taxpayer of the State income tax must
be included in the taxpayer’s gross income for Federal income tax
purposes in the year in which the recovery is received. See
Kadunc v. Commissioner, T.C. Memo. 1997-92, and cases cited
therein.
Petitioner presented no evidence to show that he did not
realize a tax benefit from the deduction of State income tax on
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