Roydell Campbell - Page 6




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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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