Andrew P. and Roseanne L. Gallagher - Page 2




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          distribution was subject to the 10-percent additional tax imposed           
          by section 72(t).                                                           
               Unless otherwise indicated, all section references are to              
          the Internal Revenue Code in effect for the years in issue.                 
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated, and the stipulated             
          facts are incorporated in our findings by this reference.                   
               Petitioners resided in Houston, Texas, at the time they                
          filed their petition.  In 1976, petitioner opened an IRA as                 
          described in section 408(a).  Petitioners made additional                   
          contributions to the IRA over the next several years.                       
          Petitioners claimed deductions on their Federal income tax                  
          returns under section 219 for all of their contributions to the             
          IRA.  Petitioners made no nondeductible contributions to the IRA.           
               Petitioner was a civil engineer employed by the City of                
          Houston, Texas, from May 6, 1985, until sometime in 1997.                   
          Petitioner was involuntarily demoted by the City of Houston                 
          effective December 3, 1996.  The demotion resulted in a decrease            
          of $11,700 to petitioner’s annual salary.  In November 1997,                
          petitioner began working full time for the City of Pearland,                
          Texas.                                                                      
               Because of financial hardship, in early 1997 petitioner                
          requested a $6,000 distribution from the administrator of the               
          IRA.  Petitioner was 46 years old at the time he received the               






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