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As discussed next, petitioner did not pay income tax on
Bechtel’s contributions on his behalf to his section 401(k)
account. We conclude that petitioner had no basis in his Nations
Bank IRA when he withdrew retirement funds from the IRA.
2. Whether Petitioner Paid Income Tax on Funds in His
Section 401(k) Account That He Rolled Over to the IRA
Petitioners contend in the alternative that petitioner had
paid income tax on the funds in his section 401(k) account that
he rolled over to the IRA, and as a result, the $69,500 that he
withdrew from his IRA in 1996 is a nontaxable return of
contributions for which he had previously paid income tax and is
not included in income under section 408(d)(1). We disagree.
On petitioner’s Forms W-2 for 1993, 1994, and 1995, Bechtel
reported that petitioner did not pay income tax on contributions
to his section 401(k) account in 1993, 1994, and 1995, and that
he deferred tax on compensation contributed to his pension plan.
Bechtel reported on the Forms W-2 that petitioner deferred income
tax on $8,994 in 1993, $9,240 in 1994, and $8,355.70 in 1995.
The difference between the amounts for “Medicare Wages” and the
amounts for “Wages, tips and other compensation” on petitioner’s
Forms W-2 for 1993, 1994, and 1995 equaled $8,994 in 1993, $9,240
in 1994, and $8,355.70 in 1995. Petitioners did not report the
contributions of $8,994 in 1993, $9,240 in 1994, and $8,355.70 in
1995 to petitioner’s section 401(k) account as income on their
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