Kenneth L. Nordtvedt - Page 5




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          petitioner’s 1996 pension was $24,843.  See sec. 1.72-4, Income             
          Tax Regs.  Petitioner agrees that the determination of the                  
          taxable portion of $24,843 is in accordance with the regulations.           
          However, petitioner maintains that the taxable amount should be             
          reduced by $1,864 for 1996 in order to take into account the                
          effect of inflation on his contributions.                                   
               Petitioner’s contention that he is entitled to adjust the              
          basis in his annuity pension to account for inflation is                    
          incorrect.  Section 61(a) provides that gross income includes all           
          income from whatever source derived, unless otherwise                       
          specifically excluded.  Section 61(a)(9) provides that gross                
          income includes income from annuities.  The Supreme Court has               
          reasoned that Congress “intended ‘to use the full measure of its            
          taxing power’” when it created the income tax.  Commissioner v.             
          Kowalski, 434 U.S. 77, 82 (1977) (quoting Helvering v. Clifford,            
          309 U.S. 331, 334 (1940)).  The Court explained that Congress               
          intended “‘to tax all gains except those specifically exempted.’”           
          Id. at 82-83 (quoting Commissioner v. Glenshaw Glass Co., 348               
          U.S. 426, 429-430 (1955)).  There is no statutory or regulatory             
          provision permitting petitioner to exempt gain which may be                 
          attributable solely to inflation by adjusting the basis in his              
          annuity pension to account for such inflation.2                             

               2We note that when Congress intends for inflation to be                
          taken into account, it does so by providing for it by statute.              
                                                             (continued...)           





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