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of premiums or other consideration paid for the contract (or in
the instant case, petitioner’s after-tax basis). The “expected
return” amount is determined by multiplying, at the commencement
of the annuity, the total of the annuity payments to be received
annually by a multiple based on the annuitant’s age and, for
contributions prior to 1986, on the annuitant’s sex. Sec. 1.72-
5(a)(1), Income Tax Regs.
The application of the “exclusion ratio” to each annuity
payment determines the amount excluded from the gross income of
the annuitant and, thus, not subject to Federal income tax. This
excluded amount represents that part of the annuity payment which
accounts for the return of the annuitant’s investment in the
annuity.
In the relevant statutes governing the determination of the
taxable amount of a pension plan annuity, there is no provision
for, or mention of, any adjustment to an annuitant’s basis or
investment in his annuity to take account of inflation from the
date the annuitant first began to contribute to the annuity to
the annuity starting date. Nor is there any provision permitting
an adjustment to take account of inflation via a discount factor
from the date of the commencement of the annuity until the
nontaxable basis has been fully repaid to the annuitant.
When a statute is clear on its face, we require clear
unequivocal evidence of legislative purpose before construing a
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