Robert L. and Sara J. Helm - Page 10




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          are not present here.  For an individual taxpayer, AGI is gross             
          income minus a specifically enumerated list of deductions, which            
          deductions also are not present here.  Sec. 62.  Finally, section           
          61 defines gross income as “all income from whatever source                 
          derived”, unless otherwise provided.  Section 61(a)(9) and (11)             
          expressly defines gross income to include income from annuities             
          and pensions.  Therefore, petitioners’ gross income includes                
          their conversion income.  See sec. 408A(d)(3)(A), (C).                      
               Accordingly, petitioners had MAGI of $43,127.58 in 1998 and            
          $48,742.89 in 1999, sec. 86(b)(2), and they received Social                 
          Security benefits of $8,838 and $15,882, respectively.  As a                
          result, petitioners’ MAGI plus one-half of their benefits                   
          ($47,546.58 for 1998 and $56,683.89 for 1999) exceeds the base              
          amount, and, therefore, a portion of their Social Security                  
          benefits is taxable.  See sec. 86(a)(2), (c)(2).                            
               D.  The Tax Consequences of Petitioners’ IRA Conversion                
               Petitioners agree that their conversion income is a “taxable           
          rollover” requiring them to pay income tax on such income.                  
          However, petitioners object to the conversion income’s being                
          characterized as a “taxable distribution” that has the effect of            
          making their Social Security benefits taxable under section 86.             
          Petitioners, however, do not fully appreciate the tax                       
          consequences involving a conversion of a traditional IRA to a               
          Roth IRA.                                                                   






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