William J. Phillips, Jr. and Matrona A. Phillips - Page 7




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          provides that MAGI means adjusted gross income determined without           
          regard to certain amounts, none of which pertain to a                       
          distribution of IRA funds.                                                  
               Petitioners argue, however, that the IRA distribution should           
          not be included in their MAGI because they did not physically               
          receive any funds.  Petitioners’ gross income includes all                  
          amounts received or constructively received as a distribution               
          from an IRA.  See secs. 408(d), 72, 61; Larotonda v.                        
          Commissioner, 89 T.C. 287, 291 (1987); see also Amos v.                     
          Commissioner, 47 T.C. 65, 70 (1966).  The nature of that income             
          is not altered for purposes of computing adjusted gross income,             
          section 62(a), or modified adjusted gross income, section                   
          32(c)(5), simply because it was deemed constructively received.             
          3. Respondent’s Allocation of the Entire Proceeds to the Section            
          6672(a) Liability                                                           
               Petitioners contend that respondent should have allocated 10           
          percent of the proceeds of the levy to petitioners’ 1997 tax                
          liability.  The underpinnings of this argument lie in section               
          3405(b), which provides that the payor of any nonperiodic                   
          distribution shall withhold 10 percent of such distribution.                
          Dean Witter, the payor, did not withhold any amounts from the               
          distribution pursuant to the levy on petitioner-husband’s IRA.              
          Petitioners argue that respondent knew that Dean Witter failed to           
          withhold this amount, and, therefore, it was respondent’s                   






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