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1980, Milwaukee Road was merged into the Soo Line Railroad
Company (Soo Line), and the Soo Line pension plan became the
successor of the Milwaukee Road pension plan. In 1995,
petitioner applied for retirement benefits in the form of an
annuity from the Soo Line pension plan, and in the year in issue
petitioner received $2,807 in benefits therefrom.
On his 1998 Federal income tax return, petitioner did not
report any of the benefits received from the Soo Line pension
fund. In the statutory notice of deficiency, respondent
determined that petitioner had unreported pension or annuity
income.2
Gross income generally includes income from whatever source
derived, including income from pensions and annuities. Sec.
61(a)(9), (11); sec. 72(a). However, gross income does not
include “that part of any amount received as an annuity under an
annuity * * * contract which bears the same ratio to such amount
as the investment in the contract * * * bears to the expected
return under the contract”. Sec. 72(b)(1); see also sec. 72(d).
Petitioner argues that no portion of the pension
distributions he received in 1998 should be taxable because the
benefits “were funded by contributions made by deductions from
2The notice of deficiency states in one instance that the
total pension and annuity income received by petitioner in 1998
was $3,677 and then states in another instance that it was
$2,807. We accept the parties’ stipulation that petitioner
received total distributions of $2,807.
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Last modified: May 25, 2011