Thomas H. Ploss - Page 4

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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                
               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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