Wallace F. and Mi-Ja H. Smith - Page 11




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          provides an exception to the general rule where the entire amount           
          received is rolled over into an IRA or individual retirement                
          annuity for the benefit of the distributee within 60 days after             
          the receipt of the distribution.  Additionally, distributions are           
          not includable in a distributee's income to the extent that any             
          distribution, or any portion of any distribution, is allocable to           
          the distributee's "investment in the contract."  Sec. 72(e)(2).             
          Generally, however, the basis of an IRA is zero.  Sec. 1.408-               
          4(a)(2), Income Tax Regs.; Costanza v. Commissioner, T.C. Memo.             
          1985-317.                                                                   
               Petitioners admitted receipt of the $11,281 distribution               
          from petitioner's Bank of America IRA in 1997 and reported the              
          distribution on their return for that year, even though they                
          failed to include the distribution in gross income.  Petitioners            
          do not qualify for the rollover exception provided in section               
          408(d)(3) because petitioners did not roll over any portion of              
          the distribution into another IRA or other retirement account.              
          Moreover, petitioners failed to show that they made any                     
          nondeductible or excess contributions to the IRA that would have            
          increased their basis therein, and, thus, petitioners' tax basis            
          in the IRA was zero.  Patrick v. Commissioner, T.C. Memo. 1998-             
          30, affd. 181 F.3d 103 (6th Cir. 1999).  Petitioners do not                 
          claim, and nothing in the record suggests, that petitioners                 
          should otherwise be given credit for any investment in the IRA              





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