Wallace W. Burke - Page 6

                                        - 5 -                                         
               Petitioner   Respondent                                                
               1. Total distributions received in 1999                         $37,477.26   $38,422.50
               2. Cost in the plan (i.e., investment in the contract)           57,665.65    18,905.42
               4. Cost divided by 240 month recovery period (monthly exclusion)    240.27        78.77
               5. Multiplied by 12 (yearly exclusion)                            2,883.24       945.24
               9. Taxable distributions received in 1999 (line 1 minus line 5)  34,594.02    37,477.26
          There are two points of contention between petitioner and                   
          respondent--the amounts reflected on lines 1 and 2.  The                    
          remaining lines in the calculation are computational and are                
          based upon the first two amounts.                                           
               First, petitioner in his calculation used total                        
          distributions (line 1) of $37,477.26, rather than the $38,422.50            
          used by respondent.  Petitioner has agreed that the latter amount           
          represents the total distributions he received in 1999, thus                
          respondent’s use of this amount in his calculation is correct.              
               Second, petitioner used a total cost in the plan, or                   
          investment in the contract (line 2), of $57,665.65.  The amount             
          used by petitioner represents the total contributions petitioner            
          made to the plan, using both taxed and untaxed funds.  However, a           
          taxpayer’s investment in a contract generally includes only the             
          amount of after-tax contributions and does not include pre-tax              
          contributions.  Sec. 72(f).  Thus, the amount of $18,905.42 used            
          by respondent--the amount representing only those contributions             
          which were made using previously taxed funds--is the correct                
          amount.                                                                     

          2(...continued)                                                             
          the law.  Dixon v. United States, 381 U.S. 68 (1965); Automobile            
          Club v. Commissioner, 353 U.S. 180 (1957).                                  





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