Dennis W. Farley, Jr. and Janice J. Farley - Page 8

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               Respondent determined that petitioner did not use a                    
          reasonable rate of interest in calculating the amortizable growth           
          of his qualified plan accounts.  Respondent also contends that,             
          even if the interest growth rate used was reasonable, the $82,000           
          distribution in one year impermissibly modified a series of                 
          payments that were required to be substantially equal in order to           
          escape the additional tax.                                                  
               The fixed amortization method utilized by petitioner                   
          requires that a taxpayer use a reasonable rate of interest in               
          calculating a schedule of substantially equal payments.                     
          Respondent argued that petitioner’s rate of interest of 29                  
          percent was not reasonable because of three “fallacies”,                    
          summarized as follows:  Petitioner miscalculated the average                
          annual return of the seven funds,7 high short-term returns cannot           
          be sustained over a longer period, and past performance is not              
          predictive of future performance.  Rejecting petitioner’s                   
          methodology, respondent recalculated the average annual returns             
          of the seven funds used by petitioner.  Respondent determined               



               6(...continued)                                                        
          agreement of the parties.                                                   
               7    Respondent argued that, by taking the cumulative return           
          of each fund and dividing it by the relevant number of years to             
          arrive at an average annual return, petitioner ignored the                  
          effects of compounding and overstated each fund’s rate of return.           






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