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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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