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of $5,008. Petitioners dispute this determination in part, as
explained below.
In general, gross income includes all income from whatever
source derived, including income from pensions and annuities.
Sec. 61(a)(9), (11); sec. 72(a). However, portions of certain
annuity payments, representing a ratable recovery of a taxpayer’s
investment therein, may be excludable from income. Sec. 72(b),
(d).
Previously taxed contributions to a section 401(a) qualified
plan which are returned to the contributing taxpayer before the
annuity starting date are not included in income in the year they
are returned. Secs. 72(e)(2)(B)(ii), 402(a). Interest earned on
such contributions, however, is included in gross income unless
it is “rolled over” into another eligible retirement plan such as
an IRA. Secs. 72(e)(2)(B)(i), 402(c)(1).
In 1996, petitioners received pension and annuity payments
from Aetna Life Insurance Company and from the Teachers’ and
State Employees’ Retirement System of North Carolina (TSERS),
which is a section 401(a) qualified plan. The Forms 1099-R,
Distributions From Pensions, Annuities, Retirement or Profit-
Sharing Plans, IRAs, Insurance Contracts, etc., attached to
petitioners’ return listed taxable distributions of $14,716 from
Aetna and $19,855 from TSERS. However, petitioners included in
gross income only $32,397, or $2,174 less than the amounts
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