Barney K. and Lindy W. Huang - Page 16

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          reflected on the Forms 1099-R.  Petitioners concede that this               
          amount is includable in their gross income.                                 
               The remainder of respondent’s $5,008 adjustment reflects two           
          separate payments which petitioner wife (Ms. Huang) received from           
          TSERS.  On January 17, 1996, two checks were issued for Ms.                 
          Huang’s benefit from TSERS in the total amount of $2,835.  Of               
          this amount, $1,913 represented a return of previously taxed                
          contributions which Ms. Huang had made to TSERS, and $922                   
          represented interest on those contributions.  The returned                  
          contribution amount was paid directly to Ms. Huang; the interest            
          amount was paid to an IRA account for Ms. Huang.  Ms. Huang                 
          withdrew the contributions because she was not eligible for                 
          retirement benefits under the plan.                                         
               The contributions Ms. Huang made to TSERS, which were taxed            
          as income as they were earned, are not includable in Ms. Huang’s            
          gross income when they were distributed from the qualified plan             
          in 1996.  Sec. 72(e)(2)(B)(ii).  The remainder of the payment for           
          Ms. Huang was interest on the contributions; this interest is not           
          includable in petitioners’ gross income in 1996 because it was              
          paid directly into an IRA account.  Sec. 402(c)(1).  We                     
          accordingly hold that in 1996 petitioners received unreported               
          taxable pension and annuity distributions of $2,174, rather than            
          $5,008 as determined by respondent.                                         








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