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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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