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excludable from gross income. Sec. 72(e)(2)(B), (8)(A).
For purposes of section 72(e), “investment in the contract”
is generally defined as “the aggregate amount of premiums or
other consideration paid for the contract”. Sec. 72(e)(6)(A).
An employee’s “investment in the contract” includes amounts
contributed by the employer, “but only to the extent that * * *
such amounts were includible in the gross income of the
employee”. Sec. 72(f). For purposes of a section 401(k) plan,
“elective contributions * * * are neither includible in an
employee’s gross income at the time the cash or other taxable
amounts would have been includible in the employee’s gross income
* * * nor at the time the elective contributions are contributed
to the plan.” Sec. 1.401(k)-1(a)(4)(iii), Income Tax Regs.
Therefore, in the context of this case, a taxpayer’s “investment
in the contract” includes only the amount of after-tax
contributions and does not include pretax contributions. See
sec. 72(f).
Petitioner’s contributions to his TESPHE account prior to
the 1999 distribution were pretax contributions. As a result,
petitioner’s TESPHE account contributions were not included in
his gross income at the time of the contributions, and petitioner
had no “investment in the contract” equal to these pretax
contributions.
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Last modified: May 25, 2011