Earl R. and Mary A. Palmer - Page 6




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          Petitioners did not challenge respondent's assertion regarding              
          the information return by DFAS to Mr. Simon.4                               
               For the year in question, as well as in prior years,                   
          petitioners did not include the retirement benefits received from           
          DFAS as income on their Federal income tax returns.  In an audit            
          during 1987 of petitioners' 1981, 1984, and 1985 tax returns,               
          respondent's examining agent had proposed including in income the           
          retirement benefits petitioner received from DFAS; however, at              
          respondent's appellate division level, the proposal of the                  
          examining agent was reversed.                                               
               For the year at issue, respondent determined in the notice             
          of deficiency that the 1994 retirement benefits to petitioner               
          were includable in gross income.  Respondent made no allowance or           
          credit for the amount withheld as Federal income tax from                   
          petitioner's portion of the retirement benefits.  As noted                  


               4    Mr. Simon, on his Federal income tax return for 1994,             
          reported the full amount of the retirement benefits and claimed             
          an alimony deduction in the amount of $15,564.  Respondent issued           
          a notice of deficiency to Mr. Simon disallowing the claimed                 
          deduction, and a petition was filed on behalf of his estate in              
          this Court challenging that determination.  Estate of Robert V.             
          Simon, Deceased, Kathleen L. Nailor, Executrix v. Commissioner,             
          docket No. 3549-01S.  A stipulated decision was entered in that             
          case on Oct. 18, 2002, which provides "That there is no                     
          deficiency in income tax due from petitioner or overpayment due             
          to petitioner for the taxable year 1994."  The record of that               
          case does not include any information return from DFAS relating             
          to the retirement benefits in question; however, respondent                 
          allowed a reduction of the benefits taxable to Mr. Simon for the            
          amount paid to petitioner.                                                  





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