- 8 -
II. The Proper Tax Treatment of the 1998 Distribution
Gross income includes income from whatever source derived,
including income from pensions and annuities. Sec. 61(a)(9),
(11). A distribution from a qualified retirement plan is
includable in the distributee’s gross income in the taxable year
of distribution. Sec. 402(a). The distribution is includable in
gross income in the same manner as an annuity under section 72,
id., unless the distribution qualifies for special tax treatment
under section 402(d) or is excluded under another provision.
Petitioner argues that, when he received the 1998
distribution, Mrs. Barkley became entitled to one-half of the
distribution under California community property law. Although
petitioner admits that “both halves” of the 1998 distribution are
includable in gross income under section 402(a), and that no part
of section 402(d) is applicable to his half of the 1998
distribution, petitioner contends that under section 402(d)(3),
he is entitled to deduct Mrs. Barkley’s community property
interest, equal to half of the 1998 distribution, from his gross
income. Petitioner reasons that, because section 402(d)(4)(E)
provides that “The provisions of this subsection, other than
paragraph (3), shall be applied without regard to community
property laws”, all provisions of section 402(d) relating to
computing and qualifying for lump-sum averaging “disappear” with
regard to Mrs. Barkley’s community property interest in the 1998
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011