Michael J. Barkley - Page 8

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          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            

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