Margret Louise Kelley - Page 6

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          statement, from the Retirement Plan reporting the amount of the             
          distribution.                                                               
               During 2001, petitioner received $16,909 pursuant to the               
          QDRO.  On her return for that year, petitioner disclosed this               
          amount in its entirety on line 16a, “Total pensions and                     
          annuities”, but reported “0” on line 16b as the taxable amount.             
          In explanation, petitioner wrote “see addendum (commun. prop.)”             
          and attached to her return a copy of the Superior Court’s July              
          1986 order.  Petitioner had consistently followed this approach             
          for every year that she had received a distribution.                        
               Respondent contends that the amount actually paid to                   
          petitioner in 2001, i.e., $16,909, is includable, in its                    
          entirety, in petitioner’s income for that year.  Petitioner                 
          contends that she received no property settlement per se in her             
          divorce from Mr. Kelley and that her community property interest            
          in his retirement benefits is essentially a “return of capital”             
          and therefore not taxable.  Petitioner also points out that on              
          three separate occasions over the years, respondent’s Service               
          Centers have issued “no change” letters after inquiring into the            
          status of her interest in Mr. Kelley’s retirement benefits.                 












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