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Although Ms. Seidel reported one-half of the net
distribution of $60,060, or $30,030 in gross income on her 1999
Federal income tax return, she claimed the entire credit of
$15,400 for the Federal income tax withheld on the $77,000
distribution from petitioner’s CWSC 401(k) plan, together with an
itemized deduction on Schedule A of $1,540 for the State and
local income taxes withheld on the $77,000 distribution.
Petitioner did not report any part of the distribution from
the CWSC 401(k) plan on his Form 1040, U.S. Individual Income Tax
Return, for taxable year 1999.
Following the examination by the Internal Revenue Service
(IRS) of petitioner’s and Ms. Seidel’s 1999 Federal income tax
returns, petitioner took the position that Ms. Seidel should
include the full amount of the distribution of $77,000 in her
income for 1999, and Ms. Seidel took the position that petitioner
should include one-half of the distribution in his income. As a
result, respondent issued notices of deficiency to both
petitioner and Ms. Seidel to avoid the possibility of being in a
whipsaw position. Respondent determined that petitioner failed
to report $30,030 (one-half of the net distribution) in his
income for 1999, and Ms. Seidel was responsible for additional
income in the amount of $46,970. Ms. Seidel filed a petition to
this Court at docket No. 8964-03, in which she contested her
liability as to the additional one-half of the net distribution,
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