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401(k) plan, and (2) that petitioner was not entitled to a $5,442
“cost of goods sold” deduction on Schedule C.3
Although petitioner 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 Mr. Seidel’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.
Mr. Seidel 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 Mr. Seidel’s and petitioner’s 1999 Federal income tax
returns, Mr. Seidel took the position that petitioner should
include the full amount of the distribution of $77,000 in her
income for 1999, and petitioner took the position that Mr. Seidel
should include one-half of the distribution in his income. As a
result, respondent issued notices of deficiency to both Mr.
Seidel and petitioner to avoid the possibility of being in a
whipsaw position. Respondent determined that Mr. Seidel failed
to report $30,030 (one-half of the net distribution) in his
3The amount of $5,442 which was disallowed by respondent is
actually the total net loss reported on Schedule C from
petitioner’s activity, Port of Mystery.
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