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Generally, any amount “paid or distributed out of” an IRA is
includable in gross income by the taxpayer in the manner provided
under section 72. Sec. 408(d)(1). Pursuant to section
408(d)(4), this general rule does not apply to the distribution
of any contribution paid during a taxable year to an IRA if:
(A) such distribution is received on or before the
day prescribed by law (including extensions of time)
for filing such individual’s return for such taxable
year,
(B) no deduction is allowed under section 219 with
respect to such contribution, and
(C) such distribution is accompanied by the amount
of net income attributable to such contribution.
In May of 2002, petitioner contributed $3,500 into a classic
IRA. In December of 2002, petitioner received a distribution of
$10,487.86 from the classic IRA, which included the $3,500 IRA
contribution that he made in May of 2002 plus any net income
attributable to the contribution. Petitioner is not allowed an
IRA contribution deduction under section 219 because petitioners’
modified AGI exceeded the phaseout amount.
The Court finds that $3,500 of the distribution meets all of
the requirements under section 408(d)(4). Accordingly, $3,500 of
the distribution is not includable in gross income.
Computation of Petitioners’ Tax Liability
Petitioner also argues that respondent has rounded up or
rounded down the amounts for the proposed adjustments to the
return to prejudicially favor the IRS. While this argument has
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Last modified: May 25, 2011