Larry J. and Catherine E. France - Page 12

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          Distributions from qualified plans such as the ERS are generally            
          treated as annuities and subject to tax to the extent provided in           
          section 72.  Sec. 402(a).  Section 72(a) generally requires any             
          amount received as an annuity to be included in gross income.               
          Section 72(b) allows an exclusion by permitting the use of an               
          exclusion ratio to except from gross income amounts proportionate           
          to the taxpayer’s investment in the contract.  Section 72(c), as            
          relevant here, defines the investment in the contract to be the             
          aggregate amount of premiums or other consideration paid for the            
          contract (or in the instant case, petitioner’s after-tax basis).            
               As a general rule, section 72 does not apply to any amount             
          received as an accident or health benefit.  Sec. 1.72-15(b),                
          Income Tax Regs.  Amounts received as a result of a disability              
          are accident or health benefits within the meaning of section               
          1.72-15, Income Tax Regs.  Accident or health benefits may be               
          excluded from gross income if such income satisfies specific                
          requirements set forth in either section 104 or 105.  Section               
          104(a), in relevant part, excludes from gross income certain                
          amounts received as compensation for injuries or sickness                   
          described in paragraphs (1) through (3) of that section.11                  
          Section 105(a) includes in gross income certain amounts received            


               11   Par. (4) of sec. 104(a), which applies to taxpayers who           
          have served in the armed forces or certain other organizations,             
          and par. (5), which applies to victims of terrorist attacks, are,           
          on their face, inapplicable to the facts before us.                         




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