Richard Edwin and Eva Ruth Elder - Page 2




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                                     Background                                       
               At the time the petition was filed, petitioners resided in             
          Moraga, California.  Petitioner Richard Elder is an attorney                
          admitted to practice before the Tax Court.  Petitioner Eva Elder            
          is not an attorney.                                                         
               In 2003, petitioners received distributions totaling $6,621            
          from Roth individual retirement accounts (Roth IRAs).2                      
          Petitioners used the proceeds for first-time homebuyer expenses.            
          Petitioners did not report the distributions as taxable income on           
          their joint 2003 Federal income tax return.                                 
               The Roth IRAs were held through E Trade Clearing LLC (E                
          Trade).  Forms 1099-R, Distributions From Pensions, Annuities,              
          Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts,              
          etc., issued by E Trade list “J” as the distribution code.                  
          According to the instructions for the Form 1099-R for 2003,                 
          distribution code J indicates:                                              
               a distribution from a Roth IRA where * * * there are no                
               known exceptions.  For example, you may not know                       
               whether an exception under section 72(t) applies (such                 
               as medical expenses, first-time homebuyer, etc.) or                    
               whether the distribution is a qualified distribution                   


               2 In general, contributions to a traditional individual                
          retirement account (IRA) are deductible when made, but                      
          distributions from the IRA are subject to tax.  See Orzechowki v.           
          Commissioner, 69 T.C. 750, 755 (1978), affd. 592 F.2d 677 (2d               
          Cir. 1979).  In contrast, contributions to a Roth IRA are not               
          deductible, but qualified distributions generally are not subject           
          to tax.  Sec. 408A(c)(1), (d).  We discuss the taxation of Roth             
          IRA distributions in greater detail below.                                  






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