- 10 -
1139, 1144 (9th Cir. 1992), affg. in part, revg. in part and
remanding T.C. Memo. 1991-144. We therefore look at the date the
notice of deficiency was issued, sec. 7430(c)(7)(B)(ii), and the
date respondent’s counsel became involved in the case,4 Huffman
v. Commissioner, supra; Estate of Merchant v. Commissioner, 947
F.2d 1390, 1392 & n.6 (9th Cir. 1991), affg. T.C. Memo. 1990-160.
A. The Administrative Proceeding
Respondent’s position in the administrative proceeding was
substantially justified. Gross income includes all income from
whatever source derived unless excluded by a specific provision
of the Internal Revenue Code. Sec. 61(a). A distribution from a
Roth IRA is excluded from gross income to the extent that it is a
return of the owner’s contributions or if it is a qualified
distribution. Sec. 408A(d)(1); Widemon v. Commissioner, T.C.
Memo. 2004-162; sec. 1.408A-6, Q&A-1(b), Income Tax Regs. As is
relevant here, a qualified distribution is one that is made after
a 5-year period and meets the exception for first-time homebuyer
4 The Commissioner generally takes a position in the Court
proceeding when the answer is filed. Corson v. Commissioner, 123
T.C. 202, 206 (2004). This case was originally designated a
small tax case, and therefore no answer was required. See Rule
173(b) as in effect when the petition was filed. Respondent
conceded that the Roth IRA distributions were not taxable on Jan.
10, 2007. Upon petitioners’ motion, we removed the “S”
designation on Jan. 29, 2007. Respondent filed an answer on Apr.
13, 2007.
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