James G. and Anita M. Forret - Page 5

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          qualified salary reduction arrangement.  Sec. 408(p)(1)(B).  As             
          is relevant here, a qualified salary reduction arrangement means            
          a written arrangement under which:                                          
                    (i) an employee eligible to participate in the                    
               arrangement may elect to have the employer make                        
                    (I) as elective employer contributions to a simple                
                    retirement account on behalf of the employee, or                  
                    (II) to the employee directly in cash,                            
                    *      *      *      *      *      *      *                       
                    (iii) the employer is required to make a matching                 
               contribution to the simple retirement account * * *,                   
                    (iv) no contributions may be made other than                      
               contributions described in clause (i) or (iii).  [Sec.                 
               408(p)(2)(A); emphasis added.]                                         
               Thus, an eligible employee can participate in the SIMPLE IRA           
          plan by having a portion of his salary deferred and contributed             
          to the plan, or the employee can choose not to participate and              
          receive his salary in the form of cash.  If an employee chooses             
          to participate in the plan, the only permissible contributions              
          are those made by the employer on behalf of the employee and the            
          employer’s matching contributions.  Sec. 408(p)(2)(A)(iv).  An              
          employee cannot deduct amounts that he deposits directly to a               
          SIMPLE IRA plan.  Sec. 219(a) and (b)(4).                                   
               Petitioners concede that their lump-sum deposits do not                
          constitute valid contributions within the meaning of section                
          408(p).  Petitioners argue, however, that “The tax implications             

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