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will be entitled to $3,500 of basis in the IRA. Accordingly,
when petitioners receive distributions, they will be entitled to
recover $3,500 tax free consistent with applicable law,
essentially on a pro rata basis. Any income on that investment
would continue to accrue in a tax-deferred manner. See generally
sec. 408.
To reflect our disposition of the disputed issue,
Decision will be entered
for respondent.
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Last modified: November 10, 2007