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On May 28, 2003, petitioner received a distribution of
$50,000 from a traditional IRA managed by Franklin Templeton Bank
& Trust (distribution). On October 24, 2003, petitioner
deposited approximately $41,000 of the $50,000 May distribution
back into the same Franklin Templeton account. Petitioner did
not include any of the distribution as income on the return.
In 2003, petitioner had $2,136 of debt canceled by American
Express Centurion Bank (American Express). Petitioner did not
include the amount of the canceled debt as income on the return.
Respondent subsequently issued to petitioner and his spouse
a statutory notice of deficiency for 2003, determining that they
failed to include in their income the distribution and the amount
of the canceled debt. Respondent also determined that the
distribution was subject to a 10-percent additional tax under
section 72(t) for early withdrawal. Respondent indicated on the
deficiency notice that the proposed changes to income would
reduce the amount of itemized deductions on Schedule A, Itemized
Deductions, and the claimed child tax credits.
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Last modified: November 10, 2007