MEMORANDUM OPINION

COHEN, Judge: Respondent determined deficiencies in petitioners' Federal income taxes as follows:

Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

After concessions, the issue remaining for decision is whether any portion of a lump-sum payment to Louis R. Gomez from the Civil Service Retirement System in the amount of $ 52,227.53 in 1987 is includable in petitioners' gross income.

Background

All of the facts have been stipulated, and the stipulated facts are incorporated in our findings by this reference. At the time the petition was filed, petitioners resided in Las Cruces, New Mexico.

Louis R. Gomez (petitioner) was employed by the National Aeronautics and Space Administration (NASA) from July 30, 1964, until his retirement on December 19, 1986. As an employee of NASA, petitioner was subject to the Civil1996 Tax Ct. Memo LEXIS 223">*224 Service Retirement System (CSRS). Because petitioner's creditable service included service with the U.S. Army, the date for computation of his benefit commenced July 30, 1961. At retirement, petitioner had accumulated service for computing his retirement benefit of 25 years and 10 months.

Petitioner's total contributions plus deemed deposits and redeposits in his CSRS account were $ 53,419 on the annuity starting date. Petitioner's highest three salary periods (used to compute his benefits) were 1983, 1984, and 1985 in the amounts of $ 53,661, $ 55,807, and $ 57,759, respectively.

Upon his retirement, petitioner elected to receive the survivor's annuity for his spouse and a lump-sum payment under the annuity option. Taking into consideration the survivor's annuity option, the gross monthly rate of the annuity benefit was $ 1,925. Taking into consideration both the survivor's annuity and the lump-sum option, the gross monthly rate of the annuity benefit was $ 1,796.

During 1987, petitioner received CSRS payments that totaled $ 71,835.03, $ 52,227.53 of which was paid as a lump-sum payment and $ 19,607.50 of which was paid as an annuity payment.

Discussion

Respondent determined1996 Tax Ct. Memo LEXIS 223">*225 that, based on the exclusion ratio calculated pursuant to section 72(b), petitioners were required to include a portion of the lump-sum payment from petitioner's CSRS in their gross income in 1987. Petitioners argue that such inclusion would result in double taxation of petitioner's investment in the CSRS and that the lump-sum payment should be treated as a separate account for purposes of section 72 because the CSRS plan in which petitioner participated qualifies, in part, as a defined contribution plan.

The amount withheld for CSRS from an employee's salary is taxable in the year in which the deduction is made. Malbon v. United States, 43 F.3d 466">43 F.3d 466, 43 F.3d 466">467 (9th Cir. 1994); Hogan v. United States, 513 F.2d 170">513 F.2d 170, 513 F.2d 170">175 (6th Cir. 1975); Shimota v. United States, 21 Cl. Ct. 510">21 Cl. Ct. 510, 21 Cl. Ct. 510">512 (1990), affd. 943 F.2d 1312">943 F.2d 1312 (Fed. Cir. 1991). The amount contributed by the employing agency and any interest earned on the employee's investment are not taxed to the employee until distribution. Secs. 72, 402(a).

The parties agree that petitioner's contributions to the CSRS should be recovered1996 Tax Ct. Memo LEXIS 223">*226 tax-free. Petitioner, however, maintains that he is entitled to recover his contributions, free of tax, "up front" because the lump-sum payment he received from the CSRS represents a refund of his contributions. Respondent relies on section 72(b), which excludes a portion of each annuity payment from gross income, allowing for the tax-free recovery of the participant's contributions over the life of the annuity.

Petitioner's lump-sum distribution was made pursuant to 5 U.S.C. sec. 8343a (Supp. 1987), which permits the continued receipt of an annuity, reduced by the actuarial value of the lump-sum payment. The total of the lump-sum payment plus the reduced annuity should be actuarially equivalent to the basic annuity that petitioner would have received in accordance with the CSRS plan. Id. As explained in 43 F.3d 466">Malbon v. United States, supra at 471:

The fact that the contribution amount was the measure of the lump-sum does not affect the ultimate amount of the benefit as a whole. The difference merely depends on whether the former employee received the entire benefit spread out over the life of the annuity, 1996 Tax Ct. Memo LEXIS 223">*227 or whether a portion was accelerated to be paid at the time of retirement. * * *