UNITED STATES TAX COURT



       GEORGE AND ELAM CAMPBELL, Petitioners v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent


Docket No. 12931-95.                    Filed February 18, 1997.


     P was a State employee. In October 1989, P
elected to transfer from the State Retirement System to
the State Pension System effective November 1989. As a
consequence, P received a Transfer Refund in 1989
consisting principally of previously taxed
contributions and taxable earnings. Shortly
thereafter, P deposited approximately one-half of the
taxable portion into an IRA with Loyola.
     P included the entire taxable portion of the
Transfer Refund in income on an amended tax return for
1989. See Dorsey v. Commissioner, T.C. Memo. 1995-97.
     In April 1991, P closed his Loyola IRA. On a 1991
tax return, P included in income a portion of the
earnings generated by the IRA but not the balance. P
contends that sec. 72(e)(6) provides P with a basis in
his IRA equal to the amount rolled over from his
Transfer Refund into the IRA. R contends that such an
application of sec. 72(e)(6) is contrary to legislative
intent.
     Held, Sec. 72(e)(6) provides P with a basis in his
entire Loyola IRA contribution, the genesis of which
                               - 2 -


     was P's taxed retirement savings; thus, the
     distribution of such contribution in 1991 is not
     includable in P's income. Secs. 72(e)(6), 408(d)(1),
     I.R.C. 1986.



     Thomas F. DeCaro, Jr., for petitioners.

     Alan R. Peregoy, for respondent.


                              OPINION


     DAWSON, Judge:   This case was assigned to Special Trial

Judge Robert N. Armen, Jr., pursuant to the provisions of section

7443A(b)(4) of the Internal Revenue Code of 1986, as amended, and

Rules 180, 181, and 183.1   The Court agrees with and adopts the

Opinion of the Special Trial Judge, which is set forth below.

               OPINION OF THE SPECIAL TRIAL JUDGE

     ARMEN, Special Trial Judge:   For the taxable year 1991,

respondent determined a deficiency in petitioners' Federal income

tax, as well as a deficiency in Federal excise tax under section

4980A,2 in the total amount of $58,464.




     1
          Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for 1991, the taxable year
in issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
     2
          Sec. 4980A imposes a 15-percent excise tax on excess
distributions from qualified retirement plans. This tax is
included within ch. 43 of the I.R.C. and is subject to the
deficiency procedures set forth in subch. B of ch. 63 of the
I.R.C. See sec. 6211(a).
                              - 3 -


     After concessions by the parties,3 the only issue for

decision is whether the distribution received by petitioner

George Campbell in 1991 from his individual retirement account

with Loyola Federal Savings and Loan is taxable under sections

408(d)(1) and 72.

     This case was submitted fully stipulated under Rule 122, and

the facts stipulated are so found.    Petitioners resided in Prince

Frederick, Maryland, at the time that their petition was filed

with the Court.

                           Background

     George Campbell (petitioner) was employed by the Maryland

State Highway Administration (the Highway Administration) in 1989

and 1991, and remained so employed at least through the time that

this case was submitted for decision.   As an employee of the

Highway Administration, petitioner was a member of the Maryland

State Employees' Retirement System (the Retirement System) until

he transferred to the Maryland State Employees' Pension System

(the Pension System), effective November 1, 1989.

     3
       Petitioners concede that $7,762.11 and $9,612.14 of the
distributions from petitioner George Campbell's Loyola IRA and
Delaware Charter IRA, respectively, represent earnings and are
includable in petitioners' gross income for 1991.
     Respondent concedes that the amount of unreported income
from the IRA distributions is $91,513 (i.e., $172,719 less
$81,206), rather than the greater amount determined in the notice
of deficiency. Respondent also concedes that petitioners are not
liable for the excise tax under sec. 4980A.
     See infra p. 9, for further discussion regarding the
parties' concessions.
                                - 4 -


The Retirement System and the Pension System

     The Retirement System is a qualified defined benefit plan

under section 401(a) and requires mandatory nondeductible

employee contributions.    The Pension System is also a qualified

defined benefit plan under section 401(a), but generally does not

require mandatory nondeductible employee contributions.    The

State of Maryland contributes to both the Retirement System and

the Pension System on behalf of the members of those systems.

The trusts maintained as part of the Retirement System and the

Pension System are both exempt from taxation under section

501(a).4

The Transfer Refund

     On October 4, 1989, petitioner elected to transfer from the

Retirement System to the Pension System, effective November 1,

1989.    As a result of his election to transfer, petitioner

received a distribution (the Transfer Refund) from the Retirement

System in the amount of $174,802.14, which petitioner received in

the form of a check dated November 30, 1989.

     Petitioner's Transfer Refund consisted of $11,695.84 in

previously taxed contributions made by petitioner during his

employment tenure with the Highway Administration, $693.52 in

     4
          For a further discussion of the Retirement System and
the Pension System, see Adler v. Commissioner, 

(4th
Cir. 1996), vacating and remanding T.C. Memo. 1995-148; Maryland
State Teachers Association, Inc. v. Hughes, 

,
1357-1358 (D. Md. 1984).
                                 - 5 -


taxable employer "pick-up contributions",5 and $162,412.78 of

taxable earnings in the form of interest.   The earnings and

"pick-up contributions", which total $163,106.30, constitute the

taxable portion of the Transfer Refund.

     If petitioner had not transferred to the Pension System but

rather had remained a member of the Retirement System, he would

have been entitled to retire at an appropriate age and receive a

normal service retirement benefit, including a regular monthly

annuity.   He would not, however, have been entitled to receive a

Transfer Refund because a Transfer Refund is only payable to

those who elect to transfer from the Retirement System to the

Pension System.

     As a result of transferring from the Retirement System to

the Pension System, petitioner became, and presently is, a member

of the Pension System.   As a member of the Pension System,

petitioner will be entitled to receive a retirement benefit based

upon his salary and his creditable years of service, specifically

including those years of creditable service recognized under the

Retirement System.   However, because petitioner received the

Transfer Refund on account of transferring from the Retirement

System to the Pension System, petitioner's monthly annuity will

be less than the monthly annuity that he would have received if



     5
           See sec. 414(h)(2).
                                 - 6 -


he had not transferred to the Pension System but had ultimately

retired under the Retirement System.6

Rollover of Petitioner's Transfer Refund

     Within 60 days of receiving the Transfer Refund, petitioner

deposited the taxable portion thereof into two individual

retirement accounts (IRA's), as follows:

     On December 26, 1989, petitioner deposited $82,900 of the

Transfer Refund into an IRA with Loyola Federal Savings and Loan

(the Loyola IRA).

     On January 2, 1990, petitioner deposited $81,206.39 of the

Transfer Refund into an IRA with Delaware Charter Guarantee and

Trust Co. (the Delaware Charter IRA).7

Distribution of the Loyola IRA

     On or about April 11, 1991, Loyola Federal Savings and Loan

distributed, and petitioner received, the account balance of




     6
          It should be recalled that petitioner remained employed
by the State of Maryland at the time that this case was submitted
to the Court.
     7
          Petitioner deposited a total amount of $164,106.39 into
his two IRA's. However, the taxable portion of petitioner's
Transfer Refund was only $163,106.30. This discrepancy is not
explained in the record.
                                 - 7 -


petitioner's IRA; i.e., $90,662.11, which consisted of

petitioner's initial deposit and earnings as follows:

           IRA deposit:                  $ 82,900.00
           Earnings:                        7,762.11
           Total distribution:             90,662.11

Distribution of the Delaware Charter IRA

     In a letter to Delaware Charter Guarantee and Trust Co.,

dated April 8, 1991, petitioner requested that his IRA be

converted into a non-IRA account prior to April 15, 1991.        In

such letter, petitioner stated: "To avoid further IRS penalties I

must have the IRA account closed by April 15, 1991."

Petitioner's IRA was converted into a non-IRA account on June 11,

1991.

     The balance of petitioner's Delaware Charter IRA, upon

conversion into a non-IRA account, was $90,818.53, which

consisted of petitioner's initial deposit and earnings as

follows:

           IRA deposit:                            $ 81,206.39
           Earnings:                                  9,612.14
           Account balance on conversion:            90,818.53

Petitioners' 1989 Return

     On their Federal income tax return for 1989, petitioners did

not include in gross income any of the taxable portion of the

Transfer Refund; i.e., $163,106.30.       In 1991, petitioners amended

their 1989 income tax return to include the taxable portion of

the Transfer Refund in gross income.       See Dorsey v. Commissioner,
                                - 8 -


T.C. Memo. 1995-97 (a taxpayer who was employed for 1 year after

transferring from the Retirement System to the Pension System was

required to include the Transfer Refund in income in the year of

receipt); cf. Adler v. Commissioner, 

(4th Cir. 1996),

vacating and remanding T.C. Memo. 1995-148 (where a member of the

Retirement System retired shortly after receiving his Transfer

Refund, such member received the Transfer Refund "on account of"

retirement and was not required to include such amount in income

in the year of receipt).

Petitioners' 1991 Return

     On their Federal income tax return for 1991, petitioners

disclosed the receipt of distributions from petitioner's IRA's in

the total amount of $181,481.   Of this amount, petitioners

reported $8,762 as the taxable amount.

The Notice of Deficiency

     In the notice of deficiency, respondent determined that the

difference between the amount distributed from petitioner's IRA's

(i.e., $90,662.11 + $90,818.53 = $181,480.64) and the amount

reported as taxable ($8,762); i.e., $172,719, was includable in

petitioners' gross income for 1991.     As a corollary, respondent

also determined that petitioners were liable for the 15-percent

excise tax imposed by section 4980A.
                               - 9 -


The Parties' Concessions



     The distribution from petitioner's Delaware Charter IRA is

deemed to have occurred before the due date of petitioners'

income tax return for the year in which the contribution to that

IRA was made.   For that reason, respondent concedes on brief that

petitioner's Delaware Charter IRA distribution qualifies for

relief pursuant to section 408(d)(4), and that only the portion

of such distribution representing earnings; i.e., $9,612.14, is

includable in petitioners' gross income.8   As a result of this

concession, the threshold amount that must be exceeded before the

excise tax under section 4980A may be imposed is no longer

satisfied; thus, respondent also concedes that petitioners are

not liable for such excise tax.9

     Petitioners concede that the earnings on petitioner's

contributions to petitioner's Delaware Charter IRA and Loyola IRA

are includable in petitioners' gross income.

     In view of the foregoing concessions, the only issue

remaining for decision is whether $82,900 of the distribution

received by petitioner from his Loyola IRA (i.e., $90,662.11 less

     8
          For a detailed analysis of sec. 408(d)(4), see Childs
v. Commissioner, T.C. Memo. 1996-267; Thompson v. Commissioner,
T.C. Memo. 1996-266.
     9
          Insofar as petitioner Elam Campbell might otherwise be
concerned, see sec. 4980A(b); Johnson v. Commissioner, 

, 1062 (1980), affd. 

(5th Cir. 1981).
                                - 10 -


$7,762.11 that petitioners concede is taxable earnings) is

taxable under sections 408(d)(1) and 72.

                              Discussion

1.   General Legal Background

     Generally, a taxpayer is entitled to deduct the amount

contributed to an IRA.    Sec. 219(a); sec. 1.219-1(a), Income Tax

Regs.     The deduction in any taxable year, however, may not exceed

the lesser of $2,000 or an amount equal to the compensation

includable in the taxpayer's gross income for such taxable year.

In addition, the amount of the deduction is limited where the

taxpayer was, for any part of the taxable year, an "active

participant" in a retirement plan qualified under section 401(a)

or a plan established for its employees by the United States, by

a State or political subdivision thereof, or by any agency or

instrumentality of any of the foregoing.      Sec. 219(g)(1),

(5)(A)(i), (iii).    In the case of an active participant who files

a return as a single individual, the deduction is reduced using a

ratio determined by dividing the excess of the taxpayer's

modified adjusted gross income (modified AGI) over $25,000, by

$10,000.10    Sec. 219(g)(2) and (3).    In the case of an active

participant who files a joint return, the deduction is reduced



     10
          As relevant herein, modified adjusted gross income
means adjusted gross income computed without regard to any
deduction for an IRA. Sec. 219(g)(3)(A).
                              - 11 -


using a ratio determined by dividing the excess of the taxpayer's

modified AGI over $40,000 by $10,000.   

foregoing limitation, section 408(o)

permits individuals to make designated nondeductible IRA

contributions to the extent that deductible contributions are not

allowable because of the active participant reduction rule set

forth in section 219(g).   Sec. 408(o)(1) and (2).   Specifically,

an individual may make nondeductible contributions to the extent

of the excess of (1) the amount allowable as a deduction under

section 219 determined without regard to the reduction for active

participants over (2) the amount allowable as a deduction under

section 219 determined with regard to such reduction.   Sec.

408(o)(2).

     As relevant herein, a contribution to an IRA that exceeds

the amount allowable as a deduction under section 219(a),

computed without regard to the active participant reduction rule

under section 219(g), is considered an excess contribution.    Sec.

4973(b).11

     In the present case, petitioner made an excess contribution

to his Loyola IRA in the amount of $80,900 for 1989 (i.e.,


     11
          As relevant herein, an excess contribution may also be
viewed as the amount of an IRA contribution that exceeds the sum
of (1) the deductible limit under sec. 219(a), computed with
regard to sec. 219(g), and (2) the nondeductible limit under sec.
408(o). S. Rept. 99-313, 545 (1986), 1986-3 C.B. (Vol. 3) 1,
545.
                              - 12 -


$82,900 less $2,000).   The genesis of such contribution was in

petitioner's retirement savings which petitioners reported as

income on their amended Form 1040 for 1989.   This contribution

was distributed to petitioner by his IRA on April 11, 1991.

     As a general rule, any amount "paid or distributed out of"

an IRA is includable in gross income by the taxpayer in the

manner provided under section 72.   Sec. 408(d)(1).   Section 72(e)

is applicable, inter alia, to amounts received under an annuity

contract but not received as an annuity.   The distribution

received by petitioner on April 11, 1991, falls into this

category.

     Amounts received before the annuity starting date are

includable in income to the extent allocable to income on the

contract and are not includable in income to the extent allocable

to the investment in the contract.12   Sec. 72(e)(2)(B).   Thus,

section 72(e)(2)(B) effectively gives a taxpayer a basis in the

taxpayer's IRA to the extent of his or her investment in the

contract.   The investment in the contract is defined in section

72(e)(6) as the aggregate amount of consideration paid for the

contract reduced by the amount received that was previously

     12
          Under sec. 72(c)(4), "annuity starting date" is defined
as the first day of the first period for which an amount is
received as an annuity under the contract. Petitioner received a
single payment in the amount of $90,662.11 from his Loyola IRA
prior to drawing annuity payments from his retirement account.
Thus, the distribution was received by petitioner before the
annuity starting date and, accordingly, sec. 72(e)(2)(B) applies.
                                - 13 -


excludable from gross income.    The amount of a distribution

allocable to the investment in the contract, and thus distributed

tax-free, is the portion of the amount received that bears the

same ratio to the amount received as the investment in the

contract bears to the account balance.    Sec. 72(e)(8)(A) and (B).

     In determining the taxability of petitioner's IRA

distribution from Loyola, it is necessary to determine the amount

of the distribution allocable to the "investment in the

contract".   In dispute in this case is the meaning of the phrase

"aggregate amount of * * * consideration paid for the contract"

found in section 72(e)(6), and whether the phrase encompasses the

excess contribution made by petitioner in the amount of $80,900.

If petitioner's contribution is considered to be an amount paid

in consideration for an IRA and, thus, is an "investment in the

contract", then section 72 would provide a basis for petitioner's

excess contribution and, upon distribution, such amount would be

distributed tax-free.   However, if petitioner's excess

contribution is not consideration paid for an IRA and, thus, is

not an "investment in the contract", then section 72 would not

provide a basis in petitioner's excess contribution and, upon

distribution, such amount would be taxed in full.

     The parties agree that the plain meaning of the language in

section 72(e)(6), i.e., "amount of * * * consideration paid for

the contract", would include petitioner's excess contribution.
                                - 14 -


Petitioners essentially urge us to adopt a plain language

interpretation of section 72(e)(6) that would give petitioner a

basis in his excess contribution.    Respondent contends, however,

that a literal interpretation of section 72(e)(6) reaches a

result contrary to legislative intent.   Specifically, respondent

contends that in amending section 408(d)(1), Congress intended to

provide a basis for nondeductible contributions as contemplated

by section 408(o), but did not intend to provide a basis for any

contributions in excess of the section 408(o) limits.    Thus,

respondent urges us to look beyond the words of the statute to

interpret its meaning.

     In construing section 72(e)(6), our task is to give effect

to the intent of Congress, and we must begin with the statutory

language, which is the most persuasive evidence of the statutory

purpose.   United States v. American Trucking Associations, Inc.,

, 542-543 (1940).    Ordinarily, the plain meaning of

the statutory language is conclusive.    United States v. Ron Pair

Enterprises Inc., 

, 242 (1989).    Where a statute is

silent or ambiguous, we may look to legislative history in an

effort to ascertain congressional intent.     Burlington N. R.R. v.

Oklahoma Tax Commn., 

, 461 (1987); Griswold v United

States, 

, 1575-1576 (11th Cir. 1995).    However, where

a statute appears to be clear on its face, we require unequivocal

evidence of legislative purpose before construing the statute so
                               - 15 -


as to override the plain meaning of the words used therein.

Huntsberry v. Commissioner, 

, 747-748 (1984); see

Pallottini v. Commissioner, 

, 503 (1988), and cases

there cited.

2.   Section 72(e)(6)

     Thus, we turn to the words of section 72(e)(6) that define

investment in the contract, as relevant herein, as "the aggregate

amount of * * * consideration paid for the contract * * * minus

the aggregate amount received under the contract".   In the

instant case, petitioner invested, or paid, $82,900 for his IRA

with Loyola.   Interpreted literally, section 72(e)(6) would treat

such amount as the "investment in the contract" because the

contribution was the consideration paid by petitioner for the

contract.

3.   Legislative History

     We find nothing ambiguous in the statute, and, accordingly,

feel controlled by its clear language.   However, respondent

contends that a literal interpretation of section 72(e)(6)

reaches a result contrary to legislative intent.   Thus, we have

examined the legislative histories of the 1974 enactment of

section 408(d)(1), its subsequent amendment in 1986, and the 1986

enactment of section 408(o).   As discussed below, we are not

satisfied that the legislative history relied upon by respondent

rises to the level of unequivocal evidence of legislative purpose
                               - 16 -


sufficient to override the literal language of the controlling

statute.

       In the Employee Retirement Income Security Act of 1974,

(ERISA) Pub. L. 93-406, 88 Stat. 829, Congress enacted section

408(a), which provided for the creation of individual retirement

accounts.    In adopting the individual retirement provisions of

ERISA, the goal of Congress was to create a system whereby

employees not covered by qualified retirement plans would have

the opportunity to set aside at least some retirement savings on

a tax-sheltered basis.    See H. Rept. 93-807 (1974), 1974-3 C.B.

(Supp.) 236, 361; S. Rept. 93-383 (1973), 1974-3 C.B. (Supp.) 80,

210.    Under the statutory framework thus established, individuals

could obtain a limited deduction for amounts contributed to

individual retirement accounts while earnings on such amounts

would accrue tax free.    See secs. 219, 408, 409; see also

Orzechowski v. Commissioner, 

, 752-753 (1978), affd.

(2d Cir. 1979); H. Rept. 

, 1974-3 C.B.

(Supp.) at 361-362; S. Rept. 93-383, supra at 130, 1974-3 C.B.

(Supp.) at 209.    Individuals who were active participants in

employer-sponsored plans were not permitted to make deductible

IRA contributions because they were already benefitting as

participants in tax-favored plans.      See sec. 219(b)(2) as

originally enacted by ERISA sec. 2002, 88 Stat. 958.
                               - 17 -


       The individual retirement provisions of ERISA expressly

provided that a distribution from an IRA was fully taxable to the

distributee upon distribution.    Specifically, section 408(d)(1),

as originally enacted by ERISA, provided:

       any amount paid or distributed out of an [IRA] * * * shall
       be included in gross income by the payee or distributee
       * * * for the taxable year in which the payment or
       distribution is received. The basis of any person in such
       an account or annuity is zero. [Emphasis added.]

The committee report reveals that Congress intended for taxpayers

to have a zero basis in their IRA's because "neither the

contributions nor the earnings thereon will have been subject to

tax previously."    H. Rept. 93-779 (1974), 1974-3 C.B. 244, 369;

see also H. Conf. Rept. 93-1280, at 339 (1974), 1974-3 C.B. 415,

500.

       In adopting the IRA provisions of ERISA, Congress recognized

that, despite the dollar limitation on deductible contributions

to an IRA, a taxpayer might have an incentive to make

nondeductible contributions to an IRA because the tax on the

earnings would be deferred.    See H. Rept. 93-779, supra at 136,

1974-3 C.B. at 371; H. Conf. Rept. 93-1280, supra at 340, 1974-3

C.B. at 501.    Accordingly, Congress enacted sanctions to prevent

excess contributions and the misuse of IRA's.    In particular,

Congress imposed a 6-percent excise tax on excess contributions

to an IRA in order to offset the benefit that would otherwise

result from the deferral of tax on the earnings in the IRA.      See
                              - 18 -


sec. 4973.   Additionally, Congress continued to fully tax excess

contributions upon distribution, despite the fact that such

contributions were made with after-tax dollars.    H. Conf. Rept.

93-1280, supra at 340, 1974-3 C.B. at 501; H. Rept. 

at 130-131, (1974), 1974-3 C.B. (Supp.) 365-366.   Significantly,

the ERISA conference report states, in pertinent part, as

follows:

          In general, where contributions in excess of the
     deductible limits are made to an individual retirement
     account, no deduction is allowed for the excess amount, and
     this amount will be subject to a 6 percent tax for the year
     in which it is made, and each year thereafter, until there
     is no excess. The distribution is not to be includible in
     income if the excess is distributed to the individual on or
     before the due date for filing the employee's tax return for
     the year in question (including extensions). If the
     distribution occurs after that date, however, the
     distribution is to constitute taxable income to the employee
     (because his basis in his account is always zero) and will
     also give rise to a 10-percent additional tax if the
     distribution occurs before the employee is 59 ½. [H. Conf.
     Rept. 93-1280, supra at 340, 1974-3 C.B. at 501; emphasis
     added.]

As this excerpt illustrates, in enacting section 408(d)(1),

Congress consciously and expressly declined to provide a taxpayer

with a basis in IRA contributions exceeding the deductible limit.

This created the possibility that a taxpayer could be fully taxed

on an IRA distribution funded with after-tax contributions.

     In the Tax Reform Act (TRA) of 1986, Congress made two

significant changes to the IRA provisions.   First, Congress

enacted section 408(o), which permits individuals to make

"designated nondeductible contributions" to the extent that
                               - 19 -


deductible contributions are not allowable because of the "active

participant" rule.13   Although such contributions are not

deductible from gross income, they are not subject to the excise

tax on excess contributions under section 4973.     Sec. 4973(b),

flush language; see sec. 408(o)(2).     Moreover, the earnings on

such contributions are permitted to accumulate on a tax-deferred

basis and without incurring any excise tax under section 4973.

Sec. 408(o); see S. Rept. 99-313, at 543 (1986), 1986-3 C.B.

(Vol. 3) 543.   Second, Congress amended section 408(d)(1) to

provide an individual with a basis in his or her IRA to the

extent of the individual's "investment in the contract".

     The conference report to the TRA of 1986 discussed the new

approach to taxing IRA distributions as follows:

     if an individual withdraws an amount from an IRA during a
     taxable year and the individual has previously made both
     deductible and nondeductible IRA contributions, then the
     amount [excludable from] income for the taxable year is the
     portion of the amount withdrawn which bears the same ratio
     to the amount withdrawn for the taxable year as the
     individual's aggregate nondeductible IRA contributions bear
     to the aggregate balance of all IRAs of the individual

     13
          In the Economic Recovery Tax Act of 1981, Pub. L. 97-
34, 95 Stat. 274, Congress eliminated the active participant
restriction and extended IRA availability to all taxpayers.
However, 5 years later, in the Tax Reform Act of 1986, Pub. L.
99-514, sec. 1101(a)(1) 100 Stat. 2085, 2411, Congress enacted
sec. 219(g), which reinstated rules imposing restrictions on the
availability of IRA deductions to active participants; i.e.,
individuals covered by an employer-provided retirement plan.
Thus, Congress enacted section 408(o) in an effort to provide a
tax incentive for discretionary retirement savings for
individuals considered active participants in qualified
retirement plans.
                              - 20 -


     * * *. [H. Conf. Rept. 99-841, at II-379 (1986), 1986-3
     C.B. (Vol. 4) at 379; emphasis added.]

This excerpt illustrates that Congress intended to provide a

basis in "nondeductible contributions".   However, nowhere in the

legislative history to the TRA of 1986 did Congress address the

tax treatment of excess contributions upon distribution.

     Respondent asserts that petitioners' interpretation of

section 72(e)(6) significantly changes the law and creates a

basis in excess contributions where, historically, no basis had

been allowed.   To the contrary, it was Congress that

significantly changed the law by creating basis where none had

previously existed.   Thus, prior to the TRA of 1986, all IRA

distributions, even those the genesis of which was in after-tax

contributions, were fully taxed to the taxpayer in the year of

distribution because "the basis of any person in [an IRA was]

zero."   Sec. 408(d)(1) as originally enacted by ERISA.   However,

in the TRA of 1986 Congress amended section 408(d)(1) by striking

the language mandating that taxpayers have a zero basis in their

IRA and by substituting therefor an "investment in the contract"

approach in taxing IRA distributions.   This amendment removes the

legislative underpinnings for double taxation upon which

respondent heavily relies in this case.

     In 1974, when Congress decided to include in income the

distribution of excess contributions, it clearly and explicitly

required such inclusion in both the language of section 408(d)(1)
                              - 21 -


and in the legislative history of such section.    See sec.

408(d)(1), as originally enacted by ERISA; H. Conf. Rept. 93-

1280, supra at 340, 1974-3 C.B. at 501.    However, in amending

section 408(d)(1) in 1986, Congress omitted any language

indicating, either explicitly or implicitly, that excess

contributions were to be taxed to the contributor upon

distribution from an IRA.   Significantly, the legislative history

for the TRA of 1986 does not even address the distribution of

excess contributions from an IRA.

     The statute currently provides for basis to the extent of a

taxpayer's "investment in the contract".    Absent the requisite

expression of intent in sections 408(d)(1) and 72(e)(6), or in

the legislative histories of those sections, to tax excess

contributions sourced in previously taxed retirement savings, we

think that it would be erroneous to deny petitioner a basis in

his excess contribution notwithstanding that such contribution

would have been without basis prior to the TRA of 1986.

4.   Policy

     We are satisfied that there is nothing in the legislative

history establishing that Congress intended to include in income

an IRA distribution, the genesis of which was in retirement

savings previously included in income.    In fact, to sanction

respondent's interpretation of section 72(e)(6) would not further

the goal that Congress sought to advance by enacting the
                               - 22 -


legislation itself.   In enacting and amending the IRA provisions

in 1974 and 1986, respectively, it is clear that Congress

intended to encourage retirement savings and the retention of

those savings for retirement use.    If denied favorable tax

treatment in this situation, petitioners will face retirement

without a large portion of petitioner's retirement savings, thus

creating the very situation that Congress sought to avoid by

enacting the IRA provisions in the first place.    See Adler v.

Commissioner, 

, 381 (4th Cir. 1996), vacating and

remanding T.C. Memo. 1995-148.

     Finally, petitioners contend that respondent's

interpretation of section 72(e)(6) should be resisted because

otherwise it would lead to petitioner's retirement distribution's

being taxed twice.    We think petitioners' contention is

meritorious.   Here we take note of the long-standing principle

that double taxation is to be avoided unless expressly intended

by Congress.   E.g., Maass v. Higgins, 

, 449 (1941);

United States v. Supplee-Biddle Hardware Co., 

, 195-

196 (1924); Tennessee v. Whitworth, 

, 137 (1886);

Verkouteren v. District of Columbia, 

, 469 (D.C. Cir.

1970).   Nothing in section 72(e)(6) suggests that petitioner's

retirement distribution should be taxed twice.    As previously

discussed, such intent is also conspicuously absent in the

pertinent legislative history.
                             - 23 -


5.   Conclusion

     In view of the foregoing, we conclude that section 72(e)(6),

when considered in conjunction with its legislative history and

all of the facts and circumstances peculiar to this case,

provides a basis in petitioner's excess contribution.

     In order to give effect to our disposition of the disputed

issue, as well as the parties' concessions,



                                        Decision will be entered

                                   under Rule 155.