THORNTON, Judge: This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect at the time the petition was filed. Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case. Unless otherwise noted, all section references are to the Internal Revenue Code in effect for the year at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

By notice of deficiency dated November 24, 2008, respondent determined a $6,017 deficiency in petitioners' 2006 Federal income tax and a $1,203 accuracy-related penalty pursuant to section 6662(a).

After concessions by both parties, the sole issue remaining for decision is whether certain annuity payments that petitioners received during 2006 are fully includable in their gross income.^{12010 Tax Ct. Summary LEXIS 190">*191}

The parties have stipulated some facts, which we incorporate herein. When they petitioned the Court, petitioners resided in Alabama.

In 1995 Willie A. Morris (petitioner) retired from Kimberly-Clark Corp. (Kimberly-Clark). On or about September 30, 1995, Kimberly-Clark distributed $438,752 from petitioner's section 401(k) account, almost all of it in Kimberly-Clark stock. The distributed amount reflected $40,063 of petitioner's after-tax contributions, $92,106 of his pretax contributions, $128,037 of employer contributions, and $178,546 of untaxed earnings attributable to these various contributions, including $157,213 of unrealized appreciation. Kimberly-Clark distributed petitioner's $40,063 of after-tax contributions directly to him. The $398,689 balance of petitioner's section 401(k) account was rolled over to Olde Discount Brokerage. 2010 Tax Ct. Summary LEXIS 190">*192 In a time and manner not revealed by the record, at least some of these assets were ultimately transferred to Coosa Pines Federal Credit Union (Coosa Pines) and apparently used to purchase annuities.²

On Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., Coosa Pines reported that in 2006 it made annuity distributions to petitioner totaling $38,341. On their 2006 joint Federal income tax return filed April 15, 2007, petitioners reported these payments but excluded $12,500 as representing a recovery of investment. Respondent disallowed this exclusion.

The parties disagree as to whether respondent correctly determined that the entire $38,341 of annuity payments from Coosa Pines is includable in petitioners' gross income. Petitioners have the burden of proof. See Rule 142(a).^{32010 Tax Ct. Summary LEXIS 190">*193}

From the sparse evidence in the record, it appears that the annuity payments in question were paid out of an individual retirement account (IRA). Such distributions must be included in the distributee's gross income pursuant to the annuity rules of section 72.⁴ See sec. 408(d). Those rules generally include in the annuitant's gross income any amount received as an annuity, sec. 72(a), but allow tax-free recovery of the annuitant's "investment in the contract", sec. 72(b). The excludable portion of amounts received as an annuity may be determined by applying an "exclusion ratio" as provided under section 72(b)(1). The Internal Revenue Code provides a simplified method for taxing annuity payments received under a "qualified employer retirement plan". See sec. 72(d)(1).

Petitioners contend that they properly applied this simplified method in excluding $12,500 of the annuity payment from gross income. As respondent notes, there is a threshold question whether the simplified method applies, because it 2010 Tax Ct. Summary LEXIS 190">*194 is unclear that the annuity payments in question were made from a qualified employer retirement plan within the meaning of section 72(d)(1). We need not resolve that issue, however, because even if we were to assume, for the sake of argument, that the simplified method is available to petitioners, they have nevertheless failed to establish that they had any investment in the contract.

A taxpayer's investment in the contract consists of his or her nondeductible contributions. See Campbell v. Commissioner, 108 T.C. 54">108 T.C. 54, 108 T.C. 54">65-66 (1997); Hall v. Commissioner, T.C. Memo. 1998-336. For this purpose, an employee's investment in the contract includes amounts contributed by the employer, "but only to the extent that * * * such amounts were includable in the gross income of the employee". Sec. 72(f). Consequently, employee or employer contributions that are not includable in the employee's gross income are not included in the employee's investment in the contract.

In claiming the $12,500 exclusion, petitioners apparently treated the investment in the contract as being $250,000.⁵ Petitioners have produced no evidence, however, to support a $250,000 investment in the contract. The evidence shows that 2010 Tax Ct. Summary LEXIS 190">*195 petitioner's $40,063 of after-tax contributions was distributed to him shortly after his retirement from Kimberly-Clark and was not part of the amount of his section 401(k) account that was rolled over into his IRA.^{62010 Tax Ct. Summary LEXIS 190">*196} The evidence strongly suggests that the remaining $398,689 of petitioners' section 401(k) account represented amounts contributed by petitioner and Kimberly-Clark (and earnings thereon) that were not previously includable in petitioner's income. It appears that the annuities in question were acquired with these pretax amounts. Accordingly, we conclude that petitioner's investment in the contract is zero and consequently that petitioners are entitled to exclude no portion of the annuity payments from gross income.

Petitioners argue that their reporting position for 2006 is correct because they treated the annuity payments the same way for tax years 1995 through 2005. They allege that although the Internal Revenue Service audited their income tax returns for 1995, 1996, 1998, 2002, and 2005, respondent has not previously challenged their treatment of the annuity payments. Any failure by respondent to challenge petitioners' treatment of annuity payments in prior years, however, does not preclude respondent's determination for the year at issue. See Coors v. Commissioner, 60 T.C. 368">60 T.C. 368, 60 T.C. 368">406 (1973) ("A prior determination cannot serve to relieve 2010 Tax Ct. Summary LEXIS 190">*197 a petitioner of his burden of proving error in the Commissioner's present determination."), affd. 519 F.2d 1280">519 F.2d 1280 (10th Cir. 1975); Rose v. Commissioner, 55 T.C. 28">55 T.C. 28, 55 T.C. 28">32 (1970). "The mere acceptance or acquiescence in returns filed by a taxpayer in previous years creates no estoppel against the Commissioner nor does the overlooking of an error in a return upon audit create any such estoppel." Mora v. Commissioner, T.C. Memo. 1972-123; see Dixon v. United States, 381 U.S. 68">381 U.S. 68, 381 U.S. 68">72-73 (1965); Auto. Club of Mich. v. Commissioner, 353 U.S. 180">353 U.S. 180, 353 U.S. 180">183-184 (1957); McGuire v. Commissioner, 77 T.C. 765">77 T.C. 765, 77 T.C. 765">779-780 (1981).

Petitioners further argue that the period of limitations has run with regard to transactions that occurred in 1995 and that they cannot be expected to produce documentation from that year in support of their 2006 Federal income tax return. Petitioners are mistaken. Section 6501(a) generally requires the Commissioner to assess tax within 3 years after a return is filed. Petitioners filed their 2006 tax return on April 15, 2007. Respondent issued the notice of deficiency on November 24, 2008. Pursuant to section 6503(a)(1), the mailing of the notice of deficiency tolled the limitations 2010 Tax Ct. Summary LEXIS 190">*198 period until 60 days after our final decision. Petitioners are required to retain records "so long as the contents thereof may become material in the administration of any internal revenue law". See sec. 1.6001-1(e), Income Tax Regs.

For the reasons described above, we sustain respondent's determination regarding the taxation of the annuity payments. To reflect the foregoing and the parties' concessions,

Decision will be entered under Rule 155.