                       110 T.C. No. 11



                UNITED STATES TAX COURT



            ALBERT LEMISHOW, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 18744-96.                 Filed February 18, 1998.



     P received distributions from individual
retirements accounts (IRA's) and Keogh accounts
consisting solely of money. P purchased stock with a
portion of the distributions. Thereafter, P opened a
new IRA and placed the stock in that IRA within 60 days
of receipt of the distributions.
     Held, secs. 408(d)(3) and 402(c), I.R.C., both
require that a rollover contribution, from a
distribution of money, consist only of money. Thus,
P's reinvestments of his IRA and Keogh distributions do
not constitute rollover contributions and such
distributions are includable in income. Held, further,
the portion of the distributions not invested in the
stock, including the amounts for taxes withheld, are
includable in P's income.



Albert Lemishow, pro se.
                                 - 2 -


     Mark L. Hulse and Laurence D. Ziegler, for respondent.



                               OPINION


     TANNENWALD, Judge:    Respondent determined a deficiency in

petitioner's Federal income tax in the amount of $170,968 and an

accuracy-related penalty under section 6662(a)1 in the amount of

$34,194 for the taxable year 1993.       The issues for decision are:

     (1) Whether petitioner's use of distributions from Keogh and

individual retirement accounts (IRA's) to purchase stock which

was contributed to an IRA constitutes a tax-free rollover

contribution;

     (2) whether petitioner received a taxable distribution of

money not contributed to an IRA; and

     (3) whether petitioner is liable for the accuracy-related

penalty under section 6662(a).

     This case was submitted fully stipulated under Rule 122.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.      Petitioner resided in

Flushing, New York, at the time he filed the petition in this

case.    During 1993, petitioner was a self-employed accountant.



     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable year at
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                               - 3 -


     On December 13, 1993, petitioner completed a subscription

agreement to purchase 30,000 shares of GP Financial Corp. stock

at $15 a share for a total purchase price of $450,000.   The Green

Point Savings Bank (Green Point) was responsible for taking the

stock orders and payments for the subscription offering.

     As of December 1993, petitioner maintained Keogh accounts

and IRA's with Green Point and Apple Bank for Savings (Apple).

On December 14, 1993, petitioner's account balances in the Keogh

accounts and IRA's at Green Point totaled $327,252 and those at

Apple totaled $165,695.   On December 14, 1993, petitioner made

the following withdrawals from his Keogh and IRA accounts

(amounts rounded down to the nearest whole dollar):

                                              Type of
          Bank                 Amount         Account

          Green Point          $250,651       Keogh
          Green Point            50,130       Keogh
          Green Point            13,939       IRA
          Apple                 153,828       Keogh
          Apple                   6,377       IRA
          Apple                   5,489       IRA

          Total                $480,414

Green Point and Apple withheld Federal income tax from the

distributions of $50,130.00 and $153,828.00, respectively, in the

amounts of $12,532.58 and $30,765.62, respectively.

     Petitioner used the net Keogh and IRA distributions

($437,117) plus $12,883 of his own funds to pay the $450,000

purchase price of the GP Financial Corp. stock.   On January 28,
                                - 4 -


1994, petitioner received 25,193 shares of GP Financial Corp.

stock, not the 30,000 shares as per the subscription agreement.

The 25,193 shares (the stock) at $15 per share cost $377,895.        On

January 29, 1984, petitioner received a stock purchase refund of

$72,105 plus interest from Green Point.

     On February 11, 1994, petitioner opened an IRA with Smith

Barney Shearson (the Smith Barney IRA).      On February 11, 1994,

petitioner deposited the stock into the Smith Barney IRA.

     Petitioner did not report any of the Keogh and IRA

distributions on his 1993 Federal income tax return.      Petitioner

claimed a credit for the $43,298.20 in Federal income tax

withheld by Green Point and Apple.      Respondent determined that

all $480,414 of the 1993 distributions (the net amount

distributed plus withholding) from petitioner's Green Point and

Apple and Keogh accounts were includable in petitioner's 1993

income.

     Generally, any amount paid or distributed out of an IRA is

included in gross income by the payee or distributee, as the case

may be, in the manner provided in section 72.      Sec. 408(d)(1).

Rollover contributions, however, are not includable in gross

income.   Sec. 408(d)(3)(A).   One type of rollover contribution

consists of any amount paid or distributed out of an IRA to the

individual for whose benefit the IRA is maintained if "the entire

amount received (including money and any other property) is paid
                                - 5 -


into an individual retirement account or individual retirement

annuity * * * for the benefit of such individual not later than

the 60th day after * * * [the individual] receives the payment or

distribution".   Sec. 408(d)(3)(A)(i).   If any amount would meet

these requirements except that the entire amount was not rolled

over into the new IRA, the portion rolled over within the time

limit will be considered as a rollover contribution.   Sec.

408(d)(3)(D).

      As with IRA distributions, amounts distributed out of Keogh

accounts generally are taxable in the year received under section

72.   Sec. 402(a).   However, to the extent the distribution meets

the following requirements, such distribution is not includable

in gross income:

           (A) any portion of the balance to the credit of an
      employee in a qualified trust is paid to the employee
      in an eligible rollover distribution,

           (B) the distributee transfers any portion of the
      property received in such distribution to an eligible
      retirement plan, and

           (C) in the case of a distribution of property
      other than money, the amount so transferred consists of
      the property distributed, [Sec. 402(c)(1).]

      Respondent concedes that petitioner's IRA and Keogh

distributions were eligible to be rolled over and that the Smith

Barney IRA was an eligible plan.

      It is clear from the above provisions that to the extent

that petitioner did not reinvest the IRA and Keogh distributions
                                   - 6 -


($480,414 received less $377,895 in stock, or $102,519), those

portions are taxable, and we so hold.       Whether the portions of

the IRA and Keogh distributions used to purchase the stock are

excludable from income turns on whether the respective rollover

provisions of sections 408(d)(3) and 402(c) require, since the

distributions consisted of money, that petitioner transfer money

to the Smith Barney IRA.

       Both rollover provisions were enacted as part of the

Employee Retirement Income Security Act of 1974, Pub. L. 93-406,

sec. 2002(b), (g)(5), 88 Stat. 829, 959-964, 968-969.2      The

purpose of allowing a tax-free rollover from a retirement plan to

an IRA was to facilitate portability of pensions.       Conf. Rept.

93-1280 (1974), 1974-3 C.B. 415, 502; H. Rept. 93-807 (1974),

1974-3 C.B. (Supp.) 236, 265.       The purpose of the IRA-to-IRA

transfers was to permit flexibility with respect to the

investment of an IRA.       H. Rept. 93-807, supra, 1974-3 C.B.

(Supp.) at 374; S. Rept. 93-383 (1973), 1974-3 C.B. (Supp.) 80,

214.       With respect to rollovers, the legislative history

repeatedly speaks in terms of "this same money or property" and

"the same amount of money (or the same property)", both for

distributions from an IRA and from a qualified plan.       H. Rept.

93-807, supra, 1974-3 C.B. (Supp.) at 374-375; Conf. Rept. 93-


       2
        These provisions enacted sec. 402(a)(5), which is the
predecessor of sec. 402(c).
                               - 7 -


1280, supra, 1974-3 C.B. at 502.   Section 1.408-4(b), Income Tax

Regs., describing rollovers from IRA to IRA, uses the language

"if the entire amount received (including the same amount of

money and any other property) is paid into an" IRA.

     Based on the language of the statutory provisions and the

legislative histories of those provisions, we hold that

petitioner's use of the distributions from his Keogh and IRA's to

purchase stock which he then contributed to the Smith Barney IRA

does not constitute a tax-free rollover contribution under

section 402(c) or 408(d)(3), respectively.3

     Section 6662(a) imposes a penalty of 20 percent of the

underpayment due to negligence or disregard of rules and

regulations.   "Negligence" includes any failure to make a

reasonable attempt to comply with the provision of the internal

revenue laws; "disregard" includes any careless, reckless, or

intentional disregard.   Sec. 6662(c).   The negligence penalty is

inappropriate where an issue to be resolved by the Court is one



     3
        We note that a limited exception to the requirement of a
tax-free rollover, that the same property distributed be
contributed by the recipient to a qualified plan, was enacted in
1978. See sec. 402(a)(6)(D) (now sec. 402(c)(6)), added by the
Revenue Act of 1978, Pub. L. 95-600, sec. 157(f)(1), 92 Stat.
2763, 2806. This exception permitted property distributed to be
sold and the proceeds contributed during the 60-day period. The
narrow scope of this section is reflected in Staff of Joint Comm.
on Taxation, General Explanation of the Revenue Act of 1978, Pub.
L. 95-600, at 110 (J. Comm. Print 1979). See also Rev. Rul. 87-
77, 1987-2 C.B. 115.
                               - 8 -


of first impression involving unclear statutory language.

Hitchins v. Commissioner, 103 T.C. 711, 720 (1994).

     Since this is the first time we have considered the rollover

requirements as to the specific character of the property to be

transferred, we find for petitioner as to the negligence penalty

imposed on the portion of the underpayment attributable to the

distributions used to purchase the stock.     The record contains no

facts pertaining to petitioner's failure to report any portion of

the distributions.   Thus, we find petitioner liable for the

negligence penalty imposed on the portion of the underpayment

attributable to the $102,519 not used to purchase the stock.

     In keeping with the above holdings,

                                            Decision will be entered

                                       under Rule 155.
