                         T.C. Memo. 1996-212



                       UNITED STATES TAX COURT



         LOUIS R. AND GREGORIA S. GOMEZ, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16990-94.                        Filed May 1, 1996.



     Louis R. Gomez and Gregoria S. Gomez, pro se.

     Gerald L. Brantley, for respondent.



                         MEMORANDUM OPINION

     COHEN, Judge:    Respondent determined deficiencies in

petitioners’ Federal income taxes as follows:

               Year             Deficiency

               1987              $32,142
               1988                3,829
               1989                6,977
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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 Civil 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
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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 determined 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, 467 (9th Cir. 1994); Hogan v. United
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States, 513 F.2d 170, 175 (6th Cir. 1975); Shimota v. United

States, 21 Cl. Ct. 510, 512 (1990), affd. 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 recovered 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 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, or
     whether a portion was accelerated to be paid at the
     time of retirement. * * *
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Thus, the lump-sum distribution is an accelerated distribution of

annuity payments that would otherwise be paid to the retiree over

the expected duration of the CSRS annuity.    Montgomery v. United

States, 18 F.3d 500, 502 (7th Cir. 1994); George v. United

States, 30 Fed. Cl. 371, 377 (1994); Shimota v. United States,

supra at 522.

     The distributions that petitioner received from the CSRS are

subject to taxation under section 72 pursuant to section 402(a).

Section 72 is applicable to distributions received pursuant to

the CSRS.   Malbon v. United States, supra at 468; Guilzon v.

Commissioner, 97 T.C. 237, 242 (1991), affd. 985 F.2d 819 (5th

Cir. 1993); Shimota v. United States, supra at 519-520; sec.

1.72-2(a)(3)(iii), Income Tax Regs.    Section 402(a) provides:

     the amount actually distributed to any distributee by
     any employees’ trust described in section 401(a) which
     is exempt from tax under section 501(a) shall be
     taxable to him, in the year in which so distributed,
     under section 72 (relating to annuities). * * *

The CSRS is a plan that meets the requirements of section 401(a).

Guilzon v. Commissioner, supra at 241; Shimota v. United States,

supra at 519-520.   A lump-sum payment from the CSRS is a payment

from a plan described in section 401(a) and is treated as a

payment under an annuity contract and is subject to tax under

section 72(e)(2).   Guilzon v. Commissioner, supra at 242-243;

Shimota v. United States, supra at 523.

     Petitioners’ argument that double taxation will occur is

without merit.   Petitioner will recover his investment in the
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CSRS tax-free.   This recovery, however, will be spread over the

life of the retirement annuity pursuant to the section 72(b)

exclusion ratio.

     Petitioner also contends that the lump-sum payment should

not be included in gross income because it constitutes a

distribution from a defined contribution plan.     Section 72(d)

provides that employee contributions under a defined contribution

plan may be treated as a separate contract.     The result of such

treatment would be that the lump-sum payment received by

petitioner would be viewed in isolation from the annuity

payments, and, thus, the lump-sum payment would be a simple

return of his investment and nontaxable.     See sec. 72(e)(5)(E);

Montgomery v. United States, supra at 501.

     We have considered petitioners’ argument and have concluded

that the lump-sum payment does not fall within the definition of

a defined contribution plan.   The cited decisions of the Fifth,

Seventh, and Ninth Circuit Courts of Appeals and the Court of

Federal Claims have used different reasoning to reach this same

result, and it is unnecessary at this time to resolve the

differences in approaches of the appellate decisions.     See Green

v. Commissioner, T.C. Memo. 1994-340.

     To reflect the foregoing and concessions of the parties,

                                            Decision will be entered

                                       under Rule 155.
