T.C. Memo. 1997-34
UNITED STATES TAX COURT
MARK J. FUHRMAN & MARY A. FUHRMAN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21178-95. Filed January 21, 1997.
Mark J. Fuhrman and Mary A. Fuhrman, pro sese.
J. Anthony Hoefer, for respondent.
MEMORANDUM OPINION
CARLUZZO, Special Trial Judge: This case was heard pursuant
to the provisions of section 7443A(b)(3) and Rules 180, 181, and
182. Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year at issue. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
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Respondent determined a deficiency in petitioners' 1992
Federal income tax in the amount of $630. The issue for decision
is whether petitioners are entitled to a deduction for
contributions to individual retirement accounts. The resolution
of this issue turns upon whether Mark J. Fuhrman was an employee,
within the meaning of section 219(g)(5), of the State of Nebraska
during 1992.
Background
All of the facts have been stipulated and they are so found.
At the time that the petition was filed in this case, petitioners
resided in Fremont, Nebraska. References to petitioner are to
Mark J. Fuhrman.
In 1992, petitioner was a district court judge for the Sixth
Judicial District in the State of Nebraska. The appointment
process, powers, and duties of such judges are described in the
Nebraska Constitution and Nebraska Revised Statutes.
During 1992, petitioner was a member of, and contributed to,
the Nebraska Retirement Fund for Judges (the fund). The fund was
established and is administered pursuant to Neb. Rev. Stat. secs.
24-701 through 24-714 (1995). It is funded from the following
sources: deductions withheld from the Nebraska judges' salaries;
a $1 fee taxed as costs in each civil and criminal cause of
action or proceeding filed in the Nebraska district and county
courts; a sum equal to 10 percent of the fees assessed in
probate, inheritance tax, trust, and guardianship and
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conservatorship proceedings in the Nebraska county courts; and
fees assessed in prosecution actions related to city ordinances
regulating non-moving traffic violations.
On their 1992 Federal income tax return (the 1992 return),
petitioners reported gross income of $73,505.46 and adjusted
gross income of $71,161.85. The income so reported consists
primarily of petitioner's salary as a Nebraska district court
judge. Mary Fuhrman was unemployed and received no compensation
during 1992. On the Form W-2 provided to petitioner by the State
of Nebraska and attached to the 1992 return, there is an "X" in
the box for pension plan. During 1992, petitioner contributed
$2,250 to individual retirement accounts (IRA's) described in
section 408. On the 1992 return, petitioners claimed a deduction
of $2,250 for the contributions to the IRA's.
In the notice of deficiency, respondent disallowed the IRA
deduction and provided the following explanation:
We didn't allow your deduction for IRA
contributions because you were covered by a
retirement plan at work * * *, and your
"modified adjusted gross income" is more that
$50,000 * * *.
Discussion
As a general rule, a taxpayer is entitled to deduct amounts
contributed to an IRA. Sec. 219(a); sec. 1.219-1(a), Income Tax
Regs. For a married individual filing a joint return, the
deduction in any taxable year may not exceed the lesser of $2,250
or an amount equal to the compensation includable in the
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individual's gross income for the taxable year. Sec. 219(c)(2).
If the individual is an active participant in certain pension
plans during the taxable year, the deduction is reduced if the
individual's adjusted gross income exceeds a threshold amount as
specified in section 219(g). For an individual who files a joint
Federal income tax return, this provision results in the total
disallowance of the deduction if the individual's adjusted gross
income exceeds $50,000.
The provisions of section 219(g) are only applicable if the
individual, or the individual's spouse, is an "active
participant" in certain pension plans for any part of the taxable
year. For purposes of this case, an "active participant"
includes an individual who is an active participant in a plan
established for its employees by a State or political subdivision
thereof. Sec. 219(g)(5)(A)(iii); see Freese v. Commissioner,
T.C. Memo. 1996-224.
Implicit in respondent's adjustment disallowing the
deduction here in dispute is her determination that petitioner
was an employee of the State of Nebraska. Petitioners disagree
and argue that petitioner was not an employee, but rather an
officer of the State of Nebraska. Therefore, according to
petitioners, he was not an active participant in a retirement
plan established by the State of Nebraska for its employees.
Thus, petitioners contend that the provisions of section 219(g)
do not operate to reduce or eliminate their IRA deduction.
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The parties focus on petitioner's employment relationship
with the State of Nebraska, and we do likewise. Petitioners
apparently agree that the fund constitutes a pension plan within
the meaning of section 219(g), and to the extent that petitioner
was an employee of State of Nebraska, he was an active
participant in that plan.
Although the term "employee" is defined for other purposes
throughout the Internal Revenue Code, see e.g., section 3401(c),
Congress did not provide a statutory definition for purposes of
section 219. However, this Court and the Court of Appeals for
the Eighth Circuit, where appeal lies in this case, focused
precisely on this point in Porter v. Commissioner, 88 T.C. 548
(1987), revd. 856 F.2d 1205 (8th Cir. 1988), affd. on other
grounds sub nom. Adams v. Commissioner, 841 F.2d 62 (3d Cir.
1988).
In Porter v. Commissioner, supra, we considered whether for
purposes of section 219(g), Federal judges appointed under
Article III of the United States Constitution (Federal judges)
were employees of the United States. Acknowledging that Congress
used the term "employee" in different ways throughout the
Internal Revenue Code, we decided that for purposes of that
section Congress intended the common-law definition of the term
to apply. Id. at 553-554. After reviewing the authority and
function of Federal judges and the relevant common-law principles
typically considered in resolving issues relating to the
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characterization of master-servant type relationships, we
concluded that for purposes of section 219(g), Federal judges
were not employees of the United States. Therefore, we held
that the limitations imposed by that section were not applicable
to Federal judges.
Congressional reaction to our opinion in Porter was
relatively swift. In the Omnibus Budget Reconciliation Act of
1987 (OBRA), Pub. L. 100-203, sec. 10103, 101 Stat. 1330-386,
which was not codified, Congress specifically provided that
Federal judges should be treated as employees for purposes of
section 219(g).
Following the enactment of section 10103 of OBRA, in Porter
v. Commissioner, 856 F.2d 1205 (8th Cir. 1988), revg. 88 T.C. 548
(1987), the Court of Appeals for the Eighth Circuit reversed our
decision. The Court of Appeals for the Eighth Circuit rejected
our method of construing the statutory language, and directed
that the term "employee" be defined by giving it a meaning
consistent with the general purposes of the statute in which it
is found. Id. at 1208. In this regard, the Court of Appeals for
the Eighth Circuit concluded that Congress enacted section 219 in
an attempt to achieve, with respect to tax advantaged retirement
plans, some degree of parity between those individuals who had
access to such plans through employment and those individuals who
did not. Treating both categories of individuals equally for
purposes of section 219 would not be consistent with the overall
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goal of the statute. Accordingly, the Court of Appeals for the
Eighth Circuit reasoned that for purposes of section 219(g), the
term "employee" should be broadly defined to include those
individuals who are otherwise covered by employment-based, tax
advantaged retirement plans. Using this definition, the Court of
Appeals for the Eighth Circuit held that for purposes of section
219(g), Federal judges were employees of the United States and
subject to the limitations imposed by that section.
The Court of Appeals for the Eighth Circuit considered
section 10103 of OBRA and concluded that the legislation
supported its reasoning. Contrary to petitioners' argument on
the point, the Court of Appeals for the Eighth Circuit did not
base its holding on such legislation.
Given the Court of Appeals for the Eighth Circuit's holding
as to how the term "employee" is to be defined for purposes of
section 219, there is no point in addressing petitioners'
contention that under relevant common-law principles, petitioner
is no more an employee of the State of Nebraska than a Federal
judge is an employee of the United States. Likewise, we need not
consider petitioners' argument that section 10103 of OBRA is only
applicable to Federal judges. Whether we agree with petitioner
on either point is of no consequence in applying the holding of
the Court of Appeals for the Eighth Circuit to the facts of this
case, as we are persuaded by respondent to do. See Golsen v.
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Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir.
1971).
Because petitioner was covered by an employment-based, tax
advantaged retirement plan during 1992, we hold that for purposes
of section 219(g) he was an employee of the State of Nebraska.
Accordingly, there being no dispute as to whether the fund
was a pension plan within the meaning of section 219,
respondent's determination disallowing the deduction here in
dispute is sustained.
To give effect to the foregoing,
Decision will be
entered for respondent.