T.C. Memo. 1997-108
UNITED STATES TAX COURT
HUGO MADIONI AND SUSANNE J. NICOLAI, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20582-95. Filed March 3, 1997.
Hugo Madioni Nicolai, pro se.
D. Lyndell Pickett, for respondent.
MEMORANDUM OPINION
PANUTHOS, Chief Special Trial Judge: This case was heard
pursuant to the provisions of section 7443A(b)(3) and Rules 180,
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181, and 182.1 Respondent determined a deficiency in
petitioners' 1992 Federal income tax in the amount of $1,120.
The only issue in dispute is whether petitioners are
entitled to a deduction in the amount of $4,000 for contributions
to their respective individual retirement accounts (IRA).
Some of the facts have been stipulated, and they are so
found. The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time of filing the
petition, petitioners resided in Largo, Florida.
During 1992, petitioner Hugo M. Nicolai was employed by
Varian Associates, Inc. (Varian). In October 1992, Mr. Nicolai
became eligible to participate in Varian's pension plan. On
December 31, 1992, Mr. Nicolai had a balance of $377.60 to his
credit in Varian's pension plan.
Petitioner Susanne J. Nicolai was employed by Morton F.
Plant Hospital in 1992. Mrs. Nicolai began working at the
hospital in 1990 and terminated her employment during the summer
of 1992. The hospital had a pension plan wherein an employee
received forfeitable rights until vested, which required 6 years
of employment. Since Mrs. Nicolai worked approximately 2 years
for the hospital, her rights did not vest in the pension plan.
1
All section references are to the Internal Revenue Code
in effect for the tax year at issue. All Rule references are to
the Tax Court Rules of Practice and Procedure.
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Petitioners reported income and adjustments to income on
their 1992 return as follows:
Item of Income Amount
Wages $58,796
Interest 630
Dividend 591
Capital gain 36
Other income 1,033
Total income 61,086
Adjustment to Income
IRA deduction $2,000
IRA deduction 2,000 4,000
Adjusted gross income 57,086
In the notice of deficiency, respondent determined that
petitioners were not entitled to the claimed IRA deductions.
Respondent determined that each petitioner was an active
participant in a pension plan qualified under section 401(a)
during 1992. It is well settled that deductions are a matter of
legislative grace, and petitioners bear the burden of proving
entitlement to any claimed deductions. INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992); Nelson v. Commissioner, 30
T.C. 1151, 1154 (1958). Moreover, respondent's determinations
are presumed correct, and it is petitioners' burden to establish
error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933).
Petitioners do not appear to dispute that their respective
employers maintained pension plans qualified under section
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401(a). 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. The deduction in any taxable year may not
exceed the lesser of $2,000 or an amount equal to the
compensation includable in the individual's gross income for the
taxable year. Sec. 219(b)(1). Section 219(g) imposes a further
limitation on IRA deductions where a taxpayer or a spouse is an
"active participant" for any part of the taxable year. An
individual is considered an active participant in a plan if he is
accruing benefits under the plan even if he has only forfeitable
rights under the plan and such rights are forfeited before the
end of the taxable year. Hildebrand v. Commissioner, 683 F.2d 57
(3d Cir. 1982), affg. T.C. Memo. 1980-532.
While Congress included a definition of "active participant"
in section 219(g)(5), that definition itself uses the term
"active participant". However, Congress' intent as to the
meaning of "active participant" is clear from the report of the
House Committee on Ways and Means:
An individual is to be considered an active participant
in a plan if he is accruing benefits under the plan
even if he only has forfeitable rights to those
benefits. * * * [H. Rept. 93-807 at 129 (1974), 1974-3
C.B. (Supp.) 236, 364.]
See also Eanes v. Commissioner, 85 T.C. 168, 171 (1985). The
regulations further provide that "an individual is an active
participant * * * if for any portion of the plan year * * * he is
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not excluded under the eligibility provisions of the plan." Sec.
1.219-2(b)(1), Income Tax Regs.
Since petitioners were "active participants" in their
respective retirement plans during 1992, and their adjusted gross
income for that year exceeded $50,000, petitioners are not
entitled to an IRA contribution deduction for the year 1992.
Sec. 219(a), (c)(2), (g)(1), (2), and (3); Johnson v.
Commissioner, 74 T.C. 1057 (1980), affd. 661 F.2d 53 (5th Cir.
1981); Felber v. Commissioner, T.C. Memo. 1992-418, affd. without
published opinion 998 F.2d 1018 (8th Cir. 1993).
Based on the foregoing, respondent's determination is
sustained.
Decision will be entered
for respondent.