T.C. Memo. 1997-244
UNITED STATES TAX COURT
O.H. TOLLEY, JR. AND BETTY TOLLEY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11407-95. Filed May 29, 1997.
William H. Scheil, Jr., for petitioners.
Veena Luthra, for respondent.
MEMORANDUM OPINION
GOLDBERG, Special Trial Judge: This case was heard pursuant
to section 7443A(b)(3) and Rules 180, 181, and 182.1 Respondent
determined a deficiency in petitioners' Federal income tax for
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
2
1992 in the amount of $574. After a concession,2 the issue for
decision is whether petitioner Betty Tolley was an active
participant in a qualified retirement plan during 1992, thus
precluding a deduction of $2,000 for a contribution by O.H.
Tolley, Jr., to an individual retirement account (IRA).
The facts have been fully stipulated and are so found. The
stipulation of facts and the attached exhibits are incorporated
herein by this reference. Petitioners resided in Pamplin,
Virginia, at the time their petition was filed. References to
petitioner are to Betty Tolley.
Petitioner was employed by S.H. Heironimus Co., Inc.
(Heironimus). Heironimus provided retirement benefits for its
employees in the form of a profit-sharing and savings plan (the
plan). During 1992, petitioner made no contributions to the
plan. During that same year, plan forfeitures in the amount of
$16.12 were allocated to petitioner's plan account.
On their Federal income tax return filed for the tax year
1992, petitioners claimed a contribution deduction in the amount
of $2,000. Petitioners reported adjusted gross income before the
IRA contribution deduction in the amount of $54,940.24.
In the notice of deficiency, respondent disallowed
petitioners' IRA contribution deduction because petitioner was
covered by a retirement plan at work. Therefore, applying
2
Petitioners concede that they failed to report $22 of
taxable interest income received in 1992.
3
section 219(g), petitioners' IRA contribution deduction was
limited to zero for 1992. Petitioners contend that petitioner
elected not to contribute to the plan, and, thus, was not an
active participant. Petitioners also contend that respondent
allowed IRA deductions claimed by petitioners in taxable years
1990 and 1991, and argue that respondent is bound by "tacit
approval" of petitioners' position.
Respondent's determinations are presumed correct, and
petitioners have the burden of proving them erroneous. Rule
142(a); Welch v. Helvering, 290 U.S. 111 (1933). Deductions are
a matter of legislative grace, and petitioners bear the burden of
proving their entitlement to any deduction claimed. Rule 142(a);
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).
Generally, a taxpayer is allowed a deduction for qualified
retirement contributions in an amount not in excess of the lesser
of $2,000 or an amount equal to the compensation includable in
the taxpayer's gross income. Sec. 219(a) and (b)(1). Section
219(g) limits the allowable deduction where the individual or the
individual's spouse is an "active participant". An "active
participant" is defined to include, inter alia, an individual who
is an active participant in a qualified employer provided profit-
sharing plan. Sec. 219(g)(5). The application of section 219(g)
results in total disallowance of an IRA deduction in the case of
taxpayers filing a joint return with adjusted gross income in
excess of $50,000 if one of the taxpayers is an active
4
participant. For this purpose and as relevant here, adjusted
gross income is calculated without regard to the deduction for
IRA contributions. Sec. 219(g)(3).
In general, an individual is an active participant in a
profit-sharing plan during a taxable year if a forfeiture is
allocated to such individual's plan account as of a date in such
taxable year. Sec. 1.219-2(d), Income Tax Regs; see also Barret
v. Commissioner, T.C. Memo. 1980-5. An individual is not an
active participant in a plan if such individual elects, pursuant
to the plan, not to participate in the plan. Sec. 1.219-2(f),
Income Tax Regs.
Petitioners' primary argument is that an election not to
contribute to the plan is tantamount to an election not to
participate. However, the only evidence in the record indicates
that although petitioner did not contribute to the plan,
forfeitures were allocated to her account. Petitioners have
failed to establish that participation in the plan was voluntary,
or, in the alternative, that petitioner properly elected not to
participate. Petitioners have failed to establish that
petitioner was not an active participant in the plan.
Petitioners also argue that respondent should be bound by
prior allowance of IRA deductions for tax years 1990 and 1991
under identical circumstances. Petitioners urge us to adopt a
"rule of decisions", applicable in cases that are eligible for
small tax procedure, precluding the Commissioner from challenging
5
a taxpayer's treatment of an item if the Commissioner
"acquiesced" with respect to such treatment in prior years. See
sec. 7463. Respondent counters that the IRA deduction issue
presented in 1990 and 1991 was not litigated and that
respondent's concessions, if any, concerning those years are not
relevant here. We agree with respondent and reject petitioners'
arguments.
Each tax year is to be considered separately. United States
v. Skelly Oil Co., 394 U.S. 678, 684 (1969). It is well
established that the Commissioner is not bound to allow a
deduction in a tax year although a deduction was permitted in
prior years. Easter v. Commissioner, 338 F.2d 968, 969-970 (4th
Cir. 1964), affg. per curiam T.C. Memo. 1964-58; Rose v.
Commissioner, 55 T.C. 28, 32 (1970). We reject petitioners’
argument that an exception to this rule applies to disputes
involving $10,000 or less.
To reflect the foregoing,
Decision will be entered
for respondent.