T.C. Memo. 2000-41
UNITED STATES TAX COURT
DAVID EDWARD NEUMEISTER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11542-98. Filed February 8, 2000.
David Edward Neumeister, pro se.
Steven Knox, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
ARMEN, Special Trial Judge: Respondent determined a
deficiency in petitioner's Federal income tax for the taxable
year 1996 in the amount of $574. After concessions by
petitioner,1 the issue for decision is whether petitioner is
1
Petitioner concedes that if he is entitled to a deduction
(continued...)
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entitled to a deduction in the amount of $1,763 for a
contribution to an individual retirement account (IRA). We hold
that he is not.
FINDINGS OF FACT
Some of the facts have been stipulated, and they are so
found. Petitioner resided in Lansing, Michigan, at the time that
his petition was filed with the Court.
During the year in issue, petitioner was employed as a
teacher by the Lansing school district in Michigan. During that
year, petitioner was an active participant in the Michigan Public
School Employees’ Retirement System (the MPSERS). MPSERS is
governed by the State of Michigan’s Public School Employees’
Retirement Act of 1979, as amended, 1980 Mich. Pub. Acts 300,
Mich. Comp. Laws, sec. 38.1301-38.1408, and is provided by
Michigan on a statewide basis to all of Michigan’s public school
employees. Section 108 of that Act, Mich. Comp. Laws sec.
38.1408, provides the following:
This state intends that the retirement system be a
qualified pension plan created in trust under section
401 of the internal revenue code and that the trust be
1
(...continued)
for a contribution to an individual retirement account, his
deduction should be limited to $1,763, the amount he actually
contributed to an IRA, rather than the $2,000 he claimed on his
return. Petitioner also concedes that a $40 adjustment to his
miscellaneous itemized deductions is purely mechanical. See sec.
67.
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an exempt organization under section 501 of the
internal revenue code. * * *
On his return for the year in issue, petitioner claimed a
$2,000 deduction for a contribution to an IRA and reported
adjusted gross income (AGI) of $37,475. By notice of deficiency,
respondent disallowed the entire IRA deduction. Specifically,
respondent disallowed the deduction to the extent of $1,763 on
the ground that petitioner was an active participant of an
employer-sponsored plan as defined in section 219(g)(5)(A).2
OPINION
In general, a taxpayer is entitled to deduct the amount
contributed to an IRA. See sec. 219(a); sec. 1.219-1(a), Income
Tax Regs. The deduction in any taxable year, however, may not
exceed the lesser of $2,000 or an amount equal to the
compensation includable in the taxpayer's gross income for such
taxable year. See sec. 219(b)(1). In addition, the amount of
the deduction is limited where the taxpayer is, for any part of
the taxable year, an "active participant" in a retirement plan
qualified under section 401(a) or a plan established for its
employees by the United States, by a State or political
subdivision thereof, or by any agency or instrumentality of any
of the foregoing. See sec. 219(g)(1), (5)(A)(i), (iii). In the
2
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable year in
issue.
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case of a taxpayer who files a return as a single individual, the
deduction is reduced using a ratio determined by dividing the
excess of the taxpayer's modified adjusted gross income3
(modified AGI) over $25,000, by $10,000. See sec. 219(g)(2) and
(3). This provision results in a total disallowance of the IRA
deduction where the total modified AGI exceeds $35,000. See
Felber v. Commissioner, T.C. Memo. 1992-418, affd. without
published opinion 998 F.2d 1018 (8th Cir. 1993). Because
petitioner reported modified AGI of $39,475 on his 1996 income
tax return, he is not entitled to any IRA deduction if he was an
active participant in a plan defined in section 219(g)(5)(A)
during 1996.
Petitioner contends that although he was an active
participant in the MPSERS, the MPSERS is not a plan defined in
section 219(g)(5)(A)(iii). Petitioner refers us to the fact that
he is an employee of the Lansing school district. As such,
petitioner claims that he is not an “employee” of the State of
Michigan, the government unit responsible for establishing and
maintaining the MPSERS. Petitioner concludes, therefore, that
because the MPSERS was not established by his employer, the
Lansing school district, he was not an active participant in a
3
As relevant herein, modified adjusted gross income means
adjusted gross income computed without regard to any deduction
for an IRA. See sec. 219(g)(3)(A).
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plan described in section 219(g)(5)(A)(iii) as a plan
“established for its employees * * * by a State or political
subdivision thereof”. We disagree with petitioner.
Petitioner would have us construe the language of section
219(g)(5)(A)(iii) much more narrowly than we are willing to do.
The legislative history of section 219 establishes that the
section was enacted in an attempt to achieve some degree of
parity between those individuals who have access to tax-
advantaged retirement plans through employment and those
individuals who do not. See H. Rept. 93-779, at 127 (1974),
1974-3 C.B. 244, 370; H. Rept. 93-807, at 128 (1974), 1974-3 C.B.
(Supp.) 236, 363 (providing that the deduction for contributions
to individual retirement accounts is to be available only where
an individual “does not participate in any other tax-supported
retirement plan”); H. Conf. Rept. 93-1280, at 355 (1974), 1974-3
C.B. 415, 496-498. Thus, active participants of tax-advantaged
plans with income above various levels are denied completely the
tax deduction that is provided by section 219 to individuals who
are not otherwise covered by similar tax-advantaged retirement
plans. See sec. 219(g)(5).
The Lansing school district is a part of the Michigan public
school system. The MPSERS was established by the State of
Michigan for its public school employees. Petitioner, through
his employment with the Lansing school district, had the
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opportunity to participate in, and indeed did participate in,
such an employment-based, tax-advantaged plan. Given these
facts, the distinction that petitioner makes regarding his
employer’s being the Lansing school district rather than the
State of Michigan is inconsequential. The fact remains that
petitioner was an active participant in an employment-based, tax-
advantaged retirement plan provided by the State. We hold
therefore that petitioner actively participated in a plan
established by a State or a political subdivision thereof for its
employees, see sec. 219(g)(5)(A)(iii), and is not entitled to a
tax deduction for his contribution.
Alternatively, the record establishes that the MPSERS is a
plan described in section 401(a) and a trust exempt from tax
under section 501(a). Thus, petitioner is not entitled to an IRA
deduction because he was an active participant in a plan
described in section 219(g)(5)(A)(i).
To reflect our disposition of the disputed issue, as well as
petitioner's concessions,
Decision will be entered
for respondent.