T.C. Summary Opinion 2001-33
UNITED STATES TAX COURT
JOHN WALTER HODDER AND SHEILA LARAINE HODDER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3514-99S. Filed March 20, 2001.
John Walter Hodder, pro se.
Charles J. Graves, for respondent.
DINAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority. Unless otherwise indicated,
subsequent section references are to the Internal Revenue Code in
effect for the year in issue.
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Respondent determined a deficiency in petitioners’ Federal
income tax of $600 for the taxable year 1995.
The issue for decision is whether petitioners are entitled
to a deduction for contributions made to individual retirement
accounts (IRA’s) in 1995.
Some of the facts have been stipulated and are so found.
The stipulations of fact and the attached exhibits are
incorporated herein by this reference. Petitioners resided in
Topeka, Kansas, on the date the petition was filed in this case.
Petitioner husband (petitioner), was employed by La Siesta
Foods, Inc. (Siesta), during 1995. At that time, Siesta
maintained for its employees a profit-sharing plan.
Approximately $442 was contributed by Siesta to a plan account in
petitioner’s name during 1995. After Siesta was acquired by
Reser’s Fine Foods, Inc. (Reser’s) in 1996, the plan was
terminated and its participants became fully vested. Petitioner
subsequently rolled the $442 over into an IRA account.
On their joint Federal income tax return for taxable year
1995, petitioners claimed deductions totaling $4,000 for
contributions to IRA’s. The adjusted gross income reported on
the return was $61,652, reflecting the deductions claimed for the
IRA contributions. In the only adjustment made in the statutory
notice of deficiency, respondent disallowed the IRA contribution
deductions in their entirety.
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In general, a taxpayer is entitled to deduct the amount of
his contribution to an IRA. See sec. 219(a). The deduction in
any taxable year generally is limited to $2,000. See sec.
219(b)(1)(A). The amount of the deduction is further limited
where the taxpayer or his spouse is, for any part of the taxable
year, an “active participant” under certain pension plans. See
sec. 219(g). In such a case, for married taxpayers who file a
joint return, the deduction allowable with respect to either
spouse is reduced to zero where the taxpayers’ adjusted gross
income (as modified by section 219(g)(3)(A)) equals or is greater
than $50,000. See id. Petitioners’ modified adjusted gross
income in 1995, as reflected on their return, exceeded $50,000.
Thus, if petitioner was an active participant in 1995,
petitioners are not entitled to deduct contributions made to
IRA’s.
An active participant is defined by the statute to include
an individual who is an active participant in a plan described in
section 401(a). See sec. 219(g)(5)(A)(i). Elaborating upon this
circular definition, the regulations provide that an individual
is an active participant in a profit-sharing plan if, during the
taxable year, (1) a forfeiture is allocated to his account, (2)
an employer contribution is added to his account, or (3) a
mandatory or voluntary contribution is made by the individual to
his account. See sec. 1.219-2(d)(1) and (e), Income Tax Regs.
An individual’s status as an active participant in a plan is not
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altered by the fact that the individual’s rights under the plan
are forfeitable. See sec. 219(g)(5).
It is undisputed that an employer contribution was added to
a profit-sharing plan account in petitioner’s name during 1995.1
Petitioner argued at trial that he was not an active participant
because, according to his testimony, he entered into a verbal
agreement removing himself from participation in the written plan
when he commenced employment with Siesta; consequently, the
contribution made to his account was made in error. We need not
address this argument because we do not accept petitioner’s
testimony.
First, and most importantly, petitioner’s testimony is
directly contradicted by a letter dated November 25, 1997, which
he sent to the Internal Revenue Service. In that letter he
stated: “The plan in question was not voluntary; I had no choice
in taking part in it. If I had, I would have declined the
benefit.” Second, the individual who purportedly entered into
the verbal agreement with petitioner--the then president of
Siesta--did not testify at trial and according to petitioner does
not remember entering into such an agreement. Finally, the
rationale petitioner provided for desiring to contract out of the
plan was not convincing; viz, that the nature of his job made
vesting in the plan unlikely.
1
Nothing in the record indicates this plan was not a profit-
sharing plan described in sec. 401(a).
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Because an employer contribution was added to his account in
1995, petitioner was an active participant in Siesta’s profit-
sharing plan in that year. See sec. 1.219-2(d)(1), Income Tax
Regs.
Petitioners also argue that “the law is not fair”, that “the
law was designed to allow taxpayers to maximize their retirement
savings”, and that a negative result in this case would “minimize
the incentive to save”. This Court is not the proper place for
these arguments. We must apply the law as it is written; it is
up to Congress to address questions of fairness and to make
improvements to the law. See Metzger Trust v. Commissioner, 76
T.C. 42, 59-60 (1981), affd. 693 F.2d 459 (5th Cir. 1982).
Because petitioner was an active participant in a qualified
retirement plan in 1995, petitioners are precluded by section
219(g) from deducting contributions to IRA’s made during that
year.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
for respondent.