T.C. Summary Opinion 2002-66
UNITED STATES TAX COURT
MILAGROS Z. GUECO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 545-01S. Filed June 10, 2002.
Milagros Z. Gueco, pro se.
James N. Beyer, 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
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effect for the year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
Respondent determined a deficiency in petitioner’s Federal
income tax of $420 for the taxable year 1998.
The issues for decision are: (1) Whether petitioner is
entitled to deduct a contribution to an Individual Retirement
Account (IRA); and (2) whether petitioner is entitled to deduct
the payment of certain legal fees.1
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. Petitioner resided in
Philadelphia, Pennsylvania, on the date the petition was filed in
this case.
From January through May of 1998, petitioner was employed by
the U.S. Defense Finance and Accounting Service. She earned
$32,265 in this position, and was covered by her employer’s
pension plan during that time. In May 1998, petitioner’s
employment was terminated due to a reduction in force.
Petitioner was later employed by Management Consulting, Inc.,
from which she earned $11,051 during 1998.
1
The latter issue was raised by petitioner for the first
time in the petition. Petitioner also asserted for the first
time in the petition that she “suffered a loss of $521.00” from a
mutual fund investment. Respondent concedes that petitioner is
entitled to deduct this loss, which was not reflected in the
notice of deficiency.
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Meanwhile, in March 1998, petitioner filed for divorce from
her husband. She paid legal fees of $943 in connection with the
divorce.2 No alimony was awarded to petitioner as a result of
the divorce; rather, petitioner was required to make alimony
payments.
On her 1998 individual Federal income tax return, petitioner
reported adjusted gross income of $40,399, reflecting claimed
deductions of $2,000 for a contribution to an IRA and $5,000 for
payment of alimony. She did not claim a deduction for any
portion of the divorce-related attorney fees.
The first issue for decision is whether petitioner is
entitled to deduct a contribution to her IRA.
In general, a taxpayer is entitled to deduct the amount of
her contribution to an IRA. Sec. 219(a). The deduction in any
taxable year generally is limited to $2,000. Sec. 219(b)(1)(A).
The amount of the deduction is further limited where the taxpayer
is, for any part of the taxable year, an “active participant”
under certain pension plans. Sec. 219(g). In such a case, for a
taxpayer who files an individual return, the deduction allowable
is reduced to zero where the taxpayer’s adjusted gross income (as
modified by section 219(g)(3)(A)) equals or is greater than
$40,000. See id. Petitioner’s modified adjusted gross income in
1998 exceeded $40,000. Thus, if petitioner was an active
2
Petitioner argues that $600 of the fees are deductible.
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participant in 1998, she is not entitled to deduct a contribution
to an IRA.
An active participant is defined by section 219(g)(5) to
include an individual who is an active participant in a plan
described in section 401(a). 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 her
account, (2) an employer contribution is added to her account, or
(3) a mandatory or voluntary contribution is made by the
individual to her account. Sec. 1.219-2(d)(1) and (e), Income
Tax Regs. Petitioner admits that during the first 5 months of
1998 she was covered by the pension plan offered by her employer.
Furthermore, the Form W-2, Wage and Tax Statement, issued to
petitioner for that year indicates she made an elective deferral
of $1,056.16. Therefore, petitioner was an active participant in
her employer’s pension plan.
Petitioner argues that she should be allowed to deduct at
least half of the IRA contribution for 1998 because she
participated in the pension plan for less than half of the year.
The law is clear that the restriction on deductions for
contributions to IRA’s applies to taxpayers who are active
participants for any portion of a taxable year. Sec. 219(g)(1).
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We sustain respondent’s determination that petitioner is not
entitled to the IRA contribution deduction.
The second issue for decision is whether petitioner is
entitled to deduct the payment of certain legal fees to her
attorney in connection with petitioner’s divorce.
Personal, living, and family expenses generally are not
deductible by taxpayers. Sec. 262(a). Attorney’s fees and other
costs paid in connection with a divorce generally are personal
expenses and therefore nondeductible. Sec. 1.262-1(b)(7), Income
Tax Regs. On the other hand, expenses paid for the production or
collection of income, or in connection with the determination,
collection, or refund of any tax, generally are deductible. Sec.
212(1), (3). This is the case even if the expenses are paid in
connection with a divorce. Sec. 1.262-1(b)(7), Income Tax Regs.;
United States v. Gilmore, 372 U.S. 39 (1963); Swain v.
Commissioner, T.C. Memo. 1996-22, affd. without published opinion
96 F.3d 1439 (4th Cir. 1996).
The legal fees which petitioner paid to her attorney were
paid in order to secure petitioner’s divorce. They were not paid
in order to secure the production of income (i.e., alimony), and
petitioner does not allege that they were paid in connection with
any tax advice. Thus, the legal fees are personal expenses which
are nondeductible under section 262(a).
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Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
under Rule 155.