T.C. Summary Opinion 2012-7
UNITED STATES TAX COURT
DOUGLAS M. AND DELANA M. GALLANT, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6935-10S. Filed January 10, 2012.
Douglas M. and Delana M. Gallant, pro se.
Patrick F. Gallagher, for respondent.
PANUTHOS, Chief Special Trial Judge: This case was heard
pursuant to the provisions of section 7463 of the Internal
Revenue Code in effect when the petition was filed. Pursuant to
section 7463(b), the decision to be entered is not reviewable by
any other court, and this opinion shall not be treated as
precedent for any other case. Unless otherwise indicated,
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subsequent section references are to the Internal Revenue Code,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
Respondent determined a deficiency of $1,512 with respect to
petitioners’ Federal income tax for 2007. The sole issue for
decision is whether petitioners are entitled to deduct a $5,000
contribution to an individual retirement account (IRA).
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time the petition
was filed, petitioners resided in Massachusetts.
In 2007 petitioner Douglas M. Gallant was employed by Sun
Microsystems and was an active participant in its qualified
retirement plan under section 401(a). Douglas M. Gallant
contributed $6,983 to this plan in 2007.
In 2007 petitioner Delana M. Gallant (hereinafter
petitioner) was employed by Whole Foods Market Group, Inc. (Whole
Foods), and was an active participant in its qualified retirement
plan under section 401(a). Petitioner contributed $192.87 to
this plan in 2007. Petitioner also contributed $5,000 to an IRA
in 2007. Petitioners claimed a deduction of $5,000 on the basis
of the IRA contribution.
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On December 28, 2009, respondent issued a notice of
deficiency disallowing petitioners’ $5,000 deduction for
contributions to petitioner’s IRA.1 Respondent disallowed the
deduction for petitioner’s contribution to the IRA on the basis
that petitioners were active participants in qualified plans and
that the phaseout provisions of section 219(g) apply. Respondent
further determined that petitioners’ modified adjusted gross
income (AGI) of $126,578 was greater than the phaseout limitation
in section 219(g) and thus petitioners’ IRA contribution
deduction is reduced to zero.
Petitioners do not dispute the facts, nor do they generally
disagree with respondent’s determination. Petitioners assert
that the law affects them unfairly since the very small IRA
contribution allowed to them as active participants results in a
much greater disallowance of the IRA contribution deduction and
adversely affects their ability to save for retirement.
Discussion
With certain limitations, a taxpayer is entitled to deduct
amounts contributed to an IRA. See sec. 219(a). The deduction,
however, may not exceed the lesser of (1) $4,000 (or $5,000 for
taxpayers 50 or older) or (2) an amount equal to the compensation
includable in the taxpayer’s gross income. See sec. 219(b)(1).
1
Respondent also determined omitted interest income of $39
which respondent conceded.
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If, for any part of a taxable year, a taxpayer or the
taxpayer’s spouse is an “active participant” in a qualified plan
under section 401(a), the deductible amount for that year may be
further limited. See sec. 219(g)(1), (5)(A)(i). The IRA
deduction phases out for taxpayers whose modified adjusted gross
income exceeds certain thresholds. In the case of a married
taxpayer who files a joint Federal income tax return, the $4,000
(or $5,000 for taxpayers 50 or older) limitation of section
219(b)(1) is reduced using a ratio determined by dividing the
excess of the taxpayers’ modified AGI over the applicable dollar
amount, which is $83,000 for 2007, by $20,000. See sec.
219(b)(5)(A) and (B), (g)(2)(A), (3)(B)(i), (8); Rev. Proc. 2006-
53, sec. 3.21, 2006-2 C.B. 996, 1002; see also Ho v.
Commissioner, T.C. Memo. 2005-133. Each petitioner was an active
participant in a retirement plan, was married, and filed a joint
Federal income tax return for 2007. The modified adjusted gross
income on the joint return exceeded $103,000; therefore the
application of section 219(g)(2) and (3) results in the total
disallowance of the IRA contribution deduction. See Ho v.
Commissioner, supra; see also Wade v. Commissioner, T.C. Memo.
2001-114.
At trial petitioners asserted that respondent had unfairly
penalized petitioner because the IRS took into account the
adjusted gross income of both petitioners to compute the
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allowable IRA deduction. Section 219(g)(3)(B) prescribes two
schedules for the applicable dollar amounts to be used in
determining the reduction or elimination of an IRA contribution
deduction: (1) Taxpayers filing a joint return and (2) any other
taxpayer (other than a married individual filing a separate
return). Taxpayers who file jointly are entitled to a higher
ceiling for their AGI than those who file as single or a head of
household, taking into account multiple incomes. See sec.
219(g)(3)(B); Ho v. Commissioner, supra; Wade v. Commissioner,
supra; Felber v. Commissioner, T.C. Memo. 1992-418, affd. without
published opinion 998 F.2d 1018 (8th Cir. 1993).
During the examination petitioners attempted to change
petitioner’s status as an active participant in a qualified plan.
Petitioners submitted an amended return to the IRS reporting the
$192.87 employee contribution as income.2
If an employee makes “a voluntary or mandatory contribution
to * * * [an employer pension plan] such employee is an active
participant in the plan for the taxable year in which such
contribution is made.” Sec. 1.219-2(e), Income Tax Regs. Even
2
Although they attempted to revise their position on the
submitted amended return, petitioners stipulated that they were
each active participants in a qualified plan in 2007.
Petitioners did not request nor do we see any reason to accord
them relief from the stipulation. See Rule 91(e); Jasionowski v.
Commissioner, 66 T.C. 312, 318 (1976). The facts in this record
clearly lead to the conclusion that petitioner was an active
participant in 2007.
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de minimis participation is sufficient to render a taxpayer an
active participant. See Wade v. Commissioner, supra (holding
that a mandatory contribution amounting to $84.89 was sufficient
to constitute active participation even though the taxpayer was
unlikely ever to receive benefits under the plan). A taxpayer
who forfeits rights to a balance in a qualified plan does not
thereby negate his or her status as an active participant for the
year in question. See Eanes v. Commissioner, 85 T.C. 168 (1985)
(stating that a taxpayer who forfeited all rights under his
employer’s retirement plan when he left after only 3 months was
still an active participant in the plan and was not entitled to a
deduction). The determination of whether an individual is an
active participant shall be made without regard to whether such
an individual’s rights under a plan are nonforfeitable. Sec.
219(g)(5); see Hildebrand v. Commissioner, 683 F.2d 57, 58 (3d
Cir. 1982), affg. T.C. Memo. 1980–532; Eanes v. Commissioner,
supra at 170; see also Wade v. Commissioner, supra.
The Court must enforce the laws as written and interpreted.
“While the result to petitioner seems harsh, we cannot ignore the
plain language of the statute and, in effect, rewrite this
statute to achieve what would appear to be an equitable result.”
Eanes v. Commissioner, supra at 171. Rather, we must apply the
language of the relevant provisions, as written. See
Commissioner v. Lundy, 516 U.S. 235, 252 (1996) (courts are
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“bound by the language of the statute as it is written”);
Badaracco v. Commissioner, 464 U.S. 386, 398 (1984) (“Courts are
not authorized to rewrite a statute because they might deem its
effect susceptible of improvement.”).
Conclusion
Petitioners were each an active participant in a qualified
retirement plan and as such are subject to the limitations set
forth in section 219. Respondent’s determination on this issue
is sustained.
To reflect the foregoing,3
Decision will be entered
under Rule 155.
3
Although we hold for respondent on the issue before us, we
leave it to the parties to compute the deficiency under Rule 155
because of respondent’s concession regarding interest income.