1Unless otherwise indicated, subsequent section references

are to the Internal Revenue Code in effect for the year at issue. 

T.C. Summary Opinion 2006-72

UNITED STATES TAX COURT

CLENZO AND LUELLA KNOX, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 19965-02S. Filed May 2, 2006.

Clenzo Knox, pro se.

Susan S. Canavello, for respondent.

COUVILLION, Special Trial Judge: This case was heard

pursuant to section 7463 in effect at the time the petition was

filed.1 The decision to be entered is not reviewable by any

other court, and this opinion should not be cited as authority.

Respondent determined a deficiency of $2,055 in petitioners’

2000 Federal income tax.
- 2 -

2On line 16a of their Federal income tax return for 2000,

petitioners reported total pensions and annuities income of

$4,772. The parties did not describe the nature of this pension

income at trial. The Court assumes that it is unrelated to the

$9,525 at issue.

The sole issue for decision is whether a lump-sum payment to

Clenzo Knox (petitioner) during 2000 in the amount of $9,525 from

an “eligible State deferred compensation plan” under section 457

constitutes gross income.2

Some of the facts were stipulated and are so found. The

stipulation and annexed exhibits are so found and are

incorporated herein by reference. At the time the petition was

filed, petitioners were legal residents of Harvey, Louisiana.

For 29 years, petitioner was employed as a transit

supervisor for Regional Transit Authority, a bus line in New

Orleans, Louisiana. Petitioner’s employer was an agency of the

State of Louisiana, and his employer maintained a deferred

compensation plan that was qualified under section 457. Sometime

between 1988 and 1990, petitioner commenced making contributions

to the plan. His contributions were deducted from his wages. 

Petitioner’s contributions, as well as those of the other plan

participants, were remitted to a plan administrator, PEBSCO.

Petitioner retired from his employment during 2000. For

reasons not addressed at trial, petitioner did not elect to

receive retirement benefits under the section 457 plan. Instead,
- 3 -

3In certain situations, the burden of proof is on respondent

under sec. 7491(a). This case is decided without regard to the

burden because, as reflected in the ensuing discussion, the facts

are not in dispute, and the issue is essentially legal in nature.

petitioner elected to withdraw the entire amount held by PEBSCO

on his behalf. Accordingly, the plan administrator paid

petitioner $9,525 during 2000. Petitioners did not include any

portion of that distribution as income on their 2000 tax return. 

In the notice of deficiency, respondent determined that the

entire $9,525 constituted taxable gross income.

Employees of State and local governments, as well as

employees of certain tax-exempt organizations, may defer a

portion of their salaries to retirement years under what is

referred to as a section 457 plan. Under such plans, a

participating employee does not currently pay income tax on that

portion of his salary contributed to the plan, nor are the

earnings of the plan taxable. Upon retirement, however, the

distributions constitute gross income to the participant. The

parties agree with this basic premise.3

Petitioners’ position, however, is that, for the years 1988

through 1996, they prepared their own income tax returns, and, on

each of those returns, they included as income the gross amount

of petitioner’s wages without a reduction for the contributions

made to the section 457 plan. Following the year 1996,

petitioners engaged the services of a professional tax return
- 4 -

preparer, and the preparer correctly omitted from income the

deferred portions of petitioner’s section 457 contributions. 

Petitioners never filed amended returns for the prior years to

obtain refunds of the taxes paid on the deferred portions of

petitioner’s salary. At trial, petitioners did not offer copies

of their income tax returns for these years. For the year at

issue, 2000, petitioners contend that the income taxes they paid

in prior years on income that was tax deferred should be

attributed to the deficiency at issue, the $9,525 distribution

they received from PEBSCO during the year 2000.

The Court rejects that argument. To begin with, petitioners

did not establish the amount of taxes they paid in the prior

years on the income that was tax deferred. Petitioners did not

offer copies of their tax returns from which the tax on the

deferred income might possibly be calculated. Petitioners failed

to file amended tax returns for these prior years to obtain

refunds of the taxes paid on the deferred income. Finally, even

if petitioners were to file amended returns at this time for

those prior years, it is most likely they could not recover

credits or refunds because, under section 6511, there is a

limitations period that is generally 3 years from the date the

return was filed or 2 years from the date the tax was paid. No

evidence was presented to the Court to show that the periods of

limitation were ever extended for any of the years for which
- 5 -

4Petitioners received Social Security benefits during the

year 2000. Adjustments were made in the notice of deficiency

with respect to the taxable amount of those benefits. The

adjustment to this item is computational based on our conclusion

with respect to the disputed issue.

petitioners paid taxes on the deferred income. The Court,

therefore, sustains respondent.4

Reviewed and adopted as the report of the Small Tax Case

Division.

Decision will be entered

for respondent.