1 Unless otherwise indicated, all subsequent section

references are to the Internal Revenue Code in effect for the

taxable years in issue, and all Rule references are to the Tax

Court Rules of Practice and Procedure.

T.C. Summary Opinion 2002-138

UNITED STATES TAX COURT

ROBERT L. AND SARA J. HELM, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 13170-00S, 3727-02S. Filed October 18, 2002.

Robert L. and Sara J. Helm, pro sese.

John A. Freeman, for respondent.

ARMEN, Special Trial Judge: These consolidated cases were

heard pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the time that the petitions were

filed.1 The decisions to be entered are not reviewable by any

other court, and this opinion should not be cited as authority.
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2 For 1998, respondent concedes that petitioners received

$980 of interest income rather than the greater amount reported

by them on their return for that year.

Respondent determined deficiencies in petitioners’ Federal

income taxes as shown below:

Docket No. Year Deficiency

13170-00S 1998 $1,133

3727-02S 1999 2,674

After a concession by respondent,2 the sole issue for

decision is whether the amount of income resulting from

petitioners’ conversion of their traditional Individual

Retirement Accounts (IRA) to Roth IRAs (conversion income) is an

item of income for purposes of calculating whether petitioners’

Social Security benefits are taxable. We hold that it is.

Background

Most of the facts were stipulated, and they are so found. 

Petitioners resided in Howard, Ohio, at the time that their

petitions were filed with the Court.

A. Petitioners’ IRA Conversions

In 1998, petitioner Robert L. Helm converted his traditional

IRA with Fidelity Mutual to a Roth IRA with the same trustee. 

The total amount converted was $59,758. In addition, petitioner

Sara J. Helm converted her traditional IRA with Fidelity Mutual

to a Roth IRA with the same trustee in 1998. The total amount

converted was $25,872.90.
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Collectively, petitioners realized $85,630.90 of conversion

income in 1998. Pursuant to section 408A(d)(3)(A)(iii),

petitioners elected to report the conversion income on a 4-year

ratable basis for a total annual amount of $21,407.73 beginning

in 1998 through 2001.

B. Petitioners’ Social Security Benefits

Petitioners received the following Social Security benefits

during the years in issue:

1998 1999

Petitioner Robert L. Helm $2,277 $9,228

Petitioner Sara J. Helm 6,561 6,654

Total 8,838 15,882

C. Petitioners’ Forms 1040

For each of the 1998 and 1999 tax years, petitioners timely

filed a joint Form 1040, U.S. Individual Income Tax Return. On

both returns, petitioners listed their occupation as retired. 

Each petitioner attached a Form 8606, Nondeductible IRAs, to

their 1998 return reporting their respective amount of conversion

income and electing to ratably report such income over a 4-year

period.

Petitioners reported the following income items on their

returns for the years in issue:
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3 We need not decide whether sec. 7491, concerning burden

of proof, applies to the present case because the facts are not

in dispute and the issue is one of law. See Higbee v.

Commissioner, 116 T.C. 438 (2001).

 1998 1999 

Line 8a. Taxable interest 

[1]$980.00 $1,037.99

Line 9. Ordinary dividends 6,265.99 6,395.04

Line 13. Capital gain or (loss) 14,473.86 19,902.36

Line 15a. Total IRA distributions $85,630.90 ---

Line 15b. Taxable amount 21,407.73 

[2]21,407.50

Line 33. Adjusted gross income 43,127.58 48,742.89

1 In 1998, petitioners originally reported $1,016.20 of interest income

but actually received only $980. See supra note 2.

2 We note that in 1999 petitioners reported only $21,407.50 as

conversion income instead of $21,407.73. There is nothing in the record to

explain this discrepancy.

On their returns for 1998 and 1999, petitioners did not

report that they received any Social Security benefits, nor did

they report that any portion of their benefits was taxable.

D. Respondent’s Deficiency Notices

In the notices of deficiency, respondent determined that

petitioners received, but failed to report, taxable Social

Security benefits of $7,434 for 1998 and $13,500 for 1999, which

resulted in the deficiencies at issue. Respondent concluded that

petitioners’ conversion income is included in income pursuant to

section 408A and, therefore, that petitioners’ Social Security

benefits are taxable pursuant to section 86.

Discussion3

A. Petitioners’ Contention

In their petition, petitioners contend that respondent erred

because:
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The IRS used our conversion of our IRA’s from

traditional to Roth as an excuse to cause our Social

Security Benefits to become taxable that would not have

otherwise been taxable. This was not the intent of the

Roth IRA law.

Petitioners expanded on their contention at trial as follows:

IRS * * * used the words “rollover” and “distribution”

interchangeably, sometimes in the same sentence, which

from the point of view of taxing the IRA rollover,

doesn’t really matter.

When you go on next step down the line, and you’re

considering it as income, the rollover doesn’t create

income. A distribution would create income, but a

rollover doesn’t. You don’t get any money. And from a

simplistic point of view, there’s the difference

between not getting money and getting money. 

When the law was passed with reference to taxability of

Social Security benefits, they referred to income. And

I think they meant actual income. Money that you got,

not a mythical amount of money that you didn’t get.

* * * * * * *

There is a big difference between getting money and not

getting money. And I don’t think my Social Security

benefits should be taxed based on money I didn’t get. 

* * * Yes, as far as taxing the rollover, it is a

taxable rollover. But it is not a distribution.

Now, the fact that Form 8606 said to report this on

[Form 1040] line 15b [taxable amount of IRA

distribution] is their directions. We ended up

reporting a rollover on a line that is specifically for

distributions. That creates an error, because there is

nothing in the Code to exclude anything on line 15b

when it comes to calculating taxability of Social

Security benefits.

* * * * * * *
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4 On Feb. 4, 1999, the IRS issued final regulations, secs.

1.408A-1 through -9, applicable to taxable years beginning after

Dec. 31, 1997. See sec. 1.408A-9, Income Tax Regs.

I have the problem with considering that as income,

when it isn’t, considering it as a distribution, which

it isn’t * * *. Now you owe tax on your Social

Security benefits, because you had so much money coming

in. But I didn’t have so much money coming in. 

 

We disagree with petitioners’ contention. As a matter of

statutory interpretation, the plain language of the statute and

the regulations mandates that we sustain respondent’s

determination on the disputed issue.

B. Roth IRA

The Taxpayer Relief Act of 1997 (TRA 1997), Pub. L. 105-34,

sec. 302, 111 Stat. 788, 825, established a new individual

retirement plan called the “Roth IRA”, effective for taxable

years beginning after December 31, 1997.4 See sec. 408A. 

Congress created the Roth IRA to further encourage individual

savings by allowing funds set aside in a tax-favored account to

be withdrawn without tax after a reasonable holding period for

retirement or certain special purposes. See H. Rept. 105-148, at

337 (1997), 1997-4 C.B. (Vol. 1) 319, 659; S. Rept. 105-33, at 29

(1997), 1997-4 C.B. (Vol. 2) 1067, 1109. The tax characteristics

of the Roth IRA are: (1) Contributions are nondeductible, sec.

408A(c)(1); (2) earnings accumulate tax free, sec. 408A(a); see

sec. 408(e); and (3) qualified distributions are not includable
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in income if all requirements are satisfied, sec. 408A(d)(1)(A); 

see sec. 1.408A-1, Income Tax Regs.

Beginning in 1998, eligible taxpayers could establish a new

Roth IRA either with a regular contribution or a qualified

rollover contribution (including conversion contributions). See

sec. 408A(c)(3)(B), (c)(6), (d)(3)(C); see also sec. 1.408A-3 and

1.408A-4, Income Tax Regs. Taxpayers could accomplish a

conversion contribution by any of the following three methods:

(1) An amount distributed from a traditional IRA is

contributed (rolled over) to a Roth IRA * * *

(2) An amount in a traditional IRA is transferred in a

trustee-to-trustee transfer from the trustee of the

traditional IRA to the trustee of the Roth IRA; or

(3) An amount in a traditional IRA is transferred to a

Roth IRA maintained by the same trustee. * * * 

Sec. 1.408A-4, Q&A-1(a), Income Tax Regs.; see H. Rept. 105-148,

at 339, (1997), 1997-4 C.B. (Vol. 1) 319, 661; S. Rept. 105-33,

at 32, (1997), 1997-4 C.B. (Vol. 2) 1067, 1112.

For tax purposes, the converted amount is treated as a

distribution from the traditional IRA and as a qualified rollover

contribution to the Roth IRA. Sec. 1.408A-4, Q&A-1(c), Income

Tax Regs. Specifically with respect to conversions to a Roth

IRA, the amount distributed from the traditional IRA is treated

as a taxable distribution (except for nondeductible

contributions) and, therefore, included in gross income. See

sec. 408A(d)(3)(A)(i); sec. 1.408A-4, Q&A-7(a), Income Tax Regs.;
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see also H. Conf. Rept. 105-220, at 380 (1997), 1997-4 C.B. (Vol.

2) 1457, 1850 (wherein the conference committee articulated the

intent to tax conversion income currently such that the “Amounts

that would have been includible in income had the amounts

converted been withdrawn are includible in income ratably over 4

years.”); contrast with sec. 408(d)(3) (a qualified rollover

contribution among nonRoth IRAs is not included in gross income

if it meets certain requirements). Furthermore, the pertinent

parts of the regulations provide:

any taxable conversion amount includible in gross

income for a year as a result of the conversion

(regardless of whether the individual is using a 4-year

spread) is included in income for all purposes. Thus,

for example, it is counted for purposes of determining

the taxable portion of social security payments under

section 86 * * *. [Sec. 1.408A-4, Q&A-9, Income Tax

Regs.]

C. Calculating the Taxable Portion of Petitioners’ Social

Security Benefits

Section 86 provides for the taxability of Social Security

benefits pursuant to a statutory formula. Thus, if a taxpayer’s

“modified adjusted gross income” (MAGI) plus one-half of the

taxpayer’s Social Security benefits exceeds a certain base

amount, then a portion of the taxpayer’s Social Security benefits

is includable in gross income and subject to Federal income tax. 

Sec. 86(a) through (d).

Section 86(b)(2) defines MAGI as adjusted gross income, less

certain specified types of income plus tax-exempt interest, which
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are not present here. For an individual taxpayer, AGI is gross

income minus a specifically enumerated list of deductions, which

deductions also are not present here. Sec. 62. Finally, section

61 defines gross income as “all income from whatever source

derived”, unless otherwise provided. Section 61(a)(9) and (11)

expressly defines gross income to include income from annuities

and pensions. Therefore, petitioners’ gross income includes

their conversion income. See sec. 408A(d)(3)(A), (C).

Accordingly, petitioners had MAGI of $43,127.58 in 1998 and

$48,742.89 in 1999, sec. 86(b)(2), and they received Social

Security benefits of $8,838 and $15,882, respectively. As a

result, petitioners’ MAGI plus one-half of their benefits

($47,546.58 for 1998 and $56,683.89 for 1999) exceeds the base

amount, and, therefore, a portion of their Social Security

benefits is taxable. See sec. 86(a)(2), (c)(2).

D. The Tax Consequences of Petitioners’ IRA Conversion

Petitioners agree that their conversion income is a “taxable

rollover” requiring them to pay income tax on such income. 

However, petitioners object to the conversion income’s being

characterized as a “taxable distribution” that has the effect of

making their Social Security benefits taxable under section 86. 

Petitioners, however, do not fully appreciate the tax

consequences involving a conversion of a traditional IRA to a

Roth IRA.
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As stated above, a conversion from a traditional IRA to a

new Roth IRA is a taxable recognition event such that the

rollover distribution is included in gross income for all tax

purposes, unless otherwise specifically provided, whether or not

petitioners actually receive money. Furthermore, neither section

408A nor section 86 specifically excludes conversion income in

the calculation of gross income for purposes of Social Security

benefits. At trial, petitioners also specifically acknowledged

the absence of any provision shielding Social Security benefits

from the tax consequences of a conversion from a traditional IRA

to a Roth IRA. Accordingly, we have no basis to carve out such

an exclusion.

E. Conclusion

We hold that petitioners’ conversion income is included as

an item of income for purposes of calculating the taxability of

their Social Security benefits. In view of the foregoing, we

sustain respondent’s determination on the disputed issue.

We have considered all of the other arguments made by

petitioners, and, to the extent that we have not specifically

addressed them, we conclude they are without merit.

Reviewed and adopted as the report of the Small Tax Case

Division.
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To give effect to our disposition of the disputed issue, as

well as respondent’s concession,

Decision will be entered

under Rule 155 in docket

No. 13170-00S.

 Decision will be entered

for respondent in docket

No. 3727-02S.