T.C. Memo. 2001-114

UNITED STATES TAX COURT

JOHN & CHRISTINA WADE, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 11521-99. Filed May 14, 2001.

Erwin A. Rubenstein, for petitioners.

Gregory C. Okwuosah, for respondent.

MEMORANDUM OPINION

 GOLDBERG, Special Trial Judge: Respondent determined a 

deficiency in petitioners’ Federal income tax of $1,120 for the

taxable year 1996. Unless otherwise indicated, section

references are to the Internal Revenue Code in effect for the

year in issue, and all Rule references are to the Tax Court Rules

of Practice and Procedure.
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The sole issue for decision is whether petitioners are

entitled to deduct $4,000 for contributions to their individual

retirement accounts (IRA’s) in 1996.

This case was submitted fully stipulated pursuant to Rule

122. The stipulation of facts and the attached exhibits are

incorporated herein by this reference. At the time the petition

was filed, petitioners resided in Ann Arbor, Michigan.

Petitioners are husband and wife. References to petitioner in

the singular are to Christina Wade.

Petitioner was a part-time employee of Washtenaw Community

College (WCC) of the Michigan public school system during taxable

year 1996. As a part-time employee of WCC during 1996,

petitioner was required to become a member of the Michigan Public

School Employees Retirement System (MPSERS). The MPSERS’ Member

Investment Plan (plan) is a statewide employer-sponsored

qualified defined benefit plan. Participation in the MPSERS is

mandatory under the Public School Employees Retirement Act of

1979 (the Act), as amended, Mich. Comp. Laws, sec. 38.1301-

38.1408 (1997), for all public school full-time, part-time,

teaching and nonteaching, employees, including short-term and

interim employees except for a few specific groups exempt by law. 

Because petitioner’s position with WCC was not exempt by law, she

was automatically enrolled in the plan as a part-time employee in

1996. 
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Section 108 of the Act, Mich. Comp. Laws sec. 38.1408,

provides the following: “This state intends that the retirement

system be a qualified pension plan created in trust under section

401 of the internal revenue code and that the trust be an exempt

organization under section 501 of the internal revenue

code. * * *”

Upon automatic enrollment in the plan, petitioner was

required to contribute 3 percent of the first $5,000 of

compensation. Consequently, $84.89 was automatically contributed

to the plan by WCC from petitioner’s total compensation in 1996

of $2,830.

In order to qualify to receive benefits under the plan,

petitioner must earn at least 10 years of credited service and be

at least 60 years old. A single credit year is earned upon

performing Michigan public school work for 170 days at 6 or more

hours per day within the school fiscal year of July 1 through

June 30. No more than 1 year of credit may be earned within 1

school fiscal year, and proportionate service credit is granted

for less than full-time employment. If petitioner is unable to

reach the 10-year minimum amount of service credit, then she will

not receive any retirement benefits. During calendar year 1996

petitioner worked 169.50 hours. Based upon the MPSERS

calculation, which is part of the stipulation of facts,

petitioner earned 0.083 years of service credit during 1996,
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which did not entitle her to receive any regular plan benefits. 

At no time did petitioner receive benefits under the plan. 

In 1996, petitioners contributed $2,000 each to their

respective IRA’s. On their 1996 joint Federal income tax return,

they claimed an IRA deduction of $4,000 and reported adjusted

gross income of $77,142. Respondent determined that petitioners

were not entitled to their IRA deduction pursuant to section

219(g).

In general, a taxpayer is entitled to deduct amounts

contributed to an IRA. See sec. 219(a); sec. 1.219-1(a), Income

Tax Regs. The deduction in any taxable year, however, may not

exceed the lesser of $2,000 or an amount equal to the

compensation includable in an individual taxpayer’s gross income

for such taxable year. See sec. 219(b)(1). The maximum amount

that may be deducted is further limited where the taxpayer or

spouse of the taxpayer is an “active participant” in certain

retirement plans. Sec. 219(g)(1). An “active participant” is

defined by section 219(g)(5) as an individual--

(A) who is an active participant in--

(i) a plan described in section 401(a) which

includes a trust exempt from tax under section 501(a),

(ii) an annuity plan described in section 403(a),

(iii) a plan established for its employees by the

United States, by a State or political subdivision

thereof, or by an agency or instrumentality of any of

the foregoing,
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1 As relevant herein, modified adjusted gross income means

adjusted gross income computed without regard to any deduction

for an IRA.

(iv) an annuity contract described in section

403(b), 

(v) a simplified employee pension (within the

meaning of section 408(k)), or

(vi) any simple retirement account (within the

meaning of section 408(p)), or

(B) who makes deductible contributions to a trust

described in section 501(c)(18).

The determination of whether an individual is an active

participant shall be made without regard to whether or

not such individual’s rights under a plan, trust, or

contract are nonforfeitable. An eligible deferred

compensation plan (within the meaning of section

457(b)) shall not be treated as a plan described in

subparagraph (A)(iii).

In the case of a taxpayer who is an active participant and

who files a joint return, the $2,000 limitation of section

219(b)(1)(A) is reduced using a ratio determined by dividing the

excess of the taxpayers’ modified adjusted gross income (modified

AGI)1 over $40,000, by $10,000. See sec. 219(g)(2) and (3). The

defined benefit plan provided by MPSERS was a plan described in

section 219(g)(5)(A)(i). See Neumeister v. Commissioner, T.C.

Memo. 2000-41, affd. without published opinion 2001-1 USTC par.

50,235, 87 AFTR 2d 2001-819 (6th Cir. 2001). The formula set

forth in section 219(g)(2) and (3) results in a total

disallowance of the IRA deduction where the total modified AGI

reported on a joint return exceeds $50,000. See id. Because
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2 Sec. 219, as applicable to 1981, the year in issue in Eanes

v. Commissioner, 85 T.C. 168, 170 (1985) (citing Hildebrand v.

Commissioner, 683 F.2d 57, 58 (3d Cir. 1982), affg. T.C. Memo.

1980-532), did not include a definition of “active participant”. 

The flush language currently contained in sec. 219(g)(5),

referring to whether the individual’s rights under the plan are

forfeitable, was then only found in the legislative history.

petitioners reported a modified AGI of $77,809 on their 1996

Federal income tax return, they are not entitled to any IRA

deduction if petitioner was an active participant in a plan

during 1996. 

Petitioners contend that petitioner was not an active

participant in the plan because she earned only 0.083 years of

service credit during 1996, and, at that rate, they further argue

that it would take “over 120 years to accumulate the minimum 10.0

years of credited service” to receive any regular retirement

benefits. We disagree.

This Court has previously held that a person can be an

active participant even though she had only forfeitable rights to

plan benefits and those rights were, in fact, forfeited prior to

becoming vested. See Eanes v. Commissioner, 85 T.C. 168, 170

(1985) (citing Hildebrand v. Commissioner, 683 F.2d 57, 58 (3d

Cir. 1982), affg. T.C. Memo. 1980-532); Wartes v. Commissioner,

T.C. Memo. 1993-84. Although Eanes involved an earlier version

of section 219,2 we apply its reasoning to the facts of the

instant case. Eanes involved a taxpayer who forfeited all rights

under an employer’s retirement plan when he left after only 3
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months. Despite the short time the taxpayer worked, we held that

he was an active participant in his employer’s plan and was not

entitled to a deduction under section 219. We stated: “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 (citing Hildebrand v. Commissioner,

supra at 59). In the instant case, petitioner’s position is

weaker than that of the taxpayer in Eanes because there is no

showing that petitioner, through retirement, discharge or

otherwise, has forfeited her service credit with the MPSERS. 

Moreover, under section 1.219-2(e), Income Tax Regs., “If an

employee makes a voluntary or mandatory contribution to a

[defined benefit] plan * * * such employee is an active

participant in the plan for the taxable year in which such

contribution is made.” (Emphasis added.) As required under the

Act, petitioner personally contributed $84.89, or 3 percent of

the first $5,000 of compensation, to the plan during 1996. 

Petitioners further contend that under their interpretation

of section 1.219-2(b), Income Tax Regs., petitioner was not an

active participant in the plan. The pertinent part of section

1.219-2(b), Income Tax Regs., provides the following:

An individual whose compensation for the plan year

ending with or within his taxable year is less than the

amount necessary under the plan to accrue a benefit is

not an active participant in such plan. 
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Petitioners’ reliance on the above regulation is misplaced. A

plain reading of the regulation indicates that the regulation

refers to a plan which utilizes compensation levels to

distinguish who is eligible to accrue benefits under the plan. 

The record lacks any evidence that MSPERS utilized an eligibility

scheme based on compensation. The plan clearly indicates that

petitioner’s eligibility was mandatory and automatic; whereas,

actual receipt of any benefits turned on petitioner’s ability to

meet the minimum service credits and age requirement. Section

1.219-2(b), Income Tax Regs., does not address petitioner’s

eligibility to receive benefits under the MPSERS plan. 

At the heart of petitioners’ argument is an equitable plea

which this Court has addressed on previous occasions. It is

sufficient to say that petitioners, in effect, are asking us to

legislate changes in the statute as enacted by Congress. The

power to legislate is exclusively the power of Congress and not

of this Court. See Iselin v. United States, 270 U.S. 245, 250

(1926). 

Upon the basis of the record, we find that petitioner was an

“active participant” in a qualified plan during 1996. 

Accordingly, petitioners are not entitled to deduct their IRA

contributions. See sec. 219(g)(1) and (2). We have considered

all arguments by the parties, and, to the extent not discussed

above, conclude they are irrelevant or without merit.
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To reflect the foregoing, 

Decision will be entered

for respondent.