1 Unless otherwise indicated, all section references are to

(continued...)

T.C. Memo. 1999-199

UNITED STATES TAX COURT

DON LAVERNE CLARKE, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 151-97. Filed June 18, 1999. 

 

Don Laverne Clarke, pro se.

Anthony Hoefer, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

ARMEN, Special Trial Judge: This case was heard pursuant to

the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.1
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(...continued)

the Internal Revenue Code in effect for the taxable year in

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

Practice and Procedure.

 

2 Petitioner conceded the following adjustments: (1)

Interest income in the amount of $24, (2) dividend income in the

amount of $2, and (3) capital gain in the amount of $4,950. 

Petitioner remitted $750 to respondent toward the deficiency

arising out of the aforementioned adjustments. 

Respondent determined a deficiency in petitioner's Federal

income tax for the year 1993 in the amount of $1,005. 

After concessions by petitioner,2 the issue for decision is

whether petitioner is entitled to an IRA deduction in excess of

the amount determined by respondent. We hold that he is not.

FINDINGS OF FACT 

Some of the facts have been stipulated, and they are so

found. Petitioner resided in Omaha, Nebraska, at the time that

his petition was filed with the Court. 

For the year in issue, petitioner and his wife filed a joint

Federal income tax return reporting wage income, which was earned

by petitioner's wife, in the amount of $4,235, interest income in

the amount of $34, dividend income in the amount of $4,640,

capital gain in the amount of $353, taxable IRA distributions in

the amount of $2,900, and taxable pensions and annuities in the

amount of $10,645. On a Schedule C, petitioner reported gross

income (in the form of commissions) in the amount of $271 and
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3 Petitioner questioned whether sec. 1.219-1, Income Tax

Regs., was in effect in 1993, the year in issue. Sec. 1.219-1,

Income Tax Regs., was promulgated by T.D. 7714, 1980-2 C.B. 83,

effective for taxable years beginning after Dec. 31, 1978. Sec.

1.219-1, Income Tax Regs., was therefore in effect in 1993.

claimed a net loss in the amount of $1,378. Petitioner and his

wife each claimed an IRA deduction in the amount of $2,000. 

In the notice of deficiency respondent allowed the IRA

deduction claimed by petitioner's wife but determined that

petitioner's IRA deduction for 1993 was allowable only to the

extent of $271. 

OPINION

In general, a taxpayer is entitled to deduct the amount

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

Tax Regs.3 The amount allowable as a deduction to the taxpayer

in any taxable year may not, however, exceed the lesser of $2,000

or an amount equal to the "compensation" includable in the

taxpayer's gross income for such taxable year. See sec.

219(b)(1). 

The term "compensation" is defined in section 219(f)(1). As

pertinent here, section 219(f)(1) provides that the term

"'compensation' includes earned income (as defined in section

401(c)(2))." Section 401(c)(2) provides in pertinent part that

"the term 'earned income' means the net earnings from selfemployment (as defined in section 1402(a))." Finally, section
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1402(a) provides that the term "net earning from self-employment"

means the gross income derived by an individual from any trade or

business carried on by such individual less any allowable

deductions. 

Section 1.219-1(c)(1), Income Tax Regs., defines

compensation as wages, salaries, professional fees, or other

amounts derived from personal services actually rendered but does

not include amounts, such as interest and dividends, derived from

or received as earnings or profits from property. See Miller v.

Commissioner, 77 T.C. 97 (1981). 

Petitioner contends that he received $7,893 of

"compensation" during 1993 consisting of an IRA distribution in

the amount of $2,900, dividend income in the amount of $4,640,

and capital gain in the amount of $353. In this regard, he

contends that Congress did not intend to exclude dividend income,

capital gain, and IRA distributions from the definition of

"compensation" for purposes of section 219(a). Petitioner

asserts that by using the term "includes" in the definition of

"compensation" under section 219(f), Congress did not mean to

exclude other unlisted sources of income, such as dividends or

capital gain. He makes a similar contention with respect to the

use of the term "means" in section 401(c)(2). 

Petitioner's contentions were considered in Miller v.

Commissioner, supra. In that case, the taxpayer claimed
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entitlement to an IRA deduction on the ground that income from

his investment activity constituted "compensation" within the

meaning of section 219. This Court held that capital gain,

dividends, and interest income did not constitute "compensation"

within the meaning of section 219. On the issue of statutory

interpretation of the term "compensation", we stated: 

Finally, petitioner contends that when Congress

used the word "includes" in sections 219(c)(1) and

401(c)(2)(C), it intended a broad interpretation of the

statutes rather than a restrictive one. Apparently he

is contending either that earned income is but one

example of the many types of compensation covered by 

section 219(c)(1) or that the profits from his

investments constitute "compensation" within the

meaning of section 219 exclusive of section 219(c)(1).

However, section 219(c)(1) was designed to include in

the term "compensation" income earned by the

self-employed individual, which, except for that

provision, would be excluded from the definition of

"compensation" under section 219. See H. Rept. 93-779,

1974-3 C.B. 244, 369. Thus, if the requirements of

section 219(c)(1), which are in actuality the

requirements of section 401(c)(2), are not satisfied,

self-employment income will not be included in the term

compensation. Similarly, section 401(c)(2)(C) was

designed to include in the term "earned income"

earnings generated by property created by the taxpayer,

e.g., the author or the inventor, which otherwise,

depending upon the technical form of the transaction

through which the income is earned, might have been

excluded from that term. See S. Rept. 1707, 89th

Cong., 2d Sess. (1966), 1966-2 C.B. 1059, 1103. [Fn.

refs. omitted.]

Miller v. Commissioner, supra at 103-104. 

Petitioner contends that Miller v. Commissioner, supra, is

not applicable because the year in issue in that case, 1977, was

different from the year in issue in his case. However, the
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statutory definition of "compensation" has not changed in any

pertinent manner since 1977. Because Miller v. Commissioner,

supra, interprets substantially identical statutory language, it

lends precedential support to preclude entitlement to an IRA

deduction based on investment income. Petitioner's compensation

for the year in issue therefore does not include his capital gain

and dividend income. 

Similarly, the IRA distribution received by petitioner is

not includable in his compensation. IRA distributions are not

compensation as they do not constitute wages, salaries,

professional fees, or other amounts derived from personal

services actually rendered. Cf. Miller v. Commissioner, supra;

sec. 1.219-1(c)(1), Income Tax Regs. Rather, they include

amounts derived from earnings from property. Cf. sec. 1.219-

1(c)(1), Income Tax Regs. In essence, IRA distributions are

nothing more than the distribution of principal plus dividends,

capital gain, or other investment income earned on a tax deferred

basis. See secs. 408(a), 72(a). 

Further, by statute, the term "compensation" does not

include any amount received as "a pension or annuity" or as

"deferred compensation". See sec. 219(f)(1). An IRA provides

opportunity for private pension coverage in the form of a trust

created for the exclusive benefit of an individual or his

beneficiaries. See sec. 408(a). To ensure that IRA proceeds are
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4 Based on the record, it is not clear whether the IRA

distribution petitioner received was an annuity. To constitute

an annuity, payments must be received in the form of periodic

installments at regular intervals. See sec. 1.72-2(b)(2), Income

Tax Regs. Regardless, even if the IRA distribution did not

constitute an annuity, it would be considered a pension or

deferred compensation benefit. 

 

5 We observe that respondent determined that petitioner was

entitled to an IRA deduction to the extent of his Schedule C

gross income as opposed to his Schedule C "net earnings". See

secs. 219(a), 401(c)(2), 1402(a). We therefore simply sustain

respondent's determination as respondent did not assert an

increased deficiency in this regard. See sec. 6214(a). 

used for retirement purposes, a 10 percent penalty is generally

imposed on IRA distributions made before the taxpayer reaches age

59-1/2. See sec. 72(t). In that regard, an IRA distribution

fits within the category of "a pension or annuity" or "deferred

compensation".4 Petitioner's compensation for the year in issue

therefore does not include the IRA distribution. 

In light of the foregoing, petitioner is not entitled to an

IRA deduction in an amount exceeding $271.5 

We now turn to some of petitioner's various other concerns. 

Petitioner has asked us to consider whether respondent

properly determined the amount of interest imposed under section

6601. We are unable to address this issue. This Court is a

court of limited jurisdiction, and we may exercise jurisdiction

only to the extent expressly authorized by statute. See Judge v.

Commissioner, 88 T.C. 1175, 1180-1181 (1987); Naftel v.

Commissioner, 85 T.C. 527, 529 (1985). This Court's jurisdiction
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to redetermine a deficiency in tax generally does not extend to

statutory interest imposed under section 6601. See Bax v.

Commissioner, 13 F.3d 54, 56-57 (2d Cir. 1993), affg. an Order of

this Court; LTV Corp. v. Commissioner, 64 T.C. 589, 597 (1975);

see also Asciutto v. Commissioner, T.C. Memo. 1992-564, affd. 26

F.3d 108 (9th Cir. 1994). Indeed, section 6601(e)(1) provides

that interest prescribed by section 6601 is treated as a tax

"except [for purposes of] subchapter B of chapter 63, relating to

deficiency procedures". Because the effect of the parenthetical

language of section 6601(e)(1) is to exclude interest from the

definition of a "tax" for purposes of section 6211(a), it follows

that such interest is not a deficiency. See White v.

Commissioner, 95 T.C. 209, 213 (1990). We are therefore

precluded in the context of a deficiency action from deciding

whether respondent properly determined the amount of interest

imposed under section 6601. But see sec. 7481(c) and Rule 261

regarding supplemental proceedings to redetermine interest on

deficiencies on taxes; cf. sec. 6404(i) and Rules 280-284

regarding actions for review of failure to abate interest. 

Petitioner also contends that respondent erred in failing to

reduce the "deficiency" by the $750 remitted by petitioner. We

disagree. 

The term "deficiency" is a technical term which is defined

by the Internal Revenue Code. See section 6211(a). As relevant
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herein, a deficiency is the amount of income tax imposed by the

Internal Revenue Code that exceeds the amount shown as the tax by

the taxpayer on his return (if a return was filed). Thus,

payments made by a taxpayer, such as the $750 payment, do not

serve to reduce the "deficiency" within the meaning of section

6211(a). Cf. sec. 6211(b)(1). Parenthetically, we take note of

the fact that respondent has acknowledged petitioner's $750

payment, and that such amount will serve to reduce pro tanto the

amount of petitioner's ultimate out-of-pocket liability.

Finally, petitioner has raised other arguments that we have

considered in reaching our decision. To the extent that we have

not discussed these arguments, we find them to be without merit. 

To reflect our disposition of the disputed issue, as well as

petitioner's concessions,

Decision will be entered

for respondent.