T.C. Summary Opinion 2011-64

UNITED STATES TAX COURT

LARRY RAY ZEDAKER AND MARJORIE Z. ZEDAKER, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 18876-10S. Filed June 1, 2011.

Larry Ray Zedaker and Marjorie Z. Zedaker, pro sese.

Rebecca S. Duewer-Grenville, for respondent.

ARMEN, 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.1 Pursuant to section

7463(b), the decision to be entered is not reviewable by any

1 Unless otherwise indicated, all subsequent section

references are to the Internal Revenue Code, as amended, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.
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other court, and this opinion shall not be treated as precedent

for any other case.

This matter is before the Court on Respondent’s Motion For

Summary Judgment, filed April 15, 2011.

After a concession by petitioners,2 the issue for decision

is whether respondent correctly determined that petitioners were

required to report in gross income $13,311 of a $19,100

retirement annuity distribution for 2008. As explained in

greater detail below, we hold that petitioners were so required,

and we shall therefore grant respondent’s Motion For Summary

Judgment.

Background

Petitioners resided in the State of California when the

petition was filed. All references to petitioner in the singular

are to Marjorie Z. Zedaker.

Before 1986 petitioner was a teacher for the State of

California, and during her tenure as a teacher she made

contributions to and accumulated interest in the California State

Teachers’ Retirement System (CalSTRS). In 1986 petitioner

2 In the notice of deficiency, respondent determined that

petitioners failed to report $89 in wage income. In the

petition, petitioners did not contest respondent’s determination

regarding this adjustment, nor have they otherwise raised any

issue regarding it. Under Rule 34(b)(4), any issue not raised in

the assignment of errors in the petition is deemed conceded by

the taxpayer. Jarvis v. Commissioner, 78 T.C. 646, 658 (1982);

Gordon v. Commissioner, 73 T.C. 736, 739 (1980).
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withdrew all of her contributions and accumulated interest from

her CalSTRS account and paid the appropriate Federal income tax

on the amount withdrawn.

In 1991 petitioner returned to teaching and redeposited

$149,553.01 into her CalSTRS account.

Petitioner subsequently retired from teaching, and on July

1, 2004, her CalSTRS retirement annuity became effective. In

2004 petitioner attained the age of 60.

As of August 1, 2006, petitioner’s CalSTRS monthly annuity

benefit was $1,524.46, which monthly benefit would continue for

petitioner’s lifetime.3

During 2008 petitioner received a gross distribution of

$19,100 from her CalSTRS account. CalSTRS reported on a Form

1099-R, Distributions From Pensions, Annuities, Retirement or

Profit-Sharing Plans, IRAs, Insurance Contracts, etc., the

$19,100 gross distribution and indicated thereon a taxable amount

of $13,311.

On their 2008 Federal income tax return, petitioners did not

report any of the $19,100 gross distribution in gross income.

In a notice of deficiency respondent determined, inter alia,

that petitioners failed to report $13,311 of the $19,100

distribution in gross income.

3 The record suggests that petitioner’s annuity was index

linked.
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On August 23, 2010, petitioners filed a petition for

redetermination, and issue was subsequently joined.

As stated above, respondent filed his Motion For Summary

Judgment on April 15, 2011. Petitioners filed an Objection to

respondent’s motion on May 2, 2011.

Discussion

A. Summary Judgment

Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials. Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be

granted with respect to all or any part of the legal issues in

controversy “if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that a decision may be

rendered as a matter of law.” Rule 121(a) and (b).

After carefully reviewing the record, we are satisfied that

there is no genuine issue as to any material fact, and a decision

may be rendered as a matter of law. Accordingly, we shall grant

respondent’s Motion For Summary Judgment.

B. Includability of Annuity Payments

Section 72(a) generally requires that any amount received as

an annuity be included in gross income. Section 72(d) allows

taxpayers to exclude the benefits that represent a return of
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their own investment in a qualified employer retirement plan

under the simplified method for recovery of investment.4 The

simplified method excludes from gross income the amount of any

monthly annuity payment that does not exceed the amount obtained

by dividing the taxpayer’s contribution to the plan by the number

of anticipated payments. Sec. 72(d)(1)(B). If the age of the

annuitant on the annuity starting date is more than 55 but not

more than 60, the number of anticipated payments is 310. Sec.

72(d)(1)(B)(iii).

Respondent contends that petitioners may exclude from gross

income each month $482.43 (i.e., $149,553.01/310 = $482.43) of

petitioner’s annuity payment from CalSTRS under the simplified

method in section 72(d). Therefore, respondent contends that

petitioners are entitled to a yearly exclusion of $5,789.16

(i.e., $482.43/mo. x 12 mos.), or, in other words, petitioners

must report in gross income $13,311 of the $19,100 gross

distribution (i.e., $19,100 - $5,789.16 = $13,310.84).

In contrast, petitioners argue that under the simplified

method it will take 25 years for petitioner to recover her

investment in the contract, at which time petitioner would be 90

years old and beyond her life expectancy. Therefore, petitioners

argue that fairness dictates a more reasonable approach, and they

4 CalSTRS is a qualified employer retirement plan. See

sec. 403(b); see also secs. 4974(c), 170(b)(1)(A)(ii) (crossreferenced in sec. 403(b)(1)(A)(ii)).
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suggest that the Court adopt the “first in, first out” formula

advocated by the AARP. Under this formula, petitioners argue

that all payments received under the annuity contract would be

tax free until petitioner had recovered her $149,553.01 initial

investment; thereafter, the full amount of all payments received

by petitioner would be subject to income tax. Petitioners argue

that under this method petitioner would recoup her initial

investment within 8 years.

We are cognizant of the inequity that petitioners perceive

in the application of the simplified method under the

circumstances of their case. The result that petitioners request

was available to taxpayers whose annuity starting date was on or

before July 1, 1986, when the predecessor to the current section

72(d) provided a 3-year basis recovery rule under certain

circumstances. Under that provision, if a taxpayer would recover

his or her total contribution in the first 3 years of the

annuity, then the taxpayer could exclude all amounts received

under the contract until there had been so excluded an amount

equal to the taxpayer’s contribution; thereafter, all amounts

received would be fully includable in gross income. Id.

However, this provision was repealed by the Tax Reform Act of
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1986, Pub. L. 99-514, sec. 1122(c)(1), (h)(1)-(7), 100 Stat.

2467, 2470.5

Petitioners should understand that the Tax Court is a court

of limited jurisdiction and that we are not at liberty to make

decisions based solely in equity. See Commissioner v. McCoy, 484

U.S. 3, 7 (1987); Woods v. Commissioner, 92 T.C. 776, 784-787

(1989); Estate of Rosenberg v. Commissioner, 73 T.C. 1014, 1017-

1018 (1980); Hays Corp. v. Commissioner, 40 T.C. 436, 442-443

(1963), affd. 331 F.2d 422 (7th Cir. 1964) In other words,

absent some constitutional defect, we are constrained to apply

the law as written, see Estate of Cowser v. Commissioner, 736

F.2d 1168, 1171-1174 (7th Cir. 1984), affg. 80 T.C. 783 (1983),

and we may not rewrite the law because we may deem its “‘effects

susceptible of improvement’”, see Commissioner v. Lundy, 516 U.S.

235, 252 (1996) (quoting Badaracco v. Commissioner, 464 U.S. 386,

398 (1984)). Accordingly, petitioners’ appeal must, in this

instance, be addressed to their elected representatives. “The

proper place for a consideration of petitioner’s complaint is in

the halls of Congress, not here.” Hays Corp. v. Commissioner,

supra at 443.

5 The Court notes that even if petitioner’s annuity

starting date was on or before July 1, 1986, petitioner would not

have recovered her basis within the first 3 years of the annuity,

and, therefore, the 3-year basis recovery rule under former sec.

72(d) would not have applied.
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Petitioners impress us as conscientious taxpayers who take

their tax responsibilities seriously and try to follow the rules. 

Unfortunately for them, we are constrained by the law, as

discussed above, to hold that they are required to include in

gross income $13,311 of the $19,100 gross distribution from

CalSTRS.

Conclusion

Finally, in reaching the conclusions described herein, we

have considered all of the arguments made by petitioners, and, to

the extent not expressly discussed above, we find that those

arguments do not support a result contrary to that reached

herein.

To reflect the foregoing,

An order granting respondent’s

Motion For Summary Judgment and

decision for respondent will be

entered.