T.C. Memo. 2006-3

UNITED STATES TAX COURT

THOMAS AND SARAH G. ACKERMAN, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 14215-03. Filed January 4, 2006.

Thomas and Sarah G. Ackerman, pro sese.

Donald M. Brachfeld, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

THORNTON, Judge: Respondent determined a $68,494 deficiency

in petitioners’ 2001 Federal income tax. The issue for decision

is whether petitioners are taxable on a $211,916 distribution

from Mr. Ackerman’s nonqualified deferred compensation plan. All

section references are to the Internal Revenue Code in effect for

the year at issue.
- 2 -

FINDINGS OF FACT

The parties have stipulated most of the relevant facts,

which we incorporate herein by this reference. When they filed

their petition, petitioners resided in Teaneck, New Jersey. 

Mr. Ackerman was previously employed in the New York office

of Rudolf Wolff & Co., Inc. (employer). Mr. Ackerman

participated in employer’s nonqualified executive deferred

compensation plan (plan). Pursuant to the plan’s governing

document, any plan payments to employees were to be made “net of

applicable taxes, including wage withholding taxes.” 

On or about June 30, 2000, employer’s businesses were sold

to another entity. Mr. Ackerman was among a few employees

retained temporarily to assist in wrapping up business in the New

York office. In return, he was entitled to receive a $120,000

“redundancy payment”, payable on termination.

Mr. Ackerman’s 2001 Form W-2, Wage and Tax Statement (W-2),

from employer shows taxable wages, tips, and other compensation

totaling $331,915.99, representing the $120,000 “redundancy

payment” and a $211,296 plan distribution. The W-2 shows only

$500 of Federal income tax withheld. Employer is no longer in

business; petitioners have no contact address for employer’s

successor or for any custodian of employee records. 

On their 2001 joint Form 1040, U.S. Individual Income Tax

Return (Form 1040), petitioners included in gross income “Wages,
- 3 -

1 Petitioners contend that pursuant to sec. 6201(d),

respondent bears the burden of producing information to refute

petitioners’ claim that employer withheld Federal income taxes on

the plan distribution. Because our decision in this case does

not turn upon which party bears the burden of production or

proof, we need not address this contention.

salaries, tips, etc.” of $331,916, as reported on the Form W-2.

To arrive at adjusted gross income, petitioners deducted

$211,916; the typed-in explanation on line 32 states only:

“income on which tax paid by employer”. In the notice of

deficiency, respondent disallowed this deduction. 

OPINION

Petitioners contend that the 2001 Form W-2 issued by

employer is incorrect in that it does not reflect income taxes

that employer withheld on petitioner’s plan distribution, as

required by the plan’s governing document.1 Accordingly,

petitioners contend that they correctly deducted the amount of

the plan distribution from gross income on their 2001 joint

Federal income tax return. 

Petitioners are mistaken. The Code provides no deduction

from gross income for the plan distribution. See secs. 61 and

62. Rather, it is fully includable in gross income, and any

amount withheld as tax would be allowable as a credit pursuant to

section 31. See Goins v. Commissioner, T.C. Memo. 1997-521,

affd. without published opinion 151 F.3d 1029 (4th Cir. 1998).
- 4 -

2 In fact, the import of petitioners’ argument seems to be

that $211,916 was the net plan distribution, after withheld

taxes, and that the gross plan distribution was considerably

higher. Respondent has not asserted any increased deficiency to

reflect any such higher amount of a gross plan distribution.

Petitioners have not explicitly claimed that they should be

entitled to a section 31 credit for amounts employer purportedly

withheld on Mr. Ackerman’s plan distribution but failed to

report. But even if we were to construe petitioners’ claims

broadly to encompass such an argument, it would be an argument

that this Court lacks jurisdiction to consider. The Court’s

jurisdiction in this case is limited to redetermining

petitioners’ deficiency, see sec. 6213(a), which the statute

requires to be determined “without regard to the credit under

section 31". Sec. 6211(b)(1); see Redcay v. Commissioner, 12

T.C. 806, 809-810 (1949); Porter v. Commissioner, T.C. Memo.

1996-475; Joy v. Commissioner, T.C. Memo. 1991-543.

Petitioners do not dispute that Mr. Ackerman received at

least a $211,916 plan distribution in 2001.2 Accordingly, we

sustain respondent’s determination. 

Petitioners contend alternatively that if employer neglected

to withhold Federal income tax on the plan distribution, then

only employer is liable for the tax. For the reasons discussed

above, petitioners remain obligated to report their items of

gross income, notwithstanding employer’s payment or nonpayment of

withholding taxes thereon. See Goins v. Commissioner, supra. 
- 5 -

In light of the foregoing,

Decision will be

entered for respondent.