TAX COURT OPINION

Case: William H. & Sandra G. Flank
Docket Number: 11503-05S
Judge: Dean
Opinion Type: summary
Filed: 08/29/2006
Pages: 9

/ss ikrl~ ITADL . RE CORDED I CAL . I STAT . T . JUDGE T .C . Summary Opinion 2006-13 4 .UNITED STATES TAX COUR T WILLIAM H . AND SANDRA G . FLANK ; Petitioners v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 11503-055 . ,Filed August 29, 2006 . William H . and Sandra G . Flank, pro sese . Michelle L . Maniscalco , for respondent. DEAN, Special Trial Judge : This ; case was heard pursuant to the provisions of section 7463 of the :Internal Revenue Code as in effect at the time the petition was filed . Unless otherwis e indicated, all section references are ;to the Internal Revenu e Code in effect for the year in issue, and all Rule references ar e to the Tax Court Rules of Practice and Procedure . The decisio n i BERM 'AUG 2 9 2006 -2 to be entered is no t reviewaible by any other court, and thi s opinion'-should not be cited Jas authority . 7Re'spondent determined for 2002 a deficiency in petitioners ' 1 .Federal income tax of $1,36 . 0 After a co cession ,' the issues n for decision are : (1) Whether petitioners are entitled to clai m a deduction for contributio n account (IRA), (2) whether . a . I s made to 'an individual retiremen t portion of th'e IRA distribution that petitioner William H . Flan k (petitioner) received in 2002 was taxed twice, and (3) whether respondent malde computational errors in determining petitioners' :ax liability . I I Ba ckgroun d The stipulation of facts and the exhibits received into evidence are incorporated herein by refere ce . At the time the n petition in this case was filed, petitioners resided in Chappaqua, New York . Petitioner Sandra G . Flank (Mrs . Flank) neither executed the stipulation of facts nor appeared at trial . Respondent has filed with the Court a motion to dismiss for lack of prosecution as to Mrs . Flank . Respondent's motion will be granted . The decision, when entered, will be in the same amount as ultimately determined against petitioner . Both petitioner and Mrsl Flank were employed by Pac e University in 2002 . During 2002, Mrs . Fla k was an activ e n 'Respondent concedes an Iadjustment of $206 to petitioners' return for claimed securities losses . 3 participant in an employer-sponsored retirement plan through her employment with Pace University . In May of 2002, petitioner contributed $3,500 into a n existing "classic" IRA with Teachers Insurance and Annuit y Association - College Retirement Equities Fund (TIAA-CREF) . I n December of 2002, petitioner elected ;to convert his classic IRA, into a Roth IRA . As a result, petitioner received a distribution of $10,487 .86 (distribution) from the classic IRA which h e deposited into a Roth IRA .with TIAA-GREF . Petitioners received from TIAA-CREF a Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit- Sharing Plans, IRAs, Insurance Contracts, etc ., for 2002, indicating that the distribution .resullted in a taxable amount o f $10,487 .86 . Petitioners included that amount as income on their return . . Petitioners also received for 2002 a Schedule K-1, Partner's Share of Income, Credits, Deductions, etc ., from Oxford Residential Properties, LLP, which showed that petitioners had interest income of $6 .28 and real estate income of $130 .68 from the partnership . Petitioners did not include these income items on their return . 4 - Petitioners jointly filed for 2002 a Form 1040, U .S . Individual Income Tax Return . Petitioners reported adjusted gross income (AGI) of $161,328 .15 and claimed an IRA contribution deduction of $3,500 . Respondent subsequently issued to petitioners a statutor y notice of deficienc y for 2002 disallowing the IRA contribution .deduction of $3,500 . In addition, respondent determine d adjustments for interest an d real estate i',ncome from a partnership,2 and other computational adjustments to the return . Discussion The Commissionel's determinations ar e presumed correct, an d generally taxpayers ear th e burden of proving otherwise .' Rul e 142(a )( 1) ; Welch v . Ielvering , 290 U .S'. 111, 115 (1933 ) IRA Contribution Deduction I . I I I . I Tax deductions are a matter of legislative grace with the taxpayer bearing the burden of proving entitlement to th e 2In the petition , petitioners did not raise any issues regarding the interest . and the real estate income reported on Schedule K-1 . Therefore , petitioners are deemed to have conceded Rule 34 ( b)(4) ; see Funk v . Commissioner , 123 T .C . 213, 215 them . (2004) . 3Petitioner has hot raided the issue of sec . 7491(a), which shifts the burden of proof to the Co mm issioner in certain situations . because petitioner has not produced . any evidence that establishes the preconditions foil its application . . This CO rt concludes that sect . 7491 does not apply deductions claimed . Rule 142(a )( 1) ; 'INDOPCO , Inc . v . Commissioner , 503 U .S . 79, 84 ( 1992) . . 5 With certain limitations , a taxpayer is, entitled to deduct the amounts contributed to an IRA . Stec . 219(a ) . The deduction ; however, may not exceed the lesser of ; (1) the deductible amount or (2) an amount equal to the compensation includable in the taxpayer ' s gross income for such taxable year . Sec . 219 ( b)(1) . For 2002 , the deductible amount is $3 ;,000 . Sec . 219 ( b)(5)(A). . The deductible amount is increased to'$3,500 if the taxpayer wa s 50 or older before the close of the taxable year . Sec . 219 (b) (5) (B ) If, for any part of a taxable year, the taxpayer or the taxpayer's spouse is an "active participant" in a qualified plan under section 403(b), the amount of the deduction allowed under section 219(a) for that year may be further limited . Sec . 219(g) ( 1), (5)(A)(iv) . In the case of a married taxpayer wh o filed a joint .income tax return, the deductible amount is reduced using a ratio determined by dividing the excess of the modified AGI° over the applicable dollar amount by $10,000 . Sec . 219(g)(2)(A) . The applicable dollar amount was $54,000 in 2002 . 4For purposes of sec . 219(g), modified AGI refers to AGI that is computed without regard to any deduction for an IRA . Sec . .219(g)(3)(A) . Moreover, in applying sec . 219(g)(2) and (3), the Court looks to the combined AGI of married taxpayers filing jointly and not to an individual spouse's AGI to determine the reduction or elimination of the IRA contribution deduction . See Ho v . Commissioner , T .C . Memo . 2005-133 . 4 j - 6 - Sec . 219(g) (3) (B) '(i) . In other words, . the taxpayer's IRA contribution deducts n starts . to phase out when the modified AGI is $54,000, and the deductio n. is complete l y phased out when th e modified AGI exceeds $64,000 If the limitation on de I uctions for IRA contributions under section 219(g) appli s to a taxpayer solely because his spous e d was an active participant, .the applicable 'dollar amount is $150,000 . Sec . 219(11)(7) . This means that the taxpayer's IRA contribution deduction starts to phaseout when the modified AGI is $150,000, and the deduction is completely phased out when the modified AGI exceeds $160,000 . See sec . 219(g)(2)(A) . Petitioners' modified AGI is $164,828 .15 ($161,328 .15 + $3,500) . Petitioners are not allowed to claim an IRA contribution deduction for 2002, because Mrs . Flank was an active participant and the LifiedAGI exceeded ($160000 . Whether a Portion of the 2002 Distribution Was Taxed Twic e Petitioner asserts tha t $3,500 of the distribution that h e received in Decembe r of 2002 represents the amount of the IR A contribution that he made earlier in the same year . He argue s that he is taxed on the $3,500 as a. result of the distribution i n December of 2002 and that heiwill be taxed on the same $3,500 as a result of respondent's disallowing the IRA contributio n deduction claimed on his .2002 return . - 7 - Generally, any amount "paid or distributed out of" an IRA i s includable in gross income by the taxpayer in the manner provided under section 72 . Sec . 408(d)(1) . Pursuant to section 408(d)(4), this general'rule does not apply to the distribution of any contribution paid during a taxable year to an IRA if : (A) such distribution is received on or before the day prescribed by law (including' extensions of time) for filing such individual's return for such taxable year, (B) no deduction is allowed under section 219 with respect to such contribution, an' d (C) such distribution is accompanied by the amount of net income attributable to such contribution . In May of 2002, petitioner contributed $3,500 into a classi c IRA . In December of 2002, petitioner : received a distribution o f $10,487 .86 from the classic IRA, which included the .$3,500 IRA . contribution that he made in May of 2002 plus any net income attributable to the contribution . . Petitioner is not allowed an IRA contribution deduction under section 219 because petitioners' modified AGI exceeded the phaseout amount . The Court finds that $3,500 of the distribution meets all of the requirements under section 408(d)'(4) . Accordingly, $3,500 of the distribution is not includable in'gross income . Computation of Petitioners' Tax Liabilit y Petitioner also argues that respondent has rounded up o r rounded down the amounts for the proposed adjustments to the return to prejudicially favor the IRS! While this argument has - 8 - no bearing on the legal issues raised in this case , the Court will nevertheless address this briefly : In general , with respecl .' to any amount required to be shown J on a form prescribed for any i nternal r evenue return, statement,' or other document , t,e fractional part of a dollar is disregarde d unless it amounts to one-half dollar or more, in .which case, the amount is increased by $1 . ec . 6102(a) . For example, $18 .49 i s rounded to $18 ; $18 : 0 is rounded to $19 ; $18 .51 is rounded to $19 . See sec . 301 .6 02-1(a)11 Proced . & Adlin . Regs . Rounding does not apply to items whic h must be take n into account in computing the amount that must be reported on a return , statement, or other ocumentl . Sec . 6102(,c) . Rounding applie s only to the final amount . Id . While petitioner does not dispute tha t respondent has the authority to round amounts that have cents into whole-dollar amounts, he questions whether' respondent h as consistently an d fairly applied . these roundinj rules . In support of hi s contention, petitioner presented a copy of the explanation o f proposed changes that . was attached to the notice of deficiency . { Petitioner asserts that the miscellaneous deduction for the join t return is $1,703 .57 but in the explanation, respondent rounded the amount down to $ ,703 instead of up to $1,704 . Petitioner further asserts that the joint taxable income is $131,878 .41, but in the explanation, respondent rounded the amount up to $131,879 - 9 - instead of down to $131,878 . Petitioner contends that respondent's inconsistent application of the rounding rules tend s to result in a higher tax . The Court finds that even if petitioner is correct, the difference in each calculation is less than $1, and the impact on petitioners' total tax is negligible . Reviewed and adopted as the report of the Small Tax Case Division . To reflect the foregoing, An appropriate order will be issued, and decision will be!entered under Rule 155 .