TAX COURT OPINION

Case: Aaron D. & Leslie P. Brown
Docket Number: 4460-07S
Judge: Dean
Opinion Type: summary
Filed: 05/20/2008
Pages: 6

T .C . Summary Opinion 2008-5 6 UNITED STATES TAX COUR T AARON D . BROWN AND LESLIE P . BROWN, Petitioners v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 4460-07S . Filed May 20, 2008 . Aaron D . Brown and Leslie P . Brown, pro sese . Ric D . Hulshoff , for respondent . DEAN, 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 . Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case . Unless otherwise indicated, subsequent section references are to the Internal Revenue Code (Code) as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure . ,,SERVED MAY 2 0 2008 2 - Respondent determined deficiencies in petitioners ' Federal income taxes of $1,800 for 2003 and $1,162 for 2004 . The only issue for decision is whether petitioners are entitled to deductions for simplified employee pension (SEP) contributions for 2003 and 2004 . 1 Background The stipulation of facts and the exhibits received into evidence are incorporated herein by reference . At the time the petition was filed , petitioners resided in Arizona . Petitioner Aaron D . Brown (Mr . Brown ) is president and a shareholder of Aaron Brown Mortgage , Inc . (corporation) . The corporation has elected to be taxed as an S corporation . Petitioners are the only employees of the corporation . Petitioner Leslie P . Brown ( Mrs . Brown ) reported wages from the corporation of $18,000 for each of 2003 and 2004 . Mr . Brown reported wages from the corporation of $36,000 for each of 2003 and .2004 . The corporation established an SEP account with the Vanguard Group on October 1, 2001 . A Form 5305-SEP , Simplified Employee Pension - Individual Retirement Accounts Contribution Agreement (agreement ), was signed by Mr . Brown as president of the corporation . Article I - Eligibility Requirements provides tha t 'Resolution of this issue will determine the amount of petitioners ' allowable deductions on Schedule A, Itemized Deductions . i - 3 - the employer agrees to make yearly discretionary contributions to the individual retirement account (IRA) of all employees who are 18 years or older and have worked for the employer at . least one- half year out of the last 5 years .2 The instructions on the form caution the employer : "All eligible employees must be allowed to participate in the SEP . " In April of 2004 the corporation made a $7,200 SEP contribution to an IRA for 2003 for Mr . Brown . On their Forms 1040, U .S . Individual Income Tax Return, for 2003 and 2004 petitioners deducted $7,200 from their gross income representing the contributions made by the corporation to the Vanguard SEP plan for Mr . Brown . Petitioners also deducted $3,000 from gross income for 2003 and 2004 for IRA contributions made by Mrs . Brown . Respondent examined the returns and disallowed the SEP deductions in both years because petitioners had not "established that you are entitled to this deduction . " Discussion The Commissioner's deficiency determinations are presumed correct, and taxpayers generally have the burden of proving that the determinations are incorrect . Rule 142(a) ; Welch v . Helvering , 290 U .S . 111, 115 (1933) . Under certai n 2The corporation chose terms on the form agreement that are less restrictive than the statutory requirements . 408(k) . See sec . - 4 - circumstances, however, section 7491(a) may shift the burden to the Commissioner with respect to any factual issue affecting the liability for tax . Because there is no factual issue in dispute, section 7491(a) is inapplicable, and the burden of proof does not shift to respondent . An SEP is an individual retirement account or annuity (IRA) to which an employer makes a contribution . Sec . 401(k) . The employer may deduct SEP contributions for the taxable year if they are made no later than the due date of the return for the taxable year . Sec . 404(h)(1) . The arrangement will qualify as an SEP for a taxable year only if certain requirements are met . The employer must contribute to the SEP of each employee who : (a) Has attained the age of 21, (b) has performed service for the employer for at least 3 of the immediately preceding 5 years, and (c) has received at least $450 in compensation from the employer for the year . Sec . 408(k)(2) . 3 Respondent argues that the corporation was the proper entity to have claimed the deduction, if at all, and not petitioners . Petitioners' claiming the deduction . instead of the corporation is not what causes the deficiency, however . See sec . 1366(a) . Respondent argues, further, that the deduction is improper because no SEP contribution was made for the only other employe e 3Certain types of employees are excluded from these requirements . See sec . 410 (b)(3)(A), (C) . - 5 - of the corporation, Mrs . Brown . The contribution does not meet the requirements of section 408(k)(2), according to respondent . Petitioners argued at trial that they have been caught by a mere "technicality" . The Court disagrees with petitioners' contention that the failure of the corporation to contribute to an IRA in favor of an employee, Mrs . Brown, was a mere technicality . The requirement, aimed at fairness and equitable treatment for employees, is one of the few basic provisions of the SEP regime . Even if the provision could fairly be characterized as a "technicality", it is one that was brought to the attention of the president of the corporation, Mr . Brown, more than once in the agreement . Mr . Brown, as president, signed and agreed to the provisions contained in the agreement, including the requirement that each employee receive from the corporation a contribution to his or her IRA . Petitioners' contention in their petition is that the section 318 rules of attribution treat the contribution to Mr . Brown's IRA as a contribution to Mrs . Brown's IRA . The problem with this position is that section 318, Constructive Ownership of Stock, as the title implies, addresses stock ownership, not IRA or SEP contributions . For example, an individual shall be considered as owning the stock owned, directly or indirectly, by or for his spouse . Sec . 318(a)(1)(A)(i) . In addition, section - 6 - 318 applies to "those provisions of this subchapter to which the rules contained in this section are expressly made applicable" . Sec . 318(a) . Section 318(b) lists the "provisions to which the rules contained in subsection (a) apply" . Section 408 is not one of the provisions listed in section 318(b) and is not in the same w subchapter of the Code as section 318 . For the reasons stated, respondent's determination is sustained . To reflect the foregoing, Decision will be entere d for respondent .