Court Opinion

ID: 4334390
Source: CourtListenerOpinion
Date Created: 2018-11-14 01:38:57.770474+00
Date Added: 2024-06-11T14:47:56.272436
License: Public Domain

T.C. Summary Opinion 2003-59

                     UNITED STATES TAX COURT

        ANTHONY V. AND SANDY K. MARGAVIO, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 1835-01S.               Filed May 22, 2003.

     Anthony V. Margavio, pro se.

     Linda A. Neal, for respondent.

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

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   Unless otherwise

indicated, section references are to the Internal Revenue Code in

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.
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      Respondent determined a deficiency of $2,332 in petitioners’

1998 Federal income tax.   This Court must decide whether

petitioners failed to include part of their pension annuity in

their 1998 taxable income.

      Some of the facts in this case have been stipulated and are

so found.   Petitioners resided in Metairie, Louisiana, at the

time the petition was filed.

      Mr. Margavio (petitioner) retired in May 1994 at the age of

55.   Prior to his retirement, petitioner’s retirement

contributions totaled $34,283 (all amounts are rounded).

      Petitioners timely filed a 1998 Federal income tax return.

On the 1998 return, petitioners reported $32,628 on Line 16a,

Total pensions and annuities, and $15,715 on Line 16b, Taxable

amount.

      For the taxable year 1998, the Teachers’ Retirement System

of Louisiana issued to petitioner a Form 1099-R (Form 1099-R),

Distributions From Pensions, Annuities, Retirement or Profit-

Sharing Plans, IRAs, Insurance Contracts, etc., which reported a

gross distribution to petitioner of $32,628 and a taxable amount

of $31,267.

      In the notice of deficiency, respondent determined that

petitioner had failed to include $15,551 ($31,266 taxable amount

less the $15,715 reported by petitioners) of taxable pension

annuity income on their 1998 return.   We consider the $1
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discrepancy between the amount of $31,267 shown on the 1998 Form

1099-R and the amount of $31,266 shown on the notice of

deficiency to be de minimis.

     Petitioner contends that the restrictions of section 72 did

not apply to him.   He asserts that he “wanted to test the

envelope.”   Petitioner said he’s “heard of people trying it and

some getting away with it.”    He also contends he is entitled,

based on his retirement contributions, to a greater tax-free

portion of the 1998 pension annuity distribution.

     In general, the determinations of the Commissioner in a

notice of deficiency are presumed correct, and the burden is on

the taxpayer to show that the determinations are incorrect.    Rule

142(a); Welch v. Helvering, 290 U.S. 111 (1933).     Petitioner does

not argue the applicability of section 7491(a), and the record

reflects that section 7491(a) does not apply.

     Gross income generally includes income from whatever source

derived, including income from pensions and annuities. Sec.

61(a)(9), (11); sec. 72(a).    Section 72 provides in general that

amounts received under an annuity contract are includable in

gross income except to the extent that such amounts are

considered to be a return of consideration paid.    Specifically,

section 72(a) provides that unless otherwise provided, gross

income includes any amount received as an annuity.

     Section 72(b), however, provides that a portion of the

annuity will be excluded from gross income.    In particular, gross
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income does not include that part of any amount received as an

annuity which bears the same ratio to such amount as the

investment in the contract (as of the annuity starting date)

bears to the expected return under the contract (as of such

date).   Sec. 72(b)(1).    This ratio is referred to as the

exclusion ratio.   Sec. 72(b).    Section 72(c), as relevant here,

defines the investment in the contract to be the aggregate amount

of premiums or other consideration paid for the contract.     The

expected return referred to above is determined by multiplying,

at the commencement of the annuity, the total of the annuity

payments to be received annually by a multiple based on the

annuitant’s age and sex.    Sec. 1.72-5(a)(1), Income Tax Regs.

     The application of the exclusion ratio to each annuity

payment determines the amount excluded from the gross income of

the annuitant and, thus, the amount is not subject to Federal

income tax.   This excluded amount represents that part of the

annuity payment which accounts for the return of the annuitant’s

investment in the annuity.    The exclusion ratio operates to

exclude from gross income taxpayer contributions over the entire

period of the annuity.     Kirkland v. Commissioner, T.C. Memo.

1994-220.   The tax-free portion of the pension annuity payment is

computed using either the Simplified Method or the General Rule.

See generally Internal Revenue Service Publication 575, Pension

and Annuity Income, and Internal Revenue Service Publication 939,

General Rule for Pensions and Annuities.
                               - 5 -

     At trial, petitioner testified that he “didn’t think the

restrictions of [section] 72, in terms of how to claim that tax

exempt portion, actually applied.”     Petitioner provided no

Internal Revenue Code section or regulation or case law to

support his contention that the exclusion ratio provided for in

section 72 should not apply to him.     Petitioner did not convince

the Court that he was entitled to a greater tax-free portion of

the pension annuity distribution than provided by the Form 1099-R

or determined by respondent.   Accordingly, we sustain

respondent’s determination with respect to this issue.

     Petitioner also argues that his position for 1998 is correct

because he treated his pension distributions the same way in 1997

and respondent did not challenge petitioner’s position during an

audit of 1997.   We must hold that his position is without legal

merit.   It is well established that prior administrative

determinations involving the same or related taxpayer do not

preclude the Internal Revenue Service from making a contrary

determination for a different year.     Coors v. Commissioner, 60

T.C. 368, 406 (1973); Rose v. Commissioner, 55 T.C. 28 (1970);

Meneguzzo v. Commissioner, 43 T.C. 824, 836 (1965).      Petitioner

is wrong on this point and, as we have held, is wrong as to the

law applicable to the taxability of his pension payments.

     We have considered petitioner’s remaining arguments and

conclude they are either irrelevant or without merit.
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    Reviewed and adopted as the report of the Small Tax Case

Division.

                                          Decision will be entered

                                     for respondent.