§219 — Retirement savings

219. See secs. 4973 (b) (1), 404(h), (k) (6) (C) (i). Sec. 219, however, does not apply with respect to an employer contribution to an SEP plan.

Because we decide this case on a preponderance ofthe evidence, we need not decide which party has the burden ofproof.

3Although we hold for respondent on the issue before us, we leave it to the parties to compute the deficiency under Rule 155 because of respondent's concession regarding interest income.

Accordingly, because it was petitioners' burden to show that they were not active participants but they have failed to do so, we hold that both petitioners are active participants and therefore subject to the limitations on deductibility of their IRA contributions in accordance with section 219(g) for taxpayers filing a joint return .

Therefore, we hold that the maximum amount of petitioners' IRA deduction for 2002 is zero pursuant to section 219(b) (1) (B) .

We conclude that petitioner failed to substantiate the making of any qualified IRA contribution pursuant to section 219 and, therefore, is not entitled to IRA contribution deductions.

We hold that the definition of the term "cost" in section 1.471-3, Income Tax Regs., which is intended to arrive at actual ll(...continued) (b) expenditures for direct labor, (c) indirect ex- penses incident to and necessary for the production of the particular article, including in such indirect expenses

Section 219(a) provides: "In the case ofan individual, there shall be allowed as a deduction an amount equal to the qualified retirement contributions ofthe individual for the taxable year." With certain exceptions, a taxpayer is entitled to deduct amounts that the taxpayer contributed to an IRA for the taxable year. Sec. 219(a). The deduction may not exceed the lesser of: (1) the deductible amount, which was generally $5,000 for the 2008 tax year; or (2) an amount equal to the compensation incl

Introduction Respondent disallowedpetitioners' claimed IRA contribution deduction because he believes that the $11,000 petitioners contributed is in excess ofthe amount allowed for such deductions by section 219(g) ("Limitation on deduction for active participants in certain pension plans."), described supra. At trial, Mr. Shankar did not dispute the application ofsection 219(g); he argued only that it is unconstitutional. On brief, he suggests that the section 219(g) limitation on the deductibi

Section 219 In general, a taxpayer is entitled to deduct amounts that the taxpayer contributes to an IRA for the taxable year. See sec. 219(a). The deduction may not exceed the lesser of (1) the deductible amount, which was generally $5,000 for 2009, or (2) an amount equal to the compensation includible in the taxpayer’s gross income for such taxab

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 .

219(a), (g)(1), and (5)(A)(i). An “active participant” is defined by section 219(g)(5) as an individual: (A) who is an active participant in-- (i) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a), (ii) an annuity plan described in section 403(a), (iii) a plan established for its employees by the United States, by a State or political subdivision thereof,or by an agency or instrumentality of any of the foregoing, (iv) an annuity contract described in

The legislative history of section 219 establishes that the section was enacted in an attempt to achieve some degree of parity between those individuals who have access to tax- advantaged retirement plans through employment and those individuals who do not.

If petitioner’s adjusted gross income for 1993 is less than $35,000, he is entitled to a deduction under section 219 of $2,000 less the amount disallowed by application of section 219(g), to be calculated in the Rule 155 computation.

[Emphasis added.] Section 401(c)(2), referre to in section 219 and section 1.219-1(c)(1), Income Tax Regs., provides that t e term "earned income" generally means net earnings from self-employment.

However, ifpetitioner were to contribute an additional $5,000 to her IRA and properly deduct the contribution under section 219, 50% of any subsequent distribution would be includible in gross income as the proportional share ofnondeductible contributions to total contribution would be 1/2.4 III.

(b),.Income Tax Regs., concerns defined benefit plans and, in particular, states: "[A]n individual is an active participant in a defined benefit plan iffor any portion ofthe plan year ending with or within such individual's taxable year he is not excluded under the eligibility provisions ofthe plan." Although "active participant" is not defined in section 219, that term.

Petitioners contend that because section 219(g)(2)(A)(i) refers to the AGI of the taxpayer in the singular form, the “literal reading” of section 219 requires the IRS to consider only the individual spouse’s AGI in determining the reduction or elimination of an IRA contribution deduction.

Consequently, petitioners are not entitled to a deduction for an IRA contribution for Ms. Huang during that year. Sec. 219(b)(1)(B). Reviewed and adopted as the report of the Small Tax Case Division. To reflect the foregoing, Decision will be entered under Rule 155.

yer who forfeited all rights under an employer’s retirement plan when he left after only 3 months. Despite the short time the taxpayer worked, we held that he was an active participant in his employer’s plan and was not entitled to a deduction under section 219. Although Eanes involved an - 7 - earlier version of section 219,6 we apply its reasoning to the facts of the present case. Petitioners also contend that the record does not demonstrate that MetLife made any contribution to the MetLife pl

Whitehead performed at least 120 hours of services for Burien Nissan during 1996 for which Burien Nissan compensated her by permitting her to use certain Burien Nissan automobiles, the value of which was $6,600.48 Section 219 generally allows a deduction for contributions 48On brief, petitioners also contend that, valuing at $17 per hour the 120 hours of services that they contend Ms.

Although Eanes involved an earlier version of section 219,2 we apply its reasoning to the facts of the instant case.

tioner's contentions were considered in Miller v. Commissioner, supra. In that case, the taxpayer claimed - 5 - entitlement to an IRA deduction on the ground that income from his investment activity constituted "compensation" within the meaning of section 219. This Court held that capital gain, dividends, and interest income did not constitute "compensation" within the meaning of section 219. On the issue of statutory interpretation of the term "compensation", we stated: Finally, petitioner cont

State of Nebraska, he was an active participant in that plan. Although the term "employee" is defined for other purposes throughout the Internal Revenue Code, see e.g., section 3401(c), Congress did not provide a statutory definition for purposes of section 219. However, this Court and the Court of Appeals for the Eighth Circuit, where appeal lies in this case, focused precisely on this point in Porter v. Commissioner, 88 T.C. 548 (1987), revd. 856 F.2d 1205 (8th Cir. 1988), affd. on other groun

ted any distinction based upon the absence of potential for double tax benefits, the crux of the reversal of our decision by the Seventh Circuit Court of Appeals in Foulkes v. Commissioner, 638 F.2d 1105 (7th Cir. 1981)(construing a prior version of sec. 219), revg. T.C. Memo. 1978-498. Eanes v. Commissioner, supra at 171; see also Johnson v. Commissioner, 661 F.2d 53 (5th Cir. 1981), affg. 74 T.C. 1057, 1060 (1980). 9 deduction under section 219. We stated: "While the result to petitioner seems

Statutory Background Section 4973 provides that, in the case of any IRA, “there is im- posed for each taxable year a tax in an amount equal to 6 percent of the amount of the excess contributions to such individual’s account[].” § 4973(a).

alerted her if this was incorrect. But tax preparation software does not work that way, and it is not immune to user error. Discussion Quite simply, the Popes are not entitled to an IRA deduction because they did not contribute to a plan governed by section 219. See § 219, Retirement savings (explaining the basic rules applicable to an IRA). The fact that petitioner erroneously combined various funding sources making up Mr. Pope’s account balance under his employer’s section 401(k) plan (employe

The term “excess contributions” is initially defined as the ex- cess of (1) the amount contributed to an IRA for the taxable year (other than a “rollover contribution” described in section 408(d)(3)), over (2) the amount allowable as a deduction under section 219 for such contribu- tion.

mo. 2015-119; see also Summa Holdings, Inc. v. Commissioner, 848 F.3d 779, 785 (6th Cir. 2017), rev’g T.C. Memo. 2015-119. Benenson involved whether the Roth IRA’s receipt of DISC dividends was an excessive contribution in violation of the limits of sec. 219. It did not address the fiduciary or custodial requirements of IRAs. Moreover, respondent does not disregard Green Hill. Mrs. McNulty chose for Green Hill to be a disregarded entity for Federal tax purposes. Petitioners have not established

- 7 - [*7] circumstances described in section 137; (4) the section 199 deduction for income attributable to domestic production activities; (5) the section 219 deduction for qualified contributions to a retirement plan; (6) the section 221 deduction for education loan interest payments; (7) the section 222 deduction for qualified tuition expenses; and (8) any passive activity loss (including any passive activity loss allowable under the section 469(c)(7) exception for taxpayers engaged in a re

219 (a) and (b). When a distribution is made from an IRA, the recipient must include it in income for the year ofthe distribution. Sec. 408(d)(1). Ifthe owner ofan IRA dies and the decedent's estate or a beneficiary receives a distribution from the IRA, the estate or beneficiary must - 5 - include the distribution in income under the income-i

Section 408A(c)(2) sets a maximum contribution limit based on the maximum allowable deduction for traditional IRA contributions under section 219, and section 408A(c)(3) provides - 17 - [*17] that the maximum annual contribution limit is phased out according to a taxpayer's modified adjusted gross income (AGI).7 Although the Code does not prohibit contributions above the amount allowed by section 408A (subject to its internal limitations), section 4973 imposes for each taxable y

Section 408A(c)(2) sets a maximum contribution limit based on the maximum allowable deduction for traditional IRA contributions under section 219, and section 408A(c)(3) provides - 17 - [*17] that the maximum annual contribution limit is phased out according to a taxpayer's modified adjusted gross income (AGI).7 Although the Code does not prohibit contributions above the amount allowed by section 408A (subject to its internal limitations), section 4973 imposes for each taxable y

The notice ofdeficiency correctly determined that, in petitioners' case, modified AGI under section 469(i)(3)(F) equals AGI after the application ofsection 469(c)(2) and (a), plus the deductions allowed under section 219 for qualified retirement contributions, less the taxable amount ofSocial Security benefits under section 86.

nder section 219(a) is phased out over a $20,000 range of AGI beginning at t e applicable dollar amount. For this purpose, section 219(g)(3)(A)(ii) pr vides, in part, that the individual's AGI is determined without regard to the IRA deduction under section 219. For the tax year 2008 the applicable dollar amount for Zhang, who was an active participant i Nordstrom's qualified pension plan and who filed her return as married filingjo ntly with her husband Zhu, was $85,000 and completely phased out

As to the $30,000, petitioners state that they received no deduction under section 219 as to that amount when they first contributed these funds in 1990.

n 219(a) is phased out over a $20,000 range ofAGI beginning at the applicable dollar amount. For this purpose, section 219(g)(3)(A)(ii) provides, in part, that the individual's AGI is determined without regard to the IRA contribution deduction under section 219. 2For 2008 for individuals under age 50, $5,000 was generally the largest deductible amount for contributions to an IRA, before considering limitations. Sec. 219(b)(5)(A). . -5- Furthermore, section 219(g)(2) and (3) requires th Court to

As to the $30,000, petitioners state that they received no deduction under section 219 as to that amount when they first contributed these funds in 1990.

Section 4973(a) imposes the 6-percent excise tax on the amount of the excess contributions. As to a traditional IRA, an "excess contribution" is defined in part as the excess of the amount contributed over the amount allowable as a deduction under section 219. Sec. 4973(b). As to a Roth IRA, an "excess contribution" is defined in part as the excess of the amount contributed over the amount allowable as a contribution under section 408A(c) (2) and (3). Sec. 4973(f). Section 408A(c) (2) sets the

Additionally, any.amount paid or distributed from an individual retirement account (IRA) shall be included in gross income by the payee.

nother at the shareholder level.” See majority op. note 18. But this underestimates the strengths of the Code’s other defenses against such shenanigans. There are numerous limitations on what can go in and out of an IRA — income-contribution limits, sec. 219; deadlines for contributions, sec. 219; penalties on prohibited transactions, sec. 4975; penalties on excess contributions, sec. 4973; etc. But even more importantly, while custodial retirement accounts are generally exempt from tax on undis

ax for 2004 of $875 . The sole issue for decision is whether petitioner Bert A. Hedrick was an active participant in qualified retirement plans in 2004 and was thus ineligible to deduct a $3,500 contribution to an individual retirement account under section 219 . Background Some of the facts have been stipulated, and they are so found . We incorporate by reference the parties' stipulation of facts at trial and accompanying exhibits . At the time the petition was filed, Bert A . Hedrick (Mr . Hed

Section 219 permits, subject to limitations, a deduction for a qualified retirement contribution. Section 162 permits a deduction for ordinary and necessary expenses paid or incurred in carrying on a trade or business. There is no evidence in this record indicating that a contribution was made to a qualified retirement plan during the year in issue

Petitioner further asks the Court to correct the rigid requirements in section 219 to comport with what he believes is the legislative intent “to permit citizens to save for their retirement.” Unfortunately for petitioner, the legislative history of section 219 shows that the deduction for contributions to an IRA is to be available only where an individual “does not participate in any other tax-supported retirement pl

Petitioners claimed deductions on their Federal income tax returns under section 219 for all of their contributions to the IRA.

877. (We shall refer to section 22(d) of the 1939 Code as amended by section 219 of the 1939 Act as section 22(d) of the 1939 Code as amended.) The regulations promulgated under section 22(d) of the 1939 Code as amended provided in pertinent part: Sec. 19.22(d)-1. Inventories under elective method.--Any taxpayer permitted or requ

In short, petitioner failed to meet the statutory requirements under section 219 for claiming a deduction for an IRA contribution in 1994.

A during 1987. Under section 4973(a), a 6-percent tax is imposed on excess contributions to an IRA. An excess contribution is defined as an amount contributed to an IRA less any qualified rollovers and less the amount allowable as a deduction under section 219. Sec. 4973(b)(1). Section 219(b) allows a maximum deduction of $2,000 for a contribution to Ms. Bach's IRA. Because Ms. Bach made an excess contribution of $2,000 to her IRA, none of which constituted a qualified rollover, she is subject t

Specifically, an individual may make nondeductible contributions to the extent of the excess of (1) the amount allowable as a deduction under section 219 determined without regard to the reduction for active participants over (2) the amount allowable as a deduction under section 219 determined with regard to such reduction.

Specifically, an individual may make nondeductible contributions to the extent of the excess of (1) the amount allowable as a deduction under section 219 determined without regard to the reduction for active participants over (2) the amount allowable as a deduction under section 219 determined with regard to such reduction.

all be taxable to him, in the year in which so distributed, under section 72 (relating to annuities)." However, an exception to this general rule is found in section 402(a)(5)(A), which provides: 5 Petitioner apparently is confused by the fact that, sec. 219 allows as a deduction for a contribution to an IRA for any taxable year an amount not to exceed the lesser of $2,000 or the amount of the compensation includable in the individual's gross income for such taxable year. Sec. 219(d)(2) provides

As relevant herein, an "excess contribution" is the amount in excess of the amount allowable as a deduction under section 219 (computed without regard to section - 27 - 219(g)), exclusive of amounts properly rolled over tax free.

219 for 1983, 1984, and 1985, and determined that petitioner is liable for an addition to tax for substantial understatement of liability under sec. 6661 for 1985. Respondent dealt with both of these issues on opening brief. Petitioner neither listed nor dealt with either of these issues on opening brief or answering brief. We conclude that pe

ection 219(b)(1)(B). Respondent relies on section 1.219(a)-1(b)(3), Proposed Income Tax Regs., 49 Fed. Reg. 2795 (Jan. 23, 1984), which expressly excludes unemployment compensation within the meaning of section 85 as "compensation" for purposes of section 219. Deductions are a matter of legislative grace, and the taxpayer bears the burden of proving his entitlement to the claimed deduction. New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Section 219(b) allows a deduction for qualifi

n.-- * * * [section 72] does not apply to the distribution of any contribution paid during a taxable year to an individual retirement account * * * 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, and (C) such distribution is accompanied by the amount of net income attributable to such contribution.

As relevant herein, an "excess contribution" is the amount contributed in excess of the amount allowable as a deduction under section 219, exclusive of amounts properly rolled over tax free.