                 T.C. Summary Opinion 2006-146



                      UNITED STATES TAX COURT



          GARY H. AND L. MARIANNE BELL, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3524-05S.             Filed September 14, 2006.



     Gary H. and L. Marianne Bell, pro sese.

     R. Craig Schneider, for respondent.



     DAWSON, 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.   The decision to be entered

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

be cited as authority.   Unless otherwise indicated, subsequent

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.
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     Respondent determined a $990 deficiency in petitioners’

Federal income tax and a $198 accuracy-related penalty under

section 6662(a) for 2002.1

     The issues for decision are: (1) Whether petitioners are

entitled to a deduction under section 219 for a contribution made

by petitioner-husband to an individual retirement account (IRA)

for 2002; and (2) whether respondent is estopped from denying

petitioners’ claimed IRA deduction because of a decision document

entered by this Court in their case, docket No. 2788-04S, for

2001.

                             Background

     Some of the facts have been stipulated and are so found.

Petitioners resided in Ogden, Utah, when they filed their

petition in this case.

     Gary H. Bell (petitioner) retired in 1998 under the Civil

Service Retirement System after 30 years of service as a U.S.

Government employee.   He worked from 1991 to 1998 for the

Bonneville Power Administration as a project coordinator for the

construction of high voltage transmission lines.   Petitioner was

over age 50 in 2002.



     1
      Respondent has conceded the accuracy-related penalty under
sec. 6662(a). Petitioners conceded adjustments relating to
interest income of $2,997 and dividend income of $71. The
computation included in the deficiency notice shows that
petitioners previously paid $584 as tax and interest of $74 on
these adjustments for 2002.
                               - 3 -

     In January 1991, petitioner began participating in the

Thrift Savings Plan (TSP) for Federal employees.    The TSP is a

defined contribution plan.   Contributions to petitioner’s TSP

account were made by payroll deductions from his wages.    The

amounts deducted were not included in his wage income for tax

purposes during the years he participated in the TSP plan.    At

the time of his retirement petitioner had contributed

approximately $18,000 to his TSP account.   On August 31, 1998,

petitioner’s TSP balance was $29,195.   The difference between

$18,000 and $29,195 represents the increases in the value of

petitioner’s investments in his TSP account.

     Beginning September 1, 1998, petitioner chose to receive

monthly payments of $400 from his TSP account.    The amounts, less

withholding, were electronically deposited to petitioners’

checking account in America First Credit Union, Edison Branch, in

Ogden.

     Petitioners filed a joint Federal income tax return for 2002

on which they reported taxable interest of $3,536.64, ordinary

dividend income of $264.84, TSP distribution income of $4,800,

pension and annuity income of $30,459.12, a capital loss of

$3,000, and total gross income of $36,060.65.    On that return

petitioners claimed an IRA deduction of $3,500 in reporting their

adjusted gross income of $32,560.65.    The claimed IRA deduction

was paid by transferring on March 30, 2003, $3,500 from
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petitioners’ checking account to a separate IRA account in

petitioner’s name in America First Credit Union.

      Petitioners received no wages or salaries from employment in

2002.   They were not engaged in any business in that year.      They

did not file a Schedule C, Profit or Loss From Business, with

their income tax return for 2002.   They had no earnings from

self-employment in that year.

      In the notice of deficiency, respondent disallowed

petitioners’ claimed IRA deduction of $3,500 for the year 2002.

                            Discussion

A.   IRA Deduction

      In general, taxpayers have the burden of proving that the

Commissioner’s determinations are incorrect.     Rule 142(a)(1);

Welch v. Helvering, 290 U.S. 111, 115 (1933).     Section 7491(a)(1)

shifts the burden of proof of a factual issue to the Commissioner

under certain limited circumstances.     Section 7491 does not

affect our analysis because our holding does not depend upon

which party has the burden of proof; the evidence in the record

establishes the facts and the resolution of the disputed IRA

deduction involves a matter of law.

      Although respondent first contends that petitioners have not

substantiated the payment made to petitioner’s IRA account at

America First Credit Union for taxable year 2002, the evidence

contained in the record establishes that on March 30, 2003,
                                 - 5 -

petitioner transferred $3,500 from his checking account to a

separate IRA account in petitioner’s name in America First Credit

Union.   Thus the key question we must decide is whether

petitioners received any “compensation” or “earned income” in

2002 from which they could deduct the $3,500 contribution made to

petitioner’s IRA account.

     Petitioner’s position is that he is entitled to his IRA

deduction in 2002 because the $4,800 he received from his TSP

distributions in that year constituted “earned income” he

reported on his tax returns as includable in his gross income.

He contends that some of his salary income earned, but not taxed,

in prior years, which was deposited in his TSP account, continued

to be earned income taxable in years when TSP distributions were

made to him.   To the contrary, respondent contends that the

“maximum amount” petitioners may claim for an IRA deduction in

2002 is zero because petitioners did not have any “compensation”

(which term includes “earned income”) that was includable in

their gross income pursuant to the provisions of section

219(b)(1)(B) and (f)(1).    We agree with respondent for the

reasons stated herein.

     With certain limitations, a taxpayer is entitled to deduct

amounts contributed to an IRA.    Sec. 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
                                - 6 -

taxpayer’s gross income for such taxable year.   Sec. 219(b)(1).

For 2002, the increased deductible amount is $3,500 if the

taxpayer was 50 or older before the close of the taxable year.

Sec. 219(b)(5)(B).   Petitioner was over age 50 in 2002.

     For purposes of calculating the maximum amount of an IRA

deduction, compensation is defined, in pertinent part, in section

219(f)(1) as follows:

          (1) Compensation.--For purposes of this section,
     the term “compensation” includes earned income (as
     defined in section 401(c)(2)). The term “compensation”
     does not include any amount received as a pension or
     annuity and does not include any amount received as
     deferred compensation. * * * For purposes of this
     paragraph, section 401(c)(2) shall be applied as if the
     term trade or business for purposes of section 1402
     included service described in subsection (c)(6).

     Compensation is further defined in section 1.219-1(c)(1),

Income Tax Regs., as follows:

          (1) Compensation.--For purposes of this section,
     the term “compensation” means wages, salaries,
     professional fees, or other amounts derived from or
     received for personal service actually rendered
     (including, but not limited to, commissions paid
     salesmen, compensation for services on the basis of a
     percentage of profits, commissions on insurance
     premiums, tips, and bonuses) and includes earned
     income, as defined in section 401(c)(2), but does not
     include amounts derived from or received as earnings or
     profits from property (including, but not limited to,
     interest and dividends) or amounts not includible in
     gross income.
                               - 7 -

     Section 401(c)(2), which is referred to in section 219 and

section 1.219-1(c)(1), Income Tax Regs., is an elaboration of the

term “earned income” as it applies to net earnings from self-

employment.   Petitioners were not engaged in a trade or business

in 2002; they filed no Schedule C with their income tax return;

and they had no net earnings from self-employment in that year.

     Accordingly, we conclude that the amount of $4,800

petitioner received in 2002 as distributions from his TSP account

was not compensation or earned income as defined in section

219(f)(1) and section 1.219-1(c)(1), Income Tax Regs.     In view of

the broad definition of compensation set forth in the statute and

regulations, it would be superfluous if we interpreted

“compensation” as petitioner requested.   See Clarke v.

Commissioner, T.C. Memo. 1999-199 (holding that an IRA

distribution received by the taxpayer was not includable in his

compensation because it did not constitute wages, salaries,

professional fees, or other amounts derived from personal

services actually rendered, but included amounts derived from

earnings from property); cf. Miller v. Commissioner, 77 T.C. 97,

100-102 (1981); King v. Commissioner, T.C. Memo. 1996-231; Estate

of Hall v. Commissioner, T.C. Memo. 1979-342.   Therefore, we hold

that the maximum amount of petitioners’ IRA deduction for 2002 is

zero pursuant to section 219(b)(1)(B).
                                - 8 -

B.   Collateral Estoppel

      Petitioners contend that respondent is estopped from

determining a deficiency as to their claimed IRA deduction for

2002 because of a decision document entered by this Court

pursuant to a settlement by the parties that allowed petitioners

an IRA deduction for 2001.   Petitioners claimed an IRA deduction

of $2,000 on their Federal income tax return for 2001, a year in

which they had no compensation as that term is used in section

219(b)(1)(B) and (f)(1).   However, the Appeals Office resolved

the IRA deduction issue for 2001 in petitioners’ favor by

allowing the deduction because it was substantiated by a third

party.   No question was raised as to whether the deduction was

limited by petitioners’ compensation in that year.    The IRA

deduction issue for 2001 was resolved by a decision document that

this Court entered on December 6, 2004, in the case of Gary H.

and L. Marianne Bell v. Commissioner, docket No. 2788-04S.

      Respondent asserts that the decision document alone, which

was signed by the parties and entered by the Court with respect

to 2001, is not sufficient for invoking collateral estoppel

against respondent to preclude the denial of the IRA deduction

claimed by petitioners for 2002.   We agree.   The decision

document for the tax year 2001 only effectuated a settlement of

that case.    There was no stipulation of facts in support of the

settlement.   There was no trial on the merits of the IRA
                               - 9 -

deduction issue.   Trapp v. United States, 177 F.2d 1, 5 (10th

Cir. 1949); Riter v. Commissioner, 3 T.C. 301, 305 (1944).        The

U.S. Court of Appeals for the Tenth Circuit in Trapp explained

the effect of a decision document entered in a prior year by the

Tax Court, without a trial or receiving evidence, as follows:

     A judgment, not predicated upon stipulated facts, or
     upon findings of fact, or upon a determination on the
     merits, but merely to carry out a compromise agreement
     of the parties, fails to constitute an effective
     judicial determination of any litigated right.
     Fruehauf Trailer Co. v. Gilmore, 10 Cir., 167 F.2d 324.
     And a decision of that kind rendered by the Tax Court
     will not support a plea of estoppel in a case of this
     nature involving liability for income tax for a
     different year. Blaffer v. Commissioner, 5 Cir., 134
     F.2d 389; Hartford-Empire Co. v. Commissioner, 2 Cir.,
     137 F.2d 540, certiorari denied, 320 U.S. 787, 64 S.Ct.
     196, 88 L.Ed. 473; Riter v. Commissioner, 3 T.C. 301.
     [Trapp v. United States, supra at 5.]

     Therefore, we hold that collateral estoppel does not apply

here.

     To reflect the foregoing and concessions made by the

parties,



                                       Decision will be entered

                               under Rule 155.
