                               T.C. Memo. 2016-160



                         UNITED STATES TAX COURT



           MARY E. BARIE AND THOMAS R. BARIE, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 24821-13.                          Filed August 23, 2016.



      Mary E. Barie and Thomas R. Barie, pro sese.

      Erin K. Neugebauer, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      CHIECHI, Judge: Respondent determined a deficiency of $1,424 in

petitioners’ Federal income tax (tax) for their taxable year 2011.
                                        -2-

[*2] The issues remaining for decision for petitioners’ taxable year 2011 are:

      (1) Are petitioners liable for the additional tax imposed by section 72(t)(1)1

with respect to a distribution that petitioner Mary E. Barie received from an

individual retirement account that she maintained? We hold that they are.

      (2) Are petitioners entitled to a deduction under section 219(a) with respect

to a contribution that petitioner Thomas R. Barie made to an individual retirement

account that he maintained? We hold that they are not.

                               FINDINGS OF FACT

      All of the facts have been deemed established for purposes of this case

under Rule 91(f).

      At the time petitioners filed the petition, they resided in Pennsylvania.

      During taxable year 2011, both petitioners were retired. Each petitioner

maintained a separate individual retirement account (IRA). In 2011, before peti-

tioner Mary E. Barie (Ms. Barie) was 59½ years old, she withdrew $5,615 (Ms.

Barie’s IRA distribution) from an IRA that she maintained at Citizens Bank. In

2011, petitioner Thomas R. Barie (Mr. Barie) contributed $5,000 (Mr. Barie’s IRA

contribution) to an IRA that he maintained at American Century Services, LLC.

      1
        All section references are to the Internal Revenue Code in effect for the
year at issue. All Rule references are to the Tax Court Rules of Practice and
Procedure.
                                         -3-

[*3] Petitioners jointly filed Form 1040, U.S. Individual Income Tax Return, for

their taxable year 2011 (2011 return). In that return, petitioners included in gross

income, inter alia, Ms. Barie’s IRA distribution and a distribution from a certain

pension or retirement account (collectively, retirement distributions). In the 2011

return, petitioners did not report any wages, commissions, self-employment in-

come, alimony, combat pay, or other compensation. Petitioners did not report in

that return any additional tax imposed by section 72(t)(1) (10-percent additional

tax) with respect to Ms. Barie’s IRA distribution. In their 2011 return, petitioners

claimed a deduction for Mr. Barie’s IRA contribution.

      Respondent issued a notice of deficiency to petitioners for their taxable year

2011 (notice). In that notice, respondent determined, inter alia, (1) that petitioners

are liable for the 10-percent additional tax imposed by section 72(t)(1) with re-

spect to Ms. Barie’s IRA distribution and (2) that petitioners are not entitled to a

deduction under section 219(a) with respect to Mr. Barie’s IRA contribution.2




      2
        In the notice, respondent further determined that petitioners have certain
interest income and certain dividend income that they did not report in their 2011
return. Petitioners concede those determinations.
                                        -4-

[*4]                                 OPINION

       Petitioners bear the burden of establishing that the determinations in the

notice that remain at issue are erroneous. See Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933). Deductions are a matter of legislative grace, and

petitioners bear the burden of proving entitlement to any deduction claimed. See

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).

       We first consider whether petitioners are liable for their taxable year 2011

for the 10-percent additional tax imposed by section 72(t)(1) for their taxable year

2011 with respect to Ms. Barie’s IRA distribution. Section 72(t)(1) provides:

       SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT
                AND LIFE INSURANCE CONTRACTS.

             (t) 10-Percent Additional Tax on Early Distributions from
       Qualified Retirement Plans.--

                    (1) Imposition of additional tax.--If any taxpayer
             receives any amount from a qualified retirement plan (as
             defined in section 4974(c)), the taxpayer’s tax under this
             chapter for the taxable year in which such amount is received
             shall be increased by an amount equal to 10 percent of the
             portion of such amount which is includible in gross income.

A “qualified retirement plan” includes an IRA. See sec. 4974(c)(4).

       Section 72(t)(2) provides certain exceptions to the 10-percent additional tax

imposed by section 72(t)(1). On the record before us, we find that petitioners have
                                         -5-

[*5] failed to carry their burden of establishing that any exception in section

72(t)(2) applies to Ms. Barie’s IRA distribution.

      On the record before us, we find that petitioners are liable for the additional

tax imposed by section 72(t)(1) with respect to Ms. Barie’s IRA distribution.

      We next consider whether petitioners are entitled to a deduction under

section 219(a) for their taxable year 2011 with respect to Mr. Barie’s IRA

contribution. Section 219(a) generally allows a deduction for contributions by or

on behalf of individuals during the taxable year to, inter alia, an IRA. See sec.

1.219-1(a), Income Tax Regs.

      Section 219(b)(1) limits the amount of any deduction under section 219(a)

as follows:

      SEC. 219. RETIREMENT SAVINGS.

              (b) Maximum Amount of Deduction.--

                    (1) In general.--The amount allowable as a deduction
              under subsection (a) to any individual for any taxable year shall
              not exceed the lesser of--

                           (A) the deductible amount, or

                          (B) an amount equal to the compensation
                    includible in the individual’s gross income for such
                    taxable year.
                                         -6-

[*6] Section 219(f)(1) defines the term “compensation” as follows:

      SEC. 219. RETIREMENT SAVINGS.

             (f) Other Definitions and Special Rules.--

                   (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 219(f)(1), dividend and interest income are not compensation

unless the taxpayer received that income in the course of a trade or business as a

dealer. See sec. 1.219-1(c)(1), Income Tax Regs.

      Petitioners’ gross income for their taxable year 2011 consisted solely of

certain retirement distributions, interest, and dividends. On the record before us,

we find that petitioners have failed to carry their burden of establishing that they

have for their taxable year 2011 any compensation includible in gross income as

defined in section 219(f)(1).

      On the record before us, we find that petitioners have failed to carry their

burden of establishing that they are entitled for their taxable year 2011 to a

deduction under section 219(a) with respect to Mr. Barie’s IRA contribution.
                                        -7-

[*7] We have considered all of the contentions and arguments of petitioners that

are not discussed herein, and we find them to be without merit, irrelevant, and/or

moot.

        To reflect the foregoing,


                                              Decision will be entered for

                                      respondent.
