                  T.C. Summary Opinion 2007-139



                     UNITED STATES TAX COURT



          BERT A. AND JULIE L. HEDRICK, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13158-06S.             Filed August 9, 2007.


     Bert A. and Julie L. Hedrick, pro sese.

     Richard D. D’Estrada, for respondent.



     ARMEN, 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.1   Pursuant to section

7463(b), the decision to be entered is not reviewable by any




     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2004,
the taxable year in issue.
                                - 2 -

other court, and this opinion shall not be treated as precedent

for any other case.

     Respondent determined a deficiency in petitioners’ Federal

income tax 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.

Hedrick) and Julie L. Hedrick (Mrs. Hedrick), jointly referred to

herein as petitioners, resided in Colorado.

     Mr. Hedrick was employed by the Jefferson County Public

Schools (school system) for 28 years.      During the time he was

employed there, Mr. Hedrick was an active participant in the

school system’s defined benefit retirement plan.      He contributed

a percentage of his paycheck to a retirement account through the

plan, and his employer matched a percentage of that contribution.

He retired on May 31, 2004.

     In addition to his employment with the school system, Mr.

Hedrick worked part time with the Denver Theatrical Stage
                               - 3 -

Employees Union (the stage employees’ union).2   If the stage

employees’ union had a retirement plan, Mr. Hedrick was not a

participant, nor was he eligible to participate therein.

     Mrs. Hedrick has been employed by the Royal Sanitary Supply

Company since 2000.   In 2004, she was an active participant in

the company’s qualified pension plan, contributing funds and

having a percentage of the contributions matched by her employer.

     At some point after retiring from the school system, Mr.

Hedrick contributed money earned working at the stage employees’

union to an individual retirement account (IRA).

     Petitioners timely and jointly filed a Form 1040, U.S.

Individual Income Tax Return (return), for 2004, claiming a

$3,500 deduction for the IRA contribution.

     Respondent disallowed the entire IRA deduction and

determined an $875 deficiency on the basis of petitioners’ active

participant status.

                            Discussion3

     Generally, a taxpayer is entitled to deduct amounts

contributed to an IRA.   See sec. 219(a); sec. 1.219-1(a), Income

Tax Regs.   The deduction may not exceed the lesser of (1) the

deductible amount or (2) an amount equal to the compensation



     2
         Mr. Hedrick continues to be employed there part time.
     3
        The issue for decision under these facts is essentially
legal in nature; therefore, we decide the instant case without
regard to the burden of proof.
                               - 4 -

includable in the taxpayer’s gross income for such year.     Sec.

219(b)(1).   For 2004, the deductible amount was $3,000, increased

to $3,500 if the taxpayer was age 50 or older before the close of

the taxable year.4   Sec. 219(b)(5)(A) and (B).

     If, however, for any part of a taxable year, a taxpayer or a

taxpayer’s spouse is an “active participant” in a qualified plan

under section 401(a), the deductible amount of any IRA

contribution for that year may be further limited.   See sec.

219(a), (g)(1), and (5).   As relevant in this case, the IRA

deduction phases out for taxpayers whose modified adjusted gross

incomes exceed certain thresholds, with a complete disallowance

after $75,000 in 2004.   See sec. 219(g)(2) and (3)(B)(i).   Both

petitioners were active participants in a qualified plan (Mrs.

Hedrick throughout 2004, and Mr. Hedrick for the first 5 months

of 2004), and their adjusted gross income exceeded $75,000.

Therefore the entire $3,500 deduction is disallowed.

     Petitioners’ confusion in this case arises from the fact

that Mr. Hedrick was considered an active participant for the

entire taxable year, even after he retired from the school

system.   It is easy to see how petitioners could be confused by

language in various Internal Revenue Service publications

explaining that receiving benefits from a former employer’s plan

does not mean that one is covered by, or an active participant


     4
        Mr. Hedrick met the age requirement for the $500 increase
in allowable contributions.
                               - 5 -

in, that plan.   See, e.g., Publication 590 Situations in Which

You Are Not Covered (2004); Notice 87-16, 1987-1 C.B. 447-448,

Q&A-8.   It is true that Mr. Hedrick was not an active participant

in the school system’s plan simply by virtue of his receipt of

benefits from his former employment.     However, because he was an

active participant in the school system’s plan for 5 months of

the taxable year in question, he was considered an active

participant for the entire year.   See sec. 219(g)(1); see also,

e.g., Wade v. Commissioner, T.C. Memo. 2001-114 (even de minimis

participation during a plan year is sufficient to render a

taxpayer an active participant for the entire year).

     Although we can appreciate petitioners’ confusion as to how

Mr. Hedrick’s retirement and subsequent receipt of benefits would

impact contributions made during the same tax year to an IRA,

deductions are a matter of legislative grace, and they must meet

all applicable statutory requirements.     INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992).    We found petitioners to be

very straightforward and honest, but unfortunately, the Internal

Revenue Code is very specific in its requirements, and we must

enforce the laws as written.   See Marsh & McLennan Cos. v. United

States, 302 F.3d 1369, 1381 (Fed. Cir. 2002); Philadelphia &

Reading Corp. v. United States, 944 F.2d 1063, 1074 (3d Cir.

1991).   Accordingly, we hold that Mr. Hedrick’s $3,500 IRA

contribution was not deductible for the taxable year in issue.

     However, as respondent acknowledged at trial, petitioners
                              - 6 -

will be entitled to $3,500 of basis in the IRA.   Accordingly,

when petitioners receive distributions, they will be entitled to

recover $3,500 tax free consistent with applicable law,

essentially on a pro rata basis.   Any income on that investment

would continue to accrue in a tax-deferred manner.    See generally

sec. 408.

     To reflect our disposition of the disputed issue,



                                         Decision will be entered

                                    for respondent.
