                    T.C. Summary Opinion 2001-5



                      UNITED STATES TAX COURT



         FRED P. AND PATRICIA M. BRANDKAMP, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4152-00S.                 Filed January 23, 2001.




     Fred P. Brandkamp, pro se.

     David Delduco, for respondent.



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

the provisions of section 7463 of the Internal Revenue Code in

effect at the time that the petition was filed.1   The decision to




     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 1997,
the taxable year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                               - 2 -


be entered in this case is not reviewable by any other court, and

this opinion should not be cited as authority.

     Respondent determined a deficiency in petitioners’ Federal

income tax for 1997 in the amount of $560.   After concessions by

the parties,2 the sole issue for decision is whether petitioners

are entitled to a deduction in the amount of $2,000 for a

contribution to petitioner Fred P. Brandkamp’s individual

retirement account (IRA).   We hold that petitioners are not

entitled to such deduction.

Background3

     Some of the facts have been stipulated, and they are so

found.   Petitioners resided in Duluth, Georgia, at the time that

their petition was filed with the Court.

     Petitioner Fred P. Brandkamp (Mr. Brandkamp) was employed in

1997, the taxable year in issue, by Winter Wyman Contract

Services, Inc. and Data Tabulating Service, Inc.   During that

year, Mr. Brandkamp was not covered by any qualified pension plan

or retirement program that may have been sponsored by either of

his employers.

     2
        Respondent concedes the $13 adjustment in the notice of
deficiency for “dependent care benefits”. Petitioners concede
the collection-related matter raised in the petition.
     3
        At trial, we deferred ruling on certain relevancy
objections made by Mr. Brandkamp to portions of various exhibits.
We now overrule those objections, and our findings reflect that
ruling.
                               - 3 -


     Petitioner Patricia M. Brandkamp (Mrs. Brandkamp) was

employed throughout 1997 by MetLife Insurance Co. (MetLife). Mrs.

Brandkamp was hired by MetLife in December 1995 and remained in

its employ through November 1998.

     At all relevant times, MetLife maintained a defined benefit

pension plan (the MetLife plan) that was qualified within the

meaning of section 401(a).   An individual is eligible to

participate in the MetLife plan if the individual: (1) Is at

least 21 years old, (2) is an active U.S. salaried or

commissioned employee, and (3) has completed 1 year of continuous

or credited service.

     Once an employee is eligible to participate in the MetLife

plan, the employee is automatically enrolled in the plan at no

cost to the employee.   However, the employee does not have any

vested right to a pension benefit until the employee has

completed 5 years of continuous or credited service.

     Mrs. Brandkamp became enrolled in the MetLife plan upon

completion of 1 year of service with MetLife in December 1996.

However, because Mrs. Brandkamp left the employ of MetLife before

completing 5 years of continuous or credited service with

MetLife, her right to a pension benefit never vested.

     On April 13, 1998, Mr. Brandkamp contributed $2,000 to an

IRA that he maintained in his name with SouthTrust Bank in
                                - 4 -


Atlanta, Georgia.    The contribution was made in respect of the

taxable year 1997.

     Petitioners timely filed a joint Federal income tax return

(Form 1040) for 1997.    On their return, petitioners reported

total income of $79,300, consisting of wages of $79,271 and

taxable interest of $29.    Petitioners deducted from total income

the $2,000 amount that had been contributed to Mr. Brandkamp’s

IRA and therefore reported adjusted gross income of $77,300.

     Petitioners attached to their 1997 income tax return copies

of wage and tax statements (Forms W-2) that had been sent to them

by their employers.    The wage and tax statement from MetLife

indicated that Mrs. Brandkamp was covered by a qualified pension

plan in 1997.

     By notice dated January 14, 2000, respondent determined a

deficiency in petitioners’ income tax for 1997.    Respondent’s

determination reflects the disallowance of the $2,000 IRA

deduction claimed by petitioners for that year.    In this regard,

respondent determined that petitioners were not entitled to any

IRA deduction because Mrs. Brandkamp was covered by a qualified

pension plan and petitioners’ modified AGI exceeded $50,000.4

     4
        In the notice of deficiency, respondent advised
petitioners as follows: “So your future nontaxable IRA
distributions will be correct, complete Form 8606, Nondeductible
IRAs (Contributions, Distributions, and Basis) to keep for your
records.” (Emphasis added.) At trial, counsel for respondent
                                                   (continued...)
                                 - 5 -


Discussion

     In general, a taxpayer is entitled to deduct the amount

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

Tax Regs.    The deduction for any taxable year, however, may not

exceed the lesser of $2,000 or an amount equal to the

compensation includable in the taxpayer's gross income for such

year.    See sec. 219(b)(1).

     However, if for any part of a taxable year, a taxpayer or

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

plan under section 401(a), the amount of the deduction under

section 219(a) for that year may be further limited.    Sec.

219(g)(1), (5)(A)(i).    Thus, in the case of married taxpayers who

file a joint return, the $2,000 limitation of section 219(b)(1)

is reduced using a ratio determined by dividing the excess of the

taxpayer's modified AGI5 over $40,000, by $10,000.    See sec.

219(g)(2)(A), (3)(B)(i).    This provision results in a total

disallowance of the IRA deduction for married taxpayers where

modified AGI exceeds $50,000.    See Felber v. Commissioner, T.C.



     4
      (...continued)
conceded that Mr. Brandkamp was entitled to make a nondeductible
contribution to his IRA.
     5
       As relevant herein, modified AGI means adjusted gross
income computed without regard to any deduction for an IRA. See
sec. 219(g)(3)(A). In petitioners’ case, modified AGI for the
year in issue is $79,300.
                               - 6 -


Memo. 1992-418, affd. without published opinion 998 F.2d 1018

(8th Cir. 1993).

      Because petitioners reported modified AGI in the amount of

$79,300 on their 1997 income tax return, they are not entitled to

any IRA deduction if Mrs. Brandkamp was an “active participant”

in the MetLife plan at any time during 1997.

      Petitioners contend that because Mrs. Brandkamp’s interest

in the MetLife plan was forfeitable, Mrs. Brandkamp was not an

active participant in the plan.   However, section 219(g)(5),

which defines the term “active participant”, clearly states that

the “determination of whether an individual is an active

participant shall be made without regard to whether or not such

individual’s rights under a plan * * * are nonfortfeitable.”     See

also Eanes v. Commissioner, 85 T.C. 168, 170 (1985) (citing

Hildebrand v. Commissioner, 683 F.2d 57, 58 (3d Cir. 1982), affg.

T.C. Memo. 1980-532)); Wartes v. Commissioner, T.C. Memo. 1993-

84.   Eanes involves a taxpayer 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

plan on behalf of Mrs. Brandkamp, thereby implying that such a

failure would be antithetical to the conclusion that Mrs.

Brandkamp was an active participant in the plan.   However, the

record demonstrates that the MetLife plan is a qualified plan, a

fact that supports our conclusion that a contribution was made

and thereby negates the basis for petitioners’ contention.   See

sec. 401(a)(1).7


     6
        Sec. 219, as applicable to 1981, the taxable year in
issue in Eanes v. Commissioner, 85 T.C. 168 (1985), did not
include a definition of “active participant”. The flush language
currently contained in sec. 219(g)(5), referring to whether the
individual’s rights under the plan are forfeitable, was then
found only in the legislative history.
     7
        To the extent that petitioners may suggest that the
contribution made by MetLife on behalf of Mrs. Brandkamp was
modest in amount, thereby implying that the magnitude of an
employer’s contribution should be determinative of whether an
employee is an active participant, the law is clearly to the
contrary. See sec. 1.219-2(d)(1), Income Tax Regs., providing
that an individual is an active participant in a taxable year in
a profit-sharing plan “if an employer contribution is added to
the participant’s account in such taxable year.” See also sec.
1.219-2(b)(1), Income Tax Regs., providing that “an individual is
an active participant * * * if for any portion of the plan year
* * * [she] is not excluded under the eligibility provisions of
the plan.” In short, there is no provision for “de minimis”
participation. See also Guest v. Commissioner, 72 T.C. 768
(1979) (the statutory provision, which operates to disallow a
deduction for a contribution to an IRA by an active participant
                                                   (continued...)
                                - 8 -


     Petitioners also contend that even if Mrs. Brandkamp were an

active participant in the MetLife plan, current section 219(g)(7)

serves to immunize Mr. Brandkamp from disallowance of the

deduction claimed for the contribution to his IRA.    We disagree.

     Current section 219(g)(7) provides a special rule for a

spouse who is not an active participant in a qualified pension

plan.    Under this special rule, the deduction for such spouse’s

IRA contribution is reduced only when the spouses’ modified AGI

exceeds $150,000.    Although petitioners’ modified AGI was only

half that amount, section 219(g)(7) does not serve to allow the

deduction in issue because this section is only applicable to tax

years beginning after December 31, 1997.    See Internal Revenue

Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L.

105-206, secs. 6005(a)(1), 6024, 112 Stat. 685, 796, 826,

amending sec. 301(b) and (c); Taxpayer Relief Act of 1997 (TRA

‘97), Pub. L. 105-34, 111 Stat. 788, 825.

     Finally, petitioners appear to argue that the foregoing

amendment was merely declaratory of existing law.    However, any

such contention is clearly belied by the effective date

provisions of TRA ‘97, sec. 301(c), 111 Stat. 825, and the RRA

1998, sec. 6024, 112 Stat. 826.    In addition, the legislative



     7
      (...continued)
in a qualified retirement plan, does not violate the Due Process
Clause of the Fifth Amendment to the Constitution).
                                   - 9 -


history of section 219(g)(7) makes clear that Congress knew that

it was changing, and intended to change, the operative law.

E.g., H. Conf. Rept. 105-220 at 378-379 (1997), 1997-4 C.B. (Vol.

2) 1471, 1848-1849.   The following passage by the Staff of the

Joint Comm. on Taxation from       the General Explanation of Tax

Legislation Enacted in 1997 at 42 (J. Comm. print) also

demonstrates this fact:

                          Present and Prior Law

          Under present and prior law, an individual may
     make deductible contributions to an individual
     retirement arrangement (“IRA”) up to the lesser of
     $2,000 or the individual’s compensation if the
     individual is not an active participant in an employer-
     sponsored retirement plan. Under present and prior
     law, in the case of a married couple, deductible IRA
     contributions of up to $2,000 can be made for each
     spouse * * * if the combined compensation of both
     spouses is at least equal to the contributed amount.

          Under present and prior law, if the individual (or
     the individual’s spouse) is an active participant in an
     employer-sponsored retirement plan, the $2,000
     deduction limit is phased out over certain adjusted
     gross income (“AGI”) levels. Under prior law, the
     limit was phased out between $40,000 and $50,000 of AGI
     for married taxpayers filing joint returns * * * .

                      *    *   *     *     *   *   *

                           Reasons for Change

     The Congress believed it was appropriate to encourage
     individual saving and that deductible IRAs should be
     available to more individuals. * * *

                      *    *   *     *     *   *   *

                      Explanation of Provision
                                  - 10 -


     In general

          The Act * * * modifies the AGI phase-out limits
     for an individual who is not an active participant in
     an employer-sponsored retirement plan but whose spouse
     is * * * .

                    *   *     *     *      *   *   *

     Modification to active participant rule and increase
     income phase-out ranges for deductible IRAs

                    *   *     *     *      *   *   *


          The following examples illustrate the income
     phase-out rules.

          Example 1.–-W is an active participant in an
     employer-sponsored retirement plan, and W’s husband, H,
     is not. Further assume that the combined AGI of H and
     W for the year is $200,000. Neither W nor H is
     entitled to make deductible contributions to an IRA for
     the year.

          Example 2.–-Same as example 1, except that the
     combined AGI of W and H is $125,000. H can make
     deductible contributions to an IRA. However, a
     deductible contribution could not be made for W.

                    *   *     *     *      *   *   *

                            Effective Date

          The provisions are effective for taxable years
     beginning after December 31, 1997.


     Although the result that we reach in this case may seem

harsh to petitioners, we cannot ignore the plain language of the

statute and, in effect, rewrite the statute to achieve what may

seem to petitioners to be a more equitable result.     See

Hildebrand v. Commissioner, 683 F.2d 57, 59 (3d Cir. 1982), affg.
                              - 11 -

T.C. Memo. 1980-532; Johnson v. Commissioner, 661 F.2d 53, 54-55

(5th Cir. 1981), affg. 74 T.C. 1057 (1980).   The statute is

unambiguous on this point.   Mrs. Brandkamp was an “active

participant” in the MetLife plan, and petitioners’ modified AGI

exceeded $50,000.   Thus, petitioners are not entitled to any 1997

deduction for Mr. Brandkamp’s contribution to his IRA for that

year.   Respondent’s determination on this matter is therefore

sustained.

     We have carefully considered remaining arguments made by

petitioners for a result contrary to that expressed herein, and,

to the extent not discussed above, we consider those arguments to

be without merit.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     In order to give effect to our disposition of the disputed

issue, as well as the parties’ concessions,



                                    Decision will be entered

                               under Rule 155.
