                        T.C. Memo. 2000-41



                      UNITED STATES TAX COURT



              DAVID EDWARD NEUMEISTER, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11542-98.                    Filed February 8, 2000.



     David Edward Neumeister, pro se.

     Steven Knox, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     ARMEN, Special Trial Judge:    Respondent determined a

deficiency in petitioner's Federal income tax for the taxable

year 1996 in the amount of $574.    After concessions by

petitioner,1 the issue for decision is whether petitioner is


     1
         Petitioner concedes that if he is entitled to a deduction
                                                    (continued...)
                               - 2 -


entitled to a deduction in the amount of $1,763 for a

contribution to an individual retirement account (IRA).   We hold

that he is not.

                         FINDINGS OF FACT

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

found.   Petitioner resided in Lansing, Michigan, at the time that

his petition was filed with the Court.

     During the year in issue, petitioner was employed as a

teacher by the Lansing school district in Michigan.   During that

year, petitioner was an active participant in the Michigan Public

School Employees’ Retirement System (the MPSERS).   MPSERS is

governed by the State of Michigan’s Public School Employees’

Retirement Act of 1979, as amended, 1980 Mich. Pub. Acts 300,

Mich. Comp. Laws, sec. 38.1301-38.1408, and is provided by

Michigan on a statewide basis to all of Michigan’s public school

employees.   Section 108 of that Act, Mich. Comp. Laws sec.

38.1408, provides the following:

     This state intends that the retirement system be a
     qualified pension plan created in trust under section
     401 of the internal revenue code and that the trust be



     1
      (...continued)
for a contribution to an individual retirement account, his
deduction should be limited to $1,763, the amount he actually
contributed to an IRA, rather than the $2,000 he claimed on his
return. Petitioner also concedes that a $40 adjustment to his
miscellaneous itemized deductions is purely mechanical. See sec.
67.
                               - 3 -


     an exempt organization under section 501 of the
     internal revenue code. * * *

     On his return for the year in issue, petitioner claimed a

$2,000 deduction for a contribution to an IRA and reported

adjusted gross income (AGI) of $37,475.     By notice of deficiency,

respondent disallowed the entire IRA deduction.     Specifically,

respondent disallowed the deduction to the extent of $1,763 on

the ground that petitioner was an active participant of an

employer-sponsored plan as defined in section 219(g)(5)(A).2

                              OPINION

     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 in 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

taxable year.   See sec. 219(b)(1).    In addition, the amount of

the deduction is limited where the taxpayer is, for any part of

the taxable year, an "active participant" in a retirement plan

qualified under section 401(a) or a plan established for its

employees by the United States, by a State or political

subdivision thereof, or by any agency or instrumentality of any

of the foregoing.   See sec. 219(g)(1), (5)(A)(i), (iii).    In the


     2
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable year in
issue.
                                   - 4 -


case of a taxpayer who files a return as a single individual, the

deduction is reduced using a ratio determined by dividing the

excess of the taxpayer's modified adjusted gross income3

(modified AGI) over $25,000, by $10,000.       See sec. 219(g)(2) and

(3).       This provision results in a total disallowance of the IRA

deduction where the total modified AGI exceeds $35,000.       See

Felber v. Commissioner, T.C. Memo. 1992-418, affd. without

published opinion 998 F.2d 1018 (8th Cir. 1993).       Because

petitioner reported modified AGI of $39,475 on his 1996 income

tax return, he is not entitled to any IRA deduction if he was an

active participant in a plan defined in section 219(g)(5)(A)

during 1996.

       Petitioner contends that although he was an active

participant in the MPSERS, the MPSERS is not a plan defined in

section 219(g)(5)(A)(iii).       Petitioner refers us to the fact that

he is an employee of the Lansing school district.       As such,

petitioner claims that he is not an “employee” of the State of

Michigan, the government unit responsible for establishing and

maintaining the MPSERS.       Petitioner concludes, therefore, that

because the MPSERS was not established by his employer, the

Lansing school district, he was not an active participant in a



       3
       As relevant herein, modified adjusted gross income means
adjusted gross income computed without regard to any deduction
for an IRA. See sec. 219(g)(3)(A).
                               - 5 -


plan described in section 219(g)(5)(A)(iii) as a plan

“established for its employees * * * by a State or political

subdivision thereof”.   We disagree with petitioner.

     Petitioner would have us construe the language of section

219(g)(5)(A)(iii) much more narrowly than we are willing to do.

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.   See H. Rept. 93-779, at 127 (1974),

1974-3 C.B. 244, 370; H. Rept. 93-807, at 128 (1974), 1974-3 C.B.

(Supp.) 236, 363 (providing that the deduction for contributions

to individual retirement accounts is to be available only where

an individual “does not participate in any other tax-supported

retirement plan”); H. Conf. Rept. 93-1280, at 355 (1974), 1974-3

C.B. 415, 496-498.   Thus, active participants of tax-advantaged

plans with income above various levels are denied completely the

tax deduction that is provided by section 219 to individuals who

are not otherwise covered by similar tax-advantaged retirement

plans.   See sec. 219(g)(5).

     The Lansing school district is a part of the Michigan public

school system.   The MPSERS was established by the State of

Michigan for its public school employees.   Petitioner, through

his employment with the Lansing school district, had the
                               - 6 -


opportunity to participate in, and indeed did participate in,

such an employment-based, tax-advantaged plan.     Given these

facts, the distinction that petitioner makes regarding his

employer’s being the Lansing school district rather than the

State of Michigan is inconsequential.     The fact remains that

petitioner was an active participant in an employment-based, tax-

advantaged retirement plan provided by the State.     We hold

therefore that petitioner actively participated in a plan

established by a State or a political subdivision thereof for its

employees, see sec. 219(g)(5)(A)(iii), and is not entitled to a

tax deduction for his contribution.

     Alternatively, the record establishes that the MPSERS is a

plan described in section 401(a) and a trust exempt from tax

under section 501(a).   Thus, petitioner is not entitled to an IRA

deduction because he was an active participant in a plan

described in section 219(g)(5)(A)(i).

    To reflect our disposition of the disputed issue, as well as

petitioner's concessions,



                                       Decision will be entered

                               for respondent.
