                       T.C. Memo. 1997-108



                     UNITED STATES TAX COURT



       HUGO MADIONI AND SUSANNE J. NICOLAI, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20582-95.                      Filed March 3, 1997.



     Hugo Madioni Nicolai, pro se.

     D. Lyndell Pickett, for respondent.



                       MEMORANDUM OPINION



     PANUTHOS, Chief Special Trial Judge:    This case was heard

pursuant to the provisions of section 7443A(b)(3) and Rules 180,
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181, and 182.1   Respondent determined a deficiency in

petitioners' 1992 Federal income tax in the amount of $1,120.

     The only issue in dispute is whether petitioners are

entitled to a deduction in the amount of $4,000 for contributions

to their respective individual retirement accounts (IRA).

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

found.   The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   At the time of filing the

petition, petitioners resided in Largo, Florida.

     During 1992, petitioner Hugo M. Nicolai was employed by

Varian Associates, Inc. (Varian).   In October 1992, Mr. Nicolai

became eligible to participate in Varian's pension plan.    On

December 31, 1992, Mr. Nicolai had a balance of $377.60 to his

credit in Varian's pension plan.

     Petitioner Susanne J. Nicolai was employed by Morton F.

Plant Hospital in 1992.   Mrs. Nicolai began working at the

hospital in 1990 and terminated her employment during the summer

of 1992.   The hospital had a pension plan wherein an employee

received forfeitable rights until vested, which required 6 years

of employment.   Since Mrs. Nicolai worked approximately 2 years

for the hospital, her rights did not vest in the pension plan.




     1
        All section references are to the Internal Revenue Code
in effect for the tax year at issue. All Rule references are to
the Tax Court Rules of Practice and Procedure.
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     Petitioners reported income and adjustments to income on

their 1992 return as follows:

     Item of Income                                 Amount

     Wages                                        $58,796
     Interest                                         630
     Dividend                                         591
     Capital gain                                      36
     Other income                                   1,033

           Total income                            61,086

     Adjustment to Income

     IRA deduction                       $2,000
     IRA deduction                        2,000      4,000

           Adjusted gross income                   57,086


     In the notice of deficiency, respondent determined that

petitioners were not entitled to the claimed IRA deductions.

     Respondent determined that each petitioner was an active

participant in a pension plan qualified under section 401(a)

during 1992.   It is well settled that deductions are a matter of

legislative grace, and petitioners bear the burden of proving

entitlement to any claimed deductions.      INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); Nelson v. Commissioner, 30

T.C. 1151, 1154 (1958).     Moreover, respondent's determinations

are presumed correct, and it is petitioners' burden to establish

error.    Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933).

     Petitioners do not appear to dispute that their respective

employers maintained pension plans qualified under section
                                  - 4 -

401(a).   As a general rule, a taxpayer is entitled to deduct

amounts contributed to an IRA.     Sec. 219(a); sec. 1.219-1(a),

Income Tax Regs.   The deduction in any taxable year may not

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

compensation includable in the individual's gross income for the

taxable year.   Sec. 219(b)(1).    Section 219(g) imposes a further

limitation on IRA deductions where a taxpayer or a spouse is an

"active participant" for any part of the taxable year.     An

individual is considered an active participant in a plan if he is

accruing benefits under the plan even if he has only forfeitable

rights under the plan and such rights are forfeited before the

end of the taxable year.   Hildebrand v. Commissioner, 683 F.2d 57

(3d Cir. 1982), affg. T.C. Memo. 1980-532.

     While Congress included a definition of "active participant"

in section 219(g)(5), that definition itself uses the term

"active participant".   However, Congress' intent as to the

meaning of "active participant" is clear from the report of the

House Committee on Ways and Means:

     An individual is to be considered an active participant
     in a plan if he is accruing benefits under the plan
     even if he only has forfeitable rights to those
     benefits. * * * [H. Rept. 93-807 at 129 (1974), 1974-3
     C.B. (Supp.) 236, 364.]

See also Eanes v. Commissioner, 85 T.C. 168, 171 (1985).        The

regulations further provide that "an individual is an active

participant * * * if for any portion of the plan year * * * he is
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not excluded under the eligibility provisions of the plan."      Sec.

1.219-2(b)(1), Income Tax Regs.

     Since petitioners were "active participants" in their

respective retirement plans during 1992, and their adjusted gross

income for that year exceeded $50,000, petitioners are not

entitled to an IRA contribution deduction for the year 1992.

Sec. 219(a), (c)(2), (g)(1), (2), and (3); Johnson v.

Commissioner, 74 T.C. 1057 (1980), affd. 661 F.2d 53 (5th Cir.

1981); Felber v. Commissioner, T.C. Memo. 1992-418, affd. without

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

     Based on the foregoing, respondent's determination is

sustained.



                                      Decision will be entered

                              for respondent.
