                       T.C. Memo. 1997-244



                     UNITED STATES TAX COURT



        O.H. TOLLEY, JR. AND BETTY TOLLEY, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11407-95.                       Filed May 29, 1997.



     William H. Scheil, Jr., for petitioners.

     Veena Luthra, for respondent.


                       MEMORANDUM OPINION

     GOLDBERG, Special Trial Judge:   This case was heard pursuant

to section 7443A(b)(3) and Rules 180, 181, and 182.1   Respondent

determined a deficiency in petitioners' Federal income tax for



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

1992 in the amount of $574.    After a concession,2 the issue for

decision is whether petitioner Betty Tolley was an active

participant in a qualified retirement plan during 1992, thus

precluding a deduction of $2,000 for a contribution by O.H.

Tolley, Jr., to an individual retirement account (IRA).

     The facts have been fully stipulated and are so found.      The

stipulation of facts and the attached exhibits are incorporated

herein by this reference.     Petitioners resided in Pamplin,

Virginia, at the time their petition was filed.     References to

petitioner are to Betty Tolley.

     Petitioner was employed by S.H. Heironimus Co., Inc.

(Heironimus).    Heironimus provided retirement benefits for its

employees in the form of a profit-sharing and savings plan (the

plan).    During 1992, petitioner made no contributions to the

plan.    During that same year, plan forfeitures in the amount of

$16.12 were allocated to petitioner's plan account.

     On their Federal income tax return filed for the tax year

1992, petitioners claimed a contribution deduction in the amount

of $2,000.    Petitioners reported adjusted gross income before the

IRA contribution deduction in the amount of $54,940.24.

     In the notice of deficiency, respondent disallowed

petitioners' IRA contribution deduction because petitioner was

covered by a retirement plan at work.     Therefore, applying

2
     Petitioners concede that they failed to report $22 of
taxable interest income received in 1992.
                                  3

section 219(g), petitioners' IRA contribution deduction was

limited to zero for 1992.   Petitioners contend that petitioner

elected not to contribute to the plan, and, thus, was not an

active participant.   Petitioners also contend that respondent

allowed IRA deductions claimed by petitioners in taxable years

1990 and 1991, and argue that respondent is bound by "tacit

approval" of petitioners' position.

     Respondent's determinations are presumed correct, and

petitioners have the burden of proving them erroneous.    Rule

142(a); Welch v. Helvering, 290 U.S. 111 (1933).    Deductions are

a matter of legislative grace, and petitioners bear the burden of

proving their entitlement to any deduction claimed.    Rule 142(a);

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

     Generally, a taxpayer is allowed a deduction for qualified

retirement contributions in an amount not in excess of the lesser

of $2,000 or an amount equal to the compensation includable in

the taxpayer's gross income.   Sec. 219(a) and (b)(1).   Section

219(g) limits the allowable deduction where the individual or the

individual's spouse is an "active participant".    An "active

participant" is defined to include, inter alia, an individual who

is an active participant in a qualified employer provided profit-

sharing plan.   Sec. 219(g)(5).   The application of section 219(g)

results in total disallowance of an IRA deduction in the case of

taxpayers filing a joint return with adjusted gross income in

excess of $50,000 if one of the taxpayers is an active
                                  4

participant.    For this purpose and as relevant here, adjusted

gross income is calculated without regard to the deduction for

IRA contributions.   Sec. 219(g)(3).

     In general, an individual is an active participant in a

profit-sharing plan during a taxable year if a forfeiture is

allocated to such individual's plan account as of a date in such

taxable year.   Sec. 1.219-2(d), Income Tax Regs; see also Barret

v. Commissioner, T.C. Memo. 1980-5.    An individual is not an

active participant in a plan if such individual elects, pursuant

to the plan, not to participate in the plan.    Sec. 1.219-2(f),

Income Tax Regs.

     Petitioners' primary argument is that an election not to

contribute to the plan is tantamount to an election not to

participate.    However, the only evidence in the record indicates

that although petitioner did not contribute to the plan,

forfeitures were allocated to her account.    Petitioners have

failed to establish that participation in the plan was voluntary,

or, in the alternative, that petitioner properly elected not to

participate.    Petitioners have failed to establish that

petitioner was not an active participant in the plan.

     Petitioners also argue that respondent should be bound by

prior allowance of IRA deductions for tax years 1990 and 1991

under identical circumstances.    Petitioners urge us to adopt a

"rule of decisions", applicable in cases that are eligible for

small tax procedure, precluding the Commissioner from challenging
                                   5

a taxpayer's treatment of an item if the Commissioner

"acquiesced" with respect to such treatment in prior years.       See

sec. 7463.   Respondent counters that the IRA deduction issue

presented in 1990 and 1991 was not litigated and that

respondent's concessions, if any, concerning those years are not

relevant here.    We agree with respondent and reject petitioners'

arguments.

     Each tax year is to be considered separately.       United States

v. Skelly Oil Co., 394 U.S. 678, 684 (1969).     It is well

established that the Commissioner is not bound to allow a

deduction in a tax year although a deduction was permitted in

prior years.     Easter v. Commissioner, 338 F.2d 968, 969-970 (4th

Cir. 1964), affg. per curiam T.C. Memo. 1964-58; Rose v.

Commissioner, 55 T.C. 28, 32 (1970).     We reject petitioners’

argument that an exception to this rule applies to disputes

involving $10,000 or less.

     To reflect the foregoing,


                                            Decision will be entered

                                       for respondent.
