                         T.C. Memo. 1997-34



                       UNITED STATES TAX COURT



          MARK J. FUHRMAN & MARY A. FUHRMAN, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



       Docket No. 21178-95.                   Filed January 21, 1997.



       Mark J. Fuhrman and Mary A. Fuhrman, pro sese.

       J. Anthony Hoefer, for respondent.


                         MEMORANDUM OPINION


       CARLUZZO, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.    Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year at issue.     All

Rule references are to the Tax Court Rules of Practice and

Procedure.
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     Respondent determined a deficiency in petitioners' 1992

Federal income tax in the amount of $630.   The issue for decision

is whether petitioners are entitled to a deduction for

contributions to individual retirement accounts.   The resolution

of this issue turns upon whether Mark J. Fuhrman was an employee,

within the meaning of section 219(g)(5), of the State of Nebraska

during 1992.

Background

     All of the facts have been stipulated and they are so found.

At the time that the petition was filed in this case, petitioners

resided in Fremont, Nebraska.   References to petitioner are to

Mark J. Fuhrman.

     In 1992, petitioner was a district court judge for the Sixth

Judicial District in the State of Nebraska.   The appointment

process, powers, and duties of such judges are described in the

Nebraska Constitution and Nebraska Revised Statutes.

     During 1992, petitioner was a member of, and contributed to,

the Nebraska Retirement Fund for Judges (the fund).    The fund was

established and is administered pursuant to Neb. Rev. Stat. secs.

24-701 through 24-714 (1995).   It is funded from the following

sources:   deductions withheld from the Nebraska judges' salaries;

a $1 fee taxed as costs in each civil and criminal cause of

action or proceeding filed in the Nebraska district and county

courts; a sum equal to 10 percent of the fees assessed in

probate, inheritance tax, trust, and guardianship and
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conservatorship proceedings in the Nebraska county courts; and

fees assessed in prosecution actions related to city ordinances

regulating non-moving traffic violations.

     On their 1992 Federal income tax return (the 1992 return),

petitioners reported gross income of $73,505.46 and adjusted

gross income of $71,161.85.    The income so reported consists

primarily of petitioner's salary as a Nebraska district court

judge.    Mary Fuhrman was unemployed and received no compensation

during 1992.    On the Form W-2 provided to petitioner by the State

of Nebraska and attached to the 1992 return, there is an "X" in

the box for pension plan.    During 1992, petitioner contributed

$2,250 to individual retirement accounts (IRA's) described in

section 408.    On the 1992 return, petitioners claimed a deduction

of $2,250 for the contributions to the IRA's.

     In the notice of deficiency, respondent disallowed the IRA

deduction and provided the following explanation:

            We didn't allow your deduction for IRA
            contributions because you were covered by a
            retirement plan at work * * *, and your
            "modified adjusted gross income" is more that
            $50,000 * * *.

Discussion

     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.    For a married individual filing a joint return, the

deduction in any taxable year may not exceed the lesser of $2,250

or an amount equal to the compensation includable in the
                               - 4 -

individual's gross income for the taxable year.   Sec. 219(c)(2).

If the individual is an active participant in certain pension

plans during the taxable year, the deduction is reduced if the

individual's adjusted gross income exceeds a threshold amount as

specified in section 219(g).   For an individual who files a joint

Federal income tax return, this provision results in the total

disallowance of the deduction if the individual's adjusted gross

income exceeds $50,000.

     The provisions of section 219(g) are only applicable if the

individual, or the individual's spouse, is an "active

participant" in certain pension plans for any part of the taxable

year.   For purposes of this case, an "active participant"

includes an individual who is an active participant in a plan

established for its employees by a State or political subdivision

thereof.   Sec. 219(g)(5)(A)(iii); see Freese v. Commissioner,

T.C. Memo. 1996-224.

     Implicit in respondent's adjustment disallowing the

deduction here in dispute is her determination that petitioner

was an employee of the State of Nebraska.   Petitioners disagree

and argue that petitioner was not an employee, but rather an

officer of the State of Nebraska.   Therefore, according to

petitioners, he was not an active participant in a retirement

plan established by the State of Nebraska for its employees.

Thus, petitioners contend that the provisions of section 219(g)

do not operate to reduce or eliminate their IRA deduction.
                                - 5 -

     The parties focus on petitioner's employment relationship

with the State of Nebraska, and we do likewise.   Petitioners

apparently agree that the fund constitutes a pension plan within

the meaning of section 219(g), and to the extent that petitioner

was an employee of State of Nebraska, he was an active

participant in that plan.

     Although the term "employee" is defined for other purposes

throughout the Internal Revenue Code, see e.g., section 3401(c),

Congress did not provide a statutory definition for purposes of

section 219.   However, this Court and the Court of Appeals for

the Eighth Circuit, where appeal lies in this case, focused

precisely on this point in Porter v. Commissioner, 88 T.C. 548

(1987), revd. 856 F.2d 1205 (8th Cir. 1988), affd. on other

grounds sub nom. Adams v. Commissioner, 841 F.2d 62 (3d Cir.

1988).

     In Porter v. Commissioner, supra, we considered whether for

purposes of section 219(g), Federal judges appointed under

Article III of the United States Constitution (Federal judges)

were employees of the United States.    Acknowledging that Congress

used the term "employee" in different ways throughout the

Internal Revenue Code, we decided that for purposes of that

section Congress intended the common-law definition of the term

to apply.   Id. at 553-554.   After reviewing the authority and

function of Federal judges and the relevant common-law principles

typically considered in resolving issues relating to the
                                 - 6 -

characterization of master-servant type relationships, we

concluded that for purposes of section 219(g), Federal judges

were not employees of the United States.    Therefore, we held

that the limitations imposed by that section were not applicable

to Federal judges.

     Congressional reaction to our opinion in Porter was

relatively swift.    In the Omnibus Budget Reconciliation Act of

1987 (OBRA), Pub. L. 100-203, sec. 10103, 101 Stat. 1330-386,

which was not codified, Congress specifically provided that

Federal judges should be treated as employees for purposes of

section 219(g).

     Following the enactment of section 10103 of OBRA, in Porter

v. Commissioner, 856 F.2d 1205 (8th Cir. 1988), revg. 88 T.C. 548

(1987), the Court of Appeals for the Eighth Circuit reversed our

decision.    The Court of Appeals for the Eighth Circuit rejected

our method of construing the statutory language, and directed

that the term "employee" be defined by giving it a meaning

consistent with the general purposes of the statute in which it

is found.    Id. at 1208.   In this regard, the Court of Appeals for

the Eighth Circuit concluded that Congress enacted section 219 in

an attempt to achieve, with respect to tax advantaged retirement

plans, some degree of parity between those individuals who had

access to such plans through employment and those individuals who

did not.    Treating both categories of individuals equally for

purposes of section 219 would not be consistent with the overall
                                - 7 -

goal of the statute.   Accordingly, the Court of Appeals for the

Eighth Circuit reasoned that for purposes of section 219(g), the

term "employee" should be broadly defined to include those

individuals who are otherwise covered by employment-based, tax

advantaged retirement plans.    Using this definition, the Court of

Appeals for the Eighth Circuit held that for purposes of section

219(g), Federal judges were employees of the United States and

subject to the limitations imposed by that section.

     The Court of Appeals for the Eighth Circuit considered

section 10103 of OBRA and concluded that the legislation

supported its reasoning.   Contrary to petitioners' argument on

the point, the Court of Appeals for the Eighth Circuit did not

base its holding on such legislation.

     Given the Court of Appeals for the Eighth Circuit's holding

as to how the term "employee" is to be defined for purposes of

section 219, there is no point in addressing petitioners'

contention that under relevant common-law principles, petitioner

is no more an employee of the State of Nebraska than a Federal

judge is an employee of the United States.   Likewise, we need not

consider petitioners' argument that section 10103 of OBRA is only

applicable to Federal judges.   Whether we agree with petitioner

on either point is of no consequence in applying the holding of

the Court of Appeals for the Eighth Circuit to the facts of this

case, as we are persuaded by respondent to do.   See Golsen v.
                              - 8 -

Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir.

1971).

     Because petitioner was covered by an employment-based, tax

advantaged retirement plan during 1992, we hold that for purposes

of section 219(g) he was an employee of the State of Nebraska.

     Accordingly, there being no dispute as to whether the fund

was a pension plan within the meaning of section 219,

respondent's determination disallowing the deduction here in

dispute is sustained.

     To give effect to the foregoing,

                                           Decision will be

                                      entered for respondent.
