                  T.C. Summary Opinion 2012-9



                 UNITED STATES TAX COURT



    KANGSHENG ZHU AND LANPING ZHANG, Petitioners v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 25570-10S.                        Filed January 26, 2012.



Kangsheng Zhu and Lanping Zhang, pro sese.

Lowell D. Thomas, for respondent.
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                               SUMMARY OPINION


        DAWSON, Judge: This case was heard pursuant to the provisions of section

7463 of the Internal Revenue Code in effect when the petition was filed.1 Pursuant

to section 7463(b), the decision to be entered is not reviewable by any other court,

and this opinion shall not be treated as precedent for any other case.

        Respondent determined a deficiency in petitioners’ Federal income tax of

$1,625 for 2008.

        After concessions,2 the only issue we must decide is whether to sustain

respondent’s disallowance of $4,000 of petitioners’ claimed deduction for

contributions to Lanping Zhang’s traditional individual retirement account (IRA) for

2008.




        1
       Unless otherwise indicated, all subsequent section references are to the
Internal Revenue Code in effect for the year in issue.
        2
       Petitioners conceded that they paid only a total of $10,000 rather than
$11,000 into their respective individual retirement accounts for 2008. They also
conceded that they did not report a Virginia State income tax refund of $1,012
received in that year and a claimed mortgage insurance premium deduction of $411.
                                        -3-

                                    Background

      All the facts have been stipulated by the parties and are so found. Petitioners

are husband and wife who resided in Virginia when their petition was filed.

      Although petitioners’ full names are Kangsheng Zhu and Lanping Zhang, they

are hereinafter referred to as Zhu and Zhang, respectively. Both petitioners reached

age 51 in 2008.

      Zhu was employed by Enterprise Business Solutions (EBS). He received

$80,965.84 in wages from EBS in 2008. He was not covered by a qualified pension

plan at EBS. His wife Zhang was employed by Nordstrom, Inc. (Nordstrom). She

received wages of $30,073.33 from Nordstrom during 2008. Zhang was an active

participant in Nordstrom’s qualified pension plan.

      Zhu received a 2008 Form 5498, IRA Contribution Information, from

Ameritrade showing traditional IRA contributions of $6,000. Zhang received a

2008 Form 5498 from Ameritrade showing traditional IRA contributions of $4,000.

      On their jointly filed Federal income tax return for 2008 petitioners reported

adjusted gross income of $104,034. To arrive at this figure, petitioners claimed

three “above the line” deductions: $122 for a penalty on an early withdrawal of
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savings, $6,000 for alimony paid, and $11,000 for IRA contributions. In the notice

of deficiency respondent disallowed $5,000 of petitioners’ claimed IRA contribution

deduction. Respondent allowed Zhu a $6,000 IRA contribution deduction because

he was not covered by a qualified pension plan at EBS, he was over age 50, and the

couple’s modified adjusted gross income (AGI) was less than $159,000. However,

respondent disallowed all of the $4,000 IRA contribution deduction attributable to

Zhang’s IRA because she was an active participant in a qualified pension plan and

because the couple’s modified AGI exceeded the phaseout ceiling amount for 2008.

                                     Discussion

      With certain limitations, a taxpayer is entitled to deduct amounts that the

taxpayer contributes to an IRA. See sec. 219(a). However, the deduction for an

individual who has attained the age of 50 may not exceed the lesser of (1) the

deductible amount3 or (2) an amount equal to the compensation includable in the

taxpayer’s gross income. See sec. 219(b)(1), (5)(A) and (B).




      3
       Subject to certain limitations for 2008, $5,000 was generally the largest
allowable deductible amount for contributions to an IRA. Sec. 219(b)(5)(A). An
additional $1,000 IRA contribution deduction was available as a “catch-up
contribution” for individuals 50 or older. Sec. 219(b)(5)(B)(ii).
                                         -5-

      The deductible amount allowed under section 219(a) and (b) may be further

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

pension plan during any part of the year. Sec. 219(g)(1); sec. 1.219-2(a), Income

Tax Regs. For taxpayers who file their Federal income tax returns as married filing

jointly, section 219(g) provides that the dollar amount of the allowable deduction

under section 219(a) is phased out over a $20,000 range of AGI beginning at the

applicable dollar amount. For this purpose, section 219(g)(3)(A)(ii) provides, in

part, that the individual’s AGI is determined without regard to the IRA deduction

under section 219.

      For the tax year 2008 the applicable dollar amount for Zhang, who was an

active participant in Nordstrom’s qualified pension plan and who filed her return as

married filing jointly with her husband Zhu, was $85,000 and completely phased out

at $105,000 because her modified AGI under section 219 exceeded that amount.

See Rev. Proc. 2007-66, sec. 3.22, 2007-2 C.B. 970, 975.

      In applying section 219(g)(2) and (3), the Court looks to the combined AGI

of married taxpayers filing jointly and not to an individual spouse’s AGI to

determine the reduction or elimination of the IRA contribution deduction. Ho v.

Commissioner, T.C. Memo. 2005-133. Thus, with respect to petitioners’ modified

AGI, the computation begins with the total amount of income, $121,256, that
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petitioners reported on their 2008 joint Federal income tax return. With the

inclusion of the omitted Virginia State income tax refund of $1,012, their total

income was $122,268. After reductions for the $122 penalty paid and the $6,000

for alimony paid, petitioners’ modified AGI was $116,146.4 Consequently, because

petitioners’ modified AGI exceeds the phaseout ceiling of $105,000, petitioners are

not entitled to deduct any of the $4,000 of contributions to Zhang’s IRA for 2008.

      We note that petitioners erred in claiming their IRA contribution deduction

for Zhang by mistakenly applying the computation instructions in Table 1-3 (page

16) rather than Table 1-2 (page 15) of Internal Revenue Service Publication 590,

Individual Retirement Arrangements (IRAs), dated January 30, 2009, for 2008

income tax returns. Table 1-2 shows the effect of modified AGI on an IRA

deduction for an individual covered by a retirement plan at work.

      In summary, Zhang’s filing status was married filing jointly, and her modified

AGI was more than $105,000. Thus she is not entitled to an IRA deduction for

2008. Accordingly, the Court sustains respondent’s determination that the

application of section 219(g)(2) and (3) results in the total disallowance of



      4
       The determination of petitioners’ modified AGI is made without regard to
the IRA deduction allowable under sec. 219. See sec. 219(g)(3)(A).
                                        -7-

petitioners’ claimed IRA contribution deduction of $5,000, consisting of Zhang’s

claimed $4,000 IRA contribution deduction and the deduction for a $1,000

contribution for Zhang that petitioners never made.

      To reflect the foregoing and petitioners’ concessions,


                                                      Decision will be entered

                                              for respondent.
