                T.C. Summary Opinion 2006-134



                     UNITED STATES TAX COURT



         WILLIAM H. AND SANDRA G. FLANK, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11503-05S.            Filed August 29, 2006.



     William H. and Sandra G. Flank, pro sese.

     Michelle L. Maniscalco, for respondent.



     DEAN, Special Trial Judge:   This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code as in

effect at the time the petition was filed.   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.   The decision
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to be entered is not reviewable by any other court, and this

opinion should not be cited as authority.

     Respondent determined for 2002 a deficiency in petitioners’

Federal income tax of $1,360.    After a concession,1 the issues

for decision are:   (1) Whether petitioners are entitled to claim

a deduction for contributions made to an individual retirement

account (IRA), (2) whether a portion of the IRA distribution that

petitioner William H. Flank (petitioner) received in 2002 was

taxed twice, and (3) whether respondent made computational errors

in determining petitioners’ tax liability.

                             Background

     The stipulation of facts and the exhibits received into

evidence are incorporated herein by reference.    At the time the

petition in this case was filed, petitioners resided in

Chappaqua, New York.    Petitioner Sandra G. Flank (Mrs. Flank)

neither executed the stipulation of facts nor appeared at trial.

Respondent has filed with the Court a motion to dismiss for lack

of prosecution as to Mrs. Flank.    Respondent’s motion will be

granted.   The decision, when entered, will be in the same amount

as ultimately determined against petitioner.

     Both petitioner and Mrs. Flank were employed by Pace

University in 2002.    During 2002, Mrs. Flank was an active


     1
      Respondent concedes an adjustment of $206 to petitioners’
return for claimed securities losses.
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participant in an employer-sponsored retirement plan through her

employment with Pace University.

     In May of 2002, petitioner contributed $3,500 into an

existing “classic” IRA with Teachers Insurance and Annuity

Association - College Retirement Equities Fund (TIAA-CREF).   In

December of 2002, petitioner elected to convert his classic IRA

into a Roth IRA.   As a result, petitioner received a distribution

of $10,487.86 (distribution) from the classic IRA which he

deposited into a Roth IRA with TIAA-CREF.

     Petitioners received from TIAA-CREF a Form 1099-R,

Distributions From Pensions, Annuities, Retirement or Profit-

Sharing Plans, IRAs, Insurance Contracts, etc., for 2002,

indicating that the distribution resulted in a taxable amount of

$10,487.86.   Petitioners included that amount as income on their

return.

     Petitioners also received for 2002 a Schedule K-1, Partner’s

Share of Income, Credits, Deductions, etc., from Oxford

Residential Properties, LLP, which showed that petitioners had

interest income of $6.28 and real estate income of $130.68 from

the partnership.   Petitioners did not include these income items

on their return.
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     Petitioners jointly filed for 2002 a Form 1040, U.S.

Individual Income Tax Return.   Petitioners reported adjusted

gross income (AGI) of $161,328.15 and claimed an IRA contribution

deduction of $3,500.

     Respondent subsequently issued to petitioners a statutory

notice of deficiency for 2002 disallowing the IRA contribution

deduction of $3,500.   In addition, respondent determined

adjustments for interest and real estate income from a

partnership,2 and other computational adjustments to the return.

                             Discussion

     The Commissioner’s determinations are presumed correct, and

generally taxpayers bear the burden of proving otherwise.3   Rule

142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).

IRA Contribution Deduction

     Tax deductions are a matter of legislative grace with the

taxpayer bearing the burden of proving entitlement to the




     2
      In the petition, petitioners did not raise any issues
regarding the interest and the real estate income reported on
Schedule K-1. Therefore, petitioners are deemed to have conceded
them. Rule 34(b)(4); see Funk v. Commissioner, 123 T.C. 213, 215
(2004).
     3
      Petitioner has not raised the issue of sec. 7491(a), which
shifts the burden of proof to the Commissioner in certain
situations. This Court concludes that sec. 7491 does not apply
because petitioner has not produced any evidence that establishes
the preconditions for its application.
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deductions claimed.   Rule 142(a)(1); INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992).

     With certain limitations, a taxpayer is entitled to deduct

the amounts contributed to an IRA.     Sec. 219(a).   The deduction,

however, may not exceed the lesser of (1) the deductible amount

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

taxpayer’s gross income for such taxable year.     Sec. 219(b)(1).

For 2002, the deductible amount is $3,000.     Sec. 219(b)(5)(A).

The deductible amount is increased to $3,500 if the taxpayer was

50 or older before the close of the taxable year.     Sec.

219(b)(5)(B).

     If, for any part of a taxable year, the taxpayer or the

taxpayer’s spouse is an “active participant” in a qualified plan

under section 403(b), the amount of the deduction allowed under

section 219(a) for that year may be further limited.     Sec.

219(g)(1), (5)(A)(iv).   In the case of a married taxpayer who

filed a joint income tax return, the deductible amount is reduced

using a ratio determined by dividing the excess of the modified

AGI4 over the applicable dollar amount by $10,000.     Sec.

219(g)(2)(A).   The applicable dollar amount was $54,000 in 2002.


     4
      For purposes of sec. 219(g), modified AGI refers to AGI
that is computed without regard to any deduction for an IRA.
Sec. 219(g)(3)(A). Moreover, in applying sec. 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. See
Ho v. Commissioner, T.C. Memo. 2005-133.
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Sec. 219(g)(3)(B)(i).    In other words, the taxpayer’s IRA

contribution deduction starts to phase out when the modified AGI

is $54,000, and the deduction is completely phased out when the

modified AGI exceeds $64,000.

     If the limitation on deductions for IRA contributions under

section 219(g) applies to a taxpayer solely because his spouse

was an active participant, the applicable dollar amount is

$150,000.    Sec. 219(g)(7).   This means that the taxpayer’s IRA

contribution deduction starts to phase out when the modified AGI

is $150,000, and the deduction is completely phased out when the

modified AGI exceeds $160,000.     See sec. 219(g)(2)(A).

     Petitioners’ modified AGI is $164,828.15 ($161,328.15 +

$3,500).    Petitioners are not allowed to claim an IRA

contribution deduction for 2002, because Mrs. Flank was an active

participant and the modified AGI exceeded $160,000.

Whether a Portion of the 2002 Distribution Was Taxed Twice

     Petitioner asserts that $3,500 of the distribution that he

received in December of 2002 represents the amount of the IRA

contribution that he made earlier in the same year.     He argues

that he is taxed on the $3,500 as a result of the distribution in

December of 2002 and that he will be taxed on the same $3,500 as

a result of respondent’s disallowing the IRA contribution

deduction claimed on his 2002 return.
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       Generally, any amount “paid or distributed out of” an IRA is

includable in gross income by the taxpayer in the manner provided

under section 72.    Sec. 408(d)(1).    Pursuant to section

408(d)(4), this general rule does not apply to the distribution

of any contribution paid during a taxable year to an IRA if:

             (A) such distribution is received on or before the
       day prescribed by law (including extensions of time)
       for filing such individual’s return for such taxable
       year,

            (B) no deduction is allowed under section 219 with
       respect to such contribution, and

            (C) such distribution is accompanied by the amount
       of net income attributable to such contribution.

       In May of 2002, petitioner contributed $3,500 into a classic

IRA.    In December of 2002, petitioner received a distribution of

$10,487.86 from the classic IRA, which included the $3,500 IRA

contribution that he made in May of 2002 plus any net income

attributable to the contribution.      Petitioner is not allowed an

IRA contribution deduction under section 219 because petitioners’

modified AGI exceeded the phaseout amount.

       The Court finds that $3,500 of the distribution meets all of

the requirements under section 408(d)(4).      Accordingly, $3,500 of

the distribution is not includable in gross income.

Computation of Petitioners’ Tax Liability

       Petitioner also argues that respondent has rounded up or

rounded down the amounts for the proposed adjustments to the

return to prejudicially favor the IRS.      While this argument has
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no bearing on the legal issues raised in this case, the Court

will nevertheless address this briefly.

       In general, with respect to any amount required to be shown

on a form prescribed for any internal revenue return, statement,

or other document, the fractional part of a dollar is disregarded

unless it amounts to one-half dollar or more, in which case, the

amount is increased by $1.    Sec. 6102(a).     For example, $18.49 is

rounded to $18; $18.50 is rounded to $19; $18.51 is rounded to

$19.    See sec. 301.6102-1(a), Proced. & Admin. Regs.     Rounding

does not apply to items which must be taken into account in

computing the amount that must be reported on a return,

statement, or other documents.      Sec. 6102(c).   Rounding applies

only to the final amount.    Id.

       While petitioner does not dispute that respondent has the

authority to round amounts that have cents into whole-dollar

amounts, he questions whether respondent has consistently and

fairly applied these rounding rules.       In support of his

contention, petitioner presented a copy of the explanation of

proposed changes that was attached to the notice of deficiency.

Petitioner asserts that the miscellaneous deduction for the joint

return is $1,703.57 but in the explanation, respondent rounded

the amount down to $1,703 instead of up to $1,704.       Petitioner

further asserts that the joint taxable income is $131,878.41, but

in the explanation, respondent rounded the amount up to $131,879
                                 - 9 -

instead of down to $131,878.   Petitioner contends that

respondent’s inconsistent application of the rounding rules tends

to result in a higher tax.

     The Court finds that even if petitioner is correct, the

difference in each calculation is less than $1, and the impact on

petitioners’ total tax is negligible.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,



                                              An appropriate order will

                                         be issued, and decision will

                                         be entered under Rule 155.
