Brief Case
Pension Resource
U.S. Tax Court

William Edward & Patricia Marie Colombell v. Commissioner

T.C. Summary Opinion 2006-184 · Docket 23979-04S · Decided Nov 30, 2006 · Armen · T.C. Summary Opinion
Source ↗
Addresses I.R.C. § 401, I.R.C. § 219

Respondent determined a deficiency in petitioners’ Federal income tax for 2002 in the amount of $999. Petitioners timely filed a petition with the Court. The sole issue for decision is whether petitioner Patricia Marie Colombell is an active participant in her former employer’s qualified retirement plan and thus ineligible to deduct her $3,500 contribution to an individual retirement account under section 219.

Background

Some of the facts have been stipulated, and they are so found. We incorporate by reference the parties’ stipulation of facts at trial and accompanying exhibits.

At the time the petition was filed, Patricia Marie Colombell

(Mrs. Colombell) and William Edward Colombell (Mr. Colombell) resided in Fairfax County, Virginia.

Mrs. Colombell worked as an employee as a pro re nata (PRN) emergency room nurse for Inova Health System (Inova) for 15 years, until her retirement in 2005. PRN nurses have no set schedule but work as needed. During the time she worked as a PRN nurse at Inova, Mrs. Colombell was not entitled to health benefits, sick leave, or vacation time.

Inova maintained a cash balance retirement plan, a type of defined benefit plan under section 401(a), for its employees. Beginning in July 1998, participation in the retirement plan was both automatic and mandatory for all employees.

The regulations, however, provide that an individual is an active participant in a defined benefit plan simply by not being excluded from the plan. See sec. 1.219-2(h), Example ( 1 ), Income Tax Regs. No actual behavior on anyone’s part is required. In fact, actual knowledge of the plan’s existence is not even required.5

See, e.g., Baumann v. Commissioner

, T.C. Memo. 1995313. Because Inova’s plan was mandatory for all employees, Mrs.

not “revise the language of the statute as interpreted by the Treasury to achieve what might be perceived to be better tax policy.” FleetBoston Fin. Corp. v. United States , 68 Fed. Cl.

177, 188 (2005) (quoting Marsh & McLennan Cos. v. United States , supra , at 1381). Rather, we must apply the language of the relevant provisions, as written. See Commissioner v. Lundy , 516 U.S. 235, 252 (1996) (courts are “bound by the language of the statute as it is written”); Badaracco v. Commissioner , 464 U.S.

386, 398 (1984) (“Courts are not authorized to rewrite a statute because they might deem its effect susceptible of improvement.”). The Tax Court is a court of limited jurisdiction and lacks general equitable powers. Commissioner v. McCoy , 484 U.S. 3, 7 (1987); Hays Corp. v. Commissioner , 40 T.C. 436, 442-443 (1963), affd. 331 F.2d 422 (7th Cir. 1964). Our jurisdiction to grant equitable relief is limited. Woods v. Commissioner , 92 T.C. 776, 784-787 (1989); Estate of Rosenberg v. Commissioner , 73 T.C.

1014, 1017-1018 (1980). Accordingly, we must sustain respondent’s determination.

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect our disposition of the disputed issue, Decision will be entered for respondent.

Footnotes

1 The decision to be entered is not reviewable by any other court, and this opinion should not be cited as authority.

2 The Form W-2, Wage and Tax Statement, provided by Inova and included by petitioners with their 2002 return, indicated that Mrs. Colombell was an active participant in a qualified retirement plan in 2002. “Active participant” is a term of art, see Discussion, infra , and neither Mrs. Colombell nor Inova ever put any money into the Inova plan for Mrs. Colombell.

3 Discussion Generally, a taxpayer is entitled to deduct amounts contributed to an IRA. See sec. 219(a); sec. 1.219-1(a), Income Tax Regs. The deduction 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 year. Sec. 219(b)(1). For 2002, the deductible amount was $3,000, increased to $3,500 if the taxpayer was age 50 or older before the close of the taxable year. Sec. 219(b)(5)(A) and (B). If, however, for any part of a taxable year, a taxpayer or a taxpayer’s spouse is an “active participant” in a qualified plan under section 401(a), the deductible amount of any IRA

4 See sec. 219(a), (g)(1), and (5)(A)(i). An “active participant” is defined by section 219(g)(5) as an individual: (A) who is an active participant in--(i) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a), (ii) an annuity plan described in section 403(a), (iii) a plan established for its employees by the United States, by a State or political subdivision thereof,or by an agency or instrumentality of any of the foregoing, (iv) an annuity contract described in section 403(b), or (v) a simplified employee pension (within the meaning of section 408(k)), or * * * * * * * (B) who makes deductible contributions to a trust described in section 501(c)(18).

5 Mrs. Colombell may or may not have known that she was eligible to participate in Inova’s 401(k) plan. While this does not change the result we reach, the Court notes that participation in Inova’s 401(k) plan would have led to a pretax savings for retirement, achieving the end tax result desired by petitioners. The determination of whether an individual is an active participant shall be made without regard to whether or not such individual’s rights under a plan, trust, or contract are nonforfeitable. Petitioners logically contend that because Mrs. Colombell never actually participated in the pension, nor did her employer ever participate on her behalf, Mrs. Colombell was not an active participant in the plan. Petitioners invoke the commonly accepted meanings of the terms “active” and “participant”. Thus, the dictionary defines “active” as, inter alia: 1: characterized by action rather than by contemplation or speculation 2: * * * involving action * * * 8: * * * b: engaged in an action or activity Merriam-Webster’s Collegiate Dictionary (10th ed. 1996). Similarly, a “participant” is defined as “one that participates”. Id.

6 There are cases that have held that even de minimis participation is sufficient to render a taxpayer an active participant. See, e.g., Wade v. Commissioner , T.C. Memo. 2001114 (holding that a mandatory contribution amounting to $84.89 was sufficient to constitute active participation even though the taxpayer was unlikely ever to receive benefits under the plan). Others have held that forfeiting rights to a balance in a qualified plan does not mean that the taxpayer was not an active participant for the year in question. See, e.g., Eanes v. Commissioner , 85 T.C. 168 (1985) (stating that a taxpayer who forfeited all rights under his employer’s retirement plan when he left after only 3 months was still an active participant in the plan and was not entitled to a deduction).

7 (...continued) individual’s rights under the plan are forfeitable, was then found only in the legislative history. See H. Rept. 93-807, at 129 (1974), 1974-3 C.B. (Supp.) 236, 364. taxpayer with a zero balance in her account. During the 15 years petitioner worked for Inova, she never once met the threshold for pension credit contributions, nor was her job designed such that it would be realistically possible to do so. Despite the fact that Mrs. Colombell received no tax benefit whatsoever from her “participation” in Inova’s retirement plan, the Court is not free to rewrite the law. See, e.g., Hildebrand v. Commissioner , 683 F.2d 57, 59 (3d Cir. 1982), affg. T.C. Memo. 1980-532; Johnson v. Commissioner , 661 F.2d 53, 54-55 (5th Cir. 1981), affg. 74 T.C. 1057 (1980). We must conclude that petitioner was, for Internal Revenue Code purposes, an active participant in Inova’s retirement plan in 2002. Conclusion The tax code is complex, see generally Cheek v. United States , 498 U.S. 192, 199-200 (1991), and we must enforce the laws as written and interpreted, see Marsh & McLennan Cos. v. United States , 302 F.3d 1369, 1381 (Fed. Cir. 2002); Philadelphia & Reading Corp. v. United States , 944 F.2d 1063, 1074 (3d Cir. 1991). The result in this case is harsh, and unfortunately the Court can appreciate why petitioners will regard it as such. The regulation in its current form, the validity of which has not been called into question, dictates the result. The Court may

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