Court Unimpressed With $11,000 IRA Deduction

The Tax Court recently slammed a married couple who thought their IRA deduction of $11,000 was entirely right and proper.

Seems the Mrs. worked for an employer which made contributions on her behalf to a retirement plan.  Not uncommon.  But special rules regarding the deductibility of IRA contributions apply in such a case.

Recall that if one of the spouses is an “active participant” during any part of the tax year in a retirement plan at work, the amount of any IRA deduction is reduced – potentially to zero – based on the level of the couple’s adjusted gross income.

Nonetheless, the taxpayers here argued that because the law treats folks who file joint returns while fulfilling the “active participant” test in a retirement plan differently from those who are not, the law is discriminatory, and therefore unconstitutional by virtue of the “equal protection clause.”

The Court had a little trouble discerning just which of the spouses were purportedly being discriminated against.  If the assertion that the Mrs. was the offended party, the Court cited a 1979 case which came before it with precisely the same issue, in which it found the tax law to be reasonable and not unconstitutional.

If the claim was that Mr. Taxpayer was the one discriminated against (though not he, but his spouse had the “active participant” problem), the Court concluded that the “framework” for its analysis was no different.

Nice try.

And from our old friend, IRS Commish John Koskinen, comes word recently of his strong support of the IRS “whistleblower” program.

“I am a strong believer in this program and proud of the work being done by the IRS Whistleblower Office,” quoth Koskinen.  “It is clear that the IRS Whistleblower Program has been making important contributions to the tax system:  over the last three fiscal years, the IRS has paid out more than $186 million in awards, on collection of more than $1 billion based on whistleblower information.”

Seems like the same whistleblower concept should apply to the Lois Lerners of the world, don’t ya’ think?  Is she the only one within IRS with any of the info which the investigators seek?

CONSULT YOUR TAX ADVISOR –  This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He can be reached at 831-7288, welcomes comments at jquinn@ashleyquinncpas.com, and invites readers to consider his other commentary at http://blog.nolo.com/taxes.

Leave comment