Academic journal article Journal of Accountancy

No Carryforward of Disallowed IRA Deduction: Deposits Were Not 'Excess Contributions' within the Meaning of Sec. 219(g), and Shifting Them to a Subsequent Year Was Not Otherwise Allowable, the Tax Court Holds

Academic journal article Journal of Accountancy

No Carryforward of Disallowed IRA Deduction: Deposits Were Not 'Excess Contributions' within the Meaning of Sec. 219(g), and Shifting Them to a Subsequent Year Was Not Otherwise Allowable, the Tax Court Holds

Article excerpt

The Tax Court denied a taxpayer's attempt to deduct in a later tax year the disallowed deduction for an IRA contribution from a previous tax year. According to the court, the amount was not an excess contribution; therefore, it could not be carried forward to a future year, and there also was no other legal basis to permit the carryforward.

Facts: Stephen Dunn, a tax attorney during the years at issue and at trial, was employed during 2008 at a law firm, where he was an active participant in the firm's retirement plan, but he was self-employed from late 2008 through 2010. In January and March 2009, Dunn contributed a total of $6,000, then the maximum contribution amount for a taxpayer age 50 or older, to his IRA, deducting that amount on his and his wife's 2008 joint federal income tax return. In June 2009 and January 2010, he contributed $5,000 and $1,000 to his IRA, respectively, designated them as contributions for 2009, and deducted the $6,000 on the couple's 2009 return. After the IRS disallowed the 2008 deduction due to Dunn's active participation in his former employer's plan, he contributed $800 to his IRA in January 2010, designated it for tax year 2010, and then deducted $6,000 on the couple's 2010 return. The taxpayer petitioned the Tax Court for relief after the IRS reduced the 2010 deduction to $800.

Issues: A taxpayer can contribute to an IRA (up to $6,000 in 2009 for taxpayers age 50 or older) and generally may deduct that amount on his or her tax return. However, under Sec. 219(g), if one or both of the spouses on a joint tax return are active participants in an employer retirement plan and their adjusted gross income (AGI) on the return reaches a certain level, the IRA deduction for any covered spouse is gradually reduced to zero as the couple's AGI increases.

If a taxpayer contributes more than the maximum allowable amount to an IRA for a given year, the excess contribution can be applied to a later tax year. …

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