Parimal H. Shankar & Malti S. Trivedi v. Commissioner , 143 T.C. 140 ( 2014 )

PARIMAL H. SHANKAR AND MALTI S. TRIVEDI,
PETITIONERS v. COMMISSIONER OF INTERNAL
REVENUE, RESPONDENT
Docket No. 24414–12. Filed August 26, 2014.
R disallowed Ps’ deduction for contributions to their IRAs,
which Ps claim are deductible because the limitations on
140
(140) SHANKAR v. COMMISSIONER 141
deductibility either do not apply or are unconstitutional. R
also included in Ps’ gross income the value of an airline ticket
that P–H received by redeeming ‘‘thank you’’ award points
that P–H claims he never received. R also redetermined Ps’
alternative minimum tax.
1. Held: Ps are not entitled to a deduction for IRA contribu-
tions because P–W is an ‘‘active participant’’ in an employer-
sponsored retirement plan and Ps’ combined modified
adjusted gross income is above the phaseout ceiling.
2. Held, further, Ps must include in their gross income the
value of the airline ticket received in redemption of ‘‘thank
you’’ award points.
3. Held, further, AMT to be redetermined.
Parimal H. Shankar and Malti S. Trivedi, pro sese.
Lydia A. Branche and Marco Franco, for respondent.
HALPERN, Judge: Respondent determined a deficiency of
$563 in petitioners’ 2009 Federal income tax. The deficiency
resulted principally from respondent’s making the following
adjustments to petitioners’ reported 2009 tax. Respondent
increased petitioners’ gross income by $668 on account of
that amount’s being reported by Citibank, N.A. (Citibank), as
the value of 50,000 ‘‘Thank You Points’’ (thank you points)
petitioner husband (Mr. Shankar) redeemed in 2009 to pur-
chase an airline ticket. Respondent disallowed petitioners’
deduction of $11,000 reflecting their contributions of that
sum under a qualified retirement arrangement (IRA).
Respondent disallowed the deduction because petitioners’
modified adjusted gross income (modified AGI) for 2009
exceeded the statutorily imposed ceiling for such contribu-
tions. Respondent reduced petitioners’ alternative minimum
tax (AMT) from $2,775 to zero. Respondent did not explain
that last adjustment. By amendment to answer, respondent
increased his claim of a deficiency to $6,883 on account of his
recomputation of petitioners’ 2009 AMT.
Unless otherwise indicated, all section references are to the
Internal Revenue Code of 1986, as amended and in effect for
2009, and all Rule references are to the Tax Court Rules of
Practice and Procedure. We round all dollar amounts to the
nearest dollar.
142 143 UNITED STATES TAX COURT REPORTS (140)
FINDINGS OF FACT
Introduction
Petitioners, husband and wife, resided in New Jersey when
they filed the petition.
Petitioners’ Reported Income and Tax Return
For 2009, petitioners filed a joint Federal income tax
return on Form 1040, U.S. Individual Income Tax Return.
During 2009, Mr. Shankar was a self-employed consultant
who reported his self-employment income on Schedule C,
Profit or Loss From Business, attached to the Form 1040.
During 2009, petitioner wife (Ms. Trivedi) was employed by
University Group Medical Associates, PC (Associates). In
addition to paying her a taxable salary, which she reported,
Associates made contributions on her behalf to an annuity
purchase plan described in section 403(b), which she was not
required to report as an item of gross income. Ms. Trivedi
also earned self-employment income, which she reported on
a second Schedule C attached to the Form 1040.
Petitioners claimed a deduction of $11,000 for IRA con-
tributions made in 2009.
They reported AGI of $243,729.
They also reported alternative minimum taxable income of
$235,487 and AMT of $2,775.
Thank You Points
During 2009, Mr. Shankar banked at Citibank. Citibank
reported to Mr. Shankar and to the Internal Revenue Service
on a 2009 Form 1099–MISC, Miscellaneous Income, ‘‘Other
income’’ of $668. Petitioners did not report the income shown
on the 2009 Form 1099–MISC on the Form 1040. At trial, in
order to show that the 2009 Form 1099–MISC properly and
accurately reported the income shown thereon, respondent
introduced into evidence as a business record the affidavit of
Marilyn Kennedy, a duly authorized custodian of records for
Citibank. Attached to the affidavit are documents and com-
puter transcripts from Citibank showing that Mr. Shankar
redeemed 50,000 thank you points on February 27, 2009, to
purchase a restricted coach class airline ticket for travel in
the lower 48 United States, Alaska, and Canada. Also
(140) SHANKAR v. COMMISSIONER 143
attached to the affidavit is a letter from Ms. Kennedy, in
which she, as the custodian of records for Citibank, rep-
resents that the fair market value of the airline ticket was
$668. Respondent provided the affidavit and attachments to
petitioners on September 9, 2013. Trial in this case was held
on December 2, 2013.
Respondent’s Adjustments
Respondent’s adjustments are as described above.
OPINION
I. IRA Contribution Deduction
A. Introduction
Respondent disallowed petitioners’ claimed IRA contribu-
tion deduction because he believes that the $11,000 peti-
tioners contributed is in excess of the amount allowed for
such deductions by section 219(g) (‘‘Limitation on Deduction
for Active Participants in Certain Pension Plans.’’), described
supra. At trial, Mr. Shankar did not dispute the application
of section 219(g); he argued only that it is unconstitutional.
On brief, he suggests that the section 219(g) limitation on
the deductibility of contributions to an IRA is inapplicable
because Ms. Trivedi was not an ‘‘active participant’’ in a
qualified retirement plan.
B. Section 219
In general, a taxpayer is entitled to deduct amounts that
the taxpayer contributes to an IRA for the taxable year. See
sec. 219(a). The deduction may not exceed the lesser of (1)
the deductible amount, which was generally $5,000 for 2009,
or (2) an amount equal to the compensation includible in the
taxpayer’s gross income for such taxable year. Sec. 219(b)(1),
(5)(A). The $5,000 limitation is increased to $6,000 for a tax-
payer who has attained the age of 50 before the close of the
taxable year. See sec. 219(b)(5)(B).
The deductible amount allowed under section 219(a) may
be further limited if the taxpayer or the taxpayer’s spouse is
‘‘an active participant’’ during any part of the year. Sec.
219(g)(1), (5). For purposes of section 219(g), an active
participant means, among others, an individual who actively
144 143 UNITED STATES TAX COURT REPORTS (140)
participates in an annuity contract described in section
403(b). See sec. 219(g)(5)(A)(iv).
For a taxpayer who is an active participant and files a
joint return, section 219(g)(2)(A)(ii) provides that the dollar
amount of the allowable deduction under section 219(a) is
phased out over a $20,000 range of AGI determined with cer-
tain modifications (i.e., modified AGI) beginning at the
‘‘applicable dollar amount.’’ Section 219(g)(3)(A)(ii) provides,
in part, that the individual’s modified AGI is determined
without regard to the IRA contribution deduction under sec-
tion 219. For 2009 the applicable dollar amount at which the
phaseout begins for a married taxpayer filing a joint return
is the taxpayers’ combined modified AGI of $89,000. 1 Notice
2008–102, 2008–45 I.R.B. 1106. Consequently, for 2009 the
IRA contribution deduction is completely phased out for a
married taxpayer who is an active participant and who files
a joint return when the taxpayers’ combined modified AGI
exceeds $109,000.
For a married taxpayer filing a joint return who is not an
active participant but who is the spouse of an active partici-
pant, section 219(g)(7) provides that the dollar amount of the
allowable deduction under section 219(a) is phased out over
a $10,000 range of combined modified AGI beginning at the
applicable dollar amount for such taxpayers. For 2009, the
applicable dollar amount for such a taxpayer is $166,000.
Notice 2008–102, 2008–45 I.R.B. at 1107. That provision
results in a total disallowance of the deduction whenever the
spouses’ combined modified AGI exceeds $176,000.
C. Analysis and Conclusion
Petitioners’ 2009 modified AGI was $255,397 (AGI of
$243,729 plus (1) an addback of an $11,000 IRA contribution
deduction and (2) $668 of unreported income, see infra).
Therefore, because (1) Ms. Trivedi was an active participant
in a section 403(b) retirement plan provided to her by her
employer as described under section 219(g)(5)(A)(iv), and (2)
1 In applying the sec. 219(g) limitations, the Court will look to the com-
bined modified AGI of married taxpayers filing jointly and not to an indi-
vidual spouse’s modified AGI to determine the reduction or elimination of
the IRA contribution deduction. See, e.g., Ho v. Commissioner, T.C. Memo.
2005–133, 2005 WL 1314196, at *2; Wade v. Commissioner, T.C. Memo.
2001–114, 2001 WL 505210, at *2.
(140) SHANKAR v. COMMISSIONER 145
petitioners’ 2009 combined modified AGI exceeds the section
219(g)(2) and (7) threshold and phaseout amounts, section
219(g) does apply to deny petitioners any 2009 deduction for
contributions to an IRA. Petitioners’ statutory arguments to
the contrary are without basis.
Petitioners additionally argue that section 219 is unconsti-
tutional because it discriminates against self-employed
individuals who contribute to IRAs by imposing restrictions
on IRA contribution deductions that do not apply to tax bene-
fits afforded to participants in other types of retirement
plans. Petitioners’ argument is, essentially, that, because the
statute treats individuals who file joint returns with active
participants in a retirement plan differently from those who
are not so described, the statute is discriminatory and, there-
fore, unconstitutional, presumably, in violation of the Equal
Protection Clause. It is unclear whether petitioners believe
that the statute is unconstitutional because it discriminates
against Ms. Trivedi, Mr. Shankar, or both. If they are
arguing that it discriminates against Ms. Trivedi who is her-
self an active participant in a qualified retirement plan, this
Court considered that exact argument in Guest v. Commis-
sioner, 72 T.C. 768, 775–778 (1979), and rejected it. There we
held that, because the classification in section 219(b)(2) that
differentiated between active participants in retirement
plans and nonparticipants in retirement plans did not
involve a fundamental right or a suspect category, it was
constitutional if the classification had a reasonable basis. Id.
at 776. Examining the legislative history in enacting deduc-
tions for IRA contributions, we determined that the reason-
able basis was Congress’ intent to make available ‘‘ ‘a special
deduction for amounts set aside for retirement by employees
who are not covered under a qualified plan * * *, a govern-
ment plan, or a tax exempt organization annuity plan (sec.
403(b)).’ ’’ Id. at 773 (quoting H.R. Rept. No. 93–807, at 126
(1974), 1974–3 C.B. (Supp.) 236, 361).
If petitioners are arguing that the statute discriminates
against Mr. Shankar, who is not himself an active partici-
pant but who is married to an active participant, we also dis-
agree. Although it is not precisely the same issue we
addressed in Guest, the framework for the analysis remains
the same. The limitation on the deductibility of IRA contribu-
tions by one who files a joint return with an active partici-
146 143 UNITED STATES TAX COURT REPORTS (140)
pant in a qualified retirement plan does not involve a funda-
mental right or suspect category and is, therefore, constitu-
tional if the classification is reasonable and has a rational
relationship to the purpose of the legislation. Keeler v.
Commissioner, 70 T.C. 279, 285 (1978). In 1986, Congress
reinstated restrictions on active participants contributing to
IRAs that, in 1981, it had eliminated. See S. Rept. No. 99–
313, at 542 (1986), 1986–3 C.B. (Vol. 3) 1, 542 (accompanying
H.R. 3838, 99th Cong. (1985), enacted as the Tax Reform Act
of 1986, Pub. L. No. 99–514, 100 Stat. 2085). The Committee
on Finance explained the reinstatement of the restrictions as
follows:
[M]any employees of tax-exempt organizations are permitted to make
significant elective deferrals under tax-sheltered annuity programs. The
committee believes that the wide availability of the option to make elec-
tive deferrals under cash or deferred arrangements and tax-sheltered
annuities reduces the prior concern that individuals in employer-main-
tained plans should be able to save additional amounts for retirement
on a discretionary basis. [Id.]
We deem it reasonable to extend the foregoing rationale as
a basis for limiting or denying an IRA contribution deduction
to an individual where his or her spouse is an active partici-
pant. Whether the individual or the spouse (or each) is an
active participant, the economic family unit has the ability to
save in a tax-favored manner as much as Congress thinks
proper through active participation in an employer-sponsored
plan (or plans) and to the extent IRA contribution deductions
are allowed. Although petitioners find themselves on the
‘‘wrong’’ side of the line Congress has drawn, they have not
shown the slightest foundation for their constitutional attack
on Congress’ drawing of that line. Therefore, as in Guest, we
reject petitioners’ argument challenging the constitutionality
of the deduction disallowance provision.
II. Unreported Income
Respondent increased petitioners’ gross income by $668 on
account of that amount’s being reported as ‘‘Other income’’ on
the 2009 Form 1099–MISC. Petitioners deny receipt of the
income shown on the 2009 Form 1099–MISC. In general, the
taxpayer bears the burden of proving facts to support his
assignments of error to the Commissioner’s determination of
a deficiency. See Rule 142(a). Pursuant to section 6201(d),
(140) SHANKAR v. COMMISSIONER 147
however, if, in any court proceeding, a taxpayer asserts a
reasonable dispute with respect to the income reported on an
information return and the taxpayer has fully cooperated
with the Commissioner, then the Commissioner has the bur-
den of producing reasonable and probative information in
addition to the information return.
Because respondent has by way of Ms. Kennedy’s affidavit
and its attachments provided reasonable and probative
information in addition to the information reported on the
2009 Form 1099–MISC that, during 2009, Mr. Shankar
received from Citibank other income of $668, we need not
consider whether he reasonably disputes that report or that
he has fully cooperated with respondent. Respondent has car-
ried any burden imposed on him by section 6201(d). Indeed,
in carrying that burden, respondent has provided us with
evidence in the form of Citibank records (i.e., computer tran-
scripts) showing that, on February 27, 2009, Mr. Shankar
redeemed 50,000 thank you points to purchase a restricted
coach class airline ticket. Contradicting that evidence we
have only Mr. Shankar’s testimony that, in effect, he knows
nothing about any thank you points and received no award.
Petitioners had ample time between their receipt of the
Citibank records on September 9, 2013, and the trial of this
case on December 2, 2013, to investigate the information pro-
vided in the Citibank records and to show to us that it was
in error. They did not do so. Ms. Trivedi did not appear at
trial, so we do not have the benefit of her view of whether
Mr. Shankar received the award. On balance, we give more
weight to Citibank’s records showing Mr. Shankar’s receipt of
an award than we do to his testimony to the contrary, and
we find that he did in 2009 receive from Citibank in redemp-
tion of 50,000 thank you points a restricted coach class air-
line ticket. There are still the questions of whether receipt of
the airline ticket constituted receipt of an item of gross
income and, if so, its value.
Section 61(a) defines the term ‘‘gross income’’ to include
‘‘all income from whatever source derived’’. The term has
been broadly interpreted. See, e.g., Commissioner v.
Glenshaw Glass Co., 348 U.S. 426, 431 (1955) (gross income
includes ‘‘instances of undeniable accessions to wealth,
clearly realized, and over which the taxpayers have complete
dominion’’). We are not here dealing with the taxability of
148 143 UNITED STATES TAX COURT REPORTS (140)
frequent flyer miles attributable to business or official travel,
with respect to which the Commissioner stated in Announce-
ment 2002–18, 2002–1 C.B. 621, he would not assert that a
taxpayer has gross income because he received or used fre-
quent flyer miles attributable to business travel. Petitioners
have provided us with no information concerning the reason
Citibank awarded Mr. Shankar thank you points. Mr.
Shankar did not object when, at the start of the trial in this
case, respondent’s counsel answered in the affirmative the
Court’s question as to whether, besides the IRA contribution,
the other item in dispute, i.e., ‘‘Other income’’, involved the
omission from the Form 1040 of interest. Respondent’s
counsel added that the omitted income was a noncash award
for opening a bank account. We proceed on the assumption
that we are dealing here with a premium for making a
deposit into, or maintaining a balance in, a bank account. In
other words, something given in exchange for the use
(deposit) of Mr. Shankar’s money; i.e., something in the
nature of interest. In general, the receipt of interest con-
stitutes the receipt of an item of gross income. See sec.
61(a)(4). Receipt of the airline ticket constituted receipt of an
item of gross income, and petitioners have failed to show that
it was worth any less than $668, which Citibank, which had
purchased the ticket, said was its fair market value. 2 But cf.
Turner v. Commissioner, T.C. Memo. 1954–38 (in which we
determined that the ‘‘proper fair figure’’ to be included in the
taxpayers’ gross income on account of the taxpayer husband’s
winning steamship tickets on a radio quiz show was substan-
tially less than the tickets’ retail price because the tickets’
value to the taxpayers was not equal to their retail cost). On
account of Mr. Shankar’s receipt of the airline ticket, peti-
tioners omitted $668 of gross income from the Form 1040.
III. Alternative Minimum Tax
Petitioners reported on the Form 1040 an AMT of $2,775.
Without explanation, respondent reversed that tax as part of
his adjustments. By amendment to answer, respondent avers
that petitioners’ 2009 AMT is $6,320. By raising a new
matter, respondent has the burden of proving that his AMT
2 Neither party has addressed, nor do we consider, whether award of the
thank you points, itself, may have been the taxable event.
(140) SHANKAR v. COMMISSIONER 149
adjustment is correct. See Rule 142(a)(1). Respondent
explains that, in determining the deficiency in petitioners’
2009 Federal income tax, he made a computational error in
computing petitioners’ AMT. Since petitioners reported a
2009 AMT and they have furnished no evidence to controvert
respondent’s explanation of his computational error, we are
satisfied that they are liable for the AMT for 2009. We will
enter decision under Rule 155. Any dispute as to the correct
calculation of the AMT can be raised in the Rule 155 com-
putation.
IV. Conclusion
We sustain respondent’s adjustments underlying his deter-
mination of a deficiency in tax.
Decision will be entered under Rule 155.
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