DocketNumber: Docket No. 11308-80.
Citation Numbers: 42 T.C.M. 917, 1981 Tax Ct. Memo LEXIS 266, 1981 T.C. Memo. 470
Filed Date: 8/31/1981
Status: Non-Precedential
Modified Date: 11/21/2020
MEMORANDUM FINDINGS OF FACT AND OPINION
DAWSON,
*267 OPINION OF THE SPECIAL TRIAL JUDGE
GILBERT,
FINDINGS OF FACT
All of the facts in this case were stipulated. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.
Petitioner Richard L. Ferguson resided in Mill Valley, California, at the time of the filing of his petition.
Petitioner timely filed a Federal income tax return for the year 1978. Petitioner elected to compute his tax liability by means of the income averaging provisions contained in sections 1301 through 1305. Accordingly, he completed Schedule G of Form 1040. His computation of base period income on lines one through six of the form was set forth as follows:
(a) | (b) | (c) | (d) | |
1977 | 1976 | 1975 | 1974 | |
1. Enter amount from Form 1040 | ||||
(1977) - line 34, Form 1040A - | ||||
line 10 | 3,441 | |||
2. Multiply $ 750 by the total | ||||
number | ||||
of exemptions claimed in 1977 | 750 | |||
3. Taxable Income (subtract line 2 | ||||
from line 1). If less than zero, | ||||
enter zero | 2,691 | (1,769) | (2,165) | (1,070) |
4. * * * | ||||
5. If you checked on your 1978 Form | ||||
1040, box * * * 1 or 4 enter $ 2,200 | ||||
* * * in columns (b), (c), and (d) | 2,200 | 2,200 | 2,200 | |
6. Base period income (add lines 3, 4 | ||||
and 5) | 2,691 | 431 | 35 | 1,130 |
*268 Respondent issued a notice of deficiency to petitioner on April 17, 1980. In a statement attached thereto, respondent recomputed petitioner's tax liability by replacing with zeros the negative figures petitioner had entered on line 3, Schedule G for the years 1976, 1975, and 1974, bringing the computation into accordance with the instructions on the form. This resulted, after the amounts on line 3 were increased by petitioner's zero bracket amount, in base period income for each of those years equal to the zero bracket amount and, ultimately, an increase in petitioner's 1978 tax liability of $ 506.54.
OPINION
Eligible taxpayers may elect to compute their tax liability using the income averaging provisions of sections 1301 through 1305.
Section 1301 provides as follows:
Sec. 1301. Limitation on tax.
If an eligible individual has averagable income for the computation year, and if the amount of such income exceeds $ 3,000, then the tax imposed by section 1 for the computation year which is attributable to averagable income shall be 5 times the increase in tax which would result from adding 20 percent of such income to 120 percent of average base period income. 3
*269 The term "average base period income" is defined in section 1302(b)(1) as "one-fourth of the sum of the base period incomes for the base period." Section 1302(b)(2) defines "base period income" for a taxable year as the taxable income for such year, with certain adjustments which are not applicable in the present case.
(b) Base period income -- (1) Definition * * * Base period income for any taxable year may never be less than zero.
In
Subsequent to the decision in the
(3) Transitional rule for determining base period income.--The base period income (determined under paragraph (2)) for any taxable year beginning before January 1, 1977, shall be increased by the amount of the taxpayer's zero bracket amount for the computation year.
The petitioner argues that, since the 1977 Act, it is base period income
Petitioner's argument has previously been advanced by other taxpayers without success. 5 Most recently, the taxpayers in
The statutory language of section 1302(b)(3) is plain. For pre-1977 years base period income is
It*272 is uncontested that petitioner's taxable income for each of the years 1976, 1975, and 1974 was ($ 1,769), ($ 2,165), and ($ 1,070), respectively. Under the opinion in
In support of his contention that it is only after the increase required by section 1302(b)(3) that base period income may not be less than*273 zero, petitioner argues that the "base period income" referred to in
Petitioner further argues that respondent's petition that pre-1977 base period income may ultimately be no less than the zero bracket amount denies the use of the zero rate bracket to taxpayers who use the income averaging provisions. We do not find that respondent's position has this effect. While respondent's position would, in some cases, cause the taxpayer's average base period income to be higher*274 and his averageable income correspondingly lower, the taxpayer's income for the computation year up to an amount equal to 120 percent of his average base period income would still be taxed at the rates found in the lower tax brackets, beginning with the zero rate bracket.
Accordingly, the determination of the respondent is sustained.
1. All section references are to the Internal Revenue Code of 1954, as amended, unless otherwise indicated. ↩
2. Pursuant to the order of assignment, on the authority of the "otherwise provided" language of
3. The term computation year means the year for which the taxpayer chooses the benefits of income averaging. Sec. 1302(c)(1).↩
4. The Act replaced the standard deduction, which had previously been in use, with a zero rate bracket which was incorporated into the tax rate tables of section 1.↩
5.