- 3 - In general, a taxpayer is entitled to deduct the amount of his contribution to an IRA. See sec. 219(a). The deduction in any taxable year generally is limited to $2,000. See sec. 219(b)(1)(A). The amount of the deduction is further limited where the taxpayer or his spouse is, for any part of the taxable year, an “active participant” under certain pension plans. See sec. 219(g). In such a case, for married taxpayers who file a joint return, the deduction allowable with respect to either spouse is reduced to zero where the taxpayers’ adjusted gross income (as modified by section 219(g)(3)(A)) equals or is greater than $50,000. See id. Petitioners’ modified adjusted gross income in 1995, as reflected on their return, exceeded $50,000. Thus, if petitioner was an active participant in 1995, petitioners are not entitled to deduct contributions made to IRA’s. An active participant is defined by the statute to include an individual who is an active participant in a plan described in section 401(a). See sec. 219(g)(5)(A)(i). Elaborating upon this circular definition, the regulations provide that an individual is an active participant in a profit-sharing plan if, during the taxable year, (1) a forfeiture is allocated to his account, (2) an employer contribution is added to his account, or (3) a mandatory or voluntary contribution is made by the individual to his account. See sec. 1.219-2(d)(1) and (e), Income Tax Regs. An individual’s status as an active participant in a plan is notPage: Previous 1 2 3 4 5 6 Next
Last modified: May 25, 2011