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By notice dated September 20, 1999 (September notice), the
IRS proposed to change petitioners’ 1997 return to include
unreported pension income. The proposed changes appear to have
been brought about by review of petitioners’ return and the
information returns submitted to the IRS by the Railroad
Retirement Board. Petitioners disagreed with the proposed
changes set forth, and the IRS realized that the proposed changes
failed to include $515 of the taxable Tier 1 railroad retirement
benefits.
By letter dated December 2, 1999, the IRS acknowledged that
the changes proposed in its September notice were incorrect and
proposed revised changes to petitioners’ 1997 return (December
proposed changes). The December proposed changes are the basis
for the statutory notice of deficiency issued petitioners on
April 7, 2000.
Discussion
Since 1983, railroad retirees have been taxed on two
categories of benefits. See Railroad Retirement Solvency Act of
1983, Pub. L. 98-76, 97 Stat. 411. “Tier 1” benefits are taxed
in the same manner as Social Security benefits under the
provisions of section 86. See sec. 86(d)(1)(B). “Tier 2”
benefits are taxed in the same manner as pension benefits
provided under an employer plan that meets the requirements of
section 401(a). See sec. 72(r).
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Last modified: May 25, 2011