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IRA Contribution Deduction
On their 1996 return, petitioners claimed a deduction of
$2,000 for an IRA contribution for Ms. Huang. Respondent
disallowed this deduction in full. Respondent argues that
petitioners are not entitled to this deduction because Ms. Huang
did not earn any compensation during 1996. Petitioners argue
that the two payments totaling $2,835 paid to Ms. Huang during
that year, discussed above, were compensation.
In general, a deduction is allowed to an individual for
qualified retirement contributions made by the individual for the
taxable year. Sec. 219(a). Among other limitations, the amount
of the deduction for a taxable year cannot exceed the
“compensation includible in the individual’s gross income for
such taxable year”. Sec. 219(b)(1)(B). “Compensation” is
defined in relevant part as “wages, salaries, professional fees,
or other amounts derived from or received for personal service
actually rendered”. Sec. 1.219-1(c)(1), Income Tax Regs.
Specifically excluded from the definition of “compensation” are
interest payments, pension and annuity payments, deferred
compensation, and any amounts not includable in gross income.
Sec. 219(f)(1); sec. 1.219-1(c)(1), Income Tax Regs. The maximum
deduction for married individuals is computed separately with
respect to each individual. Sec. 219(f)(2).
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Last modified: May 25, 2011