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On November 24, 2003, the Internal Revenue Service (IRS)
mailed to petitioners a notice of deficiency disallowing
petitioner’s $2,000 deduction for his IRA contribution in 2001.
On June 28, 2004, the IRS mailed to petitioners a notice of
deficiency disallowing petitioner’s $3,000 deduction for his IRA
contribution in 2002. Petitioners have conceded the issue for
2002.
Discussion
With certain limitations, a taxpayer is entitled to deduct
the amounts that the taxpayer contributes to an IRA. See sec.
219(a). The deduction, however, may not exceed the lesser of
(1) $2,000 or (2) an amount equal to the compensation includable
in the taxpayer's gross income. See sec. 219(b)(1).
If, for any part of a taxable year, a taxpayer or the
taxpayer’s spouse is an “active participant” in a qualified plan
under section 403(b), the amount of the deduction allowed under
section 219(a) for that year may be further limited. See sec.
219(g)(1), (5)(A)(iv). In the case of a married taxpayer who
files a joint income tax return, the $2,000 limitation of section
219(b)(1) is reduced using a ratio determined by dividing the
excess of the taxpayer's modified AGI over the applicable dollar
amount, which is $53,000 for 2001, by $10,000. See sec.
219(g)(2)(A), (3)(B)(i). Because this case deals with a taxpayer
who was an active participant and who was married and filed a
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Last modified: May 25, 2011