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petitioner transferred $3,500 from his checking account to a
separate IRA account in petitioner’s name in America First Credit
Union. Thus the key question we must decide is whether
petitioners received any “compensation” or “earned income” in
2002 from which they could deduct the $3,500 contribution made to
petitioner’s IRA account.
Petitioner’s position is that he is entitled to his IRA
deduction in 2002 because the $4,800 he received from his TSP
distributions in that year constituted “earned income” he
reported on his tax returns as includable in his gross income.
He contends that some of his salary income earned, but not taxed,
in prior years, which was deposited in his TSP account, continued
to be earned income taxable in years when TSP distributions were
made to him. To the contrary, respondent contends that the
“maximum amount” petitioners may claim for an IRA deduction in
2002 is zero because petitioners did not have any “compensation”
(which term includes “earned income”) that was includable in
their gross income pursuant to the provisions of section
219(b)(1)(B) and (f)(1). We agree with respondent for the
reasons stated herein.
With certain limitations, a taxpayer is entitled to deduct
amounts contributed to an IRA. Sec. 219(a). The deduction,
however, may not exceed the lesser of (1) the deductible amount
or (2) an amount equal to the compensation includable in the
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