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Respondent disallowed Mrs. Colombell’s $3,500 IRA deduction
and determined a $999 deficiency on the basis of her active
participant status in 2002.3
Discussion
Generally, a taxpayer is entitled to deduct amounts
contributed to an IRA. See sec. 219(a); sec. 1.219-1(a), Income
Tax Regs. The deduction may not exceed the lesser of (1) the
deductible amount or (2) an amount equal to the compensation
includable in the taxpayer’s gross income for such year. Sec.
219(b)(1). For 2002, the deductible amount was $3,000, increased
to $3,500 if the taxpayer was age 50 or older before the close of
the taxable year. Sec. 219(b)(5)(A) and (B).
If, however, for any part of a taxable year, a taxpayer or a
taxpayer’s spouse is an “active participant” in a qualified plan
under section 401(a), the deductible amount of any IRA
3 Although respondent disallowed $3,500 of the $7,000
deduction claimed by petitioners, respondent conceded at trial
that Mrs. Colombell would be entitled to $3,500 of basis in her
IRA. Accordingly, when Mrs. Colombell receives distributions
from her IRA, she will be entitled to recover $3,500 tax free,
consistent with applicable law. Any income on that investment
would continue to accrue in a tax-deferred manner. See generally
sec. 408.
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