In Uncategorized on 12/10/2012 at 16:19

Bad law, as the old law school mantra goes, and John Bruce Corcoran and Frances H. Corcoran, 2012 T. C. Sum. Op. 119, filed 12/10/12, proves it true yet again. Judge Gerber feels constrained to follow Ninth Circuit and earlier Tax Court decisions, to render a decision that he admits “is inequitable and does nothing to further the congressional purpose underlying the enactment of section 219.” 2012 T. C. Memo. 119, at pp. 6-7.

Section 219 is the deduction (generally reported on one’s Form 1040 as an adjustment to gross income) for contributions to IRAs, where the taxpayer meets certain age and income limits, and is not “actively enrolled” in any employer sponsored retirement plans. And “actively enrolled” means your name is on the books, whether or not you contribute to, or have the right to get one penny from, the employer retirement plan.

Mr. Cork was a salesman for New York Life, “The Company You Keep”, according to their advertising slogan. But though Mr. Cork wanted to keep New York Life, New York Life did not keep Mr Cork. They canned him for low sales in the year in question.

But before kicking him to the proverbial, New York Life did enroll Mr Cork, concededly without his knowledge, in their defined benefit plan. The hitch, of course, is that Mr. Cork would have to stay with New York Life for five years, and meet certain sales hurdles he knew he’d never surmount, before his rights would vest. Mr. Cork never contributed to the defined benefit plan, and never joined New York Life’s defined contribution plan, because he knew he’d never see back centavo uno from anything he kicked in to any New York Life plan.

So he made a $6K IRA catch-up. But New York Life sent him a W-2 stating he was enrolled in a company plan. So IRS disallows Mr. Cork’s deduction.

Mr. Cork argues he didn’t know he was enrolled, got nothing, and New York Life never contributed a dime anyway, because, in the immortal words of the Kerry Dancers, he was “gone, alas, like our youth, too soon.”

But Judge Gerber is constrained to follow precedent (which I suggest can be distinguished, and unhappily, since this is a 7463 throwaway, will not be examined by an appellate court). So agreeing that the result is entirely inequitable, and does nothing to further Congress’ intendment that individuals who choose to postpone present laughter for retirement jollity should catch a wee break, Judge Gerber finds for IRS.

Takeaway- Employees, don’t let your employer do you any favors. If the proffered retirement plan is more like steel chains than golden handcuffs, just say no. And make sure HR gets the word you don’t want it.

  1. Very impressive that you posted this so quickly. You should be more forceful in complaining. This is not bad law. It’s vague law and bad Tax Court. Here’s what I submitted to Tax Notes this morning before seeing your post:

    This is another perfect example of the anti-taxpayer bias in the Tax Court, in a case where the court itself says, “the result is inequitable.” Although Tax Court is not a court of equity, the judges overlook that sometimes when necessary to rule in favor of IRS. (See Woods, 92 TC 776, 790 (1989), Judge Chabot dissenting. The Tax Court decided that it had equitable power to correct an erroneous taxpayer consent, thereby granting a victory to the IRS.)

    The wife, apparently qualified for the IRA deduction, and only the husband’s deduction was disallowed. Unfortunately, Judge Gerber didn’t mention Sec. 219(g) in this context. Perhaps he followed the Golsen rule by preferring a factually distinguishable anti-taxpayer 9th Circuit case over a more factually similar pro-taxpayer 7th Circuit case. (See Saul Mezei and Joseph Judkins, “A Square Peg in a Round Hole: The Golsen Rule in S Cases,” Tax Notes, January 16, 2012, p. 347)

    Given that the facts in this case are unique — no employer retirement plan contributions were made (though not proven), taxpayer didn’t know he was enrolled in an employer plan, and he left employment with no accrued benefits prior to filing his 2008 return, and it’s a non-citable/appealable S case — the judge should have ruled in favor of the taxpayer. I consider that he had Judge Joel Gerber to be a factor. (See Nobles v Commissioner, 105 F3d 436 (CA-9, 1997). Tax Court refused ethical responsibilities of other courts when Judge Gerber would not recuse himself.)


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