Judge Kashi Way makes his opinionated debut on this my blog today, and Pamuela Reynolds, T. C. Memo. 2024-116, filed 12/30/24, gets the bad news from Judge Way. Her deficiency is affirmed.

Pamuela was formerly employed by the alma mater of no fewer than two (count ’em, two) of my nearest and dearest. While so employed, Pamuela participated in the William Marsh Rice University Defined Contribution Plan (401A) (Defined Contribution Plan) and the William Marsh Rice University Tax Deferred Annuity Plan (Annuity Plan) (collectively, Plans). The custodian for the Plans was TIAA.” T. C. Memo. 2024-116, at p. 2.

Pamuela drew $160K from Plans n year at issue, whereupon Plans gave Pamuela a couple  Forms 1099–R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., at no extra charge. Pamuela reported only $56K thereof as taxable.

After Judge-‘splaining the difference between a Roth plan and traditionals like the Plans, that contributions with post-tax dollars earn a bye on distribution (Roths) and those paid for with pretax dollars don’t (“pay me now or pay me later”), Judge Way sends Pamuela empty away.

“Petitioner argues that her contributions were ‘picked up’ or paid for by Rice University and that the distributions from the Plans are therefore excludable from her taxable income. Nothing in the record shows that petitioner paid tax on the contributions at the time they were made or that the Plans were Roth plans eligible for tax-free distributions.

“Petitioner argues that because contributions to the Plans were mandatory and made by her employer on her behalf, they are not subject to tax. However, neither the mandatory nature of the contributions to the Plans, nor the fact that they were made by her employer, serves to exclude from tax distributions from such plans.” T. C. Memo. 2024-116, at pp. 4-5.

IRS did fold the five-and-ten substantial understatement chops.