Orzechowski v. C. I. R.

• Decision Date: 20 February 1979
• Docket Number: No. 107,D,107
• Citation: 592 F.2d 677
• Parties: 79-1 USTC P 9220, 1 Employee Benefits Ca 1237 Richard W. and Janet ORZECHOWSKI, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee. ocket 78-4061.
• Court: U.S. Court of Appeals — Second Circuit

Page 677

592 F.2d 677

79-1 USTC P 9220, 1 Employee Benefits Ca 1237

Richard W. and Janet ORZECHOWSKI, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.

No. 107, Docket 78-4061.

United States Court of Appeals Second Circuit.

Argued Oct. 20, 1978.

Decided Feb. 20, 1979.

Richard W. Orzechowski, for appellants.

William S. Estabrook III, Tax Division, Dept. of Justice, Washington, D.C. (M. Carr Ferguson, Asst. Atty. Gen., Gilbert E. Andrews and Leonard J. Henzke, Jr., Tax Division, Dept. of Justice, Washington, D. C., of counsel), for appellee.

Before SMITH, TIMBERS and VAN GRAAFEILAND, Circuit Judges.

VAN GRAAFEILAND, Circuit Judge:

This is an appeal by pro se litigants from a decision of the United States Tax Court reported at 69 T.C. 750 (1978). The Tax Court approved the disallowance of a deduction on appellants' 1975 tax return for a $1500 contribution to an individual retirement account (IRA) created by appellant Richard Orzechowski in 1975 and the imposition of a six percent excise tax on the amount of the contribution. We affirm.

The facts, which are set forth in some detail in the Tax Court's opinion, may be summarized briefly. Mr. Orzechowski was a non-contributing participant in his employer's qualified pension plan. Under the terms of the plan, Mr. Orzechowski's rights would not vest until he had completed ten years of continuous service. During his sixth year of participation, he concluded that his employment might not continue for the ten-year vesting period and attempted unsuccessfully to waive coverage under the company plan so that he could create his own retirement program. When he was informed in 1975 that he would shortly be discharged, he promptly opened a retirement account in his own name and deposited $1500 in that account.

DEDUCTIBILITY OF THE IRA CONTRIBUTION

Section 408(a) of the Code permits the creation of an IRA provided it meets certain specified requirements. 26 U.S.C. § 408(a). Section 219(b)(1) permits tax deductions for cash payments into an IRA up to fifteen percent of the taxpayer's gross income, or $1500, whichever is less. Id. § 219(b)(1). No deduction is allowed, however, where the taxpayer is an active participant in a pension plan created by his employer. Id. § 219(b)(2).

At the time Mr. Orzechowski made the $1500 deposit, he was an active participant in his employer's plan; and the Tax Court did not err in disallowing the amount of his deposit as a deduction. Appellants' arguments to the contrary are without merit. Although Mr. Orzechowski was not covered by his employer's collective bargaining agreement, neither the agreement nor the statute limited participation in the employer's retirement program to covered employees. Participation was required by Mr. Orzechowski's employment contract, and he therefore could not opt out without his employer's consent. Although other workmen, whose rights in a plan were vested or who were not covered at all, either had or could establish more certain tax-supported benefits than Mr. Orzechowski had or could establish, this did not violate his Fifth Amendment rights. Congress's objective was to prevent non-vested participants from creating their own tax-supported retirement program, thereby securing double benefits after their rights in their employer's plan vested. See H.Rep.No. 93-807, 93d Cong., 2d Sess. (1974), Reprinted in (1974) U.S.Code Cong. & Ad.News 4639, 4670, 4794. Because there thus appears to be a rational basis for the legislative classification at issue herein, it meets constitutional standards. See Massachusetts There was no illegality in the plan itself. Its ten-year vesting requirement was permitted by statute, 26 U.S.C. § 411(a)(2)(A), and the Tax Court found that the employer did not deliberately discharge employees to prevent their rights from being vested. The compulsion on Mr. Orzechowski to participate came solely from his employer and did not involve governmental action for purposes of the Fifth Amendment. See Reid v. McDonnell Douglas Corp., 443 F.2d 408, 409-11 (10th Cir. 1971); Cf. Railway Employes' Department v. Hanson, 351 U.S. 225, 231-32, 76 S.Ct. 714, 100 L.Ed. 1112 (1956) (Railway Labor Act).

Board of Retirement v. Murgia, 427 U.S. 307, 314-17, 96 S.Ct. 2562, 49 L.Ed.2d 520 (1976); United States v. Maryland Savings-Share Insurance Corp., 400 U.S. 4, 6-7, 91 S.Ct. 16, 27 L.Ed.2d 4 (1970); Dandridge v. Williams, 397 U.S. 471, 485, 90 S.Ct. 1153, 25 L.Ed.2d 491 (1970).

THE EXCISE TAX

Section 4973(a) of the Code imposes a tax of six percent on the amount of the excess contribution to an IRA, which in Mr. Orzechowski's case was $1500. See 26 U.S.C. § 4973(b). Although the Tax Court acted unanimously in disallowing the contribution as a deduction, its members were in sharp disagreement as to the imposition of the six percent tax. The dissenting judges were obviously concerned over the fact that the penalties resulting from the excess contribution were not limited to a one-time six percent...