Sims v. Comm'r of Internal Revenue

• Citation: 72 T.C. 996
• Decision Date: 29 August 1979
• Docket Number: Docket No. 3107-76.
• Parties: RICHARD M. SIMS, JR., and DALE A. SIMS, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: United States Tax Court

72 T.C. 996

RICHARD M. SIMS, JR., and DALE A. SIMS, PETITIONERS

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 3107-76.

United States Tax Court

Filed August 29, 1979.

The husband-petitioner, an Associate Justice of the Court of Appeal of the State of California, is an active participant in the State's pension plan for judges and is required by law to make contributions to the Judges' Retirement Fund. annuities, disability benefits, and survivor benefits. Retirement annuities are a percentage of the current salary of the office. When the husband-petitioner became entitled to current retirement at the maximum percentage, he did not then retire. Thereafter, the State continued to withhold his mandatory contributions to the Fund. Held, the contributions are includable in petitioners' gross income. Held, further, this inclusion does not violate the due process clause of the Fifth Amendment to the Constitution. Held, further, the contributions are not deductible under sec. 162 or 212, sec. 164, or sec. 170. Richard M. Sims, Jr., pro se.

Peter D. Bakutes and James M. Kamman, for the respondent.

OPINION

CHABOT, Judge:^*

Respondent determined deficiencies in petitioners' Federal individual income tax for the calendar years¹ 1973 and 1974 in amounts of $1,451 and $1,570, respectively.

The issue to be decided is whether petitioners are taxable on amounts withheld from the husband-petitioner's salary as contributions to California's Judges' Retirement Fund where the retirement benefits payable under California's Judges' Retirement Law² are not likely to be increased because of these contributions.³

All of the facts have been stipulated; the stipulation and the stipulated exhibits are incorporated herein by this reference.

At the time the petition in this case was filed, Richard M. Sims, Jr., and Dale A. Sims, husband and wife, were residents of Marin County, Calif. Since Dale A. Sims is a party herein solely by virtue of having filed joint returns with her husband, Richard M. Sims will hereinafter be referred to as the petitioner.

Petitioner was continuously employed by Marin County, Calif., from September 15, 1946, through December 22, 1964, and was continuously employed by the State of California from December 23, 1964, through at least December 31, 1974, as follows:

(a) Deputy District Attorney, Assistant County from September 15, 1946, through January 4, 1953;

(b) Judge of the Municipal Court, Marin County, from January 5, 1953, through September 15, 1960;

(c) Judge of the Superior Court, Marin County, from September 16, 1960, through December 22, 1964; and

(d) Associate Justice of the Court of Appeal, California, from December 23, 1964, through at least December 31, 1974.

As a result of his service as a judge and his election to treat his September 15, 1946, through January 4, 1953, service as though it were service as a judge, petitioner has credit under the Judges' Retirement Law for the entire period from September 15, 1946, onward. Petitioner was born on September 20, 1910. On September 20, 1970, petitioner satisfied the age (60) and service (20 years) requirements making him eligible to retire immediately the current salary of the office (Cal. Gov't Code secs. 75075 and 75076(a) and (c)).

If a judge dies after becoming eligible for retirement, the judge's surviving spouse is entitled to an annuity of one-half of the amount that would have been payable to the judge as a retired judge, until the surviving spouse's death or remarriage (Cal. Gov't Code secs. 75077, 75104.4). If a judge dies before retirement and does not leave a surviving spouse entitled to an annuity, then the judge's designated beneficiary or estate is entitled to a lump-sum payment of up to one-half of the judge's annual salary (Cal. Gov't Code sec. 75104.5). If a judge dies, resigns, or ceases to be a judge before retirement, then the judge or the judge's designated beneficiary is entitled to receive the judge's accumulated contributions to the Judges' Retirement Fund (Cal. Gov't. Code sec. 75104). Various alternative options, including a guaranteed return of not less than the judge's accumulated contributions, are available to a judge who continues to serve as such after retire before that age (Cal. Gov't Code secs. 75070, 75071, 75075). A judge who becomes disabled is entitled to receive a disability allowance of one-half of the current salary of the office (Cal. Gov't Code sec. 75060). A judge who is removed from office by the California Supreme Court must be refunded his or her accumulated contributions ( Cal. Gov't Code sec. 75033.1). A retired judge who is assigned to sit as a judge is to receive 92 percent of the current salary of the office (Cal. Gov't Code sec. 68543.5). If a retired judge receives compensation from holding a public office, the retirement allowance is reduced by the amount of the compensation (Cal. Gov't Code sec. 75080). If a retired judge otherwise engages in the practice of law “or other gainful occupation” before age 70, the retirement allowance ceases permanently (Cal. Gov't Code sec. 75080).

Retirement benefits under the Judges' Retirement Law are funded in part by contributions from the State government (Cal. Gov't Code secs. 75101, 75107, 75108). In addition, the State or local government employer must withhold 8 amount to the Judges' Retirement Fund (Cal. Gov't Code secs. 75102 and 75103).

As of October 1, 1970, petitioner's contributions to the Judges' Retirement Fund totaled $23,397.18.

During the period December 1, 1972, through November 30, 1973, $3,523.14 was withheld from petitioner's salary and paid to the Judges' Retirement Fund; during the period December 1, 1973, through November 30, 1974, $3,691.51 was similarly treated (see n. 1 supra ).

Petitioners offer the following alternative reasons for their not being taxed on the contributions to the Judges' Retirement Fund withheld from petitioner's salary:⁴

(1) The contributions are not includable in petitioners' gross income.

(2) Inclusion of the contributions would be unconstitutional under the Fifth Amendment.

(3) If includable in income, the contributions are deductible under—-

(a) section 162⁵ or 212 as ordinary and necessary expenses for the production

(b) section 164 as State taxes; or

(c) section 170 as gifts to a State for a public purpose.

We consider these issues seriatim.

I. Gross Income

Petitioners maintain that the amounts of petitioner's contributions to the Judges' Retirement Fund are not includable in their gross income because they received no economic benefit from the contributions and did not consent petitioner received economic benefit from the contributions and consented to the making of the contributions.

We agree with respondent.

Gross income includes compensation for services.⁶ Petitioner's employer (the State of California) established the level of salary to be paid as compensation for petitioner's services as Associate Justice of the Court of Appeal ( Cal. Gov't Code secs. 68201(b), 68203). The employer also established a pension plan with a package of benefits. In addition to establishing certain length-of-service and required petitioner to contribute to the plan 8 percent of what was designated as petitioner's salary.

Since many parts of the benefit package are, in effect, alternatives, many of the benefits will never be drawn upon by any individual judge. However, each judge who survives past the point where a particular alternative becomes unavailable or unrealistic as to him or her has nevertheless had the benefit of the availability of that alternative up to that point. No specific contribution, or year's worth of contributions, can fairly be said to have purchased any particular benefit. All the contributions, together with all the service, purchased all the salary and all the Judges' Retirement Law benefits.

As we view the effect of the arrangement mandated by the Judges' Retirement Law, we conclude that there are economic benefits and there is implied consent sufficient to require inclusion in petitioners' gross income of the amounts of petitioner's contributions to the Judges' Retirement Fund. Cohen v. Commissioner, 543 F.2d 725 (9th Cir. 1976), 170 (6th Cir. 1975); Megibow v. Commissioner, 218 F.2d 687 (3d Cir. 1955), affg. 21 T.C. 197 (1953); Miller v. Commissioner, 144 F.2d 287 (4th Cir. 1944), affg. 2 T.C. 267 (1943); Feistman v. Commissioner, 63 T.C. 129 (1974).

Petitioners concede the authority of the foregoing cases, but ask us to focus on whether petitioner's 1973 and 1974 contributions bought for them any additional benefits. They contend that the contributions did not buy them any additional benefits, that this element distinguishes the instant case from the authorities cited above, and that this element is sufficient to require us to decide that the contributions are excludable from their income.

Firstly, we decline to view the matter so narrowly. As we see it, petitioner's 1973 and 1974 contributions were made in partial satisfaction of petitioner's continuing obligation to make payments to the Judges' Retirement Fund in return for payments to be made by the Fund to him, his surviving spouse, or his otherwise designated beneficiary. Each such payment “purchased” an undivided part of the earlier years “purchased” undivided parts of the package of benefits.

Secondly, even if we were to view the matter narrowly, as petitioners urge, we must conclude that we have not been shown that petitioner's 1973 and 1974 contributions “purchased” anything less than had been “purchased” in Cohen and its predecessors. In the Cohen case and its predecessors, the taxpayers' contributions for the years there in issue increased the minimum refund amount required to be paid to the taxpayer, his surviving spouse, or his estate under certain circumstances. Similarly, petitioner's 1973 and 1974 contributions increased the minimum refund amount required to be paid to him, his surviving spouse, or his...