Docket No. 7785-78. | Tax Ct. | Aug 15, 1979
MEMORANDUM OPINION
DAWSON,
This case was submitted fully stipulated pursuant to
Albert I. Addison (petitioner) resided in Los Angeles, California, when he filed the petition in this case. He has been employed by Norris Industries, Inc. since 1965. In 1976 the company terminated its employee retirement plan in which petitioner had been a participant. As a result of the termination, petitioner received a single distribution payment during 1976 in the amount of $11,909.58. None of this amount represented contributions paid to the plan by petitioner as an employee.
At the time of the distribution petitioner was 34 years1979 Tax Ct. Memo LEXIS 207">*210 old and was not disabled. Because he did not transfer any portion of the distribution to an individual retirement account or to another employee plan qualified under section 401, he was unable to use the rollover provisions of section 402(a)(5) to defer tax on the distribution. When petitioner reported the distribution in his 1976 income tax return, he computed the tax on that amount by applying the 10-year averaging provisions of section 402(e)(1). Respondent, however, determined that the distribution did not qualify as a lump-sum distribution under section 402(e)(4) because petitioner had not reached the age of 59-1/2 as of the payment date. Therefore, respondent claims that petitioner must compute his tax on the distribution without regard to the 10-year averaging rules.
Section 402(a)(1) 2 provides as a general rule that any amounts distributed to an employee from a pension trust qualified under section 401(a) will be taxable to him in the year of distribution. If, however, the distribution qualifies as a lump-sum distribution under section 402(e)(4), then the recipient is entitled to use the 10-year averaging provisions of section 402(e)(1). 3 Section 402(e)(4)(A) defines1979 Tax Ct. Memo LEXIS 207">*211 a lump-sum distribution as follows:
Lump sum distribution.--For purposes of this section and section 403, the term "lump sum distribution" means1979 Tax Ct. Memo LEXIS 207">*212 the distribution or payment within one taxable year of the recipient of the balance to the credit of an employee which becomes payable to the recipient--
(i) on account of the employee's death,
(ii) after the employee attains age 59 1/2,
(iii) on account of the employee's separation from the service, or
(iv) after the employee has become disabled (within the meaning of section 72(m)(7))
from a trust which forms a part of a plan described in section 401(a) and which is exempt from tax under section 501 or from a plan described in section 403(a). * * *
The payment to petitioner clearly does not qualify under the statute because at the time of payment he was (1) still alive, (2) only 34 years old, (3) still employed by the company, and (4) not disabled. Petitioner, however, contends that section 402(e)(4)(A)(ii) is invalid because it discriminates in favor of older employees in violation of the
In
Normally, 1979 Tax Ct. Memo LEXIS 207">*213 a legislative classification will not be set aside if
See also
1979 Tax Ct. Memo LEXIS 207">*214 Both the facts and issue of the present case are strikingly similar to those which we considered in
The taxpayer argued that the statute violated the
We are able to perceive a rational basis for granting preferential1979 Tax Ct. Memo LEXIS 207">*215 capital gains treatment only to employees who retire or separate from service, and their widows, i.e., that Congress could have determined that these individuals are generally less able to pay taxes and generally more dependent on their pensions for a livelihood than employees who continue in their employment. * * *
We think that reasoning is equally applicable here. The legislative history of section 402(e)(1) indicates that the 10-year averaging provisions were primarily intended to benefit individuals who receive lump-sum distributions
1979 Tax Ct. Memo LEXIS 207">*216 Accordingly, we hold that section 402(e)(4)(A)(ii) does not violate the
Footnotes
1. All section references are to the Internal Revenue Code of 1954, as amended and in effect for the year in issue, unless otherwise indicated.↩
2. SEC. 402. TAXABILITY OF BENEFICIARY OF EMPLOYEES' TRUST.
(a) Taxability of Beneficiary of Exempt Trust.--
(1) General rule.--Except as provided in paragraphs (2) and (4), the amount actually distributed or made available to any distributee by an employees' trust described in section 401(a) which is exempt from tax under section 501(a) shall be taxable to him, in the year in which so distributed or made available, under section 72 (relating to annuities). The amount actually distributed or made available to any distributee shall not include net unrealized appreciation in securities of the employer corporation attributable to the amount contributed by the employee. Such net unrealized appreciation and the resulting adjustments to basis of such securities shall be determined in accordance with regulations prescribed by the Secretary or his delegate. ↩
3. In addition, characterization of the payment as a lump-sum distribution may allow the recipient to treat a portion of the payment as capital gain under section 402(a)(2).↩
4. We realize that the
Fourteenth Amendment guarantee of equal protection has been held applicable to the United States through theFifth Amendment due process clause .Bolling v. Sharpe, 347 U.S. 497" court="SCOTUS" date_filed="1954-05-17" href="https://app.midpage.ai/document/bolling-v-sharpe-105222?utm_source=webapp" opinion_id="105222">347 U.S. 497">347Shapiro v. Thompson, 394 U.S. 618" court="SCOTUS" date_filed="1969-04-21" href="https://app.midpage.ai/document/shapiro-v-thompson-107901?utm_source=webapp" opinion_id="107901">394 U.S. 618Massachusetts Bd. of Retirement v. Murgia, 427 U.S. 307" court="SCOTUS" date_filed="1976-06-25" href="https://app.midpage.ai/document/massachusetts-board-of-retirement-v-murgia-109515?utm_source=webapp" opinion_id="109515">427 U.S. 307San Antonio School District v. Rodriguez, 411 U.S. 1" court="SCOTUS" date_filed="1973-04-23" href="https://app.midpage.ai/document/san-antonio-independent-school-district-v-rodriguez-108751?utm_source=webapp" opinion_id="108751">411 U.S. 15. The accompanying committee report states that "the 10-year averaging is provided in order to give roughly the equivalent of what the tax would be were the individual to live 10 years after retirement and receive his interest in the plan over that period." H. Rept. No. 93-779 (1974),
3 C.B. 389">1974-3 C.B. 389↩ .