Alderman v. CommissionerAlderman v. Commissioner
FAY, Judge: Respondent determined a deficiency in petitioners’ Federal income tax for 1982 in the amount of $ 188. The sole issue is whether amounts withheld from petitioners’ salary in 1982 and contributed to a pension plan were “picked up” within the meaning of
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulаtion of facts and attached exhibits are incorporated herein by this reference.
Petitioners Arthur A. Alderman (“petitioner“) and Lakawanna Alderman filed a joint Federal income tax return for their 1982 calendar year and resided in Decatur, Illinois, at the time they filed the petition in this case.
During the year at issue, petitioner was a fireman employed by Decatur. Petitioner also served on the Board of Trustees (“Board“)
In May of 1982, petitioner telephoned a Service employee in Washington, D.C., who, petitioner was informed, was familiar with the Federal tax ramifications of picked up employee contributions. Petitioner was apprised that the information sought by the Board regarding picked up employee contributions would be mailed to the Board. No information was ever sent in response to this inquiry. In November of 1982, in response to a second telephone inquiry, the Board was informed by the same Service employee that a City Council resоlution, similar to a resolution passed by the Decatur City Council as a means of picking up employee contributions
On December 6, 1982, the Decatur City Council passed a resolution (“1982 resolution“) to effectuate a pickup of firemen‘s contributions by providing in relevant part as follows:
Section 1. That employee contributions to the respective retirement funds of the City as aforesaid shall be paid by the City on behalf of all the employees enrollеd in said Funds.
Section 2. That such payment shall be paid by reducing the amount of gross earnings payable to said employee by the amount of contributions and making payment of such amounts directly to the respective funds.
Section 3. That such direct payment of contributions provided hereby shall be effective for all compensation paid to said employees beginning in January, 1983 or beginning
with the next full pay period succeeding receipt by the Director of Finance of a copy of a favorable ruling in regard to the application of said Section 414(h) whichever later occurs.
On December 8, 1982, the Service received a ruling request from the Board seeking to determine the Federal tax treatment of Decatur firemen‘s contributions to the Fund that the Board was attempting to pick up. On March 1, 1983, the Board received a favorable ruling from the Service that employee contributions to the Fund were picked up by Decatur pursuant to
Subsequent to the passage of the 1982 resolution, the Decatur City Council became aware that the Service was sending notices of deficiency to Decatur firemen in which the Service was disallowing deductions from or exclusions to gross income representing the firemen‘s 1982 contributions to the Fund. To remedy shortcomings, if any, to the 1982 resolution
Section 1. That the required Firemen and Policemen employee contributions to the respective Firemen‘s Pension Fund and Policemеn‘s Pension Fund as aforesaid for all compensation earned during calendar year 1982 is hereby deemed to have been a responsibility of the City of Decatur and may be treated for income tax purposes as having been paid directly by the City of Decatur on behalf of the employees enrolled in said funds who deducted the same in computing 1982 adjusted gross income.
Section 2. That the payment of employee contributions to said funds during 1982 shall be deemed to have been provided from a like reduction in the amount of gross earnings paid or payable to said employees.
During 1982, Decatur deducted a total of $ 1,846.06 from petitioner‘s compensation and contributed this amount to the Fund (hereinafter sometimes referred to as “petitioner‘s 1982 Fund contributions“). Petitioner‘s 1982 Form
OPINION
The purpose of the Illinois pick-up statute was to enable a municipality such as Decatur to grant a Federal tax deferral benefit to its employed firemen pursuant to
The distinction between an employer and an employee contribution is important for Federal incomе tax
Petitioner‘s 1982 Fund contributions are clearly employee contributions. 6 Therefore, those 1982 Fund contributions can only be treated for Federal tax purposes as excludable employer contributions if they are picked up by petitioner‘s employing municipality,
The Code does not define the term “pick up.” The Conference Report, in describing the tax treatment of picked up contributions, states as follows:
However, some State and local government plans designate certain amounts as being employee contributions even though statutes authorize or require the rеlevant governmental units or agencies to “pick up” some or all of what would otherwise be the employee‘s contribution. In other words, the governmental unit pays all or part of the employee‘s contribution but does not withhold this amount from the employee‘s salary. In this situation the portion of the contribution which is “picked up” by the government is, in substance, an employer contribution for purposes of Federal tax law, notwithstanding that for purposes of State law the contribution may be designated as an employee contribution. [Emphasis added.]
See H. Rept. 93-807, 93d Cong., 2d Sess. 145 (1974), 1974-3 C.B. 236, 380. In Howell v. United States, 775 F.2d 887, 888 (7th Cir. 1985), the Seventh Circuit, to which an appeal of this case lies and the precedent of which we are bound to follow, 7 had
Petitioners argue that Decatur made such a designation by virtue of either its 1982
The 1982 resolution does not pick up petitioner‘s 1982 Fund contributions because by its very terms, it is not effective for the 1982 taxable year. 8 Accordingly, the 1982 resolution does not designate petitioner‘s 1982 Fund contributions as employer contributions and, therefore, does not effectuate a pickup by Decatur.
The 1985 resolution, by its terms, retroactively designates petitioner‘s 1982 employee contributions as employer contributions. Petitioner argues that since tax legislation can be retroactively applied where there is no violation of due process, see Welch v. Henry, 305 U.S. 134, 147 (1938);
We recognize that our holding is somewhat harsh in that the Board obviously intended to and had at its disposal the means necessary to effectuate a pickup, but because of complexity and confusion did not so effectuate a pickup. The Seventh Circuit in Howell, supra at 889, 890, stated on this issue:
By allowing an employer to designate a contribution as an “employer‘s contribution” and defer taxation of that income until retirement, Congress both created an opportunity and left its exercise to the employer. As an economic matter, employers’ contributions and employees’ contributions are identical; they differ in name only. Under the tax law the name matters, and the employer picks the name.
* * *
The employee is stuck with the employer‘s designation, no matter what it is.
Petitioners’ counsel presentеd their case ably and efficiently. Though we empathize with petitioners’ predicament, Howell, supra, is controlling and we must hold as we do.
Petitioners’ last argument is that respondent is equitably estopped from disallowing petitioner‘s 1982 employee contributions because
Petitioners’ equitable estoppel argument is not novel to this Court. This Court has jurisdiction to apply the doctrine of equitable estoppel if the prerequisites for its application are present. See Boulez v. Commissioner, 76 T.C. 209, 214-217 (1981), affd. 810 F.2d 209 (D.C. Cir. 1987); Graff v. Commissioner, 74 T.C. 743, 760-765 (1980), affd. 673 F.2d 784 (5th Cir. 1982); Schwartz v. Commissioner, 40 T.C. 191 (1963); cf. Pesch v. Commissioner, 78 T.C. 100, 130-131 (1982). We need not delve into the doctrine‘s several elements 9 but to say petitioners have presented no evidence that respondent made an erroneous statement of any fact to petitioner or the Board. We hold that the doctrine
To reflect the foregoing,
Decision will be entered for respondent.