16 Employee Benefits Cas. (BNA) 2001 | Tax Ct. | 1993
MEMORANDUM OPINION
RAUM,
Petitioner has invoked the jurisdiction of this Court under section 7476 to obtain a declaratory judgment as to whether the plan and the trust meet the requirements of
The issues relate to the timeliness of amendments made to petitioner's plan as they affected 1985 through 1987 in order to bring the plan into compliance with the requirements for tax-qualified status contained in
1993 Tax Ct. Memo LEXIS 100">*102 Petitioner is a law partnership; its principal place of business was in Madisonville, Kentucky, at the time it filed the petition herein. In 1984, petitioner formed the Mills, Mitchell & Turner pension plan and trust, a defined benefit pension plan. The plan was adopted by petitioner on June 29, 1984, effective as of January 1, 1984.
On August 30, 1984, Trustee Maubert R. Mills filed a Form 5300, Application for Determination for Defined Benefit Plan, for the MMT plan and trust. On February 28, 1985, the Commissioner issued a favorable determination letter (First Determination Letter) for the plan. However, the determination was made subject to petitioner's adoption of a proposed amendment previously submitted by petitioner to the Commissioner in a letter dated January 17, 1985. On or about January 25, 1985, petitioner adopted that proposed amendment (
During the plan years ended December 31, 1985, 1986, and 1987, petitioner's plan consultant was Gogerty & Company, Inc. (Gogerty), located in Indianapolis, Indiana. In 1993 Tax Ct. Memo LEXIS 100">*103 December of 1987, petitioner engaged a new plan consulting firm, Lexington Plan Administrators, Inc. (Lexington), located in Gold River, California. Lexington suggested amendments to petitioner's plan which were subsequently adopted on January 19, 1988. The plan as thus amended was dated January 19, 1988, and was signed by the three name partners as trustees and by one of them on behalf of petitioner as employer. It was sent to the IRS by Lexington for petitioner by letter dated January 27, 1988, requesting a determination as to whether the amended plan thus submitted met the requirements of
1993 Tax Ct. Memo LEXIS 100">*104 The Commissioner thereafter on December 1, 1988, issued to petitioner a favorable determination letter (Second Determination Letter) with regard to the plan submitted on January 27, 1988, but it was limited to plan years beginning after December 31, 1987.
However, on December 1, 1988, the Commissioner also advised petitioner by letter that the IRS proposed to revoke the favorable determination letter dated February 28, 1985, i.e., the First Determination Letter, and to disqualify the plan as not meeting the requirements under
The Commissioner's determination as to the years 1985-1987 was based upon petitioner's failure to amend its plan prior to the expiration of the deadlines1993 Tax Ct. Memo LEXIS 100">*105 fixed by
The issues before us are: (1) Whether the Commissioner is barred by law from retroactively revoking the tax-qualified status of petitioner's pension plan under
1.
1993 Tax Ct. Memo LEXIS 100">*107 REA also made numerous changes to the requirements for tax qualification. Several of those changes were set forth in section 202 of REA, which lowered certain age limits relating to minimum participation in qualified plans, lowered certain other age limits relating to the determination of nonforfeitable percentages, and made various changes relating to "breaks in service". 98 Stat. 1436-1440.
TRA and REA were effective, at least to the extent relevant here, for tax years beginning after December 31, 1984. TRA, secs. 521-529, 98 Stat. 865-877; REA, sec. 302(a), 98 Stat. 1451. However, because each of those Acts required extensive amendments to existing plans, the IRS has at various times extended the deadlines for making the required amendments.
Since petitioner did not amend its plan to comply with the TRA and REA requirements until at least January 19, 1988, it missed each of the deadlines noted above. Petitioner's plan must, therefore, obviously be disqualified for each of those plan years. Nevertheless, petitioner contends in substance that the changes were
a. Under
1993 Tax Ct. Memo LEXIS 100">*112 To be sure, section 1.401(b)-1(b)(2) of the regulations was amended August 5, 1988,
1993 Tax Ct. Memo LEXIS 100">*113 b.
Subsequent cases have, however, made clear that "our
Petitioner did not apply for its second determination letter, i.e., the determination letter pertaining to the plan amendments required by TRA and REA, until approximately three and one-half years after the enactment of TRA and REA. We have recently held that a delay of such length in attempting to conform the plan to the TRA and REA requirements "indicates a lack of anything [even] approaching reasonable diligence."
We hold that petitioner did not use reasonable diligence in attempting to obtain a favorable determination letter from the IRS, and that the plan amendments which petitioner1993 Tax Ct. Memo LEXIS 100">*116 made in 1988 may not be treated as retroactively qualifying the plan for the plan years ending December 31, 1985, 1986, and 1987.
c.
Petitioner next argues that it is entitled to relief under the IRS Employee Plans Closing Agreements Pilot Program (EPCAPP). 11 In accordance with that program, "
Petitioner's1993 Tax Ct. Memo LEXIS 100">*117 position in respect of EPCAPP is fatally flawed for a number of reasons. We mention only several of them. EPCAPP was merely a "pilot program", and was limited to certain "key district offices". We have no way of knowing whether any of those districts included petitioner. Moreover, EPCAPP was a completely discretionary program. Not only is entering into a closing agreement by its very nature entirely within the discretion of the parties, but the pilot program itself was based upon the discretionary application of certain guidelines by the key district offices. Moreover, it is "well settled that a court may not order an agency to perform a discretionary act."
Finally, aside from the fact that EPCAPP relief is a matter within1993 Tax Ct. Memo LEXIS 100">*118 the Commissioner's discretion, EPCAPP was simply not available as an alternative to disqualification at the time that petitioner's plan was disqualified. The program was established
1993 Tax Ct. Memo LEXIS 100">*119 2.
1993 Tax Ct. Memo LEXIS 100">*120 It has been held that each of the following requirements must be met for equitable estoppel: (1) There must be a false representation or wrongful misleading silence; (2) the error must originate in a statement of fact, not in an opinion or a statement of law; (3) the one claiming the benefits of estoppel must not know the "true" facts and must reasonably rely on the false statement; and (4) that such person must be adversely affected by the acts or statements of the one against whom an estoppel is claimed.
We have time and again stated that equitable estoppel is to be applied against the Commissioner only with "the utmost caution and restraint."
We have found each of petitioner's arguments against the Commissioner's retroactive disqualification of its plan for the plan years 1985 through 1987 to be unpersuasive.
Footnotes
1. Except as otherwise indicated, all section references are to the Internal Revenue Code as amended and in effect for the years at issue.↩
2. Petitioner does not present any separate argument with respect to
sec. 501(a) , and there is no dispute that exemption of the trust undersec. 501(a) would follow automatically in this case from qualification of the plan undersec. 401↩ .3. TRA was the first of two divisions of the Deficit Reduction Act of 1984 (DEFRA), Pub. L. 98-369, 98 Stat. 494, enacted July 18, 1984. TRA made various amendments to the Internal Revenue Code of 1954. The other division of DEFRA, the Spending Reduction Act of 1984, is not relevant to this case. The parties in their briefs and in various documents in the administrative record have referred to DEFRA and TRA interchangeably, even though the amendments to
sec. 401(a)↩ that are the subject of this controversy were more specifically part of TRA.4. The waters have been muddied by MMT's subsequent submission of another plan in July 1988 signed at that time, purporting to be the only executed plan meeting the requirements of TRA and REA. The plan thus submitted was in response to the Commissioner's request in an undated letter to petitioner for information as to whether the plan was timely amended so as to satisfy the requirements of TRA and REA. That submission was made in an enclosure accompanying a letter of July 19, 1988, signed on behalf of MMT by one of its partners. The letter stated that MMT had relied on Gogerty, its former plan administrator, to provide it with any amendments necessary to keep the plan in compliance, and that Gogerty "must have failed to properly perform its duties if the plan was allowed to fall out of technical compliance." The letter further stated that petitioner "searched * * * [its] records" and asked its former plan administrator [Gogerty] to "search the records", that petitioner has been "unable to locate a signed and dated document amending the previous plan", that the "previous administrator has provided us with a document which was neither signed nor dated", and that "I have signed this and enclose it herewith." The enclosed plan was captioned "
Second Amendment↩ " and was not dated. Why the IRS made this request of petitioner is somewhat of a mystery since it already had the amended plan submitted by Lexington in January 1988. Perhaps it was aware of the Lexington plan, which it regarded as untimely, and was inquiring merely to learn whether there was some other amendment which had been adopted prior to the Lexington plan that was qualifying and timely as to all years. Farther adding to the confusion is the implied suggestion in petitioner's letter of July 19, 1988, that there had not been any prior signed qualifying amendment to its plan to meet the TRA and REA requirements, apparently ignoring the Lexington plan, and that it was submitting such an amendment for the first time. The writer of that letter would seem to have been wholly unaware of the signed amended plan submitted by Lexington with its letter of January 27, 1988. Although that amended plan turned out to be timely for the years beginning after December 31, 1987, it was untimely as to the years 1985 through 1987, as we hold hereinafter.5. The top-heavy concept was introduced as part of a series of provisions contained in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324, enacted September 3, 1982. These provisions denied qualification under
sec. 401↩ where certain employees received too large a share of the benefits, and they also imposed additional requirements for vesting and minimum benefits with respect to top-heavy plans. Sec. 240 of TEFRA, 96 Stat. at 514-520.6. The chronology of the various deadline extensions announced by the IRS is set forth in our opinion in
, discussedStark Truss Co. v. Commissioner , T.C. Memo. 1991-329 n.3infra↩ .7. Although
sec. 401(b)↩ is relied upon in the petition, the point is not developed on brief.8.
Sec. 401(b) reads as follows:(b) CERTAIN RETROACTIVE CHANGES IN PLAN. -- A stock bonus, pension, profit-sharing, or annuity plan shall be considered as satisfying the requirements of subsection (a) for the period beginning with the date on which it was put into effect, or for the period beginning with the earlier of the date on which there was adopted or put into effect any amendment which caused the plan to fail to satisfy such requirements, and ending with the time prescribed by law for filing the return of the employer for his taxable year in which such plan or amendment was adopted (including extensions thereof) or such later time as the Secretary may designate, if all provisions of the plan which are necessary to satisfy such requirements are in effect by the end of such period and have been made effective for all purposes for the whole of such period.↩
9. Sec. 1.401(b)-1(b):
Disqualifying provisions. For purposes of this section, with respect to a plan described in paragraph (a) of this section, the term "disqualifying provision" means:
(1) A provision of a new plan, the absence of a provision from a new plan, or an amendment to an existing plan, which causes such plan to fail to satisfy the requirements of the Code applicable to qualification of such plan as of the date such plan or amendment is first made effective, or
(2) A plan provision which results in the failure of the plan to satisfy the qualification requirements of the Code by reason of a change in such requirements effected by the Employee Retirement Income Security Act of 1974 (Pub. L. 93-406, 88 Stat. 829), hereafter referred to as "
ERISA ", or by the Tax Equity and Fiscal Responsibility Act of 1982 (Pub. L. 97-248, 96 Stat. 324), hereafter referred to as "TEFRA↩ ". For purposes of this subparagraph, a disqualifying provision includes the absence from a plan of a provision required by such change if the plan was in effect on the date such change became effective with respect to such plan. [Emphasis supplied.]10. Thus, the amendment adds to the list of statutory enactments the Tax Reform Act of 1986 (to be sharply distinguished from TRA, the Tax Reform Act of 1984) and the Omnibus Budget Reconciliation Acts of 1986 and 1987, but significantly does not refer to TRA or REA. And the amendment also adds another type of "disqualifying provision" to cover changes in the law "effected by amendments to the Code that are designated by the Commissioner, at his discretion." However, as noted in
, the Commissioner has not designated TRA or REA as statutory enactments within this category.Kollipara Rajsheker, M.D., Inc. v. Commissioner , T.C. Memo. 1992-628↩11. EPCAPP is explained in an interview of IRS representatives, a copy of the transcript of which is included in petitioner's opening brief as "attachment 4".↩
12. See page 2 of "attachment 4" referred to
supra↩ note 11.13. See page 4 of "attachment 4" referred to
supra↩ note 11.14. Petitioner's opening brief indicates that EPCAPP was first implemented by the IRS in December of 1990. See petitioner's opening brief, p. 13. As indicated earlier, the IRS Appeals Office issued a final revocation letter on April 11, 1990, determining that petitioner's pension did not meet the requirements of
sec. 401(a)↩ for the plan years ended December 31 of 1985, 1986, and 1987; and petitioner filed its amended petition with this Court on September 10, 1990.15. Petitioner contends, inter alia, that the plan had no operational defects and that none of the participants were, therefore, disadvantaged by the late amendment; that when MMT changed plan administrators, the defects were immediately discovered and corrected; that it relied on the presumed expertise of the former plan administrator (Gogerty) who gave repeated assurances that the plan was doing everything necessary to remain in compliance with
sec. 401(a)↩ ; that the former plan administrator shielded itself from legal liability by not listing himself as a named fiduciary; and that the former plan administrator is judgment proof in any event, because he is uninsured. See petitioner's reply brief, pp. 3-4.