Docket No. 11341-87R. | Tax Ct. | Apr 25, 1988
Petitioner terminated 66-2/3 percent of its workforce in 1982. As a result, respondent determined that petitioner partially terminated its employee pension plan and trust and that, by failing to treat the trust account balances of the terminated employees as nonforfeitable, petitioner violated the
MEMORANDUM OPINION
STERRETT,
The parties submitted 1988 Tax Ct. Memo LEXIS 203">*204 this case on a full stipulated administrative record pursuant to Rule 122, and the stipulated record is incorporated herein by this reference.
Petitioner, Peter M. Boruta, M.D., P.C., a professional corporation, had its principal place of business in Rochester, Michigan, when it filed its petition in this case. Beginning on or about May 1, 1979, petitioner established and maintained the Peter M. Boruta, M.D., P.C. Pension Plan and Trust, a money purchase plan that initially constituted a qualified trust under
At the beginning of the Plan year commencing on May 1, 1982, petitioner's three employees, including Dr. Boruta, an orthopedic surgeon, all participated in the Plan. However, during that Plan year, petitioner closed its medical office, terminated its employment relationship with the other two employees, 3 and treated their retirement account balances as forfeitable to the Trust. 4
In a final adverse determination letter dated February 10, 1987, respondent determined 1988 Tax Ct. Memo LEXIS 203">*206 that petitioner had partially terminated the Plan in 1982 because petitioner terminated a "significant number" (2 out of 3) of the Plan participants. Respondent further determined that petitioner, by failing to treat the terminated employees' Trust account balances as nonforfeitable after the partial termination, thereby violated the nonforfeiture provisions of the Plan and also of
We consider whether the Trust constituted a qualified trust under
In order for 1988 Tax Ct. Memo LEXIS 203">*207 the Trust to constitute a qualified trust under the provisions of
On the other hand, petitioner asserts that respondent failed to consider, as required by applicable regulations, 7 certain facts and circumstances including, as discussed in
In
Notwithstanding this significant percentage reduction, however, petitioner argues that its alleged lack of bad faith or predatory efforts in the present case precludes a finding of a partial termination. Indeed, in
Even if we were to accept petitioner's argument, we are not persuaded that petitioner lacked bad faith or predatory efforts in the present case considering that, by closing its office and determining that it no longer desired or needed the services of the two employees, petitioner initiated their departures and, by failing to treat their Trust account balances as nonforfeitable, petitioner created a potential for a windfall to the remaining participant. 81988 Tax Ct. Memo LEXIS 203">*212 See, e.g.,
On this record, petitioner simply presents no facts and circumstances indicating anything contrary to a partial termination during the 1982 Plan year as a result of a significant percentage reduction in Plan participants. 91988 Tax Ct. Memo LEXIS 203">*213 See, e.g.,
Petitioner presents no further arguments of merit. Accordingly, we hold that the Trust does not constitute a qualified trust under
Footnotes
1. Unless otherwise indicated, all section references are to the Internal Revenue Code of 1954, as amended and in effect during the years at issue, and all rule references are to the Tax Court Rules of Practice and Procedure. ↩
2. Specifically, petitioner included the following provision in the Plan:
Upon full or partial termination of the Plan or complete discontinuance of contributions, any unallocated funds shall be allocated to Participants in the same manner as Company contributions, and the interest of each Employee who is a Participant in the Plan, retired Participant, or withdrawn Participant in the accumulations in his Account, shall be nonforfeitable, and shall continue to be paid to him if he be already retired, or if he be not retired shall be paid to him at and after he reaches his Early Retirement Age in the same manner and under the same options as provided for retired employees * * *.
3. At this time, Dr. Boruta was planning to join another medical practice. Accordingly, the other two employees were terminated on October 25, 1982, and December 17, 1982, respectively, because their services were considered unnecessary and duplicative of the services of the employees in Dr. Boruta's new practice. ↩
4. Subsequently, at the time of petitioner's own corporate dissolution on May 1, 1983, petitioner completely terminated the Plan and treated the Trust account balance of the remaining participant, Dr. Boruta, as fully vested and nonforfeitable. ↩
5.
Section 411(d)(3) provides, in pertinent part, that:Notwithstanding the provisions of subsection (a), a trust shall not constitute a qualified trust under
section 401(a) unless the plan of which such trust is a part provides that --(A) upon its termination or partial termination, * * *
the rights of all affected employees to benefits accrued to the date of such termination, partial termination, or discontinuance, to the extent funded as of such date, or the amounts credited to the employees' accounts, are nonforfeitable * * *. ↩
6. In this regard, respondent asserts that, because Congress intended that "a partial termination might include, under certain circumstances, a large reduction in the work force * * *," petitioner, by reducing its workforce by 66-2/3 percent (2 out of 3 employees), partially terminated the Plan. See H. Rept. No. 93-807 (1974), 1974-3 C.B. Supp. 236, 300; S. Rept. No. 93-383 (1973), 1974-3 C.B. Supp. 80, 129. ↩
7. Petitioner cites
sec. 1.411(d)-2(b)(1), Income Tax Regs. , which provides, in pertinent part:Whether or not a partial termination of a qualified plan occurs (and the time of such event) shall be determined by the Commissioner with regard to all the facts and circumstances in a particular case. Such facts and circumstances include: the exclusion, by reason of a plan amendment or severance by the employer, of a group of employees who have previously been covered by the plan; and plan amendments which adversely affect the rights of employees to vest in benefits under the plan. ↩
8. Although, as stated in
Kreis v. Charles O. Townley, M.D. & Associates, P.C., 833 F.2d 74" court="6th Cir." date_filed="1987-11-06" href="https://app.midpage.ai/document/wilmont-kreis-v-charles-townley-497030?utm_source=webapp" opinion_id="497030">833 F.2d 74section 411(d)(3) to protect employees in the event of terminations or partial terminations of qualified trusts. SeeTipton & Kalmbach, Inc. v. Commissioner, 83 T.C. 154" court="Tax Ct." date_filed="1984-07-25" href="https://app.midpage.ai/document/tipton--kalmbach-inc-v-commissioner-4485217?utm_source=webapp" opinion_id="4485217">83 T.C. 1549. In this regard, we are most persuaded by the substantial percentage reduction in the present case, noting that "The regulation's plain language clearly directs us to consider all the facts and circumstances, of which the percentage of excluded plan participants is but one,
albeit generally the most persuasive one [Emphasis added]."Kreis v. Townley, supra at 79