RES-GA Dawson, LLC v. Rogers (In re Rogers)RES-GA Dawson, LLC v. Rogers (In re Rogers)
CONTESTED MATTER
ORDER
The Court must determine whether the Debtor, who is the sole trustee for and participant in a profit sharing plan, established and operated this alleged retirement plan in such a way that the Chapter 7 trustee is entitled to administer the assets in the plan for the benefit of creditors. The assets in the plan are estimated to be about $300,000 of cash, personal property and loans.
After Mr. Rogers filed for bankruptcy, a judgment creditor and the Chapter 7 trustee both filed motions to disallow an exemption he claimed in his profit sharing plan. The judgment creditor filed a motion for summary judgment to which Mr. Rogers responded with his own motion for summary judgment. The issues presented are: (1) whether the profit sharing plan is property of the bankruptcy estate and (2) if it is property of the estate, whether Mr. Rogers may exempt the plan under either Georgia law or the Bankruptcy Code. The crux of both issues is whether the plan is “qualified” under 26 U.S.C. § 401. If the plan is a qualified plan, it is either one of the following: (a) not property of the estate or (b) property of the estate which Mr. Rogers could exempt, either of which would render it not subject to administration or claims of creditors. On the other hand, if it is not a qualified plan, then it is property of the estate which Mr. Rogers may not exempt and which the Chapter 7 trustee may administer.
Factual Background
Sometime in 2000 or 2001, Donald Rogers (“Mr.Rogers”) formed ProStar Properties, Inc. (“ProStar Properties”), which was in the business of building houses. (RES-GA’s Statement of Material Facts Not in Dispute (“RES-GA’s SOMF”) ¶¶2; Mr. Rogers Response to RES-GA’s Statement of Material Facts Not in Dispute (“Rogers’ Response”) ¶ 2; Donald Keith Rogers’ Aff. ¶ 2). In 2004, ProStar Properties adopted the ProStar Properties Profit Sharing Plan (the “Plan”). (RES-GA’s SOMF ¶ 5; Rogers’ Response ¶ 5). Mr. Rogers was an officer, the sole owner, and the sole employee of ProStar Properties, as well as the only trustee of the Plan. (RES-GA’s SOMF 4, 7, 24; Rogers’ Response ¶¶ 4, 7, 24). Mr. Rogers’ discontinued his employment with ProStar Properties in 2008, and sometime between 2011 and 2013 ProStar Properties ceased operation. (Rogers’ Aff. ¶ 3-4; RES-GA’s SOMF ¶ 3; Rogers’ Response ¶ 3). The Adoption Agreement and a Summary Plan Description (the “Plan Summary”) are both before the Court, but the actual Plan document has not been presented. (See RES-GA’s Mot. for Summ. J. Exs. B & C, Docs. 57-3 & 57-4).
RES-GA Dawson, LLC (“RES-GA”) is a judgment creditor of Mr. Rogers. It asserts that the Plan is not qualified and points to various facts to support that position, a summary of which follow. RES-GA contends that in 2010 Mr. Rogers’ step-daughter made an $11,000 contribution to the Plan. (RES-GA’s SOMF ¶ 12). Mr. Rogers disputes this allegation, and it appears the parties disagree about whether the money was provided to the Plan as a contribution or a loan. (Rogers’ Response ¶ 12). In 2010 or 2011, the Plan
Mr. Rogers filed for chapter 7 bankruptcy relief on October 23, 2013. On his Schedule B, he listed his interest in the Plan and valued it at $300,000. In addition, on his Schedule C, he claimed the full fair market value of the Plan as exempt pursuant to O.C.G.A. § 44-13-100(a)(2.1). Subsequently, RES-GA and Bradley Patten, the Chapter 7 trustee (the “Trustee”), sought to disallow Mr. Rogers’ exemption of the Plan. (Docs. 17 & 37). Mr. Rogers later amended his Schedule C to not only exempt the Plan under Georgia exemption law, but also pursuant to 11 U.S.C. § 522(b)(3)(C). (Doc. 61). Both RES-GA and the Trustee now seek to disallow the exemption under the. Bankruptcy Code as well. (Does. 67 & 69). After much discovery, Mr. Rogers and RES-GA have filed cross-motions for summary judgment which are presently before the Court (the “Motions”). The Court also heard oral argument on the Motions from counsel for Mr. Rogers, RES-GA, and the Trustee.
Summary Judgment Standard
Summary judgment is appropriate only when there* are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56. The substantive law applicable to the case determines which fácts are material. Anderson v. Liberty Lobby, Inc.,
For issues upon which the moving party bears the burden of proof at trial, he must affirmatively demonstrate the absence of a genuine issue of material fact as to each element of his claim on that legal issue. Fitzpatrick v. City of Atlanta,
Discussion
A. Property of the Estate
Upon the commencement of the case, § 541 creates a bankruptcy estate consisting of “all legal or equitable interests of the debtor in property.” 11 U.S.C. § 541. However, pursuant to § 541(c)(2), “[a] restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankrupt-cy law is enforceable in [a bankruptcy case].” 11 U.S.C. § 541(c)(2). To the extent the Plan has an anti-alienation provision that is enforceable under applicable nonbankruptcy law, the provision is enforceable in this case and the Plan will not become property of the estate. The burden of proof in establishing that something is not property of the bankruptcy estate pursuant to § 541(c)(2) rests on the debtor. See e.g., In re Adams,
In Patterson v. Shumate, the Supreme Court concluded that the applicable non-bankruptcy law referred to in § 541(c)(2) includes not only state law, but applicable nonbankruptcy federal law as well. Patterson v. Shumate,
The fact that the parties agree that this Plan is not ERISA qualified does not end the inquiry. A plan may still be a qualified plan other than under ERISA. Section 541(c)(2) excludes from property of the estate the beneficial interest of a debt- or in a trust that is subject to a restriction on a transfer of that beneficial interest that is enforceable under “applicable non- ■ bankruptcy law,” which includes both state and federal law. Mr. Rogers asserts that - such “applicable nonbankruptcy law” would include O.C.G.A. § 53-12-80(g) as explained by In re Hippie,
Pursuant to O.C.G.A. § 53-12-80(g), “a spendthrift provision in a pension or retirement arrangement described in sections 401, 403, 404, 408, 408A, 409, 414, or 457 of the federal Internal Revenue Code ... shall be valid with reference to the entire interest of the beneficiary in the income, principal, or both, even if the beneficiary is also a contributor of trust property.” In other words, if a retirement plan is governed by any of the listed Internal Revenue Code sections and it properly follows all the requirements in such section, then the spendthrift provision included in that plan is enforceable under Georgia law. If the spendthrift provision is enforceable under Georgia law, then the retirement plan does not become property of the estate pursuant to § 541(c)(2). For example, in Hippie, the court held that an SEP-IRA was not property of the bankruptcy estate pursuant to § 541(c)(2). In re Hippie,
Therefore, whether or not the Plan is property of the bankruptcy estate hinges on whether it is a qualified plan under 26 U.S.C. § 401.
A qualified profit-sharing plan is, among other things, a definite written program communicated to employees and established and maintained by an employer to allow employees “to participate in the profits of the employer’s trade or business.” 26 CFR § 1.401 — l(a)(2)(ii). To become qualified, and thus exempt from taxation, a profit-sharing plan must meet certain criteria provided in § 401. In determining if a plan is qualified, courts must look beyond the form of the plan and examine how the plan is actually operated. In re Blais, No. 93-32191-BKC,
RES-GA argues that the Plan is not qualified because it violates various requirements under § 401, including a distribution requirement, the anti-alienation provision, the exclusive benefit rule, and it claims that various prohibited transactions under § 4975 occurred sufficient to disqualify the Plan.
1. Distribution
RES-GA first argues that the form of the Plan is not sufficient to qualify the trust because it does- not provide for certain required distributions. Section 401(a)(9) provides guidelines for required distributions. In order to be a qualified trust, a plan must require that the entire interest of each employee will be distributed not later than: (a) the “required beginning date” or (b) “beginning not later than the required beginning date, over the life of such employee or over the lives of such employee and a designated beneficiary.” 26 U.S.C. § 401(a)(9)(A). Section 401(a)(9)(C) provides the “required beginning date” to be April 1 of the calendar year following the later of: (1) the calendar year in which the employee attains age 70 \ if the employee is a “5-percent owner ... with respect to the plan year ending in the calendar year in which the employee attains age 70 %” or (2) if the employee is not a “5-percent owner,” the later of April 1 of the calendar year following the calendar year in which he or she attains age 70/é or retires. 26 U.S.C. § 401(a)(9)(C). RES-GA argues that-the Plan is not qualified because it does not contain this requirement that the distributions occur by the “required beginning date.” ’ (RES-GA’s Mot. 10; RES-GA’s First Reply 5). To counter that point, Mr. Rogers points to Article VI of the Plan Summary which states “[i]f you remain employed past your Normal Retirement Date, benefits will be deferred until you actually terminate employment and request them; however, in some cases payment must begin upon your attainment of age 70 A” (Rogers’ Brief in Support of Mot. for Summ. J. (“Rogers’ Mot.”) 7-8, Doc. 65; RES-GA’s Mot. Ex. C, at 14). In addition, contrary to RES-GA’s assertions, the Plan Summary also states:
You may delay the distribution of your vested account balance.- However, if you elect to delay the distribution of your vested account balance, there are rules that require that certain minimum distributions be made from the Plan. If you are a 5% owner, distributions are required to begin not later than the April 1st following the end of the year in which you reach age 70'% If you are not a 5% owner, distributions are required to begin not later than April 1st following the later of the end of the year in which you reach age 70 ½ or retire.
(RES-GA’s Mot. Ex. C, at 16). While the Court does not have the actual plan document before it, it appears that the Plan does contain the required distribution clause based on the Plan Summary.
2. Anti-alienation
Section 401(a)(13) requires a plan to include an anti-alienation provision in which
Section 401(a)(13). states that a trust cannot be qualified if the plan does not provide “that benefits provided under the plan may not be assigned or alienated.” “[A] loan made to a participant ... shall not be treated as an assignment or alienation if such loan is secured by the participant’s accrued nonforfeitable benefit and is exempt from the tax imposed by section 4975 ... by reason of section 4975(d)(1).” Section 4975 imposes an.excise tax on disqualified individuals that engage in certain prohibited transactions. But because the definition of prohibited transaction is broad, § 4975(d)(1) also exempts from taxation prohibited transactions under certain circumstances, including
any loan made by the plan to a disqualified person who is a participant or beneficiary of the plan if such loan — (A) is available to all such participants ... on a reasonably equivalent basis, (B) is not made available to highly compensated employees ... in an amount greater than the amount made available to other employees, (C) is made in accordance with specific provisions regarding such loans set forth in the plan, (D) bears a reasonable rate of interest, and (E) is adequately secured.
Section 4975(f)(6) then provides exceptions to the exemptions in (d)(1). However, a loan made to Mr. Rogers in this case does not come within the exceptions to the exemptions.
The Court is unable to rule as a matter of law whether the way in which the Plan has been operated violates the anti-alienation provision based on the evidence that is before it. Mr. Rogers contends that the money he has used for his personal living expenses were distributions in compliance with the Plan. However, he has the burden of proof to show the Plan is not property of the estate. In light of RES-GA’s contentions, mere arguments that the use of the funds for his personal living expenses were proper distributions are not sufficient without at least some evidence to show that they actually were proper distributions.
The Court is unaware of whether the funds used for Mr. Rogers’ personal living expenses beginning in 2012 were treated as loans or distributions, or neither. If they were treated as loans, then whether the loans to Mr. Rogers result in a violation of § 401(a)(13) depends upon whether they were made in accordance with the requirements in the Plan,
RES-GA next argues that the plan is not qualified because the way in which it has been operated violates the “exclusive benefit rule.” The “exclusive benefit rule” is contained in § 401(a)(2) and states that a trust will not be qualified unless under the trust instrument “it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, for any part of the corpus or income to be ..: used for, or diverted to, purposes other than for the exclusive benefit of his employees or their beneficiaries.” “[T]he phrase ‘if under the trust instrument it is impossible’ means that the trust instrument must definitely and affirmatively make it impossible for the nonexempt diversion or use to occur ... by any ... means.” 26 C.F.R. § 1.401-2(a)(2). “[T]he phrase ‘purposes other than for the exclusive benefit of his employees or their beneficiaries’ includes all objects or aims not solely designed for the proper satisfaction of all liabilities to employees or their beneficiaries covered by the trust.” 26 C.F.R. § 1.401-2(a)(3). This requirement is not construed liberally; it does not prohibit others from benefitting from a transaction “as long as the primary purpose of the investment is to benefit employees or their beneficiaries.” Shedco, Inc. v. Commissioner of Internal Revenue, T.C. Memo.1998-295, at 9 (1998). A court must look at all the facts and circumstances to determine whether a plan has been operated for the exclusive benefit of employees. Shedco, Inc. v. Commissioner of Internal Revenue, T.C. Memo.1998-295, at 11 (1998).
Under certain circumstances, “improper trust administration and investment policies may result in violations of the exclusive benefit rule.” Westchester Plastic Surgical Associates, P.C. v. CIR,
When considering whether a plan is being operated for the exclusive benefit of employees in accordance with § 401(a)(2), courts may look to the ERISA prudent investor standard for fiduciary behavior even if a plan is not an ERISA governed
(1) the cost must not exceed the fair market value at the time of the purchase; (2) a fair return commensurate with the prevailing rate must be provided; (3) sufficient liquidity must be maintained to permit distributions in accordance with the terms of the plan; and (4) the safeguards and diversity that a prudent investor would adhere to must be present.
Rev. Rul. 69-494 (1969).- “[T]he ultimate outcome of an investment is not proof that the investment failed to meet the prudent investor rule.” Westchester Plastic Surgical Associates, P.C. v. CIR,
RES-GA asserts that the exclusive benefit rule was violated when Mr. Rogers discontinued his employment with ProStar Properties because “there is no way the Plan could have been maintained for the exclusive benefit of employees and beneficiaries,. since there were no employees.” (RES-GA’s Second Reply 6). However, contrary to RES-GA’s assertion, a plan covering only former employees may still be qualified as long as it complies with the other requirements of § 401. See 26 C.F.R. § 1.401 — 1(b)(4). RES-GA also argues the exclusive benefit rule was violated by Mr. Rogers using the Plan’s checking account as a personal bank account and paying his personal living expenses from it. Further, it argues that the loan to Smokehouse Properties, as well as Mr. Rogers living in the Flowery Branch Property and causing the Plan to purchase the Boat for his personal use on Lake Lanier, all violate the exclusive benefit rule.
The Court again has insufficient evidence before it to determine this issue on a request for summary judgment. Information regarding whether the funds used for Mr. Rogers’ living expenses were treated as distributions, loans, or neither, is important in determining whether the exclusive benefit rule has been violated. If the funds were proper distributions under the Plan and treated accordingly for tax purposes, then they were being used to fund the liabilities to the sole participant in accordance with the Plan, which is precisely what the exclusive benefit rule is intend
Furthermore, the Court does not have enough evidence before it about the Smokehouse Properties loan. In particular, there is insufficient evidence about who owns Smokehouse Properties,
The Court cannot determine with the evidence before it whether the overall investment philosophy was a way to benefit Mr. Rogers presently and, in essence, abusing the form and tax advantages of a profit sharing plan, or whether it was an attempt to make prudent investments that may have benefitted Mr. Rogers presently in some ways, but were really meant to ensure it could fulfill the liabilities it owed to Mr. Rogers in the future. Accordingly, the Court cannot grant judgment as a matter of law on this issue, either.
4. Section 4975 Prohibited Transactions
Last, RES-GA argues that the Plan has engaged in various transactions with dis- . qualified individuals prohibited by § 4975 such that the Plan should be disqualified. Under certain circumstances, an IRA may be disqualified upon the happening of one § 4975 prohibited transaction. See 26 U.S.C. § 408(e)(2). However, the same rule does not apply to profit sharing plans; instead, certain excise taxes are imposed on the disqualified person for each prohibited transaction with a profit sharing plan. 26 U.S.C. § 4975(a)-(b).
Section 4975(c) provides a list of instances in which a prohibited transaction with a disqualified person may occur:
(1) General rule. — For purposes of this section, the term “prohibited transaction” means any direct or indirect—
(A) sale or exchange, or leasing, of any property between a plan and a disqualified person;
(B) lending of money or other extension of credit between a plan and a disqualified person;
(C) furnishing of goods, services, or facilities between a plan and a disqualified person;
(D) transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;
(E) act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interest or for his own account; or
(F) receipt of any consideration for his own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan.
26 U.S.C. § 4975(c)(1). The statute defines a disqualified person as:
(A) a fiduciary;9
(B) a person providing services to the plan;
(C) an employer any of whose employees are covered by the plan;
(D) an employee organization any of whose members are covered by the plan;
(E) an owner, direct or indirect, of 50 percent or more of—
(i)the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation,
(ii) the capital interest or the profits interest of a partnership, or
(iii) the beneficial interest of a trust or unincorporated enterprise, which is an employer or an employee organization described in subpara-graph (C) or (D); '
(F) a member of the family (as defined in paragraph (6)) of any individual described in subparagraph (A),
(B), (C), or (E);10
(G) a corporation, partnership, or trust or estate of which (or in which) 50 percent or more of—
(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation,
(ii) the capital interest or profits interest of such partnership, or
(iii) the beneficial interest of such trust or estate, is owned directly or indirectly, or held by persons described in subparagraph (A), (B),
(C), (D), or (E);
(H) an officer, director (or an individual having powers or responsibilities similar to those of officers or directors), a 10 percent or more shareholder, or a highly compensated employee (earning 10 percent or more of the yearly wages of an employer) of a person described in subparagraph (C), (D), (E), or (G); or
(I) a 10 percent or more (in capital or profits) partner or joint venturer of a person described in subparagraph (C), (D), (E), or (G).
26 U.S.C. § 4975(e)(2). “In adopting the list of prohibited transactions, Congress intended ‘to prevent taxpayers involved in a qualified retirement plan from using the plan to engage in transactions for their own account that could place plan assets and income at risk of loss before retirement.’” In re Kellerman,
RES-GA argues that one prohibited transaction alone is sufficient to disqualify the Plan. Generally, the occurrence of a prohibited transaction does not disqualify a profit sharing plan and this Court will not hold otherwise. However, this Court agrees with the courts that have held that if a multitude of prohibited transactions exist, such that the form of the profit sharing plan is being abused, then the plan may no longer be qualified. See In re Daniels,
In analyzing this issue, the Court concludes that Mr. Rogers is a disqualified person within the meaning of § 4975 because he is, among other things, a fiduciary. RES-GA argues that Mr. Rogers living in the Flowery Branch Property and using the Boat for his personal use are both prohibited transactions. Both of these instances do appear to be prohibited transactions for various reasons. For example, both of these are instances in which Mr. Rogers, a disqualified person, is or was using plan assets for the benefit of himself personally. Mr. Rogers was able to live rent free in the Flowery Branch Property and he was able to use the Boat for his own personal enjoyment on Lake Lanier, both of which are prohibited transactions under § 4975(c)(1)(C) and (D). Next, RES-GA points to the contribution or loan of $11,000 made by Mr. Rogers’ step-daughter to the plan. Step children are not included in the definition of a member of the family as a disqualified person. RES-GA has not pointed to any authority that indicates step family should be considered within the definition of family for these purposes, and the Court has been unable to find authority supporting that position. The Court cannot conclude as a matter of law that this was a prohibited transaction.
RES-GA also argues that loans made to Mr. Rogers as a participant were prohibited transactions. As an initial matter, the Court does not have evidence that Mr. Rogers actually borrowed money from the Plan. Even if he did, as discussed supra Part B.2., § 4975(d)(1) contains certain exemptions in which something that would otherwise be considered a prohibited transaction is not. The Court incorporates that discussion here regarding whether any loans made to Mr. Rogers constituted
Last, RES-GA asserts that Mr. Rogers’ remodeling of the Flowery Branch Property was a prohibited transaction. Mr. Rogers personally received an indirect benefit from remodeling the Flowery Branch Property because he was able to live in the remodeled home rent free for a time. This falls within the category of a prohibited transaction because Mr. Rogers, a disqualified person, provided services to the Plan and received a benefit for those services outside of the Plan. See In re Cherwenka,
In light of RES-GA’s allegations, material questions of fact still exist as to whether the Plan is qualified. As such, the Court cannot grant judgment as a matter of law on the issue of whether the Plan is property of the bankruptcy estate.
C. Exemptions
Mr. Rogers also alleges that even if the Plan is property of the bankruptcy estate he is entitled to exempt it under both Georgia law and the Bankruptcy Code. “Generally speaking, courts construe bankruptcy exemption statutes — both state and federal — liberally in favor of bankruptcy debtors.” McFarland v. Wallace (In re McFarland),
1. O.C.G.A. § 44-13-100(a)(2.1)
Section 44-13-100(a)(2.1) provides four different avenues by which a debtor may exempt his or her aggregate interest in funds or property held in a retirement or pension plan. First, a retirement or pension plan may be exempted if it is maintained for public officers or employees of Georgia or a political subdivision thereof and is at least partially supported by public funds of Georgia or a political subdivision. O.C.G.A. § 44-13-100(a)(2.1)(A). Second, a retirement or pension plan that is maintained by a nonprofit corporation and is at least partially supported by funds of the nonprofit corporation may be exempted. O.C.G.A. § 44-13-100(a)(2.1)(B). Third, “[t]o the extent permitted by the bankruptcy laws of the United States, similar benefits from the private sector of such debtor shall be entitled to the same treatment as- [those above] provided that the exempt or nonexempt status of periodic payments from such a retirement or pension plan or system shall be as provided under [O.C.G.A. § 44-13-100(a)(2)(E) ].” O.C.G.A. § 44-13-100(a)(2.1)(C). Last, “[a]n individual retirement account within the meaning of Title 26 U.S.C. Section 408” O.C.G.A. § 44-13-100(a)(2.1)(D).
Neither party asserts that the state of Georgia or a nonprofit corporation maintains the Plan, nor that this is an IRA within the meaning of 26 U.S.C. § 408. Therefore, the Plan may only be exempted
2. 11 U.S.C. § 522(b)(3)(C) Section 522(b) allows a debtor to claim as exempt certain property from the bankruptcy estate and provides debtors with a choice between exempting property under § 522(b)(2) or (b)(3). 11 U.S.C. § 522(b)(1). Under § 522(b)(2), debtors may take the exemptions provided by the Bankruptcy Code in § 522(d). However, states may opt out of the exemptions provided in § 522(d) and Georgia is such a state that has opted out. McFarland v. Wallace (In re McFarland),
Section 522(b)(4) provides further guidance on the exemption of retirement accounts pursuant to § 522(b)(3)(C). If a retirement fund “has received a favorable determination under section 7805 of the Internal Revenue Code of 1986,
those funds are exempt from the estate if the debtor demonstrates that: (i) no prior determination to the contrary has been made by a court or the Internal Revenue Service; and (ii)(I) the retirement fund is in substantial compliance with the applicable requirements of the Internal Revenue Code of 1986; or (II) the retirement fund fails to be in substantial compliance with the applicable requirements of the Internal Revenue Code of 1986 and the debtor is not materially responsible for that failure.
11 U.S.C. § 522(b)(4)(B) (emphasis added).
Mr. Rogers argues that the Plan has a favorable determination because the prototype plan adopted by ProStar Properties received a favorable opinion letter. (Rogers’ Reply Brief 7). He argues that under certain IRS regulations and procedures currently in place, an opinion letter is equivalent to a favorable determination letter for this Plan and, therefore, it is presumed to be exempt pursuant to § 522(b)(4)(A). (Id.).
A determination letter is a written statement issued by the.IRS that applies the principles and precedents that exist to a specific set of facts. Rev. Proc. 2015-4, § 3.04; see also 26 C.F.R. § 601.201(a)(3). Determination letters may contain the opinion of the IRS as to the qualificátion of a particular plan involving the provisions of §§ 401 and 403(a) and the status of a related trust. 26 C.F.R. § 601.201(c)(5); Rev. Proc. 2015-6, § 21.01 (Jan. 2, 2015). An opinion letter, on the other hand, is a written statement issued by the IRS “to a sponsor or M & P
Since a determination as to the qualification of a particular employer’s plan can be made only with regard to facts peculiar to such employer, a letter expressing the opinion of the Service as to the acceptability of the form of a master or prototype plan will not constitute a ruling or determination as to the qualification of a plan as adopted by any individual employer nor as to the exempt status of a related trust or custodial account.
26 C.F.R. § 601.201(q)(3)(iv).
Nevertheless, under certain circumstances the IRS has concluded that a favorable opinion letter is equivalent to a favorable determination letter. If an employer adopting a plan meets certain requirements such that it can rely on that plan’s favorable opinion letter, that opinion letter is equivalent to a favorable determination letter for certain purposes. Rev. Proc. 2015-36 § 19.04 (June 9, 2015); Rev. Proc. 2015-6 § 8.03 (Jan. 2, 2015). The applicable Revenue Procedure provides:
An employer adopting a standardized M & P plan may rely on that plan’s opinion letter, ... if the sponsor of such plan . .■. has a currently valid favorable opinion letter, the employer has followed the terms of the plan(s), and the coverage and contributions or benefits under the plan(s) are not more favorable for highly compensated employees ... than for other employees.
Rev. Proc. 2015-36, § 19.01 (June 9, 2015).
The only document the Court has before it related to this issue is an opinion letter for a plan described as a “Prototype Non-standardized Profit Sharing Plan” (the “IRS Letter”). (See RES-GA’s Second Reply Ex. A). However, the Adoption Agreement in this case states that the Plan is a “Standardized Profit Sharing Plan.” (See RES-GA’s Mot. Ex. B). Based on the IRS Letter, the Court cannot conclude, for purposes of these Motions, that the Plan even has a favorable opinion letter because the one presented is for a non-standardized profit sharing plan and there is no indication it applies to the form of the “Standardized Profit Sharing Plan.” Even assuming the opinion letter applies to the
Without a favorable determination or opinion letter that can be relied on as a favorable determination, and even assuming that the IRS Letter is a favorable opinion letter for the Plan, the Court agrees with other courts that have addressed the issue and concludes that a favorable opinion letter as to the form of a prototype plan by itself is not a sufficient “favorable determination” for purposes of § 522(b)(4)(A). See In re Bauman, No. 11 B 32418,
Based on the above, in order for Mr. Rogers to obtain summary judgment on his exemption of the Plan under § 522(b)(3)(C), he must demonstrate both that the Plan is in substantial compliance with the tax code (or, if it is not, he is not responsible for its failure) and that no prior unfavorable determination has been made by a court or the IRS. 11 U.S.C. § 522(b)(4)(B). He has failed to do so by his Motion. RES-GA still maintains the overall burden of proof for the exemption to be disallowed and it has also failed to meet its burden by its Motion. As discussed previously in Part. B, the Court does not have sufficient evidence by which it can conclude as a matter of law that the Plan is or is not a qualified plan under § 401. Therefore, neither party has yet met its burden to be entitled to judgment as a matter of law.
In summary, in order to be entitled to summary judgment that the Plan is not property of the estate, Mr. Rogers must show that the Plan is qualified under § 401. Material questions of fact exist which preclude the Court from finding, as a matter of law, that the Plan was a qualified plan under § 401 and, consequently, that it was not property of the estate. Further, because material questions of fact exist whether the Plan has received a “favorable determination” and whether the Plan is in substantial compliance with the Internal Revenue Code, and because no prior determination to the contrary has been made, Mr. Rogers is not entitled to a judgment as a matter of law that he may exempt the Plan under the Bankruptcy Code. Conversely, RES-GA has the overall burden of proof when objecting to Mr. Rogers’ exemption of the Plan in this-case to show that the Plan is not qualified. For purposes of these Motions, neither party
Conclusion
For the reasons stated herein, it is hereby
ORDERED that RES-GA’s Motion for Summary Judgment is DENIED, and it is
FURTHER ORDERED that Mr. Roger’s Motion for Summary Judgment is DENIED.
IT IS ORDERED.
Notes
. Mr. Rogers sold the Flowery Branch Property on behalf of the Plan and the proceeds of the sale went back into the Plan's account.
. The Plan Summary states that distributions are allowed upon termination of employment. (RES-GA’s Mot. Ex. C„ at 13, Doc. 57-4).
. It appears that in early 2014 the Boat had not yet been sold, but it is unclear whether the Boat has since been sold.
. ERISA stands for the Employee Retirement Income Security Act.
. A plan that is not covered by ERISA may still be qualified under § 401 of the Internal Revenue Code so as to receive certain tax benefits. ERISA governs employee benefit plans under certain conditions. The Internal Revenue Code, among other titlings, establishes the tax consequences for retirement accounts based on whether certain requirements are met, and it does this regardless of whether a plan is subject to ERISA. A profit-sharing plan may be qualified under § 401 of the Internal Revenue Code regardless of whether it is ERISA qualified. ERISA is a separate federal statute which is relevant to this discussion only as a potential applicable federal nonbankruptcy law that would result in the Plan not becoming property of the estate pursuant § 541(c)(2), but it does not apply to the Plan in this case. Whether the Plan is qualified under § 401 such that its anti-alienation provision is enforceable under Georgia law is a separate analysis.
. Pursuant to § 4975(f)(6), if a plan providing contributions to an owner-employee, among other things, lends any part of the plan to such owner-employee, such transaction is not exempt under (d)(1). The term owner-employee, for purposes of this subsection only, includes a shareholder-employee — an employee of an S corporation who owns more than five percent of the stock — except that the term owner-employee does not include a shareholder-employee for purposes of a loan to an owner-employee. 26 U.S.C. § 4975(f)(6)(A)-(C).
. The Court notes that some representations have been made that participant loans were not permissible under the Plan document until 2014.
. RES-GA points to a portion of Mr. Rogers’ Rule 2004 Examination wherein he makes a reference to his mother-in-law, but it is not at all clear from the cited portion of the deposition that she is the owner of Smokehouse Properties, especially because RES-GA argues it is an entity owned by Mr. Rogers’ spouse. (RES-GA’s Second Reply Ex. B, at 3).
. "For purposes of this section, the term "fiduciary” means any person who—
(A) exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets,
(B) renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or
(C) has any discretionary authority or discretionary responsibility in the administration of such plan.”
26 U.S.C. § 4975(e)(3).
. "For purposes of paragraph (2)(F), the family of any individual shall include his spouse, ancestor, lineal descendant, and any spouse of a lineal descendant.” 26 U.S.C. § 4975(e)(6).
. "Section 7805 ... generally authorizes the Secretary of the Treasury to enact regulations.” Daniels v. Agin,
. "M & P” means "Master and Prototype.” Master and prototype plans are both form plans which sponsors make available for employers to adopt. A master plan is a plan "made available by a sponsor for adoption by employers and for which a single funding
. “An employer adopting a nonstandardized M & P ... plan may rely on that plan’s opinion or advisory letter as described in section 19 if the employer’s plan is identical to an approved M & P or specimen plan with a currently valid favorable opinion or advisory letter, the employer has not amended the plan other than to choose options provided under the approved plan ..., and the employer has followed the terms of the plan.” Rev. Proc. 2015-36 § 19.02.