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Current developments in employee benefits.

This three-part article provides an overview of recent developments in employee benefits, including qualified retirement plans, executive compensation and employee benefits, including changes not only under the Code, but also various other Federal laws, most notably the Employee Retirement Income Security Act of 1974 (ERISA) and the Age Discrimination in Employment Act (ADEA). Part I, published in November, focused on executive compensation and employee benefits. Part II, published in December, focused on current developments affecting qualified retirement plans, including recently enacted rules facilitating retirement plan rollovers and imposing a 20% withholding tax on certain qualified plan distributions; changes to the qualified plan nondiscrimination rules and transition rules for casing compliance with such rules, and additional IRS guidance on employee stock ownership plans (ESOPs). Part III, below, also focuses on developments affecting qualified plans, specifically judicial consideration of the prohibited transaction and minimum funding rules, IRS liberalization of the distribution rules for plans whose assets are held in receivership, IRS guidance on early retirement windows, and the Supreme Court's determination that certain retirement assets are protected from an individual's bankruptcy creditors. Many of these developments indicate a growing awareness that retirement savings should be conserved for retirement and employers should be aided in offering such benefits to employees.

Excise Tax Developments

* Sale of property to ESOP

In a decision with an unusually harsh result, the Tax Court in Zabolony(104) upheld the IRS's imposition of first- and second-tier prohibited transaction penalties totaling almost $8.5 million against a married couple in connection with their sale of land to an ESOP in which they were the sole participants. This result seems especially harsh--draconian, in the words of one dissenting judge(105)--because the land proved to be an exceptionally good investment for the ESOP. Anton and Bernel Zabolotny owned and farmed 1,205 acres of land in western North Dakota. During the 1970s, the Zabolotnys discovered oil on their land, and in 1977, they entered various lease arrangements with a major oil company with respect to the mineral rights to the land, while continuing their farming operation. On May 20, 1981, Anton and Bernel incorporated the farming operation, with each taking 50% of the corporation's stock. Anton served as a director and president of the corporation, Bernel served as a director and secretary-treasurer.

That same day, the corporation adopted a qualified ESOP, with the Zabolotnys as the sole initial participants. Anton was named trustee. Immediately thereafter, the ESOP bought three tracts of the Zabolotnys' farmland, together with the mineral rights in those tracts. As payment for the land, the ESOP established for the Zabolotnys a $478,615 joint and survivor annuity, which had a present value of $6,481,915. (This amount was stipulated to represent adequate consideration.) The ESOP later entered a five-year lease of the land's surface rights to the corporation; the ESOP retained the mineral rights.

As an investment asset, the land paid off handsomely for the ESOP. In five years' time, the ESOP's gross royalty income from the mineral rights totaled over $9 million, and its net asset value grew to approximately $5.3 million--all this despite cumulative employer contributions totaling only $12,900.

In November 1986, the IRS issued deficiency notices to Anton and Bernel imposing a first-tier prohibited transaction excise tax of $39.4,095.75 15% of $6,481,9151 a year for each of six tax years (for a total first-tier penalty of $1,944,574.50), and a second-tier penalty of $6,481,915, for a grand total of $8,426,489. According to the IRS, the sale of the land to the ESOP was a prohibited transaction that was not excused by any applicable exemption; the Tax Court agreed.

For purposes of the prohibited transaction excise tax, a prohibited transaction includes any sale of property between a plan and a disqualified person, unless an exemption applies. Clearly, both of the Zabolotnys were disqualified persons: Anton as trustee of the ESOP,(106) a 50% shareholder of the employer corporation,(107) and an officer of the employer corporation; and Bernel as a 50% shareholder, an officer and a member of the family of a fiduciary.(108)

The Zabolotnys first argued that the sale was exempt from the prohibited transaction rules under Sec. 4975(d)(13). Under that section, a transaction is exempt from the excise tax if it is exempt from ERISA's prohibited transaction rules by reason of ERISA Section 408(b) or (e). ERISA Section 408(e) provides an exemption for sales of "qualifying employer real property." Property sold to a plan is "employer real property" if it is leased to an employer of employees covered under the plan, and is qualifying employer real property if it consists of parcels of real property that are adaptable, without undue expense, for more than one use, and if a substantial number of those parcels are dispersed geographically(109) The court held that because all the land the Zabolotnys sold to the ESOP was in the same geographical environment, the property did not satisfy the geographic dispersion requirement.

The Zabolotnys then claimed that even if the plan's purchase of the land was a prohibited transaction, the excise tax should not apply because the prohibited transaction was "corrected" simultaneously with the sale.

The prohibited transaction excise tax is a twotier tax: The first tier is a tax of 5% of the amount involved in the prohibited transaction, and is imposed for each year of the "taxable period"--i.e., the period that begins on the date the prohibited transaction occurs and ends on the date the IRS either mails a deficiency notice for the tax or assesses the tax, or the date the disqualified person corrects the transaction, whichever occurs first. The second tier is a tax equal to 100% of the amount involved, and is imposed if the disqualified person does not correct the transaction within the taxable period. Correcting a prohibited transaction means undoing it to the extent possible, but in any case putting the plan in a financial position no worse than it would have been in had the disqualifying person been acting in accordance with the highest fiduciary standards.(110) The Zabolotnys argued that because the plan made a substantial profit on the transaction, they had acted in accordance with the highest fiduciary standards in making the sale. Thus, the prohibited transaction had been corrected at the same time as the sale, and no excise tax should be imposed.

A majority of the Tax Court rejected the Zabolotnys' argument. According to the majority opinion, the Code and the regulations contemplate some affirmative act to effect a correction-- a transaction will not be considered corrected merely because it turns out to be a good deal. On that basis, the court found that the Zabolotnys still had not corrected the prohibited transaction, and that the $8.5 million of first- and second-tier penalties had been properly determined. While recognizing this as a harsh result, the court stated that the legislative history and the language in the Code suggest that violations of the prohibited transaction rules are to be treated harshly.

In a dissenting opinion, Judge Ruwe noted that the purpose of the two-tier excise tax is to protect the interests of the beneficiaries from being jeopardized by transactions between the plan and a disqualified person. Here, the very people whom the tax was intended to protect--the beneficiaries-were being hit with a crushing tax burden for engaging in a transaction that not only protected, but substantially enhanced, the interests of the beneficiaries. Judge Ruwe would have found that the initial prohibited transaction was subject to the first-tier 5% excise tax, and that the prohibited transaction had been corrected before the end of the first tax year, thus stopping further excise taxes from accruing. By the end of the first year, the financial interest of the beneficiaries was protected beyond any requirements in Sec. 4975(f)(5). Moreover, under the facts and circumstances of the case--including the substantial benefit to the beneficiaries and the fact that the high cost of undoing the transaction would fall on the very people the law was designed to protect--it would have been irrational to require that the transaction be undone.

As the majority opinion notes, the Zabolotnys could have avoided this litigation altogether if they had obtained a special prohibited transaction exemption under Sec. 4975(c)(2).

* Underfunding excise tax In Ahlberg,(111) a U.S. district court held that imposition of the Sec. 4971 underfunding excise tax was unwarranted when the underfunding was a result of a book entry misallocation of funds between a pension plan and a profit-sharing plan, and neither the plans nor the sole participant was harmed. The court also held that even though the participant waited 2 1/2 years to record a mortgage he had given as security for a plan loan, imposition of the Sec. 4975 prohibited transaction excise tax was inappropriate since the plan suffered no harm.

In January 1980, Metropolitan Neurosurgery, P.A., established a pension plan and a profit sharing plan. Daniel Ahlberg, Metropolitan's sole shareholder and employee, was the sole participant and the administrator of both plans. For 1980, 1981 and 1984, the corporation made the maximum allowable contribution to the plans, paying the funds into a commingled money market account for the plans' benefit. Although the total contribution for each of those years was correct, book entry errors resulted in an incorrect allocation between the pension plan and the profit-sharing plan. This misallocation, which resulted in an underfunding of the pension plan, was corrected by a book entry, requiring no transfer of funds and resulting in no loss of interest. Nevertheless, the IRS imposed the excise tax under Sec. 4971 for failure to meet the Sec. 412 minimum funding standards.

Ahlberg twice borrowed funds from the plans. In each case, he gave the plan a promissory note secured by a mortgage in real estate. However, he waited 10 months before recording the mortgage that secured the first loan--and 2 1/2 years before recording the mortgage that secured the second loan. The IRS imposed the Sec. 4975 prohibited transaction excise tax on Ahlberg, claiming that as a result of his delay in recording the mortgages, the loans were not adequately secured as required by Sec. 4975(d)(1)(E). Ahlberg paid both excise taxes and brought suit in district court for a refund.

Regarding the underfunding excise tax, the district court found that the misallocation between the pension plan and the profit-sharing plan was merely a bookkeeping error, did not cause the plans or Ahlberg any harm, and did not give Ahlberg any extra benefit. On that basis, the court held that the IRS's imposition of the Sec. 4971 excise tax was inappropriate.

Regarding the prohibited transaction tax, the court recognized that Ahlberg's delay in recording the mortgage created the opportunity for a third party to establish a lien against the real estate with rights superior to Ahlberg's mortgage. However, as that event did not occur, the plans were not harmed. Moreover, since Ahlberg was the sole beneficiary of the plan, any harm the plan might have suffered would have been harm only to him. Thus, the IRS's imposition of the prohibited transaction tax also was unwarranted.

Compare the district court's approach in this case to the Tax Court's approach in Zabolotny.

* Transfer of unencumbered property to plan Two 1992 circuit court decisions reached opposite conclusions on whether a disqualified person's transfer of unencumbered property to a defined benefit plan is a prohibited transaction when the transfer is in satisfaction of the minimum funding requirements. In Keystone Consolidated Industries, Inc.,(112) the Fifth Circuit affirmed a Tax Court decision holding that such a transfer does not constitute a prohibited transaction. Reversing a Tax Court decision on the same issue, the Fourth Circuit held in Wood(113) that such a transfer constitutes a prohibited sale or exchange between the disqualified person and the plan.

The sale or exchange of property between a qualified plan and a disqualified person (e.g., the employer) generally constitutes a prohibited transaction. (114) Further, Sec. 4975 (f)(3) provides that the transfer of encumbered property by a disqualified person to a plan is treated as a sale or exchange if the plan assumes the debt or if the encumbrance was placed on the property by the disqualified person within the 10-year period ending on the date of the transfer. The ERISA contains a parallel set of rules at Section 406(a)(1)(A) and (c).

Dallas Wood, a self-employed real estate broker, was the trustee, administrator and sole participant of a defined benefit plan. In satisfaction of the plan's minimum funding requirements for 1984, Wood transferred to the plan three third-party promissory notes. He then deducted the face amount of those notes on his 1984 return as a contribution to the plan. The IRS determined that this transfer was a sale or exchange--and since Wood was a "disqualified person," the transfer was a prohibited transaction subject to the Sec. 4975(a) excise tax. (Note: The Department of Labor (DOL) has issued a class exemption PTCE 85-68(115) permitting plans to invest in customer notes of employers. Evidently, the transfer in this case did not meet the requirements for that exemption.)

The Tax Court held that although the transfer was a sale or exchange for income recognition purposes, it would not constitute a sale or exchange for prohibited transaction purposes unless Sec. 4975(f)(3) applied. Since that section applies only to transfers of encumbered property and the notes were unencumbered, the court held that the transfer was not a prohibited transaction.

Three months after deciding the Wood case, the Tax Court rendered its decision in Keystone Consolidated Industries. Keystone had maintained several qualified defined benefit plans, which it funded through a single master trust. In 1983, Keystone contributed five truck terminals to the trust, and credited the fair market value (FMV) of those terminals against its minimum funding obligation for its tax years ending in 1982 and 1983. In 1984, Keystone contributed some real property to the trust and credited the FMV of that property against its minimum funding obligation for its tax year ending in 1984. At the time of contribution, neither the real property nor the terminals were subject to any mortgages or any leaseback agreements.

Keystone deducted the FMV of these properties on its 1982, 1983 and 1984 tax returns as contributions to its pension plans, and reported the difference between its basis in the properties and their FMV as taxable capital gain. The IRS determined that the contributions were prohibited transactions and issued Keystone a deficiency notice imposing excise taxes under Sec. 4975(a). Citing its decision in Wood, the Tax Court granted Keystone summary judgment.

The IRS appealed Wood to the Fourth Circuit, and Keystone to the Fifth Circuit. The IRS's position is that a transfer of encumbered property is not the only type of property transfer that is treated as a sale or exchange under the prohibited transaction rules. According to the IRS, the Sec. 4975(f)(3) rule merely serves to bring voluntary transfers of encumbered property within the sphere of prohibited transactions. Involuntary transfers--i.e., transfers to satisfy the minimum funding requirements--are to be treated as a sale or exchange regardless of whether they involve encumbered property, under the income tax principle that a transfer in satisfaction of a debt is treated as a sale or exchange. This is the same position the DOL took in two earlier advisory opinions on the parallel ERISA rule.(116)

The Fifth Circuit rejected the IRS's position and held that Keystone's transfer of unencumbered property to the plan was not a prohibited transaction. Like the Tax Court, the Fifth Circuit found no basis in Sec. 4975 for distinguishing between voluntary and involuntary contributions. While a transfer in satisfaction of a debt may be treated as a sale for income tax purposes, that does not determine its treatment for prohibited transaction purposes. Further, the court believed that the distinction between voluntary and involuntary contributions makes no economic sense. When an employer makes a voluntary contribution to a plan, it receives a credit in its funding standard account, thereby reducing the amount of required contributions in future years.

As to the IRS's argument that the administrative positions of the IRS and the DOL should be given deference, the court noted that the IRS has not issued any regulations declaring a transfer of property to be a sale or exchange. The only other time the IRS had raised this argument was in Wood--and the Tax Court rejected it. As for the DOL advisory opinions, they are binding only on the parties involved, and have no value as precedent. Under those circumstances, neither the IRS's nor the DOL's position was due any deference.

In reversing the Tax Court's decision in Wood, the Fourth Circuit expressly disagreed with the Fifth Circuit's reasoning in Keystone (which had been decided two weeks earlier). Like the IRS, the Fourth Circuit did not view Sec. 4975(f)(3) as a special rule limiting the application of the prohibited transaction excise tax to contributions of encumbered property. Rather, it interprets that section as an expansion of the generally accepted definition of sale or exchange to include all transfers of encumbered property, whether or not in discharge of a debt. In other words, the Fourth Circuit believes that the generally accepted definition of sale or exchange (as expanded by Sec. 4975(f)(3)) applies for purposes of the prohibited transaction rules--and that definition includes transfers of unencumbered property in discharge of an obligation.

The Supreme Court has agreed to hear Keystone to resolve whether employers may contribute property, rather than cash, to meet their obligations to fund their pension plans. The Supreme Court had earlier granted certiorari in Wood to determine the same issue; however, Wood withdrew his case and settled.

* Investment in mortgage In a technical advice memorandum, Letter Ruling 9208001 (117) one very busy individual had three occupations: (1) officer of a company sponsoring a qualified defined benefit plan, 12) general partner and 7.5% owner of a partnership and (3) sole proprietor of a firm conducting suitability reviews for prospective investments for defined benefit plans--including the defined benefit plan of the company in which he was an officer. This individual would present the suitability review to other company personnel, who would decide whether to make the recommended investments for the plan.

The individual prepared a suitability review of investment in a participating mortgage loan in which the plan invested $250,000. The individual's partnership was the borrower on the loan, which totaled approximately $1 million, and the individual's sole proprietorship was the lender.

The IRS concluded that this individual had engaged in a prohibited transaction under Sec. 4975 (c)(1)(D) and (E) The individual was an investment adviser, and thus a fiduciary, by virtue of his activities in conducting suitability reviews for the plan. He had divided loyalties between the plan and the partnership because of his ownership interest in the partnership. Thus, his recommendation of the investment through his sole proprietorship violated Sec. 4975(c)(1)(E). He also had engaged in a prohibited transaction under Sec. 4975(c)(1)(D), which prohibits disqualified persons (such as fiduciaries) from benefiting from the use of plan assets.

* Small plan actuarial assumption cases The Tax Court has decided the Vinson & Elkins, (118) the Wachtell, Lipton, Rosen & Katz (119) and the soI called Arizona cases, (120) in which the taxpayers had challenged the IRS's disallowance of deductions for contributions to individual defined benefit plans (IDBs) based on the IRS's assertion that the actuarial assumptions used in the plans were unreasonable. In an opinion by Judge Charles E. Clapp II, the court held that the actuarial assumptions made by the plan's actuaries were reasonable in the aggregate and represented the actuary's "best estimate" of anticipated experience under the plan.

In Vinson & Elkins, which involved IDBs for partners in a large law firm, the Tax Court reviewed each of four major actuarial assumptions challenged by the IRS.

* Interest (the plans used 5%).

* Retirement age (the plans used age 62).

* Mortality for death benefit plans (the plans used the 1958 CSO mortality table).

* Expense load (the plans used 5%).

In addition, the decision considered the implication of the words "best estimate." Each side employed two experts whom observers considered evenly matched.

The decision is lengthy, it carefully reviews the pertinent legislative history, and includes a bit of the judge's social philosophy. The decision traces the legislative history in detail, quoting the ERISA Conference Report, which stated that "unless the assumptions used are substantially unreasonable, it is contemplated that generally the Service will not require a change of assumptions to be made effective for years prior to the year in which the audit is made."(121) The court held that Vinson & Elkins "has the burden of proving that the [actuarial] assumptions are reasonable in the aggregate. However, these actuarial assumptions will not be changed retroactively unless they are found to be substantially unreasonable."(122)

Of the four assumptions, the most space was devoted to the interest rate. The court seemed to relegate actuarial judgment largely to the practicing professional's judgment. The court listed eight factors it found particularly important in determining the reasonableness of the interest rate assumptions used by Vinson & Elkins.

* The responsibility Congress gave actuaries for defined benefit plans.

* The conservative nature of the actuarial assumption selection process.

* The plans were long term in nature, with funding to extend over 30 to 50 years.

* The plans were self-directed and most did not employ a professional money manager.

* As newly established plans, they lacked "credible experience" with respect to earnings, investment, etc.

* The risk of losing compounded earnings in a tax-exempt trust associated with overly optimistic assumptions and the resulting need for unanticipated higher contributions in later years.

* The relative closeness of all the actuarial experts' reasonable ranges.

* Most actuaries used interest rate assumptions between 5% and 6% for small plans during the years in issue.

Examining these factors, the court concluded that the interest rate assumption was reasonable. The court addressed the other assumptions in somewhat less detail, concluding that each was reasonable. (Note: The court did not rely on the less strict statutory standard for assumptions that such assumptions be "not substantially unreasonable" in order to escape retroactive change.)

The court also dismissed the IRS's objection that the actuaries' use of IRS training manuals, audit guidelines and correspondence, and transcripts of speeches by high-level IRS officials constituted impermissible use of "hearsay evidence." The court found that to the extent these materials were in the public domain, they are part of the "actuarial universe" and appropriate for use in making assumptions. As such, they do not violate the "hearsay" rule. The court specifically addressed the issue of speeches by Ira Cohen, at the time the IRS director of the Actuarial and Technical Division, saying that speeches before professional conferences for actuaries are designed to educate and update actuaries, and "actuaries surely should be entitled to look to such speeches for guidance in carrying out their duties." The question of how authoritative a speech by an IRS official can be is frequently debated by practitioners. This language provides at least the view of one member of the Tax Court who believes such speeches do have some authority.

The same day it issued the Vinson & Elkins decision, the court rendered a similar decision in Wachtell, Lipton, Rosen & Katz, again ruling against the IRS. That case also involved IDBs in a major law firm. There, too, the interest rate assumption was 5%, but the actuary used a retirement age of 55 and 15 years of service and a preretirement expense rate of 7.5%. Judge Clapp found each assumption reasonable, although he did concede that the preretirement expense load might not have been completely reasonable. Nevertheless, it was "not substantially unreasonable so as to justify a retroactive adjustment."

The Arizona cases were also decided by Judge Clapp and were reviewed by the entire Tax Court with only one dissent among the 14 judges. The lengthy decision upholds the actuarial assumptions, funding methods and cost allocations used in these one- and two-participant defined benefit plans, although some plaintiffs were liable for other issues raised by the IRS.

The IRS challenged (1) the reasonableness of actuarial assumptions, including the use of 5% preretirement and postretirement interest rates, age 55 retirement, mortality assumptions and postretirement expense loads, (2) whether plans using the unit credit funding method were funded within reasonable limits and made reasonable allocations of cost, (3) certain formal requirements for plan amendments and terms of the plans' operation and (4) whether additions to tax and excise taxes were applicable.

The court used much of the same reasoning applied in Vinson & Elkins and Wachtell, Lipton in finding the actuarial assumptions and funding methods to be reasonable. However, the judge weighed the arguments of the actuaries on each side and decided the taxpayers' assumptions were reasonable, without relying on the ERISA legislative history standard that the taxpayers' assumptions would need to be substantially unreasonable before the assumptions would be retroactively overturned. Also, unlike the earlier cases, the IRS used a prominent investment theory expert, Roger Ibbotson, to support its interest rate arguments--but without result. The judge found the theory useful, but not dispositive, because the theory failed to recognize the duration of the plan's liabilities, liquidity needs and other special issues involved in pension plan assumptions. The judge found the taxpayers had satisfied the statutory standard of actuarial reasonableness.

Unlike the earlier cases, the court here addressed as a major issue whether the unit credit method of funding was limited by Sec. 415(b)(5) (reduction of benefit for less than 10 years of service). The court essentially rejected the IRS's regulatory view of Sec. 415's effect on Sec. 412, as outlined in Rev. Rul. 85-131(123) Under pre-Tax Reform Act of 1986 law (i.e., for plan years before 1987), Sec. 415 limited maximum benefits to participants with at least 10 years of service. (For plan years after 1987, the Sec. 415 dollar limit is reduced for less than 10 years of participation, but that does not affect these cases.) The unit credit cost method assigns the cost of benefits accrued in a year to that year for maximum deduction purposes. Rev. Rul. 85-131 said that it is not proper to assign more than 10% of the maximum permissible benefit under Sec. 415 to any year, even if, for example, under the terms of the plan, 30% of the maximum benefit is accrued in that year for a participant with at least three years of total service.

Based on its position in Rev. Rul. 85-131, the IRS argued that Sec. 415(b)(5)required that the funding level under the Sec. 412(c)(3)regulations, and hence deductibility under Sec. 404(j)(1), required that only one-tenth of the benefit be funded over the first 10 years of service. The court stated: "Despite respondent's assertions to the contrary, there is no express or implied connection between the limitations of section 415 and any allocation under [Regs. Sec.] 1.412(c)(3)-1(e)(3) .... "(124) Having said that, the court then concluded that, in fact, there was a form of connection for deductibility. The court ruled that the "conservative interpretation" presented by one witness that Sec. 404(j), which applies Sec. 415 to permit funding only the benefit that would be granted if no further service was completed by the employee in question, is the correct interpretation, reflecting Congress's intent to have funds to pay benefits and to prevent the abuse of tax-advantaged overfunding. Only one of the plans failed to use the "conservative interpretation," and the court ruled that, until new actuarial computations were completed, there was not sufficient information to determine whether that plan violated Sec. 404 deductibility limits.

But moving on, the court rejected IRS arguments that a plan could never accrue benefits under Sec. 415, allocate to normal cost under Regs. Sec. 1.412(c)(3)-1(e)(3), and fund and deduct under Sec. 404(a)(1)(A)(iii) an amount in excess of one-tenth of the Sec. 415 limits in one year. In rejecting this argument, the court specifically disagreed with Jerome Mirza & Associates, Ltd. (125) That case held that a plan could not circumvent the deduction rules for past service credit amortization by structuring the plan to permit benefits to accrue within a single year. The Tax Court concluded, for plan years on or before Dec. 31, 1986, in career average plans funded under a unit credit funding method, the normal cost is in direct proportion to the accrual of benefits. The benefits accrued, except in the one case mentioned, would have been immediately payable under Sec. 415(b)(1) and (5) and, therefore, were properly deductible; and because there was no relationship between Sec. 415 and the Sec. 412(c)(3) regulations, there is no authority to support the IRS's one-tenth allocation to normal cost formula.

The court conceded, in a footnote, that this would not be the result for years in 1987 and after because the law was changed to require 10 years of participation in the plan to avoid a reduction in the dollar limit under Sec. 415(b).

The IRS also challenged the timing of certain plan amendments. In all but one instance, the court held that the timing of the amendments was irrelevant or properly retroactively applied. In one case, the participant argued an amendment changing the benefit accrual was to be effective in 1986, but letters transmitting the amendment were dated Dec. 5, 1987, and sent to the plan's attorney, who in turn transmitted the amendment for signature on Apr. 8, 1988. The court found the amendment was not effective for the plan year ending Oct. 31, 1987.

The court rejected the IRS's claims that certain plans' participants did not work 1,000 hours per year, but the court agreed that one plan did not provide enough information to receive an automatic approval for its change in valuation date. One plan was found liable for a Sec. 4972 excise tax on nondeductible contributions, but not liable for additions to tax under Sec. 6651(a)for failure to file excise tax returns. Six of the plans were held not liable for old Sec. 6659A additions to tax, and two were potentially liable for such additions to tax if the overstated liabilities are found to be 150% or more of the correct liabilities.

* No waiver of accrued benefit to correct funding deficiency In a technical advice memorandum, Letter Ruling 9146005,(126) the IRS refused to allow the major shareholder and plan beneficiary of an employer sponsoring a pension plan to waive his accrued benefit to correct a funding deficiency. The employer/shareholder had to make a contribution to the plan to correct the deficiency. The memorandum also required the funding standard account to be recalculated using a reasonable value for the plan assets, which were mostly unsecured promissory notes.

The company adopted a defined benefit plan in 1982, with its major shareholder (Trustee) serving as the sole trustee. Contributions were discontinued after the 1983 plan year. Beginning in October 1982, Trustee began disbursing funds from the plan, ostensibly as loans, but always unsecured and usually not evidenced by a note. Loans were made to his sister and brother-in-law for the purchase of a franchise, to himself on multiple occasions and to an employee who was not a participant in the plan. Only the loan to the Trustee's sister and brother-in-law was ever even partially repaid. The loans were carried as assets on the plan's books until the loans were written off, leaving the plan with very little cash as its only asset.

The accrued benefits of Trustee and his wife made up the major portion of the plan's liabilities, with less than $12,000 of benefits accruing to other employees. Trustee stated in his conference of right that the benefits of all the other participants in the plan had been paid, but he could not produce proof of such payment. Trustee proposed to waive his and his wife's accrued benefit in order to decrease the funding deficiency in the plan.

The IRS held that the Trustee must contribute to the plan to cure the funding deficiency, and could not waive his right to an accrued benefit. Sec. 411(a) provides that a trust will not be qualified unless the plan requires that an employee's right to his normal retirement benefit is nonforreitable on attaining normal retirement age. Sec. 411(d)(6)provides that, with limited exceptions, a plan will not satisfy Sec. 411 if a participant's accrued benefit can be reduced by plan amendment. Regs. Sec. 1.411(d)-4 prohibits such reductions even if the participant consents to the reduction. The IRS also asserted the anti-assignment and alienation provisions of Sec. 401(a)(13) in denying Trustee's request.

The IRS required Trustee to recalculate the funding deficiency of the plan using a reasonable valuation of plan assets in accordance with Sec. 412(c)(2)(A) and Regs. Sec. 1,412(c)(2)-1. Such a valuation would prohibit the plan from including worthless promissory notes as plan assets, since there was no reasonable expectation of repayment.

Under Rev. Rul. 79-237,(127) the employer has an obligation to fund the accumulated funding deficiency as of the end of the plan year in which the plan is terminated. If the deficiency is not reduced to zero, the 5% and 100% taxes under Sec. 4971(a) and (b) will be imposed.

While a discussion of the loans to Trustee as prohibited transactions was not part of the technical advice, the memorandum stated that the Trustee had conceded that the loans were prohibited transactions under Sec. 4975 and (2) he had violated the exclusive benefit rule of Sec. 401(a)(2).

Plan Assets Held in Receivership

* Distributions and frozen GICs

The IRS has released a general information letter clarifying that a plan participant can receive a lump-sum distribution from a plan, even though a portion of the participant's account is invested in a guaranteed investment contract (GIC) that is "frozen" by a court-authorized proceeding involving state insurance regulators. This interpretation is important to participants in plans holding Executive Life or Mutual Benefit GICs, since the insurance companies are currently under state conservatorship.

In determining that a distribution of a participant's entire account, less the portion of the account invested in the frozen GICs, is considered a distribution of the balance to the credit of the participant for purposes of Secs. 402 and 4980A, the letter analogizes the situation to that in Rev. Rul. 83-57.(128) There the IRS ruled that the distribution of the balance of a participant's entire account, less the employee's contingent interest in a court-impounded fund, was a lump-sum distribution within the meaning of Sec. 402(e)(4)(A). Since participants with investments in GICs frozen by a state insurance regulator have a similar contingent interest in a benefit, the fact that the interest in the GIC is not distributed will not destroy lump-sum treatment. Thus, the balance to a plan participant's credit may be determined by excluding the portion of the benefit attributable to the frozen GIC.

The IRS letter did not consider the tax treatment of a subsequent distribution of amounts from frozen GICs. In two private letter rulings, the IRS followed its informal advice and in one of those rulings also addressed the tax treatment of the subsequent distribution from the frozen GIC account, holding that it also will be treated as a distribution of the "balance to the credit" for purposes of Sec. 402(a)(5)(A) and (e)(4)(A) ((before amendment by the Unemployment Compensation Amendments of 1992 (UCA)).

Letter Ruling 9219042(129) involved a participant who had already separated from service. The participant's plan contained a Fund B, consisting of GICs--including one issued by Insurance Company D, which is in the conservatorship of the state insurance commissioner. By order of a state court, no payments may be made under Company D's contracts, except at the direction of the state court. As a result, no payments have been made on the GIC. The plan sponsor transferred all ownership assets of Company D GICs to Fund C and amended the plan to prohibit distributions and transfers from Fund C until Company D paid the GICs. The participant sought a ruling that a single-sum distribution from the plan, excluding assets in Fund C, will be treated as a distribution of the "balance to the credit" under Sec. 402(e)(4)(A).

Based on Rev. Rul. 83-57, the IRS found that the distribution would satisfy the requirements of Sec. 402(e)(4)(A).

Letter Ruling 9219043(130) involved many of the same facts and much of the same reasoning. But the plan participant sought rulings on the tax treatment of both the current amount in the plan and the amount that may be released later when the GIC funds are available, including any other contributions to and gains and losses credited to his account since the original withdrawal. The participant inquired whether the second amount would be considered the "balance to the credit" under both Sec. 402(e)(4)(A) (defining "lump-sum distributions")and Sec. 402(a)(5)(A) (defining eligibility for rollover treatment).

In this situation, the participant had not yet separated from service, but was of an age entitling him to receive the balance of his account currently. He intended to seek the balance of the account, minus the frozen GIC assets, prior to separation from service, and then at separation from service--or as soon thereafter as the GIC funds were available--seek the remainder of his account, which would theoretically include both the GIC funds and additional contributions and earnings since the first distribution.

On the first amount, the IRS referred to Rev. Rul. 83-57 and found the distribution to be the "balance to the credit" under old Sec. 402(e)(4)(A). Considering the second amount involving the residual contributions and the GIC amounts, the IRS found that it would satisfy the terms of both Sec. 402(e)(4)(A) and (a)(5)(A). The IRS did not elaborate on why this was so, other than to rely on the definitions in those subsections. Certainly, the participant's separation from service is a triggering act under Sec. 402(e)(4)(A), but whether this was critical to the IRS is unknown.

In both these situations, the plan sponsor had segregated the frozen GICs in a separate fund. However, if this segregation had any bearing on the IRS's decisions, the letter rulings are silent on what it was.

While private letter rulings are applicable only to those who receive them, these rulings nevertheless provide welcome news for those plan participants awaiting GIC distributions and wondering what they can do with them once they receive them.

* Minimum distributions

In Rev. Proc. 92-10,(131) the IRS addressed the problem of required minimum distributions for plan participants who are 70 1/2 by first requiring the minimum distribution amount to be calculated as though GICs or annuities that may be frozen or paying only a part of their required payments are in fact fully available. Based on these calculations, distributions are then made from the available funds at the level of those calculations until the available funds run out. Essentially, the IRS is saying calculate and distribute as though nothing has happened until the available funds run out and the plan participant will not be penalized, nor will the plan be disqualified.

Note: Rev. Proc. 92-10 will not apply if a financially distressed insurance company decides to reduce or curtail payments without state intervention. The plan must contain an "affected investment," meaning a contract or an annuity for which payments have been suspended or reduced as a result of state insurance delinquency proceedings against an insurance company as defined in Sec. 816(a). The suspended or curtailed portion of the affected investment is referred to as the "unavailable portion" of the investment.

The required minimum distribution must be calculated under the relevant proposed regulations by including the affected investment. In individual account plans, all assets of the account, other than the unavailable portion of the affected investment, are then to be used and exhausted to make the distributions.

Note: Under Prop. Regs. Sec. 1.401(a)(9)-1, F-5, Q&A, the benefit used to determine a minimum distribution in such plans is the account balance in the year before the distribution. Presumably, if the GIC announced in the prior year that it was curtailing payments or reducing payments, its value (and hence the account value)would be reduced accordingly. Consequently, the minimum distribution amount might be reduced based on that lower valuation. But if the GIC was fully valued as of the previous year, the distribution would be unaffected by the GIC's subsequent delinquency.

In the case of plans other than individual account plans, all assets of the plan must be used for the distribution. If the plan had purchased an annuity contract that became an affected investment for the distributee and that annuity was to provide the entire benefit, distributions are required to come only from the affected investment, not from the other plan assets.

If subsequent payments are received from the GIC or annuity to make up for earlier payment reductions, any shortfalls in minimum distributions must be made up to the extent of those payments. Any shortfalls in distribution must be made up by December 31 of the year after the payments are received.

* Fund litigation

The IRS has ruled in Letter Ruling 9137046(132) that amounts distributed from a terminating profitsharing plan would not constitute the "balance to the credit" of the employees in the plan in a situation in which 31% of the plan's assets will remain in a fund that is tied up in litigation. The fund is in litigation to prevent its participating plans from withdrawing, thus making those assets unavailable for distribution to participants. Since the balance to the credit of the employees will not be distributed within one tax year, the employees will not be eligible for the special rules associated with lump-sum distributions.

The profit-sharing plan (the Plan) was terminated after its original sponsor was merged into another corporation. Participants in the Plan were advised that they could request that their benefits be distributed. Approximately 31% of the Plan's assets were held in Fund M, which had invested heavily in real estate. Only qualified retirement plans were allowed to participate in Fund M. When the real estate market declined, several participating plans requested withdrawal from Fund M. To conserve Fund M's remaining assets and to stop the forced sale of real estate assets in a depressed market, Fund M's trustee suspended withdrawals. Whether the trustee had the right to suspend withdrawals became the subject of litigation, preventing participants in the Plan from receiving their interests in Fund M.

The Plan's sponsor requested rulings that the participants' failure to receive distributions from Fund M in the same tax year that they received the rest of their distributions from the Plan would not cause them to fail the "balance to the credit of the employee" test of Sec. 402(a)(5) (before amendment by the UCA), and that the failure to distribute would not disqualify an otherwise qualified total distribution under Sec. 402(a)(5)(E)(i)(I).

The IRS distinguished the facts in this ruling from those in Rev. Rul. 83-57(133) There the litigation ultimately determined the exact value of the accounts. In the current ruling, the pending litigation would determine only the permitted procedures for processing withdrawal requests from Fund M. Thus, according to the IRS, the rationale of Rev. Rul. 83-57 was not applicable to the facts. Instead, the IRS ruled that because the Fund M amounts would not be distributed in the same tax year as all other distributions on the termination of the Plan, the distributions would not meet the "balance to the credit of the employee" test. Therefore, the distributions would not qualify for special lump-sum treatment as a qualified total distribution, and would qualify for rollover only if the distributions met the partial distribution rules of Sec. 402(a)(5)(D).

Early Retirement Window Benefits

* Retirement-type plant shutdown benefits

A recent General Counsel Memorandum, GCM 39869,(134) holds that qualified plans may offer "retirement type" and ancillary shutdown benefits-- and if provided as retirement-type benefits, such benefits will become vested rights protected under Sec. 411)d)(6) on the occurrence of the event triggering the benefits.

The GCM first addressed whether shutdown benefits may be part of a qualified plan. The GCM distinguished among the different forms of shutdown benefits: those offered as retirement-type benefits, ancillary benefits or layoff/severance benefits.

"Layoff/severance" benefits, while not defined in the Code, are generally considered to be for a limited period of time and are intended to be a short-term replacement for income. Such shutdown benefits are not expected to provide benefits into retirement and are not permitted in a qualified plan under Regs. Sec. 1.401-1(1))(1)(i).

Certain nonretirement-type benefits, such as a Social Security supplement as defined in Sec. 411(a)(9), an incidental death benefit or a disability benefit, are considered ancillary benefits. These benefits are specifically referenced in Regs. Sec. 1.401-1(b)(1)(i) as permissible in a qualified plan. Such benefits must meet other requirements to be considered ancillary benefits, such as the non-discrimination requirements under Regs. Sec. 1.401(a)(4)-4(a).

Shutdown benefits also may be offered in the form of retirement-type benefits, such as early retirement incentives or subsidies, or supplements to accrued benefits or a reduction of age or service requirements. These benefits continue after retirement. Retirement-type shutdown benefits may be part of a qualified plan.

The GCM then addressed whether retirement-type shutdown benefits or ancillary shutdown benefits are accrued benefits, subject to the anti-cutback rules under Sec. 411(d)(6)and to the minimum survivor annuity requirements under Sees. 401(a)(11) and 417. The GCM concluded that retirement-type shutdown benefits become accrued benefits when the contingent event triggering the benefit occurs. Under Regs. Sec. 1.411(d)-4, Q&A-1, retirement subsidies are listed as accrued benefits subject to the anticutback rules of Sec. 411(d)(6). Once the benefits have accrued, they become subject to Sec. 411(d)(6) and to the "qualified joint and survivor annuity" (QJSA) and "qualified preretirement survivor annuity" (QPSA) requirements of Secs. 401(a)(11) and 417.

By contrast, ancillary benefits are not subject to Sec. 411(d)(6) protection under the regulations. Because such benefits are subject to elimination or reduction, they do not become accrued benefits and they are not required to be provided in the form of a QJSA or QPSA.

* Recurring early retirement windows

The IRS has ruled in Rev. Rul. 92-66(135) that Secs. 411(d)(6) and 401(a)(25) do not require that an early retirement window benefit be provided permanently to all employees under a plan in which the employer amends the plan to make the benefit available for substantially consecutive, limited periods-provided the facts and circumstances show that the repeated amendments do not contravene the purposes of the anticutback rules or the definitely determinable benefits requirement.

Employer maintained a defined benefit pension plan. Normal retirement age under the plan was 65, and the amount of an employee's retirement benefit at normal retirement age was an annuity equal to a percentage of the employee's average annual compensation, multiplied by the employee's years of service. Employees were eligible for early retirement after attaining age 55 and completing 10 years of service. If an employee retired and began receiving an annuity before normal retirement age, the amount of the employee's annuity was actuarially reduced to reflect early commencement.

During 1989, Employer experienced a significant economic downturn. As part of its efforts to reduce the work force, Employer amended the plan to provide an early retirement window benefit. This benefit was available to any employee age 55 with at least five years of service who worked for the manufacturing division and who retired during a limited period of time specified in the amendment. Eligible employees would receive a normal retirement benefit that was not actuarially reduced to reflect early commencement. If an eligible employee retired after the end of the specified period, the employee's eligibility for early retirement and the amount of the employee's benefit would be determined without regard to the early retirement window benefit.

Taking further cost reduction measures in 1990, 1991 and 1992, Employer again amended the plan in each of those years to make available an early retirement window benefit that was substantially similar to the benefit offered in 1989.

A defined benefit plan does not provide definitely determinable benefits unless actuarial assumptions are specified in the plan in a way that precludes employer discretion.(136) Further, a qualified plan cannot be amended to reduce the accrued benefit of any participant--and a plan amendment that has the effect of eliminating or reducing an early retirement benefit, a retirement-type subsidy, or an optional form of benefit for benefits attributable to service before the amendment is treated as reducing accrued benefits.(137) The regulations provide that a plan violates Secs. 411(d)(6) and 401(a) (including Sec. 401(a)(25)) if the plan permits either direct or indirect employer discretion to deny a participant a Sec. 411(d)(6) protected benefit for which the participant is otherwise eligible.(138)

According to the ruling, an employer cannot circumvent the prohibition against employer discretion in the administration of the plan, including through the adoption of plan amendments, if the effect is to eliminate a participant's valuable rights under the plan. Under this standard, plan amendments that make benefits available for a limited period of time do not automatically result in the elimination of a valuable right once that period of time has ended. Rather, the regulations preclude a "pattern of plan amendments" that make benefits available only for a limited period of time if the plan amendments give rise to a reasonable expectation that the benefit is an ongoing feature of the plan and, therefore, a valuable right.(139)

The ruling stated that whether a recurrence of plan amendments constitutes a pattern of amendments within the meaning of Regs. Sec. 1.411(d)4 is determined on a facts and circumstances basis. Although no one particular fact is determinative, relevant factors include:

* Whether the amendments are made on account of a specific business event or condition.

* The degree to which the amendment relates to the event or condition.

* Whether the event or condition is temporary or discrete or whether it is a permanent aspect of the employer's business.

The IRS ruled that Employer's recurring early retirement window benefit amendments did not give rise to a reasonable expectation that the window benefit was an ongoing plan feature and thus a valuable right under the plan. Thus, the plan amendments did not contravene the anticutback rules of Sec. 411(d)(6) or the definitely determinable benefits requirement under Sec. 401(a)(25).

Security of Retirement Plan Assets

It is certainly a sign of the times that tax advisers are encouraging their clients to consider qualified retirement plan assets as a means of bankruptcy protection. No longer are practitioners encouraging individuals to contribute to such plans as tax shelters; rather, they see encouraging maintenance of the accounts as a means of insuring retirement security.

On June 15, 1999,, the U.S. Supreme Court unanimously affirmed the Fourth Circuit's decision in Shurnate(140) holding that a bankrupt debtor's interest in an ERISA retirement plan is not subject to the claims of creditors in bankruptcy. The Supreme Court's decision was broadly written and did not distinguish the facts in this case or rely on state law to define spendthrift trusts.

Shumate had been a long-time employee of Coleman Furniture Corporation. He eventually acquired over 90% of the corporation's stock and became its president and chairman of the board. He also became its biggest retirement plan participant. The retirement plan contained the necessary ERISA anti-alienation language and the plan satisfied all ERISA and IS tax qualification requirements. Coleman Furniture went bankrupt, terminated its pension plan and distributed the plan assets to all participants except Shumate. Shumate ultimately declared personal bankruptcy and the trustee in Shumate's personal bankruptcy, Patterson, sued the trustee in the Coleman corporate bankruptcy to attach Shumate's retirement benefit.

Section 54 1(c)(2) of the Bankruptcy Code states:

A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title. (Emphasis added.)

The district court and, indeed, other Courts of Appeals, interpreted this language to mean only other state law. Under this interpretation, if under the state law the ERISA trust met the requirements for a spendthrift trust and, therefore, the benefits were not available to a plan participant who happens to declare bankruptcy, the creditors could not reach the benefits either. If the ERISA trust did not meet the state law requirements for a spendthrift trust, the benefits could be reached by a creditor of the bankrupt plan participant. Under this interpretation, the problems for plan administrators are obvious--50 different laws will govern the plan trust. The trustee had also argued that because Shumate could have terminated the trust at any time, given his ownership of the plan sponsor, the trust could not be a valid spendthrift trust for him because the assets were always reachable by him.

The Fourth Circuit reversed the district court and held that the ERISA protected the benefit assets of a bankrupt plan participant from creditors. The Supreme Court granted certiorari because of the conflict between the Courts of Appeals on whether ERISA's anti-alienation provisions constituted a restriction on the transfer of beneficial interests "under applicable nonbankruptcy law" for purposes of Section 541(c)(2)of the Bankruptcy Code.

The Supreme Court held the plain meaning of the language in Bankruptcy Code Section 541(c)(2) was not limited to state law. The Court noted that several other sections of the Bankruptcy Code were limited to state law by including the specific language "state law." The section at issue contained no such limit; therefore, there was no reason to assume Congress intended to limit the provision to state law. The Court went on to find that ERISA Section 206(d)(1) and Code Sec. 401(a)(13) clearly restrict the transfer of interests through their anti-alienation clauses. Moreover, those anti-alienation restrictions are enforceable because fiduciaries are required to discharge their duties under the terms and conditions of the plan (which contain the anti-alienation language), and that duty can be enforced by plan participants or the DOL.

The Court dismissed the bankruptcy trustee's other arguments based on legislative history suggesting that ERISA assets were not exempt from the bankrupt's estate, the effect on other sections of the Bankruptcy Code, and violation of the Bankruptcy Code's policy of broad inclusion of assets in the bankrupt's estate. Rather, the Court stated its holding "gives full and appropriate effect to ERISA's goal of protecting pension benefits," and furthers the "important policy underlying ERISA: uniform national treatment of pension benefits." Note: This case refers only to ERISA Title I plans protected by Section 206(d)(1); it does not apply to IRA plans or other non-ERISA plans. The Court referred to Section 522(d)(10) of the Bankruptcy Code, noting that that paragraph may apply to qualified and nonqualified plans.

The protection under Section 522(d) could include IRAs and annuities, however, Section 522(d) protections do not apply to all bankrupts. A bankrupt must elect to exempt property under one of two paragraphs, Section 59.2(b)(1) (which exempts only property listed in Section 522(d)) or Section 522(b)(2) (which refers to any property exempted under Federal, state or local law in effect at the time of the bankruptcy filing).

Qualified Disclaimers

In GCM 39858,(141) the IRS Office of the Chief Counsel concluded that a qualified disclaimer of plan benefits by the participant's surviving spouse is neither a prohibited assignment or alienation under Sec. 401(a)(13) nor an assignment of income. Similarly, a spouse's qualified disclaimer of an interest in an IRA is not an assignment of income and not contrary to Sec. 408(a)(4) and (b)(1). As a result, the plan benefits and IRA funds otherwise payable to the spouse become payable to a successor or contingent beneficiary. The Chief Counsel's Office also concluded that the actual recipient of the benefits is taxable under the income in respect of a decedent (IRD) provisions of Sec. 691(a) and is entitled to an IRD deduction under Sec. 691(c).

Employee, a participant in a qualified retirement plan, died before separating from service and receiving benefits under the plan. Employee's Husband had not waived the joint and survivor annuity option under Sec. 417; therefore, Husband became entitled to a preretirement survivor annuity on Employee's death. Instead of receiving plan benefits, Husband executed a qualified disclaimer that met the requirements of state law and Sec. 2518(b). Sec. 2518(b) provides that a person making a qualified disclaimer of an interest in property is deemed never to have received an interest in the property. As a result of the disclaimer, plan benefits otherwise payable to Husband became payable to a successor beneficiary.

Sec. 401(a)(13) provides that a trust is not a qualified trust unless it provides that benefits under the plan cannot be assigned or alienated. Regs. Sec. 1.401(a)-13(c)(1) defines assignment and alienation as any direct or indirect arrangement under which a participant or beneficiary who would otherwise be entitled to plan benefits transfers a fight or interest in those benefits to a third party. However, because a qualified disclaimer of plan benefits operates retroactively back to the participant's date of death, Husband is deemed to never have accepted or received plan benefits. Because Husband was never entitled to plan benefits, it is not possible for him to assign or alienate the benefits.

In another situation, Husband established an individual retirement account and an individual retirement annuity (IRAs). Husband died, leaving the interests in both IRAs to his Wife. Instead of receiving the benefits, Wife executed a qualified disclaimer that met the requirements of state law and Sec. 2518(b). As a result, the benefits otherwise payable to Wife became payable to a successor beneficiary.

Sec. 408(a)(4) provides that an individual's interest in an IRA must be nonforfeitable. Sec. 408(b)(1) provides that a contract for an individual retirement annuity must not be transferable by the owner. The logic that applies to a disclaimer of retirement plan benefits also applies to IRAs. Regs. Sec. 1.408-4(a)(1) provides that the payee or distributee of an IRA is generally taxable only on amounts actually received or distributed. Because Wife disclaimed the IRAs, she never became the beneficiary. Therefore, the distribution to the third party does not violate Sec. 408(a) or (b)(1).

Note that the Chief Counsel's Office did not express an opinion as to whether the transfer of a plan's benefits that is not a qualified disclaimer under Sec. 2518(b) is a prohibited assignment or alienation. It is important to ensure that any disclaimer used is qualified.

(104) Anton Zabolotny, 97 TC 385 (1991).

(105) at 404.

(106) Sec. 49751(e)(2)(A).

(107) Sec. 4975(e)(2)(E).

(108) Sec. 4975(e)(2)(F).

(109) ERISA Section 407(d)(4).

(110) Sec. 4975(f)(5).

(111) Daniel B. Ahlberg, M.D., 780 F Supp 625 (D.C. Minn. 1991)(92-1 USTC [paragraphs] 50,039L

(112) Keystone Consolidated Industries, Inc. 951 F2d 76 (Sth Cir. 1992)(69 AFTR2d 92-517, 92-1 USTC [paragraph]50,045), aff'g TC Memo 1990-628.

(113) Dallas C. Wood, 955 F2d 908 (4th Cir. 1992)(69 AYTR2d 92.-649, 92-1 USTC [paragraph] 50,073}, rev'g 95 TC 364 (1990).

(114) Sec. 4975(c)(1)(A) and (e)(2)(C).

(115) PTCE 85-68 (4/3/85).

(116) See DOL Advisory Opinions Nos. 81-69A [7/28/81] and 90-05A (3/29/90).

(117) IRS Letter Ruling (TAM)9208001 (10/4/91).

(118) Vinson & Elkins, 99 TC No. 2 (1992).

(119) Wachtell, Lipton, Rosen & Katz, TC Memo 1992-392.

(120) Citrus Valley Estates, Inc., et al., 99 TC No. 21 11992).

(121) H. Rep. No. 93-807, 93rd Cong. {1974L quoted in Vinson & Elkins, note 118, at 99-9. mid., at 99-11.

(123) Rev. Rul. 85-131, 1985-2 CB 138.

(124) Citrus Valley Estates, note 120, at 99-226.

(125) Jerome Mirza & Associates, Ltd., 882 F2d 229 (7th Cir. 1989)(64 AFTR2d 89-5233, 89-2 USTC [paragraph]9492L

(126) IRS Letter Ruling (TAM)914600S (7/S/91) 52

(127) Rev. Rul. 79-237, 1979-2 CB 190.

(128) Rev. Rul. 83-57, 1983-1 CB 92.

(129) IRS Letter Ruling 9219042 (2/13/92).

(130) IRS Letter Ruling 9219043 (2/13/92).

(131) Rev. Proc. 92-10, IRB 1992-2, 20, clarified by Rev. Proc. 92-16, IRB 1992-7, 19.

(132) IRS Letter Ruling 9137046 (6/20/91).

(133) Rev. Rul. 83-57, note 128.

(134) GCM 39869 (4/6/92).

(135) Rev. Rul. 92-66, IRB 1992-36, 11.

(136) Sec. 401(a)(25).

(137) Sec. 411(d)(6)(A) and (B).

(138) Regs. See. 1.411(d)-4, Q&A-4.

(139) Regs. See. 1.411(d)-4, Q&A-1(c)(1).

(140) Joseph B, Shumate, Jr. v. John R. Patterson, et al., Sup. Ct., 6/ 15/92, aff'g 943 F2d 362 (4th Cir. 1991J, rev'g W.D. Va.

(141) GCM 39858 (9/9/91).
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Title Annotation:part 3
Author:Walker, Deborah
Publication:The Tax Adviser
Date:Jan 1, 1993
Previous Article:Family business consulting.
Next Article:CD-ROM update.

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