MEMORANDUM OPINION
VASQUEZ, Judge: These cases are before the Court on respondent's motions for entry of decision under Rule 50. 1
Background
Petitioner Howard E. Clendenen, Inc. (the corporation), is a corporation with a mailing address in Des Moines, Iowa. On May 22, 1996, respondent sent the corporation a notice of deficiency determining the following deficiencies in the corporation's Federal income taxes:
Tax Year Ended Deficiency
6/30/87 $ 10,273
6/30/88 32,607
6/30/89 13,775
In this notice of deficiency, respondent determined that the corporation's employee stock ownership plan (the plan) was a nonqualified plan because it did not meet the requirements of section 401(a). On August 21, 1996, the corporation filed a petition with the Court alleging error in respondent's determination that the plan is nonqualified.
On May 22, 1996, respondent sent petitioner Howard E. Clendenen (Mr. Clendenen) a notice of deficiency determining deficiencies in his Federal income taxes, an addition to tax, and an accuracy-related penalty as follows:
Addition to Tax Penalty
Tax Year Deficiency Sec. 6653(a)(1) Sec. 6662(a)
________ __________ _______________ ____________
1987 $ 13,641 -- --
1988 34,071 $ 1,704 --
1989 1,187 -- $ 237
In this notice of deficiency, respondent based the determinations on the plan's being nonqualified. On August 21, 1996, Mr. Clendenen filed a petition with the Court in which Mr. Clendenen referred to the "erroneous allegation that said trust is not qualified."
On September 29, 1997, the parties in both cases each filed a joint motion for continuance. The parties sought a continuance in order to present the plan qualification issue to the Court in a declaratory judgment action, Howard E. Clendenen, Inc. v. Commissioner, docket No. 18155-96R, because the qualified status of the plan was the significant issue in these cases. On October 2, 1997, the Court granted these motions.
On February 13, 1998, the corporation and Mr. Clendenen each filed a Stipulation of Settled Issues. The corporation's stipulation of settled issues provided in part:
8. For the taxable year ended June 30, 1987, the parties agree
that the issue designated "ESOP Contribution to Non-
Qualified Plan" in the notice of deficiency is consequential
to the issue of plan qualification in related docket 18155-96
"R".
9. For the taxable year ended June 30, 1988, the parties agree
that the issue designated "Deductible Dividends to ESOP"
in the notice of deficiency is consequential to the issue of
plan qualification in related docket 18155-96 "R".
10. For the taxable year ended June 30, 1988, the parties agree
that the issue designated "Non-Qualified Contribution-
Allowed in Yr. included in 1040" in the notice of deficiency is
consequential to the issue of plan qualification in related
docket 18155-96 "R".
11. For the taxable year ended June 30, 1989, the parties agree
that the issues designated "ESOP Contribution to Non-
Qualified Plan" and "Deductible Dividends to ESOP"
in the notice of deficiency are consequential to the issue of
Respondent and the corporation signed this stipulation of settled issues.
Mr. Clendenen's stipulation of settled issues provided in part:
9. For the taxable year 1987, the parties agree that the issue
designated "Employer Contribution" and "Deferred
Compensation" in the notice of deficiency are consequential
to the issue of plan qualification in related docket 18155-96
10. For the taxable year 1988, the parties agree that this
stipulation resolves all issues in dispute.
11. For the taxable year 1989, the parties agree that the
remaining issue, designated "Employer Contribution" in
the notice of deficiency is consequential to the issue of plan
qualification in related docket 18155-96 "R".
Respondent and Mr. Clendenen signed this stipulation of settled issues.
On February 13, 1998, the corporation and Mr. Clendenen also each filed a Stipulation To Be Bound. The corporation's stipulation to be bound stated that the only remaining issues in dispute relate to the plan qualification as asserted in paragraphs 4(a) and (b) in the petition. Further, the corporation's stipulation to be bound provided in part:
2. The adjustments in respondent's notice of deficiency relating
to the issues or items asserted in paragraphs 4(a) and (b) of
the petition, as specified in the preamble, shall be determined
by the resolution of the qualified status of the Howard E.
Clendenen, Inc., Employee Stock Ownership Plan in Docket No.
18155-96 "R" (whether litigated or settled), with
respect to the following taxpayer:
Name of Case: Howard E. Clendenen, Inc. v. Commissioner
Tax Court Docket No.: 18155-96 "R"
(hereinafter the CONTROLLING CASE).
3. The petitioner in this case is the same as the taxpayer in
the CONTROLLING CASE.
Mr. Clendenen's stipulation to be bound provided that the only remaining issues in dispute involve the issues asserted in paragraph 4(a) of the petition that relate to the plan's qualification. Further, Mr. Clendenen's stipulation to be bound provided in part:
2. The adjustments in respondent's notice of deficiency relating
to the issues or items asserted in paragraph 4(a) of the
petition, as specified in the preamble, shall be determined by
the resolution of the qualified status of the Howard E.
Tax
Court Docket No.: 18155-96 "R"
(hereinafter the CONTROLLING CASE).
3. All issues involving the above adjustments shall be resolved
as if the petitioner in this case were the same as the taxpayer
in the CONTROLLING CASE.
Both stipulations to be bound also provided:
4. A decision shall be submitted in this case when the decision
in the CONTROLLING CASE (whether litigated or settled) becomes
final under I.R.C. section 7481.
5. Upon entry of the decision in the CONTROLLING CASE,
petitioner consents to the assessment and collection of the
deficiencies attributable to the adjustments formulated by
reference to the Tax Court's opinion, notwithstanding the
restrictions under I.R.C. section 6213(a).
The parties agree to this STIPULATION TO BE BOUND.
Respondent and the corporation signed the corporation's stipulation to be bound, and respondent and Mr. Clendenen signed Mr. Clendenen's stipulation to be bound.
On September 3, 1998, the Court published its opinion, Howard E. Clendenen, Inc. v. Commissioner, T.C. Memo. 1998-318 (docket No. 18155-96R) (the declaratory judgment), affd. 207 F.3d 1071 (8th Cir. 2000). We held that the trust was not a qualified trust under section 401(a) beginning with the plan year 1986 because the annual additions exceeded the limitations ofsection 415(c) when we found that the elective deferrals were employer contributions and that those amounts and the amounts paid by the corporation to Mr. Clendenen as an independent contractor were not includable in compensation under section 415. We stated:
the annual additions allocated to Mr. Clendenen during each of
the plan years 1986, 1987, 1989, 1990, and 1991, exceed the
section 415 limits. Petitioner has not argued or established
that any corrective measures were taken to reduce these
additions. See sec. 1.415-6(b)(6), Income Tax Regs.
The Court of Appeals for the Eighth Circuit affirmed our opinion. Howard E. Clendenen, Inc. v. Commissioner, 207 F.3d 1071 (8th Cir. 2000), affg. T.C. Memo. 1998-318.
On March 5, 2002, respondent filed a motion for entry of decision in each of these cases, moving that the Court enter a decision pursuant to the stipulations filed by the parties. 2
After concessions, 3 the issue for decision is how the stipulations of settled issues and the stipulations to be bound affected the corporation and Mr. Clendenen (collectively, petitioners).
Discussion
The parties dispute the effect of the stipulations. Respondent argues that the stipulations of settled issues and the stipulations to be bound are dispositive of all issues concerning the qualified status of the plan. Respondent contends that the parties "effectively agreed that the party that prevailed with respect to the issue of plan qualification in docket No. 18155-96R will also prevail in this case". Petitioners do not dispute that they are bound by the stipulations. 4 Instead, petitioners dispute the calculations that result from the declaratory judgment, arguing that while the plan was disqualified for the taxable year ended June 30, 1986, the plan was qualified for all years ending thereafter.
The stipulations of settled issues and the stipulations to be bound provide that all of the remaining issues in these cases shall be resolved on the same basis as those issues are finally resolved in the declaratory judgment. We concluded in the declaratory judgment, and the Court of Appeals for the Eighth Circuit affirmed, that the annual additions allocated to Mr. Clendenen during each of the plan years 1987 and 1989, the years in dispute in the instant case, exceeded the section 415 limits; i.e., the plan is not qualified. Sec. 415(a)(1)(B), (c)(1); Howard E. Clendenen, Inc. v. Commissioner, T.C. Memo. 1998-318.
Further, when a plan is disqualified under section 415, the disqualification continues until remedial action is taken. Martin Fireproofing v. Commissioner, 92 T.C. 1173, 1188 (1989). Corrective action of the sort set forth in the regulations is a prerequisite to requalification of a plan following a violation of section 415. Id. at 1184; Van Roekel Farms v. Commissioner, T.C. Memo. 2000-171. As we stated in the declaratory judgment, the corporation had not argued or established that any corrective measures were taken, citing section 1.415- 6(b)(6), Income Tax Regs. 5 Howard E. Clendenen, Inc. v. Commissioner, supra.
Petitioners argue that Rev. Rul. 72-368, 1972-2 C.B. 220, and Rev. Rul. 73-79, 1973-1 C.B. 194, support their contention that disqualification in a prior year does not prevent the plan from being qualified in a future year when it meets the requirements of section 401(a). We disagree. In Martin Fireproofing, we stated that (1) Rev. Rul. 72-368, supra, predates section 415, which was enacted in 1974, and (2) Rev. Rul. 72-368, supra, does not require respondent to qualify a plan in the absence of corrective action. Martin Fireproofing v. Commissioner, supra 92 T.C. at 1188. The second point is emphasized in Rev. Rul. 73-79 in which a plan requalified only after amendment of the plan and a reallocation of contributions made for the years of violation. Id.
Petitioners also contend that Zabolotny v. Commissioner, 7 F.3d 774 (8th Cir. 1993), affg. and revg. 97 T.C. 385 (1991), is analogous to their situation and supports their argument. We disagree. First, Zabolotny involved a different section of the Code, section 4975. 6 Second, section 4975 did not impose a requirement that a disqualified person must take affirmative action before a transaction may be "corrected". Id. at 777. In the instant case, the applicable regulations and caselaw require that corrective actions must be taken to requalify a plan that has violated section 415. Martin Fireproofing v. Commissioner, supra 92 T.C. at 1184; sec. 1.415-6(b)(6), Income Tax Regs.
Petitioners provided calculations to establish that the plan was qualified as of the taxable year ending June 30, 1987. In their calculations, petitioners have ignored findings from the declaratory judgment; i.e., $ 30,000 treated as an employee contribution and $ 9,000 treated as an employer contribution for taxable year ended June 30, 1987. The source of many of petitioners' calculations; i.e., figures for taxable years ended June 30, 1984 and 1985, is unclear, and such figures are not reflected in the instant records. The declaratory judgment clearly examined the years at issue. We do not question those calculations. We therefore shall grant respondent's motions for entry of decision.
In reaching all of our holdings herein, we have considered all arguments made by the parties, and, to the extent not herein discussed, we conclude them to be irrelevant or without merit.
To reflect the foregoing,
Appropriate orders and decisions will be entered.