MEMORANDUM FINDINGS OF FACT AND OPINION
SCOTT, Judge: Respondent determined deficiencies in petitioner's Federal excise taxes under section 4971(a) and (b)1 and additions to tax under section 6651(a) for the calendar years and in the amounts as follows:
| | | Addition to Tax |
| Year | Sec. 4971(a) Deficiency | Sec. 4971(b) Deficiency | Sec. 6651(a) |
| 1983 | $ 1,496.27 | $ 29,925.31 | $ 710.73 |
| 1984 | 2,824.89 | 56,494.81 | 1,341.82 |
| 1985 | 4,045.33 | 80,906.64 | 2,021.53 |
| 1986 | 4,944.57 | 98,891.47 | 2,348.67 |
Respondent concedes that petitioner is not liable for the addition to tax under section 6651(a). The issue for decision is whether the money purchase pension plan maintained by petitioner failed to meet the minimum funding standard prescribed by section 412 for the plan years 1983, 1984, 1985, and 1986, resulting in an accumulated funding deficiency, thereby causing petitioner to be liable for the excise tax under section 4971(a) and (b).
FINDINGS OF FACT
Some of the facts have been stipulated and are found accordingly.
At the time of the filing of the petition in this case, petitioner's business address was in Dallas, Texas.
Petitioner began operation as a sole proprietorship in 1977 and was incorporated in 1980. The stock of petitioner is owned by Mr. Jack Jeter and his wife Ms. Cora Jeter. Because of its early financial success petitioner established pension plans, one of which was named the J. P. Jeter Company, Inc. Money Purchase Pension Plan (the plan). This plan became effective January 1, 1981. Petitioner operates a machine shop which manufactures custom machine parts. Originally, most of the items manufactured by petitioner were for use in the oil and gas industry. After the decline of the oil and gas industry during the mid-eighties, petitioner began manufacturing for other industries. When there was a decline in the drilling of oil wells in the mid-eighties, petitioner lost some large contracts and began to experience cash problems. In late 1983 Mr. Jeter realized that petitioner would not be able to continue to fund the plan. Petitioner failed to make contributions to the plan for plan years after the plan year ending December 31, 1982, as required by section 412.
Sometime around November 1983, Mr. Jeter discussed petitioner's inability to make contributions to the plan with the plan's actuary. The actuary told Mr. Jeter that he would take care of this problem.
On September 18, 1985, petitioner requested a waiver of the funding requirements for the plan (the waiver request) under section 412(d). The waiver request was prepared by Jenkins, Hunzelman & Co., with help from Mr. Manford Edgington, petitioner's accountant. Mr. Jeter signed the waiver request declaring under penalties of perjury that to the best of his knowledge and belief the facts presented in the waiver request were true and correct. A letter dated August 23, 1985, from Mr. Manford Edgington to respondent was included as a part of the waiver request. This letter contains the following statement: "Contributions to the plan are currently anticipated to possibly resume as early as 1986 plan year, but it will be more likely in plan year 1987". Also included as part of the waiver request was a Form 5500-R (Registration Statement of Employee Benefit Plan) for the plan year 1983, which was signed by Mr. Jeter on October 15, 1984. This form states that the plan was not terminated in 1983.
On February 20, 1986, respondent granted petitioner a funding waiver for plan years ending December 31, 1983, and December 31, 1984, conditioned upon the plan's being revised to include certain amendments (the amendments). The amendments required to be made dealt with the payment of the waived contributions over a period of years. Petitioner never adopted the amendments.
Mr. and Mrs. Jeter both spoke to Mr. Hunzelman about filing other documents for the plan. Because Mr. and Mrs. Jeter were dissatisfied with Mr. Hunzelman's handling of the plan, petitioner decided to turn the handling of the plan over to someone else. Petitioner initially chose Twylla Maddux to handle the plan and later began to use the services of Malcolm Thompson & Associates.
By letter dated March 17, 1987, petitioner sent to respondent a request for a determination letter on termination of the plan. Mr. Jeter requested the preparation of the letter but was not involved in its preparation. He did sign the Form 5310 "Application for Determination Upon Termination" attached to the letter on August 4, 1986. The letter requesting the determination letter states that a plan termination submission was completed in June 1986, but that no acknowledgment of respondent's receipt of the submission had been received by petitioner. The attachments to the letter requesting a determination letter with respect to termination included a copy of a resolution adopted by petitioner's board of directors on June 16, 1986, "to terminate the J. P. Jeter Company, Inc. Money Purchase Plan as of December 31, 1984".
On October 21, 1987, respondent sent petitioner a determination letter stating that the proposed termination does not adversely affect the plan's qualification. This determination letter declared that it applies to the proposed termination date of June 16, 1986.
The plan was formally terminated on or about June 16, 1986. At the time of trial all funds in the plan had been distributed.
OPINION
Section 4971(a)2 imposes an initial excise tax on the amount of any accumulated funding deficiency under a plan to which section 412 applies and 4971(b) imposes an additional tax of 100 percent on such a plan where the initial tax has been imposed and the accumulated funding deficiency has not been corrected within the taxable period. These excise taxes are to be paid by the employer responsible for making the contributions. Sec. 4971(a). Petitioner makes no argument that section 412 is not applicable to its plan. Petitioner's argument is that the plan was terminated at the end of the 1982 plan year and for that reason it was not obligated to fund the plan for 1983 and subsequent years. In D.J. Lee, M.D., Inc. v. Commissioner, 92 T.C. 291, 300 (1989), affd. 931 F.2d 418 (6th Cir. 1991), we pointed out that "The purpose of section 4971(a) is to enforce the minimum funding standards and assure that employers timely contribute sufficient funds to meet their plans' benefit obligations". In D.J. Lee, M.D., Inc. v. Commissioner, supra at 301, we quoted from H. Rept. 93-779 (1974), 1974-3 C.B. 339 and S. Rept. 93-383 (1973), 1974-3 C.B. (Supp.) 80, 103-104, explaining the operation of the first (section 4971(a)) and second (section 4971(b)) tier taxes. The Senate report stated that because of the severity of the second tier tax and the fact that the employer remains liable for meeting the funding standard after the payment of the tax, it is anticipated that "few, if any, employers will willfully violate these standards". S. Rept. 93-383 (1973), 1974-3 C.B. (Supp.) 80, 103-104.
The first tier tax provided for in section 4971(a) is 5 percent of the amount of the accumulated funding deficiency at the end of the plan year and the second tier tax provided for in section 4971(b) is equal to 100 percent of the accumulated funding deficiency to the extent it is not corrected by the earlier of the date of mailing of the notice of deficiency or the date the first tier of tax is assessed. Sec. 4971(c)(3). 3 In order to correct the accumulated funding deficiency, a contribution must be made to the plan of the amount necessary to reduce the accumulated funding deficiency to zero. Sec. 4971(c)(2).
An accumulated funding deficiency is defined in section 412. 4A plan must meet the funding requirements of section 412 until it is terminated. Petitioner argues that the plan was terminated at the end of 1982 and therefore the plan's funding requirements ceased at that time.
Petitioner's first argument is that the plan is terminated when an employer ceases to make payments to the plan. Petitioner cites no authority for this position. The only reference we have found to termination of plans upon discontinuance of contributions is in section 411(d)(3)(B) and section 1.411(d)(2)(i), Income Tax Regs., which refer to plans to which section 412 does not apply. Therefore there is no merit to this argument of petitioner. In fact not only did petitioner not contest the application of section 412 to its plan, Mrs. Jeter testified that petitioner was supposed to pay into the plan each year 10 percent of the salary of each employee covered by the plan.
According to the regulations, a plan which is not subject to termination insurance is terminated on the date that the plan is voluntarily terminated by the employer, or employees, maintaining the plan. Sec. 1.411(d)-2(c)(3), Income Tax Regs. Exactly when a voluntary termination takes place is a question of fact. Sec. 1.401-6(b)(1), Income Tax Regs.
Based on the record in this case, we have determined that the plan was not terminated at the end of 1982 or in 1983, but was terminated later around June 16, 1986. This record shows that: (1) Form 5500-R for the plan year 1983 states that the plan was not terminated in 1983; (2) the waiver request stated that petitioner expected to begin contributing to the plan again in 1986 or 1987; (3) there is no evidence of notice of termination being sent to any of the plan participants; and finally (4) the resolution by petitioner's board of directors to terminate the plan was not passed until June 16, 1986.
The evidence presented does not show that petitioner desired or intended to terminate the plan in 1983. The evidence establishes that Mr. and Mrs. Jeter realized that petitioner would not be able to make the plan contributions for 1983 and discussed with the plan experts what could be done to solve this problem. The plan experts told them that this problem would be handled. In September 1985, the experts drew up and Mr. Jeter signed a waiver request. Only later was it determined that petitioner would not be able to begin to contribute to the plan again and it was then decided that the plan should be terminated. Therefore, the plan was responsible for meeting the funding requirements of section 412 during 1983, 1984, 1985, and until June 16, 1986.
In reaching our conclusion, we have considered the testimony of both Mr. and Mrs. Jeter to the effect that they told petitioner's plan experts that they wanted the plan "stopped". Mr. Jeter was unable to explain what he meant by "stopped". He could not explain statements he signed under penalties of perjury that conflicted with a termination of the plan. Mrs. Jeter testified that she thought "waiver" meant that the plan was "stopped". Neither Mr. nor Mrs. Jeter could explain their continuing to discuss the plan with the "experts" if they thought the plan had been terminated. Also, there were many questions about their activities with respect to petitioner's plan that both Mr. and Mrs. Jeter answered "I can't remember". The conclusion we reach from the testimony of Mr. and Mrs. Jeter is that neither of them understood the operation of the plan nor petitioner's obligation under the plan.
In D.J. Lee, M.D., Inc. v. Commissioner, supra at 302, we held that the imposition of the excise tax under section 4971(a) does not depend on the taxpayer's intent to violate the minimum funding standards of section 412. As the conference committee stated in its report: If there is an accumulated funding deficiency, an excise tax is to be imposed on the employer who is responsible for making contributions to the plan. [H. Conf. Rept. 93-1280, 1974-3 C.B. 415, 445.]
This statement implies that the imposition of the excise tax under section 4971 is automatic if there is a funding deficiency. One way to avoid the excise tax is by receiving a waiver of funding for a particular year or years. S. Rept. 93-383 (1974), 1974-3 C.B. (Supp.) 80, 104. Petitioner requested a waiver and it was granted conditioned upon the adoption by the plan of the amendments with respect to paying the amount later over a period of years. Since the amendments were never adopted, the waiver was never valid.
Petitioner made no contributions to the plan for 1983, 1984, 1985, or 1986. Since the plan was in existence during those years and no contributions were made, an accumulated funding deficiency existed for each of those years and petitioner is liable for the first tier of the excise tax under section 4971(a).
As to the second tier of the excise tax under section 4971(b), the notice of deficiency was mailed September 10, 1990. The evidence is clear that petitioner had not at the date of trial made contributions to the plan in order to correct the accumulated funding deficiencies. We do not know whether petitioner has chosen to correct the funding deficiency since the trial, but we have received no information that it has. Therefore, we sustain respondent's determination of the second tier of the excise tax imposed under section 4971(b).
Decision will be entered under Rule 155.