107 T.C. No. 1
UNITED STATES TAX COURT
LUCKY STORES, INC., AND SUBSIDIARIES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4446-93. Filed August 6, 1996.
P made contractually required monthly contributions to 29 collectively bargained defined benefit pension plans. For its fiscal year ended February 2, 1986, P obtained an extension of the time within which to file its Federal income tax return to October 15, 1986. On its return P deducted, in addition to the 12 monthly contributions based on employee hours worked during the fiscal year, monthly contributions based on hours worked during months intervening between the last day of the fiscal year and the extended due date of the return. Held: the contributions based on hours worked after the close of the fiscal year and before October 15, 1986, were not on account of P's February 2, 1986 fiscal year, as required by sec. 404(a)(6), I.R.C., and are therefore not deductible in that year. Barry W. Homer, Eric W. Jorgensen, and Grady M. Bolding, for petitioner.
Alan Summers, Kevin G. Croke, and Elizabeth L. Groenewegen, for respondent.
NIMS, Judge: Respondent determined the following
deficiencies in petitioner's Federal income tax:
Fiscal year ended (FYE) Deficiency
January 30, 1983 $8,797,328 February 3, 1985 2,175,135 February 2, 1986 48,255,017
Unless otherwise indicated, all section references are to
sections of the Internal Revenue Code in effect for the years at
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
This case involves a number of issues. The only issue to be
resolved in the present proceeding is petitioner's claim to a
deduction for union negotiated pension plan contributions for the
taxable year ended February 2, 1986. The amount of the disputed
deduction is $36,661,529.
Most of the facts have been stipulated and are so found.
Petitioner is a Delaware corporation. At the time the
petition was filed, petitioner's principal place of business was
located in Dublin, California. - 3 -
FINDINGS OF FACT
At all relevant times, petitioner was subject to SEC public
financial reporting and other requirements and, along with its
subsidiaries, operated retail grocery stores located throughout
California and Nevada. Petitioner requested and received from
the Internal Revenue Service an extension to October 15, 1986
within which to file its United States consolidated corporate
income tax return for the fiscal year ended February 2, 1986 (the
Current Taxable Year). The return was timely filed.
Under applicable Internal Revenue Code provisions, employers
are permitted to enter into "qualified" deferred compensation
arrangements to provide retirement and other benefits to
employees and their beneficiaries through single employer plans,
multiple employer plans, and multiemployer plans. Plans that are
not established or maintained pursuant to collective bargaining
agreements are herein for convenience referred to as Multiple
Employer Plans. Plans that are established and maintained
pursuant to collective bargaining agreements are herein for
convenience referred to as CBA Plans, or, on occasion, as
"multiemployer pension plans". In both Multiple Employer Plans
and CBA Plans, the contributions of the participating employers
are pooled and used to provide the benefits of all the covered
employees, former employees, and their beneficiaries. Section
413(b) contains certain rules exclusively applicable to CBA - 4 -
Plans. Section 413(c) contains certain rules applicable to
Multiple Employer Plans. The plans involved in this case are CBA
Plans, subject to section 413(b).
Under single employer plans, only the employees and former
employees of the single employer and their beneficiaries are
eligible to receive retirement or other benefits under the plan.
For this purpose, employers who are within a controlled group of
entities, or under common control (all within the meaning of
section 414(b) and (c)) are treated as a single employer for
purposes of section 401.
At all relevant times, petitioner was required to and did
contribute money to 29 CBA Plans. These plans were defined
benefit pension plans. The following schedule sets forth the six
largest of the CBA Plans to which petitioner made contributions
(the Six Large CBA Plans) and their annual accounting periods
(Plan Years) for Federal tax purposes:
CBA Plan Plan Year Northern California Retail Clerks Union January 1 - and Food Employers Joint Pension Plan December 31
California Butchers Pension Trust Fund July 1 - June 30
UFCW Midwest Pension Fund December 1 - November 30
Western Conference of Teamsters January 1 - December 31
Central States SESW January 1 - December 31 - 5 -
Southern California UFCW April 1 - March 31
Contributions to each CBA Plan that were attributable to
covered hours or weeks worked in a given month were due on the
20th of the month following the month in which the hours were
worked or compensated for. (The parties stipulated that
contributions were due on the 30th of each month, but in her
testimony Sandra Turpen, the administrator of the Northern
California Retail Clerks' Employer Benefit Fund, gave the more
precise statement of the due date for contributions.) An account
was considered delinquent if the payment was not received by the
last day of the month.
During the calendar years 1985, 1986, and 1987, more than
one thousand employers made contributions to the CBA Plans on
behalf of thousands of unionized employees and their
beneficiaries. At all times between January 1, 1985 and December
31, 1987 (the relevant period), each of the CBA Plans qualified
as a multiemployer pension plan within the meaning of the
Employee Retirement Income Security Act of 1974 (ERISA) and was a
plan to which section 413(b) and Subtitle E of Title IV of ERISA
applied. At all times during the relevant period, each of the
CBA Plans was qualified under section 401(a) as a pension plan
and, accordingly, the trusts related to each CBA Plan were exempt
from taxation under section 501. - 6 -
As of the end of each month, petitioner calculated the
amount that it was required to contribute to each CBA Plan
attributable to covered hours or weeks worked during such month.
Petitioner multiplied the number of hours or weeks of work in
such month by covered employees times a monetary rate set by the
collective bargaining agreement. Increases or decreases in the
number of covered employees along with increases or decreases in
the hours or weeks worked by covered employees required
petitioner (and each of the other contributing employers) to make
a separate calculation for its required contribution to each Plan
month by month.
For all taxable years ending before the Current Taxable
Year, petitioner computed its deduction for contributions to the
CBA Plans in the following manner: for each CBA Plan petitioner
added the 12 monthly contribution amounts attributable to covered
hours or weeks worked during a given taxable year and claimed
that total amount as a deduction for that year. For every
taxable year ending before the Current Taxable Year, the total
amount claimed as a deduction for a taxable year did not include
any contributions attributable to hours or weeks worked after the
end of such year.
For its Current Taxable Year, petitioner computed its
deduction for contributions to the CBA Plans claimed on its
return in the following manner: petitioner added together the 12 - 7 -
monthly contribution amounts attributable to covered hours or
weeks worked between February 3, 1985 and February 2, 1986, and
also added the 8 monthly contributions attributable to covered
hours or weeks worked from February 3, 1986 through August 31,
1986 and made before October 15, 1986 (the date on which
petitioner filed its return for the Current Taxable Year). In
addition, as to certain of the CBA Plans and bargaining units,
the dates were February 3, 1986 through September 30, 1986, in
which case there were nine monthly contributions instead of
eight. Thus petitioner claimed a deduction for 19--in some cases
20--monthly contributions on the Current Taxable Year return.
For fiscal years ending after February 2, 1986, petitioner
did not deduct any amounts which had been previously deducted on
its Federal income tax return for any prior year. For fiscal
years ending after February 2, 1986, petitioner claimed a
deduction for no more than 12 monthly contributions in any such
fiscal year. The record does not disclose the number of monthly
contributions claimed by petitioner for deduction purposes on its
Federal income tax return for the taxable year next succeeding
the Current Taxable Year.
The $36,661,529 in dispute consists of $31,427,131 of
contributions to the Six Large CBA Plans, and $5,234,398 to the
19 smaller plans. In the notice of deficiency, respondent did
not disallow the 12 monthly contributions totaling $57,139,406 - 8 -
that petitioner made to the CBA Plans for hours or weeks worked
by its covered employees in the Current Taxable Year and deducted
on petitioner's return for the Current Taxable Year. The
$57,139,406 consists of $48,395,987 of contributions to the Six
Large CBA Plans and $8,743,419 to the 19 smaller plans. In
addition, out of the total $96,890,058 deduction claimed by
petitioner in the Current Taxable Year, respondent did not
disallow $3,089,123 of contributions to certain profit-sharing
plans.
Petitioner has never filed Form 3115 (Application for Change
in Accounting Method) concerning the method it used to arrive at
its deduction for contributions to the CBA Plans claimed on its
return for the Current Taxable Year.
The administrator of each CBA Plan was a party independent
of petitioner. The administrator of each CBA Plan was appointed
by the Board of Trustees of the Plan, one-half of whom are
selected by the employers and the other one-half of whom are
selected by the union locals. Under the terms of the collective
bargaining agreements, the CBA Plans were entitled to collect
interest and/or late fees on delinquent contributions from
employers. At all times during the relevant periods, each CBA
Plan administrator had in place procedures to monitor the actual
dates of receipt of each contributing employer's required
contribution. - 9 -
As required by ERISA sections 104 and 4065 and sections
6057(b) and 6058(a), after the close of each plan year the
administrator of each CBA Plan filed Annual Reports (Forms 5500)
and accompanying schedules with the IRS. On Schedule B of Form
5500, each CBA Plan reported for each plan year only those
contributions paid under the applicable collective bargaining
agreement for hours or weeks worked during that particular plan
year. Petitioner's monthly contributions to each CBA Plan were
reported by each CBA Plan on Schedule B of Form 5500 for that
plan year in which the related hours or weeks of the covered
employees had been worked. Schedule B of Form 5500 is required
to be filed only with respect to a defined benefit plan that is
subject to the minimum funding standards of section 412 and ERISA
section 302, 88 Stat. 869, and one purpose of the completion of
the Schedule B is to demonstrate compliance or noncompliance with
such minimum funding standards.
There was no provision in any of the collective bargaining
agreements prohibiting petitioner from contributing more than the
amount required under the agreements or contributing amounts in
advance of the date that such amounts became due. There was no
provision in any of the collective bargaining agreements which
explained how the plan administrator was supposed to handle or
credit an amount received from an employer that was not earmarked
as a contribution then due under the collective bargaining - 10 -
agreement. However, no contributions were made by petitioner to
any of the CBA Plans during the relevant period that were not
required by any relevant collective bargaining agreement.
Petitioner, for public financial reporting purposes, accounted
for its monthly contributions to the CBA Plans attributable to
hours and weeks worked between February 3 and September 30, 1986
in its financial statements for its fiscal year immediately
succeeding its fiscal year ended February 2, 1986.
The taxable year of a contributing employer need not be the
same as the plan year of a CBA defined benefit pension plan to
which such employer contributes. Administrators of CBA Plans are
not required to know the taxable year adopted by contributing
employers. Under the terms of the collective bargaining
agreements, petitioner was not required to report to the plan
administrators the deduction amounts it claimed for
contributions.
At all times during the relevant periods, each of the CBA
Plans met the minimum funding requirement of section 412 and
ERISA section 302. In preparing its funding standard account
under section 412 for each plan year, no CBA Plan actuary took
into account contributions made by the contributing employers for
hours worked by covered employees following such plan year.
Under each of the CBA Plans for all relevant periods, the
earning, crediting, and vesting of a participant's benefit by the - 11 -
CBA Plan was independent of the making of any specific
contribution by an employer.
The information recorded on Form 5500, Schedule B, for each
of the Six Large Plans shows that each of the Six Large Plans had
unfunded past service costs and that the actual contributions
during the plan year, together with the credit balance in the
funding standard account, exceeded the minimum funding
requirement for the plan year. Therefore, section
404(a)(1)(A)(iii) was used to calculate the alternative limit for
purposes of determining petitioner's entitlement to deduct its
contributions to the CBA Plans.
For purposes of section 413(b)(7), the applicable limitation
of section 404(a)(1)(A)(iii) with respect to contributions to
each of the Six Large CBA Plans for the plan year of such CBA
Plan that includes the date February 2, 1986, determined on a
plan year basis and as if all participants were employed by a
single employer, was as follows:
Plan Year Ended In Tax Year
Deductible Limit Contributions*
California Butchers $34,200,292 $23,905,300 N. Cal. Retail Clerks 92,985,762 78,946,374 S. Cal. UFCW 103,283,669 85,955,898 Central States SESW 957,945,930 664,202,000 UFCW M W Pension Plan 21,780,509 20,642,880 Western Conf./Teamsters 567,476,801 478,491,232 - 12 -
Plan Year Begun In Tax Year
California Butchers $31,210,926 $23,026,000 N. Cal. Retail Clerks 85,567,809 84,810,863 S. Cal. UFCW 103,071,886 92,593,714 Central States SESW 909,812,563 725,079,000 UFCW M W Pension Plan 22,500,268 21,053,791 Western Conf./Teamsters 647,156,505 500,960,586
*Actual contributions during the plan year as recorded on the Form 5500, Schedule B.
The amount of total employer contributions actually paid to
each of the CBA Plans based on hours and weeks worked by eligible
employees during each relevant plan year, as reported on Schedule
B for such plan year, is an amount which, as of the beginning of
such plan year, the CBA Plan administrator of such CBA Plan could
have reasonably estimated or expected to be made by employers
with respect to hours and weeks worked by covered employees
during such plan year.
Petitioner was never notified by any CBA Plan administrator
or other CBA Plan representative that the statutory deduction
limit was exceeded with respect to any CBA Plan for any relevant
period. Petitioner did not notify any CBA Plan administrator or
other CBA Plan representative that the monthly contributions
attributable to hours and weeks worked after February 2, 1986 - 13 -
were to be applied to months ending on or before February 2,
1986.
For purposes of paying benefits and plan expenses, all
contributions to each CBA Plan are pooled and no distinction is
made between contributions for any specific time period or
contributions made by any particular employer.
Petitioner consulted with the firm of Price Waterhouse
regarding the acceleration of deductions for post-tax yearend
contributions to collectively bargained defined benefit pension
plans. The parties stipulated that during the relevant period,
Price Waterhouse was engaged in marketing that type of
acceleration to certain clients and other employers that were
making required contributions to multiemployer defined benefit
pension plans.
By section 601(a) and (b)(1) of the Tax Reform Act of 1986,
Pub. L. 99-514, 100 Stat. 2085, 2249, the top corporate tax rate
was reduced from 46 percent to 34 percent for tax years beginning
on or after July 1, 1987. See S. Rept. 99-313, (1986) 1986-3
C.B. (Vol. 3), 219, 220-221; H. Conf. Rept. 99-841 (Vol. 2), at
II-59 (1986). Income in taxable years that included July 1, 1987
(other than as the first day of such year) was subject to blended
rates. Id. - 14 -
OPINION
During the relevant period, petitioner made monthly
contributions to 29 CBA Plans on behalf of its unionized
employees. For each CBA Plan, the amount of the monthly
contribution was the arithmetical result obtained by multiplying
the "covered hours worked" (the number of hours worked during the
month by employees covered under the respective collective
bargaining agreement (CBA)) by the "contribution rate", a dollar
amount set forth in the CBA.
For any given taxable year prior to the Current Taxable
Year, petitioner deducted the 12 monthly contributions that were
calculated from covered hours worked during such year. Then, as
to the Current Taxable Year, petitioner changed its method of
calculating its deduction. For the Current Taxable Year,
petitioner obtained an extension to October 15, 1986, of the time
within which to file its return. Between the date on which the
Current Taxable Year ended and the due date of the return, as
extended, petitioner made eight or in some cases nine monthly
contributions to the CBA Plans, and claimed these post-yearend
contributions (herein for convenience called "grace period
contributions") as a deduction for the Current Taxable Year, in
addition to the usual 12 monthly contributions. As to the - 15 -
Current Taxable Year, respondent denied the deduction for the
grace period contributions.
Petitioner claims that it is entitled to deduct the grace
period contributions currently because they were "on account of"
its Current Taxable Year within the meaning of section 404(a)(6),
as explicated by Rev. Rul. 76-28, 1976-1 C.B. 106. In an
unexpected burst of candor, petitioner admits that it is
attempting to deduct, for the Current Taxable Year,
"contributions made over a 20-month period".
While section 404(a)(1)(A) states that pension plan
contributions are deductible "In the taxable year when paid",
section 404(a)(6) provides a grace period in that, in the words
of the section, "a taxpayer shall be deemed to have made a
payment on the last day of the preceding taxable year if the
payment is on account of such taxable year", subject to the
further condition that the payment be made "not later than the
time prescribed by law for filing the return for such taxable
year (including extensions thereof)."
Petitioner also argues that under section 413(b)(7) its
contributions were within the deductible limits of section 404(a)
because the "anticipated contributions" for all the CBA Plans for
their respective plan years did not exceed any maximum deduction - 16 -
limitation under section 404(a). Moreover, petitioner argues
that the grace period contributions were "for the portion of" the
Current Taxable Year that ended within the various plan years of
the CBA Plans to which it made contributions, because under
section 404(a)(6) they were deemed to have been a payment made on
the last day of the Current Taxable Year.
Respondent presents several alternative arguments. First,
respondent contends that petitioner's longstanding practice of
deducting only contributions calculated from covered hours worked
during a given taxable year constituted an accounting method. In
order to change to a different accounting method, petitioner was
required under section 446(e) to obtain the Commissioner's
consent, which was not done. Second, respondent asserts that
petitioner's "new method", i.e., that of deducting grace period
contributions in the Current Taxable Year, fails to clearly
reflect income under section 446(b). And, third, respondent
claims that the grace period contributions were not "on account
of" petitioner's current tax year within the meaning of section
404(a)(6).
Section 404(a) specifies that employer contributions to
exempt trusts under various types of qualified employee benefit
plans are not deductible under any other Code provision, but if - 17 -
they would otherwise be deductible, they are deductible under
section 404, subject to articulated limitations as to the amount
deductible in any taxable year. The limitations on the amount
deductible are contained in section 404(a)(1)(A), which also
refers to the deduction of contributions "In the taxable year
when paid". While section 404(a)(1)(A) provides the limits on
the amount that may be deducted, it does not specify the method
by which the actual amount of the deduction may be determined.
The applicable limitations on contributions to the CBA Plans
in this case are contained in clauses (i) and (iii) of section
404(a)(1)(A), which, in combination, provide that the overall
limitation is the greater of the amount necessary to satisfy the
minimum funding standard of section 412(a) for plan years ending
within the employer's taxable year, and an amount equal to the
normal cost of the plan, augmented by any amount necessary to
amortize unfunded costs equally over 10 years.
In addition, the flush language at the end of subparagraph
(A) of the foregoing section provides, among other things, that
the maximum amount deductible for the taxable year is to be an
amount equal to the full funding limitation for such year
determined under section 412. - 18 -
Section 404(a)(6) expands somewhat the time of payment
provision at the beginning of section 404(a)(1)(A) by providing:
(6) Time when contributions deemed made.--For purposes of paragraphs (1), (2), and (3), a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).
As a further refinement of the section 404(a) limitations on
the deductibility of contributions, section 413 provides certain
rules that apply exclusively to "collectively bargained plans,
etc." Section 413(a) provides that subsection (b) applies to any
plan (and any trust thereunder) maintained pursuant to a CBA;
i.e., a CBA Plan. Various paragraphs of subsection (b) provide
rules that relate to CBA Plans, but the relevant paragraph for
our present purposes is paragraph (7), which furnishes a road map
for applying section 404(a) limitations insofar as they relate to
CBA Plans. Section 413(b)(7) provides:
(7) Deduction limitations.--Each applicable limitation provided by section 404(a) shall be determined as if all participants in the plan were employed by a single employer. The amounts contributed to or under the plan by each employer who is a party to the agreement, for the portion of his taxable year which is included within such a plan year, shall be considered not to exceed such a limitation if the anticipated employer contributions for such plan year (determined in a manner consistent with the manner in which actual employer contributions for such plan year are determined) do not exceed such limitation. If such - 19 -
anticipated contributions exceed such a limitation, the portion of each such employer's contributions which is not deductible under section 404 shall be determined in accordance with regulations prescribed by the Secretary.
We think petitioner's attempt to use the expanded time of
payment provision of section 404(a)(6), as augmented by section
413(b)(7), to enlarge its current contribution deduction is
misguided.
The legislative history explains that the purpose of
amending section 404(a)(6) was simply to place cash basis
taxpayers on the same footing as accrual basis taxpayers insofar
as contributions actually paid into the trust after the close of
the taxable year are concerned. Before the amendment, only
contributions by accrual basis taxpayers made by the time for
filing tax returns could be treated as paid in the year for which
a return was due. This allowed taxpayers sufficient time after
the close of the taxable year to determine the amount of their
contributions to be made to the plan. Section 404(a)(6) extends
this flexibility to cash basis taxpayers. H. Rept. 93-807 (1974)
1974-3 C.B. (Supp.) 236, 336.
In addition, the conference report states that the intent of
permitting grace period contributions is so that they may relate
back to the plan year "for purposes of the minimum funding - 20 -
standards". H. Conf. Rept. 93-1280, at 290 (1974) 1974-3 C.B.
415, 451. There is nothing in the legislative history to suggest
that Congress intended to expand the treatment of post-yearend
payments beyond extending parity to cash basis taxpayers and
making necessary calculations to determine the amount of the
contribution.
Petitioner has the burden of proof in establishing that the
contributions it seeks to deduct are, in the words of section
404(a)(6), "on account of" the Current Taxable Year. Rule
142(a). In attempting to do this, petitioner places heavy
emphasis upon words contained in Rev. Rul. 76-28, 1976-1 C.B.
106. Rev. Rul. 76-28, 1976-1 C.B. at 107, states that it
"provides rules with respect to the application of section
404(a)(6) * * * in those areas where the Service has determined
that guidelines are necessary pending the issuance of
regulations." (We note that as of the date of this Opinion, some
20 years later, regulations have still not been forthcoming.)
Rev. Rul. 76-28 holds that
a payment made after the close of an employer's taxable year to which amended section 404(a)(6) applies shall be considered to be on account of the preceding taxable year if (a) the payment is treated by the plan in the same manner that the plan would treat a payment actually received on the last day of such preceding taxable year of the employer, and (b) either of the following conditions is satisfied. - 21 -
(1) The employer designates the payment in writing to the plan administrator or trustee as a payment on account of the employer's preceding taxable year, or
(2) The employer claims such payment as a deduction on his tax return for such preceding taxable year (or, in the case of a contribution by a partnership on behalf of a partner, the contribution is shown on schedule K of the partnership tax return for such year). [1976-1 C.B. at 107.]
Revenue rulings are not ordinarily precedential in this
Court. Gordon v. Commissioner, 88 T.C. 630, 635 (1987). We need
not dwell on the question of the weight to be afforded Rev. Rul.
76-28 in this case, however (see Estate of Lang v. Commissioner,
64 T.C. 404, 407 (1975), affd. in part and revd. in part on an
unrelated issue 613 F.2d 770 (9th Cir. 1980)), because we believe
that in any case petitioner has failed to prove that the payments
in question were treated in the same manner that the CBA Plans
would treat a payment actually received on the last day of the
current taxable year.
Section 413(b)(7) prescribes the method for determining the
parameters of the deduction limitations in the case of CBA Plans.
Section 413(b)(7) provides that each applicable section 404(a)
limitation is to be determined as if all participants in the plan
are employed by a single employer. The amount contributed by
each employer under a CBA Plan will not exceed the maximum
deduction limitation if the anticipated employee contributions - 22 -
for the plan year are no greater than the limitation. H. Rept.
93-807, at 101, 1974-3 C.B. (Supp.) at 336. Under section
413(b)(7), the anticipated employer contributions for a plan year
are to be determined in a manner consistent with the manner in
which actual employer contributions are determined.
We would repeat at this juncture that although sections
404(a)(1)(A) and 413(b)(7) establish outside limits on the amount
that may be deducted in a given taxable year, these sections do
not determine the amount of the deduction. Nevertheless, we
think sections 404(a)(1)(A) and 413(b)(7) establish the approach
to be taken to determine the amount of the actual deduction for
contributions to CBA Plans.
In a case such as this, where a number of employers are
contributing to any given plan--and here 29 different CBA Plans
with differing plan years are involved--the computation of any
contributing employer's total contribution deduction for a
taxable year is obviously a very complex operation. But it
stands to reason that the anticipated contributions from each
employer must be based upon a 12-month year, and the subsequent
contributions, and the consequent deductions, in order to be
consistent as required by section 413(b)(7) must likewise be
based upon a 12-month year. A taxpayer-employer such as - 23 -
petitioner may not unilaterally expand its deduction limitation,
and increase the amount of its deduction, simply by including
contributions in amounts that are inconsistent with anticipated
employer contributions.
Furthermore, petitioner has not shown that its deduction as
enhanced by the post-yearend contribution falls within the plan
limits stipulated by the parties and reflected in our findings of
fact. (The parties stipulated that actual contributions during
the plan year as recorded on Forms 5500, Schedule B, filed by the
Six Large Plan Administrators, fall within the deductible
limits.) Petitioner merely argues that the plan's computation of
anticipated employer contributions is not concerned with the
amount of the employer's deduction. But section 413(b)(7)
requires that the computation of anticipated employer
contributions must be consistent with actual employer
contributions, and we believe that if such consistency is
achieved, as in this case, then the actual contributions--those
based on hours worked in the taxable year--determine the amount
of the deduction.
Sandra Turpen, the Plan Administrator for the Northern
California Retail Clerks' Employer Benefit Fund, testified that
the minimum funding standard for the fund is calculated on a - 24 -
calendar year basis, by actuaries who base their calculations
upon data furnished by the Fund. The Fund bills each employer on
the first of each month, indicating the contribution rate
applicable to that employer, and the employer in turn provides
the Fund with a list of employees and hours worked, calculates
the per hour rate times the hours worked, and makes its monthly
contribution accordingly. As stated earlier, payments are due on
the 20th of the month, and are deemed delinquent if not received
by the end of the month.
Petitioner's Current Taxable Year ended February 2, 1986.
It seems obvious that, except for delinquent payments on account
of a preceding month in the taxable year, the only grace period
contribution in this case that would be treated by the Northern
California Retail Clerks' Employer Benefit Fund in the same
manner that the Plan would treat a payment actually received on
February 2, 1986, would be the payment for hours worked in
January, 1986, and which was due February 20, 1986. All monthly
payments thereafter would be treated by the Plan as being related
to hours worked in a tax year subsequent to the Current Taxable
Year.
Petitioner complains that the administrative procedures of
the Northern California Retail Clerks' Employer Benefit Fund, as - 25 -
described by Sandra Turpen, are not necessarily representative of
the procedures of any other plan, and may not therefore be relied
upon as the basis for finding facts except as to the Plan for
which Ms. Turpen was the administrator. We find this argument
disingenuous. Petitioner and respondent stipulated Ms. Turpen's
deposition as a joint exhibit in lieu of testimony by Ms. Turpen
at trial, without any reservation as to its use, or inferences to
be drawn from it, whatsoever. Petitioner's purpose in
stipulating the deposition is not apparent, if the testimony is
not stipulated for the purpose of exemplifying the administrative
procedures of all of the CBA Plans involved in this case. If
petitioner considers the administration of Ms. Turpen's plan to
be atypical, petitioner was free to introduce evidence as to how
the other plans were administered, which petitioner chose not to
do. We therefore reject petitioner's complaint about scope of
the testimony.
Petitioner argues that respondent's position is inconsistent
not only with Rev. Rul. 76-28, supra, but also with the
administrative position taken in Technical Advice Memorandum
8210014 (TAM) and in a series of private letter rulings.
Respondent points out that section 6110(j)(3) prohibits using or
citing a written determination as a precedent, unless regulations - 26 -
provide otherwise, which is not the case here. See Estate of
Jalkut v. Commissioner, 96 T.C. 675, 684 (1991). Nevertheless,
since the TAM appears to be the wellspring of petitioner's
enhanced deduction claim, we deem it necessary to discuss it.
The TAM purports to apply Rev. Rul. 76-28 as it relates to
section 404(a)(6) grace period contributions in defined
contributions plan cases. As previously noted, Rev. Rul. 76-28
contains several tests (including one insignificant alternative)
for determining whether grace period contributions may be deemed
to have been made on the last day of the preceding taxable year.
One of the tests, easily met, is that the employer must claim the
contribution as a deduction on its tax return for the preceding
taxable year.
The second test is that the plan must treat the
contributions in the same manner as payments actually received on
the last day of the preceding taxable year. The TAM nullifies
this, the only really significant requirement of Rev. Rul. 76-28,
by holding that since there is no specific linkage between
contributions and benefits in a defined benefit plan, the
requirement that the plan treat the contributions in the same
manner as it would a contribution actually received on the last
day of the preceding taxable year, is "meaningless". - 27 -
Having thus seemingly emasculated Rev. Rul. 76-28 as it
might otherwise apply to a vast number of employee benefit plans
if the TAM were applied across the board, the TAM concludes,
however, by saying that "This ruling does not consider the actual
amounts deductible for the * * * [relevant] taxable year."
Petitioner does not mention this pronouncement.
Rev. Rul. 76-28 provides that a grace period contribution is
to be considered "on account of" (the words of section 404(a)(6))
the preceding taxable year if the contribution is treated by the
plan in the same manner that the plan would treat a payment
actually received on the last day of such preceding taxable year.
The TAM states that "A contribution generally does not have any
effect on the actual benefits payable to an employee."
Petitioner argues that all contributions to each CBA Plan in this
case were commingled with all other employers' contributions in a
single undifferentiated pool and used to pay plan benefits and
expenses without distinction as to when or by whom any
contribution was made. Thus, reasons petitioner, it follows that
any grace period contribution is treated by the plan in the same
manner as the plan would treat a "last day" contribution.
We are not convinced that the absence of a contribution-
benefit linkage establishes "same treatment", nor that the same - 28 -
treatment standard created by Rev. Rul. 76-28 is the only
standard by which to measure the requirement of section 404(a)(6)
that grace period contributions be "on account of" the relevant
taxable year. We are, convinced, however, that petitioner may
not arbitrarily expand the deductible limit for any taxable year
by the simple expedient of including, in the taxable year's
deduction, contributions based entirely upon hours worked by the
plans's participants in a subsequent year.
Petitioner argues that respondent cannot change her
longstanding administrative practice and apply the change on a
retroactive basis. Respondent replies that the five private
letter rulings, and possibly the TAM, relied on by petitioner
relate to single employer, not multiemployer pension plans. In
the former case, the single employer has flexibility in deciding
how much and when to contribute, since there are no contractual
provisions requiring the single employer to contribute pursuant
to a formula at regular intervals. Petitioner's contributions,
on the other hand, are, by contract, mechanical and predictable.
Whether the private letter rulings, plus the TAM and Rev. Rul.
76-28, rise to the level of "longstanding administrative
practice" is, to say the least, problematical, but in any event,
as the Supreme Court has stated in Dixon v. United States, 381 - 29 -
U.S. 68, 73 (1965), Congress, and not the Commissioner,
prescribes the tax laws, so that if indeed Rev. Rul. 76-28 and
its ruling letter progeny are inconsistent with the thrust of
section 404(a)(6), they must give way to the statute. See also
Chevron, U.S.A. v. Natural Res. Def. Council, 467 U.S. 837, 842-
843 (1984).
We have considered petitioner's remaining arguments, which
are basically variations on a theme, and find them equally
unpersuasive.
We hold that petitioner's grace period contributions, except
those that relate to hours worked in January, 1986, are not on
account of petitioner's taxable year ended February 2, 1986, as
required by section 404(a)(6), and are therefore not deductible
in that year.
To reflect the foregoing and issues previously resolved,
Decision will be entered
under Rule 155.