Tannenwald, Judge:
Respondent determined the following deficiencies in petitioner’s Federal income tax:
Docket No. TYE— Deficiency
10703-75 ..Oct. 31; 1970 $6,517.00
Oct.. 31, 1971 7,547.00
903-77 .Oct. 31, 1972 2,108.74
Sept. 30, 1973 2,067.29
The sole issue remaining for decision is whether petitioner is barred from deducting, under section 404(a)(3),1 payments made to a profit-sharing trust on the ground that the plan discriminates in favor of employees in the prohibited group.2
FINDINGS OF FACT
Most of the facts have been stipulated and are found accordingly. The stipulation of facts, and the exhibits attached thereto are incorporated herein by reference.
Petitioner is a New York corporation which had its principal place of business at Utica, N. Y., at the time of the filing of the petitions herein. It filed its Federal income tax returns for the taxable years in question with the North Atlantic Service Center, Andover, Mass.
At all times pertinent, petitioner was in the commercial, industrial, and residential roofing and siding business;
During each of the taxable years involved, petitioner’s president and sole stockholder was Owen J. Owens. Margaret Owens, his wife, was petitioner’s secretary, and Richard Owens, their son, was its treasurer during each of these years. William Owens, another son, became petitioner’s vice president during the fiscal year ending October 31,1971, and continued to serve in that capacity through September 30,1973.
Petitioner adopted a profit-sharing plan effective November 1, 1958, and simultaneously created a trust to receive the contributions to be made pursuant to the plan. On January 27, 1961, petitioner adopted the first amendment to its profit-sharing plan. The plan, as amended, provided for:
(1) Coverage for all employees except—
(a) Participants in a labor union pension, profit-sharing, or welfare plan, established through collective bargaining, to which petitioner makes contributions, and
(b) Employees who customarily work 20 or fewer hours per week or 5 or fewer months per calendar year;
(2) Contributions to the trust of a percentage of “net income” of petitioner as defined in the plan, up to, but not exceeding, 15 percent of the aggregate compensation of all participants, in the plan;
(3) Full vesting upon retirement, disability, or death;
(4) Vesting where employment is terminated for other reasons, according to the following schedule:
Vested interest
Years as member of plan (percent)
Less than 2 . 0
At least 2 and less than 3 . 15
At least 3 and less than 4 . 30
At least 4 and less than 5 . 45
At least 5 and less than 6 . 60
At least 6 and less than 7 . 80
7 or more . 100
That portion of a participant’s account not vested as of the time of termination is forfeited, deemed an additional contribution by petitioner, and allocated to the remaining participants in proportion to their compensation for the year of forfeiture.
On November 3, 1959, petitioner requested the District Director to determine whether the profit-sharing plan satisfied the requirements of section 401(a). The tax information schedule attached to the request showed employee coverage for the fiscal year ending October 31,1959, as follows:
Employees ineligible due
to union membership .26
Employees ineligible due
to minimum compensation3 .41
Total ineligible employees .67
Eligible and covered ...9
Total employees .76
Relevant data contained in the information schedule concerning the eligible and covered employees was as follows:
Percent
of stock Supervisory
Name Officer ownership duties Compensation
Owen Owens . Yes 50 Yes $19,700.00
Margaret Owens .No 0 Yes 3,380.00
Elizabeth Owens . Yes 50 Yes 3,120.00
John Burnett .No 0 No 4,698.55
Morris Park . No 0 Yes 3,300.00
David Thomas ..No 0 No 4,845.60
Francis Alsante .No 0 No 1,407.21
Adam Kozinski .No 0 No 1,964.56
Robert Terry .No 0 No 1,719.35
Respondent, on February 28,1961, issued a letter stating that the trust was a qualified trust under section 401(a) and that it was exempt from income tax under section 501(a). This letter contained the following caveat:
Attention, however, is invited to section 1.401-l(b)(3) of the 1954 Regulations which states in part: “The law is concerned not only with the form of a plan but also with its effects in operation.”
At the time the plan was adopted and during the early 1960’s, the residential roofing business accounted for approximately one-half of petitioner’s business. Subsequently, residential roofing accounted for a declining share of petitioner’s operation, to the point that, during the taxable years involved herein, it represented less than 10 percent of the business. This decline was due, in large part, to the tendency of residential roofers theretofore employed by petitioner to go into business for themselves.
Petitioner’s employees who worked in the nonresidential portion of the business generally were not eligible to participate in the profit-sharing plan because of their participation in labor union pension plans. Residential roofers did not participate in such plans and were thus eligible to become members of petitioner’s plan. The decline in petitioner’s residential roofing business was accompanied by a decline in the number of roofers eligible to become members of the plan.
The participants in petitioner’s profit-sharing plan during the taxable years at issue and their compensation4 were as follows:
Taxable year ending
Oct. 31, Oct. 31, Oct 31, Sept. 30,
Name 1970 1971 1972 19731
Owen J. Owens .$52,700 $56,200 $56,800 $67,500
Margaret Owens . 10,350 10,700 10,900 12,600
Richard Owens . 18,858 22,400 26,800 29,200
William Owens .8,060 13,290 16,670
Eleanor Miller .5,010 7,460 2,300 924
Nandor Sarus .2,517
Philip Schremmer .1,075
Isabelle Hoffman .3,540
Eleanor Miller and Isabelle Hoffman were employed in clerical positions. Philip Schremmer and Nandor Sarus were roofers.
Employees who participated in labor union pension plans were compensated as follows:
Number of employees
FYE FYE FYE FYE
Oct. 31, Oct. 31, Oct. 31, Sept. 30,
Compensation 1970 1971 1972 1973
Less than $1,000 . 19 17 14 16
$1,000 to $2,000 . 5 8 6
$2,000 to $5,000 . 3 6 3 6
$5,000 to $8,000 . 7 4 8 5
$8,000 to $10,000 . 4 6 5 2
$10,000 to $15,000 . 2 7 6 8
More than $15,000 .. _1 J. J
Total1 .40 49 43 38
Respondent determined in the notices of deficiency that the profit-sharing plan discriminated in favor of shareholders, officers, and highly compensated employees in violation of section 401(a)(3) and (4).
OPINION
Petitioner seeks to deduct amounts contributed to a profit-sharing trust. Such deductions are allowed under section 404(a)(3) if the trust is exempt under section 501(a), which requires that the trust be a “qualified trust” as defined in section 401(a).5
Respondent contends that the profit-sharing plan failed to meet the coverage requirements of section 401(a)(3) because it discriminated in favor of the prohibited group, i.e., employees who are officers, shareholders, supervisors, or highly compensated. He also contends that the contributions and benefits under the profit-sharing plan discriminated in favor of the prohibited group within the meaning of section 401(a)(4).
Petitioner asserts that the change in plan coverage, subsequent to respondent’s determination in 1961 that the plan was qualified, was produced by “unforeseen and uncontrollable changes in business activities” and that the revocation of the prior ruling was “an arbitrary and abusive exercise” of respondent’s authority. Alternatively, it argues that the plan coverage in 1972 was virtually identical to the coverage at the time the plan was approved and, at least for that year, respondent’s determination cannot be sustained. Finally, it disputes respondent’s contention for nonqualification by virtue of the application of section 401(a)(4).
We address ourselves in the first instance to the question whether the petitioner’s profit-sharing plan satisfies the coverage requirements of section 401(a)(3), an issue which is separate from that relating to the functioning of the plan in respect of contributions and benefits under section 401(a)(4). Babst Services, Inc. v. Commissioner, 67 T.C. 131, 136 (1976). It is apparent that the safe-harbor percentage test of section 401(a)(3)(A) has not been met. Accordingly, the issue before us as to coverage depends upon the applicability of section 401(a)(3)(B). Resolution of that issue is “a question of fact to be determined from all surrounding facts and circumstances.” See Loevsky v. Commissioner, 55 T.C. 1144, 1149 (1971), affd. per curiam 471 F.2d 1178 (3d Cir. 1973), cert. denied 412 U.S. 919 (1973).
Initially, we observe that petitioner has abandoned its original contention that the profit-sharing and union plans should be treated as a combined plan which would satisfy the requirements of section 401(a), conceding that it has not demonstrated that the contributions and benefits under such a combined plan were not discriminatory, as required by section 401(a)(4). See Liberty Machine Works, Inc. v. Commissioner, 62 T.C. 621 (1974), affd. per curiam 518 F.2d 554 (8th Cir. 1975); Loper Sheet Metal, Inc. v. Commissioner, 53 T.C. 385 (1969). Such being the case, the question of discriminatory coverage under section 401(a)(3)(B) is determined by taking the union employees into account and treating them as though they were not covered by any qualified plan. See Babst Services, Inc. v. Commissioner, supra; Loevsky v. Commissioner, supra. Petitioner argues that the amendment to subchapter D of chapter 1 of the Code contained in the Employee Retirement Income Security Act of 1974, Pub. L. 93-406, 88 Stat. 829, evidences a congressional intent to exclude certain groups of union members in determining whether plan coverage is discriminatory and that this intent should be given retroactive effect. We have recently reviewed this legislation and decided that it was to apply prospectively only. Babst Services, Inc. v. Commissioner, supra at 140-141. We therefore reject petitioner’s contention that the union employees should not be considered.
Petitioner argues that its classification scheme is not discriminatory for purposes of section 401(a)(3)(B) because it was found to be nondiscriminatory in 1961 and that any change in plan coverage resulted from unforeseen external business conditions which were beyond its control, namely, the decline in its residential roofing activities and the consequent decrease in its nonunion employee work force and increase in the proportion of its union employees. Relying heavily on Ryan School Retirement Trust v. Commissioner, 24 T.C. 127 (1955), petitioner contends that, whenever a change in coverage is not foreseen, a plan previously considered qualified should be held not to lose its exempt status irrespective of any discrimination in coverage resulting from the change. See also Sherwood, Swan & Co. v. Commissioner, 42 T.C. 299 (1964), affd. 352 F.2d 306 (9th Cir. 1965). Respondent counters with the assertion that the fact that discrimination is caused by unforeseen external factors is irrelevant in determining the exempt status of the profit-sharing plan. We reject both extreme positions.
At the outset, we note that failure to meet the requirements of section 401(a)(3)(B) is dispositive of this case. Babst Services, Inc. v. Commissioner, supra at 137 n. 7. Cf. Lansons, Inc. v. Commissioner, 69 T.C. 773, 781-782 n. 4 (1978). In determining whether this provision has been satisfied, we apply a two-part approach. First, we look to the effect of the coverage provisions in the years at issue, without consideration of the effect of such provisions in prior years. See Wisconsin Nipple & Fabricating Corp. v. Commissioner, 67 T.C. 490 (1976), on appeal (7th Cir., June 27, 1977). Second, in cases involving changes in coverage due to unforeseen circumstances, we analyze the effect of the provisions in both prior years and the years at issue to determine whether those changes were sufficient to justify the conclusion that respondent did not err in revoking his earlier determination. See pp. 1011-1014 infra. If we conclude that respondent so erred, then his earlier ruling is given effect, therby satisfying section 401(a)(3)(B).
As we see it, the standard for evaluating the plan’s restrictions on eligibility under the first prong of this two-part test (i.e., coverage during the years at issue under section 401(a)(3)(B)) is the same as if the plan had been established during that period. In point of fact, this approach was taken in applying section 401(a)(4) (explicitly in Ryan School, see 24 T.C. at 133, and implicitly in Sherwood Swan, see 42 T.C. at 308) and was the foundation of our holdings that a bias in the operation of the plan in favor of permanent as against nonpermanent employees, which came about as a result of unforeseen circumstances, did not result in disqualification under that section. Similarly, in Lansons, Inc. v. Commissioner, supra, we dealt with the problem of coverage under section 401(a)(3)(B) in the context of the permanent-versus-nonpermanent classification, applied the unforeseen circumstances rationale of Ryan School and Sherwood Swan to that issue, and held that the classification used therein was nondiscriminatory both initially and during all subsequent years, including the years at issue.
We turn to an analysis of the facts respecting coverage under petitioner’s profit-sharing plan.
There were four plan participants out of a total of 44 employees during fiscal 1970. Three were officers of the corporation and supervisory employees. Two of these were the most highly compensated employees and the third officer was the fifth most highly compensated.6
There were five plan participants out of a total of 54 employees during fiscal 1971. Four were officers of the corporation and supervisory employees. Two of these were the most highly compensated and the third officer was the 10th most highly compensated. The fourth officer, William Owens, became an officer at some unspecified time during the year.
There were 8 plan participants out of a total of 51 employees in fiscal 1972. Four were corporate officers and supervisory employees. Again, 2 of these were the most highly compensated employees and the remaining 2 officers were among the 11 employees paid in excess of $10,000.
There were 5 plan participants out of a total of 43 employees in fiscal 1973. Four were corporate officers and supervisory employees. This group included the 2 most highly compensated and 4 of the 5 most highly compensated employees.
Thus, by the 4 years in issue, the total number of petitioner’s employees (insofar as can be gleaned from the record herein, see n. 4 supra), had dropped substantially from the 76 employed in 1959. Moreover, in 3 of those years, at least 75 percent of the plan participants were officers and supervisory employees, and, in the remaining year, 50 percent of the participants were in those categories. In addition, the officers tended to be among the most highly compensated employees.7 In each of the years, 100 percent of petitioner’s officers participated in the plan, whereas less than 3 percent of the other employees were covered in 1970, 1971, and 1973 and approximately 8.5 percent were covered in 1972. It is apparent, therefore, that the eligibility criteria involved herein favored the prohibited group. Wisconsin Nipple & Fabricating Carp. v. Commissioner, 67 T.C. 490 (1976).
This discrimination is not “excused” because of the inability of petitioner to include the union members in its plan. Loevsky v. Commissioner, 55 T.C. 1144 (1971). By the same token, the absence of any evidence of an intent to siphon off profits to the prohibited group is not determinative. Greenwald v. Commissioner, 366 F.2d 538, 540 (2d Cir. 1966), affg. as to this issue 44 T.C. 137 (1965); John Duguid & Sons, Inc. v. United States, 278 F. Supp. 101,104 (N.D.N.Y. 1967).
Based upon the foregoing, we think it clear that, since the plan would violate the coverage requirements of section 401(a)(3)(B), as an a priori proposition and without regard to respondent’s prior ruling, petitioner would not be entitled to deductions for contributions thereto during the years in issue.
This brings us to the second part of our analysis, relating to the effect of unforeseen circumstances on respondent’s right to revoke his prior ruling. Respondent has publicly announced that a ruling will, in the absence of unusual circumstances, not be revoked retroactively. Statement of Procedural Rules, 26 C.F.R. sec. 601.201 (1977); Rev. Proc. 67-1, sec. 13.05, 1967-1 C.B. 544, 553. At the same time, it is clear that respondent has the statutory authority to revoke a ruling retroactively. Sec. 7805(b). It is equally clear that such a revocation will not be disturbed unless respondent has. abused his discretion, and we are clearly precluded from using a standard for decision which would impose on petitioner only the usual burden of proof by a preponderance of the evidence, or which would substitute our judgment for the respondent’s. Automobile Club of Michigan v. Commissioner, 353 U.S. 180 (1957); Lowry Hospital Association v. Commissioner, 66 T.C. 850, 860 (1976). See also Commissioner v. Pepsi-Cola Niagara Bottling Carp., 399 F.2d 390, 393 (2d Cir. 1968), revg. 48 T.C. 75 (1967). Petitioner’s attempt to distinguish the cases where respondent’s position was sustained, merely on the ground that those cases did not involve a prior favorable ruling, falls by the wayside in light of Wisconsin Nipple & Fabricating Carp. v. Commissioner, supra, where respondent’s subsequent revocation of such a ruling was upheld. The fact that respondent might have proceeded in a gentler fashion, by giving petitioner a more formal notice of his proposed revocation prior to the issuance of the deficiency notice, does not justify a rejection of the revocation itself.8
Thus, the bottom line of this case is whether Ryan School Retirement Trust v. Commissioner, 24 T.C. 127 (1955), Sherwood Swan & Co. v. Commissioner, 42 T.C. 299 (1964), and Lansons, Inc. v. Commissioner, 69 T.C. 773 (1978), should be applied, on the ground, as petitioner contends, that the changes in circumstances subsequent to the issuance of the ruling and prior to the years in issue were unforeseen. We have already noted that, in all three of these cases, we held that the plan in question was not discriminatory during the years therein at issue — a fact which distinguishes them from the instant case. However, it cannot be gainsaid that, when we extended the unforeseen circumstances rationale to the question of coverage in Lansons we rejected the concept that “a discriminatory classification * * * [is] one that, however reasonable its' eligibility requirements at the outset, later results in a difference in coverage in favor of the prohibited group.” See 69 T.C. at 783.
However, we are of the opinion that Lansons cannot fairly be read as articulating an absolute rule of law that a plan once qualified under section 401(a)(3)(B) remains qualified irrespective of any change in circumstances so long as the change was unforeseen. Indeed, such a rule of law would go too far, in light of the plain meaning of the statute. See Container Service Co. v. United States, 345 F. Supp. 235, 240 (S.D. Ohio 1972), affd. 478 F.2d 770 (6th Cir. 1973); Loevsky v. Commissioner, supra at 1151-1152. Nor do we think that petitioner’s position can be salvaged by interpreting Lansons to stand for a more limited proposition that unforeseen circumstances, whatever their effect on a prospective revocation of a prior ruling by respondent, necessarily precludes a retroactive revocation.9 In the first place, it is far from clear that Lansons announces any such proposition, since the unforeseen circumstances rationale was relied upon primarily in holding that the plan in that case actually qualified during the years therein at issue. In the second place, even assuming that Lansons adopts such a proposition, we do not believe it would extend to the instant case. Our concern in Lansons was that minor year-to-year fluctuations in coverage due to extraneous factors would result in a plan being qualified in one year and nonqualified in the next, without the slightest change of a permanent nature. Such is not the situation herein, where there was a permanent change in the character of petitioner’s business and the composition of its work force (see pp. 1013-1014 infra) — changes as to which respondent cam hardly have been said to have been on notice10-to say nothing of the fact that the claimed unforeseen circumstances developed prior to the taxable years at issue herein (see below and p. 1014).
As we see it, the claimed unforeseen circumstances must be evaluated in that context and in light of the circumstances of the particular case and it is to that valuation, based on the record herein, that we now turn our attention.
Initially, we note that the record herein shows that the change in the character of petitioner’s business and its employee distribution from that which existed when the plan was first adopted in 1959 in fact occurred at a point in time substantially prior to the first taxable year in issue herein. It is far from clear to us that such changes were not capable of being foreseen and that consequently petitioner might well have been in a position to make adjustments in the contributions formula or to equalize benefits in either the plan involved herein or the union pension plans which would have enabled it to have those plans considered in combination and thereby satisfy the requirements of section 401(a). See Babst Services, Inc. v. Commissioner, 67 T.C. 131 (1976). See also Greenwald v. Commissioner, 366 F.2d at 541.11
Evaluating the specifics of the changes involved in the instant case, it is clear that there was a substantial change in petitioner’s business of a permanent nature. At the time petitioner sought the initial determination, residential roofing was a major portion of its business. The effect of excluding union members from the plan in such circumstances would not necessarily be discriminatory, for the covered employees may have, at that time, been a representative cross section of all employees. See John Duguid & Sons, Inc. v. United States, 278 F. Supp. at 104. See also Rev. Rul. 70-200, 1970-1 C.B. 101. The residential roofing portion of petitioner’s business declined over the years until it became a minor part of its operations. As it declined, so did the number of nonunion employees who were outside of the prohibited group. The ramification of this decline became apparent during the taxable years involved herein and perhaps earlier. During 3 of these years, only one plan participant was not a member of the prohibited group. During the fourth year, four participants were not members of the prohibited group, but three of these were not participants in the following year.
In 1959, slightly more than 7 percent of the employees in the nonprohibited group were covered, whereas in the years before us less than 3 percent of those employees were covered in 1970,
1971, and 1973 and approximately 8.5 percent in 1972. At least as to the 3 former years, there was a substantial drop in these percentages, i.e., roughly 60 percent. The comparable contrasting percentage change in officer .coverage from 1959, on the one hand, and- the years in issue, on the other, is zero — the percentage of officer coverage remained at 100 percent. The shift in petitioner’s business, together with the resulting alteration in the composition of the pool of eligible employees and the substantial drop in the percentage of covered employees in the nonprohibited group, was a sufficient change of circumstances to justify respondent’s action, at least as to 1970, 1971, and 1973. Cf. Christian Echoes National Ministry, Inc. v. United States, 470 F.2d 849, 858 (10th Cir. 1972).
In Ryan School, Sherwood Swan, and Lansons, neither the character of the taxpayer’s business nor the essential composition of its work force changed.12 In short, these cases are also distinguishable in the context of the issue of the validity of respondent’s retroactive revocation of the ruling issued to petitioner in 1959.
Petitioner’s reliance on H.S.D. Co. v. Kavanagh, 191 F.2d 831 (6th Cir. 1951), is misplaced.. That case involved an attempt by a new Commissioner of Internal Revenue to revoke a prior ruling where there had been no change whatsoever in the facts and, at most, a mistaken inference drawn from the facts. See Wolinsky v. United States, 271 F.2d 865, 868 n. 1 (2d Cir. 1959).
Nor are we convinced that the result should be different for 1972. During that year, four of the eight plan participants were members of the prohibited group and four were not members, out of a total of 51 employees. At the time the plan was adopted, there was a total of 76 employees and, of the nine plan participants, four were in the prohibited group. As we have previously noted, the percentage of covered employees in the nonprohibited group actually increased from slightly less than 7 percent to approximately 8.5 percent. Based solely on the naked figures, there does not appear to be a great deal of difference in the effect of the coverage provisions in 1972 and at the time the plan was adopted.13 But 1972 is not the first year subject to the revocation of qualification (in which event it might be argued that it was a transition year). Rather, it follows 2 years during which the prohibited classification already existed. Moreover, the three persons who became covered by the plan in 1972 obviously were only employed for a very short period.
Under all the circumstances herein and giving particular attention to the material change in petitioner’s business, we are satisfied that petitioner should not be able, on the basis of happenstance of substantial identity or slight variations in numbers, to cause its plan, which has already lost its qualification for the 2 years prior to 1972 and the subsequent year, to rise phoenix-like from the ashes of such disqualification and become qualified for that year. Such a result would produce a fluctuating situation comparable to that arising from minor fluctuations in a taxpayer’s normal work force which we found unacceptable in Lansons. Nothing in H.S.D. Co. v. Kavanagh, see p. 1014 supra, mandates a different conclusion.
In sum, we hold that petitioner’s plan discriminated in coverage within the meaning of section 401(a)(3)(B). In view of this conclusion, we need not reach the alternative issue, raised by respondent, as to whether the contributions and benefits under the plan were discriminatory within the meaning of section 401(a)(4).
Decisions will be entered under Rule 155.
Reviewed by the Court.