Thoburn v. Comm'r of Internal Revenue
| Decision Date | 09 August 1990 |
| Docket Number | 39554-87.,Docket No. 39546-87,39549-87,39550-87,39553-87,39551-87,39548-87,39547-87,39552-87 |
| Citation | 95 T.C. 132,13 Employee Benefits Cas. 1225,95 T.C. No. 11 |
| Parties | ROBERT THOBURN, ET AL., 1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
From 1980 through 1985, Ps borrowed money from their employer's qualified plan. On December 9, 1986, the plan's trustees and the Department of Labor (DOL) reached a settlement agreement, which required, inter alia, that loans made from 1982 through 1985 provide for 10- rather than 8-percent interest. On September 25, 1987, respondent's Atlanta Appeals Office sent DOL a letter based on a form from an interagency agreement and which, according to the agreement, constituted notice of an intent to determine excise tax deficiencies. On December 1, 1987, respondent issued notices of deficiency determining section 4975 excise taxes against Ps. Held, respondent complied with section 4975(h), which requires that respondent notify DOL prior to determining a section 4975 excise tax deficiency. Held further, the DOL settlement does not prevent respondent from determining the section 4975 excise taxes against Ps. Held further, failure to disclose a prohibited transaction on a plan return is tantamount to omitting the excise taxes attributable to that transaction from the return for purposes of section 6501(e)(3). Held further, Ps are not entitled to partial summary judgment on the question of whether the statute of limitations bars excise taxes attributable to loans originally advanced in prior years. Samuel C. Ullman and John Tenenholtz, for the petitioners.
Roslyn D. Grand and David Albert Mustone, for the respondent.
The instant case is before the Court on two motions filed by petitioners. The first motion is entitled ‘Motion to Dismiss for Lack of Subject Matter Jurisdiction, or in the Alternative, Limit the Amount of Respondent's Determination.‘ The second motion is entitled ‘Motion to Dismiss for Lack of Subject Matter Jurisdiction.‘ 2
The instant case concerns petitioners' liability for section 4975 3 excise taxes because of loans made to them by a qualified profit-sharing plan. 4 Petitioners' first motion asks that we dismiss the instant case or, alternatively, limit respondent's determinations because of (1) insufficient notice from respondent to the Department of Labor (DOL) of respondent's intent to determine the deficiencies and (2) a settlement agreement between the profit- sharing plan and DOL. Petitioners' second motion asks that we dismiss the instant case as to those years that they contend are closed by the applicable period of limitations.
The parties have stipulated certain facts. The stipulations of fact and attached exhibits are hereby incorporated by reference.
From 1980 through 1985, petitioners were employees of Gainesville Medical Group-Andrews and Associates, P.A. (GMG), and were participants in GMG's qualified profit-sharing plan (the plan). 5
From 1980 through 1985, petitioners borrowed money from the plan (sometimes hereinafter collectively referred to as the plan loans). The plan charged 10-percent interest for plan loans made in 1980 and 1981 and 8-percent interest for plan loans made from 1982 through 1985.
In November 1984, Mr. Leston Seaton, a revenue agent, began an examination of the plan. On January 28, 1985, Mr. Seaton learned that DOL was conducting its own investigation of the plan. Mr. Seaton informed his supervisor, Mr. Jackie Jefferson, of the DOL investigation, and Mr. Jefferson instructed Mr. Seaton to suspend respondent's investigation.
Beginning on January 29, 1985, Mr. Seaton corresponded with Mr. Donald Trimas of DOL regarding the DOL investigation of the plan. On February 1, 1985, Mr. Trimas informed Mr. Seaton of loans made by the plan that Mr. Trimas believed could warrant legal action by DOL.
On July 11, 1985, Mr. Jefferson told Mr. Seaton that respondent's investigation would have to resume unless DOL submitted a written request that respondent withhold action. On September 11, 1985, after further correspondence between respondent and DOL, Mr. Seaton resumed his investigation of the plan.
On November 12, 1985, Mr. Seaton received information from Mr. Trimas concerning loans made by the plan to GMG employees. On January 24, 1986, Mr. Seaton completed his examination and submitted a written report for internal review. Between August 1986 and October 28, 1986, Mr. Seaton revised his report, incorporating additional information from DOL, and then resubmitted the report for internal review.
In a letter to counsel for petitioners dated December 9, 1986 (the first DOL letter), Mr. Howard Marsh, an area director for DOL, outlined the terms of a proposed settlement of plan violations. The proposed settlement required that (1) ‘Key Employees‘ assign their ‘vested benefits‘ as security for plan loans, (2) ‘existing notes‘ be amortized over 17 years, (3) notes for loans made from 1982 through 1985 provide for an additional two-percent interest (10- rather than 8-percent interest), with retroactive accrual of such interest added to the principal balances to be amortized over 17 years, and (4) participants be allowed to manage the investment of their own plan accounts. The first DOL letter also contained the following disclaimer: ‘Our decision to conclude and accept your proposed settlement cannot bind any other governmental agency, such as I.R.S., nor preclude such agencies from taking any action they deem appropriate.‘
On January 8, 1987, respondent issued ‘30-day letters‘ to petitioners advising them of respondent's intent to determine section 4975 excise tax deficiencies because of the plan loans. Petitioners filed protests, which were considered by Mr. Dennis Papadeas, an appeals officer in the Atlanta Appeals Office.
In a letter dated June 12, 1987 (the second DOL letter), and addressed to the plan's trustees, Mr. Marsh of DOL confirmed the settlement of plan violations (referred to herein as the DOL settlement). The second DOL letter acknowledged that the plan trustees had taken the remedial measures set forth in the first DOL letter. The second DOL letter referred to a ‘correction of prohibited loans amounting to $2,070,312 as of 12/31/86,‘ but contained a disclaimer similar to that in the first DOL letter, cautioning, ‘The Department commits only itself and cannot in any way restrain any other * * * governmental agency from taking any further action it may deem appropriate with respect to these or other matters.‘
On September 25, 1987, Mr. Papadeas sent a letter (the IRS letter) to DOL concerning the plan. The IRS letter stated, ‘the above referenced case has been referred to us by the Atlanta Key District, EP/EO Division‘ and requested that DOL review its records and ‘ascertain if there is any Department of Labor involvement in the above referenced case.‘ The IRS letter asked for a response within 30 calendar days.
The IRS letter conformed to a form letter (the Form Letter) set forth in appendix D to an agreement between respondent and DOL entitled, ‘Agreement Between the Internal Revenue Service and the Department of Labor for the Coordination of Examination and Litigation Activities Involving Employee Benefit Plans‘ (the IRS-DOL Agreement). In pertinent part, the IRS-DOL Agreement states:
III. IRS APPEALS OFFICE PROCEDURES
The following procedures apply to all cases received by IRS Appeals Offices involving examinations of employee benefit plans * * *.
A. The Chief, Appeals Office (or designee) will complete and send the Form letter in Appendix D to the appropriate DOL Regional Office as listed in Appendix E. When applicable, the form letter will be considered the notice required by sections 4971(d) and 4975(h) of the Internal Revenue Code.
B. The Appeals Office will not take final action to settle the case, concede any Government issue, enter into a closing agreement with any taxpayer, issue any notice of deficiency with respect to taxes under section 4971 or 4975 that are not in jeopardy, or proceed with any action to revoke the favorable determination or qualification letter of any plan prior to the earlier of the date when the Appeals Office receives a response from DOL or 30 days after the date of the Appeals Office's letter to DOL.
C. DOL will, within 30 calendar days of the date of the letter from the Appeals Office, reply to the Appeals Office in writing if DOL is taking any action concerning the referred case. If DOL is taking action with respect to the case, the Appeals Office will coordinate with DOL before taking any of the actions described in section B. of this Part.
As noted, the IRS letter conformed to the Form Letter. The IRS letter, however, was sent to a Miami office of DOL, although appendix E of the IRS-DOL Agreement indicates that it should have been sent to the DOL Regional Office in Atlanta.
The IRS-DOL Agreement had been amended effective September 1, 1987, prior to the date of the IRS letter. The amended version of the IRS-DOL Agreement (the IRS-DOL Amended Agreement) contains the following pertinent provisions:
III. IRS APPEALS OFFICE PROCEDURES
The following procedures apply to all cases received by IRS Appeals Offices involving examinations of employee benefit plans * * *.
A. The Chief, Appeals Office (or designee) will complete and send the Form letter in Appendix E to the Area Director's/District Supervisor's Office as listed in Appendix A. To ensure that notice has been given to DOL as required by Sections 4971(d) and 4975(h) of the Internal Revenue Code, the Appeals Office shall follow the procedures of B. and C. of this part.
B. The Appeals Office will not take final action to settle the case, concede any Government issue, enter into a closing agreement with any taxpayer, issue any notice of deficiency with respect to taxes under section 4971 or 4975 that are not in jeopardy, or proceed with any action...
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