Fed. Land Bank Ass'n of Asheville v. Comm'r of Internal Revenue
| Decision Date | 26 August 1980 |
| Docket Number | 3458-76R.,Docket Nos. 3457-76R |
| Citation | 74 T.C. 1106,2 Employee Benefits Cas. 2385 |
| Parties | FEDERAL LAND BANK ASSOCIATION of ASHEVILLE, NORTH CAROLINA, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENTMOUNTAIN PRODUCTION CREDIT ASSOCIATION, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Held, petitioners' retirement plans satisfied the coverage requirements of sec. 401(a)(3)(B), I.R.C. 1954, during the initial year they went into effect and thereby met the requirements of a “qualified trust” within the meaning of sec. 401(a), I.R.C. 1954, for that year. John S. Nolan and Gary G. Quintiere, for the petitioners.
Kimley R. Johnson, for the respondent.
This case is on remand from the United States Court of Appeals for the Fourth Circuit for further proceedings on the merits. Federal Land Bank Association of Asheville, North Carolina, et al. v. Commissioner, 573 F.2d 179 (4th Cir. 1978).
On April 23, 1976, petitioners filed petitions with this Court for declaratory relief pursuant to section 74761 which provides for declaratory judgments relating to qualification of certain retirement plans. In response to the petitions for declaratory relief, the Commissioner filed motions to dismiss for lack of jurisdiction contending that section 7476 was not applicable to the particular plan year at issue. In our opinion filed October 6, 1976 ( 67 T.C. 29), we adopted respondent's position and dismissed the petitions on jurisdictional grounds.
On appeal, the United States Court of Appeals for the Fourth Circuit disagreed with and reversed our dismissal of the petitions on jurisdictional grounds and accordingly remanded the case for a decision on the merits. Federal Land Bank Association of Asheville, North Carolina, et al. v. Commissioner, supra. The sole issue before us is whether the Commissioner's determinations that petitioners' retirement plans do not qualify for special tax treatment under section 401(a) should be sustained for the plan year ending August 31, 1974. Resolution of that issue depends upon whether the Commissioner erred in determining that the retirement plans adopted by petitioners failed the coverage requirements of section 401(a)(3)(B).
Pursuant to Rule 122, Tax Court Rules of Practice and Procedure, this case was submitted for decision on the stipulated administrative record which is incorporated herein by this reference. The evidentiary facts and representations contained in the administrative record are assumed to be true for purposes of this proceeding.
Petitioners, the Federal Land Bank Association of Asheville, North Carolina (hereinafter FLBA), and the Mountain Production Credit Association (hereinafter MPCA), are federally chartered instrumentalities of the United States under 12 U.S.C. sec. 2031, and 12 U.S.C. sec. 2091, respectively. The FLBA is a Federal land bank association which assists farmers in making long-term real estate loans from Federal land banks and provides services with respect to such loans. The MPCA is a production credit association which makes loans to farmers with funds provided by Federal intermediate credit banks and also provides loan services to borrowers after the loans are made. The MPCA loans enable farmers to purchase agricultural production materials such as tractors, fertilizer, and seed. Petitioners are both located at 231 Haywood Street, Asheville, N.C. Although land bank associations and production credit associations are different corporate entities providing different services, they consolidate their efforts by sharing the same office space and by operating with the same employees. In addition to sharing office space, petitioners have common employees so that MPCA pays 60 percent of an employee's salary and FLBA pays the remaining 40 percent.
Petitioners adopted prototype retirement plans for their employees effective July 1, 1973, by agreements dated September 13, 1973. Since the plans are identical and apply to the same group of employees, the plans hereinafter will be discussed as though they are a single plan and will be referred to as the “plan.”
The plan was based on a prototype plan designed by the American Industries Retirement Co. (hereinafter AIRCO), located in Houston, Tex. AIRCO is a private corporation with trust powers duly organized and existing under the laws of the State of Texas. AIRCO designed the prototype as part of the American Industries Retirement System (hereinafter AIRS) which was established by a declaration of trust on May 11, 1964, for use by employers in establishing employee benefit plans. The AIRS prototype had been approved by the Internal Revenue Service at the time of its adoption by petitioners.
The plan petitioners adopted is a fully trusteed money purchase plan with employer contributions based on basic compensation. All full-time employees meeting a nominal service requirement are eligible to participate. A full-time employee is any person who works for petitioners more than 20 hours per week for more than 5 months per year. Any person employed on a full-time basis by petitioners on July 1 of any given year is eligible to participate on the following September 1. Thus, for the first plan year beginning September 1, 1973, participation was extended to all full-time employees who were employed by petitioners as of July 1, 1973. If a person were hired on July 2, however, that employee would not be permitted to participate in the plan until September 1 of the following year.
To participate in the plan, an employee must agree to a 6-percent reduction in his/her basic compensation. This is accomplished by the execution of a salary reduction agreement by the employee prior to September 1 on which his participation is to commence. The plan defines “basic compensation” as before-tax compensation, exclusive of overtime and incentive pay. The salary reduction agreement is irrevocable for the duration of the plan year to which it applies and must be renewed by the participant prior to September 1 of each plan year if the participant elects to participate during that year.
Under the plan, petitioners must contribute annually an amount equal to 9 percent of the basic compensation of each participant. Six percent of that contribution is recovered by petitioners through monthly payroll deductions pursuant to the participant's agreement to reduce his basic compensation by 6 percent. A participant is at all times fully vested in his/her salary reduction contributions. As to the employer contributions made in excess of each participant's salary reduction contributions, vesting occurs incrementally at the rate of 20 percent per year of participation for each of the first 5 years. Thus, after the fifth year of participation, the participant is fully vested in such excess employer contributions.
During the initial plan year beginning on September 1, 1973, 2 out of petitioners' 23 eligible employees participated in the plan. The following table sets forth the eligible employees and the compensation of each, as of June 30, 1973, and the participation for the plan year which began on September 1, 1973, and ended on August 31, 1974:
+----------------------------------------------------+
¦ ¦Annual ¦ ¦
+----------------------------+---------+-------------¦
¦Eligible employees ¦salary2 ¦Participant ¦
+----------------------------+---------+-------------¦
¦ ¦ ¦ ¦
+----------------------------+---------+-------------¦
¦1. James L. Beck ¦$15,600 ¦ ¦
+----------------------------+---------+-------------¦
¦2. Alton L. Ward ¦14,460 ¦Elected ¦
+----------------------------+---------+-------------¦
¦3. Jacob F. Grigg ¦12,540 ¦ ¦
+----------------------------+---------+-------------¦
¦4. Cloice Plemmons ¦11,940 ¦ ¦
+----------------------------+---------+-------------¦
¦5. Frank L. FitzSimmons, Jr.¦11,880 ¦ ¦
+----------------------------+---------+-------------¦
¦6. James L. Carringer ¦10,020 ¦ ¦
+----------------------------+---------+-------------¦
¦7. Roy C. Ramsey ¦9,600 ¦ ¦
+----------------------------+---------+-------------¦
¦8. Thomas S. Fouts ¦8,820 ¦ ¦
+----------------------------+---------+-------------¦
¦9. William H. Buckner, Jr. ¦7,600 ¦ ¦
+----------------------------+---------+-------------¦
¦10. David R. Israel ¦7,200 ¦ ¦
+----------------------------+---------+-------------¦
¦11. Aldeen Waldrup ¦6,360 ¦ ¦
+----------------------------+---------+-------------¦
¦12. Annette M. Ogle ¦6,180 ¦ ¦
+----------------------------+---------+-------------¦
¦13. Judy B. Freeman ¦6,120 ¦ ¦
+----------------------------+---------+-------------¦
¦14. Betty J. Roberts ¦5,700 ¦Elected ¦
+----------------------------+---------+-------------¦
¦15. Hazel S. Willis ¦5,520 ¦ ¦
+----------------------------+---------+-------------¦
¦16. Cathy T. Crawford ¦5,340 ¦ ¦
+----------------------------+---------+-------------¦
¦17. Donna R. Pipes ¦5,340 ¦ ¦
+----------------------------+---------+-------------¦
¦18. Marie Pangle ¦5,340 ¦ ¦
+----------------------------+---------+-------------¦
¦19. Celia Anne Jackson ¦5,100 ¦ ¦
+----------------------------+---------+-------------¦
¦20. Juanita Phillips ¦4,920 ¦ ¦
+----------------------------+---------+-------------¦
¦21. Betty B. Nicholson ¦4,440 ¦ ¦
+----------------------------+---------+-------------¦
¦22. Donna M. Ingle ¦4,140 ¦ ¦...To continue reading
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