Halliburton Co. v. Comm'r of Internal Revenue, Docket Nos. 26290-90R

• Decision Date: 04 February 1992
• Docket Number: 2397-91R.,Docket Nos. 26290-90R
• Parties: HALLIBURTON COMPANY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

98 T.C. 88

98 T.C. No. 8

HALLIBURTON COMPANY, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 26290-90R

2397-91R.

United States Tax Court

Filed February 4, 1992.

In April 1987, H requested that R make a determination of whether a pension plan sponsored by H sustained a partial termination in 1986. R issued a proposed determination in September 1988 concluding that a partial termination had occurred. H timely requested an appeals conference, which was held in July 1989. A second appeals conference was held in February 1990. In August 1990, H requested that R exercise his discretion under sec. 7805(b), I.R.C., to limit the retroactive effect of R's final determination in the event R finally determined that a partial termination of the plan occurred in 1986. In November 1990, H filed a petition for declaratory judgment in this Court for decision on the partial termination issue. R moved to dismiss the petition for lack of jurisdiction on grounds that H had failed to exhaust its administrative remedies, as required by sec. 7476(b)(3), I.R.C.

Held, H has exhausted its administrative remedies, and this Court has jurisdiction to decide the partial termination issue.

In 1986, N was laid off by H, causing N to forfeit nonvested benefits in H's pension plan. After H filed its request for a determination, N timely filed a comment letter with R. N subsequently filed a petition for declaratory judgment in this Court on the partial termination issue. R moved to dismiss N's petition for lack of jurisdiction on grounds that N failed to exhaust his administrative remedies.

Held further, N has exhausted the administrative remedies available to him, and the Court has jurisdiction to hear N's claim. Donald F. Wood and Douglas E. Hamel, for petitioner in docket No. 26290-90R.

Ken Nash, pro se, in docket No. 2397-9lR.

James W. Lessis, Janine Bosley, and Patricia Scott-Clayton, for respondent.

OPINION

WELLS, JUDGE:

The instant case is before us on respondent's motion to dismiss the petitions for declaratory relief for lack of jurisdiction on grounds that petitioners Halliburton Company (Halliburton) and Ken Nash (Mr. Nash) ¹ have failed to exhaust their administrative remedies, as required by section 7476(b)(3). ² Halliburton and Mr. Nash argue that they have complied with all of respondent's requirements regarding administrative review of their requests for determination, thus exhausting such remedies, and that we thus have jurisdiction to hear the merits of their petitions for declaratory judgment with respect to the qualification of certain pension plans sponsored by Halliburton.

The petitions for declaratory judgment arise from Halliburton's efforts to secure a determination from respondent as to whether a pension plan sponsored by Halliburton experienced a partial termination in 1986 as a result of a significant reduction in Halliburton's work force during such year. Broadly speaking, the effect of a determination that no partial termination occurred would be to allocate forfeitures by non-vested participants who were terminated in such year among employees continuing to participate in the plans, while a determination that a partial termination did occur would restore such forfeitures to the terminated participants. ³ Sec. 411(d)(3).

Halliburton maintains that no partial termination occurred, while Mr. Nash, a former employee laid off by Halliburton in 1986, argues that a partial termination did take place in such year. Both Halliburton and Mr. Nash have asked this Court for a declaratory judgment under section 7476 on such issue due to respondent's failure to issue a final determination on whether a partial termination occurred. Respondent argues that both petitions are premature, contending that neither Halliburton nor Mr. Nash has satisfied the exhaustion requirement of section 7476(b)(3). For the reasons set out below, we hold that Halliburton and Mr. Nash have both exhausted their respective administrative remedies and therefore this Court has jurisdiction over both petitions.

PETITIONER HALLIBURTON

BACKGROUND

A lengthy administrative proceeding preceded the filing of the petitions in the instant case. On April 27, 1987, Halliburton submitted applications for determination to respondent's Dallas, Texas, Key District requesting determinations with respect to two pension plans sponsored by Halliburton, the Halliburton Profit Sharing and Savings Plan (the Halliburton plan) and the IMCO Services Profit Sharing and Savings Plan (the IMCO plan). The Halliburton plan and the IMCO plan are sometimes referred to collectively as the plans. Halliburton requested a determination from respondent that the Halliburton plan continued to qualify ⁴ under section 401(a) and that a partial termination of the Halliburton plan did not occur in 1986. In 1986, Halliburton established the IMCO plan as a spin-off from the Halliburton plan, and Halliburton requested that respondent make a determination of whether the IMCO plan initially qualified. By letter dated May 13, 1987, Halliburton requested expedited handling of both requests for determination. By letter dated June 16, 1987, respondent denied such requests, but agreed to process the requests on the same priority as applications for determinations relating to plan terminations.

Some 6 months later, on November 13, 1987, respondent's agent requested additional information concerning the plans. Halliburton's counsel furnished such information on December 7, 1987. Several telephone conferences ensued, after which Halliburton supplemented its response on January 8, 1988. Shortly thereafter, in January or February 1988, the Dallas Key District orally informed Halliburton's counsel that respondent would propose a determination that a partial termination of the Halliburton plan occurred during 1986. In response, on March 24, 1988, Halliburton's counsel provided a memorandum of authorities arguing that no partial termination occurred. Several telephone conferences concerning the issue also were held during such time.

On September 7, 1988, the Dallas Key District issued proposed adverse determination letters to Halliburton with respect to the plans. The proposed letters concluded that the plans failed to qualify under section 401(a) for plan years ending December 31, 1986, and all subsequent years because the Halliburton plan experienced a partial termination during 1986. Respondent reasoned that the IMCO plan failed to qualify because of the partial termination that disqualified the Halliburton plan. Respondent's proposed letters were accompanied by a supporting memorandum consisting of over 30 pages. The proposed letters stated that an appeal of the proposed adverse plan determinations was necessary in order for Halliburton to exhaust its administrative remedies, as required under section 7476(b)(3), prior to commencing a declaratory judgment action concerning the partial termination issue.

After receiving an extension of the time allowed for filing an appeal, Halliburton submitted, on October 13, 1988, an appeal of the proposed adverse plan determinations. Halliburton's appeals initially were submitted to the Dallas Regional Appeals office, where no action was taken on them for 7 months. In early May 1989, the appeals were transferred to the Houston Regional Appeals office. Halliburton promptly contacted such office and requested that a conference be held at the earliest possible date. The appeals conference was held on July 27, 1989, and, in the latter part of August 1989, the appeals officer orally informed Halliburton's counsel that he intended to issue a final adverse determination letter on the partial termination issue, but that the file would be returned to the Dallas Appeals office for processing. During autumn 1989, Halliburton's counsel made numerous inquiries regarding the status of the appeal.

Halliburton also retained new counsel to assist in the matter. On December 21, 1989, Halliburton's counsel asked respondent not to take any action until January 15, 1990, while Halliburton reconsidered its position. On January 16, 1990, Halliburton's counsel requested that the Dallas Appeals office consider additional information bearing on the partial termination issue, and the Appeals office agreed to do so. On February 2, 1990, Halliburton filed a supplemental submission consisting of approximately 350 pages updating and refining the original submission. Additional information was submitted on February 12, 1990. At the request of Halliburton, a second appeals conference was held with the Houston Appeals office on February 28, 1990. By letter dated June 14, 1990, Halliburton advised respondent that Halliburton intended to request, pursuant to section 7805(b), that the retroactive effect of any adverse determinations issued by respondent with respect to the plans be limited.

On July 31, 1990, the Houston Appeals office informed Halliburton that it intended to issue final adverse determination letters and provided a supplemental supporting memorandum outlining the reasons for such action. Subsequently, on August 23, 1990, Halliburton formally requested that, in the event it was determined that a partial termination of the Halliburton plan occurred, respondent limit the retroactive effect of such determination pursuant to section 7805(b). Halliburton requested that any disqualification arising out of the plan determinations take effect no earlier than August 23, 1990. Respondent's procedures required that the application for limitation of the retroactive effect of the plan determinations be made in the form of a request for technical advice from respondent's National Office, as only the National Office could act on such applications. Rev. Proc. 90-4, 1990-1 C.B. 410, 421; Order No. 96 (Rev. 10), Manual Handbook 1229; 5 Administration, Internal Revenue Manual (CCH), sec. 8(16) 28(3) and (4), at 26,301-6; 1 Administration, Internal Revenue Manual (CCH) ...