Higgins v. Comm'r of Internal Revenue , Docket Nos. 5315-79
| Decision Date | 11 August 1980 |
| Docket Number | Docket Nos. 5315-79,5316-79. |
| Citation | 74 T.C. 1029 |
| Parties | E. F. HIGGINS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENTE. F. HIGGINS PROFIT-SHARING RETIREMENT TRUST, E. F. HIGGINS, JR., TRUSTEE, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
EFH, a corporate employer, established a profit-sharing plan with the majority of its participants being corporate officers, shareholders, supervisors, and highly compensated personnel. Its union employees were covered by pension plans established under collective bargaining agreements. The union employees independently determined the percentage of their compensation contributed by EFH to their pension plans and chose a percentage less than that which the employer contributed to its profit-sharing plan. The profit-sharing plan provided benefits for its participants superior to those provided under the union pension plans. Held: The Commissioner has no discretionary authority under sec. 401(a)(4), I.R.C. 1954, to determine discrimination in contributions or benefits. The usual burden of proof by a preponderance of the evidence applies, and the petitioner is not required to prove that the determination of the Commissioner was arbitrary or an abuse of discretion. Loevsky v. Commissioner, 55 T.C. 1144 (1971), affd. per curiam471 F.2d 1178 (3d Cir. 1973), explained and modified on this issue. Held, further, the profit-sharing plan fails to qualify under sec. 401(a)(4) because its contributions and benefits discriminate in favor of the prohibited group when compared to contributions and benefits under the pension plans. Robert E. Schlusser, for the petitioners.
Robert N. Armen, for the respondent.
In these consolidated cases, respondent determined the following deficiencies and additions to tax in the Federal income taxes of petitioners:
The issues presented for our decision are:
(1) Whether petitioner, in carrying its burden of proof, must establish that the Commissioner's determination that petitioner's contributions to and benefits of its profit-sharing plan discriminated in favor of a prohibited group of employees in violation of section 401(a)(4),1 was arbitrary or an abuse of discretion;
(2) Whether contributions by the petitioner-employer under its profit-sharing plan discriminated in favor of certain prohibited group employees within the meaning of section 401(a)(4) when compared to contributions made by the employer to pension plans established through collective bargaining for its union employees where the union employees elected to receive a lesser contribution rate;
(3) Whether benefits available under the corporate profit-sharing plan discriminated in favor of certain prohibited group members within the meaning of section 401(a)(4) when compared to benefits available under union pension plans.
These cases were submitted fully stipulated pursuant to Rule 122, Tax Court Rules of Practice and Procedure. The stipulations of facts and attached exhibits are incorporated herein by this reference. The pertinent facts are set forth below.
Petitioner E. F. Higgins & Co., Inc. (Higgins), is a Delaware corporation having its principal office and place of business in Middletown, Del., when its petition was filed herein. Petitioner E. F. Higgins Profit-Sharing Retirement Trust, E. F. Higgins, Jr., trustee (Higgins Trust) is a trust also having its principal office in Middletown, Del. The Higgins Trust was created in conjunction with the adoption by Higgins of the E. F. Higgins Profit-Sharing Retirement Plan (Higgins Plan).
During the years in issue, Higgins was an electrical contractor. All of its non-office and non-management employees were members of the International Brotherhood of Electrical Workers (union employees and IBEW, respectively). Although the number of Higgins' union employees at any one time varied, depending on the number and magnitude of the contracts on which it was then working, its union employees comprised the great majority of its total work force in any year.
Higgins was a member of the National Electrical Contractors' Association (NECA). The IBEW was the sole and exclusive source of Higgins' union employees. All wages and benefits paid by Higgins to its union employees were paid pursuant to contracts entered into as a result of collective bargaining between the Delaware division, Penn-Del-Jersey chapter of the NECA (Contractors' Association), and Local Union No. 313, IBEW (Local 313). Each contract remained in effect for a period of 1 to 2 years.
The basic issue in each collective bargaining session was the journeyman's 2 compensation, which was the total dollar amount of wages and benefits paid to, or with respect to, a journeyman on an hourly basis. The journeyman's total compensation under any contract was collectively bargained for that particular contract alone, independent of the journeyman's total compensation under any prior contract. A journeyman's base rate was the hourly wage paid to a journeyman, exclusive of benefits. The base rate of any union employee other than a journeyman was fixed by adjustments to the journeyman's base rate. Except for apprentices, the benefits of any union employee other than a journeyman were the same percentages of the base rate as that of a journeyman.
Higgins' union employees had two pension funds, one national and one local. Prior to 1966, the National Electrical Benefit Fund (NEBF Pension) had been established through nationwide collective bargaining between the IBEW and the NECA. Effective July 1, 1968, the Delaware division of the Penn-Del-Jersey chapter of NECA—Local Union No. 313, IBEW Pension Plan (Local Pension)—had been established by collective bargaining between the Contractors' Association and Local 313. Once the journeyman's total compensation had been agreed upon in a collective bargaining session, Local 313 independently instructed the Contractors' Association as to what amount of a journeyman's total compensation was to be hourly base rate and what amounts were to be paid for various benefits. Thus, Local 313 determined the percentage of compensation that Higgins contributed to the local pension. The IBEW determined the percentage of compensation that electrical contractors, including Higgins, contributed to the NEBF pension.
The journeyman's total compensation during the period 1968 through 1973 was allocated as set forth in the schedule which follows. In the schedule, the first column shows the first effective date for the allocation, the second column shows the dollar amount allocated to the journeyman's hourly base rate, the third column shows the percentage of the hourly base rate allocated to the NEBF Pension and the dollar equivalent, and the fourth column shows the percentage of the hourly base rate allocable to the Local Pension Fund and the dollar equivalent.
+---------------------------------------------+
¦(1) ¦(2) ¦(3) ¦(4) ¦
+-------+-----------+---------+---------------¦
¦Date ¦Base Rate ¦NEBF ¦Local Pension ¦
+-------+-----------+---------+---------------¦
¦ ¦ ¦ ¦ ¦
+-------+-----------+---------+---------------¦
¦1/1 /68¦$5.40 ¦1%—$0.054¦--- ¦
+-------+-----------+---------+---------------¦
¦7/1 /68¦5.47 ¦1%— 0.054¦3%—$0.164 ¦
+-------+-----------+---------+---------------¦
¦1/1 /69¦5.70 ¦1%— 0.057¦3%— 0.176 ¦
+-------+-----------+---------+---------------¦
¦6/30/69¦5.94 ¦1%— 0.059¦3%— 0.178 ¦
+-------+-----------+---------+---------------¦
¦1/5 /70¦6.54 ¦1%— 0.065¦3%— 0.196 ¦
+-------+-----------+---------+---------------¦
¦6/29/70¦7.04 ¦1%— 0.070¦3%— 0.211 ¦
+-------+-----------+---------+---------------¦
¦1/4 /71¦8.04 ¦1%— 0.080¦3%— 0.241 ¦
+-------+-----------+---------+---------------¦
¦1/3 /72¦9.04 ¦1%— 0.090¦3%— 0.271 ¦
+-------+-----------+---------+---------------¦
¦1/14/73¦9.25 ¦1%— 0.092¦3%— 0.277 ¦
+---------------------------------------------+
Effective for the calendar year 1966, Higgins adopted a profit-sharing plan for such of its employees as were eligible to participate on December 31, 1966, or thereafter became eligible. Higgins created the Higgins Trust to receive contributions, administer the fund, and distribute benefits to participants under the Higgins Plan. Those employees who were eligible to participate in the Higgins Plan were those who were in the service of Higgins on the initial eligibility date and those thereafter who were normally employed at least 20 hours weekly and 5 months annually, over 21 years of age but not over 65 years of age, and having at least 1 year's continuous service with Higgins. Employees who were covered under a negotiated welfare, vacation, or pension plan to which Higgins made contributions were excluded from participation in the Higgins Plan.
The Higgins Plan provided for contributions of not less than 5 percent of net income before Federal income taxes but not more than 15 percent of participants' compensation. With respect to the calendar years 1968 through 1973, Higgins claimed deductions for contributions made to the Higgins Trust based upon participants' compensation as set out in the schedule below:
+------------------------------------------------------+
¦Calendar ¦Participants' ¦Higgins' ¦ ¦
+----------+---------------+--------------+------------¦
¦year...To continue reading
Request your trial
-
Boggs v. Comm'r of Internal Revenue
...401(a)(3) for coverage purposes, we also consider them as one plan in testing for the prohibited discrimination. E.F. Higgins & Co. v. Commissioner, 74 T.C. 1029 (1980), affd. without published opinion 661 F.2d 914 (3d Cir. 1981); Loper Sheet Metal, Inc. v. Commissioner, 53 T.C. 385 (1969);......
-
Fujinon Optical, Inc. v. Comm'r of Internal Revenue
...1178 (3d Cir. 1973, cert. denied 412 U.S. 919 (1973); Ed & Jim Fleitz, Inc. v. Commissioner, 50 T.C. 384 (1968); cf. E. F. Higgins & Co. v. Commissioner, 74 T.C. 1029 (1980) (greater burden of proof not applicable to section 401(a)(4) ).7 As to this issue, petitioner maintains that the plan......
-
Tipton v. Comm'r of Internal Revenue
...but rather on whether the plan operated so that the effect was to discriminate in favor of the prohibited group. See E.F. Higgins & Co. v. Commissioner, 74 T.C. 1029 (1980); Loevsky v. Commissioner, 55 T.C. 1144 (1971), affd, per curiam 471 F.2d 1178 (3d Cir. 1973), cert. denied 412 U.S. 91......
-
Fed. Land Bank Ass'n of Asheville v. Comm'r of Internal Revenue
...Commissioner's determination as to coverage of the plan herein was based solely on sec. 401(a)(3)(A) and (B). 4. In E. F. Higgins & Co. v. Commissioner, 74 T.C. 1029 (1980), this Court recently held that this heavy burden of proof does not apply to sec. 401(a)(4). We noted that, unlike sec.......