Smith v. Commissioner
| Decision Date | 17 February 1998 |
| Docket Number | Docket No. 14392-93. |
| Citation | 75 T.C.M. 1806 |
| Parties | Reed Smith Shaw & McClay, William J. Smith, Tax Matters Partner v. Commissioner. |
| Court | U.S. Tax Court |
William Joseph Smith, pro se. Michael A. Yost, Jr., for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
This is an action brought by the tax matters partner of the above-captioned partnership for readjustment of partnership items. It involves a notice of final partnership administrative adjustment (notice of FPAA) in which respondent disallowed a deduction of $16,500 that was claimed on the partnership's 1986 return. The amount of the deduction is the value of certain stock that the partnership allegedly contributed to a defined benefit plan for the benefit of one of its partners. The sole issue for decision is whether the partnership is deemed to have "paid" the alleged contribution of stock to the defined benefit plan on the last day of 1986, as provided by section 404(a)(6), with the result that it is entitled to deduct the value of the stock on its 1986 return under section 404(a)(1). Unless stated otherwise, all section references are to the Internal Revenue Code as in effect during the year in issue.
Some of the facts have been stipulated by the parties and are so found. The stipulation of facts and attached exhibits are incorporated herein by this reference. At the time the instant petition was filed, the principal place of business of the partnership, Reed Smith Shaw & McClay, was located in Pittsburgh, Pennsylvania, and the tax matters partner worked and resided there. The partnership reported income and expenses on a calendar year basis and used the cash receipts and disbursements method of accounting.
On November 15, 1984, the partnership established a defined benefit pension plan for one of its partners, Mr. Arland T. Stein, who was the sole participant of the plan. The plan was designated the RSSM/ATS Defined Benefit Pension Plan #25-0749630/125 (the plan). It became effective on January 1, 1984, and was amended on January 1, 1985. The plan and the trust that formed a part thereof, as described below, constituted a qualified pension plan within the meaning of section 401(a), and the trust was tax-exempt under section 501(a).
The general administration of the plan and the responsibility for carrying out its provisions were placed in the hands of a "committee". The plan document provides that the committee is to be appointed by the partnership and "shall consist of, or include, the individual named on the cover page of the Plan"; viz, Mr. Stein, the sole participant. There is no evidence that the partnership appointed any other person to be a member of the committee.
The plan document designates the committee as the "plan administrator" within the meaning of section 3(16)(A) of the Employee Retirement Income Security Act of 1974, Pub. L. 93-406, 88 Stat. 835. Accordingly, the committee was responsible for the day-to-day administration of the plan, such as engaging an actuary to specify the amount of contributions required to satisfy the minimum funding standard of section 412 and the maximum contributions deductible under section 404(a). The committee was also authorized to appoint one or more investment managers and was responsible for the determination of benefits due under the plan. The plan document provides that its terms should be construed in accordance with the laws of the Commonwealth of Pennsylvania. Article VI of the plan document gives Mr. Stein's wife, Mrs. Helen M. Stein, the right to receive Mr. Stein's benefits in the event of his death.
Article VIII, section 8.2 of the plan document sets forth a disclaimer of the partnership's liability to make contributions to the plan which states as follows:
Although it is the intention of the Firm [i.e., the partnership] that the Plan shall be continued and that contributions hereunder shall be made as provided in Section 8.1 above, the Plan is entirely voluntary on the part of the Firm and its continuance and the payment of contributions hereunder are not assumed as contractual obligations of the Firm, and the Plan shall have no cause of action against the Firm. The Firm does not guarantee or promise to pay or cause to be paid any of the benefits provided by the Plan. * * * The Firm specifically reserves the right, in its sole and absolute discretion, to modify, suspend, in whole or in part, at any time, or from time to time, and for any period or periods of time, or to discontinue, at any time, the contributions described in Section 8.1 hereof, provided such act is not in derogation of any law or laws which at such time are applicable to legal and enforceable rights of this Plan. The fact that the Firm becomes subject to any tax or penalty by having failed to make a contribution shall not give rights under or to this Plan to require contributions.
On November 15, 1984, the managing partner of the partnership also established a trust as part of the plan by executing the Trust Agreement For the RSSM/ATS Defined Benefit Pension Plan (the trust agreement). Mr. Stein is designated therein as the sole trustee of the trust, and he executed the trust agreement in that capacity. The trust agreement provides that the trust is to be construed, administered, and enforced, to the extent not preempted by applicable Federal law, in accordance with the laws of the Commonwealth of Pennsylvania.
The trustee's powers included the power to retain, purchase, sell, convey, or transfer property, and to vote either in person or by proxy any stocks, bonds, or other securities held in the fund. One of the powers given to the trustee under the trust agreement is the power:
to cause any investment in the Fund to be registered in, or transferred into, the Trustee's name or the name of a nominee or nominees or to retain any such investment unregistered or in form permitting transfer by delivery, provided that the books and records of the Trustee shall at all times show that all such investments are part of the Fund In section 8.1, Article VIII, the trust agreement imposes the following record keeping and reporting requirements on the trustee:
8.1 The Trustee shall keep a record of all his proceedings and acts with respect to the Plan, and shall keep all such books of account, records, and other data as may be reasonably necessary for the proper administration of the Plan. In compliance with the applicable laws, the Trustee or his agents shall furnish the Company [i.e., the partnership] and each Participant covered under the Plan and each beneficiary who is receiving benefits under the Plan and to every other person required by law to be so informed such information as may be required of the Trustee by any applicable law or regulation. Within one hundred twenty (120) days following the close of each fiscal year of the Fund or following the close of such other period as may be agreed upon between the Trustee and the Company, and within ninety (90) days or such other agreed upon period unless such period be waived after the removal or resignation of the Trustee as provided for in Section 10.1 hereof, the Trustee shall file with the Company a certified written report setting forth all investments, receipts and disbursements, and other transactions effected during such fiscal year or other annual period or during the period from the close of the preceding fiscal year or other preceding period to the date of such removal or resignation, including a description of all securities and investment purchases and sales with the cost or net proceeds of such purchases or sales and showing all cash, securities and other property held at the close of such fiscal year or other period, valued currently as provided in Section 9.1, and such other information as may be required of the Trustee under any applicable law. Upon the expiration of ninety (90) days from the date of filing such annual or other account, the Trustee shall, to the extent permitted by law, be released and discharged from any liability or accountability to anyone as respects the propriety of its acts or transactions. The Committee or Company shall have the right to demand or be entitled to any further or different accounting by the Trustee, but no participant or beneficiary or any other person shall have the right to demand or be entitled to any accounting by the Trustee, other than those to which they may be entitled under the law. Nothing contained herein will be construed or interpreted to deny the Trustee the right to have his account judicially determined.
The record of this case contains no books of account, records, or other data that were prepared by or on behalf of the trustee or maintained by the trustee as a record of his proceedings and acts with respect to the plan.
The trust agreement requires the trustee to make an annual valuation of the assets held on behalf of the plan and to report that value to the partnership and the committee in accordance with paragraph 8.1, Article VIII, quoted above. The record of this case does not contain any such valuation of plan assets.
Mr. Stein and his wife opened a brokerage account with Broadcort Capital Corp. (Broadcort) sometime in January 1987. The account was in the name of Mr. Stein and his wife as joint tenants with rights of survivorship. Steinberg & Lyman, a New York brokerage firm, acted as agents of Broadcort, and Mr. Stein dealt with a vice president of Steinberg & Lyman, Mr. Charles Tessarini, and his assistant Ms. Janice Murphy. The Steins received monthly statements of transactions in their account about 2 to 3 weeks after the close of each accounting period.
The statement for the period beginning March 28, 1987, and ending April 24, 1987, reports that on April 15, 1987, 4,000 shares of stock of Saztec International, Inc. (Saz...
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