T.C. Mem o. 2 01 6- 17 4

UNITED STAT ES TAX COURT
JAY D. SCHECHTER, Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 26 97 8- 12
. Fi le d S ep te m be r 19 , 20 16
.
Ru ss el l D. St an al an d, fo r pe ti ti on er. Ch ris to ph er J . Ric hm on d, fo r res po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION MORR ISON, Ju dg e: The re sp on de nt(refe rredto he re as th e “ IRS” ) is su ed
a n ot ic e o f de fic ie nc y

to th e p et it io ne r, Ja y

D. Sche ch te r, fo r th e 2 00 8 t ax y ear. In th is no ti ce, the IRS d et erm in edanin co m e-t ax de fic ie nc y of $ 32 9,8 82 an d a n accu racy-rela te d p en al ty und er s ect io n 6 66 2( a) o f $6 5,9 76 . Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o t he Int ern al Rev enue Co de of 1 98 6, as- 2 -

[* 2] am en de d, i n e ffec t fo r th e y ear a t i ss ue , 20 08 . All d ol la r am ou nt s ar e ro un de d to th e n eare stdo ll ar. Sch ech te r ti m el y

fil eda pe ti ti on un de r se ct io n 6 21 3( a) fo r red et erm in at io n of th e d efi ci en cy

an d t he pe na lt y . W e h av e juri sd ic ti on un de r se ct io n 6 21 4( a). 1 The parti es ha ve res ol ve d a ll bu t o ne of the is su es inth e cas e. The o nl y rem ai ni ng is su e is th e d educ ti bi li ty for 2 00 8 o f a $ 45 0,0 00 pa ym en t m ad e b y Sch ech te r’s who ll y -o wne d S co rp or at io n, Si m baCal , Inc . W e h ol d t ha t the pa y m en t i s n ot de du ct ib le
. FINDINGS OF FACT So m e fac ts ha ve be enst ip ul at ed , andth ey are s o fo un d. Si m baCal is anS co rp or at io n c ha rte redun de r th e la ws o f Cal ifo rn ia . In 20 07 an d 2 00 8, Si m

baCal ’s bu si ne ss in vo lv edth e m anuf actur e an d s al e o f award s, m ed al s, tro ph ie s, an d p ro m ot io na l p ro du ct s. Sch ech te r was th e so le sh areh ol de r an d o wne r of Sim baCal an d was als o i ts pre si de nt . As it s p res id en t, Sch ech te r m an ag edSim

baCal ’s ent ire bu si ne ss , in cl ud in g h an dl in g, d es ig ni ng ,

Sch ech te r res id edinCal ifo rn iawhen he fil edhi s p et it io n. Th eref or e, an 1 ap pe al of o urde ci si on inth is cas e wou ldgo to th e U.S. Co urt o f App eal s fo r th e Nin thCir cu it , see sec . 74 82 (b )(1 ), un le ss th e p art ie s d es ig na te th e Co urt o f App eal s fo r an ot he r ci rcu it , see id . par a. (2 ).- 3 -

[* 3] an d s el li ng pro du ct s. Si m baCal co nt in ue s t o c on du ctth e sa m e b us in es s. Sch ech te r co nt in ue s t o b e it s s ol e sh areh ol de r, own er, an d p res id en t. In20 07 W il li am

Alex an de r, who m

Sch ech te r refe rredto as h is “pe ns io n gu y ”, su gg es te d t ha t Si m baCal sh ou ldin vo lv e it se lf i n apu rp orte d wel fare
be ne fitpl an . Sch ech te r ag reedwith Al ex an de r’s su gg es ti on . On Dec em

be r 31 , 20 07 , Sch ech te r si gn eda sh areh ol de r res ol ut io n au th or iz in g t he off

ic ers of S im

baCal to “ m ak e co nt rib ut io ns to an d fu ndbe ne fit s fo r certa in em

pl oyees t hr ou gh th e SIC KNESS, ACCIDENT & DISABILITY INDEMNITY TRUST 20 07 ”. On Dec em

be r 31 , 20 07 , Sch ech te r si gn edanad op ti on ag reem en t u nd er whi chSim

baCal pu rp orte d t o a do ptan d a gr ee t o p art ic ip at e in th e “ Si ckne ss , Acci de nt& Dis ab il it y

Ind em ni ty T ru st20 07 ”. The a do pt io n a gr eem en t i de nt ifi ed Sch ech te r as th e o nl y

Sim baCal em

pl oyee co ve redby the tru st . On Dec em

be r 31 , 20 07 , Sch ech te r si gn edanag reem en t b y Sim baCal to pa y fees to Nov a Ben efi t Pl an s, LLC, to adm in is te r th e “ Si ckne ss , Accid en t & Dis ab il it y Ind em ni ty T ru st20 07 .” The fe es co ns is te d o f a $ 1,5 00 in it ia l fe e, a $7 50 an nu al fee, an d a$2 ,50 0 t erm in at io n fe e. W ayne H. Burs ey si gn edth is ag reem en t as th e trus te e o f Nov a Ben efi t Pl an s, LLC, o n S ep te m be r 22 , 20 08
.- 4 -

[* 4] On Se pt em

be r 12 , 20 08 , Sch ech te r si gn eda fo rm un de r whi chhe ele ct edto pa rti ci pa te inth e “ Si ckne ss , Accid en t & Dis ab il it y Ind em ni ty T ru st20 07 .” On the fo rm Sch ech te r na m edCas ey

Sch ech te r an d S ha nn on Sch ech te r as equa l be ne fic ia rie s o f an y

de ath b en efi t u nd er the tru st . Sch ech te r si gn edth e fo rm bo th
as pre si de ntof S im

baCal an d a s the pa rti ci pa ti ng em pl oyee. On Se pt em

be r 12 , 20 08 , Sch ech te r wro te a $4 50 ,00 0 c he ckon be ha lf o f Si m baCal to th e “ Si ckne ss Acci de nt al & Dis ab il it y Ind em ni ty T ru st20 07 ”. The pa rti es ha ve st ip ul at edth atNov a Ben efi t Pl an s, LLC, p ro vi de d Sch ech te r a 2 1- pa ge do cu m en t en ti tl ed“ Si ckne ss Acci de ntDis ab il it y Ind em ni ty Pl an& Tru st ”. The p art ie s h av e st ip ul at edth at“ a p ur po rte d e m

pl oyee welf

are be ne fitpl an ” was “pu rp orte dl y est ab li sh ed ” b y

th is 21 -p ag e d oc um en t. The 21
- pa ge do cu m en t h as a si gn atur e li ne to be si gn edby “ th e Pl anSp on so r, NOVA Ben efi t Pl an s, LLC”. Ho wev er, n o s ig na tu re ap pe ars on th is li ne . The d oc um en t st at es th atitest ab li sh es a “ Si ckne ss Acci de ntDis ab il it y Ind em ni ty T ru st ”; th atth is tru stis in te nd edto co m

pl y with s ect io n 4 19 A(f)(6 ); t ha t the sp on so r of th e trus t i s Nov a Ben efi t Pl an s, LLC; an d t ha t the tru stis forth e b en efi t o f a g ro up of
em pl oyers wh o h av e si gn edad op ti on ag reem en ts to joi n t he tru st . The d oc um en t st at es th atall em

pl oyees c ov eredby the tru stwil l b e p ai d b en efi ts inth e ev en t o f de ath o r di sabi li ty.- 5 -

[* 5] Bu rs ey

ap pl ie d fo r anin su ran ce p ol ic y with Nat io na l West ernLife In su ran ce Co m

pa ny. Nati on al W es te rnis su edanin su ran ce p ol ic y on Sch ech te r’s li fe tha t o bl ig at editto pa y a de ath b en efi t t o S ch ech te r’s be ne fic ia ry inth e ev en t of hi s d eath. Atlea stin it ia ll y , Sch ech te r’s be ne fic ia ry was t he “ Si ckne ss , Acci de ntan d Di sabi li ty Ind em ni ty T ru st20 07 ”, whi chwas d es ig na te d t he own er of th e p ol ic y . As th e o wne r, itha d t he rig htto ch an ge th e b en efi ci ary. The re co rd in cl ud es on ly the ev en -num be redpa ge s o f th e Nat io na l West ernpo li cy . Bur se y pa ida on e-t im e p rem iu m of $ 42 7,5 00 on th e p ol ic y . On i ts am en de d S co rp or at io n re tu rnforth e ta x year 20 08 , Sim baCal cl ai m eda $4 50 ,00 0 d educ ti on forit s $ 45 0,0 00 pa ym en t. Onhi s amend ed in di vi du al return fo r th e ta x year 20 08 , Sch ech te r cl ai m edth atth is $4 50 ,00 0 de du ct io n p as se d t hr ou gh to hi m as S im baCal ’s 10 0% s ha reh ol de r. OPINION The am ou ntof ade du ct io n fo r a co nt rib ut io n b y anem pl oyer to a welf

arebe ne fitfun d i s re gu la te d b y sec ti on s 4 19 an d 4 19 A. A w el fare -b en efi t fu ndis an y fu ndwhi chis part o f a p la n o f anem pl oyer th ro ug h wh ic h t he em pl oyer pro vi de s welf are b en efi ts to em

pl oyees o r th ei r be ne fic ia rie s. Sec . 41 9( e). Und er s ect io n 41 9( b) , a de du ct io n fo r a co nt rib ut io n t o awelf are- be ne fitfun d c an no t ex ceedth e welf are- be ne fitfun d’s qua li fie d c os t. Ho wev er, the sec ti on 41 9( b) qu al ifi ed -co st- 6 -

[* 6] li mit at io n d oe s n otap pl y to a de du ct io n fo r a co nt rib ut io n t o awelf are- be ne fit fu ndth atis pa rt o f a 1 0- or -m or e-em pl oyer pl an . This 10 -o r-m or e-em pl oyer pl an ex cep ti on is fou ndinsec ti on 41 9A( f)(6 ). The ex cep ti on of s ect io n 4 19 A(f)(6 ) do es no t ap pl y

to a pl anwhi chm ai nt ai ns ex pe rie nc e-ra ti ng arra ng em en ts with
res pe ctto in di vi du al em

pl oyers. See Bo ot h v . Comm is si on er, 1 08 T.C. 52 4 (1 99 7)
. It i s Sc he ch te r’s po si ti on th atSim baCal ’s $4 50 ,00 0 p aym en t was a co nt rib ut io n b y

anem pl oyer to a welf

are- be ne fitfun d t ha t i s p artof a10 -o r-m or eem pl oyer pl anwhi chdo es no t m ai nt ai n e xp eri en ce-r at in g a rran ge m en ts with
res pe ctto in di vi du al em

pl oyers. Th eref

or e, Sch ech te r ta ke s the po si ti on th at un de r se ct io n 4 19 A(f)(6 ) Si m baCal ’s deduc ti on forth e p aym en t i s n otli m it edby
se ct io n 4 19 (b ). Sch ech te r co nc ed es on bri ef tha t i f Si m baCal ’s deduc ti on were li mit edby sect io n 4 19 (b ), th enth e fu nd ’s qu al ifi edco stfor th e y ear wo ul d b e zero . There fo re, i f th e d educ ti on is li m it edby sect io n 4 19 (b ) to th e fu nd ’s qu al ifi edco st , Sch ech te r co nc ed es th atSim baCal wou ldno t b e en ti tl edto an y de du ct io n. The IRS co nt en ds th atth e $ 45 0,0 00 pa ym en t b y Sim baCal was n otm ad e to a wel fare -b en efi t fundbu t was in st eada pa ym en t o f em pl oyee co m

pe ns at io n u nd er a p la n d eferrin g c om

pe ns at io n. Se e se c. 40 4( a); sec . 1.4 04 (a)- 1( a)(1 ), In co m e Tax- 7 -

[* 7] Reg s. Sec ti on 40 4( a) re gu la te s the am ou ntof ade du ct io n fo r pa ym en ts of
em pl oyee co m

pe ns at io n u nd er a p la n o f de ferr edco m pe ns at io n. Th e IRS arg ue s th atth e am ou ntof t he de du ct io n i s ze ro un de r se ct io n 4 04 (a). Inth e al te rn at iv e, th e IRS arg ue s tha t, i n t he ev en t the Co urt co ns id ers th e p aym en t t o h av e b een m ad e to a welf

are- be ne fitfun d, the welf are- be ne fitfun d i s n otpa rt o f a 1 0- or m or e-em pl oyer pl anwhi chdo es no t m ai nt ai n e xp eri en ce-r at in g a rran ge m en ts with
res pe ctto in di vi du al em

pl oyers. Mo re fu nd am en ta ll y , th e IRS arg ue s, the Co urt ne edno t d eci de whet he r th e $ 45 0,0 00 pa ym en t was m ad e to a welf are- be ne fit fu ndor wh ethe r itwas apa ym en t o f em pl oyee co m

pe ns at io n u nd er a p la n o f de ferr edco m

pe ns at io n b ecau se th e p aym en t i s n otde du ct ib le as abu si ne ss ex pe ns e und er s ect io n 1 62
. 2 W e n eedno t re so lv e al l o f th e is su es rai se d b y th e p art ie s. Sch ech te r’s on ly arg um en t tha t h e is en ti tl edto a de du ct io n fo r 20 08 for th e $ 45 0,0 00 pa ym en t re st s up on th e p rem is e th atth e p aym en t was m ad e to a welf are- be ne fitfun d t ha t i s p art of a 10 -o r-m or e-em

pl oyer pl anwhi chdo es no t m ai nt ai n e xp eri en ce-r at in g Sec. 4 04 (a), wh ic h re gu la te s the de du ct ib il it y of c om pe ns at io n u nd er a p la n 2 de ferr in g the rece ip t o f em pl oyee co m

pe ns at io n c on tri bu ti on s, al lo ws a d educ ti on fo r su chco m

pe ns at io n, wi th in do ll ar l im it s, o nl y if the co m

pe ns at io n wo ul d ot he rwis e b e d educ ti bl e. Sec. 4 19 (a), wh ic h re gu la te s the de du ct ib il it y of co nt rib ut io ns by an em

pl oyer to a welf

are- be ne fitfun d, al lo ws a d educ ti on for su chco nt rib ut io ns , withi n d ol lar li m it s, o nl y if the co nt rib ut io ns wou ldot he rwis e be de du ct ib le
.- 8 -

[* 8] arra ng em en ts with re sp ectto in di vi du al em pl oyers. As ex pl ai ne d b el ow, we fin d t ha t the pa ym en t was no t t o afun d t ha t was pa rt o f a 1 0- or -m or e-em pl oyer pl anwhi chdo es no t m ai nt ai n e xp eri en ce-r at in g a rran ge m en ts with re sp ectto in di vi du al em

pl oyers. Th eref

or e Sch ech te r is no t en ti tl edto th e $ 45 0,0 00 de du ct io n. Ourfin di ng is supp orte d b y a pr ep on de ran ce o f th e ev id en ce. The refo re i t i s no t n eces sa ry

to de te rm in e whi chpa rty has th e b ur de n o f pr oo f. See Knud se n v . Co m m is si on er, 1 31 T.C. 18 5, 1 89 (20 08 ). A 10 -o r-m or e-em

pl oyer pl anis de fin edby statut e as a pl anto whi chm or e th anon e em

pl oyer co nt rib ut es an d t o wh ic h n o e m pl oyer no rm al ly con tri bu te s m or e th an10 % of t he to ta l co nt rib ut io ns co nt rib ut edun de r th e p lan b y all
em pl oyers. Sec . 41 9A( f)(6 )(B) . Accor di ng to Sch ech te r, th e 2 1- pa ge do cu m en t

“ cl earl y est ab li sh es ” th atSim

baCal was i nv ol ve d wi th a 10 -o r-m or e-em pl oyer pl an . The 2 1- pa ge do cum en t o n i ts face see m s t o i nv ol ve a “pl an ”. The d oc um en t requi res th e “ Em

pl oyer” to co nt rib ut e to a tr us t wh ic h t he do cu m en t i ts el f pu rp orts to est ab li sh . It requi res th e “pl anadm in is tra to r” (wh ic h was Nov a Ben efi t Pl an s, LLC) to di st rib ut e b en efi ts to co ve redem pl oyees o f th e “ Em

pl oyer”. It d efi ne s an

“ Em pl oyer” as each en ti ty whi chad op ts th e trus t b y ex ecu ti ng anad op ti on ag reem en t. Sec ti on4.0 8 o f th e 2 1- pa ge do cum en t p ro vi de s tha t the co nt rib ut io ns- 9 -

[* 9] to th e trus t tha t ar e m ad e b y an y on e em pl oyer for a gi ve n year “ sh al l n ot ex ceed ” 1 0% o f th e to ta l co nt rib ut io ns m ad e b y all em pl oyers t o t he tru stforth at y ear. Onth e b as is of t hi s p ro vi si on Sch ech te r arg ue s: “ The SADI Pla n d oc um en t cl earl y est ab li sh es th atat a ll ti m es th e SADI Pl anm us t h av e m or e th anten pa rti ci pa ti ng em

pl oyers, an d t ha t atno ti m e can an y pa rti ci pa ti ng em

pl oyer co nt rib ut e m or e th an10 % of t he an nu al co nt rib ut io ns rece iv ed .” Inou r vi ew, ho wev er, the m or e si gn ifi can t p ro vi si on of t he 21 -p ag e do cu m en t i s a r equi rem en t tha t the pl anadm in is tra to r (No vaBen efi t Pl an s, LLC)
m ai nt ai n re co rd s s uf

fic ie ntfor th e IRS or a ny part ic ip at in g e m pl oyer to “ read il y ve rif y ” th atth e trus t s at is fie s the requi rem en ts of s ect io n 4 19 A(f)(6 ) an d t o m ak e th es e rec or ds av ai labl e to an y pa rti ci pa ti ng em

pl oyer forin sp ect io n o r co pyin g up on writ te n re qu es t. Itap pe ars , th eref or e, th atSim

baCal ha d t he rig htto ob ta in
reco rd s fr om

Nov a Ben efi t Pl an s, LLC, sh owi ng ho w m any em pl oyers p art ic ip at ed in th e p la n t ha t h an dl edSim baCal ’s $4 50 ,00 0 p aym en t. Thu s, Sc he ch te r (Si m ba Cal ’s 10 0% s ha reh ol de r) h adacce ss to th e rec or ds of h ow m an y em pl oyers pa rti ci pa te d i n t he pl an , and , des pi te ha vi ng acce ss to th es e rec or ds , Sch ech te r in tro du cedev id en ce o f on ly one em pl oyer’s in vo lv em en t i n t he pl an , Sim baCal ’s. As fo r se ct io n 4 .08 of the do cu m en t, atm os t thi s p ro vi si onim po se s an ob li ga ti on on so m eo ne (pe rh ap s No vaBen efi t Pl an s, LLC) t o m ak e su re tha t the- 10 -

[* 10 ] pl aninqu es ti on ha s atlea st10 pa rti ci pa ti ng em pl oyers. Th e m ere f

actth ata pa rty was requi redto do so m ethi ng do es no t m eanth atth e p arty di d i t. The qu es ti on is no t wh ethe r Nov a Ben efi t Pl an s, LLC, was ob li ga te d t o m ak e su re th ere wer e 1 0 e m

pl oyers o r m or e co nt rib ut in g t o t he pl anbu t wh ethe r th ere actua ll y were 1 0 e m

pl oyers o r m or e co nt rib ut in g t o t he pl an . The n atur al so ur ce of ev id en ce as to th e num

be r of em pl oyers i n t he pl anis th e rec or ds of No va Ben efi t Pl an s, LLC, th e p la n a dm in is tra to r. Sch ech te r in tro du cedno ne of t he se reco rd s. He ad m it te d t ha t h e kne w of n o o th er em pl oyers en ro ll edinth e p la n. It ap pe ars th atSch ech te r’s de al in gs with No vaBen efi t Pl an s, LLC, were h an dl edby W il li am Alex an de r. Alex an de r di d n ottes ti fy . Sch ech te r di d n otex pl ai n Alex an de r’s fai lu re t o t es ti fy , othe r th anto m ak e th e fo ll owi ng st ip ul at io n: “ On Apr il 12 , 20 11 , W il li am

Alex an de r was pe rm an en tl y en joi ne d b y ord er o f th e Uni te d S ta te s Di st ric t Co urt fo r th e Cen tra l Di st ric t o f Cal ifo rn iafro m , am on g ot he r th in gs , ‘ [m ]arket in g, p rep ari ng , sel li ng , org an iz in g o r adm in is te rin g a ny welf are- be ne fitpl an ’ an d fr om ‘ [p ]rov id in g a ny adv ic e o r as si st an ce re ga rd in g t he ta x t reat m en t o f pe ns io n p la ns or we lfa re-b en efi t p la ns .’ ” Und er the se ci rcu m st an ces we can no t fi ndth atth ere wer e 1 0 o r m or e em pl oyers co nt rib ut in g to th e p la n m erel y

be cau se th e p la n d oc um en t s ai d t ha t No vaBen efi ts Pla ns , LLC,
was ob li ga te d t o k eep 10 em pl oyers i n t he pl an . W e fi ndth atSim baCal was a- 11 -

[* 11 ] pa rti ci pa ti ng em

pl oyer, as i s ev id en cedby the pre se nc e in th e tr ia l re co rdof
anad op ti on ag reem en t s ig ne d b y Sim baCal . Butth e la ckof a n a do pt io n ag reem en t fo r an y

ot he r em pl oyer cau se s u s t o c on cl ud e, on a pr ep on de ran ce o f th e ev id en ce, tha t Si m

baCal was t he on ly em

pl oyer inth is pl an . Fi na ll y , sec ti on 41 9A( f)(6 )(A) d oe s n otex em pta pl anfro m

th e requi rem en ts of s ect io n 4 19 (b ) if th e p la n “ m ai nt ai ns ex pe rie nc e-ra ti ng arra ng em en ts with re sp ectto in di vi du al em pl oyers.” Anex pe rie nc e-ra ti ng arra ng em en t wi th res pe ctto anem pl oyer in cl ud es anarrang em en t fo r an y pe rio d fo r whi chth e rel at io ns hi p o f co nt rib ut io ns un de r th e p la n t o t he be ne fit s p ay ab le
un de r th e p la n i s o r can be expe ct edto be ba se d, i n wh ol e o r in pa rt, o n the be ne fit s ex pe rie nc e o f th atem pl oyer or o ne or m or e em pl oyees o f th atem

pl oyer. Sec. 1 .41 9A( f)(6 )-1 (b )(1 ), In co m e Tax Reg s. Th e b en efi ts ex pe rie nc e o f an
em pl oyer or a n e m

pl oyee is de fin edas the be ne fit s p ai d wi th res pe ctto th e em pl oyer or e m

pl oyee. Id. p ara. (d )(2 ). The p la n d es cri be d i n t he 21 -p ag e do cu m en t o ffer edde ath b en efi ts an d d is ab il it y be ne fit s wi thres pe ctto em pl oyees co ve redby the pl an . On it s fa ce the 21 -p ag e d oc um en t p ro vi de s (i n s ect io n 5 .02 ) th atth e d eath b en efi t wi th res pe ctto anem pl oyee is reduc edby any

di sabi li ty be ne fit s al read y

pa idwith re sp ectto th e em pl oyee. Thu s, the am ou ntof t he de ath be ne fitpa y ab le on Sch ech te r’s li fe d ep en de d o n t he be ne fit s ex pe rie nc e o f- 12 -

[* 12 ] Sch ech te r. The p la n d es cri be d i n t he 21 -p ag e d oc um en t the refo re

“ m ai nt ai ns ex pe rie nc e-ra ti ng arrang em en ts with re sp ectto in di vi du al em pl oyers” withi n t he m ean in g o f se ct io n 4 19 A(f)(6 )(A). The $4 50 ,00 0 p aym en t was no t m ad e to a fu ndth atwas p artof a10 -o rm or e-em pl oyer pl anwhi chdo es no t m ai nt ai n e xp eri en ce-r at in g a rran ge m en ts with- 13 -

[* 13 ] res pe ctto in di vi du al em pl oyers. W e co nc lu de th atSim baCal is no t en ti tl ed 3 to de du ctit s $ 45 0,0 00 pa ym en t.

In ci de nt al ly, Sch ech te r co nt en ds th ata le tt er fro m att orne y Jo hn Rei d, 3 da te d Ap ril 18 , 20 05 , to Nov a Ben efi t Pl an s, LLC, d em on st rat es th atth e p la n de sc rib edinth e 2 1- pa ge do cu m en t i s a v al idsec . 41 9A( f)(6 ) pl an . Sch ech te r of fere d t he let te r in to ev id en ce, an d i t was adm it te d wi th ou t o bjec ti on . Even th ou gh th e le tt er i s p artof t he reco rd , we are n otpe rs ua de d b y it . The l et te r st at es : “ The Pla n * * * do es no t al lo w for ad jus ti ng * * * the be ne fit s fo r th e Em pl oyees ba se d * * * up on cla im s ex pe rie nc e * * * pe cu li ar t o t he in di vi du al Em pl oyer.” Thi s s ta te m en t co nt rad ic ts sec ti on 5.0 2 o f th e 2 1- pa ge do cu m en t, wh ic h the let te r do es no t ev endi sc us s. Eithe r Rei d d idno t re adth e 2 1- pa ge do cu m en t wh enhe wro te th e le tt er, o r hi s l et te r is a fo rm let te r th atdi sc us se s s om e o th er p la n o r pl an s. Re id ’s let te r is als o p ot en ti al ly sig ni fic an t b ecau se itsee m s t o c on ta in in fo rm at io n abo utth e num be r of em pl oyers i nv ol ve d i n S im

baCal ’s pl an . The le tt er s ta te s tha t the pl ansp on so r, Nov a Ben efi t Pl an s, LLC, “ rep res en ts th atth e Pl anha s o ve r 60 pa rti ci pa ti ng as o f th e d at e o f th is let te r.” Thi s al on e d oe s n ot pe rs ua de us th atth ere wer e 6 0 e m pl oyers i n S im

baCal ’s pl an . W e won de r ho w m an y pl an s No vaBen efi ts Pla ns , LLC, adm in is te red . Perh ap s No vaBen efi t Pl an s, LLC, agg reg at edth e em

pl oyers i n s ev eral pl an s i n c al cu la ti ng th atth e num be r of em pl oyers was 60 . W e al so ha ve qu es ti on s ab ou t the rol e o f Rei d. Who was h is cl ie nt ? W as itSch ech te r? W as itNov a Ben efi t Pl an s, LLC? Why didRei d ch oo se to rel y

on th e rep res en ta ti on s o f Nov a Ben efi t Pl an s, LLC, in st eadof rev ie win g i ts reco rd s? Thes e an d o th er que st io ns ab ou t the let te r were l eft un an swe redat t he en d o f tr ia l. Sch ech te r di d n otcal l Re idto tes ti fy . Nor d idhe cal l an y on e fro m

Nov a Ben efi t Pl an s, LLC, to tes ti fy . Sch ech te r di d n otin tro du ce an y reco rd s k ep t b y

eit he r Rei d o r by Nov a Ben efi ts Pla ns , LLC. Unde r th es e ci rcu m st an ces we fin d t ha t Re id ’s let te r la ck s cr ed ib il it y , andwe acco rditli tt le weig ht . The l et te r do es no t al te r ou r vi ew th atitis m or e li ke ly tha n n otth atSim ba Cal was t he on ly em

pl oyer inth e rel ev an t p la n a ndth atth e rel ev an t p la n m ai nt ai ne d e xp eri en ce-r at in g a rran ge m en ts .- 14 -

[* 14 ] Inreac hi ng ou r ho ld in gs , we hav e co ns id eredall arg um en ts m ad e, an d, t o th e ex te ntno t m en ti on ed , we con cl ud e th atth ey are m oo t, i rrel ev an t, o r witho ut
m eri t. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te redun de r Tax Co urt Ru le of P ract ic e an d P ro cedur e 15 5.