UNITED STATES COURT OF APPEALS

Tenth Circuit

Byron White United States Courthouse

1823 Stout Street

Denver, Colorado 80294

(303) 844-3157

Patrick J. Fisher, Jr. Elisabeth A. Shumaker

Clerk Chief Deputy Clerk

March 23, 1999

TO: ALL RECIPIENTS OF THE OPINION

RE: 97-9025, American Stores v. CIR

Filed on March 9, 1999

The slip opinion filed on March 9, 1999, contains two typographical errors.

On page 6, the first sentence of the last paragraph should read:

Furthermore, American concedes that the Code prohibits the use or

citation of Private Letter Rulings and Technical Advice Memoranda as

precedent. See I.R.C. § 6110(k)(3). 

On page 15, the third sentence of the first paragraph should read:

It also argues that the language and mechanism of the deduction

limitation statute, § 413(b)(7), contemplates this result.

A copy of the corrected opinion is attached.

Sincerely,

Patrick Fisher, Clerk of Court

By: Keith Nelson

Deputy Clerk

encl.
F I L E D

United States Court of Appeals

Tenth Circuit

MAR 9 1999

PATRICK FISHER

Clerk

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

AMERICAN STORES COMPANY

AND SUBSIDIARIES,

Petitioner - Appellant,

v. No. 97-9025

COMMISSIONER OF INTERNAL

REVENUE,

Respondent - Appellee.

APPEAL FROM THE JUDGMENT OF 

THE UNITED STATES TAX COURT

(T.C. NO. 19182-94)

Paul J. Sax (Richard E.V. Harris and Richard A. Gilbert with him on the briefs),

Orrick, Herrington & Sutcliffe, LLP, San Francisco, California, for petitioner.

Kenneth L. Greene (Steven W. Parks with him on the brief), Tax Division, United

States Department of Justice, Washington, D.C., for respondent.

Before ANDERSON , HOLLOWAY , and BALDOCK , Circuit Judges.

ANDERSON , Circuit Judge.

American Stores Company and Subsidiaries (American) appeals the

decision of the United States Tax Court sustaining the Commissioner’s
-2-

disallowance of deductions on its 1988 tax return for more than 12 months’

contributions to qualified multiemployer defined-benefit pension plans, and

deductions on its 1987 and 1988 tax returns for certain amounts attributed to

vacation pay. It also alleges that the Tax Court erred when it denied American’s

motions for reconsideration, judicial notice of various administrative materials,

and a hearing on those motions. We affirm.

I. BACKGROUND

American Stores is an accrual-method taxpayer, using a 52-53 week taxable

year ending on the Saturday nearest the last day of January. Upon audit of its

returns for the years 1987 and 1988, the Commissioner of Internal Revenue,

among other things, disallowed certain deductions for contributions to 

multiemployer defined-benefit pension plans for 1988, and for certain alleged

vacation pay liabilities for 1987 and 1988. Thereafter, the Commissioner issued a

statutory notice of deficiency, proposing additional taxes resulting from these

disallowed deductions. American filed a petition in the Tax Court seeking a

redetermination of the proposed deficiencies, and the case was submitted on facts

which were fully stipulated by the parties.

The Tax Court issued an opinion upholding the position of the

Commissioner. American Stores Co. and Subsidiaries v. Commissioner , 108 T.C.
1The court also concluded that American’s deductions violated the

“individual deduction limits of section 404(a)(1)(A) and section 413(b)(7).” 

American Stores , slip op. at 27. This conclusion was unnecessary to its decision

and, as we explain below, incorrect.

-3-

No. 12 (Mar. 31, 1997). The court held that pension contributions made pursuant

to collective bargaining agreements that were based on units of service worked

after the close of American’s 1988 fiscal taxable year were not “on account of”

that year, as required by § 404(a)(6) of the Internal Revenue Code (Code), and

therefore were not deductible in that year. 1 In addition, the court held that

vacation pay based on units of service worked after the close of American’s 1987

and 1988 fiscal taxable years, respectively, had not been “earned” in those years,

as required by § 463 of the Code.

On May 30, 1997, American filed a motion for reconsideration and a

request for judicial notice of various memoranda, rulings, and other Internal

Revenue Service materials allegedly supporting American’s position regarding the

deductibility of pension plan contributions. Those motions were denied, without

a hearing, on June 10, 1997, and the Tax Court entered its decision on October 8,

1997.

On appeal, American reurges the arguments it advanced in the Tax Court,

and requests this court independently to take judicial notice of the materials

unsuccessfully proffered to the Tax Court after its decision.
2Some of these rulings and memoranda are already before us in the record

as joint exhibits; as regards these documents, judicial notice is unnecessary.

-4-

II. DISCUSSION

Our review of the issues relating to the pension plan and vacation pay

deductions is de novo, requiring only determinations of law. See Schelble v.

Commissioner , 130 F.3d 1388, 1391 (10th Cir. 1997). Our review of the Tax

Court’s denial of American’s post-trial motions is essentially for abuse of

discretion, see York v. American Tel. & Tel. Co. , 95 F.3d 948, 958 (10th Cir.

1996) (judicial notice); Herr v. Heiman , 75 F.3d 1509, 1515 n.1 (10th Cir. 1996)

(reconsideration), although American also contends that under the Federal Rules

of Evidence and the Due Process Clause of the Constitution the Tax Court erred

as a matter of law in its post-trial rulings, including its refusal to hold a hearing.

A. Pension Plan Contributions

American Stores has filed a motion asking this court to take judicial notice

of various documents, including redacted copies of unpublished Private Letter

Rulings and unpublished Technical Advice Memoranda issued by the IRS to other

taxpayers; 2

 documents purporting to identify the taxpayers and pension plans

involved; excerpts from IRS manuals and other IRS administrative materials;

declarations signed by counsel for American; and legal correspondence with
-5-

counsel for the Commissioner. American asks us to take judicial notice that these

materials demonstrate that IRS administrative practice has been consistent with

American’s position in this litigation, and that the IRS is guilty of various

misrepresentations regarding its administrative practice. Because of American’s

heavy reliance on this material through its briefs and in oral argument, we are

constrained to address the motion as a threshold matter.

“A judicially noticed fact must be one not subject to reasonable dispute,” in

that it is either “generally known” or that it is “capable of accurate and ready

determination.” Fed. R. Evid. 201(b). American’s characterizations of IRS

administrative practice are certainly not such facts. Nor are its allegations of

misconduct. Furthermore, the rulings and memoranda which allegedly support

these supposed facts are themselves inappropriate for judicial notice, in that by

their very nature they are unpublished rulings issued to private taxpayers. See 21

Charles Alan Wright and Kenneth W. Graham, Jr., Federal Practice and Procedure

§ 5106, at 500 (1977) (“ready determination” means source of judicially noticed

facts must be “widely available”); cf. United States v. Judge , 846 F.2d 274,

276-77 (5th Cir. 1988) (refusing to take judicial notice of excerpts from DEA

Manual).

American’s request for judicial notice is essentially an attempt to introduce

evidence after judgment. As indicated, American argues that the private rulings
-6-

and memoranda constitute evidence of administrative practice, evidence of the

reasonableness of its interpretation of the law, and evidence usable for

impeachment and rebuttal. Appellant’s Reply Br. at 7-8. If so, it was American’s

obligation to offer them in evidence in the Tax Court, and to subject them to

argument and rulings as part of its case. Judicial notice is “not [a] talisman[] by

which gaps in a litigant’s evidentiary presentation . . . may be repaired on

appeal.” City of New Brunswick v. Borough of Milltown , 686 F.2d 120, 131 n.15

(3d Cir. 1982); see also Melong v. Micronesian Claims Comm’n , 643 F.2d 10, 12

n.5 (D.C. Cir. 1980). 

Furthermore, American concedes that the Code prohibits the use or citation

of Private Letter Rulings and Technical Advice Memoranda as precedent. See

I.R.C. § 6110(k)(3). It is well settled that they do not bind the Commissioner or

this court. See ABC Rentals of San Antonio, Inc. v. Commissioner , 142 F.3d

1200, 1207 n.5 (10th Cir. 1998); cf. Dickman v. Commissioner , 465 U.S. 330, 343

(1984). Accordingly, we deny American’s motion for judicial notice and decline

to consider the proffered rulings and memoranda in evaluating the legal

arguments of the parties.

In a related argument, American contends that the Tax Court abused its

discretion when it denied American’s motions for reconsideration, for judicial

notice, and for a hearing, all relating to these same documents and the same
-7-

arguments based on them made by American here. These were post-trial motions

made two months following the Tax Court’s opinion. In support, American

argued that the material was necessary not only as evidence of administrative

practice and the correctness of its legal position at trial, but to rebut allegedly

misleading and improper statements by counsel for the Commissioner in a reply

brief.

In addition to the same points made above regarding when judicial notice is

proper, limitations on the use of private rulings and memoranda, and the

obligation to introduce evidence during trial and not afterward, American’s

argument has three defects. First, it was generally on notice of the

Commissioner’s position regarding these rulings prior to the reply brief in

question, since the subject was at least broached in the Commissioner’s opening

brief. See R. Vol. I, Doc. 19 at 135. Second, whatever counsel for the

Commissioner may have represented or argued in a brief, it was not evidence. It

was only argument, and the Tax Court was obligated to treat it as such, i.e., not

part of the evidentiary record. Finally, and most significantly, after the Tax Court

received the post-trial motions, it was in a position to exercise discretion as to

whether, considering the materials, it must reconsider its decision. It did not

deem reconsideration warranted, or the materials proper for addition to the trial
-8-

record after a decision was issued. We decline to call its denial of the motions an

abuse of its discretion.

Nor did the court err by refusing to hold a formal hearing on the matter. 

Fed. R. Evid. 201(e) provides as follows:

A party is entitled upon timely request to an opportunity to be heard

as to the propriety of taking judicial notice and the tenor of the

matter noticed. In the absence of prior notification, the request may

be made after judicial notice has been taken. 

Two factors lead us to conclude that American was not entitled to a hearing as a

matter of law. First, the rule by its terms does not specify that the “opportunity to

be heard” means, under all circumstances, a formal hearing. Second, although

“[t]he Rule as written is not limited to a party who is opposing the taking of

judicial notice,” 21 Wright & Graham § 5109, at 516, the last sentence of the rule

implies special concern with the right to object, which must be honored even after

the fact if the court has acted without first notifying the adversely affected party. 

See Fed. R. Evid. 201(e) advisory committee’s note. Obviously such a right is not

implicated here. Therefore, in the absence of more explicit authority, we do not

read the rule to require a court under all circumstances to hold a formal hearing

every time a proponent of judicial notice so demands. To the extent American as

such a proponent had a right to be heard, the court honored that right by duly

considering American’s briefs, which under the circumstances were sufficient to

present its position. 
-9-

We proceed, then, to our analysis of the issues based upon the evidence of

record.

2.

The Code contains special provisions for the tax treatment of “qualified”

pension plans, i.e., plans that meet the various requirements of § 401(a). During

the years at issue, American made contributions to 39 qualified multiemployer

defined-benefit pension plans. By definition, multiemployer plans are maintained

pursuant to collective bargaining agreements, and benefit unionized employees. 

See 29 U.S.C. § 1002(37)(A). A multiemployer plan is jointly administered by

the involved unions and the participating employers. Each plan pools the

contributions of multiple employers on behalf of employees who belong to

particular unions, in order to provide funding for a predetermined level of pension

benefits. Employers who join multiemployer plans are statutorily obligated to

make the payments required by the corresponding collective bargaining

agreements. See 29 U.S.C. § 1145.

For all taxable years prior to 1988, American’s subsidiaries used one of two

methods to calculate pension plan deductions: some would deduct only those

contributions actually paid during the taxable year; others would deduct only

those contributions corresponding to work done during the taxable year, including
-10-

one payment made after the close of the taxable year, corresponding to work done

during the last month. Under each method, the sum of twelve payments was

deducted each year. 

For the taxable year ending January 30, 1988, however, American deducted

not only the typical twelve payments, but also seven (and in some cases eight)

additional payments made after the close of the taxable year, but before the filing

of its return on October 17, 1988 (American had applied for and received a filing

extension). These additional payments were calculated based on work performed

by covered employees after the close of the taxable year. The net result was a

one-time tax benefit by accelerating up to eight months of additional deductions,

claiming up to twenty months of contributions for the twelve-month fiscal taxable

year 1988.

More than 1,000 employers contributed to some of the plans at issue here;

other plans were smaller. Generally, at the end of each month, the plan

administrators sent bills to participating employers, and employers would

calculate their required contributions to each plan by multiplying the units of

service (e.g., hours or weeks) worked by covered employees in such month by

fixed monetary rates set by the applicable collective bargaining agreements. See

H.R. Rep. No. 96-869, at 53 (1980), reprinted in 1980 U.S.C.C.A.N. 2918, 2921

(under multiemployer pension plans maintained pursuant to collective bargaining
-11-

agreements, the parties “normally agree to contribute at rates specified in such

agreement(s) for hours worked by employees, units of production . . . , or a

percentage of compensation”). For example, under its collective bargaining

agreement with the Teamsters union, American was required to make

contributions at the rate of $0.63 for each hour worked up to a maximum of

$25.20 per week per employee. The employers included with payment a list of

covered employees, information regarding the number of covered hours of service

performed by such employees during the previous month, and the resulting

calculations of the amount of the contribution required. Contributions based on

services performed within a particular month were due at the end of the following

month.

Although there was no provision in any of the collective bargaining

agreements providing expressly that American was prohibited from contributing

more than the amount required under the agreements, or from contributing

amounts in advance of the date that such amounts became due, there also was no

provision in the collective bargaining agreements which explained how plan

administrators were supposed to handle or credit an advance contribution from an

employer. The plan administrator for the Northern California Retail Clerks’

Employee Benefit Fund testified that because advance contributions generally

were not made, the plan had no established procedures to handle advance
-12-

contributions, other than with respect to inadvertent overpayments due to

computational errors, and contributions relating to vacation time and severance

pay which could be calculated in advance. Other than the exceptions noted, the

plan was “not able to handle advance payments,” and the administrator had “no

knowledge of an employer ever making advance payments.” R., Joint Ex. 64-BL

at 32. She testified that, because contributions to the plan were based on the

number of hours worked in a particular month, which could not be determined in

advance, payments to the plan for units of service to be worked in future months

by covered employees were “not allowed.” Id. The payments by American that

are at issue in this case were, consistent with the procedures just described, made

on a monthly basis, as required by the plans pursuant to the relevant collective

bargaining agreements.

3.

The timing of deductions for contributions to qualified pension plans is

governed by I.R.C. § 404. The general rule is that they are deductible “[i]n the

taxable year when paid,” I.R.C. § 404(a)(1)(A), effectively putting all employers

on cash-method accounting with respect to such contributions. Unmodified, this

rule would prevent some taxpayers from maximizing their contributions (and

deductions), because some figures necessary for these computations (such as
-13-

hours worked by covered employees) are not available until after the close of the

taxable year. See Don E. Williams Co. v. Commissioner , 429 U.S. 569, 575-76

(1977). To avoid this problem, § 404(a)(6) provides a limited exception:

For purposes of [§404(a)](1), . . . a taxpayer shall be deemed to have

made a payment on the last day of the preceding taxable year if the

payment is on account of such taxable year and is made not later than

the time prescribed by law for filing the return for such taxable year

(including extensions thereof).

I.R.C. § 404(a)(6) (emphasis added). This exception was intended to provide a

grace period during which employers could calculate and pay additional

contributions for the preceding year. See Don E. Williams Co. , 429 U.S. at

574-77 (detailing the history of § 404(a)(6)).

The parties’ analytical approaches to this statute, and to the deductibility of

the pension plan contributions in question, are galaxies apart. American focuses

on the nature of the plan. Unlike defined-contribution plans, which maintain

segregated employee accounts, multiemployer defined-benefit pension plans pool

all money received and pay benefits according to plan terms. Funds in the pool

are not traceable to individual employees or employers, or to the various taxable

years of employers participating in the plan. Thus, reasons American, the

employee-based terms in American’s collective bargaining agreement for

calculating monthly payments to the plan are irrelevant, and deductibility is not
-14-

tied to the concept of monthly obligations paid or accrued through the end of the

year.

Under this theory, American could, for example, pay an estimated two or

three years of pension contributions (subject to planwide limitations) in advance

and deduct them in the year paid since, arguably, payments going into a pool bear

no relationship to any particular month or year. In terms of this case, then,

according to American, the fact that twenty (instead of just twelve) monthly

payments are deducted in fiscal 1988 is perfectly acceptable. Under this

argument, the only role played by § 404(a)(6) is to deem payments made during

the grace period for filing the fiscal 1988 return as having been made on January

30, 1988, the last day of the taxable year. The section relates only to timing, not

deductibility as such. American asserts that its position is supported by the

limitation provisions of § 413(b) of the Code, and explicitly authorized by Rev.

Rul. 76-28, 1976-1 C.B. 107.

The Commissioner, on the other hand, contends that § 404(a)(6) is a statute

of narrow application, simply permitting time after the close of the tax year to

calculate and pay liabilities based on services performed through the year end. It

asserts that the plain language of the statute, “on account of such taxable year,”

compels this conclusion. It also argues that the language and mechanism of the

deduction limitation statute, § 413(b)(7), contemplates this result. It asserts
-15-

support for these arguments from the monthly payment terms, requirements and

mechanisms for billing and payment dictated by the collective bargaining

agreements applicable to American and its employees, and from the way the

pension plan trustees actually handle payments. From this perspective, the

Commissioner reasons that the deductibility of American’s pension plan payments

is limited to the twelve monthly payment obligations under the collective

bargaining agreement paid or accrued through the end of the taxable year. 

Furthermore, the Commissioner disputes American’s argument that Rev. Rul.

76-28 permits the deduction in question.

Only one circuit has addressed the issue and disparate conceptual positions

presented here, and it held in favor of the Commissioner. Lucky Stores, Inc. v.

Commissioner , 153 F.3d 964 (9th Cir. 1998). In Lucky the Ninth Circuit

reasoned that “[t]he bare language” of § 404(a)(6) precluded the deduction of

post-taxable year payments required under collective bargaining agreements for

hours worked after the close of the taxpayer’s taxable year. 153 F.3d at 966. It

further determined that these payments did not satisfy Rev. Rul. 76-28 because

“the seven or eight contributions in issue were treated by the plans as payments

satisfying Lucky’s [post-taxable year] obligations.” Id.

4.
-16-

a.

Distilled to its essence, the issue we are asked to resolve is whether the

contested pension plan payments are “on account of” American’s 1988 fiscal

taxable year. The starting point for our analysis is the underlying purpose of

§ 404(a)(6). As we have explained, qualified pension plan contributions are

deductible only within certain limits, and often these limits cannot be calculated

until after the close of the taxable year. Section 404(a)(6) allows a grace period

during which employers can calculate and make the maximum deductible pension

plan contribution. It creates a fiction, by treating a post-taxable year payment as

though it were made on the last day of the taxable year. Two other Code sections,

dealing with the same need for a grace period and creating the same fiction, use

language similar to that employed in § 404(a)(6): § 192(c)(3) (deductibility of

contributions to black lung benefit trusts) and § 219(f)(3) (deductibility of

contributions to individual retirement accounts (IRA’s)). Each of these sections

deems contributions made before the filing of the taxpayer’s return to have been

made on the last day of the preceding taxable year, so long as such contributions

are “on account of” that taxable year. We interpret § 404(a)(6) in the context of

these other provisions. 

Section 404(a)(6), like § 192(c)(3) and § 219(f)(3), allows a taxpayer to

backdate its grace-period contributions for purposes of complying with deduction
-17-

limits. Given this function of § 404(a)(6), we conclude that the requirement that

grace-period contributions must be “on account of” the taxable year for which

they are deducted is simply a demand that the payment fit the fiction. A

grace-period payment “on account of” the prior taxable year must, for the purpose

of calculating compliance with maximum deduction limits, be treated as though it

had been made on the last day of that year.

This is an obvious proposition when viewed in the context of IRA’s and

§ 219, for example. After the end of the taxable year, a taxpayer might use the

grace period to calculate the maximum deduction allowed, e.g., $2000. If the

taxpayer then made a $2000 contribution to an IRA before filing a return, the

taxpayer could choose to designate that payment as “on account of” the previous

taxable year, and as a result would subject it to that year’s deduction limit (and

not the deduction limit for the taxable year in which it was actually paid). 

Because the taxpayer alone will benefit from contributions to the IRA, there is

usually a tax incentive to contribute the maximum amount deductible each year;

the grace period makes this possible to the penny, without the need for

guesswork. By the same token, there is absolutely no incentive for such a

taxpayer to designate more than $2000 as “on account of” the previous year,

because then the previous year’s deduction limit would be exceeded. 
-18-

The picture is similar in the case of an employer’s contribution to a

single-employer defined-benefit plan, for example. An employer may have

discretion to fund within a specific range each year, bounded by a statutory

minimum and a statutory maximum. See I.R.C. § 412, § 404(a)(1). An employer

in such a plan may use the grace period to calculate the acceptable range, choose

an amount within that range, and make a deductible payment designated as “on

account of” the previous taxable year. Again, the single employer may choose to

contribute the maximum, in order to claim a present deduction for funds which

will later benefit its employees.

For contributors to multiemployer plans, the situation is similar in

principle, but considerably more complex in application. Taking account of the

fact that multiemployer plans receive scheduled contributions from numerous

employers with differing taxable years, § 413(b)(7) sets up an anticipatory,

agglomerative approach to calculating compliance with maximum deduction

limits. For a period called the “plan year” (which may or may not coincide with

each employer’s taxable year), § 404(a) limits are calculated on a planwide basis

and compared against anticipated (not actual) contributions for that plan year. 

Because of its importance to the issue at hand, we set § 413(b)(7) out in its

entirety. 

Each applicable limitation provided by section 404(a) shall be

determined as if all participants in the plan were employed by a
-19-

single employer. The amounts contributed to or under the plan by

each employer who is a party to the agreement, for the portion of his

taxable year which is included within such a plan year, shall be

considered not to exceed such a limitation if the anticipated employer

contributions for such plan year (determined in a manner consistent

with the manner in which actual employer contributions for such plan

year are determined) do not exceed such limitation. If such

anticipated contributions exceed such a limitation, the portion of

each such employer’s contributions which is not deductible under

section 404 shall be determined in accordance with regulations

prescribed by the Secretary.

In other words, some employers whose taxable years differ from the plan year will

file tax returns before the end of the plan year. Therefore, planwide compliance

with deduction limits for the plan year is determined ex ante. At the beginning of

the plan year, working from the terms of collective bargaining agreements and

past contribution levels, the plan estimates what contributions it will receive “for

such plan year.” If that estimate is not greater than the planwide limit, every

employer is then free, without any further determination and regardless of

subsequent events, to deduct all the contributions it makes “for the portion of his

taxable year which is included within such a plan year.”

This scheme relies on the fact that, as § 413(b)(7) recognizes, both the

timing and amount of actual employer contributions are determined by the plan,

pursuant to the terms of the relevant collective bargaining agreements. Employers

make only those payments required by the plan, because their employees receive a

predetermined level of benefits independent of the particular amounts contributed
-20-

by a specific employer. Absent some non-business motive of extraordinary

generosity, employers have no incentive to contribute in excess of what is

required of them, even if the contributions were deductible, because such

contributions would simply be pooled with all other contributions, and would not

directly affect the benefits of its own employees.

American argues that the grace-period payments at issue are “on account

of” its 1988 fiscal taxable year by the mere fact that they were claimed on its tax

return for that year, and that therefore these payments are deemed to have been

made on January 30, 1988. It contends that the timing of its own deductions need

not coincide with the timing used by the plans to calculate compliance with

deduction limits. It argues that once the plans (as required) calculated

§ 413(b)(7) anticipated contributions “in a manner consistent with the manner in

which actual employer contributions for [the] plan year are determined” (i.e.,

according to units of service rendered during the plan year), and determined that

deduction limits were not exceeded for the various plan years containing

January 30, 1988, American properly took advantage of that fact by designating

seven or eight months of subsequent contributions as having been made on that

date. Quoting from the statutory language, it contends that under § 404(a)(6) a

payment may be “deemed” made on the last day of an employer’s taxable year,

even though, by contrast, the plan calculates § 413(b)(7) compliance according to
-21-

“actual employer contributions.” After all, it argues, the plan year need not

coincide with employers’ taxable years, and the plan need not and typically does

not know the timing of each employer’s deductions. 

While such a disjunctive framework for limits on employer deductions is

possible in theory, and may arguably be culled from the statute by focusing

exclusively on certain words, we think a more comprehensive reading of the

statute shows that Congress did not intend such an arrangement. Rather, as we

have explained, the very purpose of including the “on account of” requirement in

a statute such as § 404(a)(6) is to ensure that grace-period deductions claimed for

a particular taxable year are in every respect subject to maximum deduction limits

in the same way that a contribution made on the last day of the taxable year would

be. The “on account of” requirement in § 404(a)(6) demands coordination where

American postulates disconnection.

Because § 413(b)(7) requires plans to calculate planwide compliance with

maximum deduction limits in advance, employers’ contributions are effectively

restricted by those limits only if a plan and its contributing employers use a

common method for attributing payments to specific plan years and taxable years,

respectively. The language of § 413(b)(7) implies such linkage. According to

§ 413(b)(7), once the plan determines that anticipated contributions “ for [the]

plan year” (calculated by the same method as actual employer contributions “ for
3As American correctly notes, however, “the rules for the time a

contribution is made for purposes of the minimum funding requirement of section

412 ‘are independent from’ the rules relating to the time a contribution is deemed

made for purpose[s] [of] claiming a deduction under section 404(a)(6),”

effectively refuting the Commissioner’s argument to the contrary. Appellant’s

Reply Br. at 19 (quoting Temp. Reg. § 11.412(c)-12(b)(2) and citing Rev. Rul.

77-82, 1977-1 C.B. 121). Indeed, as Rev. Rul. 77-82 recognizes, this must be so

because the grace period under § 412 may be shorter than that under § 404(a)(6),

leaving an interval during which a payment may be “on account of” a prior

taxable year but attributed to the current year for purposes of minimum funding

requirements. By contrast, the § 404(a)(6) grace period is integrally related to the

calculation of compliance with maximum deduction limits under § 413(b)(7)

(continued...)

-22-

such plan year”) are within the planwide limit, “the amounts contributed . . . by

each employer . . . for the portion of his taxable year which is included within

such a plan year” also satisfy deduction limits. The statutory scheme of

§ 413(b)(7) and § 404(a) is thus based on the assumption that an employer may

deduct as contributions “for” a particular taxable year only those payments

anticipated by the plan “for” the corresponding plan year(s). Although plans do

not track the timing of employer deductions, a monthly bill means employers are

well aware of plan methods for calculating actual contributions, and, therefore,

anticipated contributions. 

Consequently, an employer’s grace-period payment to a multiemployer plan

is “on account of” its previous taxable year only if a deduction for that taxable

year is consistent with the plan’s anticipatory treatment of the payment for

purposes of § 404(a) and § 413(b)(7). 3

 Each of the plans here was required,
3

(...continued)

(which by its terms affects “[e]ach applicable limitation provided by section

404(a)”).

4We are unconvinced by the Commissioner’s argument that the “on account

of” language embodies an accrual requirement. Prior to amendment by § 1013 of

the Employee Retirement Income Security Act of 1974, 88 Stat. 923, § 404(a)(6)

extended grace-period deductions only to accrual method taxpayers who had

incurred a liability before the end of the taxable year. See Don E. Williams Co. ,

429 U.S. at 575 n.6. By extending the grace period to all taxpayers and by

eliminating all references to accrual, we think Congress intended to allow those

who have some discretion in the funding of their pension plans (such as in

single-employer defined-benefit pension plans, where employers often do not

have regularly scheduled funding obligations) to make the calculations necessary

to exercise that discretion to its fullest. An accrual requirement would nullify this

effect. Furthermore, looking at the similar language in § 219, for example, we do

not think Congress intended for grace-period IRA contributions to be deductible

only if the taxpayer had some obligation, incurred during the taxable year, to

contribute to the taxpayer’s own IRA.

Treas. Reg. § 1.404(a)-1(c), which the Commissioner cites in support of an

(continued...)

-23-

pursuant to § 413(b)(7), to calculate “anticipated employer contributions for [the]

plan year” containing January 30, 1988, by considering only contributions

attributable to services performed during the plan year, consistent with the

method used to determine contribution obligations. Thus, as a participant in each

of these plans, American may deduct as “on account of” its 1988 fiscal taxable

year only those grace-period contributions which were attributable to services

performed during its taxable year. The collective bargaining agreements’

payment schedules are relevant not because they caused obligations to be accrued

during the taxable year, 4

 and not because “on account of” always means “on
4

(...continued)

accrual requirement, was last amended in 1963, well before the current version of

§ 404(a)(6) was enacted. 

5There is no indication that Congress intended to tie the deductibility of

contributions to multiemployer plans to any one method of computing required

contributions; multiemployer plans need not use a formula based on units of

service rendered (although that was the method used by the plans here). 

Furthermore, given our observation that the “on account of” language appears in

Code sections dealing with IRA’s and black lung benefit trusts, we think it must

refer to something more general than the performance of services during the

taxable year, because contributions to an IRA or to a black lung benefit trust need

not be “on account of” any particular services rendered during the taxable year. 

-24-

account of services rendered.” 5

 Rather, the statutory scheme makes them relevant

by designating “the manner in which actual employer contributions . . . are

determined” as the method for calculating compliance with deduction limits. 

American contends that “the plan provides the pension liability, not those

[collective bargaining agreements].” Oral Arg. Tr. at 8. By minimizing the effect

of such agreements it seeks, for purposes of § 404(a)(6), to characterize all

multiemployer plans and single-employer defined-benefit plans as birds of a

feather. Congress’ inclusion of § 413(b)(7), which applies only to collectively

bargained plans, directly contradicts American’s arguments here and belies

American’s interpretation of § 404(a)(6). Collective bargaining agreements are a

sine qua non of multiemployer plans. While American’s pension plan obligations

may transcend any particular collective bargaining agreements, Congress in

enacting § 413(b)(7) relied on the fact that employers like American make
-25-

payments on a regularly scheduled basis pursuant to such agreements, as

statutorily required—quite unlike the often discretionary funding of many

single-employer defined-benefit plans.

American argues that “Congress [i]ntended [s]ection 404(a)(6) to [a]pply to

[a]ll [p]lans,” Appellant’s Br. at 32, and that disallowing the deductions in

question negates the application of § 404(a)(6) to contributions to multiemployer

plans. Here American attacks a straw man of its own making. The Commissioner

does not argue that Congress intended to exclude multiemployer contributions

from § 404(a)(6). In fact, the Commissioner (properly) conceded that American’s

February 1988 payments were “on account of” it taxable year ending January 30,

1988, because they corresponded to work done during January 1988. It is

American’s position that would treat multiemployer plans differently from other

plans, by automatically allowing virtually unlimited deductions to fit under

entirely disjunctive deduction limits.

American’s arguments would make any grace-period contribution to a

multiemployer plan deductible. As we have emphasized, the argument flies in the

face of the entire purpose for a grace period. Congress enacted § 404(a)(6)

because the predicate facts required for § 404(a) calculations are sometimes

known only at the very end of the taxable year. The grace period is simply for

making these calculations based on facts existing at the close of the taxable year. 
-26-

The precise amounts of the payments American seeks to deduct here were based

on predicate facts (i.e., hours worked during particular post-taxable year months)

which did not exist at the end of the taxable year.

b.

American argues that Revenue Ruling 76-28 requires a contrary result. 

That ruling provides as follows: 

Whether a taxpayer is on the cash or accrual method of

accounting, and whether or not the conditions for accrual otherwise

generally required of accrual basis taxpayers have been met, a

payment made after the close of an employer’s taxable year to which

amended section 404(a)(6) applies shall be considered to be on

account of the preceding taxable year if (a) the payment is treated by

the plan in the same manner that the plan would treat a payment

actually received on the last day of such preceding taxable year of

the employer , and (b) either of the following conditions are satisfied.

(1) The employer designates the payment in writing to the plan

administrator or trustee as a payment on account of the employer’s

preceding taxable year, or

(2) The employer claims such payment as a deduction on his

tax return for such preceding taxable year . . . .

Rev. Rul. 76-28, 1976-1 C.B. 107 (emphasis added).

In analysis peppered with citations to Private Letter Rulings and the like,

American interprets Rev. Rul. 76-28 to mean that the additional seven or eight

payments deducted on its 1988 return were proper because “[a]ll [p]ayments to

[d]efined [b]enefit [p]lans are [t]reated the [s]ame.” Appellant’s Br. at 35. It
-27-

emphasizes that contributions to defined-benefit plans are pooled. Unlike

defined-contribution plans, defined-benefit plans do not segregate funds into

individual employee accounts; the benefits ultimately received by an employee are

fixed by the terms of the plan, and do not depend on the gains and losses on a

segregated, individual account. From these characteristics, it reasons that a

fortiori all contributions to a multiemployer defined-benefit plan are “treated by

the plan in the same manner.” 

We note initially that Rev. Rul. 76-28’s “same treatment” requirement is

hardly pellucid, notwithstanding American’s reference to “[t]he plain meaning of

Revenue Ruling 76-28.” Appellant’s Br. at 35. Whatever it means, it must mean

more than the extremely narrow interpretation American has given it. There is no

indication in the ruling that “same treatment” is limited only to certain purposes,

or, specifically, that it refers only to the calculation of benefits. American offers

no convincing reason why the calculation of employee benefits should completely

control the question of the deductibility of employer contributions. 

Rev. Rul. 76-28 demands that in order for an employer to deduct a payment

as “on account of” its previous taxable year, the plan itself must treat the payment

as though it were made on the last day of that taxable year. At the very least this

means a multiemployer plan must so treat the payment for purposes of calculating

compliance with § 413(b)(7), given that the very purpose of the “on account of”
6Alleging the lone fact that other employers have obtained private rulings

supporting deductions similar to those disallowed here, American argues that the

IRS has imposed impermissibly disparate treatment. This is essentially a

recasting of American’s argument for reliance on private rulings, which we reject. 

-28-

requirement is to assign payments to particular time periods for purposes of

maximum deduction limits. As we have explained in our analysis of the statute,

this requirement was not satisfied, and therefore Rev. Rul. 76-28 supports our

decision. 

American protests that it is entitled to rely on any reasonable interpretation

of a Revenue Ruling, relies on Technical Advice Memoranda and Private Letter

Rulings as “conclusive evidence of reasonableness,” Appellant’s Reply Br. at 10,

and cites Estate of McLendon v. Commissioner , 135 F.3d 1017 (5th Cir. 1998). 

First, as indicated above, American did not attempt to introduce most of this

“evidence” at trial and subject it to analysis and rulings on admissibility by the

Tax Court, and we will not consider it for the first time on appeal. In any event,

American was not entitled to rely on the unpublished memoranda or rulings for an

interpretation of a Revenue Ruling when receiving tax advice on how to plan its

own tax strategy. 6 American offers no reason why it could not have applied for

its own ruling. Second, the very fact that American argues for reliance on a

“reasonable” interpretation of the Revenue Ruling demonstrates the weakness of

its position. Taxpayers are not entitled to fashion their own beneficially strategic,
-29-

slanted interpretations. Thus the case before us differs from McLendon , which

involved a Revenue Ruling which, in the court’s view, “state[d] a clear standard,

expressed in language and example unneedful of further interpretation,” and

which “undeniabl[y]” supported the taxpayer’s position. 135 F.3d at 1023. 

Third, even if Rev. Rul. 76-28 were crystalline, “Revenue [R]ulings do not have

the force and effect of law, but rather are offered for the guidance of taxpayers,

IRS officials, and others concerned; although they are entitled to some

consideration, they do not control when contrary to statute or the expressed

intention of Congress.” Storm Plastics, Inc. v. United States , 770 F.2d 148, 154

(10th Cir. 1985); see Dixon v. United States , 381 U.S. 68, 73-75 (1965). Fourth,

“neither the duty of consistency, nor the principles of equitable estoppel . . .

preclude [the Commissioner] from correcting mistakes of law in the imposition

and computation of tax liability, including the power to retroactively correct his

rulings, regulations and decisions upon which taxpayers have relied.” Massaglia

v. Commissioner , 286 F.2d 258, 262 (10th Cir. 1961) (citing Automobile Club of

Michigan v. Commissioner , 353 U.S. 180 (1957)). We repeat the admonition of

the Supreme Court: 

Even accepting the notion that the Commissioner’s present position

represents a departure from prior administrative practice, which is by
7American characterizes the IRS’ administrative practice as “a consistent

series of TAMs and PLRs spanning . . . decades” that “uniformly state

[American’s] position in this case, in every ruling, on every issue.” Appellant’s

Reply Br. at 9, 10. The administrative history is not as clear as American claims,

and certainly not clear enough to support any kind of reliance interest. First of

all, by American’s own count, only three private rulings squarely support its

position—not exactly a decades-long history of consistent administrative practice. 

Second, one letter ruling cited by American applied Rev. Rul. 76-28 to approve

deductions for post-taxable year contributions that were “treated by the [p]lans for

tax purposes in the same manner that the [p]lans would treat a payment actually

received on the last day of [the taxpayer’s preceding] taxable year.” P.L.R. 80-

42-133 (July 25, 1980) (emphasis added). Furthermore, many private rulings

interpreting the “on account of” requirement and Rev. Rul. 76-28 are qualified by

prominent references to the applicability of deduction limits. See, e.g. , T.A.M.

85-43-002 (Apr. 30, 1985); P.L.R. 82-27-068 (Apr. 9, 1982); P.L.R. 80-42-133

(July 25, 1980). This reflects a subordination of the § 404(a)(6) grace period to

the larger purpose of effective deduction limits, a view in tension with

American’s arguments. 

-30-

no means certain,[ 7

] it is well established that the Commissioner may

change an earlier interpretation of the law, even if such a change is

made retroactive in effect. This rule applies even though a taxpayer

may have relied to his detriment upon the Commissioner’s prior

position.

Dickman v. Commissioner , 465 U.S. 330, 343 (1984) (footnote & citations

omitted). American’s “taxpayer reliance” argument, which is essentially a

dressed-up estoppel argument, runs counter to well-established law.

c.

In clarification, we note that while we affirm the judgment of the Tax

Court, and while we agree with much of its analysis and with its conclusion that

American’s position would frustrate the purposes of § 404(a) and § 413(b)(7), we
-31-

disagree with its opinion to the extent it holds that American’s grace-period

deductions “fail[] to comply with the individual deduction limits of section

404(a)(1)(A) and section 413(b)(7).” American Stores , slip op. at 27. American

correctly points out that there are no such “individual” limits under § 413(b)(7);

limits are calculated on a planwide basis, and no planwide limit was exceeded

here. However, it is precisely these mechanics of § 413(b)(7) which compel the

conclusion that § 404(a)(6) contributions must be determined in a manner

consistent with the calculation of anticipated contributions. Consequently, we

agree with the Tax Court that American may not “includ[e] contributions in its tax

year in a manner at odds with how anticipated contributions previously had been

determined for the plan year in which [the last day of] its tax year falls.” 

American Stores , slip op. at 29. This is not, however, because § 413(b)(7) itself

disallows the deductions on an employer-by-employer basis; it is because

American’s interpretation of § 404(a)(6) would allow individual employers to

distort the application of § 413(b)(7). 

d.

In sum, although our reasoning differs in some respects, we follow the Tax

Court and the Ninth Circuit in concluding that § 404(a)(6) provides no basis for
8Because we agree with the denial of the deductions at issue, we need not

reach the Commissioner’s argument that American changed its method of

accounting.

-32-

the bunching of deductions for scheduled contributions to multiemployer pension

plans. 8 The deductions at issue here were properly disallowed.

B. Vacation Pay 

Under American’s “General Plan,” employees receive paid vacation in

amounts corresponding to their years of service. The amount of vacation

available to an employee during a particular calendar year is based on the number

of years the employee will have worked as of the hiring anniversary contained in

that year. During the calendar year in which employees reach the second

anniversary of their hiring date, they may take two weeks of paid vacation; in the

calendar year of the fifth anniversary, three weeks are allowed; and so on. 

Those who have been continuously employed by the company during the

prior calendar year may take the full amount of vacation for the current year at

any time during the calendar year. They need not wait until the date of the hiring

anniversary upon which the amount is based. However, employees who take

vacation and then terminate employment prior to their hiring anniversary must

repay that portion of the vacation pay corresponding to the time remaining until

the hiring anniversary. For example, an employee hired in December 1986 could
9Section 463 was repealed by § 10201(a) of the Omnibus Budget

Reconciliation Act of 1987, Pub. L. No. 100-203, 101 Stat. 1330.

-33-

take two weeks of vacation in January 1988, but if that employee then quit in

March 1988 the employee would have to repay approximately 3/4 of the vacation

pay. 

For the taxable years ending January 31, 1987, and January 30, 1988,

American deducted the entire amount of vacation pay which its employees were

allowed to take as of January 1 of each year, including that portion still subject to

repayment requirements. The Commissioner disallowed deductions for that

portion of benefits which employees would have to repay if they did not continue

employment beyond the end of the taxable year. The Tax Court upheld the

disallowance, holding that the benefits had not yet been earned by employees. 

In defense of its deductions American cites former I.R.C. § 463, 9

 which

states in relevant part:

(a) Allowance of Deduction .—At the election of a taxpayer

whose taxable income is computed under an accrual method of

accounting, if the conditions of section 162(a) are otherwise

satisfied, the deduction allowable under section 162(a) with respect

to vacation pay shall [include]

(1) a reasonable addition to an account

representing the taxpayer’s liability for vacation pay

earned by employees before the close of the taxable

year . . . .
10The Commissioner contends that American did not make this argument to

the Tax Court and that therefore we cannot consider it. We disagree. Although

American’s argument here differs in emphasis from some of the arguments it

made below, both the Tax Court and the Commissioner understood American’s

arguments to include the assertion that allowing employees to take vacation is

sufficient to make that vacation “earned” and therefore deductible. The

Commissioner argued that “[n]othing in the statutory language of I.R.C. § 463 or

the legislative history . . . suggests . . . that a vacation pay accrual is considered to

be ‘earned’ simply because the employer permits its employees to actually take

vacations.” R. Vol. II, Doc. 21 at 87. The Tax Court summarized the

Commissioner’s opposition to American’s argument thus: “Respondent, on the

other hand, contends that nothing in section 463 signals that vacation pay is

earned simply because the employer permits its employees to take vacations.”

American Stores , slip op. at 40. 

-34-

Such liability for vacation pay earned before the close of the taxable

year shall include amounts which, because of contingencies, would

not (but for this section) be deductible under section 162(a) as an

accrued expense. . . .

American argues that vacation pay is “earned” as soon as employees are entitled

to take it, and that the possibility of repayment is simply a contingency which

would otherwise bar accrual but which does not affect deduction under § 463. 10

 

We find this definition of “earned” unpersuasive. Earnings are not required

to be repaid. The benefits at issue were at best advances or loans of vacation pay

which employees were expected to earn during continued employment. Although

it is clear from the statutory language that for purposes of deductibility Congress

intended to disregard contingencies which would prevent earned benefits from

being accrued , the possibility of repayment is not such a contingency. Rather, 
-35-

American’s repayment requirement prevents the vacation pay at issue from being

“earned” in the first place.

American notes that one of the contingencies which Congress expressly

took into account in drafting § 463 was “termination of employment before

vacation time arrives.” S. Rep. No. 93-1357 (1974), reprinted in 1974

U.S.C.C.A.N. 7478, 7479. It contends that this shows that Congress intended to

allow the deductions at issue here, where employees must repay advance vacation

benefits if they terminate employment.

Contrary to American’s claims, its position is not compelled by the

legislative history it cites, and would undermine the requirement that vacation pay

be earned in the year of deduction. While we agree with American that § 463

permits a deduction for a category of vacation pay which may be characterized as

“earned” but “contingent” on continued employment, the pay at issue is not such

an amount. Rather, such amounts would include vacation pay attributable to work

done during the taxable year, but which employees were not eligible to take until

after the end of the taxable year, and which they would lose if they were

terminated prior to attaining such eligibility. 

Thus we conclude that Congress intended to allow a deduction for vacation

benefits corresponding to work done during the taxable year, whether or not

employees were eligible to take the vacation during the taxable year, and even
-36-

though termination of employment before such eligibility might mean the

employer would never actually pay those benefits. American’s position is directly

contrary, asserting deductions for vacation pay which employees were eligible to

take during the taxable year but which corresponded to work done after the

taxable year. We therefore find no support in § 463 for American’s deductions. 

Accordingly, the judgment of the United States Tax Court is AFFIRMED.