### 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 prohib its the use or citation of Private Letter Rulings and Technical Ad vice 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 t he 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. Gil bert 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., forrespondent.

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 f or more than 12 months’ contributions to qualified multiemployer defined-be nefit 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 e rred when it denied American’s motions for reconsideration, judicial notice of var ious administrative materials, and a hearing on those motions. We affirm.

I. BACKGROUND American Stores is an accrual-method taxpayer, usin g 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 Commission er of Internal Revenue, among other things, disallowed certain deductions f or contributions to multiemployer defined-benefit pension plans for 198 8, and for certain alleged vacation pay liabilities for 1987 and 1988. Therea fter, the Commissioner issued a statutory notice of deficiency, proposing additiona l taxes resulting from these disallowed deductions. American filed a petition i n the Tax Court seeking a redetermination of the proposed deficiencies, and t he case was submitted on facts which were fully stipulated by the parties. The Tax Court issued an opinion upholding the posit ion of the Commissioner. American Stores Co. and Subsidiaries v. Commissioner , 108 T.C.1 The 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 pensio n contributions made pursuant to collective bargaining agreements that were based on units of service worked after the close of American’s 1988 fiscal taxable y ear were not “on account of” that year, as required by § 404(a)(6) of the Intern al 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 afterthe close of American’s 1987 and 1988 fiscal taxable years, respectively, had no t been “earned” in those years, as required by § 463 of the Code. On May 30, 1997, American filed a motion for recons ideration and a request for judicial notice of various memoranda, r ulings, and other Internal Revenue Service materials allegedly supporting Amer ican’s position regarding the deductibility of pension plan contributions. Those motions were denied, without a hearing, on June 10, 1997, and the Tax Court ente red its decision on October 8,
1997. On appeal, American reurges the arguments it advanc ed in the Tax Court, and requests this court independently to take judic ial notice of the materials unsuccessfully proffered to the Tax Court after its decision.2 Some of these rulings and memoranda are already bef ore us in the record as joint exhibits; as regards these documents, judi cial notice is unnecessary. -4- II. DISCUSSION Our review of the issues relating to the pension pl an 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 reviewof 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 Const itution the Tax Court erred as a matter of law in its post-trial rulings, inclu ding 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 andpension plans involved; excerpts from IRS manuals and other IRS a dministrative materials; declarations signed by counsel for American; and le gal correspondence with-5-

counsel for the Commissioner. American asks us to take judicial notice that these materials demonstrate that IRS administrative pract ice has been consistent with American’s position in this litigation, and that th e IRS is guilty of various misrepresentations regarding its administrative pra ctice. 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 fact s. Nor are its allegations of misconduct. Furthermore, the rulings and memorandawhich allegedly support these supposed facts are themselves inappropriate f or 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 n otice of excerpts from DEA Manual). American’s request for judicial notice is essential ly an attempt to introduce evidence after judgment. As indicated, American ar gues that the private rulings-6-

and memoranda constitute evidence of administrative practice, evidence of the reasonableness of its interpretation of the law, an d evidence usable for impeachment and rebuttal. Appellant’s Reply Br. at7-8. If so, it was American’s obligation to offer them in evidence in the Tax Cou rt, 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 prohib its 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 forjudicial 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 T ax Court abused its discretion when it denied American’s motions for re consideration, for judicial notice, and for a hearing, all relating to these sa me documents and the same-7-

arguments based on them made by American here. The se 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 a nd memoranda, and the obligation to introduce evidence during trial and n ot afterward, American’s argument has three defects. First, it was generall y on notice of the Commissioner’s position regarding these rulings pri or to the reply brief in question, since the subject was at least broached i n the Commissioner’s opening brief. See R. Vol. I, Doc. 19 at 135. Second, whatever couns el for the Commissioner may have represented or argued in a br ief, 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 positi on to exercise discretion as to whether, considering the materials, it must reconsi der its decision. It did not deem reconsideration warranted, or the materials pr oper 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 t he tenor of the matter noticed. In the absence of prior notificati on, the request may be made after judicial notice has been taken. Two factors lead us to conclude that American was n ot entitled to a hearing as a matter of law. First, the rule by its terms does n ot 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 wh o 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, w hich must be honored even after the fact if the court has acted without first notif ying the adversely affected party.
See Fed. R. Evid. 201(e) advisory committee’s note. O bviously 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 circumst ances 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 courthonored that right by duly considering American’s briefs, which under the circ umstances were sufficient to present its position.-9-

We proceed, then, to our analysis of the issues bas ed upon the evidence of record.

2. The Code contains special provisions for the tax tr eatment of “qualified” pension plans, i.e., plans that meet the various re quirements of § 401(a). During the years at issue, American made contributions to 39 qualified multiemployer defined-benefit pension plans. By definition, mult iemployer plans are maintained pursuant to collective bargaining agreements, and b enefit 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 a re statutorily obligated to make the payments required by the corresponding col lective bargaining agreements. See 29 U.S.C. § 1145. For all taxable years prior to 1988, American’s sub sidiaries 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 duri ng the taxable year, including-10-

one payment made after the close of the taxable yea r, 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, howev er, American deducted not only the typical twelve payments, but also seve n (and in some cases eight) additional payments made after the close of the tax able year, but before the filing of its return on October 17, 1988 (American had app lied 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 mo nths 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 th e plans at issue here; other plans were smaller. Generally, at the end of each month, the plan administrators sent bills to participating employer s, 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 pursu ant to collective bargaining-11-

agreements, the parties “normally agree to contribu te at rates specified in such agreement(s) for hours worked by employees, units o f production . . . , or a percentage of compensation”). For example, under i ts collective bargaining agreement with the Teamsters union, American was re quired to make contributions at the rate of $0.63 for each hour wo rked up to a maximum of $25.20 per week per employee. The employers includ ed with payment a list of covered employees, information regarding the numberof covered hours of service performed by such employees during the previous month, and the resulting calculations of the amount of the contribution requ ired. Contributions based on services performed within a particular month were d ue at the end of the following month. Although there was no provision in any of the colle ctive bargaining agreements providing expressly that American was pr ohibited from contributing more than the amount required under the agreements, or from contributing amounts in advance of the date that such amounts be came due, there also was no provision in the collective bargaining agreements w hich explained how plan administrators were supposed to handle or credit anadvance contribution from an employer. The plan administrator for the Northern California Retail Clerks’ Employee Benefit Fund testified that because advanc e contributions generally were not made, the plan had no established procedur es to handle advance-12-

contributions, other than with respect to inadverte nt overpayments due to computational errors, and contributions relating to vacation time and severance pay which could be calculated in advance. Other th an the exceptions noted, the plan was “not able to handle advance payments,” and the administrator had “no knowledge of an employer ever making advance paymen ts.” R., Joint Ex. 64-BL at 32. She testified that, because contributions t o the plan were based on the number of hours worked in a particular month, whichcould 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 quali fied pension plans is governed by I.R.C. § 404. The general rule is thatthey are deductible “[i]n the taxable year when paid,” I.R.C. § 404(a)(1)(A), eff ectively 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 the se computations (such as-13-

hours worked by covered employees) are not availabl e 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) provide s a limited exception: For purposes of [§404(a)](1), . . . a taxpayer shal l 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 fo r such taxable year (including extensions thereof). I.R.C. § 404(a)(6) (emphasis added). This exceptio n 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 gal axies apart. American focuses on the nature of the plan. Unlike defined-contribu tion plans, which maintain segregated employee accounts, multiemployer defined -benefit pension plans pool all money received and pay benefits according to pl an terms. Funds in the pool are not traceable to individual employees or employ ers, or to the various taxable years of employers participating in the plan. Thus , reasons American, the employee-based terms in American’s collective barga ining agreement for calculating monthly payments to the plan are irrele vant, 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, payan estimated two or three years of pension contributions (subject to pl anwide limitations) in advance and deduct them in the year paid since, arguably, p ayments going into a pool bear no relationship to any particular month or year. I n terms of this case, then, according to American, the fact that twenty (instea d of just twelve) monthly payments are deducted in fiscal 1988 is perfectly a cceptable. 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 se ction relates only to timing, not deductibility as such. American asserts that its p osition 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 afterthe close of the tax year to calculate and pay liabilities based on services per formed 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 l anguage and mechanism of the deduction limitation statute, § 413(b)(7), contempl ates 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. Fr om this perspective, the Commissioner reasons that the deductibility of Amer ican’s pension plan payments is limited to the twelve monthly payment obligation s under the collective bargaining agreement paid or accrued through the en d 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 dispar ate 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 collectiv e bargaining agreements for hours worked after the close of the taxpayer’s taxa ble year. 153 F.3d at 966. It further determined that these payments did not sati sfy Rev. Rul. 76-28 because “the seven or eight contributions in issue were tre ated 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 pensi on plan contributions are deductible only within certain limits, and often th ese 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 m aximum deductible pension plan contribution. It creates a fiction, by treati ng 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 c reating 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 § 2 19(f)(3) (deductibility of contributions to individual retirement accounts (IRA’s)). Each of these sections deems contributions made before the filing of the t axpayer’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 interpre t § 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 purpose s of complying with deduction-17-

limits. Given this function of § 404(a)(6), we con clude 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 payme nt fit the fiction. A grace-period payment “on account of” the prior taxa ble year must, for the purpose of calculating compliance with maximum deduction li mits, be treated as though it had been made on the last day of that year. This is an obvious proposition when viewed in the c ontext of IRA’s and § 219, for example. After the end of the taxable y ear, a taxpayer might use the grace period to calculate the maximum deduction all owed, e.g., $2000. If the taxpayer then made a $2000 contribution to an IRA b efore 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 t hat year’s deduction limit (and not the deduction limit for the taxable year in whi ch it was actually paid). Because the taxpayer alone will benefit from contri butions to the IRA, there is usually a tax incentive to contribute the maximum a mount 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 accoun t of” the previous year, because then the previous year’s deduction limit wo uld 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 yea r, 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 calculat e 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 presentdeduction for funds which will later benefit its employees. For contributors to multiemployer plans, the situat ion is similar in principle, but considerably more complex in application. Taking account of the fact that multiemployer plans receive scheduled con tributions from numerous employers with differing taxable years, § 413(b)(7) sets up an anticipatory, agglomerative approach to calculating compliance wi th 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) contr ibutions 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 und er 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 y ear, shall be considered not to exceed such a limitation if the a nticipated employer contributions for such plan year (determined in a m anner consistent with the manner in which actual employer contributi ons 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 ded uctible 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 determin ed 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 c ontributions it will receive “for such plan year.” If that estimate is not greater t han the planwide limit, every employer is then free, without any further determin ation 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 y ear.” 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 ba rgaining agreements. Employers make only those payments required by the plan, beca use their employees receive a predetermined level of benefits independent of the particular amounts contributed-20-

by a specific employer. Absent some non-business m otive of extraordinary generosity, employers have no incentive to contribu te in excess of what is required of them, even if the contributions were de ductible, because such contributions would simply be pooled with all othercontributions, and would not directly affect the benefits of its own employees. American argues that the grace-period payments at i ssue are “on account of” its 1988 fiscal taxable year by the mere fact t hat they were claimed on its tax return for that year, and that therefore these paym ents are deemed to have been made on January 30, 1988. It contends that the tim ing of its own deductions need not coincide with the timing used by the plans to c alculate compliance with deduction limits. It argues that once the plans (a s 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 p lan 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 a s having been made on that date. Quoting from the statutory language, it cont ends 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 arg ues, the plan year need not coincide with employers’ taxable years, and the pla n 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 compr ehensive 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 gra ce-period deductions claimed for a particular taxable year are in every respect subj ect to maximum deduction limits in the same way that a contribution made on the las t 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’ con tributions are effectively restricted by those limits only if a plan and its c ontributing 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 “ for3 As American correctly notes, however, “the rules fo r the time a

contribution is made for purposes of the minimum fu nding requirement of section 412 ‘are independent from’ the rules relating to th e time a contribution is deemed made for purpose[s] [of] claiming a deduction undersection 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. 77-8 2 recognizes, this must be so because the grace period under § 412 may be shorterthan 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 forpurposes of minimum funding requirements. By contrast, the § 404(a)(6) grace p eriod is integrally related to the calculation of compliance with maximum deduction li mits under § 413(b)(7) (continued...) -22- such plan year”) are within the planwide limit, “th e amounts contributed . . . by each employer . . . for the portion of his taxable year which is included within such a plan year” also satisfy deduction limits. T he 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 pla n year(s). Although plans do not track the timing of employer deductions, a mont hly bill means employers are well aware of plan methods for calculating actual c ontributions, and, therefore, anticipated contributions. Consequently, an employer’s grace-period payment to a multiemployer plan is “on account of” its previous taxable year only i f a deduction for that taxable year is consistent with the plan’s anticipatory tre atment 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 limi tation provided by section 404(a)”).

4 We are unconvinced by the Commissioner’s argument that the “on account of” language embodies an accrual requirement. Prio r 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 me thod 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 Con gress intended to allow those who have some discretion in the funding of their pe nsion plans (such as in single-employer defined-benefit pension plans, wher e employers often do not have regularly scheduled funding obligations) to make the calculations necessary to exercise that discretion to its fullest. An acc rual requirement would nullify this effect. Furthermore, looking at the similar langua ge in § 219, for example, we do not think Congress intended for grace-period IRA co ntributions 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 Commissionercites 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 consider ing 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 we re attributable to services performed during its taxable year. The collective bargaining agreements’ payment schedules are relevant not because they cau sed obligations to be accrued during the taxable year, 4 and not because “on account of” always means “on4 (...continued)

accrual requirement, was last amended in 1963, well before the current version of § 404(a)(6) was enacted.

5 There is no indication that Congress intended to ti e the deductibility of contributions to multiemployer plans to any one met hod of computing required contributions; multiemployer plans need not use a f ormula based on units of service rendered (although that was the method usedby the plans here). Furthermore, given our observation that the “on acc ount of” language appears in Code sections dealing with IRA’s and black lung ben efit trusts, we think it must refer to something more general than the performanc e 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 rend ered during the taxable year. -24- account of services rendered.” 5 Rather, the statutory scheme makes them relevant by designating “the manner in which actual employercontributions . . . are determined” as the method for calculating complianc e with deduction limits. American contends that “the plan provides the pensi on 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-ben efit plans as birds of a feather. Congress’ inclusion of § 413(b)(7), whichapplies only to collectively bargained plans, directly contradicts American’s ar guments here and belies American’s interpretation of § 404(a)(6). Collecti ve bargaining agreements are a sine qua non of multiemployer plans. While America n’s pension plan obligations may transcend any particular collective bargaining agreements, Congress in enacting § 413(b)(7) relied on the fact that employ ers like American make-25-

payments on a regularly scheduled basis pursuant to such agreements, as statutorily required—quite unlike the often discret ionary funding of many single-employer defined-benefit plans. American argues that “Congress [i]ntended [s]ection404(a)(6) to [a]pply to [a]ll [p]lans,” Appellant’s Br. at 32, and that dis allowing the deductions in question negates the application of § 404(a)(6) to contributions to multiemployer plans. Here American attacks a straw man of its ow n making. The Commissioner does not argue that Congress intended to exclude mu ltiemployer contributions from § 404(a)(6). In fact, the Commissioner (prope rly) conceded that American’s February 1988 payments were “on account of” it taxa ble 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 unlimite d deductions to fit under entirely disjunctive deduction limits. American’s arguments would make any grace-period co ntribution to a multiemployer plan deductible. As we have emphasiz ed, the argument flies in the face of the entire purpose for a grace period. Con gress enacted § 404(a)(6) because the predicate facts required for § 404(a) c alculations are sometimes known only at the very end of the taxable year. Th e 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 parti cular 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 a ccrual otherwise generally required of accrual basis taxpayers have been met, a payment made after the close of an employer’s taxab le year to which amended section 404(a)(6) applies shall be consider ed 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 tre at 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 deductio n 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 Lett er Rulings and the like, American interprets Rev. Rul. 76-28 to mean that th e additional seven or eight payments deducted on its 1988 return were proper be cause “[a]ll [p]ayments to [d]efined [b]enefit [p]lans are [t]reated the [s]am e.” Appellant’s Br. at 35. It-27-

emphasizes that contributions to defined-benefit pl ans are pooled. Unlike defined-contribution plans, defined-benefit plans d o not segregate funds into individual employee accounts; the benefits ultimate ly received by an employee are fixed by the terms of the plan, and do not depend o n the gains and losses on a segregated, individual account. From these characteristics, it reasons that a fortiori all contributions to a multiemployer defined-benef it 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 referen ce 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 Ameri can has given it. There is no indication in the ruling that “same treatment” is l imited only to certain purposes, or, specifically, that it refers only to the calcul ation of benefits. American offers no convincing reason why the calculation of employe e benefits should completely control the question of the deductibility of employ er contributions. Rev. Rul. 76-28 demands that in order for an employ er to deduct a payment as “on account of” its previous taxable year, the p lan itself must treat the payment as though it were made on the last day of that taxa ble year. At the very least this means a multiemployer plan must so treat the paymen t for purposes of calculating compliance with § 413(b)(7), given that the very pu rpose of the “on account of”6 Alleging the lone fact that other employers have ob tained private rulings

supporting deductions similar to those disallowed h ere, American argues that the IRS has imposed impermissibly disparate treatment. This is essentially a recasting of American’s argument for reliance on pr ivate rulings, which we reject. -28- requirement is to assign payments to particular tim e periods for purposes of maximum deduction limits. As we have explained in our analysis of the statute, this requirement was not satisfied, and therefore R ev. 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 Mem oranda 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 attemptto 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 firs t time on appeal. In any event, American was not entitled to rely on the unpublishe d memoranda or rulings for an interpretation of a Revenue Ruling when receiving t ax 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 America n argues for reliance on a “reasonable” interpretation of the Revenue Ruling d emonstrates the weakness of its position. Taxpayers are not entitled to fashio n 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 vie w, “state[d] a clear standard, expressed in language and example unneedful of furt her interpretation,” and which “undeniabl[y]” supported the taxpayer’s posit ion. 135 F.3d at 1023. Third, even if Rev. Rul. 76-28 were crystalline, “R evenue [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 principle s of equitable estoppel . . . preclude [the Commissioner] from correcting mistake s of law in the imposition and computation of tax liability, including the pow er 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 o f the Supreme Court: Even accepting the notion that the Commissioner’s p resent position represents a departure from prior administrative pr actice, which is by7American characterizes the IRS’ administrative prac tice 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 ru lings squarely support its position—not exactly a decades-long history of cons istent 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 precedi ng] taxable year.” P.L.R. 80- 42-133 (July 25, 1980) (emphasis added). Furthermo re, many private rulings interpreting the “on account of” requirement and Re v. 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, aview 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 i f such a change is made retroactive in effect. This rule applies even though a taxpayer may have relied to his detriment upon the Commissio ner’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 th at American’s grace-period deductions “fail[] to comply with the individual de duction 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 “indivi dual” limits under § 413(b)(7); limits are calculated on a planwide basis, and no p lanwide 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 d etermined in a manner consistent with the calculation of anticipated cont ributions. Consequently, we agree with the Tax Court that American may not “inc lud[e] contributions in its tax year in a manner at odds with how anticipated contr ibutions 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-employerbasis; it is because American’s interpretation of § 404(a)(6) would allo w individual employers to distort the application of § 413(b)(7).

d. In sum, although our reasoning differs in some resp ects, we follow the Tax Court and the Ninth Circuit in concluding that § 40 4(a)(6) provides no basis for8 Because 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 contributi ons to multiemployer pension plans. 8 The deductions at issue here were properly disall owed.

B. Vacation Pay Under American’s “General Plan,” employees receive paid vacation in amounts corresponding to their years of service. T he amount of vacation available to an employee during a particular calend ar year is based on the number of years the employee will have worked as of the hi ring anniversary contained in that year. During the calendar year in which emplo yees 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 co mpany during the prior calendar year may take the full amount of vac ation for the current year at any time during the calendar year. They need not w ait until the date of the hiring anniversary upon which the amount is based. Howeve r, employees who take vacation and then terminate employment prior to the ir hiring anniversary must repay that portion of the vacation pay correspondin g to the time remaining until the hiring anniversary. For example, an employee h ired in December 1986 could9 Section 463 was repealed by § 10201(a) of the Omnib us Budget

Reconciliation Act of 1987, Pub. L. No. 100-203, 10 1 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 approxi mately 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, inclu ding that portion still subject to repayment requirements. The Commissioner disallowe d deductions for that portion of benefits which employees would have to r epay 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 yetbeen 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 m ethod of accounting, if the conditions of section 162(a) are otherwise satisfied, the deduction allowable under section 16 2(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 . . . .10 The Commissioner contends that American did not mak e this argument to

the Tax Court and that therefore we cannot considerit. We disagree. Although American’s argument here differs in emphasis from s ome of the arguments it made below, both the Tax Court and the Commissionerunderstood American’s arguments to include the assertion that allowing employees to take vacation is sufficient to make that vacation “earned” and there fore deductible. The Commissioner argued that “[n]othing in the statutory language of I.R.C. § 463 or the legislative history . . . suggests . . . that avacation 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 Co urt summarized the Commissioner’s opposition to American’s argument th us: “Respondent, on the other hand, contends that nothing in section 463 si gnals that vacation pay is earned simply because the employer permits its empl oyees to take vacations.” American Stores , slip op. at 40. -34- Such liability for vacation pay earned before the c lose of the taxable year shall include amounts which, because of contin gencies, would not (but for this section) be deductible under sect ion 162(a) as an accrued expense. . . . American argues that vacation pay is “earned” as so on as employees are entitled to take it, and that the possibility of repayment i s 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 a dvances or loans of vacation pay which employees were expected to earn during contin ued employment. Although it is clear from the statutory language that for pu rposes of deductibility Congress intended to disregard contingencies which would prevent earned benefits from being accrued , the possibility of repayment is not such a contin gency. Rather,-35-

American’s repayment requirement prevents the vacat ion 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 “terminatio n 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 sho ws 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 t he 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 w ere not eligible to take until after the end of the taxable year, and which they w ould 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 eligib ility might mean the employer would never actually pay those benefits. American’s position is directly contrary, asserting deductions for vacation pay whi ch employees were eligible to take during the taxable year but which correspondedto work done after the taxable year. We therefore find no support in § 46 3 for American’s deductions. Accordingly, the judgment of the United States Tax Court is AFFIRMED.