Source: https://law.justia.com/cases/federal/appellate-courts/F2/552/236/169388/
Timestamp: 2017-11-20 13:31:56
Document Index: 342480503

Matched Legal Cases: ['§ 401', '§ 501', '§ 404', '§ 402', '§ 402', '§ 402', '§ 401', '§ 1', '§ 337', '§ 337', '§ 337']

Marvin H. and Kathleen G. Teget, Appellees, v. United States of America, Appellant, 552 F.2d 236 (8th Cir. 1977) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Eighth Circuit › 1977 › Marvin H. and Kathleen G. Teget, Appellees, v. United States of America, Appellant
Marvin H. and Kathleen G. Teget, Appellees, v. United States of America, Appellant, 552 F.2d 236 (8th Cir. 1977)
U.S. Court of Appeals for the Eighth Circuit - 552 F.2d 236 (8th Cir. 1977)
Submitted Jan. 13, 1977. Decided March 25, 1977
(4) if the contributions or benefits provided under the plan do not discriminate in favor of employees who are officers, shareholders, persons whose principal duties consist in supervising the work of other employees, or highly compensated employees. (I.R.C. § 401(a) (4) (1968).)
Nonqualified employees' trusts receive less desirable tax treatment. The trust income is not tax exempt under § 501(a); the employer gets no tax deductions for contributions to the trust unless the payment is nonforfeitable when made, I.R.C. § 404(a) (5); and, most pertinent here, § 402(b) expressly states that nonforfeitable contributions to such a trust for the benefit of the employee shall be included in the gross income of the employee for the taxable year in which the contribution was made. The relevant text of § 402(b) reads:
The trust in Teget's case was created under a deferred compensation plan which benefited only Teget, a vice president and general manager of the corporation. The language of § 402(b) was intended to close a tax loophole previously benefiting executive employees such as Teget. The regulations are consistent with the legislative history in interpreting the statutory language found in § 401(a) "exclusive benefit of * * * employees" as requiring that qualified compensation plans not benefit shareholders, and not discriminate in favor of corporate officers. See Treas.Reg. § 1.401-1(b) (2-4).
An examination of the history of § 337 demonstrates that its enactment rested upon special peculiarities in the tax laws governing liquidating corporations. Prior to passage of § 337, the Supreme Court in Commissioner of Internal Revenue v. Court Holding Co., 324 U.S. 331, 65 S. Ct. 707, 89 L. Ed. 981 (1945), held that a liquidating corporation could not escape capital gains tax from the sale of its sole asset if the corporation had arranged the sale, although the shareholders consummated that sale after receiving the asset upon corporate liquidation. Subsequently, in United States v. Cumberland Public Service Co., 338 U.S. 451, 70 S. Ct. 280, 94 L. Ed. 251 (1950), the Court reached a contrary conclusion under circumstances in which the shareholders (not the corporation) had arranged for the sale of corporate assets after distribution. As noted in Central Tablet Mfg. Co. v. United States, 417 U.S. 673, 94 S. Ct. 2516, 41 L. Ed. 2d 398 (1974),
(t)here is nothing in the legislative history indicating that § 337 was enacted in order to eliminate "double taxation" as such. Rather, the statute was designed to eliminate the formalistic distinctions recognized and perhaps encouraged by the decisions in Court Holding and Cumberland. * * * The statute was meant to establish a strict but clear rule, with a specified time limitation, upon which planners might rely and which would serve to bring certainty and stability into the corporation liquidation area. (Id. at 682, 94 S. Ct. at 2521.)
Goodfellow, The Tax Consequences of Pension Trusts and Employer Purchased Annuities to Employee or Beneficiary, 39 Calif. L. Rev. 204 (1951); Commissioner of Internal Revenue v. Pepsi-Cola Niagara Bottling Corp., 399 F.2d 390, 392 (2d Cir. 1968)
The Government also argues that the payment made by the employer to Teget of $302,000 in 1968 would be taxable to Teget under assignment of income principles on the basis that Teget could not defer taxation on this amount of money by assigning the funds to a trustee. See United States v. Basye, 410 U.S. 441, 93 S. Ct. 1080, 35 L. Ed. 2d 412 (1973). Further, the Government argues that taxpayer constructively received the $302,000, notwithstanding the fact that technically his attorney, as trustee, controlled the funds. The Government points to the provisions of the trust agreement which empowered the trustee to pay the corpus to Teget at the trustee's discretion "as necessary or advisable, to provide for the care, support, and maintenance" of Teget. While there may be merit to these arguments of the Government, the district judge did not address them, noting: