Opinion ID: 600289
Heading Depth: 2
Heading Rank: 1

Heading: Separate Account

Text: 10 The proper construction of the phrase separate account of a participant, located in section 414(k), is an issue of first impression before this Court. That section explicates when a defined benefit plan may be treated, in part, like a defined contribution plan. In essence, it provides that when a defined benefit plan has certain defined contribution plan characteristics, the portion which resembles the defined contribution plan will be treated like a defined contribution plan under section 72(d). Thus, reading subsection (k) with an eye toward the statutory definition of a defined contribution plan, it seems clear that the section 414(k) reference to the separate account of a participant is the same as the section 414(i) reference to an individual account for each participant. Indeed both parties so assume. 11 Section 414(i) states that such an account is based solely on the amount contributed to the participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant's account. In this case, the CSRS kept separate records of each employee's contributions; however, the contributions themselves were not kept separately from other employees' contributions. The Government does not contend separate accounting, rather than physical separation of the funds, prevents a finding that a separate account existed. 12 The Government does assert, however, that no separate account existed because Mr. Guilzon's contributions gained no interest and suffered no losses while in his CSRS account. In the Government's view, if an account is not allocated actual earnings and losses, it is not a separate account. The Government bases this argument on a Notice which construed the term separate account in light of section 72(e)(9), the predecessor of section 72(d). 7 Citing Foil v. Commissioner, 920 F.2d 1196, 1201 (5th Cir.1990), and a host of other cases, 8 the Government urges the Court to defer to the Commissioner's definition as found in the I.R.S. Notice. 13 However, neither Foil nor any of the other cited cases discusses Notices. They all address the proper review of Revenue Rulings, which by regulation are to some degree authoritative. 9 Notices are not. See 26 C.F.R. § 1.6661-3(b)(2). 10 Even if Notices had the same weight as Revenue Rulings, this Court made clear in Foil that we will look to Revenue Rulings only when a statute and its legislative history are completely ambiguous. Foil, 920 F.2d at 1201 ([W]e will disregard a Ruling if the Ruling conflicts with the statute it supposedly interprets, with the statute's legislative history, or if the Ruling is otherwise unreasonable.... Although we are not bound by the criteria promulgated in these Revenue Rulings, we give them special consideration because the statute and legislative history are so completely indefinite. (emphasis added)). 14 The language of section 414(i) is unambiguous. It states that a separate account consists of the employee's contributions and any income, expenses, gains and losses, and any forfeitures ... which may be allocated to such participant's account. 26 U.S.C. § 414(i). By using the words any and may Congress clearly and unambiguously made the allocation of earnings and losses to a participant's account optional. It is well-settled that the word may is a permissive term. If allocating gains and losses were required, Congress would surely have used mandatory language, providing that the earnings and losses shall be allocated rather than asserting that such earnings and losses may be allocated. Based upon the clear language of the statute, we conclude that an account can qualify as a separate account without having earnings and losses allotted to it. Because Mr. Guilzon's contributions were individually accounted for, we find that the separate account requirement was satisfied in his case.