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

Heading: Derivation from Employer Contributions

Text: 15 Because the Government's first argument fails, we must turn to its second argument. It claims that Mr. Guilzon's retirement benefits were not derived from employer contributions, as required by section 414(k). We agree. Section 414(k) expressly requires that the defined benefit plan ... provide[ ] a benefit derived from employer contributions. 26 U.S.C. § 414(k) (emphasis added). Mr. Guilzon's retirement benefits were in no way based upon employer contributions. The CSRS does not provide for employer contributions. CSRS retirement benefits are based upon the employee's contributions, average salary, and years of employment. 5 U.S.C. § 8339. Indeed, the statute which specifically governs the type of annuity chosen by Mr. Guilzon explicitly states that an employee or Member may, at the time of retiring ... elect annuity benefits under this section ... based on the service of the employee or Member. 5 U.S.C. § 8343a(a) (emphasis added). Reading the CSRS statutes--5 U.S.C. §§ 8339, 8343a--consistently with the applicable Tax Code statutes--26 U.S.C. §§ 72(d), 414(k)--leaves no other conclusion but that Mr. Guilzon's retirement plan did not provide a benefit derived from employer contributions as required by section 414(k). With that conclusion, the Guilzons' house of cards falls. 11 16 Without meeting the requirements of section 414(k), Mr. Guilzon's retirement plan cannot be treated as a hybrid plan, consisting of both a defined contribution plan and a defined benefit plan. All of his retirement benefits, including his lump-sum credit, fit only in the category of a defined benefit plan. Section 72 does not provide special treatment of benefits under a defined benefit plan. That provision only excludes from taxation employee contributions which are part of a defined contribution plan. The Guilzons' lump-sum credit therefore does not qualify for section 72(d) protection, and absent that protection, the lump-sum payment is subject to the tax computations outlined in section 72(e). Thus, that portion of the Guilzons' lump-sum credit for which no taxes were paid was indeed taxable. The Guilzons should have reported it as income for the 1987 tax year. Having failed to do that, they remain liable for the taxes due on that amount--$8,258.00.