Opinion ID: 196671
Heading Depth: 1
Heading Rank: 2

Heading: eagan's refund claim

Text: 7 The rationale for Eagan's refund claim is somewhat complicated and rather brash. We spell it out in detail. The linchpin of the claim is Eagan's contention that he was not a full-time insurance agent for Mass Mutual during 1987, 1988, and 1989. In an earlier tax refund suit, Eagan sought to recover FICA tax 3 withheld from his Mass Mutual compensation in 1987 and later years, on the theory that he was not subject to FICA tax as a non-employee. Eagan v. United States, No. 92-10786-T (D.Mass. filed Apr. 3, 1992) (Eagan I ). Eagan and the IRS stipulated in Eagan I that Eagan was not a full-time agent for Mass Mutual in 1987 and thus not a statutory employee of Mass Mutual under I.R.C. § 3121(d)(3)(B). As a non-employee, Eagan was not subject to FICA withholding on his Mass Mutual compensation, and accordingly he received a refund of his 1987 FICA tax in Eagan I; the IRS also issued an administrative refund of his FICA taxes for 1988-1992. 8 Eagan's position in this suit is that the stipulation in Eagan I that he was not a Mass Mutual employee also had implications for his participation in the Mass Mutual 401(k) plan. He argues that under the statutory scheme, a qualified tax-deferred retirement plan must inure to the exclusive benefit of the employees of the plan sponsor. See I.R.C. § 401(a)(2). Because he was not an employee in 1987, he claims, his participation in the plan violated this exclusive benefit rule, rendering the plan not qualified for tax benefits. See id. Eagan then argues that because the plan was not qualified in 1987, Mass Mutual's contributions to the plan on his behalf were taxable to Eagan as would be other compensation for his services. See I.R.C. § 402(b). Moreover, income earned on contributed funds would also be taxed when earned, not tax-deferred. See I.R.C. § 61(a)(15). He concludes that if the contributions and income thereon had been taxed when earned, there would be no further tax due when after-tax funds were eventually withdrawn. 9 Thus, Eagan contends he is due a refund on the taxes he paid in connection with his early withdrawal in 1989. Since the statute of limitations 4 bars the IRS from assessing tax on most of the contributions Mass Mutual made to the plan on Eagan's behalf, Eagan, if successful in this claim, would avoid tax completely--both on contributions to the plan and on withdrawals from the plan. 5 10 The district court rejected Eagan's refund claim in a terse one-page order. The court pointed out that the IRS had previously issued a determination letter that the Mass Mutual 401(k) plan was qualified, and although the Commissioner has authority to issue a corrective determination [that the plan was no longer qualified because of Eagan's participation] with retroactive application, she has not done so in her discretion. Finding no abuse of discretion, the court deferred to the Commissioner's decision, and consequently granted summary judgment for the government.