Opinion ID: 2966746
Heading Depth: 3
Heading Rank: 1

Heading: Were the Transfer Refunds Amounts Distributed

Text: Under A Qualified Employer Plan? Appellants state that a distribution from a qualified employer plan of an amount in excess of the actual earnings on employee contributions automatically disqualifies the plan. Consequently, they argue, the Transfer Refunds could not have been distributions from a qualified plan subject to the taxes imposed by §§ 72(t) and 4980A. This boils down to the contention that because the distributions in question would by their nature disqualify the plan when made, then logically the plan could not have been qualified at the time of distribution. Therefore, according to the Appellants, the Transfer Refunds were merely withdrawal(s) of contributions and interest in excess of that actually earned. In making this argument, the Appellants seek to have the Court ignore the plain language of the statute. _________________________________________________________________ 12 This is 15% of the excess distribution of $301,387 (i.e. $22,708), less an offset of $15,139 by virtue of the concomitant liability for the § 72(t) tax. 7 For purposes of the excise taxes imposed by #8E8E # 72(t) and 4980A, a retirement plan is deemed to be a qualified plan, even if it is not qualified on the date of the distribution, so long as the Commissioner at any time had determined that the plan was qualified. See §§ 4974(c), 4980A(e)(2). In this case, the New Pension System had been determined to be a plan described in § 401(a) that included a trust exempt from tax under § 501(a) on June 23, 1982. Therefore, the Court must apply the statute as written and reject Appellants' logical argument. As a second line of defense, Appellants, relying on certain temporary regulations issued by the Commissioner, argue that the term qualified employer plan does not include government plans because they are not required to file a federal income tax return. Section 54.4981A-1T(a-3)(c)(2)(I), Temporary Qualified Pension Plan Excise Tax Regs., 52 Fed. Reg. 46750 (1987) provides that an employee plan that is maintained by an employer whohas at any time filed an income tax return and claimed deductions that would be allowable under section 404, is a qualified plan. However, the cited Temporary Regulations do not provide an exclusive definition of those plans that will be considered qualified employer plans. Rather, the Temporary Regulations merely advise that even a plan which has not been the subject of an express IRS determination will be considered a qualified employer plan so long as the employer itself has filed an income tax return and claimed deductions based upon the plan's asserted qualified status.13 The fact that the New Pension System is a government plan, and thus not one as to which the employer has claimed an income tax deduction, does not change its status as a qualified employer plan under the statutory provisions here at issue. For the foregoing reasons, we conclude that the Transfer Refunds were distributions from a qualified employer plan and, therefore, that the § 4980A tax is applicable to the Appellants. Moreover, as to Montgomery, who was less than 59-1/2 years of age at the time of distribution, the § 72(t) tax is applicable. _________________________________________________________________ 13 This closes a potential loophole for an employer plan which was placed in operation without an advance ruling of qualification. 8 B. Was the Transfer Refund to Powell a Lump Sum Distribution? As discussed above, the § 4980A tax applies to the extent that a distribution exceeds a threshold exemption of $150,000. If the distribution is a lump sum distribution to which an election under § 402(e)(4)(B) applies, then the exemption is increased to $750,000. See § 4980(c)(4). Section 402(e)(4)(A) defines a lump sum distribution as a: distribution or payment within one taxable year of the recipient of the balance to the credit of an employee which becomes payable to the recipient