Court Opinion

ID: 9453876
Source: CourtListenerOpinion
Date Created: 2023-08-04 18:26:51.748047+00
Date Added: 2024-06-11T17:33:50.721807
License: Public Domain

WATERMAN, Circuit Judge
(dissenting) :
I must respectfully dissent from my distinguished brethren. I would affirm the Tax Court on its opinion, reported at 48 T.C. 75. I would hold, with that court, that taxpayer’s employees’ profit-sharing plan in effect in the calendar years 1961, 1962, and 1963, was not discriminatory in favor of a prohibited group of employees within the meaning of Sections 401(a) (3) and 401(a) (4) of the Internal Revenue Code quoted in. footnote 1 of the majority opinion.
The case is before us because the Commissioner disallowed the deductions taxpayer took in calendar 1961, 1962, and 1963, for its contributions to the trust that was established to manage the fund provided for by the plan, and he appeals from the decision of the Tax Court, adverse to him, which allowed them. Upon disallowing these deductions the Commissioner determined income tax deficiencies for the three years of $1,749.34, $1,614.46, and $2,-327.03, respectively. The Commissioner’s ground for holding that taxpayer’s plan resulted in prohibited discrimination and therefore did not qualify under § 401(a) was that the plan discriminated in favor of taxpayer’s salaried employees and discriminated against its hourly rated employees, the position of the Internal Revenue Service, quoted in the Tax Court’s opinion, 48 T.C. 75, at 80, being that: “While a classification limited to salaried employees may be nondiscriminatory, the facts in the instant case show that such classification results in coverage of the officers, shareholders, supervisors and highly compensated employees and exclusion of the hourly rated employees, who are comparatively low paid.”
All pertinent facts were stipulated before the Tax Court, and a summary of the plan’s provisions is set forth in the Tax Court’s opinion. The Tax Court, and my brothers in footnote 3 of their majority opinion, recite the compensation the six covered salaried employees and the eight hourly paid employees received during each of the three years.
It is obvious that the Tax Court’s analysis, 48 T.C. 75 at 84-85, of the compensation received by each of the fourteen permanent employees of taxpayer demonstrates that the Commissioner had not related the statutory term “highly compensated employees” to the compensation standards designed to prevent rather substantial tax avoidance that Congress had in mind when the statutory sections were passed. Indeed, as pointed out by the Tax Court, the Commissioner’s argument advanced to that court and reiterated by him to us is that this taxpayer’s plan should not *395be looked at with reference to whether it effects the substantial tax avoidance that Congress had in mind and desired to proscribe. The Commissioner’s position is that, irrespective of its effect upon the quantum of tax receipts involved, a plan may not be approved by him if in its operation favoritism is shown to “highly compensated employees,” which term is not to be applied in an absolute sense, but vis-a-vis the excluded employees.
My brothers appear to accept this argument. As expository of Congressional intent, I doubt its validity, but, assuming the argument to be generally a sound one, it is surely inapplicable here. A glance at the 1962 pay schedule1 for all employees except possibly Winter, the owner of the business, demonstrates that in an absolute sense the salaries of the salaried employees did not make • them “highly compensated,” in that the salaries made them high-bracket taxpayers; and that, in a relative sense vis-a-vis the excluded employees, two of the excluded hourly-compensated employees were more “highly compensated” (also in an absolute sense, but whether looked at absolutely or relatively, in terms of efficacy at the supermarket, having more funds to spend) than salaried employee Rowland, and that all but one of the eight excluded employees received an averaged gross weekly pay check within $10 a week of Rowland’s $110, the average weekly pay of the seventh lowest paid excluded employee being $100.88. On this set of facts, though the plan is limited to salaried employees, I am not left with a definite and firm conviction that the Tax Court erred in holding that this limited coverage did not discriminate in favor of the “highly compensated employees” of taxpayer.
The issue of discrimination is basically an issue of fact, an issue determinable case by case. Here I do not find the factual findings of the Tax Court to be unsupported, see 26 U.S.C. § 7482(a), Fed.R.Civ.P. 52(a), or that the inferences which that court drew from its examination of the stipulated facts and agreed-upon exhibits to be implausible, C.I.R. v. Duberstein, 363 U.S. 278, 289-291, 80 S.Ct. 1190, 4 L.Ed.2d 1218 (1960) or that the court has overlooked pertinent facts, see Schley v. C.I.R., 2 Cir., 375 F.2d 747, 757 (dissenting opinion). Therefore I am not of the opinion that the Tax Court’s finding that the operation of taxpayer’s plan does not discriminate is a clearly erroneous finding.
Nevertheless, the Commissioner suggests that, if we are to consider ourselves bound in any way by factual findings made below we are bound, unless his findings are arbitrary, by his, the Commissioner’s findings and by his un-reviewed exercise of his technically motivated judgment; and we ought not to be bound by the factual determinations of the Tax Court sitting in review over him. Despite this rather extraordinary argument, I am sure that the Tax Court has justified and will continue to justify its existence as an impartial adjudicator between taxpayer and tax collector, and I, for one, despite the Commissioner’s express wish in the premises, do not intend to by-pass it here.
In a case decided by the Tax Court later than this case now before us, the Tax Court, distinguishing Pepsi-Cola Niagara Bottling Co., followed the Commissioner, held that he acted properly in not qualifying the plan under § 401 (a) which was then before it, and agreed with him that “his determination should not be set aside unless it is found to be arbitrary or an abuse of discretion.” Ed and Jim Fleitz, Inc. et al. v. Commissioner, 50 T.C. No. 35 (1968). Applying this standard the Tax Court reaffirmed the result my brothers would reverse here, and therefore impliedly found that here the Commissioner did act arbitrarily. This case-by-case development in the area seems to me to *396be quite praiseworthy and to indicate that the Tax Court is properly applying proper standards of review.
I would affirm.

. The last full year in which Rowland was employed, and the year in which he became eligible under the Plan.