Court Opinion

ID: 9006984
Source: CourtListenerOpinion
Date Created: 2022-11-27 13:37:06.229826+00
Date Added: 2024-06-11T17:11:18.726335
License: Public Domain

MINER, Circuit Judge,
dissenting:
Because I am of the opinion that the Pension Plan has not carried its burden of proving that it is an exempt labor organization within the meaning of I.R.C. § 501(c)(5), see United States v. Wells Fargo Bank, 485 U.S. 351, 354, 108 S.Ct. 1179, 1181, 99 L.Ed.2d 368 (1988) (“exemptions from taxation are not to be implied; they must be unambiguously proved”); United States v. Stewart, 311 U.S. 60, 71, 61 S.Ct. 102, 109, 85 L.Ed. 40 (1940), I respectfully dissent.
My colleagues rely heavily on two General Counsel Memoranda (“GCMs”) to support their analysis. The principal memorandum to which they refer, Gen. Couns.Mem. 37,942 (Apr. 27, 1979) (available on WESTLAW, FTX-GCM database), 1978 IRS GCM LEXIS 180, at *22-23, included the following language:
[W]e think [that] one of the most reliable indicators of a “labor organization” is that it is performing the traditional representational role of organized labor, or is formed as a result of such representation, or is connected with or supplements or supports in some way organizations which do perform that role. Each of the organizations which has been exempted previously under Section 501(c)(5) met this test.
It is noteworthy that the question giving rise to this memorandum was whether an organization funded by donations and income from fundraising events was exempt where its sole purpose was to accumulate and manage a retirement fund for certain municipal employees. Id. at *1. The question was answered in the negative, because the General Counsel “d[id] not believe an organization providing only monetary benefits, and performing no other labor activities, and which lacks the connection described above, qualifies under section 501(c)(5).” Id. at *23. It was not the source of the funding, but the lack of connection to a traditional labor organization that caused the disqualification.
Another GCM, Gen.Couns.Mem. 35,862 (June 20, 1974 & Supp. June 29, 1978), 1974 IRS GCM LEXIS 498, was cited in GCM 37,942 and is referred to in the majority opinion. See maj. op. at 563-64. In its original version, GCM 35,862 set forth the General Counsel’s opinion that a pension plan established and funded by a labor union and administered entirely by union representatives would qualify as a labor organization. As to that pension plan, the General Counsel opined that:
a subsidiary of an exempt labor organization, though not itself technically qualified for exemption as a labor organization, may be granted exemption if it is operated as an integral part of the exempt activities of the parent labor organization and furthers the parent’s exempt purposes.
Id. at *12. The supplement to that GCM provided the opinion that it was not necessary for the labor organization’s activities to be an integral part of the union activities and that it was sufficient “that the organization be engaged in activities appropriate to an exempt labor union for it to qualify for exemption under Section 501(c)(5).” A revenue ruling proposed to reflect the views set forth in the supplement never was adopted.
The question raised in the supplement and in the proposed revenue ruling ultimately was resolved in the later-issued GCM 37,942:
Although in the supplement to G.C.M. 35862, supra, we stated that it was not advisable to require that a labor organization’s activities be “an integral part of the activities of a labor union,” we did not intend to suggest by that statement that no connection of any kind with more traditional labor organizations was required.
Gen.Couns.Mem. 37,942, 1978 IRS GCM LEXIS 180, at *22. Aside from their lack of precedential value, see Hernandez v. Commissioner, 490 U.S. 680, 703 n. 13, 109 S.Ct. 2136, 2151 n. 13, 104 L.Ed.2d 766 (1989); Disabled Am. Veterans v. Com*566missioner, 942 F.2d 309, 315 n. 5 (6th Cir.1991), the foregoing GCMs do not support an exemption for the pension plan in this case under § 501(c)(5). The memoranda require that there be some connection with a more traditional labor organization. There can be no such connection where, as here, a pension plan is funded totally by employers, is not controlled by a labor union but by an independent board of trustees composed of an equal number of employer and union representatives and does not support or supplement the union in any way. The fact that Local 478 negotiated for the establishment of the Plan does not provide the necessary connection. The Pension Plan is a wholly separate entity, and its activities are not a part of the activities of Local 478.
My colleagues refer to revenue rulings “which have allowed entities which carry out the function of a labor organization to be jointly administered by employers and employees and still qualify as a labor organization for the purposes of a § 501(c)(5) exemption.” Maj. op. at 564. In Rev.Rul. 75-473, 1975-2 C.B. 213, an organization jointly controlled and funded by the union and the employers was formed to allocate work assignments among union members. The organization was ruled exempt because it carried on appropriate union activities “as a part of the proper activities of the parent organization, so that it is not merely an independent undertaking.” Id. The Pension Plan in the ease before us is not operated as part of the proper activities of Local 478, and is indeed an “independent undertaking.” Other revenue rulings support the granting of the labor organization exemption only where the necessary connection with the traditional labor entity is demonstrated. See, e.g., Rev.Rul. 77-46, 1977-1 C.B. 147 (savings plan established pursuant to collective bargaining agreement and administered by equal number of employer and employee representatives does not qualify); Rev.Rul. 77-5, 1977-1 C.B. 146 (exemption granted to trust funded and administered by employers to compensate steward under union's direct control); Rev.Rul. 59-6, 1959-1 C.B. 121, 123 (an entity that has “equal representation of employers and employees ... is not within the usual meaning of a ‘labor organization’ ”).
It seems to me that the entire congressional scheme must be examined to determine whether the pension plan here falls within the undefined “labor organization” exemption of § 501(c)(5). That scheme calls for employer-provided pension plans to be exempt from tax only if they meet the stringent requirements of ERISA. If an entity established to pay retirement benefits could obtain an exemption as a labor organization under § 501(c)(5) rather than under § 401, there would be little reason to comply with the more stringent requirements, and the congressional scheme would be undermined. Cf. Canton Police Benevolent Ass’n of Canton, Ohio v. United States, 844 F.2d 1231, 1236 (6th Cir.1988).
When ERISA was enacted in 1974, relevant portions of the Internal Revenue Code were integrated with other statutory provisions affecting pension plans administered by the Department of Labor as part of a single comprehensive scheme. Because pension benefits promised to - employees were not being adequately protected, see 29 U.S.C. § 1001(a) (1988), ERISA was seen as a comprehensive remedial statute designed to protect those benefits. See Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 214, 106 S.Ct. 1018, 1020, 89 L.Ed.2d 166 (1986). Congress considered it necessary that the new ERISA requirements be complied with before tax exemptions would be allowed. See S.Rep. No. 383, 93d Cong.2d Sess. 33 (1974), reprinted in 1974 U.S.C.C.A.N. 4890, 4918; H.R.Rep. No. 807, 93d Cong.2d Sess. 31 (1974), reprinted in 1974 U.S.C.C.A.N. 4639, 4670, 4697. The “labor organization” exemption already was in place when ERISA was enacted, but there is no indication that it was to serve as an alternative to the ERISA-pro-vided exemption. Congress clearly intended that employer-funded pension plans meet the requirements of ERISA in order to gain tax exemptions. We should be “reluctant to tamper with an enforcement scheme crafted with such evident care as the one in ERISA.” Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 147, 105 S.Ct. 3085, 3093, 87 L.Ed.2d 96 (1985).
*567My colleagues say that “[i]t ... is unlikely that plans will be encouraged to circumvent the ERISA requirements” by claiming the labor organization exemption because "an ERISA exemption is more advantageous than a § 501(c)(5) exemption.” Maj. op. at 564. While it is true that where a plan fails to qualify for an ERISA exemption, an employer may not immediately deduct its contributions and employees must immediately report contributions made on their behalf as income, see I.R.C. §§ 402(b), 404(a) (1988); Hollingshead v. Burford Equip. Co., 747 F.Supp. 1421, 1434 (M.D.Ala.1990), the loss of the tax exemption is the only consequence for the Plan itself. That loss is the principal enforcement tool designed to compel compliance with the ERISA scheme.
On remand, I would have the district court address the issues it found unnecessary to consider because of its determination that the Plan was a labor organization exempt under § 501(c)(5); whether the Plan met all the requirements for tax exempt status under ERISA, see I.R.C. § 401(a); and whether, if the Plan failed to meet the requirements, the IRS abused its discretion by not granting full relief from disqualification. With regard to the latter issue, I would allow consideration of the seventeen affidavits previously stricken by the district court.