Court Opinion

ID: 9474573
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:01:55.626023+00
Date Added: 2024-06-11T17:44:11.342085
License: Public Domain

K.K. HALL, Circuit Judge,
dissenting:
I cannot agree with the majority’s decision that the departure of two salaried employees in 1972 did not constitute a material alteration justifying the retroactive revocation of the Boggs Trust. Inherent in the majority holding is a conclusion that unless a change in the employee status actually causes the trust contributions to become discriminatory, the change cannot be material within the meaning of 26 C.F.R. § 601.201(1)(5). In my view this represents an excessively restrictive definition of materiality.
A factor is material if it has the potential to affect the administration of the government agency involved. United States v. Beer, 518 F.2d 168, 170 (5th Cir.1975); United States v. Ivey, 322 F.2d 523, 529 (4th Cir.1963). In this instance the Boggs Company’s plan approved by the IRS in 1962 consisted of two major components: the trust and the union pension plan. When the trust was established, its membership included three members of the prohibited supervisory group and two lower-level employees. Although the Tax Court stated that the level of contributions received by members of the prohibited group was probably discriminatory from the inception of the trust, it is reasonable to believe that the inclusion of a significant percentage of non-prohibited employees effectively camouflaged the true nature of the trust.1 The departure of all of the nonsupervisory personnel from the trust membership stripped away the mask. By any rational standard this departure must be considered a material change.
I acknowledge that retroactive revocation of qualified trust status and the accompanying loss of favorable tax treatment for all assets distributed from that trust can be strong medicine that must be swallowed by the guilty and innocent alike. Nevertheless, such an action, when taken in response to an employer’s failure to comply with the requirements for exemption, comports with both the plain language of the statute and the intent of Congress. Every court of appeals to consider this *1172issue since 19662 has come to a similar conclusion. See Baetens v. Commissioner, 777 F.2d 1160 (6th Cir.1985); Benbow v. Commissioner, 774 F.2d 740 (7th Cir.1985); Woodson v. Commissioner, 651 F.2d 1094 (5th Cir.1981). I believe that the position advocated by the Commissioner in this instance is correct in all respects. The taxpayers should be held responsible for the full deficiency assessed against them. I would, therefore, reverse only that portion of the Tax Court’s opinion that accords favorable tax treatment to any distributions from the revoked trust.
By its action today, the majority utilizes a strained interpretation of the regulatory language in order to elevate its own equitable concerns over the will of Congress. Such an evasion of clear statutory mandate should not bear the Fourth Circuit’s stamp of approval. I must, therefore, respectfully dissent.

. Until 1972 the percentage of non-prohibited employees included in the trust ranged from 33% to 66%. After 1972 the percentage of non-prohibited employees was zero. Since it was the contributions to the trust members that triggered the IRS’ action, these figures cannot be ignored by focusing solely on the overall plan.

. The Second Circuit’s decision in Greenwald v. Commissioner, 366 F.2d 538 (2d Cir.1966), sought to rely on a supposed ambiguity in the statute to justify softening the harsh remedy created by Congress. In the present case, the majority seeks the same goal as the court in Greenwald but by a different route.