BENNETT v. COMMISSIONER

T.C. Memo. 1996-502

UNITED STATES TAX COURT

ELAINE S. BENNETT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 8545-96. Filed November 7, 1996.

Vernon E. Robbins, for petitioner.

Alan R. Peregoy, for respondent.

MEMORANDUM OPINION

DAWSON, Judge: This case was assigned to Special Trial

Judge Robert N. Armen, Jr., pursuant to the provisions of section

7443A(b)(4) of the Internal Revenue Code of 1986, as amended, and
 - 2 -

Rules 180, 181, and 183.1 The Court agrees with and adopts the

Opinion of the Special Trial Judge, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

ARMEN, Special Trial Judge: Respondent determined a

deficiency in petitioner's Federal excise tax under section 4980A

for the taxable year 1991 in the amount of $26,672.2

The issue for decision is whether the Transfer Refund

distribution received by petitioner in 1991 from the Maryland

State Employees' Retirement System is subject to the 15-percent

excise tax under section 4980A as an excess distribution from a

qualified plan.

This case was submitted fully stipulated under Rule 122, and

the facts stipulated are so found. Petitioner resided in

Cambridge, Maryland, at the time that her petition was filed with

the Court.

I. Background

At all times relevant to this case, petitioner was employed

as an employment specialist by the Maryland State Department of

1
Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the taxable year in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
2
Sec. 4980A imposes a 15-percent excise tax on excess
distributions from qualified retirement plans. This tax is
included within ch. 43 of the I.R.C. and is subject to the
deficiency procedures set forth in subch. B of ch. 63 of the
I.R.C. See sec. 6211(a).
 - 3 -

Economic and Employment Development in Cambridge, Maryland.3 As

a Maryland State employee, petitioner was a member of the

Maryland State Employees' Retirement System (the Retirement

System) until she transferred to the Maryland State Employees'

Pension System (the Pension System), effective February 1, 1991.

A. The Retirement System and the Pension System

Both the Retirement System and the Pension System are

qualified defined benefit plans under section 401(a), and the

trust maintained as part of each plan is exempt from tax under

section 501(a).

The Retirement System requires mandatory nondeductible

employee contributions. In contrast, the Pension System does not

generally require such contributions. The State of Maryland

contributes to both the Retirement System and the Pension System

on behalf of the members of those systems.4

B. The Transfer Refund

On January 4, 1991, petitioner elected to transfer from the

Retirement System to the Pension System, effective February 1,

1991. As a result of the election to transfer, petitioner

3
Petitioner remained employed by the State of Maryland
at the time that this case was submitted to the Court in July
1996.
4
For a further discussion of the Retirement System and
the Pension System, see Adler v. Commissioner, 86 F.3d 378 (4th
Cir. 1996), vacating and remanding T.C. Memo. 1995-148; Maryland
State Teachers Association v. Hughes, 594 F. Supp. 1353, 1357-
1358 (D. Md. 1984).
 - 4 -

received a distribution (the Transfer Refund) from the Retirement

System in the amount of $348,483.42, which petitioner received in

the form of a check dated February 28, 1991.

The Transfer Refund consisted of $21,461.94 in previously

taxed contributions made by petitioner, and $327,655.59 of

earnings in the form of interest.5 The earnings constitute the

taxable portion of the Transfer Refund.

If petitioner had not transferred to the Pension System but

had remained a member of the Retirement System, she would have

been entitled to retire and receive a normal service retirement

benefit, including a regular monthly annuity, at age 60. She

would not have been entitled to receive a Transfer Refund because

a Transfer Refund is payable only as a result of transferring

from the Retirement System to the Pension System.

As a result of transferring from the Retirement System to

the Pension System, petitioner became, and presently is, a member

of the Pension System. As a member of the Pension System,

petitioner is entitled to receive a retirement benefit based upon

her salary and her creditable years of service, specifically

including those years of creditable service recognized under the

Retirement System. However, because petitioner received the

5
So stipulated. However, the sum of these two amounts
equals $349,117.53, which sum exceeds the amount of the Transfer
Refund (i.e., $348,483.42) by $634.11. This discrepancy is not
explained in the record.
 - 5 -

Transfer Refund on account of transferring from the Retirement

System to the Pension System, petitioner's monthly annuity will

be less than the monthly annuity she would have received if she

had not transferred to the Pension System but had retired under

the Retirement System.6

C. Petitioner's Federal Income Tax Return

Petitioner did not attempt to roll over the taxable portion

of the Transfer Refund. See sec. 402(a)(5). Rather, on her

Federal income tax return (Form 1040) for 1991, petitioner

reported such portion of the Transfer Refund as ordinary income.7

Further, in computing her income tax liability for 1991,

petitioner did not attempt to income average pursuant to section

402(e)(1); rather, she computed such liability by reference to

the tax rate schedule applicable to her filing status.

In the notice of deficiency, respondent characterized the

taxable portion of petitioner's reported retirement distributions

6
It should be recalled that petitioner remained employed
by the State of Maryland at the time that this case was submitted
to the Court in July 1996.
7
Petitioner also reported on her return another
retirement distribution in the gross (and taxable) amount of
$158. Accordingly, petitioner reported total retirement
distributions in the gross amount of $348,641 (i.e., $348,483 +
$158) and in the taxable amount of $327,814 (i.e., $327,656 +
$158). The parties have stipulated that the $158 distribution,
as well as the Transfer Refund (in the amount of $348,483), was
received from the Retirement System. However, the record does
not disclose the relationship of the $158 distribution to the
Transfer Refund. See infra note 8 and the accompanying text.
 - 6 -

that exceeded $150,000 as an excess distribution from a qualified

retirement plan.8 Respondent then determined that petitioner was

liable for the excise tax under section 4980A in an amount equal

to 15-percent of such excess distribution.

D. Remaining Matters

The present value of petitioner's accrued benefit in the

Retirement System as of August 1, 1986, did not exceed $562,500.

Petitioner has not made an election under section 4980A(f).

II. Discussion

The issue for decision is whether petitioner is liable for

the 15-percent excise tax for an excess retirement distribution

under section 4980A.

A. Statutory Analysis

Section 4980A imposes a 15-percent excise tax on the excess

distributions with respect to an individual during the calendar

year. Sec. 4980A(a). As relevant herein, an "excess

distribution" is defined as the aggregate amount of the

retirement distributions with respect to the individual during

the calendar year to the extent that such amount exceeds

8
The computation was as follows:
Taxable distribution $327,814
less: threshold (150,000)
Excess distribution 177,814

On brief, respondent concedes that the excess distribution was
only $177,655.59, i.e., $327,655.59 (the taxable portion of the
Transfer Refund) less $150,000.
 - 7 -

$150,000.9 Sec. 4980A(c)(1)(A).

As relevant herein and with respect to an individual, the

term "retirement distribution" is defined as the amount

distributed under a qualified employer plan with respect to which

such individual is or was the employee. Sec. 4980A(e)(1)(A).

Again as relevant herein, a "qualified employer plan" is defined

as any plan described in section 401(a) that includes a trust

exempt from tax under section 501(a). Sec. 4980A(e)(2)(A).

As previously stated, both the Retirement System and the

Pension System are qualified defined benefit plans under section

401(a), and the trust maintained as part of each plan is exempt

from tax under section 501(a). Accordingly, the Retirement

System and the Pension System constitute "qualified employer

plans" within the meaning of section 4980A(e)(2)(A).

Also as previously stated, petitioner received the Transfer

Refund from the Retirement System as a result of her election to

transfer to the Pension System and in her capacity as an employee

of the State of Maryland. Accordingly, the taxable portion of

9
Sec. 4980A(c)(2) serves to exclude various
distributions from the aggregate amount of an individual's
retirement distributions. Thus, for example, sec. 4980A(c)(2)(C)
excludes a distribution that is attributable to after-tax
employee contributions. However, because respondent determined
that only the taxable portion of the Transfer Refund constitutes
a retirement distribution, the exclusion authorized by sec.
4980A(c)(2)(C) is not applicable to the present case, nor are any
of the other exclusions authorized by sec. 4980A(c)(2) applicable
herein.
 - 8 -

the Transfer Refund constitutes a "retirement distribution"

within the meaning of section 4980A(e)(1)(A). Cf. sec.

4980A(c)(2)(C).

In view of the foregoing, it necessarily follows that the

taxable portion of the Transfer Refund that exceeds $150,000;

i.e., $327,655.59 less $150,000, or $177,655.59, constitutes an

"excess distribution" within the meaning of section

4980A(c)(1)(A). Accordingly, petitioner is liable for the 15-

percent excise tax on excess distributions under section

4980A(a). See Emmons v. Commissioner, T.C. Memo. 1996-265;

Powell v. Commissioner, T.C. Memo. 1996-264; Montgomery v.

Commissioner, T.C. Memo. 1996-263; see also O'Connor v.

Commissioner, T.C. Memo. 1994-170 (regarding section 4974).

B. Petitioner's Contention

Notwithstanding the foregoing, petitioner argues that she is

not liable for the excise tax under section 4980A(a) because the

Transfer Refund was not paid to her on account of her retirement

but rather as an inducement for her to transfer from the

Retirement System to the Pension System. In this regard,

petitioner relies heavily on the fact that she remained an active

employee of the State of Maryland at the time that she received

the Transfer Refund and continuously thereafter. Thus, in

petitioner's view, the Transfer Refund did not constitute a

retirement distribution because "petitioner has not retired from
 - 9 -

her position or occupation and is still employed."

We accept as a fact that the Transfer Refund was not paid to

petitioner on account of her retirement but rather as an

inducement for her to transfer from the Retirement System to the

Pension System. We also accept as a fact that petitioner has not

retired and is still employed. However, we reject petitioner's

argument that the Transfer Refund did not constitute a retirement

distribution within the meaning of section 4980A.

The fatal flaw in petitioner's argument is that the term

"retirement distribution" is statutorily defined. Thus,

petitioner's reliance on Webster's Dictionary definition of

"retirement", as a "withdrawal from one's position or

occupation", is to no avail. Our analysis is necessarily

governed by the meaning of the operative term as it is

specifically defined by Congress and not as it may be more

popularly construed. 2A Singer, Sutherland Statutory

Construction sec. 47.07, at 151, (5th ed. 1992).

As we have already discussed, section 4980A(e)(1)(A) defines

the term "retirement distribution" to mean the amount distributed

during the taxable year under a qualified employer plan with

respect to which the individual is or was the employee.

Petitioner's Transfer Refund fits squarely within this

definition. Indeed, petitioner admits that she "received a

distribution [the Transfer Refund] from her qualified plan [the
 - 10 -

Retirement System]".

Further, we observe that the statutory definition of

"retirement distribution" in section 4980A(e)(1)(A) expressly

contemplates that an individual may receive a retirement

distribution even if the individual is not retired. Thus, as we

have just indicated, the statute provides that the term

"retirement distribution" means the amount distributed during the

taxable year under a qualified employer plan with respect to

which the individual is, or was, the employee. By speaking in

the present tense, as well as in the past tense, section

4980A(e)(1)(A) indicates that an individual need not be retired

in order to receive a "retirement distribution".

C. Sec. 54.4981A-1T, Temporary Qualified Pension Plan

Excise Tax Regs.

We also take note of the fact that petitioner's argument is

contrary to the applicable regulation. Thus, sec. 54.4981A-1T(a-

8), Temporary Qualified Pension Plan Excise Tax Regs., 52 Fed.

Reg. 46751 (Dec. 10, 1987), provides in relevant part that "all

distributions from qualified employer plans * * * must be taken

into account in determining an individual's excess distributions

for the calendar year in which such distributions are

received."10 (Emphasis added.) There is nothing in the

10
Sec. 4980A was originally enacted as sec. 4981A by sec.
1133(a) of the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat.
(continued...)
 - 11 -

regulation that suggests that an individual must be retired in

order to receive a "retirement distribution". In other words,

there is nothing in the regulation to suggest that "all" means

"some".

D. Case Law

We also take note of the fact that petitioner's argument is

contrary to several decisions of this Court. Thus, in Rodoni v.

Commissioner, 105 T.C. 29, 40 (1995), the Court had little

difficulty in holding that the taxpayer was liable for the excise

tax under section 4980A, even though the taxpayer received a

lump-sum distribution from his corporation's profit sharing plan

in 1988 but continued to be employed by his corporation "until

the present". Rodoni v. Commissioner, supra at 30.

In Montgomery v. Commissioner, T.C. Memo. 1996-263, the

Court also held that the taxpayer was liable for the excise tax

under section 4980A. There the taxpayer, a teacher employed by

the Hagerstown, Maryland Community College, received a

distribution (in the form of a transfer refund from the Maryland

State Teachers' Retirement System) in 1990. However, the

taxpayer remained so employed at least through the time that the

(...continued)
2085, 2481-2483. It was subsequently renumbered by sec.
1011A(g)(1)(A) of the Technical and Miscellaneous Revenue Act of
1988, Pub. L. 100-647, 102 Stat. 3342, 3479. Because the
applicable regulation does not reflect the statutory renumbering,
the regulation appears as sec. 54.4981A-1T, Temporary Qualified
Pension Plan Excise Tax Regs., 52 Fed. Reg. 46750 (Dec 10, 1987).
 - 12 -

case was submitted for decision in April 1995.

In Powell v. Commissioner, T.C. Memo. 1996-264, the Court

also held that the taxpayer was liable for the excise tax under

section 4980A. There the taxpayer, a teacher employed in the

Baltimore and Hagerstown Public Schools until his retirement in

1992, received a distribution (in the form of a transfer refund

from the Maryland State Teachers' Retirement System) in 1990.

We acknowledge that the argument advanced by petitioner in

the present case was not expressly addressed by the Court in

Rodoni v. Commissioner, supra; Montgomery v. Commissioner, supra;

or Powell v. Commissioner, supra. Nevertheless, we think that

the latter three cases are significant because the analysis

therein represents an application of the statutory language of

section 4980A that applies straightforwardly to the present case.

E. Legislative Intent

Petitioner also argues that Congress did not intend for the

excise tax under section 4980A to apply to amounts distributed

under a qualified employer plan to an individual who is not

retired. Here, however, we are reminded of the admonition of the

Supreme Court that "There is * * * no more persuasive evidence of

the purpose of a statute than the words by which the legislature

undertook to give expression to its wishes." United States v.

American Trucking Associations, 310 U.S. 534, 543 (1940). Thus,

where a statute appears to be clear on its face, unequivocal
 - 13 -

evidence of legislative purpose must be demonstrable if we are to

construe the statute so as to override the plain meaning of the

words used therein. Estate of Owen v. Commissioner, 104 T.C.

498, 507-508 (1995), and cases cited therein. Petitioner has

made no such showing. Indeed, the legislative history of section

4980A is harmonious with the plain meaning of the statute.

Section 4980A originated in section 1133 of H.R. 3838, as

reported by the House Committee on Ways and Means on December 7,

1985. H. Rept. 99-426, at 745-746 (1985), 1986-3 C.B. (Vol. 2)

745-746, on H.R. 3838 provides in pertinent part as follows:

In addition, the bill imposes a new excise tax on
excess distributions from qualified retirement plans
* * * . To the extent that aggregate annual distributions
paid to a participant from such tax-favored retirement
savings arrangements are excess distributions, the bill
generally imposes an excise tax equal to 15 percent of the
excess.
* * * * * * *
In applying the additional tax, all distributions
made with respect to any individual during a calendar
year will be aggregated, regardless of the form of the
distribution or the number of recipients. Thus, for
example, all distributions received during a year,
whether paid under a life annuity, a term certain, or
any other benefit form (including an ad hoc
distribution) generally will be aggregated in applying
the tax. [Emphasis added.]

The conference report on H.R. 3838 is equally instructive.

It provides in relevant part as follows:

The conference agreement generally follows the
House bill with respect to the 15-percent excise tax on
benefit payments * * * . The conference agreement also
clarifies that distributions attributable to after-tax
employee contributions and distributions not includible
in income by reason of a rollover contribution are not
 - 14 -

taken into account in applying the tax. All other
amounts not specifically exempted are taken into
account. [H. Conf. Rept. 99-841, 1986-3 C.B. (Vol. 4)
477; emphasis added.]

See also Staff of Joint Comm. on Taxation, General Explanation of

the Tax Reform Act of 1986, 754-760 (J. Comm. Print 1987).

The above quoted passages from the congressional reports

regarding section 4980A demonstrate that Congress intended to

include, within the statutory definition of "retirement

distributions", all distributions from qualified plans, except

those specifically excluded by the statute. Because the taxable

portion of petitioner's Transfer Refund is not a type of

distribution that is specifically excluded by the statute, it

therefore follows that the taxable portion of such Refund was

intended by Congress to come within the definition of a

"retirement distribution" for purposes of section 4980A.

F. Section 4980A(f)

To the extent that petitioner may rely on section 4980A(f),

it is clear that such section does not serve to relieve

petitioner from liability for the excise tax under section

4980A(a). Here we observe that section 4980A(f) is a

"grandfather" provision that authorizes an exemption of accrued

benefits in excess of $562,500 on August 1, 1986. Subsection (f)

of such section requires that an election be made with respect to

an eligible individual in order to have the subsection apply.

See sec. 4980A(f)(1), (5). However, petitioner has not made the
 - 15 -

requisite election. Moreover, section 4980A(f)(3) defines

"eligible individual" to mean any individual if, on August 1,

1986, the present value of such individual's interest in

qualified employer plans exceeded $562,500. The present value of

petitioner's accrued benefit in the Retirement System as of

August 1, 1986, did not exceed such amount. Accordingly, section

4980A(f) simply has no application to the present case.

G. Petitioner's Other Arguments

Finally, we have considered petitioner's other arguments and

find they are merely variations on the same theme that we have

already addressed.11

III. Conclusion

To paraphrase the Supreme Court, we are bound by the

language of section 4980A as it is written, and, even if

petitioner's argument might accord with good policy, we are not

at liberty to rewrite such section because we might deem its

effects susceptible of improvement. Commissioner v. Lundy, 516

U.S. 116 S. Ct. 647, 656-657 (Jan. 17, 1996) (citing

Badaracco v. Commissioner, 464 U.S. 386, 398 (1984)).

Accordingly, in order to give effect to our disposition of the

disputed issue, as well as respondent's concession, and to permit

11
On brief, petitioner suggests that she relied on
erroneous advice by either the State of Maryland or the I.R.S. or
both. However, there is no evidence in the record to provide the
factual predicate for such an argument; accordingly, we need not,
and do not, address the argument.
 - 16 -

the parties to address the minor unexplained discrepancies in the

record,12

Decision will be entered

under Rule 155.

12
See supra notes 5, 7.