Wenger v. Commissioner

T.C. Memo. 2000-156

UNITED STATES TAX COURT

PHILLIP M. WENGER, C.P.A., A SOLE PROPRIETOR, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5580-99. Filed May 12, 2000.

Phillip M. Wenger, pro se.

Roger P. Law, for respondent.

MEMORANDUM OPINION

ARMEN, Special Trial Judge: Respondent determined a

deficiency in petitioner's Federal excise tax under section

4971(a) for the taxable year 1994 in the amount of $1,828, as

well as an addition to tax under section 6651(a)(1) for failure
 - 2 -

to timely file an excise tax return in the amount of $457.1 The

sole issue for decision is whether petitioner’s money purchase

pension plan satisfied the minimum funding standards of section

412.2 We hold that it did not.3

Background

This case was submitted fully stipulated under Rule 122, and

the facts stipulated are so found. Petitioner resided in San

Francisco, California, at the time that his petition was filed

with the Court.

Petitioner is a certified public accountant who operates a

sole proprietorship. Petitioner adopted the Phillip M. Wenger

self-employed retirement money purchase plan (the Wenger plan) in

1984. Thereafter, in August 1990, petitioner adopted an updated

version of the Wenger plan using a prototype money purchase plan

offered by Charles Schwab and Co., Inc. (Charles Schwab). In

1
All section references are to the Internal Revenue Code,
as amended, and all Rule references are to the Tax Court Rules of
Practice and Procedure. All amounts are rounded to the nearest
dollar.
2
There is no indication that petitioner applied for waiver
of the minimum funding standards on the ground of business
hardship as provided under sec. 412(d). In any event, petitioner
has not raised the question of whether a valid waiver under sec.
412(d) existed, and we do not consider that matter.
3
Petitioner concedes that if a funding deficiency exists
with respect to his money purchase pension plan for 1994, then he
is liable for the addition to tax for failure to timely file an
excise tax return.
 - 3 -

June 1990, the Internal Revenue Service issued a favorable

determination letter to Charles Schwab for the prototype

standardized money purchase pension plan adopted by petitioner.

In December 1994, petitioner adopted a further updated version of

the Wenger plan, again using a prototype money purchase plan

offered by Charles Schwab.

The Wenger plan was in effect for petitioner’s 1994 tax

year. Petitioner is the employer who sponsors the Wenger plan

and is responsible for funding it. The Wenger plan is a

qualified plan subject to the minimum funding standards of

section 412.

The Wenger plan has a plan year ending December 31, and the

plan reports on a calendar year basis. On July 6, 1995,

petitioner filed a Form 5558, Application for Extension of Time

to File Certain Employee Plan Returns, requesting a 2-1/2-month

extension to file the annual return, Form 5500-C/R, for the

Wenger plan. The extension was granted, and the Form 5500-C/R

for the Wenger plan was therefore due on October 16, 1995.

Petitioner filed Form 5500-C/R for the Wenger plan no later than

October 16, 1995.

On Form 5500-C/R, petitioner reported that, pursuant to

section 412, the required contribution to the Wenger plan was

$18,275. Petitioner made the required contribution on October
 - 4 -

16, 1995. On Form 5500-C/R, petitioner designated the entire

$18,275 contributed as paid for the 1994 plan year.

Petitioner reported income and expense in respect of his

sole proprietorship on a Schedule C, Profit or Loss From

Business, to his Form 1040 on a calendar year basis. He applied

for both an automatic 4-month extension and an additional

extension of time to file his Federal income tax return for 1994.

The extensions were granted, and petitioner’s 1994 Federal income

tax return was therefore due on Monday, October 16, 1995. On his

1994 Federal income tax return, petitioner deducted the entire

$18,275 as a contribution to the Wenger plan.

Petitioner did not file a Form 5330, Return of Initial

Excise Taxes Related to Pension and Profit-Sharing Plans, for

1994.

In the notice of deficiency, respondent determined that for

the year in issue, an accumulated funding deficiency of $18,275

existed for the Wenger plan. Respondent further determined that

as the plan’s sponsor and person responsible for making the

contributions, petitioner was liable for an excise tax equal to

10 percent of the funding deficiency pursuant to section 4971(a),

and that petitioner was liable for an addition to tax under

section 6651(a)(1) for failure to timely file Form 5330 for the

Wenger plan.
 - 5 -

Discussion

Section 412(a) requires generally that an employer who

sponsors a qualified retirement plan such as a money purchase

plan must satisfy the minimum funding standard for such plan for

each plan year. In order to meet the minimum funding standard,

the plan must not have an accumulated funding deficiency for the

plan year. See sec. 412(a). To determine whether an accumulated

funding deficiency exists for any year, pension plan costs and

liabilities are compared to employer contributions through the

“funding standard account”. At the end of each plan year, the

employer will have satisfied its minimum funding obligation if

the aggregate charges to the account, determined on a cumulative

basis, do not exceed the aggregate credits. Any excess is an

accumulated funding deficiency.

Section 4971(a) imposes on the employer responsible for

making the required contributions a 10-percent excise tax on any

accumulated funding deficiency, as defined in section 412(a),

existing for any plan year. The imposition of the excise tax

under section 4971(a) is mandatory if there is an accumulated

funding deficiency for any plan year. See D.J. Lee, M.D., Inc.

v. Commissioner, 92 T.C. 291, 300 (1989), affd. 931 F.2d 418 (6th

Cir. 1991).

The parties agree that for the Wenger plan year ending

December 31, 1994, petitioner was required to make contributions
 - 6 -

in the amount of $18,275 and that petitioner’s failure to make a

timely contribution would result in an accumulated funding

deficiency in such amount. The only issue is whether petitioner

made a timely contribution for the year.

Section 412(b)(3)(A) provides in pertinent part that “the

funding standard account shall be credited with * * * the amount

considered contributed by the employer to or under the plan for

the plan year”. (Emphasis added.) As applicable to a money

purchase plan, section 412(c)(10)(B) provides:

any contributions for a plan year made by an employer
after the last day of such plan year, but not later
than two and one-half months after such day, shall be
deemed to have been made on such last day. For
purposes of this subparagraph, such two and one-half
month period may be extended for not more than six
months under regulations prescribed by the Secretary.

Section 11.412(c)-12(b), Temporary Income Tax Regs., 41 Fed.

Reg. 46597 (Oct. 22, 1976), automatically extends the 2-1/2-month

period by another 6 months for a total of 8-1/2 months. Thus, an

employer’s contributions are credited to the plan’s funding

standard account for a particular plan year if the contributions

are “made” within 8-1/2 months after the last day of the plan

year. If, in the absence of a waiver, see supra note 2, the

employer makes a contribution beyond the 8-1/2-month period, the

contribution is untimely, thus resulting in an accumulated

funding deficiency. In petitioner’s case, the 8-1/2-month period
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expired on September 15, 1995. Petitioner made the contribution

on October 16, 1995.

Petitioner contends that no accumulated funding deficiency

existed for the Wenger plan’s 1994 year because the plan

provided:

The employer contribution for each plan year shall
be delivered to the custodian not later than the due
date for filing the employer’s income tax return for
its fiscal year in which the plan ends, including
extensions thereof.

Petitioner points out that he made the required

contributions to the Wenger plan on or before October 16, 1995,

the due date of his income tax return, including extensions

thereof. Petitioner contends that because the prototype plan

document sponsored by Charles Schwab, the plan adopted by

petitioner as the Wenger plan, received a determination letter

approving the language of the plan, the language of the plan

should control whether a timely contribution was made. We

disagree.

The minimum funding standards appear in section 412 and are

not a qualification requirement of section 401(a).4 Thus, the

4
Cf. sec. 11.412(c)-12(b)(2), Temporary Income Tax Regs.,
41 Fed. Reg. 46597-46598 (Oct. 22, 1976), providing:

The rules of this section relating to the time a
contribution to a plan is deemed made for purposes of
the minimum funding standard under section 412 are
independent from the rules contained in section
(continued...)
 - 8 -

failure to meet the minimum funding standards does not disqualify

a plan. As a corollary, determination letters do not deal with

minimum funding standards.

The procedures for the issuance of determination letters are

set out in section 601.201(o), Statement of Procedural Rules.

Pursuant to section 601.201(o)(2), Statement of Procedural Rules,

a determination letter may be issued involving the provisions of

sections 401, 403(a), 405, and 501(a), generally with respect to

the initial qualification of certain plans, the initial exemption

from Federal income tax under section 501(a) of trusts forming a

part of a qualified plan, the deductibility of employer

contributions under section 404(a), and amendments, curtailments,

or terminations of such plans and trusts. However, determination

letters do not include determinations relating to other matters

pertaining to plans or trusts, specifically including issues

under section 412. See sec. 601.201(o)(2)(ii), Statement of

Procedural Rules. Thus, a plan may be deemed qualified and

receive a favorable determination letter, but fail to satisfy the

minimum funding standard of section 412. Therefore, even if the

language of the Wenger plan was approved regarding the

4
(...continued)
404(a)(6) relating to the time a contribution to a plan
is deemed made for the purposes of claiming a deduction
for such contribution under section 404.
 - 9 -

requirements of section 401(a), such language cannot serve to

turn an otherwise late contribution into a timely one.

Notwithstanding the foregoing, petitioner relies on IRS

Publication 560, Retirement Plans for the Self-Employed (Pub.

560) for the proposition that for the purpose of minimum funding

standards, contributions can be retroactively applied to the

previous year if the contributions are made by the due date of

the employer’s return plus extensions. Although Pub. 560 does

provide that the last date for contribution to a plan such as the

Wenger plan is the due date of the employer’s return plus

extensions, that language appears under the heading

“Contributions” and deals with the deductibility of such

contributions by the employer. Section 404(a)(6) provides, and

Pub. 560 states, that a contribution is deemed timely, and hence

deductible, if made by the due date of the employer’s return,

including extensions thereof. Cf. sec. 11.412(c)-12(b)(2),

Temporary Income Tax Regs., 41 Fed. Reg. 46597-46598 (Oct. 22,

1976). Notably, similar language does not appear in Pub. 560

under the heading of “Minimum Funding Requirements”. Rather, the

portion of the publication dealing with the minimum funding

standard of section 412 specifically states that contributions to

a plan will not be considered timely for the purpose of the

minimum funding standard if made any later than 8-1/2 months

after the end of the plan year. In essence, section 404(a),
 - 10 -

dealing with deductibility, and section 412, dealing with the

minimum funding standard, provide for different periods within

which a contribution must be made in order to be timely, and Pub.

560 restates those different periods.

Even if Pub. 560 could be construed to suggest that a

contribution will be deemed timely for minimum funding standard

purposes if made by the due date of the employer’s return plus

extensions, it is clear that the sources of authoritative law in

the area of Federal taxation are the relevant statutes,

regulations, and judicial decisions and not informal publications

issued by the Internal Revenue Service. See Zimmerman v.

Commissioner, 71 T.C. 367, 371 (1978), affd. without published

opinion 614 F.2d 1294 (2d Cir. 1979); Green v. Commissioner, 59

T.C. 456, 458 (1972); see also Dixon v. United States, 381 U.S.

68, 73-75 (1965); Adler v. Commissioner, 330 F.2d 91, 93 (9th

Cir. 1964), affg. T.C. Memo. 1963-196; Carter v. Commissioner, 51

T.C. 932, 935 n.3 (1969). In other words, reliance on an

informal IRS publication may not be used to justify a reporting

position that is inconsistent with the operative law. See, e.g.,

Johnson v. Commissioner, 620 F.2d 153, 155 (7th Cir. 1980), affg.

T.C. Memo. 1978-426; Jones v. Commissioner, T.C. Memo. 1993-358.

Finally, petitioner seeks to have us redress the timing

difference between section 404(a) and section 412. In this

regard, petitioner points out that corporate taxpayers are deemed
 - 11 -

to make a timely contribution for purposes of section 412 if plan

contributions are made by the due date of the corporate tax

return including extensions thereof, because for corporate

taxpayers such date (including extensions thereof) falls 8-1/2

months after the close of the taxable year. See secs. 6072(b),

6081(a). Petitioner claims that similar treatment should be

given to self-employed taxpayers; i.e., that contributions made

by the due date of a self-employed individual’s return (including

extensions thereof) should be deemed timely for purposes of both

section 404(a) and section 412. However, it is not within our

jurisdiction to change requirements that are plainly mandated by

statute. In short, we cannot ignore the plain language of the

statute and, in effect, rewrite the statute to achieve what may

seem to petitioner to be a more equitable result. See Hildebrand

v. Commissioner, 683 F.2d 57, 59 (3d Cir. 1982), affg. T.C. Memo.

1980-532; Johnson v. Commissioner, 661 F.2d 53, 54-55 (5th Cir.

1981), affg. 74 T.C. 1057 (1980); D.J. Lee, M.D., Inc. v.

Commissioner, 92 T.C. at 302.

Accordingly, petitioner did not make a timely contribution

to the Wenger plan for purposes of the minimum funding standard

of section 412. Respondent’s determination of excise tax under

section 4971(a) is therefore sustained.
 - 12 -

To reflect our disposition of the disputed issue, as well as

petitioner’s concession,

Decision will be entered

for respondent.