T.C. Memo. 2000-391
UNITED STATES TAX COURT
ROBERT C. GEIB, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7109-98. Filed December 28, 2000.
Robert C. Geib, pro se.
Mark A. Ericson and Laurence D. Ziegler, for respondent.
MEMORANDUM OPINION
FOLEY, Judge: By notice dated January 15, 1998, respondent
determined deficiencies in, and additions to, petitioner’s
Federal excise taxes as follows:
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Excise Taxes Addition to Tax
Year Sec. 4975(a) Sec. 4975(b) Sec. 6651(a)(1)
1988 $409 -- $102
1989 901 -- 225
1990 1,897 -- 474
1991 3,160 -- 790
1992 4,809 -- 1,202
1993 6,660 -- 1,665
1994 8,737 -- 1,311
19981 -- $174,761 --
1
For the taxable period ending January 15, 1998.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure. After concessions, the issue is whether respondent is
precluded from assessing the deficiencies and additions.
Background
The parties submitted this case fully stipulated pursuant to
Rule 122. When the petition was filed, petitioner resided in
Akron, Ohio. During 1988 and 1990, petitioner was married.
During 1988 through 1990, petitioner was president,
director, and majority stockholder (i.e., owner of at least 51
percent of the stock) of Cotter Merchandise Storage Co. (the
company). The company maintained the Cotter Merchandise Storage
Co. Defined Benefit Pension Plan (the plan), which met the
requirements of section 401. Petitioner was a trustee and
participant of the plan.
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I. Loans
Petitioner took unsecured loans, each bearing 12 percent
annual interest and a due date of January 1, 1992, from the plan
as follows:
Date Amount
Mar. 1, 1988 $62,000
Mar. 7, 1988 20,000
Apr. 16, 1990 10,000
Apr. 19, 1990 100,000
Apr. 20, 1990 6,000
Apr. 30, 1990 6,000
May 19, 1990 6,500
The plan allowed loans to participants but limited the amount of
any loan, required a Qualified Waiver of Spouse from the
participant taking the loan, and stipulated that the loan be
secured by the participant’s entire interest in the plan’s trust
fund. Petitioner’s loans were made in excess of the plan’s
amount limitations and without a Qualified Waiver of Spouse.
Petitioner partially repaid the May 19, 1990, loan, but did not
make any other repayments or file Form 5330, Return of Excise
Taxes Related to Employee Benefit Plans.
II. Other Cases
On November 2, 1990, the company filed a voluntary petition
for reorganization under chapter 11 of the Bankruptcy Code (the
bankruptcy case). In the bankruptcy case, the Commissioner
asserted a section 4971 deficiency against the company for
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failure to satisfy the minimum funding standard pursuant to
section 412.
In 1994, petitioner was indicted and charged with seven
counts of bankruptcy fraud for unauthorized postpetition (i.e.,
after November 2, 1990) transfers of company funds and one count
of embezzling, on April 19, 1991, approximately $100,000 from the
plan (the criminal case). On August 22, 1995, petitioner entered
into a plea agreement in which he pleaded guilty to three counts
of bankruptcy fraud and the embezzlement charge.
Discussion
Respondent determined that the loans were prohibited
transactions pursuant to section 4975. Petitioner contends that
respondent is precluded, pursuant to the Double Jeopardy Clause,
see U.S. Const. amend. V, from assessing the deficiencies and
additions.
I. Excise Taxes
Section 4975 imposes two tiers of excise taxes on a
prohibited transaction. The first tier is 5 percent of the
amount involved in a prohibited transaction for each year, or
part thereof, in the taxable period. See sec. 4975(a). If the
first-tier excise tax applies and the transaction is not
corrected within the taxable period, a 100-percent second-tier
tax is imposed on the amount involved. See sec. 4975(b).
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The lending of money or other extension of credit between a
plan and a disqualified person generally is a prohibited
transaction. See sec. 4975(c)(1)(B). The plan lent money to
petitioner, who failed to make full repayment when due. As a
trustee, majority stockholder, president, and director,
petitioner was a disqualified person. See sec. 4975(e)(2);
Rutland v. Commissioner, 89 T.C. 1137, 1145 (1987) (stating that
the determination of whether an individual is a disqualified
person is made as of the time the loans originated).
Section 4975(d) provides that any loan made by a plan to a
disqualified person who is a participant of the plan shall not be
prohibited if the loan meets certain criteria (e.g., if the loan
is available to all participants or beneficiaries on a reasonably
equivalent basis, is made in accordance with specific plan
provisions regarding loans, and is adequately secured). See sec.
4975(d)(1). Petitioner’s loans do not meet the criteria because
the loans were not made in accordance with specific provisions
relating to the loans set forth in the plan (i.e., the loans were
made in excess of the plan’s amount limitations and without a
Qualified Waiver of Spouse) and were not adequately secured. See
sec. 4975(d)(1)(C), (E). Therefore, petitioner’s loans were
prohibited transactions to which the first-tier excise tax is
applicable.
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A prohibited transaction may be corrected by “undoing the
transaction to the extent possible, but in any case placing the
plan in a financial position not worse than that in which it
would be if the disqualified person were acting under the highest
fiduciary standards.” Sec. 4975(f)(5). Where the prohibited
transaction is the lending of money, the disqualified person may
correct the transaction by repaying the principal plus reasonable
interest. See Medina v. Commissioner, 112 T.C. 51, 55 (1999).
Petitioner’s partial repayment did not correct the transactions.
Therefore, the second-tier excise tax is also applicable.
II. Preclusion
Petitioner contends that, following the criminal and
bankruptcy cases, respondent’s determinations “represent double
jeopardy”, and “no additional issues should arise.” We disagree.
The criminal case, the bankruptcy case, and the company’s section
4971 deficiency do not relate to petitioner’s loans. See United
States v. Beaty, 147 F.3d 522 (6th Cir. 1998) (stating that
double jeopardy protection applies to successive punishments for
the same crime and taxes do not constitute criminal punishment).
Consequently, we conclude that petitioner’s contention is
meritless, and respondent is not precluded from assessing the
deficiencies and additions.
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III. Additions to Tax
Each disqualified person liable for section 4975(a) excise
taxes relating to a prohibited transaction shall file Form 5330
relating to each taxable year, or part thereof, in the taxable
period. See sec. 6011; sec. 54.6011-1(b), Pension Excise Tax
Regs. Section 6651(a)(1) imposes an addition to tax for failure
to file a required return, unless petitioner establishes that
such failure is due to reasonable cause and not willful neglect.
Petitioner failed to file excise tax returns for the years in
issue and has failed to establish that he had reasonable cause
not to file such returns. Accordingly, petitioner is liable for
the section 6651(a)(1) additions to tax.
Contentions we have not addressed are moot, irrelevant, or
meritless.
To reflect the foregoing,
Decision will be entered
under Rule 155.