concurring: I agree with the holdings in the opinion of the Court. However, a few additional comments may be appropriate.
Firstly: Judge Wilbur’s dissenting opinion focuses on “the virtually identical circumstances existing in 1972 and 1959.” He concludes that “it was an abuse of respondent’s discretion to retroactively revoke his ruling.” I gather that, under this approach, the circumstances in 1970,1971, and 1973 are regarded as sufficiently different from the circumstances represented in 1959 so as to justify a conclusion that the respondent’s revocation as to 1970, 1971, and 1973 was not an abuse of respondent’s congressionally authorized discretion to apply rulings without retroactive effect.1
If 1970 and 1971 (the years to which the first deficiency notice related) were the only years before us, then (under this approach) the retroactive revocation would be upheld. Alternatively, if 1973 were the earliest year as to which the favorable determination letter was revoked, then (under this approach) the retroactive revocation would be upheld. The curative powers of 1972 must be remarkable if somehow 1972 can salvage the other 3 years.
Secondly: In 1972, 100 percent (4 out of 4) of the corporate officers and supervisory employees were participants in the profit-sharing plan, while less than 9 percent (4 out of 47) of the other employees were participants. In 1972, the plan covered 66% percent (2 out of 3) of employees with compensation of more than $15,000, and only 12% percent (6 out of 48) of employees with compensation of less than $15,000.
Combining the various categories of “prohibited group” employees, it appears that 80 percent (4 out of 5) of the prohibited group were covered, while less than 9 percent (4 out of 46) of the rank-and-file employees were covered.
This substantial disparity is clearly sufficient for us to hold that respondent correctly determined that for 1972 the coverage classification discriminated “in favor of employees who are officers, shareholders, persons whose principal duties consist in supervising the work of other employees, or highly compensated employees.” This violates the requirements of section 401(a)(3)(B), as then in effect.2 Since the standards of the statute were not met as to 1972, that year’s circumstances cannot operate to salvage qualified status with respect to the other years before us.
Thirdly: Predictability in this area is largely a function of the statute and of the way this Court and other courts interpret the law. An erroneous interpretation of the law can be corrected. The taxpayer cannot rely on the courts to so strong-arm the statute (see n. 1 supra; n. 5 in the opinion of the Court, supra) as to perpetuate or revive the erroneous interpretation.
The prudent course, if dividing lines are unclear, is to avoid coming too close to the dividing lines or, alternatively, to keep careful current records, and to recognize that each year’s status may depend upon that year’s circumstances. See sec. 401(a)(6).3
Fourthly: A plan’s classification can fail to meet thebreadth-of-coverage requirements of section 401(a)(3) because of the operation of the plan even though there is no evil intent. It is too late in the day to challenge that concept. This has been made clear in many cases, notably (for purposes of the issues now before us) in Loevsky v. Commissioner, 55 T.C. 1144 (1971) (reviewed by the Court, three dissents), affd. per curiam 471 F.2d 1178 (3d Cir. 1973), cert. denied 412 U.S. 919 (1973); Babst Services, Inc. v. Commissioner, 67 T.C. 131 (1976) (reviewed by the Court, two dissents).
The fact that certain classifications are not discriminatory per • se does not result in the conclusion that those classifications are permissible per se. It should be noted that section 401 (a)(3)(A) (subsequently transferred by ERISA, with modifications, to sec. 410(b)(1)), set forth in footnote 5 in the opinion of the Court, supra, specifically authorized exclusion of new employees, temporary employees, and part-time employees for purposes of applying the 70-80 percent tests; no such exclusion was authorized by the statute for purposes of applying the discriminatory classification test of section 401(a)(3)(B).4
Fifthly: Section 401(a)(4)5 is not an alternative way of dealing with discriminatory coverage. That provision generally6 tests discrimination only as among those who are participants in the plan. See Rev. Rui. 68-301, 1968-1 C.B. 161; Rev. Rui. 76-250, 1976-2 C.B 124.
Sixthly: As to me, at least, the citation in the opinion of the Court to Christian Echoes National Ministry, Inc. v. United States, 470 F.2d 849, 858 (10th Cir. 1972), does not imply approval or disapproval of the tests used by the courts in that opinion or in any of the proceedings leading to that opinion. See sec. 1307(a)(3), Tax Reform Act of 1976, Pub. L. 94-455, 90 Stat. 1722; H. Rept. 94-1210 (to accompany H.R. 13500), pp. 16-17 (1976), 1976-3 C.B. (Vol. 3) 46-47; S. Rept. 94-938 (Part 2), p. 84 (1976), 1976-3 C.B. (Vol. 3) 726; S. Rept. 94-1236 (H. Rept. 94-1515), pp. 532-534 (1976), 1976-3 C.B. (Vol. 3) 936-938; General Explanation of the Tax Reform Act of 1976 (Joint Committee on Taxation), pp. 415-416 (1976).
Simpson, J., agrees with this concurring opinion.SEC. 7805. RULES AND REGULATIONS.
(b) Retroactivity of Regulations or Rulings. — The Secretary or his delegate may prescribe the extent, if any, to which any ruling or regulation, relating to the internal revenue laws, shall be applied without retroactive effect.
Substantially the same requirements now appear in sec. 410(b)(1)(B), as a result of amendments made by the Employee Retirement Income Security Act of 1974 (hereinafter sometimes referred to as ERISA) (Pub. L. 93-406, 88 Stat. 900). The 1974 amendments do not apply to the years before us in this case. Sec. 1017, ERISA (88 Stat. 932).
SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS PLANS.
(a) Requirements for Qualification.— * * *
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(6) A plan shall be considered as meeting the requirements of paragraph (3) during the whole of any taxable year of the plan if on one day in each quarter it satisfied such requirements.
As a result of ERISA, sec. 410(b)(2)(A) now does permit exclusion of union groups (under certain circumstances) for purposes of the discriminatory classification test. However, that provision does not apply to the years before us in this case. See n. 2 supra.
SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS PLANS.
(a) Requirements for Qualification. — A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section—
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(4) if the contributions or benefits provided under the plan do not discriminate in favor of employees who are officers, shareholders, persons whose principal duties consist in supervising the work of other employees, or highly compensated employees.
The only exception to that rule is where “the plan integrates with a governmental program such as the Social Security Act or the Railroad Retirement Act.” Rev. Rui. 68-301,1968-1 C.B. at 162. In such a situation, the contributions or benefits under the governmental program are taken into account even as to those integrated out of the private plan, in order to determine if the private plan satisfies the antidiscrimination requirements of sec. 401(a)(4).