1992 Tax Ct. Memo LEXIS 653">*653 Decisions will be entered under Rule 155.
MEMORANDUM FINDINGS OF FACT AND OPINION
SCOTT,
Petitioner | Deficiency |
Carold Campbell | $ 14,568 |
Bobby Cates | 20,160 |
These cases were consolidated for trial, briefing, and opinion on July 31, 1991. One of the issues raised by the pleadings has been conceded by respondent, leaving for decision whether each petitioner is entitled to use 5-year forward averaging in computing his 1987 Federal income tax with respect to a distribution he received in 1987 from Hall-Mark Electronics Corp. Restated Profit Sharing Plan & Trust.
FINDINGS OF FACT
Some of the facts have been stipulated and are found accordingly.
Petitioner Carold Campbell resided in Athens, Alabama, at the time of the filing of his petition in his case. Petitioner Bobby Cates resided in Harvest, Alabama, at the time of the filing of his petition in his case. Each petitioner filed an individual Federal income tax return for the calendar year 1987. Both petitioners1992 Tax Ct. Memo LEXIS 653">*654 are cash basis taxpayers and neither had reached age 50 by January 1, 1986.
Petitioners were employees of Hall-Mark Electronics Corp. (Hall-Mark) and participants in the Hall-Mark Electronics Corp. Restated Profit Sharing Plan & Trust, an employee stock ownership plan (the Plan). In 1981, the trustees of the Plan sold stock the Plan owned in Hall-Mark back to Hall-Mark for $ 4 per share (1981 sale).
In September 1982 petitioner Bobby Cates separated from service with Hall-Mark. Petitioner Carold Campbell separated from service with Hall-Mark in May 1984.
During 1984 a class action lawsuit was commenced in the United States District Court for the Northern District of Alabama by petitioners and other participants of the Plan against the Plan, Hall-Mark, and others. The lawsuit alleged that the trustees of the Plan, all of whom were officers and stockholders of Hall-Mark, had breached their fiduciary duties imposed by the Employment Retirement Income Security Act of 1974 (ERISA), when the trustees sold the Hall-Mark stock held by the Plan back to Hall-Mark at substantially less than its fair market value. Later in 1984, the Secretary of Labor commenced his own action against the1992 Tax Ct. Memo LEXIS 653">*655 Plan, Hall-Mark, and others for the ERISA violations. In early 1985 the two cases were consolidated for all purposes. After the consolidation, counsel for the Secretary of Labor and counsel for the private plaintiffs worked together closely until the Secretary of Labor withdrew his participation. Even after the withdrawal of the Secretary of Labor, counsel for the private plaintiffs kept his counsel informed of the progress of the ongoing settlement negotiations.
In January 1986 a settlement agreement was reached in the lawsuit. According to the settlement agreement, the defendants in the suit would offer each participant in the Plan $ 35 per share of Hall-Mark stock that had been allocated to his or her account at the time of the 1981 sale and sold as part of the 1981 sale. Counsel for the Secretary of Labor did not take part in the negotiations that led to the settlement agreement.
At the District Court hearing on approval of the settlement, the Secretary of Labor filed a memorandum in opposition to approval of the partial settlement agreement and a motion for leave to intervene as of right in the suit. In February 1986 the District Court denied the motion of the Secretary1992 Tax Ct. Memo LEXIS 653">*656 of Labor to intervene and approved the settlement agreement. The Secretary of Labor appealed the District Court's decision denying the motion to intervene. On January 23, 1987, the Court of Appeals for the Eleventh Circuit affirmed the District Court's decision in
On his 1987 income tax return each petitioner reported the 1987 distribution using Form 4972 to elect the 5-year forward averaging method for reporting lump-sum distributions, stating that this method was used in accordance with
1992 Tax Ct. Memo LEXIS 653">*657 OPINION
1992 Tax Ct. Memo LEXIS 653">*658
1992 Tax Ct. Memo LEXIS 653">*659 Changes to
1992 Tax Ct. Memo LEXIS 653">*660
Petitioners' initial argument is that each of them constructively received the distribution from the sale of the Hall-Mark stock under the settlement agreement approved by the District Court in 1986 and that the 1986 provisions of
Initially we have difficulty with petitioners' argument since the basic provisions of
1992 Tax Ct. Memo LEXIS 653">*664 To be helped by the provisions of
At the trial petitioners' counsel stated that the distributions of $ 4 a share were received by petitioners in 1981 and one of petitioners stated that he verified this statement. If this is a fact, clearly the 1981 distributions were not received by either petitioner because of separation from the service of Hall-Mark since neither of them separated from the service of Hall-Mark until after the year 1981. The amount which petitioners received in the 1987 distributions was1992 Tax Ct. Memo LEXIS 653">*665 merely an increase in the amount received for the stock and therefore likewise would not have been received because of petitioners' separation from service with Hall-Mark. A reading of the statement in the opinion of the Court of Appeals in
To be helped by the provisions of
Even though in our view petitioners have not shown that they would be entitled to the income averaging provisions they claim even if the distributions of May 22, 1987, had been distributed to them as of February 5, 1986, or January 23, 1987, we feel impelled1992 Tax Ct. Memo LEXIS 653">*666 to discuss whether the provisions applicable to petitioners are those in effect for years beginning after December 31, 1986, or those in effect for years before January 1, 1987, since that is the basis on which the parties make their arguments. Petitioners contend that they constructively received the May 22, 1987, distributions on February 5, 1986, or alternatively on January 23, 1987, and therefore should be treated here as either having received them in 1986 and taxed pursuant to
1992 Tax Ct. Memo LEXIS 653">*668 Petitioners argue that after the approval of the settlement agreement by the District Court in 1986, they constructively received the $ 35 per share for their stock. Their argument is that the motion brought by the Secretary of Labor to intervene and set aside the approval order was merely a third-party attack on a suit between petitioners and the Plan. The facts here do not bear out petitioners' contention. Had the motion not been filed by the Secretary of Labor, the payments to petitioners by the defendants would have been made in March 1986. However, the motion of the Secretary of Labor was a motion going directly to the validity of the approval of the settlement by the District Court. Clearly, from the facts here present, until that motion was finally resolved, petitioners could not obtain the funds the defendants had agreed to pay for the stock. Had the Circuit Court reversed the District Court and permitted intervention by the Department of Labor, petitioners would have received no amount for their stock until such time as the resolution of the case with the Secretary of Labor as a party occurred. Clearly, the suit by the Secretary of Labor was a restriction on the payment1992 Tax Ct. Memo LEXIS 653">*669 of the funds to petitioners and, in fact, caused them to be unable to obtain those funds until after it was concluded.
For constructive receipt to exist a taxpayer must have an unrestricted right to receive the funds which he is held to have constructively received. Where any substantial restriction on the right to receive exists, there is no constructive receipt. As we stated in
The facts in the instant case show that petitioners did not have an unqualified right to receive the funds until the final conclusion of the litigation involving the Secretary of Labor's motion. Actually they had no right to receive the funds until that litigation was concluded. Petitioners' argument1992 Tax Ct. Memo LEXIS 653">*670 that the date of conclusion of the litigation was the date the opinion of the Circuit Court was entered is without merit. Where litigation is involved, there is no constructive receipt until the opinion of the last court involved with the litigation becomes final.
The cases relied upon by petitioners in support of their constructive receipt argument are factually distinguishable from this case. Most of them deal with questions of accrual of income and not of constructive receipt. No useful purpose would be served by a discussion of these cases.
On brief, petitioners claim that respondent should be estopped from contending that they did not constructively receive their lump-sum distribution in 1986. Estoppel is an affirmative issue that must be raised in the pleadings and proved by the party claiming that the other party is estopped.
If the statement in petitioners' trial memorandum and the statement of petitioners' counsel at trial, that one branch of the United States Government should not be entitled to apply a newly passed law to a taxpayer when another branch of the United States Government caused the receipt of an item to be in a year to which the new law applied by inappropriate action, could be considered as placing estoppel in issue, petitioners have failed to show estoppel. Petitioners have failed to show any conduct of any branch of the United States Government amounting to misrepresentation or concealment of a material fact. The record shows that petitioners were well aware of the actions of the Secretary 1992 Tax Ct. Memo LEXIS 653">*672 of Labor and certainly shows no misconduct of the Secretary of Labor in bringing the action. Finally petitioners have shown no reliance on any form of misrepresentation. Clearly there is no estoppel of respondent in this case. See
Finally, petitioners contend that, in denying 5-year forward averaging of the 1987 distribution to petitioners, respondent violated their constitutional rights to equal protection and due process of law. The basis of petitioners' equal protection and due process argument is their claim that the Commissioner did not assess a deficiency against the other participants in the Plan who received distributions in 1987 and used 5-year forward averaging. Petitioners argue that respondent is not entitled to treat them any differently from the treatment accorded to other participants in the Plan.
First, we note that no evidence has been presented to show that other participants in the Plan elected 5-year forward averaging, and if they did, what facts were present with respect to their claims. Secondly, it has long been the position of this Court that our responsibility is to apply1992 Tax Ct. Memo LEXIS 653">*673 the law to the facts of the case before us and determine the correct tax liability of the parties before us. Generally, how the Commissioner has treated other taxpayers has been considered irrelevant in making that determination.
Petitioners make some argument that respondent discriminated against them by selecting their returns for audit. Petitioners must establish not only that there was discrimination in selecting their returns for audit, which they have failed to do, but must also show that the Commissioner's discriminatory selection of them for audit was based upon impermissible considerations such as race, religion, or other factors which might violate their constitutional rights.
We therefore sustain respondent's determination in these cases with respect1992 Tax Ct. Memo LEXIS 653">*674 to petitioners' claims to income averaging of the 1987 distributions.
1. All section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated.↩
2.
(a) TAXABILITY OF BENEFICIARY OF EXEMPT TRUST. --
(1) GENERAL RULE. -- Except as provided in paragraphs (2) and (4), the amount actually distributed to any distributee by any employees' trust described in section 401(a) which is exempt from tax under section 501(a) shall be taxable to him, in the year in which so distributed, under section 72 (relating to annuities). The amount actually distributed to any distributee shall not include net unrealized appreciation in securities of the employer corporation attributable to the amount contributed by the employee (other than deductible employee contributions within the meaning of section 72(o)(5)). Such net unrealized appreciation and the resulting adjustments to basis of such securities shall be determined in accordance with regulations prescribed by the Secretary.↩
3.
(e) TAX ON LUMP SUM DISTRIBUTIONS. --
(1) IMPOSITION OF SEPARATE TAX ON LUMP SUM DISTRIBUTIONS. --
(A) SEPARATE TAX. -- There is hereby imposed a tax (in the amount determined under subparagraph (B)) on the ordinary income portion of a lump sum distribution.
(B) AMOUNT OF TAX. -- The amount of tax imposed by subparagraph (A) for any taxable year is an amount equal to 5 times the tax which would be imposed by subsection (c) of section 1 if the recipient were an individual referred to in such subsection and the taxable income were an amount equal to 1/5 of the excess of --
(i) the total taxable amount of the lump sum distribution for the taxable year, over
(ii) the minimum distribution allowance.
(C) MINIMUM DISTRIBUTION ALLOWANCE. -- For purposes of this paragraph, the minimum distribution allowance for the taxable year is an amount equal to --
(i) the lesser of $ 10,000 or one-half of the total taxable amount of the lump sum distribution for the taxable year, reduced (but not below zero) by
(ii) 20 percent of the amount (if any) by which such total taxable amount exceeds $ 20,000.
(D) LIABILITY FOR TAX. -- The recipient shall be liable for the tax imposed by this paragraph.
* * *
(3) ALLOWANCE OF DEDUCTION. -- [The] total taxable amount of a lump sum distribution for the taxable year shall be allowed as a deduction from gross income for such taxable year, but only to the extent included in the taxpayer's gross income for such taxable year.
(4) DEFINITIONS AND SPECIAL RULES. --
(A) LUMP SUM DISTRIBUTION. -- For purposes of this section and
(i) on account of the employee's death,
(ii) after the employee attains age 59-1/2,
(iii) on account of the employee's separation from the service, or
(iv) after the employee has become disabled (within the meaning of section 72(m)(7))↩
4.
(a) IN GENERAL. -- If an employee separates from service during 1986 and receives a lump sum distribution (within the meaning of
5.
(C) LUMP SUM DISTRIBUTIONS TO WHICH PARAGRAPH APPLIES. -- This paragraph shall apply to any lump sum distribution if --
(i) such lump sum distribution is received by an individual who has attained age 50 before January 1, 1986, and
(ii) the taxpayer makes an election under this paragraph.
Not more than 1 election may be made under this paragraph with respect to an employee. An election under this subparagraph shall be treated as an election under
6.
(a) TAXABILITY OF BENEFICIARY OF EXEMPT TRUST. --
(1) GENERAL RULE. -- Except as provided in paragraphs (2) and (4), the amount actually distributed to any distributee by any employees' trust described in section 401(a) which is exempt from tax under section 501(a) shall be taxable to him, in the year in which so distributed, under section 72 (relating to annuities). The amount actually distributed to any distributee shall not include net unrealized appreciation in securities of the employer corporation attributable to the amount contributed by the employee (other than deductible employee contributions within the meaning of section 72(o)(5)). Such net unrealized appreciation and the resulting adjustments to basis of such securities shall be determined in accordance with regulations prescribed by the Secretary. ↩
7.
(4) DEFINITIONS AND SPECIAL RULES. --
(A) LUMP SUM DISTRIBUTION. -- For purposes of this section and
(i) on account of the employee's death,
(ii) after the employee attains age 59-1/2,
(iii) on account of the employee's separation from the service, or
(iv) after the employee has become disabled (within the meaning of section 72(m)(7))↩
8. In a recent Memorandum Opinion,