In Uncategorized on 11/26/2014 at 16:46

If your qualified plan gets revoked, you can go to Tax Court. But what happens when you get there? Well, Judge Buch will let you know in RSW Enterprises, Inc, 143 T. C. 21, filed 11/26/14.

If the contents and completeness of the administrative record is in dispute, you can get a trial.

Huh, you may well ask, isn’t the Section 7476(a) declaratory judgment proceeding limited to a strict review of the administrative record as to initial qualification or continuing qualification?

Yes, but.

The “but” is that a qualification is covered by Section 7476(a), but so is disqualification. And Rule 217(b)(2) permits summary judgment in a declaratory judgment (DJ) proceeding like this.

IRS claims Rule 217(b)(2) not only permits summary J in a qualification DJ, but mandates that only the administrative record can be considered.

RSW and its companion Key Lime Investments, Inc., claim the administrative record contains unsupported conclusions and doesn’t contain material facts that IRS disputes.

And Rule 217(a) allows summary J on the administrative record only when the parties agree that the administrative record is complete and that no facts are in dispute.

RSW and Key Lime claim they aren’t jointly controlled by The Waage Law Firm. IRS claims they are, as Ms. Waage and her sister are running the show at RSW and Key Lime via certain trusts, which IRS claims are shams. If jointly controlled, then The Waage Law Firm employees should be included in the RSW and Key Lime Defined Benefit Plans, which they aren’t and so the Waage Plan and the RSW and Key Lime are all DQed.

IRS’ one big case is a continuing qualification case (initial plan OK, but challenged when amended to comply with a change in law).

But that case arose in the context of a discovery demand by petitioners (disgruntled employees). “The legislative history of section 7476 makes clear that Congress did not expect the Court to conduct a trial de novo in declaratory judgment actions arising under that section, no matter whether that action arose with respect to the initial qualification or the continuing qualification of a retirement plan.” 143 T. C. 21, at p. 8.

But Rule 217(a) says the administrative record rules only where the parties agree it is complete and no facts therein are disputed.

When Rule 217(a) was adopted, Tax Court said “The distinction in treatment under this Rule for cases involving a revocation results from the difference in processing of such cases by the Internal Revenue Service, which usually bases its determination of revocation on its own investigation rather than by accepting the facts asserted by the applicant and which go into the administrative record in other cases. * * *” 143 T. C. 21, at p. 9.

So the plan’s proponent is at a disadvantage if it can’t challenge the facts adduced by IRS’ independent investigation.

Judge Buch: “Although RSW and Key Lime do not dispute the genuineness of the items in the administrative record, they maintain that the administrative record contains facts that are conflicting and in dispute. Further, respondent’s own motion states that respondent lacks evidence regarding the actions of the trustee and the stock transfers. The filings from RSW and Key Lime indicate that such evidence is available. Nothing in our Rules precludes RSW and Key Lime from producing this evidence or using it at trial.” 143 T. C. 21, at p. 11.

While IRS, RSW and Key Lime exchange argy-bargy about what Rule 217 means, Judge Buch has no doubt what it means in this case.

“The parties argue about the meaning of Rule 217. We hold that under that Rule, we are not limited to the administrative record in this proceeding concerning plan revocations because the parties do not agree that the administrative record contains all of the relevant facts and that those facts are not in dispute.” 143 T. C. 21, at p. 12.

No summary J, so go try the case.

Edited to add, 4/24/21: They apparently didn’t try the case. A stiped decision was entered 12/29/16, but the Genius Baristas have sealed it. Apparently the Genius Baristas never heard of Rule 27.


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