Boruta v. Commissioner

55 T.C.M. 670, 9 E.B.C. 2013 (1988)

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Boruta v. Commissioner

United States Tax Court
55 T.C.M. 670, 9 E.B.C. 2013 (1988)

Facts

Peter M. Boruta, M.D., P.C., a corporate entity (the practice) (plaintiff), had operated for several years and maintained a pension plan during that time. During those initial years, the pension plan constituted a qualified trust under § 401 of the Internal Revenue Code. The practice’s plan included a statement providing that participants’ benefits would become vested and nonforfeitable upon even partial termination of the plan. After several years, there were three plan participants. Peter Boruta then closed the medical office for new employment, terminating the other two employees. The practice treated funds in the plan as forfeited to the trust, notwithstanding the statement regarding the nonforfeitability of funds upon partial termination of the plan. Boruta’s balance was treated as vested and nonforfeitable. The Internal Revenue Service (IRS) (defendant) then determined that the trust was not a qualified plan under § 401. According to the IRS, the plan did not qualify because there was a partial termination of the plan when a “significant number” of participants (i.e., the other two employees) had been terminated. At that time, under the plan, the two employees’ funds should have been nonforfeitable, the IRS claimed. The practice petitioned the court, claiming that the trust was indeed a qualified trust.

Rule of Law

Issue

Holding and Reasoning (Sterrett, C.J.)

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