The opinion
142 T.C. No. 4
UNITED STATES TAX COURT
LAW OFFICE OF JOHN H. EGGERTSEN P.C., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 15479-11. Filed February 12, 2014.
During its taxable year 2005, P, an S corporation, maintained
an employee stock ownership plan. R determined that 2005 was a
“nonallocation year” within the meaning of I.R.C. sec. 409(p)(3)(A)
with respect to that plan and that I.R.C. sec. 4979A imposes a Federal
excise tax on P for that taxable year.
Held: I.R.C. sec. 4979A(a) imposes a Federal excise tax on P
for its taxable year 2005.
Held, further, the period of limitations under I.R.C. sec.
4979A(e)(2)(D) for assessing that tax has expired.
Stephen Wasinger, for petitioner.
John W. Stevens and Shawn P. Nowlan, for respondent.
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OPINION
CHIECHI, Judge: Respondent determined a deficiency under section
4979A(a)1 in, and an addition under section 6651(a)(1) to, petitioner’s Federal
excise tax (excise tax) of $200,750 and $50,187.50, respectively, for petitioner’s
taxable year 2005.
The issues remaining for decision for P’s taxable year 2005 are:
(1) Does section 4979A(a) impose an excise tax on petitioner? We hold that
it does.
(2) Has the period of limitations under section 4979A(e)(2)(D) expired for
assessing the excise tax that section 4979A(a) imposes on petitioner? We hold
that it has.
Background
All of the facts in this case, which the parties submitted under Rule 122,
have been stipulated by the parties and are so found.
Petitioner, an S corporation, had its principal place of business in Michigan
at the time it filed the petition.
1
All section references are to the Internal Revenue Code (Code) in effect for
the year at issue. All Rule references are to the Tax Court Rules of Practice and
Procedure.
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On January 1, 1998, John H. Eggertsen (Mr. Eggertsen) purchased for $500
all 500 shares of the outstanding stock of J & R’s Little Harvest, Inc. (J & R’s
Little Harvest).
On January 1, 1999, J & R’s Little Harvest established an employee stock
ownership plan (ESOP) known as the J & R’s Little Harvest Employee Stock
Ownership Plan (J & R’s Little Harvest ESOP). On December 10, 1999, Mr.
Eggertsen transferred the 500 shares of stock of J & R’s Little Harvest that he had
purchased on January 1, 1998, to J & R’s Little Harvest ESOP.
On a date not established by the record, J & R’s Little Harvest changed its
name to Law Office of John H. Eggertsen P.C.
Effective on January 1, 2002, the trust agreement for J & R’s Little Harvest
ESOP was amended to provide, inter alia: (1) “All references in the Trust
Agreement to ‘J & R’s Little Harvest, Inc.’ shall mean Law Office of John H.
Eggertsen, P.C.”, and (2) “All references in the Trust Agreement to ‘J & R’s Little
Harvest Employee Stock Ownership Plan’ shall mean Law Office of John H.
Eggertsen, P.C. ESOP.”2
2
We shall refer to J & R’s Little Harvest ESOP, the trust agreement for
which was amended effective on January 1, 2002, as the ESOP in question.
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At all relevant times, 100% of the stock of petitioner was allocated to Mr.
Eggertsen under the ESOP in question. The ESOP in question held until June 30,
2005, the stock allocated to Mr. Eggertsen in an account known as a “Company
Stock Account”. Thereafter, the ESOP in question held 100% of the stock of
petitioner allocated to Mr. Eggertsen in an account known as an “Other Investment
Account”.
Around April 26, 2006, petitioner filed Form 1120S, U.S. Income Tax
Return for an S Corporation, for its taxable year 2005 (2005 Form 1120S).
Petitioner attached to that form Schedule K-1, Shareholder’s Share of Income,
Deductions, Credits, etc.
In petitioner’s 2005 Form 1120S, petitioner showed, inter alia, that during
2005 the ESOP owned 100% of the stock of petitioner.
On a date not established by the record during 2006, the ESOP in question
filed Form 5500, Annual Return/Report of Employee Benefit Plan (employee
benefit plan 2005 annual return), for its taxable year 2005. The ESOP in question
attached to that form Schedule E, ESOP Annual Information. The ESOP in
question also attached to the employee benefit plan 2005 annual return Schedule I,
Financial Information--Small Plan, and Schedule SSA, Annual Registration
Statement Identifying Separated Participants With Deferred Vested Benefits.
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In the employee benefit plan 2005 annual return, the ESOP in question
showed that (1) its effective date was January 1, 1999; (2) it was maintained by
petitioner during 2005; (3) it had three participants during 2005, two of whom
were not identified and were described as “Active participants” and one of whom
was identified as Kerry C. Duggan and described as “Other retired or separated
participants entitled to future benefits”; (4) it held assets at the end of 2005 valued
at $401,500; and (5) its assets consisted exclusively of “Employer securities”.
On a date not established by the record, the ESOP in question filed an
amended Form 5500 (amended employee benefit plan 2005 annual return) for its
taxable year 2005. The ESOP in question attached to that form Schedule I.
In the amended employee benefit plan 2005 annual return, the ESOP in
question showed information that was identical in most respects to the information
that it had showed in the employee benefit plan 2005 annual return, except that
(1) the ESOP in question did not identify in the amended employee benefit plan
2005 annual return the individual described in that return as “Other retired or
separated participants entitled to benefits”, and (2) the ESOP in question showed
in the amended employee benefit plan 2005 annual return that it held assets at the
end of 2005 valued at $868,833, which included “Employer securities” valued at
that yearend at $401,500. The ESOP in question was not required to, and did not,
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describe in the amended employee benefit plan 2005 annual return any of the other
assets that it held at the end of 2005 and their respective yearend values.3
Petitioner did not file Form 5330, Return of Excise Taxes Related to
Employee Benefit Plans (Form 5330), for its taxable year 2005. Respondent filed
a substitute for Form 5330 for petitioner for that taxable year. That substitute for
Form 5330 did not contain any entries except those for “Filer tax year beginning”
and “ending”, “Name of filer”, address of filer, “Filer’s identifying number”,
“Name of plan”, “Name and address of plan sponsor”, “Plan sponsor’s EIN”, “Plan
year ending”, and “Plan number”.
On April 14, 2011, respondent issued to petitioner a notice of deficiency
(notice) with respect to petitioner’s taxable year 2005. In that notice, respondent
determined, inter alia:
IRC section 4979A Excise Tax
For the plan year ending December 31, 2005, Mr. John Eggertsen is a
disqualified person, under Section 409(p)(4) of the Law Office of
John H Eggertsen P. C. Employee Stock Ownership Plan. As a result,
a non-allocation year has occurred under Internal Revenue Code
(IRC) section 409(p)(3).
3
The amended employee benefit plan 2005 annual return required the ESOP
in question to disclose only certain assets specified in that return that it held at the
end of 2005, including “Employer securities”, and the respective yearend values of
any such assets. The ESOP in question was not required to disclose in that return
all of the assets that it held at the end of 2005 and the respective yearend values of
all of those assets.
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Under IRC section 4979[A](e)(2)(C), all the deemed owned shares of
all the disqualified persons with respect to the Law Office of John H
Eggertsen P. C. Employee Stock Ownership Plan are taken into
account for determining the amount involved in the prohibited
allocation. The amount of the prohibited allocation in this case is
$401,500.00. Under IRC section 4979A, Law Office of John H
Eggertsen P. C. is subject to a 50% excise tax for the tax year ending
December 31, 2005 on the amount of the prohibited allocation.
Accordingly, Law Office of John H Eggertsen P. C. is liable for the
IRC section 4979A excise tax in the amount of to $200,750.00.
Discussion
Petitioner bears the burden of establishing that the determinations in the
notice that remain at issue are erroneous. See Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933). That this case was submitted fully stipulated does not
change that burden or the effect of a failure of proof. See Rule 122(b); Borchers v.
Commissioner, 95 T.C. 82, 91 (1990), aff’d, 943 F.2d 22 (8th Cir. 1991).
We must decide (1) whether section 4979A(a) imposes an excise tax on
petitioner for its taxable year 2005 and (2) if so, whether the period of limitations
under section 4979A(e)(2)(D) has expired for assessing that tax for that year.
We turn first to whether section 4979A(a) imposes an excise tax on
petitioner for its taxable year 2005. According to petitioner, it does not. In
support of that position, petitioner argues:
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IRC §4979A(a), captioned “Imposition of Tax,” includes four
clauses before the taxing clause. Only one is relevant to this case:
Section 4979A(a)(3). The relevant language is:
If -- * * * (3) there is any allocation of employer
securities which violates the provisions of section 409(p)
[IRC §409(p)], or a nonallocation year described in
subsection (e)(2)(C) with respect to an employee stock
ownership plan. . . .
Following these four clauses, the taxing clause of §4979A(a)
then states:
there is hereby imposed a tax on such allocation or
ownership4 equal to 50 percent of the amount involved.
***
The critical point: although §4979A(a)(3) refers to a “nonallo-
cation year,” the taxing provision in §4979A(a) does not include a
“nonallocation year.” The taxing provision only imposes the tax on
an “allocation” or “ownership.” * * *
IRC §4979A(c)(2) provides that the tax imposed by this section
shall be paid “by the S corporation the stock in which was so allocat-
ed or owned.” * * *
Thus, not only the taxing provision of §4979A(a) but also
§4979A(c)(2)--which defines the person liable for the tax imposed by
§4979A(a)--clearly establishes that there must be an allocation in
violation of §409(p) in 2005 to create liability for Petitioner.
4
The word “ownership” refers to IRC §4979A(a)(4), dealing with the
ownership of a synthetic equity, which is not applicable.
[Reproduced literally.]
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Section 4979A(a) provides:
SEC. 4979A(a). Imposition of Tax.--If--
(1) there is a prohibited allocation of qualified securities
by any employee stock ownership plan or eligible worker-
owned cooperative,
(2) there is an allocation described in section
664(g)(5)(A),
(3) there is any allocation of employer securities which
violates the provisions of section 409(p), or a nonallocation
year described in subsection (e)(2)(C) with respect to an
employee stock ownership plan,[4] or
4
Petitioner and respondent agree that the phrase “nonallocation year de-
scribed in subsection (e)(2)(C) with respect to an employee stock ownership plan”
to which sec. 4979A(a)(3) refers means the first nonallocation year with respect to
an employee stock ownership plan. For purposes of sec. 4979A, sec. 4979A(e)(1)
adopts the definition of “nonallocation year” in sec. 409. Sec. 409(p)(3)(A)
defines the term “nonallocation year” to mean “any plan year of an employee stock
ownership plan if, at any time during such plan year * * * such plan holds employ-
er securities consisting of stock in an S corporation, and * * * disqualified persons
own at least 50 percent of the number of shares of stock in the S corporation.” As
pertinent here, sec. 409(p)(4)(A)(ii) defines the term “disqualified person” in sec.
409(p)(3) to mean any person if “the number of deemed-owned shares of such
person is at least 10 percent of the number of deemed-owned shares of stock in
* * * [the S] corporation.” For purposes of sec. 409(p)(3), “an individual shall be
treated as owning deemed-owned shares of the individual.” Sec. 409(p)(3)(B)(ii).
The term “deemed-owned shares” means, with respect to any person, “the stock in
the S corporation constituting employer securities of an employee stock ownership
plan which is allocated to such person under the plan” and “such person’s share of
the stock in such corporation which is held by such plan but which is not allocated
under the plan to participants.” Sec. 409(p)(4)(C)(i).
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(4) any synthetic equity is owned by a disqualified
person in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership equal
to 50 percent of the amount involved.
Neither party maintains that during 2005 any of the events that are described
in section 4979A(a)(1), (2), and (4) and that trigger imposition of the excise tax
under section 4979A(a) occurred. Moreover, the parties do not dispute that during
2005 there was no “allocation of employer securities which violates the provisions
of section 409(p)”, one of the two events that is described in section 4979A(a)(3)
and that triggers imposition of the excise tax under section 4979A(a). The parties
dispute whether the occurrence of the second event, i.e., the occurrence of a “non-
allocation year described in subsection (e)(2)(C) with respect to an employee stock
ownership plan”, that is described in section 4979A(a)(3) triggers imposition of
the excise tax under section 4979A(a).
As we understand petitioner’s position, petitioner acknowledges that 2005 is
a nonallocation year within the meaning of section 409(p)(3)(A)5 with respect to
the ESOP in question. What petitioner fails or refuses to acknowledge is that there
cannot be a nonallocation year within the meaning of section 409(p)(3)(A) unless
5
See supra note 4. As discussed infra, petitioner does not acknowledge that
2005 is a nonallocation year described in sec. 4979A(e)(2)(C) with respect to the
ESOP in question.
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“disqualified persons own at least 50 percent of the number of shares of stock in
the S corporation.” Sec. 409(p)(3)(A)(ii) (emphasis added). Thus, there must be
“ownership” by “disqualified persons” of “at least 50 percent of the number of
shares of stock in the S corporation” in order for there to be a “nonallocation year”
with respect to an employee stock ownership plan. We conclude that the occur-
rence of a “nonallocation year described in subsection (e)(2)(C) with respect to an
employee stock ownership plan” that is described in section 4979A(a)(3) triggers
imposition of the excise tax under section 4979A(a) on any such “ownership” by
disqualified persons.
Our conclusion is supported not only by the applicable sections of the Code
but also by the legislative history of section 4979A(a). Section 656(c)(1)(A) and
(B) of the Economic Growth and Tax Relief Reconciliation Act of 2001
(EGTRRA), Pub. L. No. 107-16, 115 Stat. at 134, amended section 4979A by,
inter alia, adding references to “ownership” to section 4979A(a) and (c). The
conference report accompanying that Act states as follows under the caption
“Application of excise tax”: “A special rule applies in the case of the first non-
allocation year, regardless of whether there is a prohibited allocation. In that year,
the excise tax also applies to the fair market value of the deemed-owned shares of
any disqualified person held by the ESOP, even though those shares are not
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allocated to the disqualified person in that year.” H.R. Conf. Rept. No. 107-84, at
276 (2001), 2001-3 C.B. 123, 399.
Petitioner argues that even if we were to conclude, which we have, that
section 4979A(a) imposes an excise tax where there is a “nonallocation year de-
scribed in subsection (e)(2)(C) with respect to an employee stock ownership plan”,
2005 is not the nonallocation year described in that subsection with respect to the
ESOP in question. In this connection, as discussed supra note 4, petitioner and
respondent agree that the phrase “nonallocation year described in subsection
(e)(2)(C) with respect to an employee stock ownership plan” in section
4979A(a)(3) means the first nonallocation year with respect to an employee stock
ownership plan. According to petitioner, 1999, not 2005, is the first nonallocation
year with respect to the ESOP in question. In support of that position, petitioner
asserts:
C. Assuming An Excise Tax Could Be Imposed
Merely By Holding [i.e., owning] Shares, The
First Nonallocation Year Was 1999, Not 2005
IRC §4979A does not define “first nonallocation year.” * * *
But §4979A does incorporate by reference the definition of “nonallo-
cation year” found in §409(p)(3) * * *
* * * * * * *
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Applying that definition, the ESOP had its first “nonallocation
year” in 1999 when 100% of the ESOP stock was allocated to the
account of Mr. Eggertsen, who was a “disqualified person.” * * *
Each plan year after 1999, until June 30, 2005, was also a
“nonallocation year,” because 100% of the stock continued to be
allocated to Mr. Eggertsen, who continued to be a “disqualified
person.”
* * * * * * *
Thus, if any excise tax is due under the Respondent’s theory of
this case, it is with respect to 1999, not 2005.
Section 656 of the EGTRRA, inter alia, (1) added to the Code (a) section
4979A(a)(3), which imposes an excise tax upon, inter alia, the occurrence of a
“nonallocation year described in subsection (e)(2)(C) with respect to an employee
stock ownership plan”, (b) section 4979A(e)(2)(C), which provides that “the
amount involved for the first nonallocation year of any employee stock ownership
plan shall be determined by taking into account the total value of all the deemed-
owned shares of all disqualified persons with respect to such plan”, and (c) section
409(p)(3)(A), which defines the term “nonallocation year”; and (2) modified
section 4979A(e)(1), which defines the term “nonallocation year” by reference to
section 409(p)(3)(A). Section 656(d)(1) of the EGTRRA provides that the effec-
tive date for those and certain other sections that section 656 of the EGTRRA
modified or added to the Code is “plan years beginning after December 31, 2004.”
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EGTRRA, Pub. L. No. 107-16, sec. 656(d)(1), 115 Stat. at 135. We conclude
that the first nonallocation year, i.e., the nonallocation year described in section
4979A(e)(2)(C), with respect to the ESOP in question to which section
4979A(a)(3) applies is 2005.6
The parties agree that at all relevant times, including during 2005, (1) all of
the stock of petitioner was allocated to Mr. Eggertsen under the ESOP in question,
and (2) Mr. Eggertsen was a “disqualified person”. The parties also agree that
2005 is a nonallocation year within the meaning of section 409(p)(3)(A) with
respect to the ESOP in question. On the record before us, we conclude that at all
relevant times, including during 2005, a “disqualified person”, i.e., Mr. Eggertsen,
owned all of the stock of petitioner.7 On that record, we further conclude that sec-
tion 4979A(a) imposes an excise tax on petitioner for its taxable year 2005, the
first nonallocation year with respect to the ESOP in question, on that ownership of
all of that stock. See sec. 4979A(a)(3).
6
Sec. 656(d)(1) of the EGTRRA, Pub. L. No. 107-16, 115 Stat. at 135,
provides that the effective date for secs. 4979A(a)(3), (e)(1), and (2)(C) and
409(p)(3)(A) and certain other sections that sec. 656 of the EGTRRA modified or
added to the Code is “plan years ending after March 14, 2001”, for plans estab-
lished after that date. The ESOP in question was not established after March 14,
2001; it was established in 1999.
7
See supra note 4.
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We turn now to the statute of limitations issue. Respondent issued the
notice to petitioner on April 14, 2011. The period for the assessment of any tax
imposed by section 4979A(a) “shall not expire before the date which is 3 years
from the later of * * * the * * * ownership referred to in such paragraph giving rise
to such tax, or * * * the date on which the Secretary [of the Treasury] is notified of
such * * * ownership.” Sec. 4979A(e)(2)(D).
We must decide whether respondent issued the notice to petitioner before or
after the date that is three years from the later of the ownership that gives rise to
the excise tax under section 4979A(a) or the date on which respondent was “noti-
fied” of such ownership. See id. If the notice was issued before, the period of
limitations under section 4979A(e)(2)(D) has not expired. If the notice was issued
after, it has.
The ownership in the present case that gives rise to the excise tax under
section 4979A(a) for petitioner’s taxable year 2005 existed on the first day of 2005
and throughout that year. In order to determine the period of limitations under
section 4979A(e)(2)(D) that applies here, we must also determine (1) whether
respondent was “notified” of that ownership, (2) if respondent was so “notified”,
when respondent was “notified”, and (3) whether the date on which respondent
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was so “notified” was later than the ownership that gives rise to the excise tax
under section 4979A(a).
Section 4979A(e)(2)(D) does not define the term “notified”, and the Secre-
tary has not promulgated regulations under that section defining that term. Nor
does the legislative history of section 4979A(e)(2)(D) provide guidance as to the
meaning of the term “notified” in that section.
In Stovall v. Commissioner, 101 T.C. 140 (1993), we had to consider, as we
must do in the instant case, the meaning of the term “notified” in a section8 that
did not define that term, with respect to which the Secretary had not promulgated
regulations, and with respect to which the legislative history did not provide
guidance. Section 2032A(f)(1) involved in Stovall provides in pertinent part that
if qualified real property ceases to be used for a qualified use, “[t]he statutory
period for the assessment of any additional tax under subsection (c) [of section
2032A] attributable to such * * * cessation shall not expire before the expiration
of 3 years from the date the Secretary is notified (in such manner as the Secretary
may by regulations prescribe) of such * * * cessation”. Although in Stovall, as in
the instant case, the Secretary had not promulgated regulations defining the term
8
The section involved in Stovall v. Commissioner, 101 T.C. 140 (1993), was
sec. 2032A(f)(1), which prescribed the period of limitations for assessment of the
additional tax imposed by sec. 2032A.
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“notified” in the section involved in that case, see Stovall v. Commissioner, 101
T.C. at 151, the Secretary had promulgated respective regulations under section
1033(a), relating to the deferral of gain on an involuntary conversion, and section
1034(j)(1),9 relating to the deferral of gain on the sale of a primary residence, that
prescribed the respective periods of limitations under those sections and that
began the running of those periods when the Secretary was “notified”. We con-
cluded in Stovall that it was appropriate to use the respective regulations under
sections 1033(a) and 1034(j)(1), which provided guidance as to the meaning of the
term “notified” in those sections, as guidance in determining whether the Secretary
was “notified” under section 2032A(f)(1) that qualified real property ceased to be
used for a qualified use. See Stovall v. Commissioner, 101 T.C. at 151.
We conclude here, as we did in Stovall, that it is appropriate to use the
regulations under section 1033(a) as guidance in determining whether the Secre-
tary was “notified” under section 4979A(e)(2)(D) of the ownership that gives rise
to the excise tax under section 4979A(a).10
9
Sec. 1034 was repealed effective May 6, 1997. See Taxpayer Relief Act of
1997, Pub. L. No. 105-34, sec. 312 (b), (d), 111 Stat. at 839, 841.
10
We shall not use the regulations under sec. 1034 as guidance since that
section was repealed effective May 6, 1997. See supra note 9.
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Section 1.1033(a)-2(c)(5), Income Tax Regs., which addresses the meaning
of the term “notified” in section 1033(a), indicates that any deficiency attributable
to section 1033(a)(2) “may be assessed at any time before the expiration of three
years from the date the district director with whom the return for such year has
been filed is notified by the taxpayer of the replacement of the converted property
or of an intention not to replace, or of a failure to replace, within the required
period”. That regulation also provides that if involuntarily converted property is
replaced, “notification shall contain all of the details in connection with” such
replacement and is to be filed with the District Director before the time or at the
time the taxpayer’s annual income tax return is filed.
We shall examine the record before us in order to determine whether
respondent was notified of all of the details necessary for respondent to conclude
that during 2005 one or more disqualified persons owned at least 50% of all of the
stock of petitioner and that that year is the first nonallocation year with respect to
the ESOP in question. The record contains the 2005 Form 1120S that petitioner
filed around April 26, 2006, the employee benefit plan 2005 annual return that the
ESOP in question filed on a date not established by the record during 2006, and
the amended employee benefit plan 2005 annual return that the ESOP in question
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filed on a date not established by the record.11 We consider only the 2005 Form
1120S and the employee benefit plan 2005 annual return in order to determine
whether those returns contained all of the details necessary for respondent to con-
clude that during 2005 one or more disqualified persons owned at least 50% of all
of the stock of petitioner and that that year is the first nonallocation year with
respect to the ESOP in question.12
The information contained in the 2005 Form 1120S and the information
contained in the employee benefit plan 2005 annual return provided, inter alia, the
following details to respondent about the ESOP in question: (1) the effective date
of the ESOP in question was January 1, 1999; (2) during 2005 petitioner main-
tained the ESOP in question; (3) during 2005 the ESOP in question (a) held 100%
11
The record does not establish the respective IRS offices with which peti-
tioner filed the 2005 Form 1120S and the ESOP in question filed the employee
benefit plan 2005 annual return and the amended employee benefit plan 2005
annual return. Respondent does not contend that any of those returns was filed
with the wrong IRS office.
12
We shall not consider the amended employee benefit plan 2005 annual
return in determining whether respondent was notified of all of the details neces-
sary for respondent to conclude that during 2005 one or more disqualified persons
owned at least 50% of all of the stock of petitioner and that that year is the first
nonallocation year with respect to the ESOP in question. That is because the
record does not establish when that return was filed. We note that the information
that the ESOP in question showed in the amended employee benefit plan 2005
annual return is identical in all material respects to the information that it showed
in the employee benefit plan 2005 annual return.
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of the stock of petitioner valued at $401,500 and (b) had three participants.13
Because respondent knew that the effective date of the ESOP in question was
January 1, 1999, we find that respondent necessarily also knew that the first year
to which section 4979A(a)(3) was applicable with respect to the ESOP in question
was 2005. See EGTRRA sec. 656(d)(1). We further find that respondent also
necessarily knew that 2005 was the year that would give rise to the excise tax
under section 4979A(a) that is attributable to the occurrence of a nonallocation
year as provided in section 4979A(a)(3) if that year was a “nonallocation year”
within the meaning of section 4979A(e)(1)14 with respect to the ESOP in question.
That is because, as discussed above, 2005 would be “a nonallocation year
13
In the 2005 Form 1120S, petitioner showed, inter alia, that during 2005
the ESOP in question owned 100% of the stock of petitioner. In the employee
benefit plan 2005 annual return, the ESOP in question showed that (1) its effective
date was January 1, 1999; (2) it was maintained by petitioner during 2005; (3) it
had three participants during 2005, two of whom were not identified and were
described as “Active participants” and one of whom was identified as Kerry C.
Duggan and described as “Other retired or separated participants entitled to future
benefits”; (4) it held assets at the end of 2005 valued at $401,500; and (5) its as-
sets consisted exclusively of “employer securities”. The employee benefit plan
2005 annual return did not show whether or how the assets that the ESOP in ques-
tion held during 2005 were allocated among the three participants in that ESOP
during that year.
14
See supra note 4.
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described in subsection (e)(2)(C)” of section 4979A, i.e., the first “nonallocation
year” with respect to the ESOP in question.
On the record before us, we find that respondent necessarily knew that 2005
was a nonallocation year within the meaning of section 4979A(e)(1) with respect
to the ESOP in question. That is because respondent knew from the information
contained in the 2005 Form 1120S and the information contained in the employee
benefit plan 2005 annual return that during 2005 the ESOP in question held all of
the stock of petitioner. Consequently, we find that respondent necessarily also
knew that one, two, or all three of the participants in that ESOP during that year
were deemed to own part or all of that stock. See secs. 4979A(e)(1), 409(p)(4)(C).
Accordingly, we find that, regardless of whether one, two, or all three of those
participants were deemed to own all of the stock of petitioner that the ESOP in
question held during 2005, respondent necessarily knew (1) that during 2005 one
or more of those participants owned at least 10% of the stock of petitioner and
(2) that during 2005 one or more disqualified persons owned at least 50% of the
stock of petitioner. See secs. 4979A(e)(1), 409(p)(3)(A), (B), (4)(A), (C).
On the record before us, we find that the information contained in the 2005
Form 1120S and the information contained in the employee benefit plan 2005
annual return provided all of the details necessary for respondent to conclude that
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during 2005 one or more disqualified persons owned at least 50% of all of the
stock of petitioner and that that year was the first nonallocation year with respect
to the ESOP in question. On that record, we further find that the 2005 Form
1120S and the employee benefit plan 2005 annual return notified the Secretary
under section 4979A(e)(2)(D) of the ownership that gives rise to the excise tax
under section 4979A(a).
We turn next to when the Secretary was notified under section
4979A(e)(2)(D) of the ownership that gives rise to the excise tax under section
4979A(a). Petitioner filed the 2005 Form 1120S around April 26, 2006. The
ESOP in question filed the employee benefit plan 2005 annual return on a date not
established by the record during 2006. Information contained in both of those
returns provided all of the details necessary for respondent to conclude that during
2005 one or more disqualified persons owned at least 50% of all of the stock of
petitioner and that that year was the first nonallocation year with respect to the
ESOP in question. Although the record does not establish when in 2006 the ESOP
in question filed the employee benefit plan 2005 annual return, as discussed
above, the ownership that gives rise to the excise tax under section 4979A(a) for
petitioner’s taxable year 2005 existed on the first day of 2005 and throughout that
year.
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On the record before us, we find that the date on which the Secretary was
notified under section 4979A(e)(2)(D) of the ownership that gives rise to the ex-
cise tax under section 4979A(a) for petitioner’s taxable year 2005 was later than
that ownership. On that record, we further find that the period of limitations under
section 4979A(e)(2)(D) for assessing that excise tax expired on a date in 2009 that
is not established by the record. Respondent did not issue the notice to petitioner
until April 14, 2011, which was after that period of limitations under section
4979A(e)(2)(D) had expired.
Based upon our examination of the entire record before us, we find that the
period of limitations under section 4979A(e)(2)(D) has expired for assessing the
excise tax that section 4979A(a) imposes on petitioner for its taxable year 2005.
We have considered all of the contentions and arguments of the parties that
are not discussed herein, and we find them to be without merit, irrelevant, and/or
moot.
To reflect the foregoing and a concession of respondent,
Decision will be entered for
petitioner.