The opinion
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, main-
tained 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 limita-
tions 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.
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 peti-
tioner? We hold that it does.
(2) Has the period of limitations under section
4979A(e)(2)(D) expired for assessing the excise tax that sec-
tion 4979A(a) imposes on petitioner? We hold that it has.
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.
110
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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 busi-
ness in Michigan at the time it filed the petition.
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
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 allo-
cated 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.
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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112 142 UNITED STATES TAX COURT REPORTS (110)
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 State-
ment Identifying Separated Participants With Deferred
Vested Benefits.
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 partici-
pants’’ 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 exclu-
sively of ‘‘Employer securities’’.
On a date not established by the record, the ESOP in ques-
tion 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 enti-
tled 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, describe in the amended employee benefit plan 2005
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(110) LAW OFFICE OF JOHN H. EGGERTSEN P.C. v. COMM’R 113
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 tax-
able 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).
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 deter-
minations 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
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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114 142 UNITED STATES TAX COURT REPORTS (110)
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, peti-
tioner argues:
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 ‘‘nonallocation
year,’’ the taxing provision in §4979A(a) does not include a ‘‘nonalloca-
tion 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 allocated 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 viola-
tion of §409(p) in 2005 to create liability for Petitioner.
4The word ‘‘ownership’’ refers to IRC §4979A(a)(4), dealing with the
ownership of a synthetic equity, which is not applicable.
[Reproduced literally.]
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 sub-
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(110) LAW OFFICE OF JOHN H. EGGERTSEN P.C. v. COMM’R 115
section (e)(2)(C) with respect to an employee stock ownership plan,[4]
or
(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 ‘‘nonallocation year described
in subsection (e)(2)(C) with respect to an employee stock
ownership plan’’, that is described in section 4979A(a)(3) trig-
gers imposition of the excise tax under section 4979A(a).
As we understand petitioner’s position, petitioner acknowl-
edges that 2005 is a nonallocation year within the meaning
of section 409(p)(3)(A) 5 with respect to the ESOP in question.
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 employer 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).
5 See supra note 4. As discussed infra, petitioner does not acknowledge
Continued
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116 142 UNITED STATES TAX COURT REPORTS (110)
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 ‘‘disqualified persons own at least 50 per-
cent 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
occurrence 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 ‘‘owner-
ship’’ by disqualified persons.
Our conclusion is supported not only by the applicable sec-
tions 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 nonalloca-
tion year, regardless of whether there is a prohibited alloca-
tion. 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
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 described in subsection
(e)(2)(C) with respect to an employee stock ownership plan’’,
2005 is not the nonallocation year described in that sub-
section with respect to the ESOP in question. In this connec-
tion, as discussed supra note 4, petitioner and respondent
agree that the phrase ‘‘nonallocation year described in sub-
section (e)(2)(C) with respect to an employee stock ownership
plan’’ in section 4979A(a)(3) means the first nonallocation
that 2005 is a nonallocation year described in sec. 4979A(e)(2)(C) with re-
spect to the ESOP in question.
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(110) LAW OFFICE OF JOHN H. EGGERTSEN P.C. v. COMM’R 117
year with respect to an employee stock ownership plan.
According to petitioner, 1999, not 2005, is the first nonalloca-
tion 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 ‘‘nonallocation
year’’ found in §409(p)(3) * * *
* * * * * * *
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 ‘‘nonalloca-
tion 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 pro-
vides that ‘‘the amount involved for the first nonallocation
year of any employee stock ownership plan shall be deter-
mined 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 effective date for those and cer-
tain other sections that section 656 of the EGTRRA modified
or added to the Code is ‘‘plan years beginning after December
31, 2004.’’ 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
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118 142 UNITED STATES TAX COURT REPORTS (110)
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 sec-
tion 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 section 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).
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
‘‘notified’’ 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
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 modi-
fied or added to the Code is ‘‘plan years ending after March 14, 2001’’, for
plans established after that date. The ESOP in question was not estab-
lished after March 14, 2001; it was established in 1999.
7 See supra note 4.
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(110) LAW OFFICE OF JOHN H. EGGERTSEN P.C. v. COMM’R 119
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 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 Secretary has not promulgated regulations under
that section defining that term. Nor does the legislative his-
tory 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 section 8 that did not define that
term, with respect to which the Secretary had not promul-
gated 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 sub-
section (c) [of section 2032A] attributable to such * * * ces-
sation shall not expire before the expiration of 3 years from
the date the Secretary is notified (in such manner as the Sec-
retary may by regulations prescribe) of such * * * cessation’’.
Although in Stovall, as in the instant case, the Secretary had
not promulgated regulations defining the term ‘‘notified’’ in
the section involved in that case, see Stovall v. Commis-
sioner, 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 respec-
tive 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
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 assess-
ment of the additional tax imposed by sec. 2032A.
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.
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120 142 UNITED STATES TAX COURT REPORTS (110)
Secretary was ‘‘notified’’ under section 2032A(f)(1) that quali-
fied 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 appro-
priate to use the regulations under section 1033(a) as guid-
ance in determining whether the Secretary was ‘‘notified’’
under section 4979A(e)(2)(D) of the ownership that gives rise
to the excise tax under section 4979A(a). 10
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 tax-
payer 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 invol-
untarily converted property is replaced, ‘‘notification shall
contain all of the details in connection with’’ such replace-
ment 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 deter-
mine 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 nonalloca-
tion 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 filed on
a date not established by the record. 11 We consider only the
2005 Form 1120S and the employee benefit plan 2005 annual
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.
11 The record does not establish the respective IRS offices with which pe-
titioner filed the 2005 Form 1120S and the ESOP in question filed the em-
ployee 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.
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(110) LAW OFFICE OF JOHN H. EGGERTSEN P.C. v. COMM’R 121
return in order to determine whether those returns contained
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 ques-
tion. 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 maintained the ESOP in question; (3) during
2005 the ESOP in question (a) held 100% of the stock of peti-
tioner 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 ques-
tion 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
12 We shall not consider the amended employee benefit plan 2005 annual
return in determining whether respondent was notified of all of the details
necessary for respondent to conclude that during 2005 one or more dis-
qualified 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.
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 as-
sets at the end of 2005 valued at $401,500; and (5) its assets consisted ex-
clusively of ‘‘employer securities’’. The employee benefit plan 2005 annual
return did not show whether or how the assets that the ESOP in question
held during 2005 were allocated among the three participants in that
ESOP during that year.
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122 142 UNITED STATES TAX COURT REPORTS (110)
4979A(a) that is attributable to the occurrence of a nonalloca-
tion 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 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 nec-
essarily 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 informa-
tion 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 nec-
essarily also knew that one, two, or all three of the partici-
pants 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 disquali-
fied 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 con-
tained in the 2005 Form 1120S and the information con-
tained in the employee benefit plan 2005 annual return pro-
vided 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. 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).
14 See supra note 4.
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(110) LAW OFFICE OF JOHN H. EGGERTSEN P.C. v. COMM’R 123
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 con-
tained in both of those returns provided all of the details nec-
essary 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 nonalloca-
tion 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 dis-
cussed 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.
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 excise 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.
f
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