Myrna Myron v. United States

550 F.2d 1145 77-1 USTC P 9242 Myrna MYRON, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. No. 74-3480. United States Court of Appeals, Ninth Circuit. Feb. 3, 1977. Rehearing and Rehearing En Banc Denied March 31, 1977. 1 Hugo E. Pesola, Jr. (argued), of Flint & MacKay, Los Angeles, Cal., for plaintiff-appellant. 2 Leonard J. Henzke, Jr. (argued), Dept. of Justice, Washington, D. C., for defendant-appellee. 3 Before ELY, and SNEED, Circuit Judges, and SPENCER WILLIAMS, * District Judge. OPINION SPENCER WILLIAMS, District Judge: 4 Appellant Myron is sole shareholder, chairman of the board, president, and general manager of Myron's Ballroom, Inc., and Myron's Enterprises, Inc. The two corporations submitted a Joint Retirement Income Plan to the Internal Revenue Service in 1967. The Plan, as submitted and approved, was sound. However, as administered it did not meet the requirements of 26 U.S.C. Section 401 and 26 C.F.R. Sections 1.401-1 and 1.401-3. 5 When the Internal Revenue Service audited the two corporations' tax returns in 1969, it determined that the Plan discriminated in its operation because amounts contributed to it by the corporations had been…

Appellant Myron is sole shareholder, chairman of the board, president, and general manager of Myron’s Ballroom, Inc., and Myron’s Enterprises, Inc. The two corporations submitted a Joint Retirement Income Plan to the Internal Revenue Service in 1967. The Plan, as submitted and approved, was sound. However, as administered it did not meet the requirements of 26 U.S.C. Section 401 and 26 C.F.R. Sections 1.401-1 and 1.401-3.

When the Internal Revenue Service audited the two corporations’ tax returns in 1969, it determined that the Plan discriminated in its operation because amounts contributed to it by the corporations had been allocated solely for the benefit of appellant taxpayer when in fact five additional employees were eligible for coverage. The IRS rejected appellant’s offer to cure the discrimination retroactively and included in appellant’s income for 1967 and 1968 those amounts which the corporations had contributed to the Plan on her behalf.

Appellant taxpayer exhausted her administrative appeals through the IRS and following affirmation by the Commissioner, paid the taxes and interest found to be due, filed a claim for refund, and initiated suit in the District…

(concurring):

I concur in the judgment. Contrary to the situation in Ray Cleaners, Inc., 27 T.C.M. 23 (1968), in this case the pension plan in operation was discriminatory. The district court so found and I agree. There is no basis in the Internal Revenue Code for retroactive correction of such plans.

dissenting:

I respectfully dissent.

After very careful study, I have concluded that it was legally and factually unreasonable for the Commissioner not to accept Myron’s offer of retroactive cure for the inadvertent exclusion of her employees.

In the beginning, I have difficulty in comprehending the thoughts of either of my Brothers as to the supposed distinction between this case and Ray Cleaners, Inc., 27 T.C.M. 23 (1968). My Brother Sneed, concurring, writes that the plan scrutinized in Ray Cleaners did not operate discrimina-tively. This conclusion appears to me to ignore the facts of that case, at least insofar as those facts are reiterated by Judge Williams. In Ray Cleaners the Tax Court held, inter alia, that the pension plan should not have been disqualified under 26 U.S.C. § 401 (a)(4) due to discriminative operation simply because the taxpayer inadvertently failed to invite three eligible employees to participate. See id. at 28 . Thus, there is no question that the plan of Ray Cleaners discriminated in its operation. The only question was whether that discrimination constituted a fatal defect under the statute, and the court held that it did not.

My Brother Williams…