14
Our conclusion is buttressed by case law addressing
separation from the service in which we have looked to the
substance of the employment relationship rather than the formal
or technical change in that relationship. In Burton v.
Commissioner, supra, Burton was a practicing physician. Burton
incorporated his medical practice and was the sole shareholder of
the professional association. The professional association
maintained a qualified pension plan, and Burton was a participant
in that plan.
Burton eventually liquidated the professional association.
Immediately after the liquidation, Burton resumed his medical
practice in the form of a sole proprietorship. The pension plan
was terminated, and its assets were distributed to the
participants. Burton reported the distribution using the 10-year
forward averaging method which had the effect of reducing the tax
impact in the year of the distribution. The Commissioner argued
that Burton's change in status from a sole shareholder-employee
to sole proprietor was merely a change in form and that there had
been no separation from the service within the meaning of section
402(e). The Commissioner reasoned that since there was no
separation from the service, the 10-year forward averaging method
was not available to Burton.
We held that Burton's change of status from that of an
employee of a professional association to that of a sole
proprietor was not a "separation from the service" within the
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011