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participants) for fiscal year ending May 31, 1988. There were
five Plan participants at the time the Plan was terminated.
In June 1988, petitioners received two lump-sum
distributions from the Plan in the total amount of $74,813,
representing petitioners’ entire balance to their credit in the
Plan. In July 1988, petitioners timely rolled over the entire
amount into nonparticipating flexible premium-deferred annuities
at Western National Life Insurance Co. The annuities are still
in place; no withdrawals from or additional contributions to the
annuities have been made.
On March 12, 1990, the IRS advised Ace that it proposed to
disqualify the Plan for Plan years ending May 31, 1985 through
1987. On March 14, 1991, Ace received a final revocation letter
revoking the Plan’s exemption for the above-mentioned Plan years.
The Plan lost its exemption because the Plan was not timely
amended to comply with changes in the law resulting from the Tax
Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-
248, 96 Stat. 324, the Deficit Reduction Act of 1984 (DEFRA),
Pub. L. 98-369, 98 Stat. 494, and the Retirement Equity Act of
1984 (REA), Pub. L. 98-397, 98 Stat. 1426. Ace has not contested
the Plan revocation.
Section 401(a) sets forth the requirements that a trust
forming part of a retirement plan such as a pension or profit-
sharing plan must meet for the trust to be a qualified trust
entitled to receive favorable tax treatment. Both the employer
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