- 5 - adopting such a retirement plan and the employees participating in the plan receive favorable tax treatment. Income earned by a qualified plan is not subject to taxation while the plan’s assets are held in a trust which is tax exempt under section 501(a). Sec. 401(a). Under section 404(a), the employer, subject to certain limitations, receives an immediate tax deduction for contributions to a qualified plan. Under section 402(a), employees are not taxed on any employer contributions that are made on their behalf until the benefits are actually distributed to them from the plan. If the plan does not meet the requirements set forth in section 401(a), however, the earnings of the plan are subject to tax and employer deductions for contributions may be deferred or eliminated. Moreover, if contributions to an employees’ trust are made by an employer during a taxble year for which the trust is not exempt from tax, the employees are taxed on the value of such employer contributions under section 83. Sec. 402(b). Respondent determined that the lump-sum distributions received by petitioners from their profit-sharing plan are includable in petitioners’ gross income for taxable year 1988 because, at the time of the distributions, the Plan failed to meet the requirements of a “qualified trust” under section 401(a). See Fazi v. Commissioner, 102 T.C. 695 (1994). Petitioners assert, however, that they are entitled to reliefPage: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011