Howard E. Clendenen - Page 7

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               (B) the lesser of--                                                    
                         (i) the amount of the employee contributions                 
                    in excess of 6 percent of his compensation, or                    
                         (ii) one-half of the employee                                
                    contributions,[4] and                                             
               (C) forfeitures.                                                       
               The dispute in this case focuses on the amount of the                  
          contributions to the trust allocated to Mr. Clendenen.  The                 
          parties disagree as to what constitutes participant compensation            
          and as to whether elective deferral amounts constitute employee             
          or employer contributions.  It is petitioner's position that the            
          amounts of elective deferrals are employee contributions and                
          should be included in "participant's compensation".  Petitioner             
          also asserts that "participant's compensation" includes amounts             
          petitioner paid as commissions and bonuses to Mr. Clendenen as an           
          independent contractor.  As a consequence, petitioner maintains             
          that the limitations of section 415(c)(1) have not been exceeded            
          with the result that the plan and trust were qualified during the           
          years at issue.                                                             
               Respondent asserts that the amounts of elective deferrals              
          constitute employer, not employee, contributions and that these             
          amounts and the commissions and bonuses do not constitute                   

               4  Sec. 415(c)(2)(B) was amended by the Tax Reform Act of              
          1986, Pub. L. 99-514, sec. 1106(e)(1), 1106(i), 100 Stat. 2424,             
          2425, for the years beginning after Dec. 31, 1986, to include the           
          entire employee contribution in the computation of the annual               

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