Frank Gant and Roberta Gant - Page 8

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          Pension Plan annuity contracts was $491,904.  The Profit Sharing            
          Plan annuity contracts were redeemed for $69,231.  Gant deposited           
          the redemption proceeds into each plan's respective trust.                  
               After June 30, 1991, Gant's benefits increased.  His accrued           
          benefits in the Pension Plan increased due to his additional                
          service with Products and his Profit Sharing Plan vested account            
          balance increased due to his pro rata share of income from the              
          Profit Sharing Plan.                                                        
                                       OPINION                                        
               The central issue for decision is whether petitioners must             
          include Gant's vested accrued benefits in Products' Pension Plan            
          and Profit Sharing Plan in gross income for petitioners' 1991,              
          1992, and 1993 taxable years.                                               
               Section 402(b) provides for a variety of consequences to the           
          participants in a plan under section 401(a) when the trust                  
          associated with the plan is not exempt under section 501(a).                
          Section 402(b)(2) and (4), as in effect for the years in issue,             
          contain a special rule when the trust tax exemption is lost due             
          to coverage violations in the plan.                                         
               Section 402(b)(2)(A) provides that if one of the reasons a             
          trust is not exempt from tax under section 501(a) is the failure            
          of the plan of which it is a part to meet the employee                      
          participation or minimum coverage requirements of section                   
          401(a)(26) or 410(b), respectively, then a highly compensated               





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