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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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