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Section 415(c) limits the annual addition to a participant’s
account to the lesser of a specific dollar amount or 25 percent
of the participant’s compensation. “Annual addition” is defined
as the sum for any year of employer contributions, employee
contributions, and forfeitures, sec. 415(c)(2), and
“participant’s compensation” is simply “the compensation of the
participant from the employer for the year,” sec. 415(c)(3)(A).
The parties disagree as to what is “participant’s
compensation” under section 415. Respondent contends that
petitioner’s allocations to Mr. Van Roekel’s account for fiscal
1994, 1995, and 1996 exceeded the section 415(c) limits because
Mr. Van Roekel received no compensation for those years.
Petitioner maintains that it did not violate section 415 because
“participant’s compensation” includes the management fees that it
paid Mr. Van Roekel as an independent contractor.
During fiscal 1994 through 1996, petitioner paid no
salaries, wages, or officers’ compensation. Consequently, Mr.
Van Roekel received no compensation for his services as either an
officer or an employee. Instead, petitioner and Mr. Van Roekel
arranged that the latter would be paid as an independent
contractor for his work in managing the farm.6 Consistent with
that arrangement, petitioner deducted the management fees as
6Petitioner does not challenge Mr. Van Roekel’s status as an
independent contractor.
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Last modified: May 25, 2011