No. 98-1287
In the Supreme Court of the United States
OCTOBER TERM, 1998
AIRBORNE FREIGHT CORPORATION, PETITIONER
v.
UNITED STATES OF AMERICA
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BRIEF FOR THE UNITED STATES IN OPPOSITION
SETH P. WAXMAN
Solicitor General
Counsel of Record
LORETTA C. ARGRETT
Assistant Attorney General
KENNETH L. GREENE
STEVEN W. PARKS
Attorneys
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217
QUESTION PRESENTED
Whether contributions to multiemployer defined benefit pension plans made
by petitioner after the close of its taxable year were deductible in that
year under Section 404(a)(6) of the Internal Revenue Code, 26 U.S.C. 404(a)(6).
In the Supreme Court of the United States
OCTOBER TERM, 1998
No. 98-1287
AIRBORNE FREIGHT CORPORATION, PETITIONER
v.
UNITED STATES OF AMERICA
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BRIEF FOR THE UNITED STATES IN OPPOSITION
OPINIONS BELOW
The opinion of the court of appeals (Pet. App. 1-12) is reported at 153
F.3d 967. The opinion of the district court (Pet. App. 22-27) is unreported.
JURISDICTION
The judgment of the court of appeals was entered on August 20, 1998. The
petition for rehearing was denied on November 12, 1998 (Pet. App. 57-58).
The petition for a writ of certiorari was filed on February 10, 1999. The
jurisdiction of this Court is invoked under 28 U.S.C. 1254(1).
STATEMENT
1. a. Pursuant to collective bargaining agreements with various labor unions,
petitioner was required to make monthly contributions to several multiemployer,
defined-benefit pension plans on behalf of certain of its unionized employees
(Pet. App. 3).1 The amount of monthly contributions required under the collective
bargaining agreements was based on a prescribed rate per hour (or unit-of-service)
of work performed, multiplied by the number of hours (or units-of-service)
of work performed by each covered employee during that month (id. at 3,
22-23).2 For example, under the collective bargaining agreement with the
Teamsters union- a plan to which approximately 2,500 other employers also
made contributions (D.R. 35, Exh. B at 6)- petitioner was required to make
contributions at the rate of $1.94 for each hour worked up to a maximum
of 173 hours per month per employee (D.R. 35, Exh. B at 12-14 and attached
Exhs. 2-3).3 At the end of each month, the administrative manager of the
trust sent petitioner a pre-printed payment form setting forth a listing
of employees that had been reported on the prior month's statement, and
the corresponding hourly contribution rate (D.R. 35, Exh. B at 10-11, 15).
Petitioner filled in the number of hours worked by each covered employee,
added any new employees to the list, and remitted the amount so determined
by the 10th day of the month following the month in which the covered services
had been performed (D.R. 35, Exh. A at 20; D.R. 35, Exh. B at 15-16 and
attached Exh. 1, at 6).
Because contributions to the plan were based on the number of hours worked,
and the number of hours worked could not be determined in advance, the trust
did not accept contributions based on services to be performed in future
months (D.R. 35, Exh. B at 23). The administrator of the trust was not aware
of any instance in which a taxpayer made a monthly contribution to the trust
that exceeded the contribution required based on the units of service performed
during the preceding month and the applicable contribution rate (D.R. 35,
Exh. B at 24). On the actuarial reports filed by the trust with the Internal
Revenue Service for plan years 1989 and 1990, the trusts reported only contributions
with respect to hours worked during 1989 and 1990, respectively (D.R. 35,
Exh. B at 30-31 and attached Exh. 4; D.R. 35, Exh. A at attached Exh. 2,
at 2).
b. Under Section 404(a)(1) of the Internal Revenue Code, a contribution
to a qualified pension plan is ordinarily deductible only in the taxable
year in which the contribution is actually paid to the plan trust. As a
limited exception to this general rule, Section 404(a)(6) permits a deduction
for contributions made after the close of the taxable year, but before the
date that the taxpayer's tax return for the year is due (including extensions),
if the contributions are made "on account of" the previous taxable
year. 26 U.S.C. 404(a)(6). In Rev. Rul. 76-28, 1976-1 C.B. 106, the Internal
Revenue Service ruled that a payment may be considered to be "on account
of" the preceding taxable year if it "is treated by the plan in
the same manner that the plan would treat a payment actually received on
the last day of such preceding taxable year of the employer."
Section 404(a)(1) also provides rules governing the maximum amount of deductible
contributions to qualified plans. In the case of a collectively bargained
pension plan, the deduction limit of Section 404(a)(1) is determined "as
if all participants in the plan were employed by a single employer."
26 U.S.C. 413(b)(7). For such plans, contributions by employers are not
considered to exceed such limitation if "anticipated employer contributions
for such plan year (determined in a manner consistent with the manner in
which actual employer contributions for such plan year are determined) do
not exceed such limitation." Ibid.
Prior to the end of its tax year on December 31, 1989, petitioner computed
its deduction for contributions to the multiemployer plans by adding the
12 contractually required monthly contributions made in respect of hours
of covered services worked during the year (Pet. App. 3). After obtaining
an extension of time to file its return for that year, however, petitioner
sought to deduct not only the 12 contributions made in respect of services
performed during 1989 but, purporting to rely on Section 404(a)(6), also
deducted eight additional monthly contributions made in respect of services
performed after the close of that year-the period from January through August
1990 (Pet. App. 4). On its 1990 tax return, petitioner deducted the contributions
for the last four months of 1990 plus the first eight months of 1991, for
a total of 12 months' contributions (Ibid.).
c. The Internal Revenue Service disallowed deductions for contributions
resulting from hours worked after the close of petitioner's taxable years.
The Service allowed deductions only for the 12 contributions paid in respect
of covered services performed in each taxable year (Pet. App. 4). Petitioner
paid the resulting tax and commenced this refund suit in district court.
2. The district court granted petitioner's motion for summary judgment (Pet.
App. 22-27). The court concluded that, since all contributions to the plans
were deposited in "one single pooled fund," and neither the amount
nor the timing of the contributions affected the benefits payable to employees,
the plans treated contributions made after the close of the taxable year
in the same manner that it treated contributions made before the end of
the taxable year (id. at 24-25).
3. The court of appeals reversed on the authority of its decision in Lucky
Stores, Inc. v. Commissioner, 153 F.3d 964 (9th Cir. 1998), petition for
cert. pending, No. 98-1279 (Pet. App. 2). In Lucky Stores, the court of
appeals concluded that the additional contributions that the taxpayer sought
to deduct for periods after the close of the tax year "were required
to be paid because of work done during the [subsequent] taxable year * *
* , not the previous year" (Pet. App. 16). Because the payments were
not "on account of" the prior year, the court concluded that the
"bare language" of Section 404(a)(6) "precludes the deduction
of those payments" in the prior year (ibid).
The court of appeals in Lucky Stores also rejected the assertion of the
petitioner that, because the contributions were pooled and did not affect
the defined benefit of any individual employee, the payments satisfied the
"same treatment" requirement of Rev. Rul. 76-28 (Pet. App. 17-19).
The court explained in Lucky Stores that this contention simply ignores
(i) that the taxpayers are contractually obligated to make each contribution
near the end of each month; (ii) that the amount of each contribution is
based on hours or weeks of service rendered during the immediately preceding
month; (iii) that plan administrators monitored the dates of receipt of
monthly contributions, and were empowered to assess interest charges and
late fees on delinquent accounts; (iv) that plan administrators were not
prepared to process contributions in excess of the required monthly amounts,
and petitioner made no advance contributions; and (v) that plan administrators
treated each remittance as fulfillment of petitioner's required contribution
for a discrete month (Id. at 18). The court stated in Lucky Stores that
such facts establish that the plans did not treat the additional contributions
in the same manner they treated contributions made on the last day of petitioner's
taxable year (Id. at 18-19).
The court in Lucky Stores also rejected any reliance on the private rulings
that the taxpayers claim reveal an administrative practice of allowing the
deductions. The court stated that "[t]axpayers other than those to
whom such rulings or memoranda were issued are not entitled to rely on them.
* * * Nor could the IRS establish a binding practice in conflict with §
404(a)(6)" (Pet. App. 19 n.5).
In Lucky Stores, the court stated that the history of Section 404(a)(6)
shows that its purpose is to allow employers sufficient time after the close
of their taxable year to calculate the maximum contribution deductible under
Section 404(a). The court emphasized that its decision comports with that
legislative purpose (Pet. App. 19).
4. In a separate case involving virtually identical facts and issues, the
Tenth Circuit reached the same result reached by the Ninth Circuit in Lucky
Stores and in the present case. American Stores Co. v. Commissioner, 108
T.C. 178 (1997), aff'd, No. 97-9025, 1999 WL 122996 (10th Cir. Mar. 9, 1999).
That decision was entered after the petition for a writ of certiorari was
filed in this case.
ARGUMENT
This case presents the same question concerning the proper interpretation
of Section 404 of the Internal Revenue Code that is presented in Lucky Stores,
Inc. v. Commissioner, No. 98-1279. For the reasons stated in our brief in
opposition in that case, the decision of the court of appeals is correct
and does not conflict with any decision of this Court or any other appellate
court.4 Further review is therefore not warranted.
CONCLUSION
The petition for a writ of certiorari should be denied.
Respectfully submitted.
SETH P. WAXMAN
Solicitor General
LORETTA C. ARGRETT
Assistant Attorney General
KENNETH L. GREENE
STEVEN W. PARKS
Attorneys
APRIL 1999
1 A "multiemployer" pension plan is a pension plan "to which
more than one employer is required to contribute" that is "maintained
pursuant to one or more collective bargaining agreements." 26 U.S.C.
414(f)(1).
2 Under multi-employer pension plans maintained pursuant to collective bargaining
agreements, the parties "normally agree to contribute at rates specified
in such agreement(s) for hours worked by employees, units of production
* * * , or a percentage of compensation." H.R. Rep. No. 869, 96th Cong.,
2d Sess. Pt. 1, at 53 (1980).
3 Dianne Fessler, petitioner's Controller of Tax Accounting (D.R. 35, Exh.
A at 4-5), testified that she was not aware of any significant differences
between the pension plan established under the collective bargaining agreement
with the Teamsters union and the other multi-employer plans in issue in
this case (D.R. 35, Exh. A at 14).
4 We are providing herewith to petitioner a copy of our brief in opposition
to the petition for a writ of certiorari in Lucky Stores, Inc. v. Commissioner,
No. 98-1279.