## Facts

- Petitioner was **Peter M. Boruta, M.D., P.C.**, a professional corporation operating a medical practice that established and maintained a **money purchase pension plan and trust**.
- For its early years, the plan’s trust was treated as a **qualified trust under I.R.C. § 401(a)**.
- The plan document included a provision stating that, upon a **full or partial termination** of the plan, participants’ interests would become **vested and nonforfeitable**.
- At the beginning of the plan year starting **May 1, 1982**, there were **three plan participants** (including Dr. Boruta and two other employees).
- During that plan year, the practice **closed its medical office**, ended the employment of the **other two employees**, and treated **their account balances as forfeitable to the trust** rather than as vested and nonforfeitable.
- The IRS issued a **final adverse determination letter (Feb. 10, 1987)** concluding that the plan had a **partial termination** in 1982 because a “significant number” of participants were terminated (**2 out of 3**).
- The IRS further concluded that, because a partial termination occurred, the terminated employees’ benefits should have been **nonforfeitable** under **§ 411(d)(3)** (as incorporated through **§ 401(a)(7)**), and petitioner’s failure to treat them as vested caused the trust to fail qualification under **§ 401(a)** for plan years beginning on or after **May 1, 1982**.
- Petitioner filed a **petition for declaratory judgment under I.R.C. § 7476** challenging the IRS’s adverse determination; the case was submitted on a **stipulated administrative record** under Tax Court Rule 122.

## Issues

1. Whether petitioner’s pension plan and trust constituted a **qualified trust under § 401(a)** for plan years beginning on or after **May 1, 1982**.
2. Whether the termination of **two of three** plan participants during the 1982 plan year was a **partial termination** requiring immediate vesting under **§ 411(d)(3)**.
3. Whether petitioner’s treatment of the terminated employees’ account balances as **forfeited** violated the plan’s nonforfeiture provision and the **Code’s vesting requirements**, supporting the IRS’s adverse determination.

## Decision

- The Tax Court **held for the Commissioner**.
- The court found that petitioner’s termination of **66 2/3%** of plan participants was, by itself, generally sufficient to support a finding of a **partial termination**.
- The court rejected petitioner’s argument that a lack of **bad faith** or “predatory” intent prevents a partial-termination finding where the participant reduction is so large.
- Because a partial termination occurred, **§ 411(d)(3)** required affected participants’ rights to funded benefits to become **nonforfeitable**; petitioner’s failure to treat the two terminated employees’ balances as vested caused the trust to fail qualification under **§ 401(a)** for plan years beginning on or after **May 1, 1982**.
- The court sustained the IRS’s **final adverse determination letter**.

## Legal Principles

- A trust is qualified under **I.R.C. § 401(a)** only if the plan includes provisions satisfying statutory vesting standards, including those in **I.R.C. § 411**. (§ 401(a)(7))
- **I.R.C. § 411(d)(3)** requires that, upon a plan’s **termination or partial termination**, affected participants’ rights to funded accrued benefits become **nonforfeitable**.
- Whether a **partial termination** occurred is determined under a **facts-and-circumstances** approach; however, a **large reduction** in plan participants can be sufficient, standing alone, to establish a partial termination.
- The absence of employer **bad faith** does not prevent a partial-termination finding when the number or percentage of terminated participants is significant.
- A plan may fail qualification not only because of plan language, but also because it is **not operated** in line with the plan’s nonforfeiture terms and the Code’s vesting requirements.
- In a **§ 7476 declaratory judgment** proceeding concerning a determination letter, the Tax Court decides whether the IRS correctly concluded the plan was not qualified based on the administrative record submitted.

## Conclusion

In *Boruta v. Commissioner*, the Tax Court upheld the IRS’s adverse determination that the medical practice’s money purchase pension trust was not qualified under § 401(a) for plan years beginning on or after May 1, 1982, because terminating two of three participants constituted a partial termination and § 411(d)(3) required the terminated employees’ benefits to be nonforfeitable—requirements the practice did not follow when it treated their account balances as forfeited to the trust.


Boruta v. Commissioner, 55 T.C.M. 670, 9 E.B.C. 2013 (1988)