Scallion v. United States ( 1999 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
NICHOLAS J. SCALLION; MARY E.
SCALLION,
Plaintiffs-Appellants,
No. 98-2580
v.
UNITED STATES OF AMERICA,
Defendant-Appellee.
CLYDE E. MILLER; JOANN M.
MILLER,
Plaintiffs-Appellants,
No. 98-2586
v.
UNITED STATES OF AMERICA,
Defendant-Appellee.
Appeals from the United States District Court
for the District of Maryland, at Baltimore.
William M. Nickerson, District Judge.
(CA-97-711-WMN, CA-97-709-WMN)
Argued: May 4, 1999
Decided: July 2, 1999
Before WILLIAMS, MICHAEL, and MOTZ, Circuit Judges.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Edward Lee Blanton, Jr., Baltimore, Maryland, for
Appellants. Kenneth W. Rosenberg, Tax Division, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON
BRIEF: Loretta C. Argrett, Assistant Attorney General, Richard Far-
ber, Lynne A. Battaglia, United States Attorney, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Nicholas and Mary Scallion and Clyde and JoAnn Miller brought
actions against the United States to recover money they paid to the
Internal Revenue Service under I.R.C. § 4980A (1994), which
imposes an excise tax on certain distributions from qualified pension
plans. The district court granted summary judgment for the United
States, and the Scallions and Millers appeal. We affirm.
I.
Appellants Nicholas Scallion and Clyde Miller were teachers in
Maryland's public schools for a number of years. Scallion began
teaching in 1954, and Miller started in 1961. Both enrolled in the
Maryland Teacher's Retirement System and contributed five percent
of their annual salaries to the plan.
In 1979 Maryland created a new retirement program called the
Maryland Employees Pension System and required all new hires to
enroll in that program instead of the Teacher's Retirement System.
The State, over a period of years, also encouraged members of the
Teacher's Retirement System to transfer to the new program. In 1990
2
Scallion and Miller took the State's suggestion and transferred from
the Teacher's Retirement System to the Maryland Employees Pension
System. As a result, they received disbursements, or"transfer
refunds," from the old Teacher's Retirement System. Scallion
received $400,925.50 and Miller received $250,530.19. That money
was the sum of their contributions and accrued earnings in the old
system.
Scallion and Miller, along with their wives, listed their pension dis-
bursements as income on their 1990 tax returns and paid an excise tax
on the disbursements under I.R.C. § 4980A. Section 4980A imposes
a 15 percent levy on the portion of any retirement distribution that
exceeds $150,000 in one calendar year. Thus, Scallion paid $33,158
and Miller paid $9,955, sums equal to 15 percent of the portions of
their disbursements that exceeded $150,000.
Shortly thereafter, the Scallions and the Millers filed amended tax
returns claiming refunds on the ground that § 4980A's excise tax did
not apply to their transfer refunds from the old retirement system. The
Internal Revenue Service denied those claims. The Scallions and
Millers then filed suits in federal district court, seeking refunds of
their excise tax payments. They claimed that their transfer refunds
were not taxable "distributions" as defined by I.R.C. § 4980A(e).
Instead, they argued, the transfer refunds were permissible withdraw-
als and were not taxable under § 4980A.
II.
Section 4980A(a) imposes "a tax equal to 15 percent of the excess
distributions with respect to any individual during any calendar year."
Subpart (e) of the same section defines a "retirement distribution" in
part as "the amount distributed during the taxable year under . . . any
qualified employer plan with respect to which such individual is or
was the employee . . . ." The section further defines a "qualified
employer plan" in part as "any plan described in section 401(a) . . . ."
I.R.C. § 4980A(e).
In district court, the appellants presented a rather complicated argu-
ment to show that their transfer refunds should not be considered "dis-
tributions" under Section 4980A. They noted that plans are not
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permitted, under § 401(a), to issue early distributions.1 They then
pointed out that they had indeed received money from their plan
early, that is, prior to their retirement, death, or disability. Finally,
they argued that because the Internal Revenue Service had not dis-
qualified the Maryland Teacher's Retirement System for having
issued early "distributions," the money they received could not possi-
bly be characterized as "distributions" for purposes of § 4980A.
Instead, they argued, the funds were mere "withdrawals" outside the
scope of § 4980A.
The district court did not agree with the Scallions and the Millers
on this point, however. Instead, it relied on this court's decision in
Powell v. Commissioner, 129 F.3d 321 (4th Cir. 1997), which
addressed a similar factual situation. In Powell the taxpayer argued
that the Maryland Teacher's Retirement Plan's early disbursement
automatically rendered it "unqualified" and that his transfer refund
therefore could not have been a distribution under§ 4980A. We
rejected Powell's argument, noting that "a retirement plan [under sec-
tion 4980A] is deemed to be a ``qualified plan' even if it is not quali-
fied on the date of the distribution, so long as the Commissioner at
any time had determined that the plan was qualified." Id. at 325. We
then held that the "Transfer Refunds were distributions from a ``quali-
fied employer plan'" and therefore taxable under§ 4980A. Id. In the
case now before us, the district court concluded that the Scallions and
Millers' argument was simply a refinement of the argument made in
Powell and that Powell in any event governed the treatment of these
transfer refunds. Accordingly, the district court considered itself
bound by Powell and granted summary judgment in favor of the
United States.
III.
After considering the briefs, the joint appendix, and the oral argu-
ments by counsel, we affirm on the reasoning expressed in the opin-
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1 Cf. Rev. Rul. 56-693, 1956-2 C.B. 282 ("[A]n employees' pension
plan which permits the participants, prior to any severance of their
employment or the termination of the plan, to withdraw all or part of the
funds accumulated on their behalf . . . will fail to meet the requirements
of § 401(a) of the Code.").
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ions of the district court. See Scallion v. United States, No. WMN-97-
711 (D. Md. Mar. 5, 1998); Miller v. United States, No. WMN-97-
709 (D. Md. Mar 5, 1998); Scallion v. United States, No. WMN-97-
711 (D. Md. Aug. 19, 1998) (denying plaintiffs' motion to alter or
amend the March 5 order); Miller v. United States, No. WMN 97-709
(D. Md. Aug. 19, 1998) (same).2
AFFIRMED
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2 The appellants also argue that§ 4980A should not apply to govern-
mental plans. We believe that this argument is also foreclosed by Powell.
See 129 F.3d at 325.
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