Footnotes

¹ The wages are attributable solely to Darlene, a secretary at the Orange City Municipal Hospital in Iowa. Respondent disqualified the plan for years beginning after July 31, 1993, because allocations to Mr. Van Roekel, an independent contractor, in fiscal 1994, 1995, and 1996 exceeded the limits of section 415(c). Discussion Section 401(a) lists the qualification requirements of a pension, profit-sharing, and stock bonus plan. It provides in part: SEC. 401(a). Requirements for Qualification.--A trust created or organized in the United States and forming part of a stock bonus, pension, or profit–sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section--* * * * * * * (16) A trust shall not constitute a qualified trust under this section if the plan of which such trust is a part provides for benefits or contributions which exceed the limitations of section 415.

² Petitioner included this amount on line 27 of Form 1120 titled “Total deductions” and not on line 26. For calendar years 1994, 1995, and 1996, Mr. Van Roekel and his wife, Darlene, filed joint Federal income tax returns. He worked as petitioner’s farm manager on an independent contractor basis, and, as reflected below, reported the management fees that

³ Petitioner’s founder and president was Eugene Van Roekel. He was also the only trustee and participant of the plan. Petitioner twice purported to amend the ESOP--on December 29, 1994,

⁴ effective for plan years beginning August 1, 1994, and again on August 26, 1997. Under the plan, petitioner’s board of directors had sole discretion to decide the amount, if any, that petitioner would contribute each year from its profits, except in cases where payments became due on an ESOP loan. Moreover, petitioner was

⁵ For years ending July 31, 1994, 1995, and 1996, the plan filed Forms 5500–C/R, Return/Report of Employee Benefit Plan, showing contributions of $2,250, $2,700, and $2,550, respectively. Similarly, for each of those years, petitioner deducted $2,250, $2,700, and $2,550, respectively, on Forms 1120, U.S. Corporation Income Tax Return, as payments to the plan on behalf of Mr. Van Roekel. As shown below, petitioner reported no deduction for salaries, wages, or officers’ compensation but deducted management fees paid to Mr. Van Roekel as an independent contractor: Pension, Other Tax year Compensation of Salaries and profit sharing, deductions

⁶ Consistent with that arrangement, petitioner deducted the management fees as

⁷ Accordingly, the amounts petitioner paid to Mr. Van Roekel are irrelevant in calculating the allowable limits of section 415, because Mr. Van Roekel received no employee compensation--a situation fatal to the trust’s qualified status. Petitioner argues that Mr. Van Roekel’s compensation was his earned income as a self–employed person. A sole proprietor, however, is considered to be his own employer. See sec. 401(c)(4); sec. 1.401–10(e), Income Tax Regs. Therefore, during fiscal 1994, 1995, and 1996, Mr. Van Roekel had one employer; i.e., himself. Furthermore, only the income an employee earns from the employer sponsoring the plan may be taken into account for purposes of that employer’s plan. See sec. 415(c)(3)(A); sec. 1.401–10(b), Income Tax Regs. If Mr. Van Roekel had sponsored his own retirement plan as a self–employed individual, then “participant’s compensation” would have been his earned income. Sec. 415(c)(3)(B). Here, however, petitioner is Mr. Van Roekel’s hirer, not his employer. Accordingly, Mr. Van Roekel’s earnings as an independent contractor are not “participant’s compensation” with respect to petitioner’s plan.