UNITED STATES TAX COURT
C. MERRITT and DOROTHY PUMPHREY, Petitioners v
.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13538-94. Filed October 3, 1995.
Jay Fred Cohen
, for petitioners.
Alan R. Peregoy
, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
DAWSON, Judge
: This case was assigned to Special Trial Judge Robert N. Armen, Jr., pursuant to the provisions of section 7443A(b)(4) of the Internal Revenue Code of 1986, as amended, and having filed a joint income tax return, for such tax. Respondent also concedes that if we decide the issue in dispute in petitioners' favor, then the Transfer Refund distribution qualifies for forward averaging under the more favorable 10-year method, rather than the less favorable 5-year method utilized by petitioners on their income tax return for 1990.
FINDINGS OF FACT
Some of the facts have been stipulated and they are so found. Petitioners resided in Ellicott City, Maryland, at the time their petition was filed with the Court.
Petitioner C. Merritt Pumphrey (petitioner) was the Clerk of the Circuit Court for Howard County, Maryland. He was originally appointed in 1966 to complete the term of the former clerk and was thereafter elected to the position. Petitioner held office until 1990, when he was defeated in the general election on November 7, 1990. Petitioner remained in office until November 30, 1990, at which time his successor took the oath and assumed the duties of the office.
As the clerk of a circuit court, petitioner was a member of the Employees' Retirement System of the State of Maryland (the Retirement System) until he elected to transfer to the Employees' Pension System of the State of Maryland (the Pension System). Petitioner elected to transfer from the Retirement System to the Pension System on November 8, 1990, the day after he lost the November 1990, general election. Petitioner's election to During the years in issue, the State of Maryland maintained both the Retirement System, in which petitioner participated, and the Pension System, to which petitioner transferred effective as of November 1, 1990. Accordingly, in order to decide whether petitioner received the "balance to the credit", we must treat the Retirement System and the Pension System as a single pension plan. Sec. 402(e)(4)(C).
Under Maryland law, petitioner's annuity under the Pension
System is calculated by taking into account petitioner's "average final compensation" and petitioner's years of "creditable service". Md. Ann. Code, art. 73B, sec. 117(2) (1988). Because section 402(e)(4)(C) requires that we treat the Retirement System and the Pension System as a single pension plan, we conclude that, by transferring from the Retirement System to the Pension System, petitioner did not forfeit his right to a future monthly annuity, but simply elected to receive an initial single payment to be followed by a reduced monthly annuity. Effectively, petitioner's transfer allowed him to receive the "balance to the credit" in two parts, an initial single payment to be followed by a reduced monthly annuity, based on all of his years of creditable service and on his salary during those years. See Green v. Commissioner , T.C. Memo. 1994-340.
The testimony of petitioner at trial reflects the foregoing. Thus:
Q: Now, Mr. Pumphrey, you did ultimately retire, and I believe your testimony has been that you retired from the Pension System. Is that correct?
A: Well, it has to be correct, yes, sir, because
I had no other choice.
Q: And you are currently receiving an annuity from that Pension System?
A: Yes, Sir.
Q: Do you understand based on what that annuity is calculated?
A: Yes, sir, my years of service and the tie-ins, the salary.
Q: And do those years of service include the years of service that you earned under the Retirement System?
A: Yes, sir, absolutely.
Q: So that, when you received your pension annuity, pursuant to the plan provisions, your annuity is calculated on all the years of service under both the retirement system and the pension system, correct? A: Right, absolutely. * * * Later during the trial, in a colloquy with the Court, petitioner testified as follows:
The Court: * * * Now, the pension that you actually received and presumably are continuing to receive to this day was based on your entire employment tenure as the Clerk of Court of Howard County, I mean, going all the way back to 1966 [and] through your retirement?
The Witness: I certainly assume so. * * *
Petitioners also argue that their case "is different than all of the reported cases because it deals with an elected official that was separated from employment because of the loss of an election and not as a result of any voluntary separation." The distinction that petitioners draw, however, represents a distinction without a difference because the fact that petitioners rely on so heavily is simply not relevant to the controlling law, i.e., the aggregation provisions of section 402(e)(4)(C).
In view of the foregoing, we hold that the Transfer Refund did not constitute a lump-sum distribution within the meaning of section 402(e)(4)(A) because petitioner did not receive the "balance to the credit" when he transferred from the Retirement System to the Pension System. Accordingly, the Transfer Refund received by petitioner does not qualify for forward averaging under section 402(e)(1). See Hamilton v. Commissioner , T.C.
Memo. 1994-633 (addressing whether a taxpayer had received the "balance to the credit" in the context of whether the taxpayer was entitled to compute tax on a transfer refund using the 10year forward averaging method set forth in section 402(e)(1)); Hoppe v. Commissioner , T.C. Memo. 1994-635 (same); see also Dorsey v. Commissioner , T.C. Memo. 1995-97 (addressing whether a taxpayer had received the "balance to the credit" in the context of whether a Transfer Refund distribution qualified for tax-free rollover treatment under section 402(a)(5); Brown v. Commissioner , T.C. Memo. 1995-93 (same); cf. supra with T.C.
Memo. 1993-561.
Decision will be entered pursuant to Rule 155 .