Edward L. Burnetta, P.A. v. Commissioner

*115 Certain individuals worked daily in the offices of the two petitioner professional corporations, but the workers' records were maintained and their paychecks were issued by a separate payroll service corporation. These individuals were not covered by the professional corporations' respective pension and profit-sharing plans. The professional corporations hired these workers, determined their initial rates of pay as well as any subsequent increases, and retained the right to control them in the performance of their office duties.

The pension and profit-sharing plans established by each professional corporation provided that a participant's proportionate interest therein would be forfeited if he should be discharged and convicted for embezzlement or theft of company property.

Held, the office personnel are employees of the professional corporations and such corporations' respective pension and profit-sharing plans fail to qualify under sec. 401, I.R.C. 1954, because such plans fail to satisfy the coverage requirements of sec. 401(a)(3)(A), I.R.C. 1954.

Held, further, the possibility that the participants in the respective plans could forfeit their interests therein if discharged*116 and convicted for theft or embezzlement does not present a "substantial risk of forfeiture" and, therefore, plan contributions made on their behalf are includable in their gross income under sec. 83, I.R.C. 1954, and deductible by the corporations under sec. 404(a)(5), I.R.C. 1954, once their rights have become otherwise vested.