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Minor v. United States | 772 F.2d 1472 (1985)
A deferred compensation plan is a type of retirement savings plan in which a portion of an employee’s compensation is set aside and invested until the employee retires or leaves the company. In Minor versus United States, the Ninth Circuit considered whether contributions to a deferred compensation plan were taxable in the year of contribution.
Doctor Ralph Minor worked as a physician for the Snohomish County Physicians Corporation. Snohomish offered its physicians the opportunity to participate in a deferred compensation plan. Minor elected to participate in the plan and contributed ninety percent of his compensation.
The plan’s benefits would become payable to Minor or his beneficiaries when he retired, became disabled, left Snohomish, or died. In exchange, Minor agreed to provide services for Snohomish until the benefits became payable, limit his practice after retirement, provide consulting services, and refrain from working for Snohomish’s competitors.
Snohomish established a trust that purchased annuity contracts to fulfill its future obligations under the plan. Snohomish was the sole beneficiary; Minor was one of three trustees. The plan’s participants, including Minor, had no rights, title, or interest in the trust.
On his federal income tax returns, Minor included in gross income only the portion of his compensation that he actually received. The I R S assessed a deficiency, asserting that under the economic benefit doctrine, Minor should’ve also included his contributions to the deferred compensation plan.
Minor paid the tax and sued for a refund. The district court found that Minor’s contributions to the plan weren’t taxable in the year the contributions were made and held in favor of Minor. The I R S appealed to the Ninth Circuit.
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