Imposition of penalties under the amendments to the provisions governing “employee stock ownership” retirement plans (ESOPs); 26 USC § 4979A; Temp. Treas. Reg. § 1.409(p)-1T(i)(1)(ii) & (2)(iii)(A) (2005); 26 USC §§ 409(p)(2) & 4975(e)(7); Whether the petitioner owed an excise tax; § 4979A(a)(3); Whether the statute of limitations ran before the Commissioner assessed the excise tax; §§ 6501(a), (c)(3), & (b)(4); Commissioner v. Lane-Wells Co.; McDonald v. United States; Whether the Tax Court abused its discretion by granting the Commissioner’s reconsideration motion; Louisville & Nashville R.R. v. Commissioner; Schlaud v. Snyder; United States v. Huntington Nat’l Bank; Whether the petitioner could invoke “judicial estoppel”; New Hampshire v. Maine; Lorillard Tobacco Co. v. Chester, Willcox & Saxbe, LLP; United States v. Williams; Heckler v. Community Health Servs. of Crawford Cnty., Inc.

Even though the IRS waited until 2011 to collect over $200,000 in excise taxes from the petitioner-law firm, which arose from its delayed compliance with the amendments governing ESOP retirement plans, the court held that the limitations period remained open, and affirmed the imposition of an excise tax. In 2001, Congress imposed a 50% excise tax and other penalties on S corporation ESOPs that did not meet the new requirements. The new legislation also gave corporations six months within which to comply with the amendments. Petitioner “amended the ESOP in an attempt to mirror the new limits.” In 2006, petitioner and the ESOP each filed 2005 tax returns. Believing that it had complied with the new rules, petitioner did not file a Form 5330, the return for the new excise tax. The IRS issued a deficiency notice in 2011, “alleging that before the June 30, 2005, change, the ESOP was not in compliance with the excise tax rules and $200,750 of excise tax was due (50% of the $401,500 of Law Office stock held in the ESOP).” The court upheld the Tax Court’s ruling that the excise tax was triggered by the 2005 nonallocation year. It also agreed that the assessment was not barred by the three-year statute of limitations because the petitioner did not file a Form 5330 for 2005, the return for the new excise tax that starts the limitations clock. The court noted that it “appreciate[d] the taxpayer’s lament that it seems strange to let the limitations period run until it files the requisite form, which in this instance merely would have reported ‘no excise tax due.’ . . . ‘The absence of any limitation, under the situation . . . may indeed visit unfair burdens and expense upon innocent taxpayers. If so, Congress can provide the needed remedy.’” The Tax Court did not abuse its discretion by granting the Commissioner’s reconsideration motion after it had previously ruled in the petitioner’s favor because it was “correct[ing] its mistake.” The petitioner could not invoke judicial estoppel to argue that the Tax Court was wrong to consider the Commissioner’s new legal argument.