1 However, the actuary included Pallin's service as a sole proprietor from 1975 in his sec. 415(b) computation.

On Form 5302, Census, attached to Form 5300, Application for Determination for Defined Benefit Plan (Form 5302), Lear declared that Pallin had 6 years of service with the employer as of Sepember 30, 1985.

In 1985, Pallin and Walman decided to sever their individual medical practices. To accomplish this, Lear formed a subsidiary which held Walman's portion of the practice and then spun the subsidiary off to Walman. Pallin retained ownership of Lear.

On September 4, 1986, Lear received a favorable determination letter from respondent qualifying the Lear plan under section 401(a). As of September 30, 1986, Lear had 25 employees. Of those employees, all but Pallin were excluded or ineligible to participate in the Lear plan. The terms of the Lear plan limit the benefits payable under the plan to those allowable under section 415.

Lear adopted a money purchase plan effective October 1, 1979. The money purchase plan was restated in its entirety as of October 1, 1984, and again as of January 1, 1988.3

Brody Enterprises, Inc. (Brody Enterprises)

In the summer of 1969, Marvin D. Brody (Brody) began working as an estate and gift tax examiner for the Internal Revenue Service (IRS) in Chicago, Illinois. Brody worked with the IRS until May 1973. While employed with the IRS, Brody was covered by the Civil Service Retirement System. Brody was not covered by any other retirement plan from 1969 through September 1977.

From May 1973 to September 1977, Brody worked as an associate attorney with the law firm of Altheimer & Gray in

3 The parties have not elaborated on the money purchase plan, and we leave it for them to determine under Rule 155 the extent, if any, to which it affects the deficiencies in these cases.

Chicago, Illinois. In September 1977, Brody moved from Chicago to Phoenix, Arizona, and began working in the law firm of Ehmann & Waldman, P.C.

In late 1978 or early 1979, Ehmann, Waldman, and Brody formed Ehmann, Waldman & Brody, P.C. (EWB P.C.) with each owning one-third of the shares of the company. EWB P.C. had three retirement plans: (1) The pension plan, a money purchase pension plan adopted in 1971 and still in existence, (2) the profit sharing plan, which merged with the pension plan on January 31, 1980, and (3) the defined benefit plan (EWB P.C. Defined Benefit Plan). None of these plans is at issue in this case. In September 1978, after completing 1 year of service with EWB P.C., Brody became a participant in the pension plan. Brody was a participant in the EWB P.C. Defined Benefit Plan until its termination in 1984. The record does not reveal when Brody became a participant in the EWB P.C. Defined Benefit Plan. Brody has no other records or information concerning the EWB P.C. Defined Benefit Plan.

On January 31, 1983, Brody terminated his employment with EWB P.C., and EWB P.C. redeemed his stock therein.

On February 1, 1983, Brody incorporated Brody Enterprises, Inc.,4 with Brody as its sole shareholder and employee. On June 13, 1983, Brody Enterprises adopted the Brody Enterprises Defined Benefit Pension Plan (the Brody Enterprises plan), effective February 1, 1983. The Brody Enterprises plan is at issue in docket No. 177-91. The terms of the Brody Enterprises plan limit the benefits payable under the plan to those allowable under section 415.

On Form 5302, Brody Enterprises declared that Brody had 2 years of service with the employer as of May 31, 1985.

On November 1, 1986, Ehmann, Waldman & Brody, P.A. (EWB P.A.) was formed. Brody was not a shareholder or an officer of EWB P.A. The record does not reveal who formed EWB P.A. Sometime around November 1, 1986, Brody ceased employment with Brody Enterprises and entered into an employment contract with EWB P.A. On November 1, 1987, Brody terminated his employment with EWB P.A.

4 Brody incorporated Marvin D. Brody, P.C., and later changed the name to Brody Enterprises, Inc. For convenience, we refer to Brody Enterprises throughout this opinion.

OPINION

Each of petitioners' plans was a small defined benefit pension plan. A defined benefit pension plan provides a participant at retirement with the benefit stated in the plan. The costs of benefits payable from such plans are funded incrementally on an annual basis over the preretirement period. Secs. 404, 412. Contributions made to the plans, within certain limits, are deductible. Sec. 404(a)(1). Earnings on the contributions are not taxed as they accumulate. Sec. 501(a). Plan assets are taxed to participants only as they are paid out as benefits. Sec. 402(a)(1). The payment of benefits under a qualified plan is limited. Sec. 415. These cases focus on the limitations in section 415.

Section 415 was added to the Internal Revenue Code by section 2004(a)(2) of the Employee Retirement Income Security Act of 1974 (ERISA), Pub. L. 93-406, 88 Stat. 829, 979. The enactment of ERISA was a legislative attempt to assure equitable and fair administration of pension plans and to remedy problems that had arisen, which prevented many of those plans from achieving their full potential as a source for retirement income. Citrus Valley Estates, Inc. v. Commissioner, 99 T.C. at 399.

In conjunction with its effort to expand the number of employees participating in employer-financed plans, Congress also placed limits on the amounts of pension contributions and benefits available under those plans.

[I]t is not in the public interest to make the substantial favored tax treatment associated with qualified retirement plans available without any specific limitation as to the size of the contributions or the amount of benefits that can be provided under such plans. The fact that present law does not provide such specific limitations has made it possible for extremely large contributions and benefits to be made under qualified plans for some highly paid individuals. While there is, of course, no objection to large retirement benefits in themselves, your committee believes it is not appropriate to finance extremely large benefits in part at public expense through the use of the special tax treatment. ***

Moreover, to prevent abuse, the full [section 415(b)(1)] maximum benefit may be paid only to individuals who have 10 years or more service. Where an individual has served for less than 10 years, the maximum permissible benefit is reduced proportionately.

[H. Rept. 93-807, at 35-36 (1974), 1974-3 C.B. (Supp.) 236, 270-271.]

Section 415(a) precludes qualified plans from providing for payment of annual benefits in excess of an amount determined under subsection (b). Section 415(b)(1) establishes an annual benefit limitation as the lesser of a dollar amount ($75,000, as adjusted under section 415(b)(2), for the years at issue) or 100 percent of the participant's average compensation for his 3 highest paid years with the plan sponsor. For the years at issue, section 415(b)(5) reduced the subsection (b)(1) dollar limitation as follows:

(5) REDUCTION FOR SERVICE LESS THAN 10 YEARS.

In the case of an employee who has less than 10 years of service with the employer, the limitation referred to in paragraph (1) * * * shall be the limitation determined under such paragraph *** multiplied by a fraction, the numerator of which is the number of years (or part thereof) of service with the employer and the denominator of which is 10.

Thus, a qualified defined benefit pension plan may not provide for payment of benefits in excess of the dollar limitation of section 415(b)(1) as further limited by section 415(b)(5).5

In Citrus Valley, we held that section 404(j)(1) limits deductible contributions to the amount necessary to fund the benefits payable under section 415 determined at the time of the contribution in question. Citrus Valley Estates, Inc. v. Commissioner, 99 T.C. at 447. The dispute in these cases focuses on the amounts of benefits payable under section 415 determined at the time of the contributions in question. Specifically, at issue is whether Pallin's and Brody's prior employment with entities other than the plans' sponsors constitutes "service with the employer" as that term is used in section 415(b)(5).

We begin with the presumption that respondent's determination is correct, and petitioners have the burden of proving otherwise. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933); Dellacroce v. Commissioner, 83 T.C. 269, 279-280 (1984). Deductions and credits are a matter of legislative grace, and petitioners bear the burden of proving entitlement to any deduction or credit claimed on their returns. INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).

5 For plan years beginning after Dec. 31, 1986, sec. 415(b)(5) was amended to restrict the sec. 415(b)(1) dollar limitation for participants with less than 10 years of participation in the plan. See Tax Reform Act of 1986, Pub. L. 99-514, sec. 1106, 100 Stat. 2085, 2424.

V.

In construing a statute, courts generally seek the plain and literal meaning of its language. United States v. Locke, 471 U.S. 84, 93, 95-96 (1985); United States v. American Trucking Associations, Inc., 310 U.S. 534, 543 (1940). For that purpose, courts generally assume that Congress uses common words in their popular meaning. Commissioner Groetzinger, 480 U.S. 23, 28 (1987); see also Addison v. Holly Hill Fruit Prods., Inc., 322 U.S. 607, 618 (1944). Moreover, words in a revenue act generally are interpreted in their "ordinary, everyday senses". Commissioner v. Soliman, 506 U.S. 168, 174 (1993) (quoting Malat v. Riddell, 383 U.S. 569, 571 (1966) (quoting Crane v. Commissioner, 331 U.S. 1, 6 (1947))).

Words with a fixed legal or judicially settled meaning, on the other hand, generally must be presumed to have been used in that sense, unless such an interpretation will lead to absurd results. See United States v. Merriam, 263 U.S. 179, 187 (1923); Lenz v. Commissioner, 101 T.C. 260, 265 (1993). We must rely on the words of the statute as generally understood, for to do otherwise would be to redraft the statute. United States v. Locke, supra at 93, 95-96; Lenz v. Commissioner, supra at 265 (citing United States v. American Trucking Associations, Inc., supra at 542-543).

In interpreting any statue, we attempt to determine Congress' intent in using the statutory language being construed. United States v. American Trucking Associations, Inc., supra at 542; Helvering v. Stockholms Enskilda Bank, 293 U.S. 84, 93-94 (1934); General Signal Corp. & Subs. v. Commissioner, 103 T.C. 216, 240 (1994). Moreover, where the statute is ambiguous, we may look to its legislative history and to the reason for its enactment. United States v. American Trucking Associations, Inc., supra at 543-544; U.S. Padding Corp. v. Commissioner, 88 T.C. 177, 184 (1987), affd. 865 F.2d 750 (6th Cir. 1989). In addition, we may seek out any reliable evidence as to the legislative purpose even where the statute is clear. United States v. American Trucking Associations, Inc., supra; Centel Communications Co. v. Commissioner, 92 T.C. 612, 628 (1989), affd. 920 F.2d 1335 (7th Cir. 1990).

The relevant language in section 415(b)(5) includes "In the case of an employee who has less than 10 years of service with the employer". There is no dispute that the years of service with the business organization that established and