Rev. Rul. 54-265

Advice is requested as to whether, under the following circumstances, an employee's total benefit payable under an employee's profit-sharing plan is deemed to have been "made available" to him within the meaning of that term as used in section 165(b) of the Internal Revenue Code on the earliest date upon which he could have received a lump sum distribution of such benefit by application with the trustee at the times provided for in the plan.

An employer put into operation an employee's profit-sharing plan which meets the requirements of section 165(a) of the Internal Revenue Code. Under the provisions of the trust agreement, which forms a part of the profit-sharing plan, each employee has a severable and personal trust which will continue in effect until termination of the employee's services, at which time distribution of his credits will be made in installments computed on the basis of his life expectancy unless the employee makes an election, any time after he has completed 14 years and 6 months of participation in the plan, to terminate the trust at the end of 15 years of participation or any time thereafter, and to receive the amount of his credit in a lump sum. The election to terminate the employee's trust must be exercised at least 30 days prior to the date on which termination is to be effective, which may only be at the close of a semiannual accounting period of the plan.

It is provided in section 165(b) of the Internal Revenue Code that the amount actually distributed or made available to any distributee of a trust forming part of a bonus, pension, or profit-sharing plan qualified under section 165(a) shall be taxable to him in the year so distributed or made available as if it were an annuity to the extent provided in section 22(b)(2), with an exception, not applicable here, in the case of a distribution on account of the employee's separation from the service.

The amount placed to the employee's credit in the trust fund becomes available to the employee at the time when he first acquires an unrestricted right to withdraw such amount. In the present case the time when he first acquires such right to withdraw is at the end of the first accounting period of the trust after his completion of 15 years of participation in the profit-sharing plan following the establishment of the trust. The only bar to the actual receipt of the credit is the failure on the part of the employee to make a written request to the trustee for payment of the entire amount thereof as prescribed in the plan, but such condition is held to have no real substance.

Accordingly, it is held that the employee's entire interest in the trust will be "made available" to him, within the meaning of that term as used in section 165(b) of the Code, on the earliest date upon which he could receive a cash lump sum distribution from the trust if he had requested the trustee therefor in accordance with the plan.