Rev. Rul. 70-30

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in PS No. 36, dated October 2, 1944, relating to the limitations on deductions for past service costs contained in section 404(a)(1)(C) of the Internal Revenue Code of 1954.

In 1961, a corporation established an employees' pension plan that met the requirements for qualification under section 401(a) of the Code. At the time the plan was established, the unfunded past service liability thereunder was $1,500,000. The normal cost of the plan was paid and deducted during each of the first six years after the plan was established. In addition, a total of $500,000 of the past service liability was paid and deducted, leaving an unfunded past service liability of $1,000,000 on December 31, 1967. The specific question is whether the fact that less than ten percent of this unfunded past service liability was contributed and deducted in taxable years ending before 1968 will permit the corporation to deduct, under section 404(a)(1)(C), a contribution for more than ten percent of such past service liability in any later year.

If past service or other supplementary pension or annuity credits are provided by the plan, section 404(a)(1)(C) of the Code allows as a deduction for any taxable year, the normal cost of the plan, plus an amount not in excess of ten percent of the cost which would be required to completely fund or purchase such pension or annuity credits. Since $1,500,000 was required to completely fund the past service credits involved in this case, it is held that an amount not in excess of ten percent thereof, of $150,000, in addition to the normal cost, may be allowed as a deduction under section 404(a)(1)(C) of the Code, for any taxable year. This is true even though the deductions taken in prior years were less than could have been taken under the limitations contained in section 404(a)(1)(C) of the Code.

PS No. 36 is hereby superseded since the position stated therein is restated under current law in this Revenue Ruling.

¹ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.