Rev. Rul. 79-377

The purpose of this Revenue Ruling is to update and restate Rev. Rul. 68-436, 1968-2 C.B. 180, in view of the enactment of the Employee Retirement Income Security Act of 1974, Pub. L. 93-406, 1974-3 C.B. 1.

Rev. Rul. 68-436 concerns whether a qualified employees' retirement plan that provides benefits for a sole proprietor must include the sole proprietor's spouse, who is a bona fide employee with more than 3 years of service with the sole proprietorship.

A sole proprietorship established a retirement plan that provided benefits for the owner-employee and all common-law employees. The owner-employee's spouse is a bona fide employee with more than 3 years of service with the proprietorship.

Section 401(d)(3) of the Internal Revenue Code provides that a trust forming part of a pension or profit-sharing plan which provides contributions or benefits for employees some or all of whom are owner-employees shall constitute a qualified trust only if the plan of which it is a part benefits each employee having 3 or more years of service (within the meaning of section 410(a)(3)). For purposes of section 401(d)(3), the term "employee" does not include any employee included in a unit of employees covered by a collective-bargaining agreement or any employee who is a nonresident alien individual.

Section 3121(b)(3)(A) of the Code provides that for purposes of the tax under the Federal Insurance Contributions Act (FICA), the term "employment" does not include service performed by an individual in the employ of a spouse.

Accordingly, although a sole proprietor is not required to pay FICA tax with respect to an employed spouse, a retirement plan in which the sole proprietor participates must, in order to be qualified, include any employed spouse who meets the requirements of section 401(d)(3) of the Code.

Rev. Rul. 68-436 is superseded because the position stated therein is restated under current law in this revenue ruling.