Rev. Rul. 69-144

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in PS No. 23, dated September 2, 1944, relating to the qualification of a pension plan established by a partnership that employs relatives of the partners.

A partnership established an employees' pension plan intended to meet the requirements of section 401 of the Internal Revenue Code of 1954. Twelve of the partnership's bona fide employees were eligible to participate in the plan. Five of the twelve are relatives of the two partners.

Section 401(a) of the Code provides for the qualification of a trust forming part of a pension, profit-sharing, or stock bonus plan established by an employer for the exclusive benefit of his employees. There is no requirement that such an employer must operate under a particular form of business organization. Thus, a partnership may install a pension plan for the exclusive benefit of its bona fide employees or their beneficiaries. However, except to the limited extent applicable to the participation of self-employed individuals after December 31, 1962, partners are not employees and, therefore, are not eligible to participate in a qualified plan.

Since the partners' relatives in this case are bona fide employees, there is no reason to prevent their participation in the plan merely because of this relationship. See Revenue Ruling 68-436, C.B. 1968-2, 180, which holds that a sole proprietor's wife must be covered under his self-employed plan where she is a bona fide employee of his business and meets all the other requirements for coverage.

In view of the foregoing, the partnership's pension plan will not fail to qualify merely because five of the twelve eligible participants are relatives of the two partners.

PS No. 23 is hereby superseded since the position stated therein is restated under current law in this Revenue Ruling.

¹ Prepared pursuant to Revenue Procedure 67-6, C.B. 1967-1, 576.