Rev. Proc. 77-25

Section 1. Purpose.

The purpose of this Revenue Procedure is to set forth the general procedures of the various offices of the Internal Revenue Service and the instructions to taxpayers pertaining to the revised procedures for the appeal of proposed adverse determination letters issued by Key District Offices on the qualification of plans involving sections 401, 403(a), and 405(a) of the Internal Revenue Code of 1954, as amended by the Employee Retirement Income Security Act of 1974 (the Act) [Pub. L. 93-406, 1974-3 C.B. 1].

Sec. 2. Background and General Information.

.01 Rev. Proc. 72-6, 1972-1 C.B. 710, sets forth the detailed procedures of the Service with respect to the issuance of determination letters on the qualification of employees' plans involving sections 401, 403(a), and 405(a) of the Code, and the exempt status of related trusts or custodial accounts, if any, under section 501(a). The Statement of Procedural Rules (26 CFR 601), published in 1975-2 C.B. 597, and as amended at various times thereafter, sets forth changes with respect to the issuance of determination letters which were necessary to reflect changes made by the Act. Delegation Order 112 (Rev. 4), 1977-1 C.B. 527, limits the authority to issue determination letters to District Directors of specified Key Districts.

.02 Rev. Proc. 75-47, 1975-2 C.B. 581, sets forth the procedures of the Service for issuing determination letters on the qualification of individually designed plans involving sections 401, 403(a), and 405(a) of the Code.

.03 Rev. Proc. 75-31, 1975-2 C.B. 551, sets forth the requirements of the Service with respect to notifying interested parties of an application for a determination letter relating to the qualification of individually designed pension, profit-sharing, bond purchase and stock bonus plans. Rev. Proc. 75-51, 1975-2 C.B. 590, provides the notice requirements for employers who adopt a master or prototype plan covering self-employed individuals. Rev. Proc. 75-52, 1975-2 C.B. 592, provides that the requirements of Rev. Proc. 75-31 apply to the adoption of a master or prototype plan not covering self-employed individuals.

.04 Section 3001(b) of the Act provides that, in accordance with conditions specified therein, the Service shall afford an opportunity to comment on an application for a determination letter to:

1. any employee or class of employees qualifying as an interested party (within the meaning of regulations prescribed under section 7476(b)(1) of the Code),

2. the Secretary of Labor, and

3. the Pension Benefit Guaranty Corporation.

.05 Section 7476 of the Code allows, under conditions specified therein, an employer, a plan administrator, an employee who qualifies as an interested party, or the Pension Benefit Guaranty Corporation to petition the United States Tax Court for a declaratory judgment in a case of actual controversy involving:

1. a determination by the Service involving sections 401(a), 403(a), or 405(a) of the Code with respect to the initial qualification or continuing qualification of a retirement plan, or

2. a failure by the Service to make such a determination with respect to:

(a) such initial qualification, or

(b) such continuing qualification, if the controversy arises from a plan amendment or plan termination.

The Tax Court shall not issue a declaratory judgment in any proceeding unless it determines that the petitioner has exhausted the administrative remedies available to him within the Service.

Sec. 3. Master and Prototype Plans

.01 Rev. Proc. 75-51, which modifies Rev. Proc. 72-7, 1972-1 C.B. 715, provides the procedures of the Service pertaining to the issuance of opinion letters by the National Office as to the acceptability of the form of certain master and prototype plans that include self-employed individuals, and the exempt status of related trusts or custodial accounts. Where an employer adopts such a master or prototype plan which has previously been approved as to form by the National Office, the employer's plan will be deemed to satisfy the requirements of sections 401 and 501(a) of the Code, without the issuance of a determination letter, if specified conditions which are set forth in section 3.04 of Rev. Proc. 75-51 are satisfied. Key District Directors will, upon request, issue determination letters as to the qualification of individually designed plans of self-employed individuals (those not utilizing a master or prototype plan) and the exempt status of a related trust or custodial account. If, after evaluating comments from either interested parties or the Department of Labor, the Service determines the matters cannot affect the qualification of a plan, the parties that sent the comments will be so notified. If the Service is unable to make such a determination, the Service will notify the employer that it has not adopted a master or prototype plan approved as to form. Such employer may request a determination letter under the procedures that would be applicable if the plan were individually designed.

.02 Rev. Proc. 75-52, which modifies Rev. Proc. 72-8, 1972-1 C.B. 716, provides the procedures of the Service pertaining to the issuance of opinion letters by the National Office as to the acceptability of the form of certain master of prototype plans that do not include self-employed individuals, and the exempt status of related trusts or custodial accounts. Section 4.01 of Rev. Proc. 75-52 provides that Key District Directors are authorized to issue determination letters as to the plan of a particular employer, if that employer has adopted a master or prototype plan that is approved by the National Office as to form.

In the situations considered in section 3.01 and 3.02 above, an employer that has requested a determination letter and those parties referred to in section 2.04 above, who have commented on the application for determination, shall be entitled to those administrative rights applicable to each, as set forth in this Revenue Procedure.

Sec. 4. Administrative Appeal Rights Within the Internal Revenue Service

.01 The administrative appeal rights available to an applicant for a determination letter consist of the right to appeal a proposed adverse determination letter issued by a Key District Director to the Regional and National Offices of the Internal Revenue Service, in accordance with sections 5 and 6 below.

.02 The administrative appeal rights available to the Pension Benefit Guaranty Corporation and employees who qualify as interested parties consist solely of the right to submit written comments on the application for a determination letter to the District Director of the district where the application is filed.

Sec. 5. Reference of Matters to the Regional Office

.01 Where issues arise in a District Director's Office on matters within the contemplation of sections 2.01 and 2.02 above, and the matter has not been referred from the Key District Office to the National Office for technical advice with respect to such issues, if the Key District Director issues a notice of proposed determination which is adverse to the applicant, the applicant may appeal this decision to the Assistant Regional Commissioner (EP/EO). The request for Regional Office consideration must be submitted to the Key District Director, in writing, within 30 days from the issuance of the proposed adverse determination letter. Upon notification by the applicant prior to the expiration of the 30 day period, the Key District Office will allow an additional 10 days within which to file the appeal. A failure by the applicant to request such Regional Office consideration will constitute a failure to exhaust available administrative remedies as required by section 7476(b)(3) of the Code and will thus preclude such applicant from seeking a declaratory judgment as provided under section 7476.

.02 The request for Regional Office consideration must show the following:

1. Name and address of applicant;

2. A complete statement of the issues and a presentation of the arguments in support of the applicant's position; and

3. Whether a conference is desired.

.03 After receipt of the administrative record in the Regional Office, the applicant will be afforded the opportunity of a conference, if such conference was requested. After full consideration of the entire administrative record, the Office of the Assistant Regional Commissioner (EP/EO) will notify the applicant in writing of the decision and the reason therefor. Where the applicant either agrees with the decision or chooses not to request National Office consideration in accordance with section 6 below, the administrative record will be returned to the Key District Director for issuance of a notice of final determination.

.04 Applicants are advised to make full presentation of the facts, circumstances, and arguments at the initial level of consideration, since submission of additional facts, circumstances, and arguments at any level of appeal may result in suspension of appeal procedures and referral of the case back to the Key District for additional consideration.

Sec. 6. Reference of Matters to the National Office

.01 If the applicant disagrees with the decision of the Regional Office, the applicant will be entitled to request National Office (Assistant Commissioner (EP/EO)) consideration of any disagreed issue (unless such issue had previously been referred for technical advice to the National Office) by submitting the request, in writing, to the Assistant Regional Commissioner (EP/EO), within 30 days after the date of the notice of the decision of the Regional Office referred to in section 5.03 above. The request must state, with supporting argument, the ground(s), as set forth in section 6.02 below, upon which the request is based and whether a conference is desired in the National Office. Upon receipt of the request from the applicant, the Assistant Regional Commissioner (EP/EO) will forward the administrative record to the National Office for appropriate action and will so notify the applicant, in writing. A failure by the applicant to request such National Office consideration will constitute a failure to exhaust available administrative remedies as required by section 7476(b)(3) and will thus preclude such applicant from seeking a declaratory judgment under section 7476.

.02 The grounds referred to in section 6.01 above are:

1. That the position of the Regional Office is contrary to:

(a) the law or regulations on the points at issue (cite Code sections and/or regulations);

(b) a published precedent of the Service currently in effect (cite Service publication);

(c) a court decision that is followed by the Service, e.g., acquiescence in an adverse Tax Court decision (cite court decision);

(d) a determination made in a similar case in the same or another region (cite Regional Offices, case reference, and decision in other case);

2. That the issues arise because of unique or novel issues that have not previously been passed upon in any published precedent.

In order to be entitled to National Office consideration, the appeal request must be more than a mere statement or allegation to the effect that the Regional Office decision falls within the purview of one of the criteria cited above. For example, if an applicant receives an adverse determination from one Regional Office, an appeal request to the National Office will not be accepted if the applicant merely states that another Region has decided the same issue favorably. The applicant must substantiate in the appeal request the allegation of inconsistent treatment on the particular issue.

.03 Upon receipt of the administrative record, the National Office will determine whether the case is to be considered by the National Office, and the applicant will be advised of this determination. If the request for National Office consideration is denied, the administrative record will be returned to the Key District Office for issuance of a notice of final determination. If the request for National Office consideration is granted, the applicant will be afforded the opportunity for a conference in Washington, D.C., if such conference was requested. After consideration of the case, the National Office will notify the applicant of its decision, and the administrative record will be returned to the Key District Office for issuance of a notice of final determination in accordance therewith.

Sec. 7. Issuance of the Notice of Final Determination

.01 In the case of a determination which is favorable to the applicant, the notice of final determination is the letter issued by the Key District Director which states that the applicant's plan satisfies the qualification requirements of the Code. The favorable determination letter will be sent by certified or registered mail where any of the parties referred to in section 2.04 above have previously commented on the application for determination.

.02 In the case of a determination which is adverse to the applicant, the notice of final determination is the letter issued by certified or registered mail by the Key District Director stating that the plan fails to satisfy the qualification requirements of the Code. This letter is issued subsequent to the letter of proposed determination issued by the Key District Director.

.03 The Key District shall send notice of the final determination to the applicant, and those parties in section 2.04 above who have previously commented on the application for determination, or in the case of those parties described in section 2.04(1), the persons designated by them to receive such notice.

Sec. 8. Petition to the Tax Court

.01 A party described in section 2.05 above who, after exhaustion of all administrative remedies within the Service, receives by certified or registered mail a notice of final determination with respect to the initial qualification or continuing qualification of a retirement plan may, upon filing an appropriate pleading, petition the United States Tax Court to make a declaration with respect to the qualification of the plan.

.02 No proceeding for a declaratory judgment may be initiated in the United States Tax Court under section 7476 of the Code by any person unless the pleading is filed before the ninety-first day after the day after the notice of determination, referred to in section 7 above, is mailed to such person (or to the designated representative, in the case of employees who qualify as interested parties).

Sec. 9. Effect on Other Documents

.01 The appeal procedure which is set forth in this document and the Statement of Procedural Rules differs from that described in subsections 7.02 through 7.05 of Rev. Proc. 72-6.

.02 Rev. Proc. 72-6 is hereby modified by deleting subsections 7.02 through 7.05.

Sec. 10. Effective Date

This Revenue Procedure is effective August 1, 1977.