Rev. Proc. 75-48

Section 1. Purpose.

This Revenue Procedure provides procedures of the Internal Revenue Service for corporations wishing to elect the 11 percent investment credit allowed by section 46(a)(1)(B) of the Internal Revenue Code of 1954 (as added by section 301(a) of the Tax Reduction Act of 1975) and procedures for issuing determination letters relating to whether an individually designed defined contribution plan constitutes an employee stock ownership plan (ESOP) under section 301(d) of the Tax Reduction Act of 1975 (Public Law 94-12) [1975-1 C.B. 545].

Sec. 2. Background and general information.

.01 Section 4975(e)(7), added to the Code by the Employee Retirement Income Security Act of 1974 (Public Law 93-406) [1974-3 C.B.], and section 407(d)(6) of that Act provide a definition of the term "employee stock ownership plan" for certain plans which qualify under section 401(a) of the Code.

.02 Section 301 of the Tax Reduction Act of 1975 allows a corporation to elect an 11 percent investment credit under section 46(a)(1)(B) of the Code if the corporation establishes an ESOP meeting the requirements of section 301(d) of the Act. The latter section does not require the ESOP to qualify under section 401(a) but provides its own requirements.

.03 The general procedures of the Service relating to the issuance of rulings, determination letters, and opinion letters are set forth in Rev. Proc. 72-3, 1972-1 C.B. 698. Rev. Proc. 75-47, page 581, and section 601.201(o) of the Statement of Procedural Rules (26 CFR Part 601, published August 1, 1975, in the Federal Register) provide the detailed procedures relating to the issuance of determination letters as to qualification of employees' plans under sections 401, 403(a), and 405 of the Code and to the exempt status of related trusts or custodial accounts, if any, under section 501(a). For purposes of this Revenue Procedure, the term "defined contribution plan" has the same meaning given in section 414(i).

Sec. 3. Determination letters.

.01 Rev. Procs. 72-3, 74-38, and 75-47 and section 601.201(o) of the Statement of Procedural Rules apply to (i) plans intended to constitute ESOP's under section 4975(e)(7) of the Code and/or section 407(d)(6) of the Employee Retirement Income Security Act of 1974, and (ii) plans intended to qualify under section 401(a) which are also intended to meet the requirements of section 301(d) of the Tax Reduction Act of 1975 (hereinafter referred to as "the Act"). Additional procedures, described below, also apply to plans in category (ii) above and to plans not intended to qualify under section 401(a) but which are intended to meet the requirements of section 301(d) of the Act.

.02 ESOP's Intended to Qualify under Section 401(a) of the Code:

Except as described in subsection .05 below, the key District Directors designated in section 601.201(o)(4) of the Statement of Procedural Rules, when requested, will make a separate determination whether an individually designed defined contribution plan constitutes an ESOP under section 301(d) of the Act.

.03 ESOP's Not Intended to Qualify under Section 401(a) of the Code:

Except as described in subsection .05 below, the key District Directors mentioned in subsection .02 above are authorized to issue determination letters regarding whether an individually designed defined contribution plan which is not intended to qualify under section 401(a) of the Code, meets the requirements of section 301(d) of the Act.

.04 Issues with respect to whether a plan meets the requirements of section 301(d) of the Act may be appealed to the regional office and, where appropriate, to the National Office of the Service. Such appeals will follow the procedures set forth in section 601.201(o)(6) and (7) of the Statement of Procedural Rules for plans intended to meet the requirements of sections 401, 403(a), or 405 of the Code, except the procedures relating to Tax Court declaratory judgments are not applicable. For purposes of this Revenue Procedure, the term "case file" shall be substituted for the term "administrative record" in section 601.201(o)(6) and (7). The case file relating to section 301(d) shall not be subject to the provisions of section 601.201(o)(9).

.05 Determination letters will not be issued with respect to the following:

(1) Whether an investment constitutes a qualified investment within the meaning of section 46(c) of the Code;

(2) The value of employer securities transferred to the ESOP;

(3) Any plan which is not intended to qualify under section 401(a) of the Code if the plan permits contributions exceeding the amount required under section 301(d)(6) of the Act;

(4) Any ESOP that permits the trustee to purchase key-man insurance;

(5) Any issue regarding which rulings may not be issued pending the adoption of regulations, pursuant to the provisions of section 3.05 of Rev. Proc. 72-3.

Sec. 4. Instructions to taxpayers.

.01 Election of 11 Percent Investment Credit:

(1) An election under section 46(a)(1)(B) of the Code to claim the 11 percent investment credit for a taxable year must be made on or before (1) the due date (including extensions of time) for filing the corporation's income tax return for the taxable year in which the credit is earned, or (2) if later, December 31, 1975. A corporation which files its return for such year prior to December 31, 1975, may make the election on an amended return, preferably Form 1120X, filed on or before December 31, 1975. The election shall be made by a statement attached to the corporation's return for the taxable year for which the 11 percent credit is claimed and shall indicate that an election is made under section 46(a)(1)(B). In addition, the statement shall represent that the corporation agrees, as a condition of receiving the 11 percent credit, to transfer employer securities forthwith to an employee stock ownership plan described in section 301(d)(1) of the Act having an aggregate value at the time of the claim for credit of 1 percent of the qualified investment for the taxable year properly attributable to property and qualified progress expenditures described in section 46(a)(1)(D). For this purpose, a transfer of cash is treated as a transfer of employer securities if the cash is, under the plan, used to purchase employer securities.

(2) An election under section 46(a)(1)(B) of the Code is irrevocable.

.02 ESOP's Intended to Qualify under Section 401(a) of the Code:

(1) An employer requesting a determination letter regarding the qualification of an ESOP under section 401(a) of the Code shall follow the instructions to taxpayers provided in Rev. Proc. 75-47.

(2) An employer who also wishes a determination whether the plan constitutes an ESOP meeting the requirements of section 301(d) of the Act shall also complete the appropriate portions of Form 5309, Application for Determination of Employee Stock Ownership Plan, and attach it to his request for a determination letter. This form is to be accompanied by any schedules or additional material prescribed in the instructions for the form.

(3) An employer who maintains a plan for which an outstanding favorable determination letter exists regarding the plan's qualification under section 401(a) of the Code and who amends such plan with the intention of enabling it to constitute an ESOP under section 301(d) of the Act, may request a determination letter regarding (a) the effect of the amendment on the plan's qualification under section 401(a) and (b) whether the amended plan constitutes an ESOP under section 301(d). To request such a determination letter, the employer shall follow the instructions contained in paragraphs (1) and (2) above.

.03 ESOP's Not Intended to Qualify under Section 401(a) of the Code:

An employer requesting a determination letter relating to whether a plan not intended to qualify under section 401(a) of the Code constitutes an ESOP which meets the requirements of section 301(d) of the Act shall file Form 5309, Application for Determination of Employee Stock Ownership Plan. This form is to be filed in accordance with the instructions therefor and accompanied by any schedules or additional material prescribed in those instructions.

Sec. 5. Effect on other documents.

Rev. Procs. 72-3 and 75-47 are hereby amplified to permit the issuance of determination letters with respect to whether an individually designed defined contribution plan constitutes an ESOP under section 301(d) of the Act.

Sec. 6. Effective date.

This Revenue Procedure is effective November 3, 1975.

¹ Also released as TIR-1410, dated November 3, 1975.