IRS PROVIDES RULES FOR QSLOB NOTIFICATION.

Rev. Proc. 93-40

SECTION 1. PURPOSE

.01 This revenue procedure supersedes Notice 90-57, 1990-2 C.B. 344, to set forth the procedures of the Internal Revenue Service for satisfying the requirement under section 414(r)(2)(B) of the Internal Revenue Code that an employer notify the Secretary that the employer treats itself as operating qualified separate lines of business under section 414(r) of the Code.

SEC. 2. BACKGROUND

.01 Section 414(r) of the Code provides rules for determining whether an employer operates qualified separate lines of business for purposes of applying Code sections 410(b) (relating to minimum coverage), 401(a)(26) (relating to minimum participation rules), and 129(d)(8) (relating to dependent care assistance programs). If an employer is treated as operating qualified separate lines of business under section 4l4(r) of the Code, the employer will be permitted to apply the aforementioned Code provisions separately with respect to the employees in each qualified separate line of business.

.02 On December 4, 1991, final regulations under section 414(r) of the Code were published in the Federal Register, 56 Fed. Reg. 63420 (1991). On September 7, 1993, proposed amendments to the final regulations under section 414(r) of the Code were published in the Federal Register, 58 Fed. Reg. 47090 (1993). The rules in 1.4l4(r)-1 of the regulations provide the exclusive rules for determining whether an employer is treated as operating qualified separate lines of business.

.03 Section 1.414(r)-1 of the regulations provides that an employer will be treated as operating qualified separate lines of business only if: (1) the employer designates its lines of business by reference to the property or services provided by each line; (2) each line of business is organized and operated separately from the remainder of the employer and is therefore a separate line of business; and (3) each of these separate lines of business meets additional statutory requirements of section 414(r)(2) (including administrative scrutiny) and thus constitutes a qualified separate line of business.

.04 Section 414(r)(2) requires that (A) a line of business have at least 50 employees who are not excluded under section 414(q)(8) of the Code, (B) the employer notify the Secretary of the Treasury that the employer intends to treat the line of business as separate, and (C) such line of business satisfy the administrative scrutiny guidelines prescribed by that section.

.05 A separate line of business can automatically meet the requirements of section 414(r)(2)(C) of the Code (relating to the administrative scrutiny requirement) if it meets either the statutory safe harbor of section 414(r)(3)(A) or one of the regulatory safe harbors in section 1.414(r)-5. A separate line of business that does not satisfy any of these safe harbors may nonetheless satisfy the administrative scrutiny requirement if the employer requests and receives a determination from the Service, under a program implemented pursuant to section 1.414(r)-6 of the regulations, that the separate line of business satisfies such requirements.

.06 The Public Debt Limit Increase Act, Pub. L. 101-40, section 204(b)(1), provides that in the case of any plan year beginning on or before the date the Secretary issues guidelines and begins issuing determination letters under section 414(r)(2)(C) of the Code, an employer shall be treated as operating separate lines of business if the employer reasonably determines that it meets the requirements of Code section 414(r) (other than section 414(r)(2)(C)).

.07 Notice 90-57 provides that for plan sponsors that wish to apply the separate line of business rules under section 414(r) of the Code, notification of the Secretary, as required by Code section 414(r)(2)(B), is not required until further guidance is issued.

.08 Rev. Proc. 93-41, this Bulletin, provides the procedures for an employer to request and receive an administrative scrutiny determination from the Service as to whether a separate line of business that does not satisfy the statutory safe harbor of section 414(r)(3)(A) of the Code or one of the regulatory safe harbors in section 1.414(r)-5(c) through (g) of the regulations may be treated as satisfying the administrative scrutiny requirement.

.09 Rev. Proc. 93-39, this Bulletin, provides guidance pertaining to the submission of determination letter requests involving plans that are relying on the separate line of business rules under section 414(r) of the Code to satisfy the minimum coverage requirements and minimum participation requirements.

SEC. 3. PROCEDURES FOR NOTICE

.01 This section provides the exclusive rules for satisfying the notice requirement of section 414(r)(2)(B) of the Code.

.02 The employer must file notice that it elects to be treated as operating qualified separate lines of business with the Key District Director for the district in which the principal place of business of the employer (within the meaning of Code sections 414(b), (c), and (m)) is located. If the employer's principal place of business is not located within the United States, notice should be filed with the District Director of the Baltimore Key District Office.

.03 Notice that the employer wishes to be treated as operating qualified separate lines of business must be given by filing Form 5310-A, Notice of Merger, Consolidation or Transfer of Plan Assets or Liabilities. A revised Form 5310-A will be available early in 1994. Until the revised Form 5310-A is available, employers should print "QSLOB NOTICE" in bold letters on the top of the Form 5310-A and should submit an attachment with the form that contains the information described in section 3.04 below.

.04 The schedule attached to each Form 5310-A must provide the following information: (1) the identification of each qualified separate line of business operated by the employer, (2) the identification of each plan maintained by the employer, (3) the qualified separate lines of business that have employees benefiting under each such plan, and (4) the section or sections of the Code for which the employer is testing on a qualified separate line of business basis (i.e., section 410(b) or section 401(a)(26)).

.05 Notice for a testing year must be given on or before the Notification Date for the testing year. The Notification Date for a testing year is the later of October 15 of the year following the testing year or the 15th day of the tenth month after the close of the plan year of the plan of the employer that begins earliest in the testing year.

.06 Notice given by an employer applies to all plans maintained by the employer for plan years beginning in the testing year. Once the Notification Date for a testing year has passed, the employer is deemed to have irrevocably elected to apply the specified section or sections of the Code on the basis of the qualified separate lines of business specified in the notice for all plan years beginning in the testing year. In addition, after the Notification Date, notice cannot be modified, withdrawn or revoked, and will be treated as applying to subsequent testing years unless the employer takes timely action to provide new notice. Timely action will be deemed to have been taken for a subsequent testing year if the employer provides new notice any time prior to the Notification Date for that subsequent testing year.

SEC. 4. EFFECT ON OTHER DOCUMENTS

Notice 90-57 is superseded.

SEC. 5. EFFECTIVE DATE

This revenue procedure is effective October 12, 1993; however, notice is not required to be provided for plan years beginning before January 1, 1994.

DRAFTING INFORMATION

The principal author of this revenue procedure is Joyce Kahn of the Employee Plans Technical and Actuarial Division. For further information regarding this revenue procedure, you may contact Ms. Kahn by calling (202) 622-6214, or you may contact the Employee Plans Technical and Actuarial Division's taxpayer assistance telephone service between the hours of l:30 p.m. and 4:00 p.m. Eastern Time, Monday through Thursday by calling (202) 622-6074/6075. (These telephone numbers are not toll-free numbers.)